Florida Supreme Court: Property Owner's Off-Site Mitigation Taken Into Account In Calculating Business Damages From A Partial Take

In System Components Corp. v. Florida Dep't of Transportation, No. SC08-1507 (July 9, 2009), the Florida Supreme Court resolved a conflict in the lower Florida courts regarding the application of business damages in a condemnation case under Florida Statutes § 73.071(3)(b). The court held that a business is not required to relocate as the result of a partial taking, but if it chooses to do so, only the actual damages suffered by the business are compensable, and "its business damages must be determined in light of its continued existence at its new location." Slip op. at 3.

The Florida appeals courts were split on the issue. In State Dep't of Transportation v. Tire Centers, LLC, 895 So. 2d 1110 (Fla. 4th DCA 2005), the Fourth District court awarded business damages as if the business had ceased to exist on the date of the taking, reasoning that the business owner had no duty to relocate, but in System Components Corp. v. Dep't of Transportation, 985 So. 2d 687 (Fla. 5th DCA 2008), the Fifth District court of appeals did not agree.

The System Components case involved a partial taking of property for road widening. The property owner operated its business on the site from a 5000 square foot building. The taking cut the building in half, and reduced the parcel from 1.8 acres to .64 acres. The remaining land was unusable due to setback requirements which precluded rebuilding, and of nominal value. Consequently, the property owner moved its business to another site.

The property owner filed a motion in limine to exclude evidence of the fact that it relocated and continued to operate in a new location. Citing Tire Centers, it asserted that "it was entitled to the 'total-take' value of its business as though it had ceased to exist on the date of taking." Slip op. at 7. The owner argued that condemnation actions "are solely concerned with the land taken and the resulting damages to the condemnee," and its mitigation measures did not relieve the condemnor for the wipeout of its business. Id.

The Supreme Court first noted that business damages are a matter of "legislative grace" and are not required by the state or federal constitutions, and the court was thus limited to the language of the statute. Slip op. at 13-15. In section 73.071, the legislature provided for damages in right-of-way partial takings:

(3)  The jury shall determine solely the amount of compensation to be paid, which compensation shall include:

. . .

(b)  Where less than the entire property is sought to be appropriated, any damages to the remainder caused by the taking, including, when the action is by the Department of Transportation, county, municipality, board, district or other public body for the condemnation of a right-of-way, and the effect of the taking of the property involved may damage or destroy an established business of more than 4 years' standing before January 1, 2005, or the effect of the taking of the property involved may damage or destroy an established business of more than 5 years' standing on or after January 1, 2005, owned by the party whose lands are being so taken, located upon adjoining lands owned or held by such party, the probable damages to such business which the denial of the use of the property so taken may reasonably cause; any person claiming the right to recover such special damages shall set forth in his or her written defenses the nature and extent of such damages;

Florida Statutes § 73.071(3)(b) (emphasis added). The court held that to compensate the property owner under this section for goodwill damages when the business chooses to relocate and as a result does not suffer any loss of goodwill would result in a "windfall" --

In this case, the jury awarded System Components business damages for (a) loss of value due to an altered capital structure (i.e., increased debt), (b) moving expenses and rent, (c) costs associated with obtaining a replacement property, (d) costs associated with constructing a replacement facility, and (e) down-time productivity losses, and the trial court subsequently deducted the amount of FDOT‘s good-faith deposit to avoid double recovery. System Components did not lose any goodwill and its witnesses could not identify any specific loss of sales. The company did not cease to exist on the date of taking. Consequently, System Components received the "probable" business damages "reasonably" suffered as a result of the taking.

Slip op. at 25-26.

The court held the statute does not impose a duty to relocate, id. at 31-32, but that if a business owner chooses to do so as the result of a partial right-of-way taking, the statute only requires compensation for those damages actually suffered.

Note: the opinion cited a Florida Bar Journal article we noted back in May 2009, Eminent Domain: Identifying Issues in Damages for the General Practitioner, by Carlos A. Kelly.