Guest Post: Carlos Kelly on What Does The Florida Supreme Court's Ruling in System Components Corp. v. Florida Department of Transportation Mean?

In July 2009, the Florida Supreme Court issued an opinion in System Components Corp. v. Florida Dep't of Transportation, No. SC08-1507, which resolved 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." We summarized the opinion here.

Florida eminent domain attorney Carlos A. Kelly authors today's post, an article about the meaning of the case.

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What Does The Florida Supreme Court's Ruling in System Components Corp. v. Florida Department of Transportation Mean?

Introduction

In System Components Corp. v. Florida Department of Transportation, 14 So.3d 967, 971 (Fla. 2009), the Florida Supreme Court determined whether an award of business damages under §73.071 (3)(b), Florida Statutes (2004), in an eminent domain action may take into consideration only the actual damages sustained by the affected business when the business relocates after a partial taking. In a lengthy opinion, the Florida Supreme Court concluded that" if an affected business chooses to relocate, its business damages must be determined in light of its continued existence at its new location." Id. Systems Components is an important case because it changes how business owners must think when confronted by a right-of-way condemnation that could take some part of their land and damage their business. The route to this decision, in the words of The Beatles, was a "long and winding road."[1]

The Trial

At trial, the only issue involved was the proper measure of business damages in light of the relocation of the System Components facility and the continued existence and operation of the business at a new location. Id. at 973. The dispute at trial "centered on the significance of the statutory command that the land/business owner receive 'the probable damages to such business which the denial of the use of the property so taken may reasonably cause.'" System Components, 14 So.3d at 980. (citation omitted). System Components contended it was entitled to the total take value of its business as though the business had ceased to exist on the date of taking. Id. By making this argument, System Components wanted the court to overlook the fact that the business had actually relocated. Id.

The jury returned a verdict determining that the total value of the System Components business, as derived from an income-based approach, was $2,394,964.00. Id. at 974. The verdict determined that the business damages, in light of the relocation and continued existence of System Components, totaled $1,347,911.00. Id.  After the trial court deducted the good-faith registry deposit of $348,300.00 from the business damages award of $1,347,911.00,[2] the balance of business damages awarded to System Components totaled $999,611.00. Id.

The Appeal to the Fifth District

System Components then sought review by the Fifth District Court of Appeal. On appeal, the Fifth District affirmed the trial court's award of business damages. Id. at 975. The Fifth District, however, certified a conflict with the Fourth District Court of Appeal's decision in Florida Department of Transportation v. Tire Centers, LLC, 895 So.2d 1110 (Fla. 4th DCA 2005). System Components, 14 So.3d at 975. In Tire Centers, the appellate court had found "that the trial court did not err by excluding consideration of mitigated business damages made by wayan off-site cure." System Components, 14 So.3d at 973 (citing Tire Centers) (emphasis supplied). In other words, the Fifth District in System Components and the Fourth District in Tire Centers reached opposite conclusions.

The Florida Supreme Court

The Florida Supreme Court agreed with the Fifth District Court of Appeal's affirmance of the trial court's decision in the System Components litigation and rejected the Fourth District Court of Appeal's reasoning in the Tire Centers decision. Id. at 985. The Florida Supreme Court focused on the fact that System Components had relocated its business and never ceased operations. See generally id. As a result, the Florida Supreme Court seemed to suggest that the jury had simply calculated business damages based on what System Components had actually sustained in damages. Id. at 981. According to the Florida Supreme Court, to do otherwise would have provided System Components with a windfall because it would have received damages for a loss of business, when the business had actually continued, albeit at a different location. Cf. id. at 975-976 (approving the Fifth District's opinion in System Components as "well reasoned").

The Florida Supreme Court concluded its opinion stating that:

When a qualified partial taking destroys a business at its prior location, and the land/business owner chooses to relocate, the resulting business damages must be measured by the probable financial impact reasonably suffered as a result of the taking. Therefore, these business damages must be determined in light of the true economic realities of the given case, which, here, involved a relocated business's continued existence at its new location.

System Components, 14 So.3d at 985.

Analysis

The legal rule announced by the Florida Supreme Court in System Components makes sense. If damages have not been suffered, and will not be suffered, then they should not be awarded. This is consistent with rules regarding the award of damages, generally. See 17 Florida Jurisprudence 2d, Damages §7 (2004) (plaintiff not entitled to recover compensatory damages in excess of an amount representing the loss actually caused by defendant's wrongful act).

The System Components decision should help practitioners and litigants because it clarifies an area of the law regarding business damages. Also, the System Components decision provides a comprehensive overview of damages and, in particular, business damages, in an eminent domain case. There is, however, at least one aspect of the case that is difficult to understand. Specifically, it is unclear why the business damages were reduced by the entire good-faith deposit amount. According to the Florida Supreme Court, the trial court's reason for the deduction was "to avoid the award of duplicative damages." Systems Components, 14 So.3d at 974.

The trial court's rationale was misplaced, however, in respect to a significant portion of the $348,300.00 good-faith deposit. Section 73.071 (3) (b), Florida Statutes, allows for an award of business damages, but business damages may not include compensation for property taken by the condemning authority. Instead, it is section 73.071 (3) (a), Florida Statutes, that implements the Florida Constitution's requirement of compensation for property taken by the condemning authority. In this case, the compensation for the property taken would be $88,300.00 for the value of the land taken by the condemnation and $109,400.00 for the value of the appurtenances and improvements taken by the condemnation.

The good-faith deposit of $348,300.00 included taking damages (i.e., compensation for property taken by the condemning authority, such as land and structures), severance damages, and demolition costs. System Components, 14 So.3d at 972. Only the severance damages ($130,900.00) and demolition costs ($19,700.00) could have overlapped with the $1,347,911.00 of business damages awarded by the jury because taking damages are not included within the statutory scheme authorizing business damages. See §§73.071 (3)(a), (b), Fla. Stats. (2009). As a result, it seems that the trial court improperly reduced System Components' business damages by $88,300.00 for the land taken and $109,400.00 for the improvements taken. It appears that, in total, the trial court incorrectly subtracted $197,700.00 from the business damages award. For whatever reason it appears that, System Components chose not to challenge this reduction. Perhaps System Components made the tactical decision to avoid litigating this issue on appeal so that the Fifth District could not "split the baby." In other words, perhaps System Components wanted to give the appellate court the choice to either deny all relief or award the full relief that System Components sought on appeal, rather than giving the appellate court the option of awarding the "middle ground" relief of correcting the $197,700.00 reduction.

This decision highlights the need for businesses, faced with right-of-way condemnation, to consult counsel in order to consider the impact of a relocation on a potential business damages award. Legal and business considerations must both be carefully weighed in order to take account of the new legal landscape.

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Footnotes

[1]. "The Long and Winding Road" originally appeared on the album "Let it Be" and became The Beatles' last number one song in the United States on May 23, 1970, at http://en.wikipedia.org/wiki/The_Long_and_Winding_Road (Oct. 12,2009).

[2]. The $348,300.00 registry deposit was comprised of:

• $88,300.00 for the value of the condemned land;
• $109,400.00 for the appurtenances and improvements;
• $130,900.00 for severance damages; and
• $19,700.00 to demolish a portion of the building left standing on the remainder.

System Components, 14 So.3d at 972. The deposit was deducted from the business damages figure in order "to avoid the award of duplicative damages." Id. at 974 (citation omitted).