Missouri Court Of Appeals: Good Faith Negotiation Statute Requires Appraisal Using "Generally Accepted Appraisal Practices"

After Kelo v. City of New London, 545 U.S. 469 (2005), many state and local governments adopted measures designed to limit exercises of the power of eminent domain. Some jurisdictions went for substantive limits. For example, Nebraska adopted a statute prohibiting takings that are "primarily" for economic development. Other jurisdictions took the procedural route, and adopted procedural limits on the exercise of the eminent domain power.

Missouri is one of the latter jurisdictions. It adopted Missouri Rev. Stat. § 532.256 which requires a condemor to engage in "good faith negotiations" before filing an eminent domain action:

Before a court may enter an order of condemnation, the court shall find that the condemning authority engaged in good faith negotiations prior to filing the condemnation petition. A condemning authority shall be deemed to have engaged in good faith negotiations if:

(1) It has properly and timely given all notices to owners required by this chapter;

(2) Its offer under section 523.253 was no lower than the amount reflected in an appraisal performed by a state-licensed or state-certified appraiser for the condemning authority, provided an appraisal is given to the owner pursuant to subsection 2 of section 523.253 or, in other cases, the offer is no lower than the amount provided in the basis for its determination of the value of the property as provided to the owner under subsection 2 of section 523.253;

(3) The owner has been given an opportunity to obtain his or her own appraisal from a state-licensed or state-certified appraiser of his or her choice; and

(4) Where applicable, it has considered an alternate location suggested by the owner under section 523.265.

If the court does not find that good faith negotiations have occurred, the court shall dismiss the condemnation petition, without prejudice, and shall order the condemning authority to reimburse the owner for his or her actual reasonable attorneys' fees and costs incurred with respect to the condemnation proceeding which has been dismissed.

In Planned Industrial Expansion Authority of Kansas City v. Ivanhoe Neighborhood Council, No. WD70655 (Apr. 27, 2010), the Missouri Court of Appeals (Western District) held that pursuant to subsection (2) (which incorporates by reference section 523.253), a court must invalidate a taking if the condemnor hasn't made a good faith offer. A "good faith offer" means that it must be supported by an appraisal by a state licensed or certified appraiser, "using generally accepted appraisal practices." The issue in the case wa whether the Expansion Authority's appraisal was valid under these standards.

The trial court determined "the appraisal fell short of a good faith appraisal" because it did not find the appraiser's testimony credible. Slip op. at 11. On appeal, the Expansion Authority argued that sections 532-256 and 532-253 did not give the trial court the power to question the credibility of the appraiser, but that it must accept the appraiser's direct testimony that he used a generally accepted appraisal practice. The court of appeals rejected the argument:

The Expansion Authority argues that the 2006 amendments to chapter 523 do not affect a condemning authority's requirement to negotiate in good faith. We disagree. The legislature enacted the 2006 amendments to chapter 523 in response to Kelo v. City of New London, 545 U.S. 469 (2005), which held that it did not violate the United States Constitution when private property was taken and given to another private entity for public development purposes even when the property was not located in a blighted area. Dale A. Whitman, Eminent Domain Reform in Missouri: A Legislative Memoir, 71 Mo. L. Rev. 721, 723 (Summer 2006). Thus, the legislature‟s aim was to strengthen the rights of landowners in eminent domain actions. Id. The precise language at issue here—the requirement that any appraisal be conducted using generally accepted appraisal practices—was inserted "to prevent condemnors from providing the landowner with slipshod or incompetent appraisals." Id. at 749.

Thus, section 523.253 gave landowners the added protections that an appraisal (or an explanation with supporting financial data) be included in the condemning party's good faith offer and that any appraisal be made using generally accepted appraisal practices.

Slip op. at 12-13 (footnote omitted). In short, a trial court is not required to take an appraiser's claim that his method is generally accepted at "face value." Slip op. at 15.

While the court held that the post-Kelo amendments permit a trial court to measure the credibility of an appraiser to determine whether she used generally accepted appraisal practices, "[w]e stress that section 523.253 does not contemplate a full determination of the fair market value of the subject property at the initial hearing." Slip op. at 14. It looks like the court is contemplating a procedure similar to the typical voir dire examination of expert witnesses to determine they are qualified.

Finally, the court awarded attorneys' fees, holding that the term "owner" in section 532.256 includes the owner and holder of a note secured by a deed of trust upon the property because the note is "property" subject to condemnation. Slip op. at 15-16. The court also awarded attorneys' fees incurred in the appeal, and remanded the case to the trial court for a determination of the award.