The holding of the Indiana Court of Appeals in City of Kokomo v. Estate of Newton, No. 19A-PL-1321 (Dec. 18, 2019) is deceptively simple: if a party does not own a formal interest in the property being taken, evidence of the damages which it incurred as a result of the condemnation isn't relevant to the calculation of just compensation.
That's workable as a black-letter rule, we suppose. But what about the very common situation where, due to circumstances, someone with an obvious stake in property being taken had not formalized that interest prior to the condemnation?
That appears to have been the situation in Newton, where the two condemned properties had been owned by real-party-in-interest (Bradley Newton)'s mother at the time of her death. The properties were used by a company she also owned, Kokomo Glass. When she died, her son Wesley became the owner of the two parcels and the sole shareholder of the glass shop business, responsible for its day-to-day operations. But apparently, Mr. Newton didn't execute a lease for the glass shop's use of the parcels (even though it paid rent), or otherwise formalize the relationship between himself as the landowner, and himself as the shareholder of the corporate business. In our experience, this is somewhat common, especially with family property and businesses which transfer due to death.
Thus, when the city filed its condemnation lawsuit, it sued only the owner of the land, the estate of Ms. Wesley, and did not include Kokomo Glass, even though the glass shop "which had operated its business on both parcels, was unable to continue operations." Slip op. at 3. The business moved to a different property.
At trial, the Estate introduced evidence of the glass shop's relocation expenses and loss of profits caused by the taking. (The court had earlier denied the city's motion in limine to keep that evidence from the jury.) The jury's compensation award to the Estate included amounts which Kokomo Glass incurred.
The court of appeals agreed with the city that evidence of Kokomo Glass's damages was not relevant to the amount of just compensation owed to the Estate as the landowner: "the fundamental purpose of our statutory eminent domain scheme is to ensure landowners are given just compensation when their property is taken." Slip op. at 5. Kokomo Glass was not a "landowner," and thus had no standing to claim compensation.
The court rejected the Estate's arguments that the trial court properly admitted the glass shop evidence, because "the Newtons" should be considered the landowners. You can see where this argument came from. No doubt the Newton family considered both the land and the business "theirs," despite the lack of legal formalities to confirm that. Mr. Newton was the person rep of the Estate. He inherited fee simple title to both parcels. He also inherited Kokomo Glass, an S corporation, as the sole shareholder. He testified that the glass company paid rent for its use of the parcels to his mother, and after she died to the Estate, and then later to him. As the family lawyer noted, "but the owner of the glass company owns the property. I mean, it's all intertwined." Slip op.at 7.
We're guessing that if the family were drawing a Venn diagram about the relationship between the family, the land, and the glass company, it might look something like this:
The court of appeals, however, didn't buy it. The Estate and the glass shop are separate legal entities, despite the 100% concert of actual interests. Thus, if the city or the court of appeals were making a Venn, it would likely look like this:
The court rejected arguments that Mr. Newton was the real party in interest, the "true owner" of both the land and the business:
The record is clear that the only evidence of damages presented at trial, other than the agreed-upon $100,000 for the Main Street parcel, were damages allegedly incurred by Kokomo Glass. The Estate’s attempt to conflate Kokomo Glass with the Estate or with Bradley is not well taken. They are not “one and the same” as the Estate argued at trial. While Bradley is both the sole shareholder of Kokomo Glass and the personal representative of the Estate, only the Estate is a party to this matter, and it is a separate entity from Kokomo Glass. The Estate did not present any evidence that it had incurred damages related to the Union Street parcel, which was the sole issue before the jury.
Slip op. at 10.
So the lessons we are taking from this case (assuming the Estate doesn't run it further up the food chain and seek review by the Indiana Supreme Court) are twofold.
First, it is best to formalize these common informal relationships.
Second, but we also recognize that this often isn't possible (except with 20/20 hindsight) and there may be reasons why someone doesn't want to do them -- sentimentality, lassitude, inertia, or taxes, for example -- especially where death of a loved one is involved. So we're also thinking that Kokomo Glass might have tried to intervene as a party-defendant to assert its interest in the property. The opinion did mention the paying of rent; that indicates there was some kind of lease between the glass business and the landowner, no? We're not sure if intervention would have altered the result, but at least it seems like it would be worth a try. See slip op. at 10 n.6 (the court declined to decide "what damages, if any" the glass company would have been entitled to recover had it been added as a party).
City of Kokomo v. Estate of Newton, No. 19A-PL-1321 (Ind. App. Dec. 18, 2019)
