Rep. Shackleford has introduced HB 1117 which provides for an award of business damages to lessors in eminent domain cases. If I had to guess, this is a reaction to the case of City of Kokomo v. Estate of Audra Newton. The bill defines a “business owner” as someone who owns and operates a business that was established at least five years prior to the eminent domain action. (It does not necessarily require that the business be in operation at the location that is the subject of the action for that long prior.) It requires the governmental entity exercising the power of eminent domain to notify the business owner. It then gives the business owner six months to submit a claim for business damages along with supporting documentation for the claim. Within four months after that, the person exercising eminent domain has to respond or else the counter-offer will be deemed to be $0. In the condemnation proceedings, the business owner is entitled to prospective and consequential damages sustained as a result of the condemnation. The legislation also expands attorney’s fees. Current law says that if the judgment awarded is better than the last offer by the government, the property owner can get attorney’s fees of up to $25,000. The proposed legislation would mandate a percentage of the benefit received be added as attorney’s fees (e.g. 33% of benefits up to $250,000) plus a discretionary (I think) kicker of additional fees on top of that under traditional fee shifting rules.
In the Newton case, the real estate was owned by Audra Newton who passed away. Her son inherited the property. For many years the parcel (“Main Street parcel”) was used by Kokomo Glass along with an adjacent parcel not being taken by the city (“Union Street parcel”). In December 2016, the City of Kokomo filed a condemnation complaint. The appraisers came back with a $100,000 valuation for portion of the Main Street parcel and $43,000 in damages to the residue (in other words, damage to the property owner for property not taken but not as valuable because of the loss of the portion that was taken). The City deposited the $143,000 with the court and received an order from the court entitling it to take possession. Kokomo Glass was no longer able to operate in that location. The Estate filed an objection to that amount, claiming it wasn’t enough. The City increased its offer to $160,000 before trial, but the Estate still declined and the matter went to a jury. The jury awarded $100,000 for the Main Street parcel and $205,600 for damages to the Union Street parcel. The court also entered judgment for the maximum $25,000 in attorney fees. On appeal:
The City contends that the Estate presented no evidence at trial that it had sustained any damages in excess of the $100,000 in damages for the taking of the Main Street parcel. The City points out that each element of additional damages alleged at trial were damages to Kokomo Glass, which is not only a separate entity from the Estate but is not an owner of either parcel. The City maintains that the only damages it owes to the Estate is $100,000, which is the fair market value of the Main Street parcel. We must agree.
Kokomo Glass was an S Corporation owned by the son who paid rent to the mother and then, after her passing, to the Estate. It was never made part of the litigation. The Court of Appeals observed in a footnote that “The holder of an unexpired leasehold interest in land is entitled to just compensation under the Fifth Amendment, for the value of that interest when the land is taken by eminent domain. Tenants are thus entitled to compensation for an unexpired term of a lease terminated by condemnation.” If I had to guess — and this is only a guess — Kokomo Glass’s leasehold interest was probably fairly short. Year-to-year or month-to-month or something. So, while the glass company would want to argue that, basically, the government should be responsible for disruption to the business for years in the future; the government would be arguing that the company only had a remaining lease term of a few months or whatever — they aren’t required to pay for a speculative renewal of the lease. The “business damages” referenced in HB 1117 arguably go beyond the value of the unexpired portion of a lease.
My objection to this is of a general nature where I feel like it’s an attempt to maximize corporate rights while allowing people to continue using the corporate form to minimize liabilities. If the government is taking the real estate, the business is getting more extensive rights to the real estate that the government has to pay for. But, if a creditor was going after the business for unpaid debts, you can rest assured that the creditor can’t get at the underlying real estate. Totally separate entities. The business only has a few months left on its current lease, you see. Not worth very much at all!