Eminent Domain Abuse and Attorney Fee Recovery

Eminent Domain Abuse and Attorney Fee Recovery

There’s been some debate online recently about legitimate uses of eminent domain and I’d like to make a few comments with regards to this.  Since Kelo, many states have scrambled to pass post Kelo reform measures that help curb eminent domain abuse.  Some states, like Florida, were very successful at passing meaningful measures which protect property rights.  Other states, like New York, have failed to pass any legislation at all.  Most states, like Texas, fall in the middle by passing reforms that look good on paper but do little to level the playing field between property owners and the government.

Marc Scribner recently wrote an article, ‘Eminent Domain, Rick Perry and Trans Texas Corridor’ where he discusses legitimate uses of eminent domain and also discusses what Texas could have done to improve their most recent 2011 watered-down eminent domain reform legislation:

“During the debate over the Senate’s draft, I argued that relatively small tweaks could go a long way in preventing spurious condemnations…..defining “just compensation” as assessed market value times a number greater than 1 (Michigan, for instance, requires that homeowners be compensated at no less than 125 percent of fair market value) would have alleviated a lot of my concerns. But legislators and Gov. Perry opposed such amendments and they were not included in the final bill.”

He makes some very valid points, and I’d like to take it one step further.  Most property owners and non legal professionals overlook one of the most important eminent domain reform measures possible: awarding attorneys’ fees against the condemnor when a property owner successfully pursues a just compensation claim.

While the eminent domain abuse dialogue often centers on policy issues involving the right to take (economic development or blight), the most blatant abuse occurs when the condemning authority makes “low ball” offers. This scenario invariably requires the property owner to hire an attorney to achieve just compensation. Even a property owner who successfully pursues such a claim is not entirely happy when part of that just compensation (often one third) has to be paid to the attorney.

This problem is particularly acute for property owners with “small claims”. These are claims where just compensation may be significantly more than the offer (100% or more), but the dollar amount is relatively small (e.g. $50,000 versus $25,000 offer). An owner can only afford to hire an attorney in this situation on a contingent fee basis, but many attorneys won’t take such a case or will only argue to go so far as negotiating a settlement. They will never commit to conducting a trial. The condemning authority knows this and has little incentive to move off the “low ball” offer. The motivation to negotiate honestly, and even avoid low ball offers to begin with, increases significantly if the condemning authority can be liable for the attorney’s fees incurred by the property owner.

Currently, there are only 17 states around the country with attorney fee recovery provisions included in their eminent domain statutes. Yet some of those (e.g. Michigan and Florida) don’t help small claimants because attorney fee reimbursement is limited to a contingent fee. Others (e.g. Indiana) limit to dollar amount of the reimbursement to a level that would never contemplate a case going to trial.

We believe Wisconsin provides the best example for attorney’s fees and cost reimbursement to successful property owner claimants. According to that state’s statute, fees and costs are reimbursed if the ultimate award exceeds the offer by 15% or more. In its recognition toward small claimants, the statute directs reimbursement where the extra award is only $700 or more (provided the 15% threshold is also satisfied).

In applying this statute, Wisconsin courts have utilized rules of liberal construction in favor of the property owner. They have awarded fees based upon both hourly and contingent rates. We can attest to the power of this statute. We represented an owner who received an additional $25,000 over an offer of about the same amount (about a 100% increase). The case involved four court appearances including a trial. The condemning authority ultimately paid approximately $120,000 in attorney’s fees for the owner in addition to the extra damage award.

Even when takings do satisfy the public use requirement, abuse often occurs with “low ball” offers. Allowing property owners (both large and small claimants) to recover attorney’s fees and costs is the only way to curb this abuse. Hopefully more states will follow Wisconsin.

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