Henderson, James M., II

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Volume 73Issue 3 Numbers 3-4 Article 17September 1971Eminent Domain--De Facto TakingJames M. Henderson IIWest Virginia University College of LawFollow this and additional works at: https://researchrepository.wvu.edu/wvlrPart of the Property Law and Real Estate CommonsThis Case Comment is brought to you for free and open access by the WVU College of Law at The Research Repository @ WVU. It has been acceptedfor inclusion in West Virginia Law Review by an authorized editor of The Research Repository @ WVU. For more information, please contactian.harmon@mail.wvu.edu.Recommended CitationJames M. Henderson II, Eminent Domain--De Facto Taking, 73 W. Va. L. Rev. (1971).Available at: https://researchrepository.wvu.edu/wvlr/vol73/iss3/17WEST VIRGINIA LAW REVIEWof religion so that it could avoid the first amenment question ofwhether Congress can constitutionally exempt consciousious ob-jectors from military service."sRobert R. Fredeking, 119 It must be pointed out that there is a constitutional question involvedin the conscientious objection cases. Section 6 () of the Universal MilitaryTraining and Service Act does not exempt nonreligious conscientious objectors;consequently it could be argued that it discriminates between different formsof religious expression in violation of the first amendment's establishment andfree exercise clauses and the due process clause of the fifth amendment. SeeLaurie, Conscientious Objection-Some Constitutional Questions, 73 W. VA. L.REV. 138 (1971).Emient Domain-De Facto TakingDefendant was notified that its property was in an area to becondemned for urban renewal. The proposed condemnation wasinitiated in 1954 but postponed until 1967, at which time defen-dant's property was formally condemned under the authority of aprovision of the New York General Municipal Law, which author-izes a city to condemn property for urban renewal projects. Duringthe interim the project was highly publicized; as a result, proper-ty in the area came into disrepair causing property values to de-crease appreciably. Defendant was ordered to move from its pro-perty, which it did in April, 1963. By the time defendant moved itsproperty had become unsalable and unrentable, but defendant con-tinued to maintain it, pay taxes and carry insurance on it. The trialcourt held the city's actions constituted a de facto taking of defen-dan's property at the time defendant vacated it in 1963, and thatdefendant should be reimbursed for its expenses in maintaining theproperty until acquired by plaintiff in 1967. Held modified and af-firmed. The condemning authority's actions so interferred withthe defendant's use and ownership of the property that the essen-tial elements of ownership were destroyed and a de facto takingoccurred even though there was no physical invasion or legal'N.Y. GEaN. MuN. LAw § 555 (McKinney Supp. 1970) amending N.Y. GEiN.MuN. LAW § 555 (McKinney 1965) provides:Real property or any interest therein. . .. necessary for or inci-dental to any urban xenewal program or part thereof in accordancewith an urban renewal plan may be acquired by an agency by gift,grant, devise, purchase, condemnation or otherwise and by a munici-pality for and on behalf of an agency by condemnation. Property maybe acquired by condemnation by an agency or by a municipality for anagency pursuant to the condemnation law or pursauant to the lawsrelating to the condemnation of land by the municipality for whichthe agency is acting or the municipality, as the case may be.[Vol. 731Henderson: Eminent Domain--De Facto TakingPublished by The Research Repository @ WVU, 1971CASE COMMENTSrestrain on the property. City of Buffalo v. J. W. Clement Co., 34App. Div. 2d 24, 311 N.Y.S.2d 98 (1970).As a general rule, a taking occurs when a party with the powerof eminent domain enters land with the intention to appropri-ate it. When there has been no physical invasion of the property,a taking occurs when title passes to the condemnor. 2 However, ataking may occur when governmental action is so complete as todeprive the owner of the indicia of ownership, use, and enjoy-ment of the property.3 The Clement Court had to determinewhether a de facto taking had occurred in the absence of a physicalinvasion of the property or a direct legal restraint upon its use.The court first considered what constitutes a taking in aconstitutional sense.4 The court referred to the cases of UnitedStates v. General Motors Corp.5 and Forster v. Scott.y The lattercase held that a taking occurs when governmental action "deprivesthe owner of the beneficial use and free enjoyment of his property,or imposes restraints upon such use and enjoyment that materiallyaffect its value, without legal process or compensation, it depriveshim of his property within the meaning of the constitution.."TIn this type of case the court in Clement said that a distinctionmust be made between those cases which allow the condemnee toestablish damages using the value of his property before depressionby the threat of the impending condemnation and those cases inwhich the condemnor's actions constitute a de facto taking prior toformal condemnation. While the court noted this distinction, it isdifficult to apply it to earlier New York cases finding a de factotaking. In City of Buffalo v. Strozzis a de facto taking was foundwhen the city adopted a resolution to condemn property under anurban renewal plan, but had not commenced formal condemnationproceedings. No mention was made as to whether the de facto tak-ing actually constituted a taking for which compensation wouldthen be due or was merely the point at which reference would be2 Department of Pub. Works v. Wolf, 414 Ill. 886, 111 N. E.2d 322 (1953);In re Northern Pipe Line Co., 182 Pa. Super. 406, 1 A.2d 526 (1988).3 United States v. General Motors Corp., 323 U.S. 373 (1945); SouthernCounties Gas Co. v. United States, 157 F. Supp. 934 (Ct. C1. 1958).4 N.Y. CONsr. art. I, § 7 provides: "Private property shall not be taken forpublic use without just compensation." Both the W. VA. CoNsr. art. III, § 9and the fifth amendment of the Unied States Constitution are virtually thesame.5 325 U.S. 373 (1945).6 136 N.Y. 577, 32 N.E. 976 (1893).7Id. at 584, 32 N.E. at 977.s 54 Misc. 2d 1031, 283 N.Y.S.2d 919 (Sup. Ct. 1967).197112West Virginia Law Review, Vol. 73, Iss. 3 [1971], Art. 17https://researchrepository.wvu.edu/wvlr/vol73/iss3/17WEST VIRGINIA LAW REVIEWmade to ascertain damages when the property was formally taken.It appears the court had the latter meaning in mind as it allowedno extra compensation to reimburse the owner for his expensesfrom the time of the so-called de facto taking, as was done in Cle-ment.9In In re 572 Warren Street o the condemning authority servednotice of an intent to condemn and also sent letters to tenants ad-vising them to move from the building. By the time of the formalcondemnation the building had very little value, having beenpractically destroyed by vandals after the tenants moved out. Thecourt held that damages were to be computed at the time of thecondemnor's act when the building was fully rented and that ade facto taking occurred at that time. Although the Court's lan-guage was vague, it did award interest on the amount determinedfrom the time of the de facto taking. It may have considered thecondemnor's acts to constitute a taking rather than a mere pointof time at which to estimate compensation.In the post-Clement case of New York State Electric & GasCorp. v. Meredith," the court again held that a de facto taking oc-curred prior to the legal taking. This holding is distinguishablefrom Clement in that the condemnor in Meredith actually tookand used the property prior to formal condemnation. The courtsaid when the condemnor's actions are such that a de facto takingoccurs the rights of the parties are fixed at that time; and the pass-age of title in a subsequent condemnation proceding merely marksthe time at which payment is due.The dissent in Clement relied upon Niagara Frontier BuildingCorp. v. State12 and Cicci v. State'8 in finding that there were noacts which would constitute a de facto taking. In Niagara the courtheld that there was no de facto taking and further that there couldbe no recovery for the mere manifestation of an intention to con-9 See In re Town of Hempstead, 58 Misc. 2d 134, 294 N.Y.S.2d 809 (Sup. Ct.1968). The court did not specify any action of the condemning authority whichconstituted a de facto taking; nor did it discuss any reasons to justify such ataking.10 58 Misc. 2d 1073, 298 N.Y.S.2d 429 (Sup. Ct. 1968).31 63 Misc. 2d 819, 313 N.Y.S.2d 216 (Sup. Ct. 1970). Plaintiff condemnorsought to amend the judgment of a condemnation proceeding to give the defen-dant a less restrictive easement, which would have allowed the condemnor's entryon the property. Plaintiff alleged that title to the property did not pass until afinal judgment is entered in condemnation proceedings; therefore, if the judg-ment were amended title to the property would be in defendant. The courtheld that title had passed earlier because of plaintiff's physical invasion andsubsequent use of the property.S83 App. Div. 2d 130, 305 N.Y.S.2d 549 (1969).13 31 App. Div. 2d 733, 297 N.Y.S.2d 291 (1968).[Vol. 733Henderson: Eminent Domain--De Facto TakingPublished by The Research Repository @ WVU, 1971CASE COMMENTSdemn or for a threat to condemn. The condemnor's only action inthat case was the issuance of a letter expressing an intention to con-demn. The letter had been sent to one of the tenants in the con-demnee's building and was subsequently shown to the condemnee,who ordered all tenants to vacate the building and closed it. Noother acts were committed by the state; therefore there was node facto taking. However, in determining compensation at theformal condemnation proceedings, the court held the value of theproperty less the debilitating effect of the threat of condemna-tion was the proper measure of damages. In Cicci the appellatedivision overruled a trial court finding of de facto taking and heldthat there could be no taking absent entry on the property or anouster of possession. The only action prior to condemnation wasthe revocation of a driveway permit. The dissent in Clement alsorelied upon City of Buffalo v. George Irish Paper Co.," contend-ing that there was no de facto taking. The majority in Clementproperly placed that case among those allowing compensation to bemeasured in light of the value-depressing acts of the condemnor.Other jurisdictions have recognized a de facto taking caused byaction of a condemning authority which deprives a property own-er of the use and enjoyment of his property. The much cited caseof In re Elmwood Park'1 recognized a de facto taking caused bythe threat of condemnation. The Michigan court said, "[A] citymay not by deliberate acts reduce the value of private propertyand thereby deprive the owner of just compensation."'' 1 The courtheld that the city's reduction of general services in the area to becondemned did not constitute a de facto taking but that certainother acts17 would have that effect. Another case reaching the sameresult is Foster v. City of Detroit's which held the condemnor'sactions, "which substantially contributed to and accelerated thedecline in value of plaintiffs' property constituted a 'taking' ofplaintiffs' property within the meaning of the Fifth Amendment,for which compensation must be paid."' 9 These decisions were fol-14 26 N.Y.2d 869, 309 N.Y.S2d 606, 258 N.E.2d 100 (1970) aff'g 31 App. Div.470, 299 N.Y.S.2d 8 (1969).15 376 Mich. 311, 186 N.W.2d 896 (1965).28 Id. at 317, 136 N.W.2d at 900.17 Id. The acts mentioned by the court were the sending of letters to ten-ants advising them of the impending condemnation, the filing of lis pendens,intense building code inspections and issuance of citations for violations, andthe refusal to permit a long established business to continue in a building be-cause it was to be condemned.18 254 F. Supp. 655 (E.D. Mich. 1966) affd 405 F.2d. 138 (6th Cir. 1968).'Did. at 665-66.1971]4West Virginia Law Review, Vol. 73, Iss. 3 [1971], Art. 17https://researchrepository.wvu.edu/wvlr/vol73/iss3/17WEST VIRGINIA LAW REVIEWlowed in Madison Realty Co. v. City of Detroit.20 In Elmwood Park,Foster, and Madison Realty Co., the courts allowed the propertyowner extra compensation for maintaining the property from thetime of de facto taking to the time of legal taking, which wouldimply that title, in effect, passed at the time of the de facto tak-ing and all that remained was the payment of just compensation.Past decisions by the West Virginia Supreme Court of Ap-peals on this subject are contrary to Clement. West Virginia hasa statutory provision which provides that taking under eminentdomain proceedings is complete when the condemnor pays theassessed compensation into court.2' The leading West Virginia caseon the point is Buchannon & N. R.R. v. Great Scott Coal & CokeCo. 2 The court in that case construed a section of the Code of1913, idential to the present section, and said, "[T]he date of theactual taking of the land is the date when, after the report of thecommissioners ... or after verdict, if a jury is demanded, the moneyis actually paid to the owner, or into court. Until then the appli-cant is not permitted to put a foot on the ground." 23 The courtalso held compensation for property taken by eminent domain isdetermined as of the date of the taking. These rules have beenfollowed by the court on numerous occasions.24Of course, a direct invasion of private property by a condemn-ing authority without payment is a taking.25 "Property is taken,within the constitutional meaning, where it is materially impairedby something more than mere consequential injury, and whichimpairment renders it impossible for the owner to enjoy his pro-perty to the full extent to which he is entitled."26 The court wentfurther in Fruth v. Board of Affairs,- noting that an act by the20 315 F. Supp. 367 (E.D. Mich. 1970).21 W. VA. CODE ch. 54, art. 2, § 12 (Michie 1966) provides:[A]t any time within three months after the report, or the ver-dict of the jury . . . has been confirmed and ordered to berecorded, the sum so ascertained with legal interest thereonfrom the date of the report or verdict until payment, may bepaid by the applicant into court; upon such payment, title tothe property, or interest or right therein, so paid for shall beabsolutely vested in the applicant....75 W. VA. 423, 83 S.E. 1031 (1914).23 Id. at 431, 83 S.E. at 1034.24E.g., State Road Comm'n v. Darrah, 151 W. Va. 509, 153 S.E.2d 408(1967); State Road Comm'n v. Ferguson, 148 W. Va. 742, 137 S.E.2d 206 (1964);State ex rel. Wells v. City of Dunbar, 142 W. Va. 332, 95 S.E.2d 457 (1956);Cresapeake & 0. Ry. v. Johnson, 137 W. Va. 19, 69 S.E.2d 393 (1952); StroudsC. & M. R. R. v. Herold, 131 W. Va. 45, 45 S.E.2d 513 (1947).25 65 W. Va. 739, 65 S.E. 196 (1909).2 Id. at 743, 65 S.E. at 198.27 75 W. Va. 456, 460-61, 84 S.E. 105, 108 (1915).[Vol. 735Henderson: Eminent Domain--De Facto TakingPublished by The Research Repository @ WVU, 1971CASE COMMENTSstate or a municipality which "substantially interferes" with theowner's use and ownership of his property is a taking of such pro-perty without compensation and is prohibited by the West Virginiaconstitution.The New York court in Clement noted that, in general courtshave been reluctant to find a problem of a de facto taking. Thecourt reasoned that this is probably because the problem has notoften arisen. Today's widespread urban renewal projects andmodern highway construction promise more and more de factotaking cases. At present the problem is not of great magnitude inWest Virginia, though it may increase in the future. The WestVirginia court might well look to Clement in fashioning a modemrule to provide appropriate relief to prevent serious injustice insituations involving the wholesale appropriation of property byeminent domain.James M. Henderson, 11Income Tax-Stock Redemption:"Essentially Equivalent To A Dividend"In 1945 taxpayer and E. B. Bradley organized a corporation.In exchange for property contributions, Bradley received five hun-dred shares of common stock and taxpayer and his wife each receiv-ed two hundred fifty shares. Taxpayer later purchased an addi-tional one thousand shares of preferred stock at a par value oftwenty-five dollars per share in order for the company to qualifyfor a federal loan, the corporation agreeing to redeem the pre-ferred stock when the loan had been repaid. Before the redemption,taxpayer bought Bradley's five hundred shares and divided thembetween his son and daughter. Then in 1963, when the corpora-tion redeemed the preferred stock, taxpayer, in his personal incometax return, did not report the twenty-five thousand dollars receivedby him as income. "Rather, taxpayer considered the redemptionas a sale of his preferred stock to the company-a capital gain trans-action under section 802 of the Internal Revenue Code resulting inno tax since taxpayer's basis in the stock equaled the amount hereceived for it."', The Commissioner disagreed with this and took'United States v. Davis, 90 S. Ct. 1041, 1043 (1970). INT. Rrv. CODE OF1954, § 302 provides that a redemption of stock by a corporation shall he treat-ed as a distribution in part or full payment in exchange for the stock thus1971]6West Virginia Law Review, Vol. 73, Iss. 3 [1971], Art. 17https://researchrepository.wvu.edu/wvlr/vol73/iss3/17

Eminent Domain--De Facto Taking

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Eminent Domain--De Facto Taking

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