Inverse Condemnation Can be a Powerful Property Owner Remedy For Damage or Destruction of Property Value by Governmental or Utility Company Actions

Inverse condemnation can be thought of as condemnation in reverse.  In a condemnation proceeding, the acquiring authority exercises its power of eminent domain by first offering to purchase private property needed for a public purpose; if no meeting of the minds can be reached with the property owner, then the acquiring authority has the power to take the property through condemnation proceedings in court that determine the “just compensation” to be paid to the property owner for the private property rights that were taken.

Inverse condemnation, on the other hand, is a remedy available to property owners whose property was taken, destroyed or damaged by an acquiring authority, but the authority has failed or refused to acknowledge that its actions caused a compensable loss to the property owner.  In such a circumstance, the property owner has the right to go to court to seek an order forcing the authority to compensate the property owner for what was lost or damaged. 

Inverse condemnation actions have been recognized in a wide variety of circumstances.  For instance, California courts recognize that both public and private utilities can be held liable in inverse condemnation actions by property owners for destruction or damage to their properties caused by wildfires where improperly maintained utility company equipment was at fault.

The Michigan Court of Appeals recently ruled that property owners who were subjected to contaminated water in Flint, Michigan had an inverse condemnation claim for damages to their properties caused by the purposeful decisions of state officials to substitute Flint’s safe water supply with water from the contaminated Flint River.  The Michigan Court of Appeals recognized that the following factors compelled the conclusion that the property owners could sue for damages under the theory of inverse condemnation:

• The state officials specifically decided to send water they knew or had reason to know was unsafe through the pipelines and into plaintiffs’ homes and businesses.

• The property owners had detailed the specific actions and inactions of state officials that resulted in contaminated water flowing into their homes and businesses.

• The property owners alleged that the actions of the state officials amounted to a de facto taking of private property without just compensation.

• The property owners alleged that they sustained property damage, including irreparably damaged service line pipes, loss of use and enjoyment of their property and substantial loss of value to their properties.

The Michigan Court of Appeals concluded that, “Looking at the form, intensity, and the deliberateness of the government actions in the aggregate … plaintiffs properly plead a claim of inverse condemnation ….”

Minnesota bestows upon property owners the right to sue in inverse condemnation by statute.  Minn. Stat. § 117.045 (“Compelling Acquisition in Certain Cases”).  Under the inverse condemnation statute, any authority that has the power of eminent domain and that has taken some action resulting in private property being taken, destroyed or damaged without recognizing that impact, may be sued in inverse condemnation.  The purpose of the lawsuit is to ask the court to order the authority to commence condemnation proceedings to determine the amount of just compensation that must be paid to the property owner for the damage inflicted on the owner’s property.  The statute also provides that if the action is successful, then the property owner is entitled to petition the court for reimbursement of reasonable costs and expenses, including attorney, appraisal and engineering fees, incurred by the owner in bringing the action.

Minnesota courts have recognized claims for inverse condemnation in a variety of circumstances, including the following:

• A city was liable in inverse condemnation to a property owner as a result of flooding from a storm sewer.

• A city was liable to a property owner for failure to obtain a water drainage easement for water that the city diverted through a lift station.

• An airport commission could be held liable for damage to properties caused by airport noise if the owners could show diminution in value to their properties.

• Another airport commission was held liable for diminution in the value of property adjacent to an airport that was caused by the commission’s expansion of a runway safety zone, which limited development of the private property.

Another example of the use of inverse condemnation in Minnesota includes loss of access claims by highway-oriented businesses.  The Minnesota Department of Transportation (“MnDOT”) continuously strives to improve the safety and efficiency of highway travel by upgrading state roadways.  One way MnDOT does this is by eliminating direct highway access points and replacing them with less frequently-occurring grade-separated interchanges.  Closing a highway access point can be the death-knell for a business that depends on its customers having easy and convenient access to the business from the highway.  If MnDOT fails to recognize that the access closure has diminished the value of an abutting owner’s property, then the property owner very likely has an action for damages in the form of just compensation under the theory of inverse condemnation.  This has happened to a number of property owners along Highway 52 between the Twin Cities and Rochester.  Driveway closures by MnDOT along this highway without compensating the abutting property owners have resulted in numerous inverse condemnation settlements and awards.

Gary Van Cleve is Chair of Larkin Hoffman’s Real Estate Litigation Practice Group.  He has successfully represented numerous property owners on inverse condemnation claims—some of them along Highway 52.