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Johnson v. City of Minneapolis

August 22, 2002

HARRY JOHNSON, RESPONDENT (C7-01-1676), MARGOT SIEGEL, ET AL., RESPONDENTS (C4-01-1683),
v.
THE CITY OF MINNEAPOLIS, ET AL., APPELLANTS.



Hennepin County District Court File Nos. 94-17968 & 94-17966

Considered and decided by Klaphake Presiding Judge, Willis Judge, and Hanson Judge.

SYLLABUS BY THE COURT

No taking occurs under either Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 124, The opinion of the court was delivered by: Willis, Judge

Affirmed in part and reversed in part

OPINION

On appeal after remand in this takings dispute, appellants City of Minneapolis and Minneapolis Community Development Agency argue that the district court erred by finding a taking of property even though appellants did not control respondent property owners' use of their property. Appellants also contend that the district court erred by excluding from evidence a related United States Eighth Circuit Court of Appeals decision and by allowing respondents to offer hearsay testimony regarding their damages. Because we find that appellants' actions do not amount to a taking of respondents' property, we reverse the district court's award of damages, interest, attorney fees, and costs. But we affirm the district court's evidentiary rulings because we find no prejudice in the exclusion of the related federal decision, and we decline to address appellants' hearsay argument because it is inadequately briefed.

FACTS

We previously addressed this case in Siegel v. Minneapolis Cmty. Dev. Agency, No. C0-95-1637, 1996 WL 229242 (Minn. App. May 7, 1996), review denied (Minn. July 10, 1996), and its companion decision, 614 Co. v. Minneapolis Cmty. Dev. Agency, 547 N.W.2d 400 (Minn. App. 1996). At that time, respondents Harry Johnson and Margot Siegel, et al. (collectively "respondents"), challenged, in part, the district court's dismissal of their takings claim against appellants City of Minneapolis and Minneapolis Community Development Agency (MCDA) (collectively "appellants"). We reversed and remanded, concluding that respondents' allegations were sufficient to survive a motion to dismiss on the pleadings. Siegel, 1996 WL 229242, at *3-4. Respondents subsequently prevailed on the merits, and this appeal follows.

This case arises from appellants' efforts, beginning in 1983, to redevelop the south Nicollet Mall (the development district). Appellants' primary objectives were to promote the growth of the newly expanded convention center, to preserve downtown Minneapolis as a major retail center, to provide a commercial link between the development district and the convention center, to encourage more intensive development of the surrounding area, and to increase the area's tax base. After two years in which no developers showed interest in the project, in 1985 appellants began negotiating development rights with La Societe Generale Immobiliere (LSGI), a French corporation.

Appellant City of Minneapolis soon thereafter established Tax Increment Financing District Number 63 within the development district and adopted a tax-increment financing plan for the district. Minneapolis Mayor Donald M. Fraser created the "Committee on the Future of the Nicollet Mall" to assist in the planning, and the Minneapolis City Council approved the essential terms and conditions of a redevelopment agreement with LSGI (the development contract). The City Council overrode Mayor Fraser's veto of the agreement, and appellant MCDA and LSGI executed the development contract on November 3, 1986.

The development contract called for appellant MCDA to acquire several properties in the development district by exercise of its eminent-domain powers and to then lease those properties to LSGI for the construction of a shopping mall and office tower. The targeted area stretched from 9th Street to 11th Street and from Marquette Avenue to LaSalle Avenue, and it included the Arcade, Essex, 1009 Nicollet, 81 South 10th Street, 87 South 10th Street, and Handicraft buildings owned by respondent Siegel, et al., as well as the Physicians and Surgeons Building owned by respondent Johnson. The development contract contained a series of mutually escalating obligations that required LSGI to secure anchor tenants for the project before appellant MCDA was required to acquire the targeted properties and lease them to LSGI. The agreement also gave appellant MCDA the right to approval of the proposed project design plans and gave appellant City of Minneapolis the right to approval of the final project design. It also required LSGI to submit progress reports to appellants and, in turn, appellants agreed to keep all information contained in the progress reports confidential.

In December 1986, several of appellants' advisory committees began expressing reservations about LSGI's proposed "dome and tunnel" design. In October 1987, LSGI told appellants that it had secured a letter of commitment from Nordstrom's for a lease in the shopping mall and a letter of interest from Neiman Marcus to do the same. Appellants and LSGI temporarily resolved their design differences by closing the development contract with the stipulation that LSGI would develop a new design to keep the mall's open, urban-street atmosphere. This "post-closing agreement" required appellant MCDA, after the project's design had been approved, to acquire the properties in the targeted area and execute a 99-year lease with LSGI for those properties. Shortly after closing the development contract, Mayor Fraser contacted Nordstrom's and Neiman Marcus in an apparent attempt to discourage their participation in the project. Indeed, several city council members testified at trial that the mayor's actions hampered LSGI's ability to secure anchor tenants for the project.

Several weeks after the execution of the post-closing agreement, appellants sent letters to all potentially affected property owners, including respondents, telling them that appellants had decided to go forward with LSGI's proposal. The letter stated that appraisers would be contacting the property owners to conduct appraisals of their properties, which "would be acquired if the proposed development takes place." But the letters also stated: "You should understand that by appraising the property the City is not making a definite commitment to acquire the same."

As LSGI continued negotiations with Neiman Marcus, appellant City of Minneapolis contacted that company about participating in a different development project at the north end of the Nicollet Mall. After appellant MCDA rejected several LSGI design proposals, appellants issued a public notice of default in January 1988 based on LSGI's failure to secure anchor tenants. Appellants and LSGI continued to negotiate over the design of the proposed mall, and in March 1988, LSGI presented a new design proposal, which appellant MCDA approved one month later. Mayor Fraser vetoed appellant MCDA's approval, but appellant MCDA overrode the veto. Appellant City of Minneapolis then told LSGI that, for the project to move forward, the proposed plan would need to be altered to garner sufficient support on the City Council, which had final design approval. The parties continued to negotiate over design and other contract issues, but appellants ultimately terminated all negotiations with LSGI on June 1, 1989. Respondents contacted appellants several times over the course of the LSGI negotiations, seeking information regarding the progress of the project, but appellants gave them no clear response and never told them that appellants would not be pursing acquisition of respondents' properties.

In June 1989, LSGI sued appellants in federal district court for breach of contract. La Societe Generale Immobiliere v. Minneapolis Cmty. Dev. Agency, 827 F. Supp. 1431, 1438 (D. Minn. 1993). LSGI initially won a court-reduced award of $17,280,000, but the Eighth Circuit reversed the award in December 1994, concluding that appellants did not breach the contract because they had the right to final design approval. La Societe Generale Immobiliere v. Minneapolis Cmty. Dev. Agency, 44 F.3d 629, 636-38 (8th Cir. 1994).

Respondents filed this suit in November 1994, alleging an unjust taking under both the United States and Minnesota constitutions. Before appellants began pursing the redevelopment project, respondents' properties had low vacancy rates and were profitable. Appellants' appraisers placed the following values on respondents' properties: $3,085,000 for the Arcade; $2,400,000 for the Essex; $5,133,000 for all of 1009 Nicollet, 81-87 South 10th Street, and the Handicraft; and $4,000,000 for the Physicians and Surgeons Building. Respondents received little clarifying information from appellants during the redevelopment process, and they were therefore unable to answer their tenants' questions regarding the future of the buildings or give them any assurances in that regard. As a result, some tenants left and respondents had difficulty replacing them, resulting in a decline in respondents' rental income. Total rents for the properties increased 8.3% from 1984 to 1985, but decreased 4.9% in 1986, 10.2% in 1987, 14.0% in 1988, 3.3% in 1989, 22.5% in 1990, 22.5% in 1991, and 2.8% in 1992. Total rents then increased by 10.8% in 1993, 0.1% in 1994, and 9.9% in 1995. In 1997, the Arcade sold for $2,750,000, and the next year the Essex sold for $1,100,000. At trial, appellants offered several alternative explanations for the tenants' relocation and the decreased property values, including an increased amount of rental space available in the surrounding area and the deterioration of respondents' properties.

As already noted, the district court granted appellants' motion to dismiss on the pleadings, finding that respondents' substantial losses did not amount to a taking. Siegel, 1996 WL 229242, at *2. On appeal, the issue before this court was whether respondents' pleadings, which alleged a taking of all economically viable uses for their properties, but not a total loss of all value, sufficiently alleged a taking. Id.; see 614 Co., 547 N.W.2d at 406-07. Despite "ample doubts about [respondents'] ability to prove its cause of action," this court reversed, finding that

[d]ismissal of [respondents'] claims on the pleadings requires an unduly constricted view of the holding of Lucas [v. S. C. Coastal Council, 505 U.S. 1003, 1015, 112 S. Ct. 2886, 2893 (1992)]. Although the pleadings state no claim of total worthlessness, the pleadings permit proof that [appellants'] actions left appellants without economically viable rental and development uses for their property and, therefore, that [respondents] have a right to recovery under the Takings Clause. Siegel, 1996 WL 229242, at *4, *2.

On remand, the district court concluded that the record did not present a categorical taking as contemplated by Lucas. Instead, the district court found appellants liable for unjustly taking respondents' properties under both the federal standard in Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 124, 98 S. Ct. 2646, 2659 (1978), and the Minnesota standard in Orfield v. Hous. & Redev. Auth. of the City of St. Paul, 305 Minn. 336, 232 N.W.2d 923 (1975), and its progeny. In an exceptionally thorough order and memorandum, the district court found that appellants violated the standard set out in Penn Central by (1) uniquely burdening respondents by impairing their existing and prospective uses of the property for an unreasonable period of time, (2) causing a substantial and adverse economic impact on the properties, and (3) interfering with respondents' investment-backed expectations by disturbing their longstanding and existing uses of the properties. The court also found that appellants violated the Orfield standard by abusing their eminent-domain powers and by acting in bad faith. Specifically, the court found that

[t]he City abused its power of eminent domain because (1) the City and LSGI entered into a contract that invoked its eminent domain power, a power otherwise unavailable to a private party; (2) the City reserved the right to abandon its contract partner at the last minute; (3) the City agreed to and did keep material information from the property owners; (4) the City agreed to specific performance as a remedy for breach of contract; (5) the City reversed course at closing; (6) the City, despite reversing course, sold the bonds to acquire the property and sent appraisers to the targeted property to begin the acquisition process; (7) the City ...


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