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Johnson v. City of Minneapolis

August 14, 2003

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



SYLLABUS BY THE COURT

The facts of this case present a unique situation in which the condemning authority so abused its condemnation power during a redevelopment project that the owners of affected property are entitled to compensation under Minn. Const. art. I, § 13.

Reversed.

The opinion of the court was delivered by: Anderson, Russell A., Justice.

Took No Part, Page and Hanson, JJ.

Heard, considered, and decided by the court en banc.

OPINION

Appellants commenced an inverse condemnation action*fn1 against respondents, the City of Minneapolis and its development agency, the Minneapolis Community Development Agency (hereinafter referred to collectively as "the City"), seeking compensation for the diminishment in rents and value of their properties caused by a "cloud of condemnation" over their properties for many years while respondents pursued redevelopment of the property and later defended litigation brought by the developer. Following trial with an advisory jury, the district court concluded that respondents' conduct constituted a compensable taking of appellants' properties and awarded appellants damages. The court of appeals reversed, finding no compensable taking under the United States Constitution because respondents did not exercise "significant control" over the appellants' properties during the period for which compensation was sought. We conclude that the district court's extensive findings are not clearly erroneous and that the unique facts of this case require compensation under the Minnesota Constitution. We reverse.

In December 1983, the City adopted a redevelopment plan for three and one-half blocks in the southern part of Nicollet Mall in downtown Minneapolis as part of an effort to promote urban development around the Minneapolis Convention Center and increase the downtown Minneapolis tax base. The development district—from 9th Street to 11th Street and from Marquette Avenue to LaSalle Avenue—included commercial retail and office properties owned by appellants. In 1985, over the objection of the Mayor of Minneapolis, the City granted exclusive negotiating rights for the development of a retail project on south Nicollet Mall to La Societe Generale Immobiliere (LSGI), a French development corporation. The City then established a tax increment financing district within the development district and adopted a tax increment financing plan.

Over the mayor's veto, the City approved a development contract, executed on November 3, 1986, between LSGI and the City. The contract imposed mutually escalating obligations on both parties, requiring LSGI to secure anchor tenants for the project before the City was obligated to acquire the targeted properties by eminent domain. In addition, the development contract required LSGI to submit periodic progress reports to the City, which the City was required to keep confidential. The City also had the right to approve proposed project design plans and reserved the right to approve the final project design.

LSGI proposed a dome-and-tunnel design for Nicollet Mall, in which Nicollet Mall would be converted to a pedestrian-only street with a dome overhead and a tunnel underneath for automobile traffic. LSGI obtained preliminary letters of commitment from two potential anchor tenants, Nordstroms and Neiman Marcus. The City, however, did not approve of the dome-and-tunnel design. On November 3, 1987, the development contract's closing date, the City and LSGI entered into a post-closing agreement allowing LSGI to continue negotiating with anchor tenants while creating a second design plan that would maintain Nicollet Mall as an open urban street with no enclosure and at-grade transportation. The post-closing agreement required the City to deliver to LSGI a 99-year lease for all of the properties in the development district, which would be delivered at the time the City acquired the properties needed for the development project, and provided that "[e]ach of the parties hereto agrees to use their best efforts" to cooperate with each other.

On November 5 and November 16, 1987, less than two weeks after the post-closing agreement was signed, the mayor wrote letters to Nordstroms and Neiman Marcus regarding the LSGI development project. According to the district court, these letters, written while the confidentiality provision in the development contract was in place, suggested that LSGI had not been honest with the prospective anchor tenants and were intended "to discourage participation of the prospective anchor tenants in the project." Although LSGI continued to discuss with Neiman Marcus the possibility of having a store in its development project, the district court found that the letters had a detrimental effect on LSGI's ability to secure the prospective anchor tenants.

Less than a month after the mayor wrote to the prospective anchor tenants in an attempt to persuade them not to commit to the LSGI project, the City sent a letter to appellants and other owners of property that would be taken for the LSGI project. The letter informed them that the City had decided to "go forward" with the LSGI project, and, as an "initial step" in the process, the City would appraise their properties "which would be acquired if the development takes place." The letter, dated November 23, 1987, also noted "You should understand that by appraising the property the City is not making a definite commitment to acquire the same. Nor does it establish your eligibility for any relocation benefits or assistance you may be entitled to receive if your property is acquired." The City never informed appellants that there was a possibility that their properties would not be taken between the time this letter was sent and the commencement of LSGI's suit against the City, even after negotiations between the City and LSGI irreconcilably broke down, despite the fact that appellants made repeated calls and sent letters to city officials and staff questioning the status of the LSGI project and the acquisition of their properties.*fn2 The district court found that the November 23, 1987 letters and the subsequent events led appellants to reasonably believe that the LSGI project was going forward and, by indicating that the properties were to be appraised, that the properties would be taken.

On December 3, 1987, LSGI presented a second project design to the City, which the mayor vetoed. In January 1988, the City issued a public notice of default by LSGI based on LSGI's failure to secure anchor tenants for the project. LSGI submitted a third design proposal on March 17, 1988. The City approved the design and later overrode the mayor's veto of the project. However, the City later informed LSGI that in order to obtain sufficient support for the project, several changes would have to be made. These changes required LSGI to substantially modify the existing design plan. During this negotiation period between the City and LSGI, appellants continued to experience severe difficulty in retaining current tenants and attracting new tenants because of the possibility that their properties would be condemned.

On May 17, 1989, the City terminated all negotiations with LSGI and, shortly thereafter, the City recommended the transfer of $29 million from funds allocated for the LSGI project to a project on north Nicollet Mall that would include a Neiman Marcus store. On June 1, 1989, the City terminated the development contract and post-closing agreement with LSGI. The City did not inform ...


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