Reichs Ford Road Joint Venture v. State Roads Commission of the State Highway Administration

HARRELL, J. We issued a writ of certiorari in this case to determine whether an award, in settlement of a formal eminent domain proceeding, of “fair market value,” as defined in Md.Code (1974, 2003 Repl.Vol.), § 12-105 of the Real Property Article, contemplates the inclusion of lost rents, carrying costs, and ⁵⁰⁴ other damages incurred as a result of the condemnor’s precondemnation conduct. Concluding that such damages are indeed compensable under that statute, we hold that, when a condemnor’s pre-condemnation conduct results ultimately in formal condemnation proceedings, all damages resulting from that conduct ordinarily would be included in the award of “fair market value” relating to the condemnation award. On the record of this case, however, a justification may exist to permit the former property owner to pursue the alleged pre-condemnation damages in a separate action. In order to resolve whether that is appropriate, fact-finding may be required.

A remand to consider that, therefore, is appropriate. I. This case involves 33,000 square feet of commercially zoned land, previously owned by Reichs Ford Road Joint Venture (“Reichs Ford”), a Maryland general partnership, located along Urbana Pike in Frederick County, Maryland. Prior to the formal exercise of eminent domain in 2001 by the State Roads Commission of the State Highway Administration of the Maryland Department of Transportation (“SHA” or “Administration”), the land was improved with a gasoline service station. In the summer of 1987, the SHA, pursuant to powers vested in it under § 40B of Article III of the Maryland Constitution, 1 issued a general public announcement pertaining to a newly proposed interchange at Routes 85/355, near the subject property, in Frederick County.

In October of that year, Griffith Consumers (“Griffith”) entered into a ten-year lease agreement with Reichs Ford to operate a gas station on the property. ⁵⁰⁵ In a letter dated 20 December 1988, the SHA informed Reichs Ford that it had scheduled construction for the new interchange and that the project would affect substantially the subject property. The letter also stated that an appraiser was selected to appraise the subject property and that the SHA would make a purchase offer within six months. Although the SHA commissioned a number of ensuing appraisals, for which Reichs Ford made available its lease agreement and the monthly rental receipts during the lease tern, the Administration made no offers to purchase the subject property. Seven years later, in August of 1995, Reichs Ford received another letter from the SHA advising that yet another appraiser had been selected to appraise the subject property, after which an offer of just compensation would be made.

In February of 1996, the SHA offered to purchase the subject property for $950,000. A negotiated sale did not result from this offer. Between 1996 and 1997, the SHA met with Griffith, the lessee of the subject property, to inform it of the intended condemnation and its entitlement to relocation assistance. The SHA also drafted a lease termination agreement for Griffith to execute and deliver to Reichs Ford.

Upon the expiration of the initial lease term in 1997, Griffith elected not to exercise its option to extend the lease term with Reichs Ford, apparently due to the looming specter of condemnation. Griffith, however, did hold over temporarily on a month-to-month basis at a reduced rent, eventually vacating the property on 30 June 1998. Thereafter, Reichs Ford claims that it was unable to lease the property as a gas station or for any other economically viable use due to the SHA’s plans. Between 1998 and 2000, Reichs Ford requested informally, on several occasions, that the SHA formally exercise its eminent domain powers or abandon the proposed taking of the subject property.

During this period, Reichs Ford continued regularly to update the SHA regarding the alleged damages being incurred as a result of the Administration’s indecision. ⁵⁰⁶ Nevertheless, the SHA did not take any meaningful steps toward the institution of formal condemnation proceedings. Frustrated with the SHA’s inaction, Reichs Ford filed a complaint in the Circuit Court for Frederick County on 31 January 2000, claiming damages based on a theory of inverse condemnation. 2 Reichs Ford claimed that, by placing its property “under the cloud of imminent condemnation” for such a lengthy period of time, the SHA rendered the property economically unusable and thus was liable for damages that accrued as a result of the unwarranted delay. Reichs Ford’s complaint sought damages incurred from the time Griffith failed to exercise its option to extend the lease and the filing of the complaint. The damages included, among other things, lost rents, property taxes, and carrying costs. 3 On 8 March 2001, the State instituted condemnation proceedings in the Circuit Court for Frederick County to acquire the subject property and the improvements thereon.

Sometime thereafter, Reichs Ford and the SHA initiated settlement ⁵⁰⁷ negotiations regarding all pending claims related to the subject property. Reichs Ford proposed two alternatives. First, it proposed to settle both the SHA’s eminent domain action and the pending inverse condemnation suit for the total sum of $1,525,000. Alternatively, Reichs Ford proposed to settle only the eminent domain claim for $1,325,000, on the condition that it could continue to prosecute the inverse condemnation claim.

The SHA, by letter of its counsel dated 19 June 2001, chose the second option and the parties executed an Agreed Inquisition in the eminent domain action calling for $1,325,000 in damages. This agreement was filed with the Circuit Court on 22 June 2001, resolving effectively the condemnation claim. The parties continued to litigate the inverse condemnation action. After the parties engaged in discovery, the SHA filed a motion in limine on 30 January 2003.

The motion argued that the damages Reichs Ford was seeking, described in the body of the brief motion as “lost rental income, real property taxes, mortgage interest, etc.,” were “not allowed in a condemnation case” and asked the court for the following relief: A. That the Court enter an order barring plaintiff from introducing evidence at trial pertaining to lost rental income, real property taxes, etc.; and B. For such other and further relief as the nature of the case may require. The Circuit Court held a hearing on the motion in limine on 3 March 2003, during which the trial judge made the following observation: Basically what is before the court now is defendant’s motion in limine, which I think, although it’s not framed as a motion to dismiss, if 1 grant the motion in limine, I believe, ... it is, in effect, dismissing plaintiff’s claim because the only element of damages alleged in this case are the lost profits and those items which are subject to [the SHA’s] motion in limine. The court continued, reasoning that basically this is an in rem action and the measure of damages is the value of property taken. I don’t find any ⁵⁰⁸ authority that the Court finds compelling to authorize a suit in these circumstances where the measure of damages is loss of rental income in the in rem proceeding.

Therefore, I am going to grant [SHA’s] motion in limine as to any evidence as to lost profits and lost rental income for the period of time at issue in this case, which is prior to the actual condemnation being taken. So in effect, it is a legal motion to dismiss, and quite honestly, let the Court of Special Appeals tell us how we’re supposed to proceed in these circumstances because this Court is just not clear, and I’m erring on the side of viewing the statute being the value of the land taken. On 16 April 2003, the Circuit Court entered an order granting SHA’s motion in limine and dismissing the case. Reiehs Ford noted a timely appeal to the Court of Special Appeals.

On 19 October 2004, in an unreported opinion, the Court of Special Appeals affirmed the judgment of the Circuit Court, holding that the proper vehicle for Reiehs Ford to have proven and recovered the damages sought in the inverse condemnation suit was the settled action for condemnation. The intermediate appellate court found that, although the damages claimed by Reiehs Ford may be recoverable in some instances, “[cjlearly, the General Assembly intended for any diminution in value of property caused by the pre-condemnation activities of the condemnor be considered in computing fair market value” in the SHA’s eminent domain action. The Court of Special Appeals noted also that, although the General Assembly has provided for recovery beyond the fair market value in certain specified circumstances, none of these circumstances was present in Reiehs Ford’s claim. Reiehs Ford petitioned this Court for a writ of certiorari, which we granted, 385 Md. 162 , 867 A.2d 1062 (2005), in order to consider the following question: Did the Circuit Court err in precluding Reiehs Ford from introducing evidence of lost rental income, real property taxes, etc. resulting from the SHA’s activities prior to its exercise of the power of eminent domain? ⁵⁰⁹ II.

A. The Circuit Court granted the SHA’s motion in limine, treating it as a motion to dismiss for failure to state a cause of action. Md. Rule 2-322. The question before us thus becomes whether the Circuit Court erred in dismissing Reichs Ford’s inverse condemnation complaint based on the court’s determination to exclude certain evidence. We review the grant of a motion to dismiss de novo.

Adamson v. Corr. Med. Servs., 359 Md. 238, 246 , 753 A.2d 501, 505 (2000) (citations omitted). We examine whether the complaint, assuming all well-pleaded facts and reasonable inferences drawn therefrom in a light most favorable to the pleader, states a legally sufficient cause of action.

Id. at 246 , 753 A.2d at 505 . Dismissal is proper only if the complaint would fail to provide the plaintiff with a judicial remedy. Bobo v. State, 346 Md. 706, 709 , 697 A.2d 1371, 1373 (1997). In the present case, the Circuit Court concluded that, once Reichs Ford was precluded from presenting the implicated evidence of damages, dismissal of its claim was proper.

In order to determine whether dismissal was proper in this case, we therefore must first examine whether granting the motion in limine was proper. B. The motion in limine, which the Circuit Court granted without elaboration, qualification or limitation, sought to exclude “damages for lost rental income, real property taxes, etc.” (emphasis added) 4 for the time period prior to the filing by the SHA of the eminent domain action. The motion in limine in this case is not a model of precision or clarity. A written motion must state its premises and relief sought with particularity.

Md. Rule 2-311 (emphasis added). Because the motion in limine here used the vague term “etc.” to ⁵¹⁰ describe its request for potentially unlimited broad relief, how is a court to know the full extent of the assumed evidence it is being asked to exclude, or what the proper legal grounds for such a sweeping exclusion may be? The granting of the motion in limine in such wholesale fashion, without question, elaboration, qualification or limitation, leaves this Court with the untenable task of guessing, to some degree, at the full scope of the evidence intended to be excluded. C. Even were we to overlook the relative vagueness of the request in the motion in limine, we conclude that granting the motion was legally incorrect.

The SHA argued in its motion that types or categories of evidence it foresaw might be offered by Reichs Ford should be barred from consideration because, according to the SHA, “such damages are not admissible in a condemnation case.” The Circuit Court agreed, stating that it did not “find any authority that the Court finds compelling to authorize a suit in these circumstances where the measure of damages is loss of rental income in the in rem proceeding.” In order to determine whether Reichs Ford may recover lost rents and other related damages in an inverse condemnation suit versus a traditional condemnation claim, we first must examine how, and under what authorities, a condemnee may be compensated when property is taken as a result of the exercise of eminent domain. Both the United States and Maryland Constitutions prohibit the sovereign from taking private property for public use without just compensation. U.S. Const. amend. V; Md. Const. art. 3, § 40.

The measure of damages in a condemnation proceeding at common law in Maryland was the value of the real property taken. Pumphrey v. State Roads Comm’n, 175 Md. 498, 505 , 2 A.2d 668, 671 (1938). The general theory behind that conceptualization of just compensation was that the individual property owner should be placed in as good a position financially as he or she would have been but for the establishment ⁵¹¹ of the public project. Dodson v. Anne Arundel County, 294 Md. 490, 494 , 451 A.2d 317, 320 (1982).

Moreover, the economic impact of a public project should be borne by the public as a whole and not by a single property owner or a group of individual property owners. Armstrong v. United States, 364, U.S. 40, 49, 364 U.S. 40 , 80 S.Ct. 1563, 1569 , 4 L.Ed.2d 1554 (1960). Just compensation, as interpreted under the Maryland Constitution, however, only requires compensation for real property interests. See, e.g., Shipley v. Balt. & Potomac R. R. Co., 34 Md. 336, 343 (1871) (holding that just compensation means the actual value in money of the property).

Losses incidental to an interest in real property, such as moving costs, taxes, and lost rents generally were not required to be compensated for when the government exercised its powers of eminent domain to take permanent and total possession of a property under the common law. See id. at 343 (stating that just compensation does not include benefits, advantages, or damages incidental to the interest in real property and caused by the public project). Practically speaking, there are many hidden costs involved in the acquisition of property by the government for public projects that have not been determined to be compensable as a matter of common law. In this case, Reichs Ford does not allege a traditional claim for just compensation as the result of formal condemnation, however, but rather seeks damages incidental to inverse condemnation.

Inverse condemnation has been described as a “shorthand description of the manner in which a landowner recovers just compensation for a taking of his property when condemnation proceedings have not been instituted.” U.S. v. Clarke, 445 U.S. 253, 257 , 100 S.Ct. 1127, 1130 , 63 L.Ed.2d 373 (1980). In claims for condemnation where there has been a temporary taking, courts have found that, based on federal constitutional principles, a proper measure of damages may be the lost rental value between the initial taking and the time that the property is returned or restored. See Kimball Laundry Co. v. U.S., 338 U.S. 1, 7 , 69 S. Ct. 1434, 1438 , 93 L.Ed. 1765 (1949) (finding that for an expressly temporary governmental occupation of property, ⁵¹² effectively a temporary taking, a measure of fair market value may be the value a renter would have paid for the property). It would appear then that the Circuit Court’s view in the present case that lost rental income is not admissible evidence in any condemnation context is not universally true.

See Bergeman v. State Roads Comm’n, 218 Md. 137, 140 , 146 A.2d 48, 50 (1958) (noting that capitalizing rent is an approved method of valuation of property); Brinsfield v. City of Baltimore, 236 Md. 66, 71 , 202 A.2d 335, 337 (1964) (finding that capitalized rents are admissible when determining fair market value of a property to be condemned). In Kimball, the Supreme Court held that, in the case of a temporary taking, lost rental income was part of the proper measure of damages. 338 U.S. at 7 , 69 S.Ct. at 1438 , 93 L.Ed. 1765 . In that case, the government occupied a private laundry business on an expressly temporary basis so that it could be run as a laundry for U.S. Army personnel. Id. at 4 , 338 U.S. 1 , 69 S.Ct. at 1437 , 93 L.Ed. 1765 .

After the property was returned to the private owner, the trial court awarded damages based on the lost rental income, as well as wear and tear beyond the norm of the company’s equipment. Id. at 4 , 338 U.S. 1 , 69 S.Ct. at 1437 , 93 L.Ed. 1765 . In affirming the judgment of the trial court, the Supreme Court reasoned that the determination of the value of temporary occupancy can be approached only on the supposition that free bargaining between petitioner and a hypothetical lessee would have taken place in the usual framework of such negotiations. We agree, however, with both lower courts, therefore that the proper measure of the award is the rental that probably could have been obtained, and so this Court has held in the two recent cases dealing with temporary takings.

Indeed, if the difference between the market value of the fee on the date of taking and that on the date of return were taken to be the measure, there might frequently be situations in which the owner would receive no compensation whatsoever because the market value of the property had not decreased during the period of the taker’s occupancy. ⁵¹³ Id. at 7 , 338 U.S. 1 , 69 S.Ct. at 1438 , 93 L.Ed. 1765 (citations omitted); U.S. v. General Motors Corp., 323 U.S. 373, 381 , 65 S.Ct. 357, 361 , 89 L.Ed. 311 (1945) (holding that, where the government occupies property temporarily, the measure of compensation is the measure of the interest taken, or the “fair rental value”); see W.H. Pugh Coal Co. v. State, 157 Wis.2d 620 , 460 N.W.2d 787, 791 (1990) (finding that lost income, such as rental value, when shown to a reasonable degree of certainty, may be admitted when determining just compensation in certain cases) (citations omitted). The Court also found that, constitutionally speaking, fair market value is usually the only measure of damages in an eminent domain condemnation. Kimball, 338 U.S. at 5-6 , 69 S.Ct. at 1438 , 93 L.Ed. 1765 . In the case of a temporary taking, however, fair market value alone may not be enough to equal just compensation.

Id. at 6 , 338 U.S. 1 , 69 S.Ct. at 1438 , 93 L.Ed. 1765 . Although Kimball involved a temporary taking under a formal condemnation scheme, we believe that its language is equally applicable to situations, such as that here, where the temporary taking occurs in an alleged inverse condemnation context. We therefore conclude that Reiehs Ford’s proposed evidence of lost rental income and related damages should not have been barred pre-trial through the grant of a motion in limine.

III

A. Reiehs Ford argues that there were two causes of action pleaded in the facts in its complaint. Reiehs Ford believes it is entitled to “just compensation” for the value, as of the date the SHA filed the condemnation suit, 5 of the property itself ⁵¹⁴ and damages in inverse condemnation resulting from lost rents and carrying costs incurred from the time the tenant, Griffith, vacated the property until the day the condemnation suit was filed. See Stone v. City of L.A., 51 Cal.App.3d 987, 994 , 124 Cal.Rptr. 822 (1975) (finding that the losses of the property owner beyond the value of the real property and attributable to the lapse in time between the announcement of condemnation and the actual taking were compensable). Reichs Ford claims that its offer to settle the condemnation claim was consistent with this theory of two separate claims.

In support of its assertion that there exists independently both an inverse condemnation claim and a traditional condemnation claim, under the circumstances of this case, Reichs Ford relies on the following language in First English Evangelical Lutheran Church of Glendale v. Los Angeles, 482 U.S. 304, 319 , 107 S.Ct. 2378, 2388 , 96 L.Ed.2d 250 (1987), [t]he value of a leasehold interest in property for a period of years may be substantial, and the burden on the property owner in extinguishing such an interest for a period of years may be great indeed. Where this burden results from governmental action that amounted to a taking, the Just Compensation Clause of the Fifth Amendment requires that the government pay the landowner for the value of the use of the land during this period, (citations omitted) Reichs Ford argues that, because the SHA’s activities with respect to the subject property, including its interactions with ⁵¹⁵ Griffith, amounted to a taking of Constitutional dimension, it was therefore entitled to just compensation for that taking. Id. at 319 , 107 S.Ct. at 2388 , 96 L.Ed.2d 250 (1987). 6 Reichs Ford bases its takings claim on its contention that, as a result of the SHA’s activities, a new lessee could not be found and the property could not be used in any other profitable way. B. The SHA argues, however, that Reichs Ford’s claim for inverse condemnation should fail because any damages that occurred as a result of the SHA’s pre-condemnation conduct was subsumed in the award of “fair market value” entered in the Agreed Inquisition condemnation award.

The SHA contends that, under Md.Code (1974, 2003 Repl.Vol.), § 12-105 of the Real Property Article, 7 the fair market value of the property taken under the powers of eminent domain includes all diminution in value proximately caused by the public project. § 12-105 provides, in relevant part, as follows: § 12-105. Fair Market Value (a) Effective date of authority if continuing powers of condemnation — In this section, the phrase “effective date of legislative authority for the acquisition of the property” means, with respect to a condemnor vested with continuing power of condemnation, the date of specific administrative determination to acquire the property. ⁵¹⁶ (b) Fair market value — the fair market value of property in a condemnation proceeding is the price as of the valuation date for the highest and best use of the property which a vendor, willing but not obligated to sell, would accept for the property, and which a purchaser, willing but not obligated to buy, would pay, excluding any increment in value proximately caused by the public project for which the property condemned is needed. In addition, fair market value includes any amount by which the price reflects a diminution in value occurring between the effective date of legislative authority for the acquisition of the property and the date of actual taking if the trier of facts finds that the diminution in value was proximately caused by the public project for which the property condemned is needed, or by announcements, or acts of the plaintiff or its officials concerning the public project, and was beyond the reasonable control of the property owner. The SHA argues that the phrase “diminution in value” applies to all lost rents and carrying costs, if Reichs Ford is entitled to these damages at all, from the date that the SHA specifically determined to acquire the subject property.

In the SHA’s view, because the parties settled the issue of the “fair market value” of the property, as defined by § 12-105, in the Agreed Inquisition executed in the condemnation case, the damages claimed by Reichs Ford in its inverse condemnation suit already have been paid. 1. We are called upon to determine whether § 12-105 contemplates the inclusion in an award of fair market value in a condemnation case of lost rents and other incidental damages solely attributable to the period between when the condemnor initially announces the public project and when the condemnation eventually is initiated. This question is one of statutory interpretation and, as such, is purely a legal one. Mohan v. Norris, 386 Md. 63, 66-67 , 871 A.2d 575, 577 (2005).

We therefore review the judgment of the Court of Special Appeals de novo. Id.; see also