Year-End Review of Developments in Real Estate Litigation
2019 was a consequential year for eminent domain and real estate litigation. The U.S. Supreme Court issue a rare eminent domain decision, and Colorado courts issued real estate-related opinions on matters of first impression with immediate, practical impacts for litigators and their clients. Summaries and analysis of noteworthy opinions follow, as well as a preview of a case to watch in 2020.
Knick v. Township of Scott, Pennsylvania, 139 S.Ct. 2162 (2019)
After a state court dismissed her claims for declaratory and injunctive relief, Knick sued the Township of Scott in federal district court alleging that a local ordinance effected a taking of her property in violation of the Fifth Amendment. The district court dismissed her suit because she had not pursued an inverse condemnation action in state court as required by Williamson County Regional Planning Comm’n v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985). In considering Knick’s case, the Supreme Court overruled Williamson County, holding that a property owner has a claim for a violation of the Takings Clause at the very moment that a government takes property without paying for it, and therefore may assert a claim for inverse condemnation in federal court at that time regardless of whether the property owner has first pursued the claim in state court. Justice Kagan’s dissent cautioned that the decision will funnel a potentially large amount of cases into federal court that more properly belong in state court, as land use and property rights are state-law issues with which federal judges are typically unfamiliar. Nevertheless, the ground-breaking result of Knick is that property owners are now able to bring inverse condemnation claims against local governments in both state and federal court.
In the wake of Knick, the Tenth Circuit held that property owners cannot bring inverse condemnation claims against state governments in federal court due to Eleventh Amendment immunity, noting that Knick neither involved a taking by a state government nor addressed Eleventh Amendment immunity. Williams v. Utah Dep’t of Corrections, 928 F.3d 1209 (10th Cir. 2019). However, such claims may proceed in federal court against local governments, such as cities and counties. The potential benefits and detriments of litigating inverse condemnation suits in Colorado state court versus federal district court will be the subject of a forthcoming article.
Carousel Farms Metropolitan District v. Woodcrest Homes, Inc., 442 P.3d 402 (Colo. 2019):
In 2006, Woodcrest Homes planned to purchase three parcels of land to build a development that would be annexed into the Town of Parker. It completed the purchase of the smallest parcel first, Parcel C, which constituted approximately 0.65 acres and was sandwiched between two approximately 20-acre parcels. Parcel C was intended to provide utilities for development of the two larger parcels. The contracts for the other two parcels of land ultimately fell through.
In 2012, Century Communities acquired the two larger parcels surrounding Parcel C. Like Woodcrest Homes, Century Communities intended to use Parcel C to provide utilities for the development. The Town of Parker agreed to annex the development and approve the development’s plat if Century Communities acquired Parcel C. After unsuccessfully negotiating with Woodcrest Homes to purchase Parcel C, Century Communities formed a metropolitan district called Carousel Farms. Metropolitan districts have the power of eminent domain, and thus Carousel Farms initiated condemnation proceedings against Woodcrest Homes.
Woodcrest Homes challenged the condemnation proceeding, arguing that Carousel Farms was “acting as a puppet for Century” and that the taking was for a private, rather than a public, purpose. The Colorado Supreme Court noted that as a metropolitan district, Carousel Farms operated as a public entity, regardless of the fact that Carousel Farms was managed solely by Century employees. The Court held that the taking was for a public use because Parcel C would be used for public rights of way, storm drainage, and sewer improvements. The Court found that the immediate benefit that Century would receive from the taking did not convert the essential nature of the taking from public to private.
The Carousel Farms opinion reaffirms the unique and powerful status of metropolitan districts as public entities with condemnation authority, regardless of the composition of a metropolitan district’s management and regardless of whether such districts use the power of eminent domain for projects that will solely serve developments owned by the district’s managers. Moving forward, property owners will be hard-pressed to challenge the public purpose of takings initiated by metropolitan districts, absent unusual circumstances, and instead will be limited to ensuring that they receive fair market value for their property.
Rinker v. Colina-Lee, 452 P.3d 161 (Colo. App. 2019)
Rinker and Colina-Lee were neighbors on an unpaved roadway in Larimer County that served six lots, all of which were parties to a road maintenance agreement. Rinker installed a culvert to prevent runoff from draining onto his property, and eventually completely blocked the culvert after changes to the roadway allegedly increased the amount of runoff onto his property. Blocking the culvert caused sediment to flow onto the unpaved road. After various procedural developments not relevant here, one of Rinker’s neighbors, Colina-Lee, asserted claims against Rinker for injunctive relief. The district court granted the injunction, requiring Rinker to comply with the maintenance agreement’s prohibition against damaging the road by unblocking the culvert. Rinker appealed, asserting that the district court did not make a finding on each of the required elements of an injunction.
As a matter of first impression in Colorado, the Court of Appeals held that “a party seeking an injunction as a remedy for a wrongful interference with an easement is not required to prove irreparable harm.” In so holding, the court relied in large part on the Restatement of Property, which explains that a finding of irreparable harm is not required to enjoin interference with an easement because the value of an easement may be difficult to quantify, market values may not reflect the value of the easement to the property owner, and a party should not be permitted to buy their way out of a servitude if the servitude continues to serve its purpose. The Colorado Supreme Court denied Rinker’s petition for writ of certiorari.
The Rinker decision makes it easier for property owners to enforce their easement interests, alleviating the burden of identifying and/or quantifying the harm that will result from interference with easements.
Allen v. State, 433 P.3d 581 (Colo. 2019):
In this inverse condemnation case, the Colorado Supreme Court reaffirmed that disputes concerning ownership of a water right, as opposed to the legal right to use of water, are not within the jurisdiction of water courts. Allen purchased a ranch along with decreed water rights and ditch company shares. He later sold the ranch and the decreed water rights, but did not include the ditch company shares in the sale. The Mesa County Land Conservancy filed suit against Allen, alleging that by severing the shares from the land, he had violated the terms of a conservation easement that mandated that all water rights shall remain with the land. The court ordered Allen to convey the shares to the purchaser of the property. Allen then sued the State of Colorado for compensation for the loss of his property rights, arguing that the court’s order amounted to a judicial taking of his interest in the shares.
The Colorado Supreme Court analogized Allen’s interest in the ditch company shares to the types of rights at issue in quiet title proceedings or the types of rights transferred pursuant to instruments of grant or conveyance. Since the interest in the shares constituted a property right, Allen’s inverse condemnation suit should have been brought in district court. This case serves as an important reminder that cases concerning the ownership of water rights must be brought in district court, and have more in common with traditional property rights cases rather than water rights cases.
Case to watch in 2020:
Raymond Decker and Forest View Company v. Town of Monument, 18SC793
The Town of Monument bought property in a residential subdivision for construction of a municipal water storage tank. However, a restrictive covenant prohibiting such structures applied to all lots within the subdivision. The Town, citing its power of eminent domain, filed suit seeking a declaration that its property was not subject to the restrictive covenant. The property owners in the subdivision and the State Board of Land Commissioners, which owns several lots in the subdivision, asserted, among other things, that the restrictive covenant was a compensable property interest and that therefore the Town would have to compensate every property owner within the subdivision. Relying on City of Steamboat Springs v. Johnson, 252 P.3d 1142 (Colo. App 2010), the district court held that the restrictive covenant was a compensable property interest. The Court of Appeals reversed, holding that Smith v. Clifton Sanitation District, 300 P.2d 548 (1956), applied and should be broadly read as holding that a restrictive covenant is not a compensable property interest in an eminent domain case. The position that a restrictive covenant is not a compensable property interest is the minority view among states that have ruled on the issue.
The Colorado Supreme Court granted certiorari and heard oral argument in the case, now styled Raymond Decker and Forest View Company v. Town of Monument, on December 10, 2019. On one hand, the justices’ questions focused on the practical impacts of a finding that restrictive covenants are compensable, and they expressed concern that such a holding would dramatically increase the cost and burden of constructing public improvements. On the other hand, the justices conveyed concerns about faithfully upholding the constitutional protections afforded to property owners, as well as whether it is possible to consistently and logically distinguish restrictive covenants from other types of enforceable property interests.
The ultimate decision will have significant ramifications for the scope of compensable property rights in Colorado.