Dunn v. City of Milwaukie, A139386, Feb. 2011: It’s a Crappy Case

In a case that probably should not have gone to trial, the Court of Appeals recently upheld an award of $58,333 plus attorney fees to a woman in an inverse condemnation action against the City of Milwaukie.  The city’s public works department was “hydro-cleaning” the city sewer lines, which means they open a manhole and pump water through the lines at 1,500 to 2,000 psi toward a second manhole.  As the court writes: Plaintiff, in her home located between the two manholes, heard a "loud roar," felt the house shake, and witnessed "[b]rown and gray gunky sewer water that stunk" shooting from her toilets and bathroom faucets. Within seconds, the "gunky" water was dripping from the ceilings and "three or four inches thick" on the bathroom floor, "flowing" into the rest of her home. Plaintiff ran outside and saw the second city utility worker standing next to a "City of Milwaukie" truck. Plaintiff explained what happened and, although the employee was "shocked" to learn that plaintiff's home had just filled with sewage, she offered plaintiff some towels but no additional assistance or explanation. Plaintiff refused the towels, returned to her home, and spent most of the night "sucking up the water stuff" with her wet and dry vac. The city employees' report for the day listed plaintiff's address and the notation, "Blew water out of their toilet."

At this point the city would have been well advised to settle, for any amount, but instead it denied the claim for damages the plaintiff filed with the city’s risk management office.  Thereafter, the plaintiff filed a tort claim and inverse condemnation claim in circuit court.  The tort claim was dismissed because it was not timely filed and the case went to trial on the inverse condemnation claim.  The jury returned a verdict in favor of the plaintiff, awarding her $58,333 in damages.  The city appealed.

Government is authorized to “take” private property for a public purpose under Article 1, Section 18, of the Oregon Constitution provided it pays for it.  When the government fails to pay for it, the property owner may seek such compensation through a claim for inverse condemnation.  In order to prevail on the claim, the property owner must demonstrate not only that the property was taken, but that the government intended to take it.  You would think that intent is a fairly objective standard; however, in Vokoun v. City of Lake Oswego, the Oregon Supreme Court held that intent can be inferred if the taking is the natural and ordinary consequence of the government action.  In Vokoun, the city constructed a storm water system that collected storm water over a fairly large area and directed to an outfall pipe in a ravine upstream of Vokoun’s property.  Because the amount of water far exceeded the ravine’s normal flow, it eventually eroded the hillside below Vokoun’s property to the point of collapse, causing damage to the house.  The Supreme Court held that when the damage is the natural and ordinary consequence of the government action, the intent to cause the damage can be inferred.

The City responded that the type of damage plaintiff suffered can’t be a natural and ordinary consequence of hydro-cleaning or the city would be blowing up toilets all over the city.  The court responded by describing the city’s practice of identifying low-pressure areas in the city where lower cleaning pressures are used to avoid just this type of damage.  Moreover, it’s not enough that the damage happens infrequently, just as in Vokoun; cities routinely design and construct storm water systems but they rarely erode hillsides.  The question is “whether the result is the natural and ordinary consequence of the government’s action at the time and place where that action occurred.”

Not surprisingly, the court found sufficient evidence in the record to uphold the jury’s determination that the plaintiff’s damages were the natural and ordinary result of the government action.

But intent to cause damage isn’t enough to prevail on an inverse condemnation claim – there also has to be actual damages.  And even actual damages isn’t enough - the damage has to rise to the level of “substantial interference with the use and enjoyment of the property.”  Stated differently, the interference has to be “sufficiently direct, sufficiently peculiar, and of sufficient magnitude to support a conclusion that the interference has reduced the fair market value of the [property] by a sum certain in money.”  In this case, again quoting the court:

Sewer water flowed into plaintiff's home, immediately damaging area rugs and causing lasting damage to her ventilation system, hardwood floors, wallpaper, and sheetrock. On the advice of a heating contractor, plaintiff stopped using her furnace, relying instead on space heaters, and also closed off certain rooms during colder months to conserve heat. A hardwood floor expert verified that plaintiff's hardwood floors had sustained water damage and might need to be removed and reinstalled. Another contractor testified to finding "an enormous amount of water damage" and recommended that plaintiff replace sections of sheetrock in her entryway, hallway, and bathrooms. Further, plaintiff presented abundant evidence that the sewage intrusion significantly diminished the value of her home. An appraiser testified that, because of damage and stigma, the home lost approximately $100,000 in value. In sum, we conclude that plaintiff presented evidence to support a finding that plaintiff experienced a "substantial interference" with the use and enjoyment of her property.

Faced with these facts, the court had no troubling concluding that plaintiff suffered substantial interference with the use and enjoyment of her property as a natural and ordinary consequence of the city’s actions.

This case is troubling for government lawyers because it raises an apparently ordinary accident to the level of a constitutional violation.  It’s often said that bad facts make bad law and, again, the city would have been well advised to settle the claim.  [Seriously, even as an accident, they filled the woman’s house with . . . . gunk.  Was there ever any question that first the jury then the court would find a way to give her a remedy?]  Instead, the court’s opinion extends the previously slim jurisprudence that held government liable for a taking when none was intended.   Cases like Vokoun and Dunn, hopefully, will be rare. Of course, the injured party should always be made whole, but by making it a constitutional violation these cases simply increase the financial burden to the city – hence, the taxpayers – by an amount equal to the plaintiff’s attorney fees.

Another Tool for Financing Public Improvements

At the risk of blowing our own horn, the Court of Appeals last month reaffirmed the use of reimbursement districts as a mechanism for financing local improvements.  In Kieling v. City of Sherwood, the Sherwood School District built two new schools and, as part of the project, constructed a new road, water, storm water and sanitary sewer facilities.  The District then applied to the city to create a reimbursement district in order to recover some of the costs of the improvements.  The reimbursement district included those adjacent properties that would benefit from the improvement.  The ordinance that approved the reimbursement district included a methodology for calculating and allocating a reimbursement fee to each benefitted property, to be paid when it developed.  Significantly, the fee becomes due only when the property develops and only if it develops within ten years. One of the adjacent properties consisted of 24 acres and was assigned a transportation fee of $440,000.00.  The owner of the property objected to the transportation fee before the City Council and, when the Council approved the reimbursement district over his objections, appealed the decision to the circuit court where he argued that the fee constituted a “taking” of the property under the state and federal constitutions.  The circuit court rejected his arguments and affirmed the City’s decision, which the owner then appealed to the Court of Appeals.

As an initial matter, the appellate court found that it is the objecting property owner’s burden to demonstrate that the City’s decision was flawed –not the other way around. “As the party challenging the city's determination, plaintiffs must demonstrate that the city's resolution is unsupported, and not vice versa.” Most significant, the court reaffirmed its earlier holding in Baker v. City of Woodburn that a reimbursement district is fundamentally different from a local improvement district because the local authority in a reimbursement district does not have the ability to place a lien on the property.  The reimbursement fee never becomes a claim against the title to the property.  “[The City notes] that the cited cases all deal with assessments, and, as this court pointed out in Baker, a reimbursement fee is not the same as an assessment, and the difference is not ‘a mere technical distinction.’ A reimbursement ordinance ‘does not authorize the imposition of an assessment that becomes a lien on the property.’ According to [the City], a reimbursement fee is analogous to a tax, and there is no legal principle that requires rough equivalence between a tax and the value of the thing taxed.”

Finally, on the takings claim, the court noted that the $440,000.00 fee equals $18,400 per acre, and there was nothing in the record that remotely suggested this amount constituted a taking under either the state or federal constitution.  The property owner simply failed to carry his burden.

In sum, a properly structured and administered reimbursement district continues to offer developers and local governments a way to finance the construction of local improvements.  The developer takes a risk that the benefitting properties will not develop within the ten-year period, but with that risk comes the potential reward that the developer may recover a substantial portion of external costs that would otherwise be lost.

Here’s a link to the decision:  http://www.publications.ojd.state.or.us/A141177.htm

LID Does Not Violate Fifth Amendment’s Takings Clause

The Oregon Court of Appeals recently ruled in the City of Albany’s favor regarding a long running dispute over a local improvement district (“LID”).  In Parker et al v. City of Albany, __ Or App __, __ P3d __ (December 8, 2010), the court rejected the petitioners’ claim that the LID violated their rights under the Fifth Amendment to the U.S. Constitution. Prior to establishing the LID, the city condemned some of the petitioners’ property to extend a road within the LID.  Subsequently, the city assessed the petitioners as property owners who benefitted from the LID.  The assessment included a proportional share of the city’s costs in condemning petitioners’ property.

The petitioners asserted that Fifth Amendment prohibits the city from requiring them to pay their share of the city’s costs in acquiring their property for the LID.  Specifically, they argued that the city’s assessment requires them “to pay some of the cost of the taking of their own property, [meaning] they will not have received just compensation for their land.”  In rejecting that argument, the court made a distinction between the government’s eminent domain powers and the power to raise revenue.  The court held that Albany had properly exercised both powers, and that having condemned the land and paying petitioners “just compensation” to acquire it, the city was not barred by the Fifth Amendment from subsequently assessing petitioners their pro rata share of the city’s acquisition costs.