Opinion ID: 816180
Heading Depth: 4
Heading Rank: 2

Heading: Adaman

Text: Having set forth our view as to why MCTA’s right is not compensable, we address MCTA’s main argument: that Adaman is analogous to this case and thus we should apply the Adaman court’s holding that the right to collect assessments is compensable. We believe these two cases are sufficiently similar that the Adaman court’s reasoning informs our approach to this case. But as applied to the facts of the instant case, we find that the rationale in Adaman compels us to reach the opposite conclusion, namely, that MCTA’s right to collect assessments is not compensable under the Takings Clause.
Adaman involved an agricultural project established in Arizona on dry land where surface water for irrigation was unobtainable. 278 F.2d at 843. Underground water from beneath the project lands “had to be pumped and distributed, and to provide this service to the small farms envisioned in the Project, at minimum cost, [Adaman], a mutual, non-profit corporation, was organized.” Id. The owners of the land were entitled to one share of stock in Adaman for each acre of land owned. Id. at 843-44. Each share of stock entitled its owner to a prorata share of water. Id. at 844. Both water rights and stock were made appurtenant to the land upon which the water was to be used. Id. Further, under the plan: the stock and the land to which it [was] appurtenant [were] subject to prorata assessments to be made from time to time by [Adaman] 17 Case: 11-31167 Document: 00512126858 Page: 18 Date Filed: 01/28/2013 No. 11-31167 to pay both for the capital investment in the irrigation facilities and for the operation and maintenance of the irrigation system. The assessments, once made, [became] a lien on the land and on the stock and water rights appurtenant thereto. Id. No assessment could be made until the land was first cultivated. Id. The United States brought condemnation proceedings against 8.3 percent of the land area within the project. Id. Adaman sued for compensation for its interest in the assessments, lost in district court, and appealed. Id. at 850. The Ninth Circuit determined that the only question raised on appeal was “whether or not [Adaman was] entitled to be compensated for the loss of a portion of Project land since the remaining area will be subject to increased assessments in the future to pay for the maintenance, replacement and operation of the communal irrigation system.” Id. at 844. “In other words,” the court wrote, “does the diminution of [Adaman’s] assessment base constitute the taking of a compensable interest under the Fifth Amendment?” Id. The Ninth Circuit found that the lower court was wrong to conclude that Adaman had lost no compensable interest in the form of its reduced assessment base. Id. at 850. The Adaman court was careful to note that its opinion rested on “the assumption that the land condemned and taken by the Government had corporate stock appurtenant to it and had also been brought under cultivation,” which the court deemed important because “the stock subscription agreement itself created the equitable servitude in favor of other stockholding landowners, and the duty to pay assessments would not arise until the land to which it attached had actually been brought under cultivation.” Id. Accordingly, the Ninth Circuit vacated the district court’s judgment and remanded for “specific findings of fact on these crucial points.” Id. The crux of Adaman’s holding was that “under the Fifth Amendment a restrictive covenant imposing a duty which runs with the land constitutes a compensable interest.” Id. at 849. 18 Case: 11-31167 Document: 00512126858 Page: 19 Date Filed: 01/28/2013 No. 11-31167
We believe that the Adaman court correctly determined that the “pitfalls of the consequential loss doctrine are avoided” where “a direct connection with the physical substance [of the land] condemned” is established. Id. at 846. Because the subject matter in this case—the right to collect assessments—is analogous to that in Adaman, we find this rule to be applicable to the instant case, and therefore we apply it. However, we reach the opposite result of the Adaman court, and find that the consequential loss rule applies, because this case differs from Adaman in two important respects, both of which evince the absence of a direct connection between MCTA’s right to collect assessments and the physical substance of the condemned properties. First, in Adaman, the water company’s right to collect assessments was directly connected to a tangible property right—the right to a prorata share of water—enjoyed by landowners in the agricultural project. MCTA’s right to collect assessments does not correspond to a tangible property right of the landowners in Mariner’s Cove. It is inaccurate to view both cases as merely involving an exchange of assessment fees for communal services. Whereas the assessment fees that MCTA collected were used to maintain communal structures (e.g., streets), the assessments collected by the water company not only were used to provide a service (irrigation at the lowest possible cost), id. at 847, but also enabled the landowners in the agricultural project to exercise the rights to the water underlying the project lands.10 This direct connection between water rights and the right to collect assessments differentiates Adaman from the instant case because the assessments collected by MCTA do not allow the landowners in Mariner’s Cove to enjoy a tangible right arising from the land. 10 “The benefit derived from this servitude . . . is encompassed by the water rights appurtenant to each parcel and runs with the land to the same extent as does the burden to pay assessments.” Adaman, 278 F.2d at 847. 19 Case: 11-31167 Document: 00512126858 Page: 20 Date Filed: 01/28/2013 No. 11-31167 Second, whereas MCTA collects assessments in order to collect trash, maintain community streets, and provide similar services, the water company in Adaman collected assessments in exchange for water that it extracted from underneath the properties burdened by the obligation to pay the assessments. Id. As the Adaman court noted, “the warranty deed and the agreement of sale used by the [original landowner] reserved to it the rights in whatever water lay underneath Project land.” Id. The assessments in Adaman were made in exchange for a natural resource that was directly connected to the physical substance of the land in that it physically inhered in the land itself. MCTA points to nothing that would establish such a direct connection to the land. Because no direct connection existed in the instant case, we find that the consequential loss rule applies to MCTA’s loss.