Opinion ID: 1184454
Heading Depth: 2
Heading Rank: 1

Heading: pre-settlement interest

Text: The appellant property owners contend that the court below erred in denying their motions for interest running from the date eminent domain proceedings were instituted to the date of payment into the court registry, upon the amount each accepted as just compensation. Alaska statutorily provides for the payment of interest in eminent domain actions only where the State enters into immediate actual or constructive possession. If the State requires immediate use of the property, [1] AS 09.55.330 specifies that: If an order is made letting the plaintiff into possession, as provided in § 380 of this chapter, the compensation and damages awarded shall draw lawful interest from the date of the order... . And where the State takes immediate legal title by filing a declaration of taking and depositing estimated just compensation into the court pursuant to AS 09.55.440, that statute directs that: The compensation shall be ascertained and awarded in the proceeding and established by judgment. The judgment shall include interest at the rate of six per cent per year on the amount finally awarded which exceeds the amount paid into court under the declaration of taking. There is no statutory provision for payment of interest from the date a condemnation action is instituted where the property owner remains in possession, and it has long been recognized that unless interest is specifically authorized by legislative enactment, it may not ordinarily be assessed against the State in any action. [2] Consequently, the property owners' reliance upon our holding in State v. Phillips [3] is misplaced. In Phillips, we ruled that under AS 09.50.280, [4] plaintiffs in a wrongful death action against the State were entitled to interest from the date of death, and not merely from the date of judgment. But AS 09.50.250 authorizes causes of action against the State sounding in tort, contract or quasi-contract exclusively. [5] Since AS 09.50.250 and 09.50.280 were passed together and amended together by the same legislative act, [6] it is clear that AS 09.50.280 was intended to afford a right to pre-judgment interest against the State only where AS 09.50.250 established a substantive cause of action. The two statutes, being in pari materia, are to be construed together. One cannot therefore simply imply from our decision in Phillips a right to pre-judgment interest in the instant case, in view of the widely-recognized principle that only the legislature has the power to direct the assessment of interest against the sovereign. We are also aware that eminent domain proceedings are unique, [7] and are governed by comprehensive rules of procedure applicable to condemnation actions alone. [8] This singularity tends to undermine any deductive extrapolation from the procedure followed in other types of actions. It is well established, however, that the payment of interest is, in appropriate circumstances, a necessary component of constitutionally guaranteed [9] just compensation. [10] As we stated in Russian Orthodox Greek Catholic Church of North America v. Alaska State Housing Authority: [11] [The fifth amendment to the U.S. Constitution and art. I, § 18 of the Alaska Constitution require] that a property owner be compensated for delays incurred between the dates of the government's taking of property and making payment. If an award were paid immediately upon the taking of the land by the state no damages to the property owner would ensue. But where, due to the necessity of legal proceedings to ascertain fair market value of property, delays ensue, the property owner is entitled to an adequate sum to reimburse him for the loss of use of the money during the period of such delay. To hold otherwise would constitute a taking of the property without just compensation [footnote omitted]. [12] Before interest can accrue then, there must be a taking. [13] Whether the landowners here are entitled to interest turns on whether the commencement of eminent domain proceedings constitutes a constitutionally-compensable appropriation of property. It is the general rule that a taking does not occur until: 1) legal title vests in the State, 2) the State enters into actual possession, or 3) the State takes constructive possession either by causing damage to property or by depriving the owner of full beneficial use of his land. [14] A number of courts have specifically held that interest running from the date of institution of eminent domain proceedings may not be recovered. [15] Most of the decisions which have awarded interest from the commencement of suit turned on statutory interpretation or application. [16] The New Jersey Supreme Court, however, has unequivocally held that interest from the inception of an eminent domain proceeding is constitutionally compelled, at least where the property condemned by the State is, as here, vacant and unimproved realty. In a provocative departure from established precedent, the court in State v. Nordstrom [17] observed: A considerable period of time can go by after the filing of the complaint before compensation is paid to the landowner. In the meantime, the landowner remains responsible for the payment of taxes, plus interest payments on a mortgage, if any. These expenses cannot be considered by the commissioners or the jury, nor can they take notice of any rise in value of the property since the filing of the complaint.       In the present case the Nordstroms' land was vacant, unimproved acreage, which produced no income stream to be applied in abatement against interest. The economic purpose of such investment land-holding is readily apparent: By purchasing the unimproved land, the Nordstroms undoubtedly hoped that the land would increase in market value at a rate which would more than offset taxes and interest payment on mortgage loans... . Profit would be generated upon the eventual improvement or sale of the property. By filing a complaint in a condemnation action, however, the State effectively foreclosed the possibility of improving the property or selling it to a third party while the proceedings were pending... . The landowner's property is virtually straitjacketed, but tax and mortgage obligations continue unabated. [18] We find this analysis sensitive to the economic realities of public condemnation. Before the institution of an eminent domain action, possession of unimproved and untenanted property is a desirable economic asset if: 1) the property may appreciate in value; and 2) the owner is afforded the opportunity to improve the property toward whatever end he might desire. [19] Under the Alaska statutory scheme, an owner is deprived of both investment potential and the possibility of future development the moment a condemnation action commences. AS 09.55.330 specifies: For the purpose of assessing compensation and damages the right to them accrues at the date of issuance of the summons, and its actual value at that date is the measure of compensation of the property to be actually taken... . No improvements put upon the property after the date of the service of summons shall be included in the assessment of compensation or damages. Meanwhile, the owner remains liable for property taxes, mortgage payments, and any other expenses incidental to legal ownership. Indeed, the property is of less value to him in his own name than it would be had the State taken immediate legal possession under a declaration of taking, for at least in the latter case he would be delivered from the burden of the property taxes. If as a matter of constitutional law the property owner is entitled to interest from the moment the State takes legal possession, he should, a fortiori, receive interest where he has been deprived of all the economic advantages of legal ownership but is relieved of none of the liabilities. [20] Admittedly between the filing of an action and settlement or judgment, the State derived no benefit from unimproved land either. But the State's benefit is irrelevant. The constitutional mandate is framed in terms of just compensation for the owner, and just compensation is not conditioned upon receipt of commensurate value by the State. Surely no one would contend that the State need not compensate the owner of improved property for the buildings thereon, because the existing structures did not serve the State's purposes and would have to be demolished. Nor could the State avoid liability for interest from the date of judgment on the grounds that the property was not put to use for some time thereafter, so that the State derived no benefit from ownership. By parallel reasoning, the State may not assert here that it is not liable for interest simply because it derived no benefit from the appellants' property during the period between the filing of the complaint and settlement. We conclude that the institution of condemnation proceedings constitutes a compensable appropriation of vacant and unimproved land, and that the property owner is constitutionally entitled to interest dating from the institution of such proceedings. In assessing interest against the State running from the date of institution of suit we are not saddling the State with an unavoidable financial burden. It may toll the running of interest at any time upon any sum it deposits with the court. [21] And the State can minimize the risk of an interest assessment (and avoid the expenses of litigation) by making a reasonable offer which the property owner is likely to accept prior to the institution of legal proceedings. Had appellants been deriving rents and profits from the use of their land, these sums would, of course, be set off against the interest owed by the State. [22] As the court in Arkansas-Missouri Power Co. v. Hamlin [23] correctly noted: Interest as so allowed by the weight of authority is not interest eo nomine, that is, interest as such and in the commonly accepted sense, but [is] a substitute or means of measuring the value of the deprivation of the use of the property... . Since none of the appellant's land was being productively used, no problem of adjustment arises. The denial of interest running from the date of commencement of suit is reversed. On remand, the trial judge should calculate the amount of interest due on the amount finally settled upon by each appellant and the State, at the rate of six percent. [24]