Opinion ID: 2604678
Heading Depth: 1
Heading Rank: 3

Heading: interest as an element of just compensation

Text: When private property is taken for public use, our state and federal constitutions require the payment of just compensation. See Wash. Const. art. I, § 16 (amend. 9); U.S. Const. amend. V. Just compensation requires that the property owner be put in the same position monetarily as he or she would have occupied had the property not been taken. It consists of the full equivalent of the value of the property paid contemporaneously with the taking. See Almota Farmers Elevator & Warehouse Co. v. United States, 409 U.S. 470, 473-74, 93 S.Ct. 791, 793-95, 35 L.Ed.2d 1 (1973); Lange v. State, 86 Wash.2d 585, 589, 547 P.2d 282 (1976); State v. Lacey, 84 Wash.2d 33, 36-37, 524 P.2d 1351 (1974). In a conventional eminent domain proceeding, property is not taken or damaged until just compensation is paid. But in an inverse condemnation or quick-take action under RCW 8.04.090, [9] property is taken before just compensation is paid. In these cases, we have held that interest is necessary to compensate the property owner for the loss of the use of the monetary value of the taking or damage from the time of the taking until just compensation is paid. See Smithrock Quarry, Inc. v. State, 60 Wash.2d 387, 391, 374 P.2d 168 (1962); see also In re City of Anacortes, 81 Wash.2d 166, 500 P.2d 546 (1972); Consolidated Diking Improvement Dist. No. 3 v. Davis, 36 Wash.App. 125, 672 P.2d 414 (1983); State v. Hallauer, 28 Wash. App. 453, 624 P.2d 736 (1981). We assume a person who received the money value of his or her property as of the date of the taking has a beneficial use available for these funds. See Hansen v. Rothaus, 107 Wash.2d 468, 473, 730 P.2d 662 (1986). Interest in this context is not an award of prejudgment interest on a liquidated sum in the traditional sense, but is a measure of the rate of return on the property owner's money had there been no delay in payment. See United States v. Blankinship, 543 F.2d 1272, 1275 (9th Cir.1976); State Roads Comm'n v. G.L. Cornell Co., 85 Md.App. 765, 584 A.2d 1331, 1337 (1991). The Legislature codified these principles in the quick-take provisions of RCW 8.04.090, making the State liable for interest on the difference between what it pays into the court registry and the amount to which the owner is entitled. See RCW 8.04.092. These rules apply with equal force in temporary regulatory takings cases because a temporary regulatory taking is no different in kind from a permanent taking, in that compensation is required for the same reason it is required when the State takes property through conventional eminent domain or quick-take proceedings. See First English Evangelical Lutheran Church v. County of Los Angeles, 482 U.S. 304, 107 S.Ct. 2378, 96 L.Ed.2d 250 (1987); see also In re City of Seattle, 81 Wash.2d 652, 659, 504 P.2d 292 (1972) (requiring interest for period of temporary taking even when the City later abandons its eminent domain proceeding). Because the property owner in a temporary regulatory taking loses the use of the monetary value of the property from the time of the taking until payment is made, interest is usually necessary to place the property owner in the same position he or she would have occupied had the taking not occurred. RCW 8.28.040, providing for interest in all eminent domain proceedings, appears on its face to apply only to postjudgment interest awards. We have, however, modified this interest rule to apply when interest must commence at an earlier date by virtue of earlier possession. See In re City of Anacortes, 81 Wash.2d at 169, 500 P.2d 546. We hold RCW 8.28.040 also applies in regulatory takings actions and should guide the trial court's award of interest unless a party proves by presenting evidence that the statute does not afford just compensation. The City correctly points out that municipalities are generally immune from prejudgment interest. See Fosbre v. State, 76 Wash.2d 255, 456 P.2d 335 (1969). Here, however, the interest awarded is not prejudgment interest. The interest awarded is part of the damages and is required as part of just compensation. Therefore, we dispense with the City's immunity argument. The amount of compensation necessary to satisfy the constitutional mandate is a matter for judicial determination. See Lange, 86 Wash.2d at 589, 547 P.2d 282; RCW 8.04.092; RCW 8.04.110. This should be determined by a jury unless a jury be waived, as in other civil cases in courts of record, in the manner prescribed by law. Const. art. I, § 16 (amend.9); see Chelan County v. Navarre, 38 Wash. 684, 80 P. 845 (1905) (act or omission which would amount to waiver of a jury in an ordinary civil action would amount to waiver in a condemnation proceeding); RCW 8.12.090. Sintra proposed instruction number 66A, which would have submitted the amount of interest to the jury. It stated: An owner whose property was taken, damaged or interfered with by the government is also entitled to interest on the damage award sufficient to insure that he is placed in as good a position pecuniarily as he would have occupied if the payment had coincided with the appropriation. [10] Clerk's Papers at 209. The trial court did not give the jury either of Sintra's proposed instructions on interest, instead reserving the issue for post-trial. [11] The City did not except to the trial court's failure to submit the issue to the jury. After trial, Sintra argued that 12 percent was appropriate, and submitted different calculations based on simple and compound interest and differing time periods. The City argued it was immune from prejudgment interest, and, contrary to its position on appeal, also submitted motions and briefs on the amount of interest the trial court should award. The trial court awarded $60,918.73 based on 12 percent compounded interest, stating: In order to fully and fairly compensate one whose property has been taken by the government, I believe that interest on the compensation award should run from the date of the taking. . . . . Given the uncertainty as to the basis for the calculation made by the jury and the actual period of the taking that they found, I believe that the most reasonable approach is to say that the taking in this case ended upon issuance of the demolition permit in April of 1987; therefore, interest should accrue at the statutory rate from the date of April of 1987 through today. I do believe it is appropriate to have that interest compounded, again in order to achieve full and fair compensation of the claimants. Oral Ruling (July 22, 1994) at 5. While the trial judge in this case did not give Sintra's proposed instruction on interest, we are satisfied no reversible error occurred when the trial court awarded interest post-trial. All of the issues triable to the jury were initially submitted to the jury pursuant to Sintra's CR 38 demand. Neither party objected to or excepted to the trial court's action in reserving the interest issue for post-trial. By not objecting or excepting and submitting argument post-trial, both parties agreed to the trial court's manner of handling this issue. [12] In this appeal, the City now argues the trial judge could not award interest without invading the province of the jury. The City's argument comes too late. It cannot now complain of the trial court's decision when it failed to object at the time the trial court decided to handle this issue post-trial. See Nania v. Pacific N.W. Bell Tel. Co., 60 Wash.App. 706, 806 P.2d 787 (1991) (invited error doctrine). Moreover, there was no reversible error because the jury instructions in this case effectively excluded consideration of the time value of money. The jury was instructed to award compensation on the basis of the leasehold value of the property during the time the Ordinance was enforced. During deliberations the jury asked the trial judge, [d]oes leasehold value represent gross income or net income after expenses? He responded [T]easehold value means the market rental rate for the building during such period as you find a taking to have occurred. Clerk's Papers at 283. While there was trial testimony concerning interest, the jury instructions and conduct of the parties indicate that the jury did not take into account the time value of the delay in payment. Under these particular circumstances, no reversible error occurred. Generally, however, all elements of just compensation should be decided by the same jury unless both parties properly waive jury trial on the interest, and the trial court instructs the jury not to consider the time value of money in its award of compensation. In awarding compound versus simple interest, however, the trial court erred. Courts, in awarding just compensation, must be guided by equitable principles and the measure of such compensation will vary with the facts. See Lange, 86 Wash.2d at 590, 547 P.2d 282. However, the court, in determining the award of interest as part of the award of just compensation, is guided by RCW 8.28.040. The statute applies to eminent domain proceedings and specifically incorporates the interest rate of RCW 19.52.020, which is 12 percent per annum. Because the statute does not specifically provide for the compounding of interest, only simple interest is allowed. See Caruso v. Local Union No. 690, 50 Wash.App. 688, 690-91, 749 P.2d 1304 (1988); Goodwin v. Northwestern Mut. Life Ins. Co., 196 Wash. 391, 83 P.2d 231 (1938). If a party proves by presenting evidence that statutory simple interest does not afford just compensation, the trial court has discretion to award compound interest. Absent such proof, however, a property owner in a temporary regulatory takings case is entitled only to simple interest under RCW 8.28.040 as part of just compensation. In this case, where no evidence was offered from which the trial court could base an award of compound interest, [13] we hold the trial court is guided by and should follow RCW 8.28.040 in calculating interest. We reverse and remand for the trial court to determine the proper interest award in accordance with this opinion.