Wensmann Realty, Inc., et al., Respondents, vs. City of Eagan, Appellant.

Wensmann Realty, Inc., et al., Respondents, vs. City of Eagan, Appellant. A05-1074, Court of Appeals Unpublished, May 23, 2006.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A05-1074

 

 

Wensmann Realty, Inc., et al.,

Respondents,

 

vs.

 

City of Eagan,

Appellant.

 

 

Filed May 23, 2006

Reversed

Toussaint, Chief Judge

 

Dakota County District Court

File No. C4-04-10035

 

 

Wm Christopher Penwell, Siegel, Brill, Greupner, Duffy & Foster, P.A., 1300 Washington Square, 100 Washington Avenue South, Minneapolis, MN 55401 (for respondents Wensmann Realty and Rahn Family LP)

 

George C. Hoff, Justin L. Templin, Hoff, Barry & Kuderer, P.A., 160 Flagship Corporate Center, 775 Prairie Center Drive, Eden Prairie, MN 55344-7319; and

 

John M. Baker, Greene Espel, P.L.L.P., 200 South Sixth Street, Suite 1200, Minneapolis, MN 55402-1415 (for appellant)

 

Andrew D. Parker, Nancy V. Mate, Smith Parker, P.L.L.P, 808 Colwell Building, 123 North Third Street, Minneapolis, MN 55401 (for amicus Metropolitan Council)

 

Susan L. Naughton, League of Minnesota Cities, 145 University Avenue West, St. Paul, MN 55103-2044 (for amici League of Minnesota Cities and Community Rights Counsel)

 

Laurie J. Miller, Joseph G. Springer, Fredrikson & Byron, P.A., 200 South Sixth Street, Suite 4000, Minneapolis, MN 55402-1425; and

 

Miriam Elizabeth Stone, Builders Association of the Twin Cities, 2960 Center Pointe Drive, Roseville, MN 55113 (for amicus The Builders Association of the Twin Cities)

 

 

            Considered and decided by Toussaint, Chief Judge; Lansing, Judge; and Randall, Judge.

U N P U B L I S H E D   O P I N I O N

TOUSSAINT, Chief Judge

            On appeal from a declaratory judgment and an alternative writ of mandamus in this zoning dispute, City of Eagan (the city) argues that the district court erroneously ordered it to amend its comprehensive guide plan and to commence eminent domain proceedings.  Because we conclude that the city's decision to deny the amendment to its plan was rational and the record does not support an unconstitutional taking, we reverse.

FACTS

This zoning dispute involves a property of about 120 acres in Eagan, known since 1967 as the Carriage Hills 18-hole Golf Course.  In 1996, the original owner of the golf course sold it to respondent Rahn Family LP, a Minnesota limited partnership (Rahn), for $3.6 million.  Rahn had experience in designing, operating, and building golf courses. 

On September 5, 2003, Rahn agreed to sell the golf course to respondent Wensmann Realty, Inc. (Wensmann), a developer and builder of residential homes.   The agreement was contingent on government authorities reclassifying and rezoning the property as mixed-use residential.  By a May 2004 letter to the city, Wensmann applied for an amendment to the city's comprehensive guide plan allowing residential development of the golf course.  After a public hearing and an advisory planning commission recommendation that the city deny Wensmann's application, the city council unanimously denied it. 

Rahn and Wensmann subsequently entered into an option agreement giving Wensmann the right to commence litigation to compel the city and any other governmental agencies to grant the permits and approvals necessary for its proposed residential development.  Rahn agreed to join in the litigation.

Wensmann commenced this declaratory judgment action and alternative petition for a writ of mandamus in district court.  The court heard cross-motions for summary judgment and granted declaratory relief and alternatively a writ of mandamus in favor of Wensmann.   It ordered that the city "immediately amend" the plan and submit the amendment for approval by the Metropolitan Council.[1]   If the city did not comply with the order within 30 days, the court would order the city to commence an eminent domain proceeding.  The city filed this appeal, and this court granted three motions to file amicus briefs.

D E C I S I O N

I.

Mendota Golf v. City of Mendota Heights, 708 N.W.2d 162 (Minn. 2006), reaffirmed the rational basis standard of review for declaratory judgments in land use decisions.  Id. at 179-80 (citing Honn v. City of Coon Rapids, 313 N.W.2d 409, 414-15 (Minn. 1981)).  Our scope of review is narrow.  Id. at 180. We uphold a city's land use decision unless the party challenging that decision establishes that the decision is "‘unsupported by any rational basis related to promoting the public health, safety, morals, or general welfare.'" Id. (quoting State by Rochester Ass'n of Neighborhoods v. City of Rochester, 268 N.W.2d 885, 888 (Minn. 1978)).  Our review of the district court's decision is an independent examination of the record, by which we reach our own conclusions as to the propriety of the city's decision. Nw. College v. City of Arden Hills, 281 N.W.2d 865, 868 (Minn. 1979).  When at least one of the reasons given by a city for its decision satisfies the rational basis test, that decision is not arbitrary.  St. Croix Dev., Inc. v. City of Apple Valley, 446 N.W.2d 392, 398 (Minn. App. 1989), review denied (Minn. Dec. 1, 1989).

The city argues that its decision to deny the amendment to the comprehensive plan was necessarily rational because the decision conformed to the plan, which was rational.  Rahn and Wensmann contend that this is not the law; if this were the case, all requests for amendments would be denied. 

Mendota Golf addresses similar arguments.  The historic use of the property as a golf course, the recent update of the comprehensive plan, and the public hearing comments indicating that citizens valued the open space and recreational opportunities provided by a golf course supported the conclusion that a "municipality has legitimate interests in protecting open and recreational space, as well as reaffirming historical land use designations."  Mendota Golf, 708 N.W.2d at 181.  These legitimate interests constituted a rational basis to deny the application to amend the plan.  Id. at 182.  But the supreme court's decision did not prescribe a "permanent comprehensive plan designation for the property" because the land owner and the city were free to explore other uses.  Id.

The "legitimate interests" recognized in Mendota Golf are nearly identical to the reasons stated here.  The property had been used as a golf course since 1967; the city plan had recently been updated in 2001; and the record indicates that Eagan citizens value the city's open space.  According to Mendota Golf, the city's decision was rationally based on the legitimate interests encompassed in its plan.

The city also cites concerns about traffic and overcrowded schools as rational bases for denying the amendment.  Rahn and Wensmann argue that the city relied "primarily on vague, unsubstantiated resident testimony" to support these concerns.  But our review of the record indicates that the city relied on other sources to conclude that traffic would increase and schools would be overcrowded.  The city planning report contained facts on and analyses of both of these issues.  The school district's own projection of enrollment statistics and the "capacity" for each school indicate that the schools have an ongoing problem with overcapacity.  Therefore, the city had additional rational bases for its denial of the application to amend the plan.

II.

In Minnesota, landowners[2] seeking to compel inverse condemnation have the burden of proving a taking has occurred. Vern Reynolds Constr., Inc. v. City of Champlin, 539 N.W.2d 614, 617 (Minn. App. 1995), review denied (Minn. Dec. 20, 1995). Whether a municipality has taken property without just compensation is a question of law, which this court may review de novo.  Alevizos v. Metro. Airports Comm'n, 298 Minn. 471, 484, 216 N.W.2d 651, 660-61 (1974).  But the district court's findings of fact with regard to a takings claim will be upheld unless clearly erroneous and unsupported by the record.  Parranto Bros., Inc. v. City of New Brighton, 425 N.W.2d 585, 591 (Minn. App. 1988), review denied (Minn. July 28, 1988).  "Mandamus is the proper vehicle to assert a claim for inverse condemnation."  Vern Reynolds, 539 N.W.2d at 616; see also Mendota Golf, 708 N.W.2d at 178 n.10.

The district court determined that the city's "denial of Wensmann's application to amend the city's Comprehensive Guide Plan constitutes governmental inaction that has effected an unconstitutional taking of the subject property under Penn Central Transp. Co. v. New York City, 438 U.S. 104, 98 S. Ct. 2646 (1978)."  Penn Central provides the analytical framework for a regulatory takings claim and considers:  (a) the economic impact of government action on the one suffering the loss, (b) the extent of a regulation's interference with distinct investment-backed expectations, and (c) the character of the government action at issue.  Id. at 124, 98 S. Ct. at 2659. [3]  

a.                   Economic Impact of Government Action

The city argues that the economic impact of a regulation must be judged by the difference in the economic value of the property just before the offending regulation against its value just after the regulation.  Rahn and Wensmann argue that economic impact must be measured by the difference in value between the property as currently guided and zoned and the property guided and zoned as they requested.  Here, government action or inaction did not change the status of the property, so there was no economic impact attributable to the city.

The record does not establish that the denial of the application in 2004, which maintained the existing long-term use of the property, diminished the property's value.  Various other factors impacted the value, including national trends, overbuilding in the area, and the size of the golf course.  Absent facts indicating that the denial of the application had a substantial negative economic impact to the property, the first element of the takings claim is not met.

b.                  Regulation's Interference with Investment-Backed Expectations

The city argues that Rahn had no reasonable investment-backed expectation to develop its land as residential property because Rahn purchased the land as an established golf course with the intention of continuing to operate it as a golf course.   

The second element of a takings-claim analysis is not met if the applicant for rezoning "knew at the time of purchase that the property was subject to a zoning restriction."  Myron v. City of Plymouth, 562 N.W.2d 21, 23-24 (Minn. App. 1997), aff'd without opinion, 581 N.W.2d 815 (Minn. 1998); see also Superior-FCR Landfill, Inc. v. County of Wright, 59 F. Supp. 2d 929, 934 (D. Minn. 1999) (stating that "those who purchase property with an awareness of the restrictions on its use cannot claim that a taking has occurred"). In such a case, the purchaser is presumably paying a price for the property that reflects the current zoning and is gambling that future rezoning will add value.  Myron, 562 N.W.2d. at 24.  An owner's expectations are based on the facts at the time of purchase.  Cf. Zeman v. City of Minneapolis, 552 N.W.2d 548, 553 (Minn. 1996) (stating that owner who had operated property as rental dwelling since purchasing it 20 years earlier had investment-backed expectation to continue using it as such).  Rahn's expectation at the time of purchase is undisputed; it expected to run a profitable golf course.

Rahn and Wensmann argue that Wensmann was entitled to a reasonable rate of return on its investment property but they provide no legal support for this argument.  While return on investment may be considered, it must be considered within the context of the three-part Penn Central inquiry and must have some relation to the governmental action under scrutiny.  See, e.g., Penn Central, 438 U.S. at 129, 98 S. Ct. a 2662 (stating only that parties accepted that existing use did permit reasonable return on investment and proceeding with analysis from there); State by Powderly v. Erickson, 285 N.W.2d 84, 90 (Minn. 1979) (noting no evidence that "the cost of renovation was so high that the landowner would not be able to obtain a reasonable return on its investment through future rentals").

Rahn and Wensmann also argue that it was reasonable to expect the city to approve the application because the city had taken some actions contemplating the possibility of developing Carriage Hills in the future.  These actions, however, did not compel the city to amend its plan and, in light of all of the facts, did not support a reasonable expectation by Rahn that the application would be granted.  

c.         Character of Regulation

The character of the regulatory action was to maintain the existing comprehensive plan.  The city had recently reviewed its plan, fulfilled the Metropolitan Land Planning Act requirements, and adopted a plan reflecting the legitimate interests of the city, its citizens, and the greater metropolitan area.  In light of the city's broad and substantial interests, any harm to the individual property owner in maintaining the existing restriction does not appear to be one that should be borne by the entire community.

Applying the Penn Central test and recognizing the holding in Myron, there is no legal or factual basis for Rahn and Wensmann's takings claim. 

Reversed.

[1] The city and the Metropolitan Council challenge the district court's authority to order the city to "immediately amend" the plan and the Metropolitan Council to approve the plan.  Because this court's determination that the city did not act arbitrarily is dispositive and requires reversal of the district court's decision, we do not address the challenge to the district court's authority for such orders.  But we note that mandamus has been held not appropriate to compel the city to amend its comprehensive plan.   Mendota Golf v. City of Mendota Heights, 708 N.W.2d 162, 175 (Minn. 2006).

[2] Because Rahn is the owner of the property and a party to this lawsuit and because we reverse the district court on the takings issue, we note but do not decide the city's argument that "Wensmann's option agreement is not a property interest that forms a viable basis for a takings claim."  See Brooks Inv. Co. v. City of Bloomington,305 Minn. 305, 315, 232 N.W.2d 911, 918 (1975) (stating that right to compensation for taking "vests in the person owning the property at the time of [government] interference"); see also Superior-FCR Landfill, Inc. v. County of Wright, 59 F. Supp. 2d 929 (D. Minn. 1999) (construing option agreement to provide optionee with no equitable interest in property).

[3] Rahn and Wensmann also rely on Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 112 S. Ct. 2886 (1992) and McShane v. City of Faribault, 292 N.W.2d 253 (Minn. 1980).  Both cases are factually distinguishable.  Lucas applies to a categorical taking based on the government's denial of "all economically beneficial or productive use of land."  Id. at 1015, 112 S. Ct. at 2893.  Here, the property continues to have an economically beneficial use (the golf course was recently valued as a golf course at nearly $1 million).  McShane involved an ordinance for the sole benefit of a governmental enterprise, the municipal airport, which the court expressly distinguished from an ordinance designed to effect a comprehensive plan.  Id.  The denial of the application here was not solely to benefit a "government enterprise."