National By-Products, Inc. v. City of Little Rock

NATIONAL BY-PRODUCTS, INC. v. CITY of LITTLE
ROCK, by and through the Little Rock Regional
Airport Commission

95-807                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
                Opinion delivered March 11, 1996


1.   Motions -- review of order granting motion to dismiss -- how
     treated. -- When reviewing an order granting a motion to
     dismiss to determine whether dismissal was proper, the court
     treats the allegations in the pleading as true and views those
     allegations in a light most favorable to the appellant. 

2.   Property -- taking of property by municipality -- when
     compensation is required. -- Article 2, section 22, of the
     Arkansas Constitution which provides that "the right of
     property is before and higher than any constitutional
     sanction; and private property shall not be taken,
     appropriated or damaged for public use, without just
     compensation therefor", has been interpreted to require
     compensation for a taking when a municipality acts in a manner
     which substantially diminishes the value of a landowner's
     land, and its actions are shown to be intentional.

3.   Property -- law of inverse condemnation discussed. -- As
     originally conceived and developed, the concept of inverse
     condemnation was a remedy for physical taking of private
     property without following eminent domain procedures, "fault"
     has nothing to do with eminent domain, and it is not bare
     trespass or negligence which results in inverse condemnation
     but something which amounts to a de facto or common law
     "taking"; inverse condemnation is thus a cause of action
     against a governmental defendant to recover the value of
     property which has been taken in fact by a governmental entity
     although not through eminent domain procedures. 

4.   Property -- condemnation -- when taking occurs. -- A taking
     occurs when a condemnor acts in a manner which substantially
     diminishes the value of a landowner's land, and a continuing
     trespass or nuisance can ripen into inverse condemnation; a
     taking does not require permanency nor an irrevocable injury. 

5.   Property -- condemnation -- when taking occurs. -- The context
     of condemnation proceedings, a taking does not occur until
     compensation is determined and paid; a reduction or increase
     in the value of property may occur by reason of legislation
     for or the beginning or completion of a project, such changes
     in value are incidents of ownership; they cannot be considered
     as a `taking' in the constitutional sense.


6.   Property -- condemnation -- no damages allowed for mere
     "threat to condemn." -- No damages are allowable for a mere
     "threat to condemn." 

7.   Property -- condemnation -- planning in anticipation of
     improvement does not constitute taking. -- The general rule is
     that mere plotting or planning in anticipation of an
     improvement does not constitute a taking or damaging of the
     property affected where the government has not imposed a
     restraint on the use of the property. 

8.   Property -- continued adherence to general rule supported by
     public policy considerations -- government cannot incur
     inverse condemnation liability merely by announcing plans to
     condemn property in future. -- Construction of public-works
     projects would be severely impeded if the government could
     incur inverse condemnation liability merely by announcing
     plans to condemn property in the future; such a rule would
     encourage the government to maintain the secrecy of proposed
     projects as long as possible, hindering public debate and
     increasing waste and inefficiency; after announcing a project,
     the government would be under pressure to acquire the needed
     property as quickly as possible to avoid or minimize
     liability; this likewise would limit public input, and
     forestall any meaningful review of the project's environmental
     consequences; the government would also be reluctant to
     publicly suggest alternative locations, for fear that it might
     incur inverse condemnation liability to multiple landowners
     arising out of a single proposed project; failing to consider
     available alternatives is not only inefficient, but is at odds
     with proper environmental review.

9.   Property -- condemnation -- property continued to be used for
     its traditional purpose -- appellee's actions did not
     constitute taking of appellant's property. -- Where the
     property in question continued to be used for its traditional
     purpose as a rendering plant, neither the City nor the
     Commission placed any direct restraint on that use, and there
     was no allegation that the City or the Commission acted in bad
     faith in its dealings with the landowner, it was clear that,
     on these facts, any damages sustained by appellant were
     insufficient to support an action for inverse condemnation;
     when viewing the allegations in the amended complaint in a
     light most favorable to appellant, it could not be said that
     the appellee's actions constituted a taking of appellant's
     property.


     Appeal from Pulaski Circuit Court, Fifth Division; Morris W.
Thompson, Judge; affirmed.
     Skokos, Bequette, & Smith, by:  Michael G. Smith, for
appellant.
     Jerome Green & Associates, for appellee.

     Bradley D. Jesson, Chief Justice.
     March 11, 1996   *ADVREP1*







NATIONAL BY-PRODUCTS, INC.,
                    APPELLANT,

V.

CITY OF LITTLE ROCK, by and
through the LITTLE ROCK
REGIONAL AIRPORT COMMISSION,
                    APPELLEE,





95-807


APPEAL FROM THE PULASKI COUNTY
CIRCUIT COURT, FIFTH DIVISION
(94-10751)


HONORABLE MORRIS W. THOMPSON
CIRCUIT JUDGE




AFFIRMED.


                 CHIEF JUSTICE BRADLEY D. JESSON



     The appellant, National By-Products, Inc. ("National"), filed
a suit for inverse condemnation against the appellee, City of
Little Rock, acting through the Little Rock Regional Airport
Commission ("Commission").  National owns property near the airport
on which it operates an animal by-products rendering plant.  In its
complaint and amended complaint, National claimed that the
Commission's plans to expand a runway through its property amounted
to a "taking" in violation of the Fifth Amendment to the United
States Constitution and Ark. Const. art. 2,  22.  National appeals
from the trial court's dismissal of its case for failure to state
facts upon which relief could be granted.  We affirm.
     The facts as set out in National's complaint and amended
complaint are as follows.  National operates its plant at 4300 East
9th Street in Little Rock, and also owns an adjacent vacant parcel. 
Both the plant and the vacant parcel are located between the north
end of the airport's runway and the south bank of the Arkansas
River.  According to National, its property was identified in a
1985 study as a necessary acquisition for noise mitigation
purposes.                
     In 1991, the Commission acquired substantial property at the
north end of Runway 4L-22R as a part of a noise mitigation and
runway protection zone.  National attached a map to its complaint
showing these acquisitions.  According to National, its property
was the only non-residential improvement in this area.   While
Federal Aviation Administration (FAA) funds for the project were
approved, the grant was not large enough to enable the Commission
to acquire National's property.  
     The Commission announced its decision to proceed with the
acquisition project in August of 1992 and had National's property
appraised.  It acquired the residential properties in the area and
removed the improvements therefrom.  According to National, the
effect of these surrounding acquisitions left its property an
"island," as it became the sole property in the immediate vicinity
that had not been acquired by the Commission.  
     According to National, the acquisition of its property
remained a high priority for the Commission, as it is practically
impossible to extend the runway to the south.  The Commission's
pre-application for funds for the acquisition of National's
property remains on file with the FAA.  National attached a copy of
an official Commission map showing the intended runway extension,
which, in addition to mitigating noise, is necessary for reducing
current weight restrictions on aircraft, increasing capabilities of
non-stop flights, and installing specialized landing and lighting
systems.
     Between late 1993 and early 1994, the Commission prepared a
Capital Improvement Plan for the years 1995 through 1997.  The two
priority items in the plan were the extension of the runway and the
installation of the landing and lighting systems.  According to
National, the Commission has publicly announced, through the news
media, the filing and recording of maps, and the adoption of
resolutions, its plans to install the landing and lighting systems
in the vicinity of National's property.  As part of this plan, the
Commission applied to the FAA for permission to impose a $3.00 per
passenger facility charge, the proceeds of which would be used to
retire revenue bonds to fund the project.  An approved layout plan
is on file with the FAA.
     According to National, its business is capital intensive and
requires frequent maintenance to keep equipment in good working
order.  National alleges that substantial expenditures, including
the purchase and installation of new equipment, would be made at
great risk due to the uncertainty as to whether these costs could
be recovered in subsequent litigation or by agreement with the
Commission.  
     In 1989, National's competitors approached National's
suppliers and informed them of newspaper articles about the
proposed runway extension.  As the suppliers are required by law to
dispose of inedible animal by-products promptly, National's
competitors were able to convince a number of National's customers
to change rendering services.  According to National, prospective
purchasers of National's business, once informed of the proposed
airport expansion, have immediately lost interest in buying the
company.  Additionally, National has had extreme difficulty in
retaining its management and employees. 
     In sum, National alleges it has suffered material harm to its
operations to the extent that it has been substantially deprived of
the use and enjoyment of its property.  As a result of the
Commission's actions, which have "effectively frozen [its]
operation and have depressed land values," National claims that its
property has been rendered unfit for its highest and best
commercial use.  National further claims that the Commission's
actions have resulted in permanent and substantial interference and
deprivation amounting to an actual or constructive taking in
violation of the Fifth Amendment to the United States Constitution
and Ark. Const. art, 2,  22.  National has asked for the fair
market value of its property from the date the taking was
effective.  In its original complaint, National claimed that this
amount is in excess of the $559,600.00 appraisal figure obtained by
the Commission.     
     The Commission filed a motion to dismiss, asserting that
National had failed to assert facts constituting actual trespass or
a physical taking under Arkansas law, and that National had made no
showing of total diminution in the value of its property.  National
filed a response to the motion, claiming that it need only
demonstrate that the Commission acted in a manner that
substantially diminished the value of its property.  The trial
court heard arguments from counsel at a hearing on the motion, but
no evidence or witness testimony was presented.  At the conclusion
of the hearing, the trial court ruled that the adverse impact on
the commercial use of National's property appeared to be caused by
its competitors rather than the direct result of the Commission's
actions.  In determining that National's complaint did not state a
cause of action, the trial court further observed that the law in
Arkansas on inverse condemnation has historically involved some
type of invasion or trespass where governmental activities
interfere substantially with the quiet enjoyment of the subject
property or diminish its commercial use.  The trial court
subsequently entered a judgment of dismissal pursuant to Ark. R.
Civ. P. 12(b)(6), from which National takes this appeal.  
     When reviewing an order granting a motion to dismiss to
determine whether dismissal was proper, we treat the allegations in
the pleading as true and view those allegations in a light most
favorable to the appellant. Mann v. Orrell, 322 Ark. 701, 912 S.W.2d 1 (1995).  
     Article 2, section 22 of the Arkansas Constitution provides
that "[t]he right of property is before and higher than any
constitutional sanction; and private property shall not be taken,
appropriated or damaged for public use, without just compensation
therefor."  We have interpreted this provision to require
compensation for a taking when a municipality acts in a manner
which substantially diminishes the value of a landowner's land, and
its actions are shown to be intentional. Robinson v. City of
Ashdown, 301 Ark. 226, 783 S.W.2d 53 (1990).  A conspectus of the
law on inverse condemnation is as follows:   
     As originally conceived and developed, the concept of
     inverse condemnation was a remedy for physical taking of
     private property without following eminent domain
     procedures. "Fault" has nothing to do with eminent
     domain, and it is not bare trespass or negligence which
     results in inverse condemnation but something which
     amounts to a de facto or common law "taking." J. Sackman
     & P. Rohan, Nichols on Eminent Domain, 8.1[4] (Rev. 3d
     ed. 1985, Supp. 1987). Inverse condemnation is thus a
     cause of action against a governmental defendant to
     recover the value of property which has been taken in
     fact by a governmental entity although not through
     eminent domain procedures. 

301 Ark. 226 at 230.  In Robinson, we stated that a taking occurs
when a condemnor acts in a manner which substantially diminishes
the value of a landowner's land, and that a continuing trespass or
nuisance could ripen into inverse condemnation.  Later, in City of
Fayetteville v. Stanberry, 305 Ark. 210, 807 S.W.2d 26 (1991),
while we did not provide a definitive statement of what constitutes
a taking, we emphasized that a taking does not require permanency
nor an irrevocable injury.  305 Ark. 210 at 214-215; citing First
English Evangelical Lutheran Church v. County of Los Angeles, 482 U.S. 304 (1987).  
     At least one commentator has characterized the issue presented
in this case as one involving  "condemnation blight," which is
defined as "the debilitating effect upon value of a threatened,
imminent or potential condemnation." 4 J. Sackman, Nichols on
Eminent Domain,  12B.17[6] (Rev. 3d ed. 1995).  The following
discussion is illustrative:  
     The question has arisen with more and more frequency,
     usually in the format of an action in inverse
     condemnation: Absent a "taking" in the legal and
     traditional sense, does "condemnation blight" give rise
     to a cause of action for the recovery of the diminution
     in property value, lost rental income and increased and
     unrequited costs of maintenance of protection of
     property?  Several jurisdictions require a physical
     taking or legal restraint as a sine qua non to a
     sustainable cause of action.  Other jurisdictions,
     recognizing the economic impact, have equated
     condemnation blight with a de facto taking.  However, it
     has been held that damages for loss of business and
     depreciation of property resulting from the condemnation
     of adjacent land are noncompensable where there is no
     interference with possession, use, or enjoyment of such
     land.    
 
Id. at 12B-256-258 [footnotes omitted].   
     In Danforth v. United States, 308 U.S. 271 (1939), a landowner
contended that the "taking" of his property had occurred prior to
the institution of condemnation proceedings, by reason of the
enactment of the Flood Control Act.  He claimed that the passage of
the Act had diminished the value of his property because the plan
embodied in the Act required condemnation of a flowage easement
across his property.  The United States Supreme Court held that, in
the context of condemnation proceedings, a taking does not occur
until compensation is determined and paid:
          A reduction or increase in the value of property may
     occur by reason of legislation for or the beginning or
     completion of a project.  Such changes in value are
     incidents of ownership.  They cannot be considered as a
     `taking' in the constitutional sense.
 
482 U.S. 271 at 285.  See also Agins v. City of Tiburon, 447 U.S. 255 (1980)(a municipality's good-faith planning activities, which
did not result in successful prosecution of an eminent domain
claim, did not so burden landowners' enjoyment of their property as
to constitute a taking).
     We followed the rationale of the Danforth decision in Hood v.
Chadick, County Judge, 272 Ark. 444, 615 S.W.2d 357 (1981); see
also 4 J. Sachman, Nichols on Eminent Domain  12B.17[6] (Rev. 3d
ed. 1995).  In that case, Hood appealed from the trial court's
dismissal of his case against Jefferson County for damages he
alleged were caused by the county's threat to take his property. 
Hood owned a building registered as a historical landmark located
across the street from the Jefferson County Courthouse.  After the
courthouse burned in 1976, a commission was appointed to discuss
plans for rebuilding.  The commission's members considered plans to
take Hood's property for parking and landscaping.  The original
plan, approved by the City Council in 1978, was withdrawn from a
November 1978 election.  A subsequent plan was developed and
referred to the people in a July 1979 election.  The plan was
defeated.  Subsequently, the county dismissed its condemnation suit
against Hood, which had been filed in response to Hood's suit to
enjoin the county judge from taking his property and for damages
for loss of rentals.  In affirming the trial court's dismissal of
Hood's case, we observed that the county never took possession or
even entered upon Hood's property and concluded that "[n]o damages
are allowable for a mere `threat to condemn.'" Id. at 447; see also
Watson v. Harris, 214 Ark. 349, 216 S.W.2d 784 (1949); Southwestern
Water Co. v. Merritt, 224 Ark. 499, 275 S.W.2d 18 (1955)(holding
that the actual taking or damage of lands for public use is what
must be compensated under the state and federal constitutions, not
a plan to take or damage the land).   
     Our holding in Hood is consistent with the law in several
jurisdictions which adhere to the general rule that mere plotting
or planning in anticipation of an improvement does not constitute
a taking or damaging of the property affected where the government
has not imposed a restraint on the use of the property.  See e.g.,
Westgate Ltd. v. State, 843 S.W.2d 448 (Tex. 1992) and Lone Star
Ind. v. Sec. of Kan. Dept. of Transp., 671 P.2d 511 (Kan. 1983)
(citing with approval Hood v. Chadick, supra); see also J.R.
Kemper, Annotation, Plotting or Planning in Anticipation of
Improvement as Taking or Damaging of Property Affected, 37 A.L.R.3d
127 (1971 and Supp. 1995).
     As outlined in Westgate, Ltd. v. State, supra, public policy
considerations support our continued adherence to the general rule:
     Construction of public-works projects would be severely
     impeded if the government could incur inverse
     condemnation liability merely by announcing plans to
     condemn property in the future.  Such a rule would
     encourage the government to maintain the secrecy of
     proposed projects as long as possible, hindering public
     debate and increasing waste and inefficiency.  After
     announcing a project, the government would be under
     pressure to acquire the needed property as quickly as
     possible to avoid or minimize liability.  This likewise
     would limit public input, and forestall any meaningful
     review of the project's environmental consequences.  The
     government would also be reluctant to publicly suggest
     alternative locations, for fear that it might incur
     inverse condemnation liability to multiple landowners
     arising out of a single proposed project.  Failing to
     consider available alternatives is not only inefficient,
     but is at odds with proper environmental review.

843 S.W.2d 448 at 453 (citations omitted).  As we recognized in
Hood, these policy reasons might not be applicable where a
condemning authority is accused of intentionally injuring a
landowner.  However, as conceded by counsel for National during
oral argument, the Commission, through its actions, did not
manifest such an intent to cause injury. 
     In this case, the property in question continued to be used
for its traditional purpose as a rendering plant.  Neither the City
nor the Commission has placed any direct restraint on that use. 
Likewise, there is no allegation that the City or the Commission
acted in bad faith in its dealings with the landowner.  It is clear
that, on the facts before us, any damages sustained by National
were insufficient to support an action for inverse condemnation. 
When viewing the allegations in the amended complaint in a light
most favorable to National, it cannot be said that the Commission's
actions constituted a taking of National's property.
     Affirmed.