Last week, the Legal Helpdesk featured an article on eminent domain, the process by which the government pays just compensation to take private property for public necessity or public use. This week, we focus on inverse condemnation, where the government passes regulation or takes some other action that devalues the property without providing compensation to the property owner.

In addressing this issue, the Alabama Supreme Court stated that a property owner has a cause of action for “inverse condemnation” by which he or she can recover just compensation for a taking when the government fails to initiate eminent domain proceedings.[i] On a side note, Alabama law prohibits the government from intentionally making it necessary for a property owner to file an inverse condemnation action.[ii]

Examples of government acts that may give rise to an inverse condemnation claim include:

• When the government causes contaminated water to enter an owner’s property, resulting in damage.[iii]
• When the government acts to widen a creek to alleviate flooding, diverting water onto pipelines and causing damage.[iv]
• When the government enacts a regulatory “set back” provision as part of a roadway construction project, preventing a mineral estate owner from ever accessing the coal beneath the property.[v]

Procedural Notes for an Inverse Condemnation Action

When property has been taken by government action without payment, the property owner may seek payment by filing a lawsuit for inverse condemnation. Procedurally, an inverse condemnation lawsuit is brought by the property owner as a civil action against government official(s) in their representative capacity in the county where the official(s) resides.[vi] Finally, if the property owner prevails in the inverse condemnation action, the court is required to award litigation expenses, including attorneys’ fees and court costs, to the property owner.[vii]

Another procedural aspect of inverse condemnation is the relevant statute of limitations. The statute of limitations varies depending on whether the governmental body alleged to have taken the property at issue is a municipality, county, or state. For claims against a municipality, the inverse condemnation claim must be brought within two years from the time the taking is complete.[viii] For claims against a county, the inverse condemnation claim must be brought within 12 months from the time the taking is complete.[ix] Presently, there is no specific statute of limitations for filing an inverse condemnation action against a state official although legislation has been proposed in recent years which would establish a two-year statute of limitations for claims against state officials.

Just Compensation and Valuation of Property

If a property owner prevails in the inverse condemnation action, the government is required to pay just compensation for the taking. Alabama law envisions a plaintiff recovering “the difference between the fair market value of the property before the taking and the fair market value of the remainder after the taking.”[x]

In an inverse condemnation action, “the burden is on the property owner to prove the existence and the extent of the damage to his property, and the measure of damages is the difference between the value of the property before the work was done and the value afterwards.”[xi] A property owner may present evidence of fair market value as allowed by law, which can include the opinion of an appraiser, evidence as to whether the taking helped or hurt the property’s productivity, how the taking impacted access to the property, and the cost of fencing off the remainder of the property if reasonably necessary.[xii]

Regulatory Takings in State and Federal Court

As mentioned above, uncompensated takings may occur by government regulation, whether a statute, ordinance or other legislative action. These are called regulatory takings. However, the Alabama Supreme Court has held that a purely regulatory taking (with no physical invasion or damage to the property) is not recognized or compensable under the Alabama Constitution.[xiii] As such, if a government entity enacts a regulation that prevents a property owner from utilizing the property in a certain manner (such as rezoning the property from business to residential), but no physical invasion or damage to the property occurs, the owner does not have a claim for inverse condemnation in an Alabama state court.

Although regulatory takings are not actionable through a claim of inverse condemnation in Alabama state courts, the same may be actionable in federal court. The “Takings Clause” of the Fifth Amendment to the United States Constitution provides that private property cannot be taken for public use “without just compensation.”[xiv] This prohibition was also applied to the states.[xv] The U.S. Supreme Court has recognized causes of action for inverse condemnation resulting from a regulatory taking in two categories:

• Per Se Takings: When the government enacts a regulation that “denies all economically beneficial or productive use of land,” it is a per se[xvi] The Court has stated from the perspective of the property owner, a deprivation of all economically beneficial use is deprivation of the property itself.[xvii] Additionally, when the government enacts a regulation that amounts to a permanent physical invasion of private property, no matter how small, that regulation is a per se taking.[xviii] An example of this occurred when owners of buildings were required by local ordinance to allow antennas and cable lines to be permanently attached to the buildings.
  
  
• As Applied Takings: Government regulations that do not deny all economically beneficial use and that do not amount to a physical taking may still be compensable regulatory takings as applied to a specific parcel of land. For example, the Eleventh Circuit found that a landowner was entitled to just compensation where he initially received a permit to establish a wood chipping business on a parcel of land, but the permit was later revoked based on the city’s decision to rezone the parcel to prevent a wood chipping business from operating.[xix] In this situation, federal courts apply a three-factor test:
  
  
  • The character of the governmental regulation;
  • The economic impact of the regulation as applied to the particular property; and
  • The extent to which the regulation has interfered with the property owner’s distinct investment backed expectations with respect to that property.[xx]

What to Consider

Based on the above information, should your client become subject to government regulation that negatively impacts his or her property, it is important to consider the relevant facts to determine whether a claim may be brought in state or federal court for inverse condemnation. Specifically, if the regulation at issue has not resulted in any physical invasion or damage to the property, the owner does not have a claim for inverse condemnation in an Alabama state court but may have a claim in federal court under the Takings Clause of the Fifth Amendment. An attorney who specializes in property law should be able to advise your client of his or her legal options.

“Disclaimer: This article provides general information only and does not constitute legal advice. No attorney-client relationship is created by reading, viewing, opening, or other action related to this article. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Specific circumstances may change the applicable law or advice a competent individual would provide. In addition, this information is not meant to supplant or in any way replace Errors and Omissions Insurance or other insurance coverage. Mistakes may occasionally be made. Once notified, we will work diligently to correct the issue in a timely manner and mark any updated or changed articles accordingly.”

[i] See Ex parte Alabama Dep’t of Transportation, 143 So. 3d 730 (Ala. 2013).
[ii] See Ala. Code § 18-1A-32.
[iii] Ex parte Alabama Dep’t of Transportation, 143 So. 3d at 739. 
[iv] Jefferson County v. Southern Natural Gas Co., 621 So. 2d 1282 (Ala. 1993).
[v] State DOT v. Land Energy, Ltd., 886 So. 2d 787 (Ala. 2004).
[vi] Drummond Co. v. State DOT, 937 So. 2d 56, 58 (Ala. 2006); Ex parte Neely, 653 So. 2d 945, 947 (Ala. 1995).
[vii] Ala. Code § 18-1A-32(b).
[viii] See Ala. Code 11-47-23; Long v. City of Athens, 24 So. 3d 1110, 1116 (Ala. Civ. App. 2009).
[ix] See Ala. Code § 11-12-8.
[x] Ala. Code § 18-1A-170.
[xi] City of Tuscaloosa v. Patterson, 534 So. 2d 283, 286 (Ala. 1988).
[xii] See Ala. Code § 18-1A-190—18-1A-197.
[xiii] Town of Gurley v. M&N Materials, Inc., 143 So. 3d 1 (Ala. 2012).
[xiv] U.S. Const. Amend. V (1791).
[xv] Burlington, 166 U.S. 226, 238-39 (1897); see also Penn Central Transportation Co., 438 U.S. 104, 122 (1978).
[xvi] See Lucas, 505 U.S. 1003 (1992)
[xvii] Id.
[xviii] See Loretto, 458 U.S. 419 (1982)
[xix] A.A. Profiles, Inc. v. Ft. Lauderdale, 850 F.2d 1483 (11th Cir. 1988).
[xx] Penn Central, 438 U.S. at 122.