HOLD THE SALAMI: THE GOVERNMENT CANNOT STAGE MULTIPLE ACQUISITIONS TO REDUCE TOTAL JUST COMPENSATION

In homage to the upcoming season, I am writing the 12 Days of Condemnation, highlighting a dozen of my favorite eminent domain decisions. First, a 1973 United States Supreme Court case with both a substantive ruling that fairly benefits property owners and contains an unusual, historically significant turn of phrase.

In Almota Farmers Elevator & Warehouse Co v United States, 409 US 470 (1973), the property owner had leased land from a railroad company from 1919 until the condemnation was initiated in 1973 to operate grain elevators. It was a mutually beneficial arrangement since the grain elevator company shipped freight on its landlord’s railroad. 

The United States voluntarily acquired the underlying property from the landlord/railroad company. As a result, it “contended that just compensation for the leasehold interest, including the structures, should be ‘the fair market value of the legal rights possessed by the defendant by virtue of the lease as of the date of taking,’ and that no consideration should be given to any additional value based on the expectation that the lease might be renewed.” 

The Supreme Court rejected this contention. The tenant/grain elevator company “was to be compensated for the full market value of its leasehold ‘and building improvements thereon as of the date of taking . . ., the total value of said leasehold and improvements . . . to be what the interests of said company therein could have been then sold for upon the open market considering all elements and possibilities whatsoever found to then affect the market value of those interests including, but not exclusive of, the possibilities of renewal of the lease and of the landlord requiring the removal of the improvements in the event of there being no lease renewal.”

This holding obviously benefits tenants by rejecting the contention that the value of their interest is automatically capped by the end of the lease term.

It also mirrors other standards found in Michigan law. The United States Supreme Court describes the necessary standard as a “possibility,” not a probability or some other, more difficult standard to reach. The word possibility has been used by the Michigan Supreme Court when identifying the standard for obtaining a rezoning or a variance that impacts the value of property in State Hwy. Comm'r v Eilender, 362 Mich 697 (1961) and Dept of Transp v VanElslander, 460 Mich 127 (1999). Indeed, the Court of Appeals reversed when a trial court used a “probability” standard as it relates to a rezoning in Michigan State Hwy Comm v Haehnle, 69 Mich App 336 (1976).

All these principles are important to determining just compensation. But the reason that Almota Farmers Elevator is one of my favorite cases is found in a fun turn of phrase offered by Justice Powell in a concurring opinion. First, some more background. Justice Powell ties the issue to the scope of the project rule, which requires just compensation to be determined as though the current project had not been contemplated.  “Here, however, the Government held no interest in the land until its navigation project required the acquisition of both the fee and the leasehold interests. If at that point, the Government had condemned both interests in a single proceeding, or in separate proceedings, Almota would have been entitled to compensation for the value of the improvements beyond the present lease term. Almota bore the risk that the railroad would change its plans, but should not be forced to bear the risk that the Government would condemn the fee and change its use. Where multiple properties or property interests are condemned for a particular public project, the Government must pay pre-existing market value for each. Neither the Government nor the condemnee may take advantage of ‘an alteration in market value attributable to the project itself.’”

Now comes the magical phrase. “The result should not be different merely because the Government arranged to acquire the fee interest by negotiation rather than by condemnation…. [I]t would be unjust to allow the Government to use ‘salami tactics' to reduce the amount of one property owner's compensation by first acquiring an adjoining piece of property or another interest in the same property from another property owner.” Essentially, the government cannot by a series of smaller actions reduce the value of property and avoid paying just compensation in a manner that would not be allowed in a single taking.

I have always enjoyed this case because of the use of the term “salami tactics,” which I thought was merely funny before I researched this post. But the use of the phrase was apparently intended to offer a stinging rebuke of the government’s tactics. Given the timing of this opinion, in 1973 during the height of the Cold War and the tail end of the Vietnam War, Justice Powell’s choice of phrase was particularly damning to the government. According to an online Political Dictionary, the concept “salami tactics” was associated with the worst political dictators of the twentieth century. For example, Hitler’s staged annexation of territory around Germany or the gradual process of reducing reforms after the 1968 Prague Summer where the Soviet Union invaded its nominal ally Czechoslovakia are referred to as salami tactics.