A Critical Review of Law of Business Loss Claims in Georgia Eminent Domain Jurisprudence - Charles M. Cork, Iii

Publication year1999


A Critical Review of the Law of Business Loss Claims in Georgia Eminent Domain Jurisprudenceby Charles M. Cork, III*

I. Introduction

The Georgia Constitution provides that "private property shall not be taken or damaged for public purposes without just and adequate compensation being first paid."1 While the courts have recognized that a business is property within the meaning of the constitution, case law would rewrite this provision more or less as follows:

Private property shall not be taken or damaged for public purposes without just and adequate compensation being first paid, except that the business of a property owner may be partially taken or damaged without compensation, and except that the business of a property owner or tenant may be temporarily taken or damaged without compensation.

Contradictory rules have also evolved for the means of valuing both the business damage that occurs and the loss in value of the underlying real property interests. Outcomes have turned on distinctions between "landowner" and "tenant," "permanent" and "temporary," "total" and "partial," "business" and "real property," and "unique" and "nonunique," most of which have no apparent connection with the constitutional text.

This Article surveys the background of business damage claims in Georgia eminent domain and inverse condemnation law. It then critically reviews certain problem areas to show how contradictory and counter-intuitive rulings developed and calls for the resolution of those issues by overruling certain cases. The Article concludes with a proposal for a comprehensive approach to valuation questions in Georgia, including business valuation questions.

II. Historical Survey

A. The Emergence of the Duty to Compensate for Loss of Business in Eminent Domain Cases

Business damages became compensable as a separate item of compensation in 1966 when the supreme court decided Bowers v. Fulton County.2 Before 1966 an owner could use business damage evidence to prove the value of the property before and after the taking, but an owner could not recover business damages as a separate item.3 In the leading case, Pause v. City of Atlanta,4 in which a tenant claimed damages resulting from the construction of a bridge that impeded access to the premises, the Georgia Supreme Court held that

neither the profits of the business carried on upon the premises so leased, nor the cost of fixtures or other improvements placed therein, nor of articles purchased for the purpose of enabling the lessee to conduct such business, nor the diminution in value of such fixtures, improvements, or articles as are removed by the lessee from the premises upon leaving the same are recoverable as damages; but the

increased value of the premises for rent in consequence of the putting in of such fixtures and improvements may be considered in computing the damages to the leasehold estate.

. . . [I]t is competent for the plaintiff to prove that the business in question was in fact profitable, not for the purpose of recovering any loss in profits, but solely to illustrate and throw light upon the value of the premises for rent.5

While the above rules constituted the predominant view before 1966,6 there were other cases suggesting other measures of damages. Some cases referred to "special damages"7 or "direct damages,"8 thereby suggesting that some compensation could be allowed for injury to economically viable activities on the property apart from the general damage of lost fair market value.9 Tenants, as owners of the use of property, could recover for any injury to the use.10 A tenancy at will was held to have no market value because it was unassignable, and thus its value would have to be determined by an impartial jury in view of all proven facts, including the extent of its profitability.11

Finally, a view emerged that realty could have a peculiar value to the owner in excess of its fair market value, and in such cases, the owner is entitled to recover the higher value. Initially, this notion came from cases involving types of property that are so peculiar as to lack a market value or that have such a special design that the general market would not compensate for the loss.12 In the decade before Bowers, this view evolved through a series of court of appeals decisions into the general proposition that the owner of property would be entitled to recover the actual, peculiar, or unique value of the property when the evidence showed that fair market value would not justly and adequately compensate the owner.13 Thus, these cases recognized that whether fair market value constituted just and adequate compensation was to be determined by the circumstances of the case rather than by dogma or ideology.14 No specific measure of damages was assigned for such cases, but because the owner could show the profitability of the realty and because the jury could award the actual value of the realty, the cases strongly suggested that realty could be valued in terms of its economic use.

In 1966 the court in Bowers pronounced the statements in the earlier cases against the recoverability of business damages to be

obiter dictum because they either did not involve the taking or directly damaging of the condemnee's physical property by the condemnor, but were suits in which damages were claimed because improvements made by the condemnor rendered less valuable the condemnee's premises or in which no claim for damages was made on account of damage to the condemnee's business or for expenses incurred by him.15

The court rejected the earlier cases as suggesting that the meaning of property in the constitution was limited to physical objects.16 Instead, the court held that property signifies "every species of property, real and personal, corporeal and incorporeal"17 and embraces not only the thing itself but also "the right of a person to possess, use, enjoy, and dispose of it, and the corresponding right to exclude others from the use."18

Under this standard, a business is property that is protected by the eminent domain clause of the constitution.19

The court in Bowers found no conflict between its holding that business damages are a separate item of recovery and the prior rule that the suitability of real property for peculiar purposes, as manifested by its income-producing potential, could show a value in excess of fair market value.20 The court reasoned that "[t]he destruction of an established business is and must be a separate item of recovery" because business loss does not reflect mere loss in market value; indeed, the value of a business may often exceed the value of the real estate on which it is located.21 Using the example of a $100,000 business operating in a "shabby and cheap building" worth $5000, the court considered it "absurd" and "fallacious" to appraise the realty as having the value of the business.22

In a case decided the same year as Bowers, the supreme court provided the following observation that may serve to explain its conceptual orientation in Bowers:

Private property is the antithesis of Socialism or Communism. Indeed, it is an insuperable barrier to the establishment of either collective system of government. Too often, as in this case, the desire of the average citizen to secure the blessings of a good thing like beautifica-tion of our highways, and their safety, blinds them to a consideration of the property owner's right to be saved from harm by even the government. The thoughtless, the irresponsible, and the misguided will likely say that this court has blocked the effort to beautify and render our highways safer. But the actual truth is that we have only protected constitutional rights by condemning the unconstitutional method to attain such desirable ends, and to emphasize that there is a perfect constitutional way which must be employed for that purpose. Those whose ox is not being gored by this Act might be impatient and complain of this decision, but if this court yielded to them and sanctioned this violation of the Constitution we would thereby set a precedent whereby tomorrow when the critics are having their own ox gored, we would be bound to refuse them any protection. Our decisions are not just good for today but they are equally valid tomorrow.23

In other decisions from the same period, the court also noted the importance of property as a barrier to totalitarianism24 and that the duty to pay just compensation was a protection of individuals from the oppressive and tyrannical power of the stte.25 a

B. The Emergence of an Element of Uniqueness Before Business Losses May Be Recovered

Taken to its logical extreme, Bowers would have authorized recovery for the taking or damaging of every business on every condemned lot, even if the business could be resumed on neighboring property with minimal interruption or customer attrition. Moreover, by finding no conflict between Bowers and the peculiar value cases, the court arguably authorized recovery of business damages and a value of the realty based on its income-related peculiar value, thus posing a substantial risk of double recovery for the same loss. Subsequent cases addressed the former problem by invoking a uniqueness requirement for recovery of business damages. The latter problem did not materialize because, apparently, owners chose, or trial courts persuaded them, not to assert claims that would run the risk of double recovery.

The first pertinent case after Bowers rejected a farmer's claim that the income stream from the sale of his farm's products and his pond's fish justified finding that the farm had a peculiar value above fair market value.26 Another similar case involved a claim for lost rental income because the taking of a large strip of land for a road in the middle of a farm persuaded the tenant to cease farming operations.27 In rejecting this claim, the court distinguished Bowers on the ground that the evidence failed to show that the...

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