CAFFE RIBS, INCORPORATED v. STATE OF TEXAS 14-0193 (Tex. April 1, 2016)
This is a condemnation case where the Texas Supreme Court held the property owners were entitled to admit evidence regarding the State’s interference with mitigating property to improve value.
Caffe Ribs, Inc. (“Caffe”) purchased the condemned property in 1995 from Reeves and Weatherford. The property was contaminated so Reeves and Weatherford agreed to clean up the contamination. In 2000 Reeves and Weatherford had identified the source of contamination and placed the property with the TCEQ for voluntary cleanup. In 2003, the State notified Caffe Ribs that it intended to condemn the property, or at least part of it, in connection with the Texas Department of Transportation’s project to expand Interstate 10. However, the TCEQ kept delaying any determination the property was properly cleaned up. Essentially, the TCEQ required four additional groundwatering wells be installed, but the TxDOT’s condemnation required all wells be plugged and abandoned, and any new wells be installed after construction was complete. The contamination was then used by the State to argue a decreased value of the property in condemnation proceedings. When CAffe moved to admit evidence of the State’s interference with clean-up processes, the State moved to exclude which was granted. After a jury returned a verdict with a valuation of the property, Caffe appealed. The Court of Appeals determined the error was harmless.
In condemnation proceedings the constitution requires payment of the “market value” of the condemned property—that is, “the price which the property would bring when it is offered for sale by one who desires, but is not obligated to sell, and is bought by one who is under no necessity of buying.” An impending condemnation project, however, can distort the value of property. The inflationary effects of such a project are referred to as “project enhancement,” while the deflationary effects are referred to as “condemnation blight,” or “project diminishment.” Since neither project enhancement nor project diminishment reflects true “market value” they are subject to exclusion. However, exclusion is not mandatory and “[w]e believe the use of a proper instruction, as opposed to an evidentiary exclusion, is particularly appropriate…”when dealing with project diminishment. “In this case, the trial court enforced the project-influence rule with a sweeping evidentiary exclusion.” As the United States Supreme Court has observed, “it would be manifestly unjust to permit a public authority to depreciate property values by a threat of the construction of a government project and then to take advantage of this depression in the price which it must pay for the property when eventually condemned.” United States v. Va. Elec. Power Co., 365 U.S. 624, 636 (1961). Because the Texas Supreme Court believed that is exactly what the State did, it concluded the exclusion was harmful error. The case was remanded for a new trial.