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United States v. Miller – The Most Misunderstood Condemnation Case

United States v Miller, 317 U.S. 369 (1943) is the most misunderstood condemnation case ever decided. The facts of the case were fairly simple; the United States condemned a strip across property owners’ land for tracks of a railroad that had to be relocated because of prospective flooding of the old right-of-way. The project had been recommended in 1934 with funding authorized in 1937. The property owners had purchased and subdivided the property in question in 1936 and 1937. After the condemnation in 1938, claimants sought direct and severance damage. The court held that:

If a distinct tract is condemned, in whole or in part, other lands in the neighborhood may increase in market value due to the proximity of the public improvement erected on the land taken. Should the government at a later date, determine to take these other lands, it must pay their market value as enhanced by this factor of proximity. … The question then is whether the respondent’s lands were probably within the scope of the project from the time the government was committed to it. If they were not, but merely adjacent lands, the subsequent enlargement of the project to include them ought not to deprive the respondents of the value added in the meantime by the proximity of the improvement. If, on the other hand, they were, the government ought not to pay any increase in value arising from the known fact that the lands probably would be condemned.

The Supreme Court subsequently affirmed the scope of the project rule in U.S. v Reynolds:

[T]he development of a public project may also lead to enhancement in the market value of neighboring land that is not covered by the project itself. If that land is later condemned, whether for an extension of the existing project, or for some other public purpose, the general rule of just compensation requires that such enhancement in value be wholly taken into account, since fair market value is generally to be determined with due consideration of all available economic uses of the property at the time of the taking.1

1. 397 U.S. 14, 16-17, 90 S. Ct. 803, 805, 25 L.Ed.2d 12 (1970).

Basically, the Miller Rule holds that when determining the value of the property taken, a condemnee may not receive an enhanced value for its property where the enhancement is solely due to the property’s inclusion within the very public improvement for which it was condemned, i.e., the value cannot be predicated upon a use made only possibly by use of the power of eminent domain. As stated in U.S. v Sage, 239 US 57, “the City is not to be made to pay for any part of what it added to the land by this uniting it with other lots if that union would not have been practicable or have been attempted, except by the intervention of eminent domain.” As is stated in Nichols on Eminent Domain (3d ed), Sec 12B-17(1) at page 202: “The general rule is that any enhancement in value that is brought about in anticipation of and by reason of a proposed public improvement, is to be excluded in determining the market value of the land.” (emphasis added).

But the rule is often misinterpreted. Two examples present themselves. In a recent condemnation in Yonkers, New York, the condemnor Yonkers Industrial Development Agency found fault with the condemnee ConEdison’s appraisal. Because of the unusual configuration of the strip of land taken which was used for a road, condemnee’s appraiser concluded to a highest and best of “road access and utility purposes,” the purpose for which the taking occurred. Condemnor’s counsel argued:

ConEd’s valuing of the property “after the taking” as its highest and best purpose being for “road access” unambiguously violates New York State law. The ConEd Appraisal wrongfully considers the value of the taken property as “road access” to the Ridge Hill Project in disregard for established New York State precedent that does not permit valuation to consider the increased value of the property after the taking by reason of the project for which the condemnation occurs. This fundamental New York State law is known as the “Scope of the Project Rule.” Confirming this fundamentally flawed Con Ed analysis in valuing the property as “road access,” is when the ConEd appraisal states the “highest and best use” is being considered only as “road access.”

But this was not the case. First, as will be explained more fully in the next paragraph, having a highest and best use which is the same as the purpose of the taking does not violate the Miller Rule. Specifically, in the Yonkers case, the condemnor could not point to evidence that the valuation presented by claimant’s appraiser had anything to do with the scope of the project. When the appraiser for condemnor was asked if the claimant’s comparables were close to the project, he agreed they were not. More importantly, he agreed that the project had no influence on the consideration in claimant’s sales. The condemnor’s appraiser, when asked how one would develop a long strip of land that was only sixty feet wide, could not conclude to any other development other than a roadway which was the highest and best use found by claimant’s appraiser.

The leading case on the subject is Monogahela Navigation Co v United States, 148 U.S. 312 (1893), although the case is most often cited for its ruling that “the Constitution has declared that just compensation shall be paid, and the ascertainment of that is a judicial inquiry, not a legislative question. But the Monogahela Navigation also stands for the proposition that there is every right to use the government’s purpose for the condemnation as the owner’s highest and best use of the property taken. In Monogahela Navigationthat purpose was for a lock and dam. There are other examples, Matter of City of New York (New General Hospital), 280 App Div 196 (1st Dept 1952) affd 305 NY 835, 114 N.E.2d 38 involved the taking of a dwelling for a hospital. The dwelling was to be used as a residence for one of the medical superintendents. The court held that if the special adaptability of the land would increase its value in the open market, apart from the needs of the particular taker, the owner may be entitled to such increase as part of its market value. Another example is Matter of Town of Esopus (Gordon), 162 AD2d 829 (3rd Dept 1990) lv den 77 NY2d 801, where the court found the highest and best use was as a landfill, the purpose for which it was condemned. The land had been leased to the Town before the condemnation and used by the Town as a landfill in general. See in general, 51 NY Jur Sec 194.

The misconception of the Miller Rule finds its application improperly attempted in other condemnation cases. Frequently, Miller is incorrectly applied to highest and best use analysis which involved zoning change propositions. It is a given that in condemnation the subject property must be valued on its highest and best use regardless of its actual use. St. Agnes Cemetery v State of New York, 3 NY2d 37, 41 (1957). “Even though the owner may not have been utilizing the property to its fullest potential when it was taken.”Matter of Town of Islip (Mascioli), 49 NY2d 354, 360. This includes the ability to a claimant to establish a reasonable probability of rezoning. Masten v State of New York, 11 AD2d 370 (3rd Dept 1960) affd 9 NY2d 796 (1961).

Condemnors also incorrectly oppose rezoning valuation contending it must only be based on current or past zoning since often zoning is changed for the project. There is no reason why a condemnee could not establish that the rezoning could reasonably be established had there been no condemnation. This ability to establish a reasonable probability of rezoning is not lost merely because the property is rezoned for the project. Further, even though the property is rezoned as part of the project, its genesis may have begun long before the project as part of community planning.

It is axiomatic that in order for the Miller Rule to apply, the enhancement or diminishment in property value complained of must be “attributable to the project itself.” U.S. v Reynolds, 397 U.S. 14, 16-17 (1970); Matlow Corp v State of New York, 36 A.D.461, 463 (4th Dept 1971). Accordingly, if the rezoning would have occurred regardless of whether or not the Project proceeded forward, the resulting enhancement in value cannot be excluded in condemnation.

Examples of the Miller Rule or scope of the project rule application are found in New York case law. In Latham Holding Co v State of New York, 16 NY2d 41 (1965), New York’s highest court held that real property appropriated could not be valued on sales which occurred after the appropriation when they were adjoining the new project. Latham is better known as the case which precludes the averaging of comparable sales.

In Andrews v State of New York, 19 Misc2d 217, affd 11 AD2d 599, affd 9NY2d 606, 608 (1961). The Court of Claims would not allow the application of the Miller Rule holding that since the project before the court was subsequently enlarged, the rule required payment of the market price as enhanced by the factor of proximity to the public improvement.

A more recent case involving the rule is 815 Associates, Inc v State of New York, 271 AD2d 398 (2d Dept 2000). Here the Appellate Division increased an award that was limited by the trial court based on the court’s application of the Miller Rule. The Court stated, “even if the appropriation of the claimant’s property had been contemplated in 1962, the lapse of thirty-one years before the actual appropriation in 1993 warrants payment by the State of the enhanced value of the land by virtue of its proximity to the highway. (See, United States v 320 Acres of Lands, 605 F2d 762). In the absence of any evidence to support the application of the ‘scope of the project’ rule, or the State’s theory, the claimant is entitled to compensation for the enhancement in value which resulted from the 1962 appropriation….”

The Miller Rule does not allow simplistic application. Rather, it is factually driven.

Reprinted with permission from the April 29, 2010 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.