Jan. 25, 2017 – A circuit court dismissed an eminent domain case, concluding the private property owners seeking just compensation named the wrong defendant. Recently, a state appeals court reversed, invoking the doctrine of apparent authority.

Jon Haas and Kenneth Herro sued the City of Oconomowoc, seeking just compensation for a taking of their property. But a circuit court ruled the city did not take the property, the city’s Community Development Authority (CDA) took it. Thus, the circuit court ruled that it lacked personal jurisdiction since the CDA was not a named defendant.

Herro and Haas appealed. They argued that the CDA was acting as the city’s agent and thus the city was properly named as the defendant. In Herro v. City of Oconomowoc, 2015AP1560 (Jan. 25, 2017), a state appeals court agreed with Herro and Hass.

“We agree with appellants that the City, not the CDA, condemned the property; thus appellants properly named the City as the condemnor-defendant, and the circuit court erred in dismissing this action,” wrote Judge Mark Gundrum for a three-judge panel.

The Taking

Haas and Herro acquired the property through a foreclosure sale, but it was not their primary residence. The city wanted the space as part of a downtown renewal project: the space would fit a parking lot to serve a new waterfront community center.

The city initiated a first appraisal that valued the subject property, across the street from Lac La Belle, at $300,000. But Haas and Herro requested a second appraisal from a different company, which appraised the market value of the property at $515,000.

A third appraisal from a different appraisal company set market value at $250,000. In 2013, the CDA designated the subject property for downtown revitalization “in the best interests of the public” and noted that the city council was supportive of the action.

The property owners and the city could not reach an agreement on a purchase price, so the CDA concluded that the eminent domain process was required to acquire the title. The city council discussed the eminent domain process at a subsequent council meeting.

The next day, the city sent a letter to Herro and Haas, on city letterhead, noting that the “City of Oconomowoc through its Community Development Authority made the determination to acquire the property … pursuant to eminent domain.”

The city also noted that the $250,000 appraisal, the lowest of the three appraisals conducted, would be used as the basis for a jurisdictional offer of compensation. The letter was signed by the economic development director for the City of Oconomowoc.

The CDA made the jurisdictional offer. The offer stated that it was being made by the City of Oconomowoc through its Community Development Authority.

The property owners rejected the offer. The CDA then awarded compensation and damages for $305,000. The award noted the CDA as the condemnor of the property.

City was Condemnor, CDA had Apparent Authority

About two years later, Haas and Herro filed a complaint alleging the city did not pay just compensation for the taking of their property. The city responded, arguing the court lacked jurisdiction because the plaintiffs served and named the wrong defendant.

The circuit court agreed with the city and dismissed the case. But the appeals court panel recently revived the case by reversing and remanding for further proceedings.

“The City’s lack-of-personal-jurisdiction contention is nonsensical,” wrote Judge Gundrum, noting the city was arguing the circuit court lacked personal jurisdiction over the CDA, not that it lacked personal jurisdiction over the city, the named defendant.

The city argued that the CDA is a “separate body politic” with authority to condemn property and the CDA was not the named defendant. But the city failed to address the argument that the city was “the condemnor,” based on CDA’s apparent authority.

The panel explained that the City, as well as the CDA, performed various statutory steps required to condemn property through eminent domain authority. The city directly initiated property appraisals, tried to negotiate, recorded the notice of jurisdictional offer, and apparently made the jurisdictional offer and compensation award through the CDA.

The city was the condemnor – and a properly named defendant – because the CDA had apparent authority to act as condemnor on the city’s behalf, the panel concluded.

That is, the city could be liable for the acts conducted by the CDA. “The record demonstrates the CDA was acting with the apparent authority of the City and thus was acting as the City’s agent,” Judge Gundrum wrote on behalf of the three-judge panel.

“[T]he City makes no argument – and we see none that properly could be made – that the circuit court lacked jurisdiction over the City,” wrote Judge Gundrum, concluding the circuit court erred as a matter of law in granting the city’s motion to dismiss.