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The Indiana Supreme Court will Clarify Landowner's Rights in Inverse Condemnation Cases Involving Access Rights

Indiana's inverse condemnation law is in a state of flux after recent Court of Appeals rulings in State v. Kimco and State v. Dunn; however, it should gain clarity when the Indiana Supreme Court reviews the Kimco case later this summer. State v. Kimco of Evansville, Inc., (Ind. Ct. App. Oct. 31, 2007); State v. Dunn, (Ind. Ct. App. June 25, 2008).

 

RECENT DEVELOPMENTS

 

In May 2008, the Indiana Supreme Court announced that it will review the lower court decisions in Kimco.The Court is scheduled to hear oral arguments on August 28, 2008.After the Court issues an opinion, real estate developers and business owners should have a better idea of the circumstances that entitle them to damages for government takings resulting from the diminished access to public roads.

 

By agreeing to review the Kimco case, the Indiana Supreme Court voided the October 2007 Court of Appeals decision favoring business owners.Nonetheless, after the Indiana Supreme Court announced its intent to review Kimco, another panel of the Indiana Court of Appeals addressed inverse condemnation.In June 2008, the Court of Appeals ruled in State v. Dunn. This time though, it reached a decision favoring the state.

 

 

A MORE IN DEPTH LOOK AT KIMCO AND DUNN

 

In 2000, the State of Indiana appropriated land belonging to both Kimco's Plaza East shopping center and Dunn's hotel.These appropriations were a necessary component of a construction project aimed at improving access to and from the Lloyd Expressway in Evansville, Indiana.The project also led to the reconfiguration of the road in front of Plaza East and the hotel, and the construction of a median in front of the primary entrance to Plaza East and in front of both means of entry to the hotel.The median prevents southbound traffic from directly accessing Kimco and Dunn's properties by blocking left-hand turns into and out of both properties.

 

In addition to the median, the State also constructed an acceleration lane defined by a solid white line, which needs to be crossed in order to enter Plaza East through the primary entrance. For Kimco, these changes resulted in traffic diverting to the secondary entrance, which caused significant traffic congestion, as well as safety hazards for pedestrians walking within the shopping center.

 

Kimco and Dunn provided evidence that the reconfiguration reduced access to their properties and negatively impacted their businesses.After the appropriation and construction, Kimco's Plaza East's occupancy rate decreased from 94% to 56% and the property was demoted to a Class C community shopping center for being "less desirable in the real estate market."Similarly, the occupancy rates at Dunn's hotel became "disappointing" after more than two decades of successful operation.Kimco and Dunn responded to the reconfiguration by filing inverse condemnation suits and arguing that they should receive compensation because the impaired access to their properties results in a substantial and material negative impact on their properties.

 

When considering the issues in Kimco, the Court of Appeals analyzed the impact of the construction of the median, the solid white line, the inability to widen or change the entrances, and the resulting safety concerns. The court found that when it considered theses changes in sum, they amounted to a compensable taking of access rights.The Court also noted that although the State took no point of egress or ingress from Kimco, the entrances were not the same entrances that existed prior to the appropriation.

 

However, in the Dunn case, the Court of Appeals distinguished the matter before itfrom Kimco by stating that the decision in Kimco was not based simply on the construction of the median, but also and more importantly, on the reconfigured entrances on Kimco's property.The Dunn opinion then stated, "Nevertheless, we must disagree with Kimco to the extent that it allows compensation for damages suffered as a direct result of the construction of the median. "As a result, the Court reaffirmed the long line of Indiana cases predating Kimco supporting the position that landowners have no right to the free flow of traffic past their properties.

 

THE FUTURE OF INDIANA INVERSE CONDEMNATION LAW

 

While the future of inverse condemnation in Indiana remains uncertain, it is unlikely that the Indiana Supreme Court will rule that real estate developers and business owners have any definitive rights to traffic flows, even though commercial property might very well suffer adverse economic effects as a result of a diminution in traffic.It is much more probable that landowner rights will remain restricted. Where some right of access is available, the court will ask whether there is a "substantial diminution" in access as a direct result of the "taking" to determine if damages are to be awarded.

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