AAA Federal Credit Union v. Indiana Department of Transportation , 79 N.E.3d 401 ( 2017 )

FILED
Jul 07 2017, 5:51 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEE
Philip D. Sever Curtis T. Hill, Jr.
Sever-Storey, L.L.P. Attorney General of Indiana
Carmel, Indiana Andrea E. Rahman
David L. Steiner
Deputy Attorneys General
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
AAA Federal Credit Union, July 7, 2017
Appellant-Petitioner, Court of Appeals Case No.
71A03-1609-PL-2091
v. Appeal from the St. Joseph
Superior Court
Indiana Department of The Honorable Margot F. Reagan,
Transportation, Judge
Appellee-Respondent. Trial Court Cause No.
71D04-1409-PL-270
Mathias, Judge.
[1] In this inverse condemnation case, we consider whether the trial court erred in
concluding that the landowner did not have a property interest in the free flow
of traffic from a particular road. Concluding that it did not err in reaching that
conclusion, we affirm.
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Facts and Procedural Posture
[2] U.S. Highway 31 (“U.S. 31”) runs the length of Indiana, passing by or through
the cities of Indianapolis in Marion County, Plymouth in Marshall County, and
South Bend in St. Joseph County. As part of a larger effort to improve
transportation between Marion County and St. Joseph County, in March 2002,
the Federal Highway Administration (“FHWA”) and the Indiana Department
of Transportation (“DOT”) began the process of public involvement in
connection with a proposed improvement to U.S. 31 between Plymouth and
South Bend (“the Project”).
[3] On March 1, 2004, two years after DOT’s public involvement with the Project
began, AAA Federal Credit Union (“AAA”), a small regional bank with
branches in and around St. Joseph County, took title by deed to a three-quarter
acre plot of land in a mixed residential and commercial area on the south side
of South Bend (“the Property”).1 In early 2006, AAA finished construction of a
branch building on the Property and has operated the branch on the Property
since. The Project was completed sometime later.
[4] Before the Project was completed, the Property lay at the northeast corner of
the intersection of U.S. 31, running north-south, and Dice Street, running east-
west. The Property had direct access by a western driveway to U.S. 31 and by a
1
On appeal, both AAA and DOT state that AAA purchased the Property in 2002. Appellant’s Br. at 5;
Appellee’s Br. at 7. The trial court, however, found, “On March 1, 2004, [AAA] purchased [the Property].”
Appellant’s App. p. 15. A copy of the deed is in the record before us, dated March 1, 2004. Appellee’s App.
p. 11. Neither party alleges error in the trial court’s factual findings; we therefore accept them as given.
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southern driveway to Dice Street. At that time, U.S. 31 was an undivided,
open-access road on the same grade as the surrounding roads. However, one of
the Project’s goals was to improve traffic flow on U.S. 31 by converting it to a
divided, grade-separated, limited- or controlled-access road.
[5] The Project moved U.S. 31 to the west by a few dozen feet. It is now a divided
highway divided by a grass median, bounded by a wall to the east of the
northbound lanes. Access to and from U.S. 31 is now possible only by grade-
separated interchanges to the north and south of the Property. The Project left
the Property entirely untouched. It continues to enjoy access to Dice Street by
the southern driveway. However, the western driveway now accesses
Hildebrand Street, a two-lane north-south frontage road running parallel to U.S.
31, separated from it by the eastern wall. To access the Property from U.S. 31
or vice versa now requires taking more or less circuitous routes to the north or
south.
[6] On September 17, 2014, AAA brought the instant action for inverse
condemnation against DOT. After a two-day bench trial on May 24 and 25,
2016, the trial court entered findings of fact, conclusions of law, and judgment
for DOT. AAA now appeals, claiming the trial court erred in concluding that
no compensable taking had occurred as a matter of law.
Standard of Review
[7] Where, as here, a trial court has entered findings and conclusions prior to
judgment, we review the judgment in two steps. Canteen Serv. Co. of Indianapolis,
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Inc. v. Ind. Dep’t of Transp., 932 N.E.2d 749, 571 (Ind. Ct. App. 2010). We first
determine whether the evidence supported the findings, then whether the
findings supported the conclusions. Id. We will set aside the judgment only if
clearly erroneous, leaving us with a firm conviction that a mistake has been
made. Id. A judgment that applies the wrong legal standard to properly found
facts is clearly erroneous. Id. Whether there has been a compensable taking is a
question of law we review de novo. Biddle v. BAA Indianapolis, L.L.C., 860
N.E.2d 570, 575 (Ind. 2007).
Discussion and Decision
[8] By federal and state constitutional mandate, the state may not exercise its
power of eminent domain to take private property for public use without paying
just compensation. U.S. Const. amend. V, cl. 5; Ind. Const. art. I, § 21, cl. 2
(“the takings clauses”); Chi., Burlington & Quincy R.R. Co. v. City of Chicago, 166
U.S. 226, 241 (1897) (incorporating federal takings clause against states); State v.
Kimco of Evansville, Inc., 902 N.E.2d 206, 212 (Ind. 2009) (same analysis under
federal and state takings clauses). The prospective exercise of the state’s
eminent domain power is regulated by statute. Ind. Code art. 32-24.
[9] However, “[a] person having an interest in property that has [already] been . . .
acquired for public use without the procedures of this article or any prior law
followed is entitled to . . . damages . . . .” Id. § 32-24-1-16. Damages actions
under this section are called “inverse condemnation” actions. State v. Dunn, 888
N.E.2d 858, 861 (Ind. Ct. App. 2008), trans. denied. Proceedings on inverse
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condemnation actions are bifurcated into a summary phase and a damages
phase. Id. The summary phase is litigated before the court, which must decide
whether there has been a compensable taking as a matter of law. Id. If so, the
damages phase is tried to the fact-finder, which determines how much
compensation the landowner is owed by the condemnor. Id.
[10] The United States Supreme Court has recognized two broad categories of
takings: “The paradigmatic taking . . . is a direct government appropriation or
physical invasion of private property” effecting “practical ouster . . . .” Lingle v.
Chevron U.S.A. Inc., 544 U.S. 528, 537 (2005) (citations and quotations omitted).
However, the Court has also “recognized that government regulation of private
property may, in some instances, be so onerous that its effect is tantamount to a
direct appropriation or ouster . . . .” Id. In identifying such “regulatory takings,”
id., the Court has urged “cognizan[ce] . . . that Government hardly could go on
if to some extent values incident to property could not be diminished without
paying for every . . . change in the general law[.]” Id. at 538 (citation and
quotations omitted).
[11] The Court has recognized three broad categories of regulatory takings.
Requiring a landowner to suffer “permanent physical invasion of her property
— however minor — ” is a per se regulatory taking. Id. (citing Loretto v.
Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982) (state law required
landlords to permit cable companies to install cable facilities in apartment
buildings)). So too is a regulation “that completely deprive[s] an owner of all
economically beneficial use of her property.” Id. (original alteration, emphasis,
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citation, and quotations omitted). Outside these two per se categories,
regulatory takings are tested by applying the factors set out in Penn Central
Transportation Company v. City of New York, 438 U.S. 104 (1978). These include
the economic impact of the regulation on the landowner, the extent to which
the regulation interferes with reasonable investment-backed expectations, and
the character of the state action. Biddle, 860 N.E.2d at 577-78 (citing Lingle, 544
U.S. at 538-39; Penn Cent., 438 U.S. at 124). The “common touchstone” of all
three regulatory takings analyses is “to identify regulatory actions that are
functionally equivalent to the classic taking in which government directly
appropriates private property or ousts the owner from his domain.” Lingle, 544
U.S. at 539.
[12] Irrespective of the species of taking alleged, “[t]he threshold question in
determining whether a taking has occurred is whether the . . . landowner has a
property interest in the property that has been acquired by the State.” Dunn, 888
N.E.2d at 862. In the specific context of landowners abutting reconfigured
highways, two complementary rules are thoroughly well-settled. First, the right
of an abutting landowner to ingress and egress over the public roads is a
cognizable property right, and substantial or material interference with this right
by the state is a compensable taking (“the ingress-egress rule”). Kimco, 902
N.E.2d at 214; State v. Ensley, 240 Ind. 472, 164 N.E.2d 342, 349 (1960); Green
River Motel Mgmt. of Dale, L.L.C. v. State, 957 N.E.2d 640, 644 (Ind. Ct. App.
2011), trans. denied; Canteen Serv. Co., 932 N.E.2d at 753; Dunn, 888 N.E.2d at
862. Second, by contrast, an abutting landowner has no cognizable property
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right in the free flow of traffic past his property (“the traffic-flow rule”). Kimco,
902 N.E.2d at 214; Ensley, 164 N.E.2d at 350; Green River, 957 N.E.2d at 644;
Canteen Serv., 932 N.E.2d at 753; Dunn, 888 N.E.2d at 862.
[13] The traffic-flow rule denies recovery to landowners who complain that, as a
result of highway improvement or reconfiguration, the landowner’s invitees
must take a more circuitous or inconvenient route to the land, while the points
of ingress and egress over the land remain unaffected. Ensley denied recovery to
a recreational center whose property value was reduced when the state divided
the north-south road abutting the center to the east by installing a raised
median, blocking northbound traffic from turning left directly into the center
and forcing it to take a more circuitous route to a different entrance. 164 N.E.2d
at 350. Kimco “reaffirm[ed] Ensley,” 902 N.E.2d at 208, and denied recovery to
a shopping complex whose property value was reduced by forty percent when
the state widened an abutting road and installed a median. Id. at 209, 215. This
court has followed our supreme court’s long-standing approach. Green River,
957 N.E.2d at 642, 645 (no recovery where U.S. highway moved quarter-mile
to west; access to property from new U.S. highway and interstate required 1.6-
to 4.6-mile detour); Canteen Serv., 932 N.E.2d at 750–51, 755 (no recovery
where previously abutting street moved 210 feet south and reconfigured access
to property required travel on frontage road); Dunn 888 N.E.2d at 859, 867 (no
recovery where installation of median redirected traffic).
[14] This case is controlled by the traffic-flow rule. AAA complains that customers
driving on U.S. 31 now must take a more circuitous and inconvenient route to
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reach the Property, while their western and southern driveways — along with
the rest of the Property — have remained completely untouched. Indeed, this
case is even farther from a compensable taking than is the ordinary traffic-flow
case. Here, AAA does not complain of impairment to the free flow of traffic
past its property in general. There was no showing, and AAA does not argue,
that access from Hildebrand Street, the new frontage road, is any more difficult
than was access from U.S. 31 before the Project was completed, and Dice Street
remained unaffected by the Project. Rather, AAA argues that the flow of traffic
from U.S. 31 has been impaired by the Project. See Appellant’s Br. at 23
(“[D]irect access to U.S. 31 is a property right.”). If AAA has no cognizable
property interest in the free flow of traffic past its property, still less does it have
such a right in the free flow of traffic from a particular road. Put differently,
AAA is claiming a property interest in continuing to abut a particular type of
road: “[A]n actively used U.S. highway must continue to remain an actively
used U.S. highway, and any change in the nature of the roadway [abutting a
property] . . . results in a taking.” Appellee’s Br. at 23. As DOT correctly
observes, this is not and cannot be the rule.
[15] AAA makes three arguments in favor of its position. First, AAA argues that the
Project deprived the Property of its highest and best use as a site for a bank
branch. However, this argument conflates the measure of damages for a
compensable taking with the inquiry into whether such a taking happened at
all:
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“[I]f the highest and best use before the taking is for one purpose,
and because of the access available after the taking, the property
was no longer suitable for that use, but was still suitable for a less
valuable use, the owner would be entitled to the damages
reflecting the diminished value.” . . . This language addressed
damages from a taking . . . Elimination of all access to [the new
U.S. highway] may have met the test. But [the landowner] did
not suffer a compensable taking of access in the first instance.
Kimco, 902 N.E.2d at 215 (internal citation omitted) (quoting State v. Peterson,
269 Ind. 340, 381 N.E.2d 83, 85 (1978)).
[16] Second, AAA points us to three cases readily distinguishable from that at bar,
and repeatedly so distinguished in the case law. In State v. Geiger & Peters, Inc.,
245 Ind. 143, 196 N.E.2d 740 (1964), our supreme court found a compensable
taking by a substantial or material interference with the landowner’s right of
ingress and egress. 196 N.E.2d at 743. There, construction of an expressway
destroyed one of the landowner’s two points of access to the property. Id. at
741. The second access-point was rendered unusable by the installation of a
narrow service road which was incapable of bearing the ninety-foot steel trusses
manufactured on the property. Id. at 742. Here, by contrast, both access-points
were completely untouched by the state. See Kimco, 902 N.E.2d at 213 n.8
(distinguishing Geiger & Peters as ingress-egress case from traffic-flow cases);
Dunn, 888 N.E.2d at 864 (same).
[17] State v. Tolliver, 246 Ind. 319, 205 N.E.2d 672 (1965), was factually analogous to
Geiger & Peters, and our supreme court again found the case to be controlled by
the ingress-egress rule. 205 N.E.2d at 677-78. There, one of the landowner’s
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two access-points was destroyed by the construction of an interstate. Id. at 673.
Though the second access-point was left untouched, it was reachable only after
crossing a bridge that was incapable of bearing the fifty-ton loads regularly
transported from the landowner’s steel-fabrication plant. Id. Thus, the
landowner had no “reasonable outlet or access left . . . [,]” id. at 678, in effect,
no access at all. The facts here are distinguishable on the same basis as they
were from Geiger & Peters: neither access-point has been made actually or
constructively unusable; the only difference in their use is some additional
inconvenience to drivers on U.S. 31. See Kimco, 902 N.E.2d at 213 n.8
(distinguishing Tolliver as ingress-egress case from traffic-flow cases); Dunn, 888
N.E.2d at 864–65 (same).
[18] In State v. Diamond Lanes, 251 Ind. 520, 242 N.E.2d 632 (1968),
a landowner operated a bowling alley on a piece of property
accessible by four access points and by traffic traveling in either
direction on two roads. . . . [T]he State constructed [a new
highway] that cut of access with certain directions of traffic to the
business property . . . . At first blush, Diamond Lanes appears to
be a traffic flow case. However, [our supreme court] explained
that the primary access point was “completely eliminated” and the
access to another road “was taken and in its place there was
substituted access onto a frontage road” . . . .
Dunn, 888 N.E.2d 865–66 (emphasis added). Unlike Geiger & Peters and Tolliver,
therefore, Diamond Lanes only involved destruction of one access-point, plus
complications and ensnarlments for traffic at other access-points. Diamond Lanes
is still distinguishable from this case on the grounds that, here, no access-point
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was completely or partially eliminated, or even altered. See Kimco, 902 N.E.2d
at 213 n.8 (Diamond Lanes as ingress-egress case because “at least one access
point ‘completely eliminated,’ and the substituted access could ‘in no way be
equated with the former access’”); Canteen Serv., 932 N.E.2d at 754 (“Diamond
Lanes does not stand for a bright-line rule that the creation of a frontage road is
necessarily a taking. . . . To the contrary, . . . Diamond Lanes [is about] a change
in the means of access to an owner’s property . . . .”).
[19] Finally, AAA argues it is entitled to free-floating consideration of its allegedly
reduced property value2 under Biddle, Lingle, and Penn Central. However, it is
not, for three reasons. First, the Lingle framework applies to regulatory takings,
cases where “government regulation of private property [is] so onerous that its
effect is tantamount to a direct appropriation or ouster[.]” Lingle, 544 U.S. at
537. Here, and in the other traffic-flow cases discussed here, there was no
regulation of private property. The state reconfigured public property; it did not
regulate private property.
[20] More fundamentally, Biddle, Lingle, and Penn Central never purported to
dispense with the antecedent inquiry of whether a cognizable private property
interest has been burdened, encumbered, or interfered with in the first place. See
Penn Cent., 438 U.S. at 125 (citing cases where government action “did not
interfere with interests that were sufficiently bound up with the reasonable
2
AAA’s expert reported that the value of the Property was reduced from $800,000 before the Project to
$100,000 after the Project. Appellant’s App. p 23.
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expectations of the claimant to constitute ‘property’”); Bettendorf v. St. Croix
County, 631 F.3d 421, 424 (7th Cir. 2011) (“The Takings Clause presupposes
government interference with one’s property rights . . . .” (emphasis added)),
425 n.2 (“[P]roperty interests are created and defined by an independent source,
such as . . . state law.”). Identifying cognizable property interests is precisely the
function of the post-Ensley distinction between traffic-flow cases and ingress-
egress cases. “Although not phrased in the Lingle language, the substance of
[Ensley’s] view anticipated a similar standard: any impaired value derived from
some action that does not ‘encroach upon the property’ is not compensable.”
Kimco, 902 N.E.2d at 212-13 (quoting Ensley, 164 N.E.2d at 346). However, the
state action in this case is to be characterized, it did not “encroach upon the
property” of AAA. Id.
[21] Second, the specific controls over the general. In Biddle itself, while our
supreme court set out the Lingle framework in dicta, it actually applied a
different, pre-Lingle, pre-Penn Central analysis specific to the problem then before
it: When do airplane fly-overs constitute a compensable taking of residential
property? Biddle, 860 N.E.2d at 579 (“Aaron [v. United States, 311 F.2d 798 (Ct.
Cl. 1968)] is specially tailored to the task of identifying government takings
based on aircraft noise.”). Similarly, in Kimco, our supreme court acknowledged
Biddle and the Lingle framework, but decided the case before it by applying the
principles of Ensley and its progeny, which we apply here.
[22] Third, even applying the Lingle framework and the Penn Central factors would
not permit us to find a taking based on AAA’s reduced property value because
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AAA did not have a reasonable expectation that the configuration of U.S. 31
would remain unaltered. AAA bought the Property on March 1, 2004, two
years after FHWA and DOT began involving the public in planning the Project.
On March 26, 2002, FHWA published a Notice of Intent to Prepare an
Environmental Impact Statement (“EIS”) for the Project in the Federal Register.
Public meetings of various kinds were held through 2002 and 2003, and news
releases were distributed. A draft EIS detailing proposed routes for the
improved U.S. 31 was made available for public review on February 27, 2004,
and was open for public comment from March 5, 2004, to April 26, 2004.
Though the draft EIS included, among other proposed alternatives, the present
configuration of U.S. 31, DOT had no record of AAA participating in public
comment. Ex. Vol., Resp’t’s Ex. O. On September 23, 2004, DOT publicly
announced that the present configuration was the “preferred alternative” for the
Project and would be advanced for consideration in a final EIS. Id. This was
“well before” AAA obtained a building permit for the branch in September
2005. Id. To find a compensable taking on these facts would turn the state and
taxpayers of Indiana into underwriters of the known risks of AAA’s real estate
investment.
Conclusion
[23] The trial court ruled, “The cases are rather clear. There has been no taking
under Indiana and federal law. It is understandable that the property owner [is
upset because it] has lost the very easy direct access from the very busy old US
31, but under Indiana eminent domain law, this situation does not involve a
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legal ‘taking.’” Appellant’s App. p. 17. We agree. The judgment of the trial
court is therefore affirmed.
[24] Affirmed.
Kirsch, J., and Altice, J., concur.
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