Portland Natural Gas Transmission System v. 19.2 Acres of Land

United States Court of Appeals
For the First Circuit

No. 02-1369

PORTLAND NATURAL GAS TRANSMISSION SYSTEM;
MARITIMES & NORTHEAST PIPELINE, L.L.C.,

Plaintiffs, Appellants,

v.

19.2 ACRES OF LAND, MORE OR LESS, IN HAVERHILL, MA;
11.36 ACRES OF LAND, MORE OR LESS, IN HAVERHILL, MA;
9.92 ACRES OF LAND, MORE OR LESS, IN HAVERHILL, MA;
WBC EXTRUSION PRODUCTS, INC.;
FLEET BANK OF MASSACHUSETTS, N.A.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Patti B. Saris, U.S. District Judge]

Before

Boudin, Chief Judge,
Torruella, Circuit Judge,
and Cyr, Senior Circuit Judge.

James T. Finnigan, with whom Rich May, PC was on brief, for
appellants.
James D. Masterman, with whom Richard D. Vetstein and
Masterman, Culbert & Tully, LLP were on brief, for appellee WBC
Extrusion Products, Inc.

January 31, 2003
 TORRUELLA, Circuit Judge. The Fifth Amendment permits

the federal government to take personal property for public use,

but requires payment of "just compensation." Plaintiffs-

appellants, Portland Natural Gas Transmission System and Maritimes

& Northeast Pipeline, L.L.C. ("the Pipeline Companies"), took by

eminent domain temporary and permanent easements on land in

Haverhill, Massachusetts owned by defendant-appellee, WBC Extrusion

Products, Inc. ("WBC"), to construct, operate and maintain a

pipeline as permitted by the Natural Gas Act, 15 U.S.C. § 717f(h).

A bench trial was held in the United States District Court for the

District of Massachusetts to determine the amount of compensation

due. The court determined that WBC was entitled to $152,677 plus

interest. The Pipeline Companies appeal, claiming that the amount

is not justified by the evidence produced at trial. We affirm.

I. Background

The facts of this dispute are detailed in the district

court's opinion, Portland Natural Gas Transmission Sys. v. 19.2

Acres of Land, 195 F. Supp. 2d 314, 316-19 (D. Mass. 2002), and we

repeat only those necessary to our decision. At the time of the

taking, WBC owned two parcels totaling approximately seventy-six

acres. Parcel 1 was divided into eight lots to be used for an

industrial park; Parcel 2 was a non-buildable vacant lot. WBC

occupied Lot 7 in Parcel 1, and the other seven were empty and for

sale. The permanent gas pipeline easement is fifty feet wide and

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runs through Lots 1 and 8 on Parcel 1 and through Parcel 2,

encumbering approximately 2.37 acres total. The temporary easement

ran along a similar path, reaching approximately 2.10 acres total.

II. Standard of Review

We review the district court's findings of facts,

including the amount of compensation due, for clear error. Fed. R.

Civ. P. 52(a); S. Nat. Gas Co. v. Land, Cullman County, 197 F.3d

1368, 1372 (11th Cir. 1999) ("This court reviews the district

court's determination of just compensation for clear error.");

Puerto Rico Ports Auth. v. M/V Manhattan Prince, 897 F.2d 1, 3 (1st

Cir. 1990). Our job is not to weigh the evidence anew, but simply

to determine whether the decision reached by the trial court is

"plausible in light of the record viewed in its entirety."

Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985). The

fact that the ruling was substantially based on physical or

documentary evidence, rather than credibility determinations, does

not alter our deferential analysis. Id. Any rulings of law are

subject to de novo review. United States v. Mass. Water Res.

Auth., 256 F.3d 36, 47 (1st Cir. 2001).

As this case is fact intensive, we note that the

appellant has a difficult task of overcoming the trial court's

findings. Determining the value of real estate is not a science,

and the decision of a lower tribunal is ordinarily not disturbed

unless "grossly inadequate or excessive." 4A Julius L. Sackman,

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Nichols on Eminent Domain § 17.1[4], 23.01 (rev. 3d ed. 2001)

(hereinafter Nichols on Eminent Domain).

III. Discussion

The land taken by the Pipeline Companies is in

Massachusetts, and the district court applied Massachusetts law to

determine the just compensation to which WBC was entitled. As the

parties do not contest this choice of law and there is no

indication that it makes any difference as to any of the contested

issues, we accept this premise without necessarily endorsing it.1

Under Massachusetts law, just compensation is defined as

the value [of the land] before the recording
of the order of taking, and in case only part
of a parcel of land is taken there shall be
included damages for all injury to the part
not taken caused by the taking or by the
public improvement for which the taking is
made.

Mass. Gen. Laws ch. 79, § 12 (2002). Therefore, although the

easement did not abrogate all of WBC's bundle of rights, WBC is

entitled to compensation for the decrease in value of the land

1
The federal eminent domain statute involved here provides that
"[t]he practice and procedure in any action or proceeding for
[eminent domain] in the district court of the United States shall
conform as nearly as may be with the practice and procedure in
similar action or proceeding in the courts of the State where the
property is situated." 15 U.S.C. § 717f(h). Perhaps surprisingly,
several circuits have read the phrase "practice and procedure" to
encompass state substantive law as well as formal practice. See,
e.g., Columbia Gas Transmission Corp. v. Exclusive Natural Gas
Storage Easement, 962 F.2d 1192, 1194-99 (6th Cir. 1992). For the
reasons indicated, we need not pursue this interesting subject in
the present case.

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encumbered by the easement as well as the decrease in value of the

other land on the lots, or the "remaining land." In addition, WBC

is entitled to compensation for the temporary easement, or the two

years when the Pipeline Companies were using part of WBC's land for

construction of the pipeline. The compensation awards for these

three areas -- the encumbered land, the remaining land, and the

land temporarily taken -- are the subject of this appeal.

A. Encumbered and Remaining Land

In 1998, the Pipeline Companies promulgated "Requirements

for Construction On or Near Company Facilities" (the

"Requirements") to protect their pipelines from encroachment and

disturbance caused by construction activity on or near the

easement. WBC claimed that the easement together with the

Requirements rendered the permanent easement area worthless.2 The

Pipeline Companies' expert testified that the encumbered land was

still useful and retained fifty percent of its value. The district

court found that the Requirements diminished the value of the

encumbered land beyond the Pipeline Companies' suggestion of fifty

percent. The court found that "a potential buyer who has read [the

Requirements] would be likely to fear a substantial degree of

infringement on the land encumbered by a permanent easement," and

2
The district court's determinations that the highest and best
use of Lots 1 and 8 is industrial use, and the highest and best use
of Parcel 2 is open land, as well as its determination of the per
acre value of the land, are not challenged.

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determined that the encumbered land was reduced in value by

seventy-five percent. Portland Natural Gas, 195 F. Supp. 2d at

324. The court also determined that the Requirements reduced the

value of the remaining land by ten percent because "[a] reasonable

buyer, after reading the [Requirements], would almost certainly

anticipate that building in the vicinity of the easement areas of

Lots 1 and 8 would involve extra administrative 'hassle,' and

possible extra construction expenditures." Id. at 324. The

Pipeline Companies argue that the diminution of the encumbered land

is only fifty percent and that there is no diminution of the

remaining land. The Pipeline Companies claim that (1) the damages

theory employed by the district court was not litigated and

therefore constituted unfair surprise, and (2) there was no

evidence that the Requirements diminished the value of the

encumbered or remaining land.

1. Unfair Surprise

The Pipeline Companies claim that the effect of the

Requirements on the value of the land was not litigated and was not

considered an issue by the Pipeline Companies, and that they were

therefore unfairly surprised and prejudiced when the district court

awarded damages based on the Requirements. Appellants assert that

the unfair surprise necessitates a new trial and that the district

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court lacked authority to enter judgment on the issue because it

had not been squarely litigated.3

The record indicates that the parties addressed the

Requirements issue in their motions and papers before the court.

WBC stated that the Requirements diminished the value of the land

in question, while appellants emphasized that the effect of the

Requirements can only be determined on a case by case basis. A

motion in limine discussed and included the Requirements.

The Requirements issue also consumed extensive time at

trial. In his opening statement, WBC's counsel stated that the

Requirements would be discovered by a reasonably prudent buyer, and

that the "nub of the dispute" was what that buyer would do when

faced with the Requirements. The Requirements were introduced into

evidence without objection and outlined by Franklin Gessner, a

witness for appellants. The Pipeline Companies' expert, Steven

Foster, had not been provided with the Requirements before making

his estimation of damages, and stated that his figures might have

been different had he considered the Requirements. The judge

directly asked Foster several questions about a possible diminution

associated with the increased construction costs and the hassle of

dealing with the Pipeline Companies due to the Requirements.

3
We note, without reaching the issue, that appellants' failure to
ask for a continuance may be fatal to their claim of unfair
surprise. See United States v. Díaz-Villafañe, 874 F.2d 43, 47
(1st Cir. 1989) (suggesting that unfair surprise may usually be
cured by a request for a continuance).

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Foster responded that "on a rational level . . . there would be

[diminution]," although stating that he did not have market data to

verify the judge's intuition. Finally, during appellants' closing

argument, the judge stated that "the ordinary and reasonable person

reading [the Requirements] would read them and say: I've got to

worry about them." With the plethora of evidence to the contrary,

the Pipeline Companies' argument that they were prejudicially

surprised when the court determined diminution in value based on

the effect of the Requirements must fail.

2. Impact of the Requirements

Under Massachusetts law, WBC is entitled to recover for

all incidental effects of the public improvement that impair the

value of its land. Roman Catholic Bishop v. Commonwealth, 392 N.E.

2d 829, 831 (Mass. 1979). This includes not only the lost value of

the encumbered land, but any "damages to the remainder that are to

be reasonably anticipated from use of the property for the purpose

for which the condemnation is made." Nichols on Eminent Domain

§ 14A.06[3]. Eminent domain is a concept of equity and fairness,

and the law attempts to make the landowner whole. Id. at

14.02[1][a].

The district court found the encumbered land to be

diminished by seventy-five percent, based in part on the effect of

the Requirements. The court also determined that the Requirements

reduced the value of the remaining land on Lots 1 and 8 by ten

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percent. This was based on the court's view that "[p]otential

buyers may reasonably fear that the presence of underground

pipelines on their property may make commercial construction more

costly and inconvenient on the adjacent land." Portland Natural

Gas Transmission Sys., 195 F. Supp. 2d at 325. Appellants claim

that there was no basis for determining by what precise amount or

percentage the Requirements adversely affected the value of the

land.

The trier of fact is "authorized to determine damages in

an amount to which no expert testified by rejecting the precise

amounts to which each expert testified." Nichols on Eminent Domain

§ 17.1; see also Loschi v. Mass. Port Auth., 282 N.E.2d 418, 419-20

(Mass. 1972) (upholding a jury verdict in excess of expert

testimony because fact-finder could also consider photographs and

other witness testimony). The judge was entitled to reject the

experts' valuation and to use her independent judgment to determine

value. Piemonte v. New Boston Garden Corp., 387 N.E.2d 1145, 1152

(Mass. 1979). The court considered the Requirements themselves,

photographs, and expert and lay testimony in determining that the

value of the Requirements had a negative impact on the value of the

land. Its decision as to the extent of the resulting diminution in

value was not clearly erroneous.

A reading of the Requirements supports the court's

determination that the Requirements would decrease the price a

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reasonable buyer was willing to pay for the land. The Requirements

provide that the encumbered land may not be used for structure,

storage, or trees. Further, a landowner must submit proposed plans

to the Pipeline Companies for authorization before beginning any

work on or near the easement. Approval is also required for many

other uses that would commonly be undertaken on a vacant industrial

lot, including grade reduction, movement of heavy equipment across

the easement, installation of electrical cables, power lines, and

telephone lines, and blasting and excavation. Finally, the

Pipeline Companies "reserve[] the right to set forth additional

requirements if deemed necessary."

The Pipeline Companies assert that the Requirements do

not impact the land's value because prospective buyers may choose

to use the land in a way that conforms with the Requirements. We

find the existence of such a buyer doubtful given the breadth of

the Requirements and appellants' discretion to modify them as it

wishes. In addition, prospective owners would have to deal with

the added burden of obtaining approval from the easement holder

before undertaking any work on the vacant lot. The inference that

the Requirements impact the property's value is common sense: if a

similarly-situated industrial lot exists that is free from the

pipeline easement and the Requirements that go along with it, a

potential buyer will likely forego the WBC lot in favor of the

unencumbered lot. Therefore, WBC must lower its price to attract

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buyers. This is a logical consideration, and the fact that no

expert spelled out this exact argument does not mean the judge

could not arrive at it on her own.

The court heard conflicting evidence regarding the extent

of the impact of the easement and Requirements on the land. The

Pipeline Companies' expert testified based on "experience and

judgment" that the encumbered land was reduced in value by fifty

percent, although he admitted that there is no standard in the

industry for determining diminution and that he had heard of

different valuations in other cases, ranging from forty to seventy-

five percent. This expert, however, did not have the benefit of

the Requirements when making his estimate, as they were not

provided to him by the Pipeline Companies. A witness for WBC

stated that he believed the Requirements negatively impacted the

land. Witnesses also debated what administrative burden the

Requirements would place on a landowner.

In light of all the evidence, the district court, acting

as fact-finder, "made its determination[] based on its reasonable

assessment of the conflicting evidence before it." Northeast

Drilling, Inc. v. Inner Space Servs., Inc., 243 F.3d 25, 34 (1st

Cir. 2001). The court's determination was not clearly erroneous.

B. Temporary Easement

WBC's expert opined that the temporary easement

effectively delayed the sale of, and any development on, the lots

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for the full two-year period. He testified that developers had

verified this hypothesis, stating that so long as unencumbered lots

were available, buyers would go elsewhere. The Pipeline Companies

urged the court to simply award the rental value for those sections

of each lot taken temporarily. The court did so but also awarded

six months rental value for all of Lots 1 and 8. The Pipeline

Companies challenge this additional award.

Compensation for a temporary taking is generally

determined by "(1) ascertaining the value of the property for the

period it is held by the condemnor; (2) ascertaining the difference

in the value of the property before and after the taking; or (3)

looking at the fair market rental value of the property during the

time it was taken." Nichols on Eminent Domain § 12E.01[1].

We find the district court's determination a reasonable

ascertainment of the value of the property taken. The court heard

testimony that prospective buyers desire to begin construction

within twelve months, and the court found that construction on

WBC's land generally would begin within eighteen months of

purchase. Because the Pipeline Companies required access to a

portion of the land, development likely could not begin until the

end of the temporary easement. Thus, a potential buyer would wait

until six months after the temporary taking had begun before

purchasing the property, or would adjust his offer to reflect this

waiting time.

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 IV. Conclusion

We affirm the decision of the district court determining

just compensation. Costs are granted to appellee.

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