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City of Eagle Grove v. Cahalan Investments, LLC

Supreme Court of Iowa

December 1, 2017

CITY OF EAGLE GROVE, IOWA, Appellant,
v.
CAHALAN INVESTMENTS, LLC, Appellee.

         Appeal from the Iowa District Court for Wright County, Christopher C. Foy, Judge.

         The City of Eagle Grove challenges a district court order that found awarding the City title to two abandoned properties pursuant to Iowa Code section 657A.10A would constitute an unconstitutional taking and dismissed the City's petitions. REVERSED AND REMANDED.

          Lynn Collins Seaba of Malloy Law Firm, LLP, Goldfield, for appellant.

          Eric J. Eide of The Law Office of Eric J. Eide, P.L.C., Fort Dodge, for appellee.

          HECHT, JUSTICE.

         The City of Eagle Grove (City) filed petitions alleging two properties owned by Cahalan Investments, LLC (Cahalan) were abandoned and in an advanced state of disrepair. The petitions prayed for a transfer of ownership from Cahalan to the City under Iowa Code section 657A.10A (2014). The district court dismissed the petitions, concluding the transfer of ownership of the properties to the City without just compensation to Cahalan would constitute an unconstitutional taking. On appeal, the City contends the district court erred in failing to transfer ownership of the properties to it in furtherance of a lawful exercise of its police power authorized by the statute. Cahalan urges affirmance of the district court's decision, contending the transfer of titles to the properties to the City under section 657A.10A without just compensation would constitute an unconstitutional per se taking under the standard set forth in Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 112 S.Ct. 2886 (1992). Because we find the City's claim fits within the public-nuisance exception recognized in Lucas, we conclude section 657A.10A does not result in a taking requiring compensation to Cahalan. We therefore reverse and remand for further proceedings.

         I. Background Facts and Proceedings.

         In recent years, small communities across Iowa have seen an increase in the number of unoccupied, dilapidated, run-down properties. These types of buildings not only detract from the communities' aesthetic appeal and cause concern about the effect on the value of neighboring properties but can also constitute a danger to the public health, safety, or welfare. It is difficult for these communities to address this problem effectively because of the increased proliferation of such properties and the proportionally increased cost of abatement.

         Upon determining there were numerous abandoned, dangerous, dilapidated, and blighted buildings within its city limits, the City of Eagle Grove undertook a project to clean up and eliminate them. In August 2014, the City passed Resolution 2014-25, approving an agreement between the City and the Eagle Grove Community Development Corporation (CDC). Under the agreement, the City agreed to allocate up to $250, 000 for the project and the CDC was tasked with acquiring, repairing, rehabilitating, or demolishing certain problematic properties identified by either the City or the CDC.

         Two of the properties deemed problematic by the City are located at 107 North Blaine Street (Blaine Street property) and 823 South Commercial Street (Commercial Street property). Cahalan Investments, LLC owns both properties.[1] The City chose the two properties for inclusion in the project because they were dilapidated, had been unoccupied and lacked water service for several years, and were the subject of multiple complaints made by others.

         A. The Blaine Street Property.

         Cahalan purchased the Blaine Street property for $7000 on May 21, 2002, and the property has remained unoccupied since that time. Kevin Cahalan started remodeling the property shortly after purchasing it, but discontinued the work over ten years ago. It has not been connected to water service since 2002.

         On September 14, 2014, a construction inspector hired by the City inspected the property and the exterior of the building on the property, and concluded it was unsafe for entry or occupation. The inspector based his conclusion on missing siding, a rotting roof, and broken windows exposing the building's interior to the elements; a sagging addition on the west side of the house; several holes allowing vermin- such as squirrels and raccoons-to enter; multiple boarded up windows; and some garbage and debris in the yard. A neighbor told the inspector that the house was home for a family of raccoons. Employees of a group home in the neighborhood observed skunks, squirrels, and birds entering the house.

         On October 2, 2014, the City sent Cahalan a "Notice to Abate Nuisance" for the Blaine Street property. The notice-given to Cahalan under chapter 145 of Eagle Grove's municipal code-described the property as "a public nuisance that is a menace to the public health, welfare and/or safety by reason of inadequate maintenance, dilapidation, obsolescence, manifestly unsafe, or abandonment." It notified Cahalan the nuisance must be abated through either rehabilitation or removal of the building within fourteen days, and if Cahalan failed to do so, the City would eliminate the nuisance and assess the costs to Cahalan.

         On October 31, 2014, the CDC sent Cahalan an offer of $2000 to purchase the Blaine Street property for the purpose of demolishing it. The City made the nominal offer in an attempt to avoid the expense of litigation and to expedite the elimination of the nuisance. On November 12, 2014, Cahalan counter offered to sell the property for $15, 000. The City did not respond to Cahalan's counteroffer.

         B. The Commercial Street Property.

         Cahalan purchased the Commercial Street property for $23, 000 on December 13, 2011, and the property has remained unoccupied since that time. The property has no functioning toilet or sink. The furnace in the house has not been operated since Cahalan acquired the property. Only part of the house is connected to electrical service.

         On September 9, 2014, the City sent Cahalan a "Notice to Abate Nuisance" under chapter 145 of the municipal code. Like the notice sent regarding the Blaine Street property, this notice described the property as a public nuisance, gave Cahalan fourteen days to abate the nuisance through either rehabilitation or removal of the building, and informed Cahalan that if it failed to abate the nuisance the City would take steps to do so and assess the costs to the owner.

         On September 14, 2014, the same construction inspector who inspected the Blaine Street property inspected the Commercial Street property. The inspector noted a portion of the roof had collapsed, causing severe water damage to the interior of the building; mold was observed; some of the windows were broken and boarded up; the foundation was broken or crumbling in places; there were many access points for vermin to enter the building; and there was garbage and debris in the backyard. The inspector concluded this property was also unsafe for entry or occupation.

         On October 31, 2014, the CDC sent Cahalan a nominal offer of $2000 to purchase the Commercial Street property for the purposes of demolishing it and avoiding litigation. On November 12, 2014, Cahalan counter offered to sell the property for $20, 000, but the City did not respond.

         C. Subsequent Proceedings.

         On December 1, 2014, the Eagle Grove City Council held a hearing to determine whether the two properties were public nuisances in violation of chapter 145 of the municipal code. Kevin Cahalan attended the hearing, but he did not present evidence tending to prove the properties complied with the municipal code. He offered no plan for correcting the properties' structural deficiencies. Instead, he requested the City grant him more time to rehabilitate the two structures. The council rejected his request for additional time and decided to continue forward with the process it had commenced under chapter 145 of the municipal code.

         Nevertheless, believing the problem of dilapidated and dangerous buildings was an "epidemic" in the community and concluding Eagle Grove was not in the business of rehabilitating such properties, the City chose a different course of action in late December 2014. The City filed petitions in equity against Cahalan under Iowa Code section 657A.10A, seeking an award of title to the two properties.[2] Cahalan resisted the City's petitions, contending the acquisition of the properties under section 657A.10A would violate due process and constitute a taking without just compensation in violation of the Fifth Amendment to the United States Constitution and article I, sections 9 and 18 of the Iowa Constitution.

         On November 17, 2015, in preparation for trial, the construction inspector hired by the City completed a supplemental inspection of the interior of the Blaine Street property and concluded the property remained dangerous and uninhabitable. The inspector noted the inside of the house was under heavy construction and was "basically gutted"; there were no sanitary toilet facilities; the water lines in the basement were not hooked up and were unusable in the rest of the house; one side of the addition on the west side of the house was not properly tied into the house, allowing vermin to enter, water damage, and decay in the interior; the original basement walls and retaining walls were bowed in; and several stair steps were missing.

         A consolidated trial commenced on December 2, 2015. At trial, Kevin Cahalan testified he had no intention of making either property habitable in the foreseeable future. Cahalan offered expert testimony that the buildings were not "structurally unsafe or in danger of collapsing or otherwise harming anyone." The City claimed it had no public use for the properties and that it filed the petitions in furtherance of its efforts to rehabilitate residential areas by removing abandoned and dilapidated structures within the city. After removing the structures, it was the City's intent to sell the lots if possible.[3]

         Both sides offered evidence as to the properties' values. Relying on the Wright County assessor's assessed valuations, Cahalan opined the value of the Blaine Street property is $15, 700 ($5400 for the land and $10, 300 for the dwelling) and the Commercial Street property is worth $20, 900 ($8900 for the land and $12, 000 for the dwelling). In the alternative, Kevin Cahalan testified the Blaine Street property is worth at least $10, 000 because he agreed to sell it on contract to a third party for that amount shortly after the petitions were filed in this case.

         The City presented evidence tending to prove the assessed valuations of the properties do not represent their actual value. In particular, the assessed valuations are based on a presumption that the properties were habitable. Because the properties in question were clearly uninhabitable and in an advanced state of deterioration and disrepair, the City urged the district court to find the assessed valuations are not probative of their actual value.

         The record includes expert testimony on the cost of rendering the properties habitable. The construction inspector estimated it would cost $15, 000 to $20, 000 to make the Blaine Street property habitable. He further estimated it would cost $25, 000 to $30, 000 to render the Commercial Street property habitable. After considering the cost of rehabilitation and the postrehabilitation market value of the property, the bank holding a mortgage on the Commercial Street property concluded the project would not be a prudent investment.

         Because the City intended to demolish the existing structures on both properties, the expected costs of demolition were also presented at trial. A contractor hired by the City estimated the cost of demolishing the Blaine Street property would be $10, 999. The contractor further testified that the cost of demolishing the Commercial Street property would be $12, 117.[4]

         The parties filed posttrial briefs addressing Cahalan's claim that the award of title to the City would result in an unconstitutional taking. Although the district court found both properties were abandoned under the criteria set forth in section 657A.10A(3), it dismissed the City's petitions. The court concluded the relief requested by the City would deny Cahalan all use of its properties and result in a taking without just compensation. The court also found the properties had more than nominal value, although it did not determine the fair market value of either.

         The City appealed and we retained the appeal. On appeal the City claims the district court erred in dismissing its petitions because the actions brought under section 657A.10A are a valid exercise of police power for which no compensation is owed to Cahalan. Conversely, Cahalan claims the relief sought by the City would constitute a per se taking for which compensation is required under the Lucas standard.

         II. Scope and Standard of Review.

         Our review of cases tried in equity is de novo. Iowa R. App. P. 6.907; City of Waterloo v. Bainbridge, 749 N.W.2d 245, 247 (Iowa 2008); see Iowa Code § 657A.10A(1)(b) (requiring actions under section 657A.10A be in equity). Nevertheless, we give weight to the factual findings of the district court, especially with respect to determinations of witness credibility. Green v. Wilderness Ridge, L.L.C., 777 N.W.2d 699, 702 (Iowa 2010).

         "We review constitutional challenges to a statute de novo." State v. Thompson, 836 N.W.2d 470, 483 (Iowa 2013) (quoting State v. Seering, 701 N.W.2d 655, 661 (Iowa 2005)); see Rolfe State Bank v. Gunderson, 794 N.W.2d 561, 564 (Iowa 2011) ("To the extent constitutional issues are raised [with respect to an issue of statutory interpretation], review is de novo.").

         III. ...


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