Borgnemouth Realty Co. v. Parish of St. Bernard

Citations: 141 So. 3d 891; 2013 La.App. 4 Cir. 1651; 2014 WL 2139110; 2014 La. App. LEXIS 1893Docket: No. 2013-CA-1651

Court: Louisiana Court of Appeal; May 21, 2014; Louisiana; State Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

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Borgnemouth Realty Company, Ltd. owns property in St. Bernard Parish, which was commandeered by the parish president via executive order for levee repairs following storm damage. This order allowed the parish to acquire an assignable right and easement to extract soil and other materials from Borgnemouth's property, but did not transfer full ownership. The parish president subsequently granted an irrevocable right to the Lake Borgne Basin Levee District to use the materials, which would then be forwarded to the U.S. Army Corps of Engineers. Excavations resulted in the removal of 196,808 cubic yards of soil and clay from Borgnemouth's property, used for levee reconstruction. 

When Borgnemouth sought compensation, both the Parish and the Levee District refused, asserting that the Levee District had a pre-existing servitude allowing material removal. After a trial, the district court ruled in favor of Borgnemouth, determining it was entitled to compensation at $5.00 per cubic yard and attorney’s fees, leading to appeals from the Parish and Levee District. Upon review, the court found no valid rights from the 1967-1969 servitude claimed by the Levee District and upheld the trial judge's decision regarding compensation and attorney’s fees. The court confirmed that Borgnemouth's ownership rights were not in dispute, focusing solely on the constitutional claim for compensation for the materials taken. Ownership includes the right to use, enjoy, and dispose of property as defined by law.

Ownership of land in Louisiana encompasses everything above and below it, as per La. Civil Code art. 462. Landowners have the right to utilize their land and derive benefits from it unless restricted by law or others’ rights. Borgne-mouth, as the landowner, retains ownership of the subsurface land. The Louisiana Mineral Code further clarifies rights regarding below-surface materials, emphasizing that rights to extract natural resources like soil and gravel are governed by this code (La. Min.C. art. 4). The term “minerals” includes soil, and landowners can defend their mineral rights against trespass and damage (La. Min.C. art. 12). If a political entity, such as a Parish or Levee Board, takes property for public use, it must provide just compensation to the owner, including the appraised value of the property (La. Const. art. 1, § 4(B)(1) and (5)). In this case, the Parish utilized the Louisiana Homeland Security and Emergency Assistance and Disaster Act to commandeer private property for disaster response. This commandeering authority is subject to compensation requirements. The executive order allowed the Parish to acquire an assignable right and easement to extract materials from the property while reserving certain landowner rights. Subsequently, the Parish assigned these rights to the Levee District, which authorized the Corps of Engineers to act on its behalf, ensuring property owners would be compensated per Louisiana law.

Borgnemouth retains ownership of the soil and clay beneath its land and is entitled to compensation for any mineral extraction by local governmental entities. The executive order in question does not transfer ownership of the property affected by the commandeering order. To avoid compensating Borgnemouth, the Parish or the Levee Board must prove they have previously acquired rights to the minerals. Only the Levee District claims such rights through resolutions from 1967-1969.

The Levee District acknowledges it cannot appropriate a servitude on Borgnemouth’s property since the MR-GO levee was not built on riparian land and the servitude extends beyond the required area. Louisiana Civil Code Article 665 and relevant case law establish that compensation for property used for levee purposes must be at fair market value. The Levee District relies on the St. Julien doctrine, which asserts that Borgnemouth's lack of objection to the appropriations during 1967-1969 prevents its dispossession. However, since Borgnemouth does not seek to evict the Levee District, the historical context of this doctrine is not pertinent.

The Levee District did not obtain a legal servitude through law or agreement, leading to the characterization of its acquired rights as a "faux-servitude." The analysis focuses on the actual rights gained by the Levee District through Borgnemouth's acquiescence to the appropriations, as documented in three resolutions and associated letters from the Corps of Engineers. These letters outline the dimensions for the right of way and temporary easements for levee construction but do not address the extraction of soil or clay. Each resolution aligns with the corresponding letter, establishing rights of way and entry for the levee's construction.

Resolutions related to the appropriation of Borgnemouth’s land by the Levee District do not explicitly address land exploitation for soil or clay needed for levee construction. The analysis reveals that the Civil Code's servitude provisions apply, particularly since MR-GO is not classified as a natural waterway, negating riparian status for Borgnemouth’s land. Servitudes for public utility allow for public use related to navigable rivers and the construction of levees and other common works, as outlined in La. Civil Code art. 665. Affirmative servitudes, like the right of way, grant specific rights to the dominant estate owner, as per La. Civil Code art. 706. The correspondence from the Corps of Engineers and the Levee District does not indicate an intention to exceed the rights established under the law. Furthermore, La. Civil Code art. 730 states that ambiguities regarding predial servitudes should favor the servient estate, highlighting the balance between state authority and property rights, as emphasized in Exxon Pipeline Co. v. Hill. The Levee District holds a legitimate right to access Borgnemouth’s property for levee maintenance and repair, which includes the right to enter, store equipment, and manage the levee, supported by La. Civil Code arts. 744 and 745. The Levee District is responsible for all costs associated with its servitude, while Borgnemouth’s obligation is limited to allowing permitted activities on its estate, as stated in La. Civil Code art. 651.

Predial servitudes can allow for certain activities on the servient estate, such as rights of way, but the real rights appropriated by the Levee District did not include the right to excavate, exploit, or remove soil or clay owned by Borgnemouth. This conclusion is supported by the absence of evidence showing that any entity, including the Parish or the Corps of Engineers, excavated or removed Borgnemouth’s minerals prior to a 2005 commandeering order. Consequently, there is no factual basis for the Levee District's claim that the right to minerals was essential for the appropriated rights. As the real rights acquired did not extend to excavation, the issue of Borgnemouth’s compensation rights from 1967-1969 need not be addressed.

The trial judge’s assessment of Borgnemouth’s loss, for which full compensation is sought, involves three components: the determination that the highest and best use of the land was as a borrow pit, the damage award based on a $5.00 per cubic yard valuation, and the overall award itself. The highest and best use finding, which the Parish and Levee District contest, is reviewed under a “clearly wrong” standard. The concept of "highest and best use" aims to establish property value prior to any proposed improvements, without deducting benefits derived from them. A trial judge must ascertain the fair market value of property before expropriation, defined as the price a willing buyer would pay after considering all permissible uses of the property that are not speculative or unlawful.

Fair market value is determined by considering the most profitable use of land based on its location, topography, and adaptability. Factors for consideration include market demand, proximity to compatible developments, economic growth, specific business plans, land scarcity, negotiations with potential buyers, and the property's current use. The presumption is that the current use reflects the highest and best use, with the burden of proof resting on the landowner to demonstrate an alternative use.

In this case, the trial judge evaluated testimony from three individuals: Bruce Wallis, who indicated that the clay on the land was certified for future projects and that there was a contract for its sale; Christopher Lovelace, who noted the ideal location for borrow material and current market solicitations; and Richard Murphy, who assessed the land as having limited development potential. The Parish's action was limited to removing soil and clay rather than appropriating full ownership. Consequently, the trial judge favored Wallis's and Lovelace's testimonies, concluding that the property’s highest and best use was as a "borrow pit," a finding deemed reasonable and not clearly erroneous.

The trial judge's valuation method, based on the cubic yards of material removed, was appropriate given that only access to the borrow material was granted, not full ownership. The valuation of five dollars per cubic yard was challenged by the Parish and Levee District, but since this is a factual finding, the standard of review remains "clearly wrong." Lovelace confirmed that the valuation range for borrow material in the area was between four and six dollars.

Mr. Wallis and Cary Des Roches testified that the value for a cubic yard of borrow material in St. Bernard Parish ranged from $4.25 to $5.00. No opposing testimony was presented by the Parish or the Levee District to challenge these figures. The trial judge found this valuation appropriate and awarded Borgnemouth $984,040 for the commandeered material. The court reviewed the damage award under an abuse-of-discretion standard, concluding that the trial judge's decision did not stem from an erroneous legal interpretation or a clearly erroneous assessment of evidence. Therefore, the awarded amount was upheld.

Regarding attorney's fees, the trial judge awarded Borgnemouth $335,370 based on a 27% contingency fee agreement. The Parish and the Levee District argued this amount was unreasonable, but the court disagreed, applying the same abuse-of-discretion standard. In Louisiana, attorney's fees can only be recovered when authorized by contract or statute. La. R.S. 13:5111 mandates that a trial judge award reasonable attorney's fees to a plaintiff in cases of property taking without expropriation proceedings. The court confirmed the fee award was statutorily required and assessed its reasonableness based on several factors, including the outcome achieved, responsibilities incurred, the importance of litigation, and the skill of the attorneys involved.

A court may consider but is not bound by contingency contracts when determining reasonable attorney’s fees, as established in Rivet v. State, Dept. of Transp. Dev. The trial judge, familiar with the complexities of the appropriation case involving Borgnemouth, recognized the skill and effort of the attorneys amidst significant resistance from political subdivisions. The court rejected claims from the Parish and Levee District suggesting the attorney’s fee award was excessive or unreasonable, affirming the trial judge's discretion.

The political subdivisions raised three arguments to avoid compensating Borgnemouth. First, they contended that the MR-GO levee was a federal project, making compensation a federal obligation. Second, they argued that they were merely conduits, absolving them of responsibility for compensating Borgnemouth since the Corps of Engineers was the sole liable party. Third, the Parish claimed that agreements with the Levee District and the Corps constituted stipulations pour autrui, relieving them of liability.

The court addressed the first argument by noting that the determination of whether an entity has taken property is fact-specific. It clarified that the taking of Borgnemouth’s property was executed under state law by a political subdivision for levee repair, with no federal title or servitudes involved. The federal government maintains exclusive jurisdiction over the MR-GO channel, while the Levee District is responsible for the ongoing maintenance and repair of the levees. The court referenced past cases to emphasize that the Levee District, not the federal government, appropriated the necessary rights of way for levee construction.

The federal district courts dismissed the United States as a party in claims for indemnity, deeming them premature, and remanded the cases to state court. The court ruled that determining whether the defendants’ actions constituted a taking under the Louisiana Constitution did not involve federal law, thus lacking federal jurisdiction. The political subdivisions did not establish that the MR-GO levee repairs were a federal project exempting them from compensating Borgnemouth. The Parish and Levee District argued they should not be liable due to an agreement with the Corps of Engineers, which they interpreted as an obligation for compensation to affected property owners. However, the court clarified that this agreement was merely an indemnity arrangement, meaning reimbursement for liabilities that should have been assumed by another party. An indemnity agreement protects one party against damages incurred due to another's breach of duty. The court emphasized that the indemnitor is not liable until the indemnitee has made a payment or sustained a loss. Borgnemouth's claim against the Parish and Levee District stands as a separate cause of action, and the Corps of Engineers' indemnity agreement does not absolve the political subdivisions of their duty to compensate Borgnemouth fully. The court also noted that the Parish's argument regarding stipulations pour autrui, which would relieve them of liability, was not valid.

Borgnemouth is identified as the beneficiary in the agreements at issue but asserts it did not intend to accept the benefits of the agreement, rendering the terms unenforceable. Under Louisiana law, a contract benefiting a third party is termed a "stipulation pour autrui," and once a third party expresses intent to accept the benefit, the contract cannot be dissolved without their consent. However, Borgnemouth has not indicated any such intent.

Even if the agreement were deemed enforceable, it would only serve as indemnification. The Parish appropriated Borgnemouth’s land, creating a debt owed to Borgnemouth for just compensation. The agreements with the Levee District and the Corps of Engineers merely expand the obligors' responsibilities regarding this constitutional duty and do not allow the Parish to avoid its obligations through stipulations pour autrui.

The court concluded that the Levee District did not gain any real rights to Borgnemouth’s property due to appropriations made between 1967 and 1969 during levee construction. The Parish's actions in commandeering Borgnemouth’s soil and clay in 2005 resulted in solidary liability to Borgnemouth for just compensation. The trial judge's findings concerning the property’s highest and best use, the damage measurement, and the valuation of $5.00 per cubic yard were upheld as reasonable. 

The court affirmed the trial court's judgment, ordering the Parish and the Levee District to pay Borgnemouth $984,040 in damages and $265,948.41 in attorney’s fees, plus interest and costs. The judgment was affirmed in favor of Borgnemouth Realty Company against the Parish of St. Bernard and the Lake Borgne Basin Levee District.

Total cubic yards taken were initially reported as 248,296, but due to a settlement, the disputed amount has decreased to 196,808, as noted in the Decree. Louisiana Constitution article 6 recognizes parishes and levee districts as political subdivisions of the state, while article 1.4(G), added after the taking in this case, does not apply. The Supreme Court's decision in Lake, Inc. v. La. Power & Light Co. prospectively overruled the St. Julien doctrine, as confirmed by City of New Orleans v. New Orleans Canal, Inc., which clarified that Lake only overruled St. Julien prospectively. In response, the Louisiana Legislature enacted Act No. 504 of 1976, now La. R.S. 19:14, which revived aspects of the St. Julien doctrine but did not explicitly overrule Lake. The 2007 amendment to La. R.S. 19:14 added Subsection C, prohibiting the acquisition of interests in privately-owned property adjacent to or providing access to property appropriated under the St. Julien doctrine, intended as interpretive and remedial to clarify existing law. The applicability of La. R.S. 19:14 C retroactively is not addressed in this matter. Actions for compensation for a taking by a political subdivision are subject to a three-year prescription period under La. R.S. 13:5111. Currently, the amount in dispute stands at $265,948.41, with references made to relevant case law regarding legal arguments, all of which are reviewed de novo.