In Town of Monument v. State of Colorado, the Court of Appeals ruled a key state Supreme Court precedent has broad application. Under the decision, a restrictive covenant on certain uses of property is not a compensable property interest in an eminent domain case.
In the original case, the Town of Monument bought a parcel of land intending to build a municipal water storage tank. But a restrictive covenant prevents such structures, and it applies to all property lots in the subdivision. Monument filed to use its eminent domain authority to have the court order its property exempted from the covenant.
But some other property owners who acted as intervenors in the case claimed Monument would have to pay each of them for the loss in their property’s value because the covenant benefitted all property in the subdivision. In addition, the State Board of Land Commissioners said Monument’s property lot couldn’t be exempted from the restrictive covenant because it is a compensable property interest and because eminent domain power can’t be invoked against the state.
The Court of Appeals’ decision turned on whether a 1956 Colorado Supreme Court decision, Smith v. Clifton Sanitation District, should have broad application or is limited to its fact pattern. The precedent involved a restrictive covenant clearly imposed by property owners to block a public entity’s acquisition of property for a public purpose, and the court ruled the covenant was not a compensable property interest. But the Court of Appeals decided the Supreme Court in Smith had made a rule of law that reaches beyond that type of situation. The decision overturned the district court’s ruling that the covenant is a compensable interest, which sided with the state.
Malcolm Murray, of counsel with Murray Dahl Beery Renaud who represented Monument in the case, said the decision will likely have wide-reaching implications for eminent domain cases because restrictive covenants can be frequently used to prevent public projects. “It’ll get some people’s attention, because there are lots of landowners that want to prevent pipelines, electric transmission lines, all of those kinds of things,” he said. “If you use privately imposed restrictive covenants, you can prevent all kinds of public uses of property.”
A spokesperson from attorney general Cynthia Coffman’s office, which represented the state, did not respond to a request for comment.
The bar set by the Court of Appeals doesn’t require a government to prove a restrictive covenant was imposed to prevent a specific public project. In the Monument case the covenant had the effect of preventing the water tank at issue, even though it wasn’t enacted for that purpose.
In the Smith precedent, property owners enacted a restrictive covenant barring the use of their land as sanitation disposal after negotiations with a sanitation district to buy property for that purpose fell apart. The property owners’ clear goal was to prevent the property from getting the land for its intended purpose by asserting eminent domain. The Court of Appeals acknowledged the fact pattern in Smith is unusual, but noted the Supreme Court’s decision didn’t turn on the property owners’ intent when they enacted the restrictive covenant.
“Had it been so, the court wouldn’t have needed to articulate the rule set forth above. It could’ve just said that regardless whether such restrictive covenants are compensable property interests in this context, they aren’t when agreed to as part of a scheme to muck up a condemning authority’s plans to acquire property through eminent domain,” wrote Judge Jerry Jones in Monument v. State of Colorado. “But the court didn’t say anything like that. Instead, it articulated a rule in broad terms, without caveat.”
According to the Court of Appeals, the policy reasons cited by the Supreme Court in Smith would apply whenever a restrictive covenant is at issue in an eminent domain case, regardless of the property owners’ intent when they imposed the covenant.
The Supreme Court pointed to the difficulty a condemning authority would have if it had to pay damages for each property interest in an area subject to restrictions.
The court also noted the inconsistency of allowing property owners to restrict a public body’s right of eminent domain, when the landowners own their property with the understanding that a public entity can exercise eminent domain when needed.
The Supreme Court also voiced a concern in Smith that ruling a restrictive covenant is a compensable property interest would make the public agency responsible for “speculative and unwarranted” damages.
Prior to this decision, the Smith precedent had been treated as limited to its facts. Murray said a 2010 Court of Appeals ruling, Steamboat Springs v. Johnson, has been one of the only cases to cite Smith.
“The discussion of Smith in the Steamboat Springs case was cursory at best, and this Court of Appeals opinion treated it the same way,” he said. Murray said the Monument case presents an unusual situation, in which a private action creates a property interest that is an obstacle to condemnation.
In the Steamboat Springs case, the parties specified the restrictive covenant at issue was a compensable property interest. As a result, the Court of Appeals said in a dictum that they did not need to consider the Smith precedent in the ruling.
The decision stated the court is bound by the Smith precedent because only the Supreme Court can overturn its decisions. “Whether Smith’s holding is based on sound policy, consistent with more modern 14 property law concepts, or reflective of a minority view simply doesn’t matter.”
— Julia Cardi