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When we think “New Mexico,” we imagine scenes like this. Endless sky, seemingly infinite open roads, high desert … you know, “the West.”

But after reading the New Mexico Supreme Court’s opinion in City of Albuquerque v. SMP Properties, LLC, No. S-1-SC-37343 (Feb. 25, 2021), we’re going to think “inverse condemnation.” (Yeah, that may be sad, but come on, remember the title of this blog!)

The case: the city did a partial taking of SMP’s property for a road project. Just a thirty foot wide strip of SMP’s nearly 10 acres. But prior to the taking, the city told one of SMP’s tenants, “hey, we’re going to be taking this strip and doing a road project.” As a result, SMP’s inverse condemnation claim alleged, the tenant decided to not renew its lease. See slip op. at 11 (“SMP alleges that its claim for inverse condemnation arose prior to the actual condemnation of its property and that Albuquerque’s actions affected a portion of the Property that was not physically taken: namely the portion leased by SAIA that was not condemned by Albuquerque.”). The trial court granted the city summary judgment because any loss of rental income was a “consequential loss” and was not “substantial interference” with SMP’s property because the city didn’t directly restrict the use of the property (by taking it), and at best only indirectly affected SMP’s property.

The court of appeals disagreed, concluding that the facts about whether the city’s precondemnation activities were a substantial interference were both material and disputed. The court also held that the question of whether the loss of the lease was caused by the taking was also an unresolved factual dispute.

The Supreme Court affirmed the court of appeals, but employed a slightly different rationale. It first reaffirmed the idea that whether certain facts result in a taking is generally a question of law. But this may require a “complex factual assessment” of the effects on the property, and just because inverse condemnation is ultimately a legal question “does not mean that the jury plays no role in determining” whether there’s been a taking. Slip op. at 9. The court also concluded that because New Mexico is a “damaging” state, a physical taking is not necessary. Slip op. at 10 (“Accordingly, there may be substantial interference based on precondemnation activity even if the governmental actor never actually accomplishes a physical taking.”). And that may require a fact-finder to, you know, find facts:

Whether there was damage to the Property as a direct consequence of Albuquerque’s precondemnation activity—which is to say whether the activity constituted substantial interference—requires a fact-finder to resolve disputed questions of fact. After the fact-finder resolves all relevant factual disputes, or if there are no disputed facts, a court may determine based on those facts whether there was substantial interference as a matter of law. Albuquerque’s argument that a court must first make a legal determination that a taking occurred for there to be an inverse condemnation claim under Article II, Section 20 is without merit.

Slip op. at 10-11. The court also concluded that the base inquiry is a factual one, and the fact-finder (the jury) must determine whether the government intended to condemn some portion of the property (not at issue here because the city exercised eminent domain), and more critically, that the government did something that substantially interfered with the owner’s use and enjoyment of the property. This, the court held, did not need to be a direct restriction or interference:

Although we acknowledge that “[a]ll government actions will have some incidental economic” impact on property owners, not all precondemnation activity will produce a viable inverse condemnation claim. See id. ¶ 42. However, that general rule does not preclude an owner from asserting a taking based on “substantial injury” to a property where the property is not deprived of all beneficial use. See Harris, 1961-NMSC-165, ¶¶ 5, 9-12 (holding that a change in the grade of a road that substantially injured the value of a property was a compensable taking under the New Mexico Constitution).

{22} The Harris Court recognized that an inverse condemnation claim could arise without dispossession or the total deprivation of beneficial use, deciding not to proclaim a rule of universal application concerning the “line between non-compensable damage through an exercise of the police power, and damage for which payment must be made for a taking” in favor of “decid[ing] each case as it arises.” Id. ¶ 11. In other words, where a property owner alleges there has been an unconstitutional taking that is not based on the physical dispossession of property, New Mexico has not established a bright-line rule. Instead we look to the specific circumstances presented to implement the constitutional principle established by Article II, Section 20: “Private property shall not be taken or damaged for public use without just compensation.” (Emphasis added.)

Slip op. at 13-14 (emphasis original). If the owner could show that the city communicated with the tenant, that would be enough for a reasonable jury to conclude there was a substantial interference.

Finally, the court confirmed that New Mexico’s statutes recognize consequential damages in inverse condemnation claims. It rejected the trial court’s conclusion that the loss of the lease could not be part of the compensation calculation. See slip op. at 19 (“These cases appear to apply a similar principle: a governmental actor should not be permitted to engage in willful or deliberate conduct that damages a property it intends to wholly or partially condemn and thereby obtain the property at a diminished value.”). The court also confirmed that if the facts are as the owner alleged, it could recover:

SMP’s inverse condemnation claim is based on alleged consequential damage to the Property prior to the condemnation. If the termination of the SAIA lease was directly attributable to Albuquerque’s precondemnation activity, it would be compensable even if Albuquerque did not actually follow through with its partial physical taking in this case.

Slip op. at 20.

Summary judgment vacated, case remanded for more.

Overall, a good decision, and one we recommend you read and incorporate into your thinking about these things.

City of Albuquerque v. SMP Properties, LLC, No. S-1-SC-37343 (N.M. Feb. 25, 2021)