Case 2019CV001524
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Page 1 of 13 FILED 08-28-2020 Clerk of Circuit Court Racine County
BY THE COURT: DATE SIGNED: August 28, 2020
2019CV001524
Electronically signed by Jon E. Fredrickson Circuit Court Judge
STATE OF WISCONSIN
CIRCUIT COURT
RACINE COUNTY
AZARIAN WRECKING, LLC, et al., Plaintiffs, v.
Case No. 19CV1524
CITY OF RACINE et al., Defendants.
DECISION AND ORDER
The above captioned matter having come before the Court, the Honorable Jon E. Fredrickson presiding, on August 11, 2020 on defendants' Motion to Dismiss plaintiffs' Third Amended Complaint, plaintiffs appearing via video in person and by counsel Attorneys Andrew Shaw and Walter Stern III, defendants appearing via video by their counsel, City Attorney Scott Letteney and Assistant City Attorney Robin Zbikowski, and the Court having reviewed the parties’ briefs and affidavits, and heard oral argument, the Court issues the following decision and order.
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BACKGROUND Plaintiffs' Third Amended Complaint contains four causes of action: (1) Declaratory Judgment; (2) Unjust Enrichment; (3) Violation of Eminent Domain Laws; (4) Wisconsin Constitution, Art. I Sec. 13 Takings Clause Violation. All of plaintiffs' causes of action sound in eminent domain, and all seek eminent domain relief, to wit, fair market value for the properties acquired and just compensation for relocation costs. In support of the four claims, plaintiffs allege the following facts. On July 2, 2012, the City of Racine adopted the "Rootworks" Root River Corridor redevelopment plan to benefit the city of Racine. The Root River Corridor plan combined local, state and federal funding sources, including tax incremental financing. In late 2013 and early 2014, the City of Racine and RDA began promoting the area around the plaintiffs' properties for redevelopment under the Machinery Row plan. The City of Racine identified Machinery Row as the catalyst for Rootworks, and identified the Machinery Row area as encompassed by the larger Root River Corridor plan in the plan renderings. On June 10, 2014, at a press conference at the Azarian Marina site, the City of Racine announced the Machinery Row project as a 20-acre, $65 million dollar mixed-use redevelopment project - the largest redevelopment project in the City's history. At the press conference, it was stated that the project could only proceed if three properties covering 20 acres of riverfront land were purchased. At that time, the three properties were owned by Geeta Jensen dba BJJ, LLC; Richard Olson dba Richard Olson and Marquette Warehouse, LLC, and Sam Azarian dba Sam Azarian and Son's Marina, Inc. and Azar, LLC. On June 24, 2014, the Wisconsin Economic Development Corporation approved $9 million in tax
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credits for Machinery Row. In September 2014, the Racine City Council approved the creation of a tax incremental finance district for Machinery Row. In December 2014, the City of Racine loaned $4.5 million dollars to a company called FDP MR, LLC ("FDP") to purchase the aforementioned properties for the Machinery Row project. FDP obtained the loan from the City of Racine based upon its representation that it had no financing of its own to purchase the properties. The City of Racine agreed to lend the money to FDP for 1% interest for 24 months. The City of Racine did not require FDP to secure the loan by any personal guarantees, bonds, or other security. In December 2014, the City of Racine also obtained deeds in lieu of foreclosure from FDP for each of the three sets of properties it had tasked FDP to acquire. The deeds in lieu of foreclosure gave the City of Racine the power to seamlessly take title to the Machinery Row properties acquired by FDP if it defaulted on the City's $4.5 million loan. The City of Racine authorized FDP to purchase the two Azarian business properties ("Azarian Properties") through a negotiated sale. As part of the sale, the City required Sam and Harry Azarian to sign two waivers, one for the Azarian Marina property sale, and the other for the Azar property sale. In the waivers, the City stated its opinion that the City did not believe that the property owners were entitled to any protections or benefits under eminent domain laws and required the plaintiffs to waive any eminent domain rights they may have. The relevant operative language of the waivers is set forth as follows: FDP MR, LLC is acquiring from Owner the fee simple interest in the above noted property with funds loaned for a short term by the City to FDP MR, LLC. Owner understands that the City of Racine is not acquiring the property interest and, except for certain public improvements that are necessary to serve the development plan of FDP MR, LLC, will not acquire title to any portion of the property as part of the transfer of the property interest by Owner to FDP MR, LLC. While the City does not believe that Owner is entitled to any protections or benefits extended under the law of
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eminent domain, it is seeking this Waiver from Owner to make it clear to all parties that eminent domain benefits shall not be extended. The undersigned owner understands that were the eminent domain process applicable, it would have the right to have its property appraised as if this had been a property acquisition by the City of Racine and to receive just compensation based on such appraisal as if the City were to be the party acquiring the property. The undersigned owner, has been fully informed of its rights under the laws of eminent domain of the State of Wisconsin and has been furnished with the brochures of the Department of Commerce entitled "The Rights of Landowners Under Wisconsin eminent Domain Law - Procedures Under Sec. 32.06 Wisconsin Statutes," and Wisconsin Relocation Rights - Business, Farm and Nonprofit Organizations. In furtherance of the transfer of the property interest described above, Owner waives its rights, if any, that it may have to steps prescribed by such law for the acquisition of the interests in the property above-described, including the right to an appraisal of such interest and to accept settlement in the above-sated amount as full and final payment for the property interests being acquired by FDP MR, LLC. . . At the time of sale, the properties had a 2013 real estate tax assessment value of $1,741.100 and an even higher fair market value. Azarian Marina and Azar received $1.1 million collectively for their properties, less a 10% environment remediation holdback. In the event the properties were clean, the Azarians would be returned the holdback money. If the properties required remediation, and all holdback monies were not used for cleanup, the Azarians would be entitled to the remainder of funds. All of the funds used by FDP to purchase the Azarian Properties were funds transferred to FDP from the City's intergovernmental fund. The Azarians occupied their properties post-sale until November 2016. One of the terms of the loan between the City and FDP was that FDP had to deposit $200,000 into an escrow account to make interest payments to the City. Instead of using its own money, FDP, with the agreement of the City, took the remediation holdback monies and deposited them into the escrow account to be used for interest payments. The holdback money eventually ran out. In December 2016, the City declared that FDP was in default
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on the $4.5 million loan. In February 2017, the City acted upon its deeds in lieu of foreclosure, and acquired ownership of all of the properties purchased by FDP, including the Azarian Properties. On or about May 2, 2017, the Wisconsin Department of Administration ("DOA") received an eminent domain relocation complaint from a tenant at one of Richard Olson's properties that had been purchased by FDP.
On June 9, 2017, the DOA issued a
determination letter to the City and Mr. Fagan regarding Mr. Fagan's complaint, and the Machinery Row project in general.
In the letter, the DOA made the following
determinations: •
The Machinery Row project was a public project subject to the eminent domain laws contained in Wis. Stat. Ch. 32 and Wis. Admin. Code ch. Adm 92.
•
There were multiple "displaced persons", as that term is defined in Wis. Stat. §§ 32.19(2)(e) and (g) and Wis. Admin. Code § Adm 92.01(13).
•
"A relocation plan should have been submitted for approval prior to initiation of negotiations for acquisition of the various properties, and owners and tenants should have been informed of their rights under Wis. Admin. Code ch. Adm 92 and Wis. Sat. ch. 32."
•
"It should be noted that relocation assistance cannot be waived in this situation."
•
"Mr. Fagan should receive relocation payments, as should others who were displaced from the related properties."
•
"If the parties are unable to come to an agreement as to the specific types of relocation payments that apply, or the amounts thereof, Mr. Fagan has the right to pursue legal action under Wis. Stat. § 32.20."
In July 2017, the City hired a relocation company, Terra Ventures, LLC to assist in handling any relocation claims made by displaced persons from the Machinery Row public
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project. On August 2, 2018, they submitted the following claims for eminent domain relocation assistance: •
Owner's relocation benefits for Raza ($73,750)
•
Owner's relocation benefits for Azarian Marina ($20,500)
•
Tenant's relocation benefits for Azarian Wrecking, LLC ($179,860)
To date, plaintiffs' relocation claims have not been paid by the City. ANALYSIS Wisconsin is a notice pleading state, and all that is required of a plaintiff is to give fair notice to a defendant of the general nature of the plaintiff's claim. Farr v. Alternative Living Servs., Inc., 2002 WI App 88, ¶ 11, 253 Wis. 2d 790, 643 N.W.2d 841; Ford v. Kenosha County, 160 Wis. 2d 485, 494, 466 N.W.2d 646 (Wis. 1991). "A motion to dismiss a complaint for failure to state a claim tests the legal sufficiency of the complaint." Watts v. Watts, 137 Wis. 2d 506, 512, 405 N.W.2d 303 (Wis. 1987). "All facts pleaded and all reasonable inferences therefrom are admitted as true, but only for the purpose of testing the legal sufficiency of the claim, not for trial." Id. "A complaint should not be dismissed for failure to state a claim unless it appears certain that no relief can be granted under any set of facts that a plaintiff can prove in support of his or her allegations." Id. "The pleadings are to be liberally construed to do substantial justice to the parties." Id.; Wis. Stat. § 802.02(6). The City, with the assistance of FDP, is alleged to have obtained the Azarian Properties for less than fair market value through violations of eminent domain law procedures. Defendants are further alleged to have obtained illegal eminent domain rights waivers, and to have failed to pay eminent domain relocation benefits. At the most recent
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oral argument, defendants conceded that FDP was not a "condemnor" for the Machinery Row project - the City was the condemnor. Under Wisconsin's eminent domain laws, "condemnor" has a specific meaning: 32.185 Condemnor. “Condemnor", for the purposes of ss. 32.19 to 32.27, means any municipality, board, commission, public officer, or business entity vested with the power of eminent domain which acquires property for public purposes either by negotiated purchase when authorized by statute to employ its powers of eminent domain or by the power of eminent domain. “Condemnor" also means a displacing agency. In this section, “displacing agency" means any state agency, political subdivision of the state or person carrying out a program or project with public financial assistance that causes a person to be a displaced person, as defined in s. 32.19 (2) (e). An entity isn't a "condemnor" unless it is "vested with the power of eminent domain" and it "acquires property for public purposes either by negotiated purchase when authorized by statute to employ its powers of eminent domain or by the power of eminent domain." Wis. Stat. § 32.185. As a "condemnor" engaging in an eminent domain public project, the City had only two statutory avenues to acquire the Azarian Properties - Wis. Stat. §§ 32.05 or 32.06. Under Wis. Stat. § 32.05, prior to starting negotiations to acquire property for a public project, the City or the RDA had to make a relocation order which includes a map or plat showing the old and new locations and the lands and interests required. Wis. Stat. § 32.05(1). If it was proceeding under Wis. Stat. § 32.06, it had to obtain a determination of the necessity of the taking for the public project. Wis. Stat. § 32.06(1); Wis. Stat. § 32.07. The City or RDA also had to file and obtain DOA approval of a written relocation payment plan and relocation assistance service plan prior. Wis. Stat. § 32.25. Upon receiving DOA approval, the City or RDA would have then had to obtain at least one appraisal of the property proposed to be acquired and share it with the property owner. Wis. Stat. §§
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32.05(2a) and 32.06(2a).1 If the property is acquired through negotiation, "the date the conveyance is recorded shall be treated as the date of taking and the date of evaluation." Wis. Stat. §§ 32.05(2a) and 32.06(2a). The Third Amended Complaint is silent as to whether the defendants made a relocation order or a determination of the necessity of taking Machinery Row properties. The Third Amended Complaint is also silent as to whether any appraisals were obtained and shared prior to the start of negotiations for the Azarian Properties. The Third Amended Complaint does, however, allege that the defendants did not file and obtain DOA approval of a written relocation payment plan and relocation assistance service plan prior to negotiating for and acquiring the Azarian Properties. Exhibit B to the Third Amended Complaint is the DOA's determination letter, which states the following: It does not appear that a relocation plan was ever submitted to DOA for Machinery Row, although it appears there were multiple displaced persons. A relocation plan should have been submitted for approval prior to initiation of negotiations for acquisition of the various properties, and owners and tenants should have been informed of their rights under Wis. Admin. Code ch. Adm 92 and Wis. Sat. ch. 32. Under the facts alleged, defendants and FDP had no eminent domain right to negotiate, much less purchase, the Azarian Properties without first having filed and obtained approval of a relocation plan. Nor did either defendant or FDP have an eminent domain right to obtain waivers of unwaivable eminent domain rights from the plaintiffs. Plaintiffs allege that as a result of these violations of eminent domain laws, that the purchase contracts and waivers for the two properties are void.
1
"Before making the jurisdictional offer provided in sub. (3), the condemnor shall attempt to negotiate personally with the owner or one of the owners or his or her representative of the property sought to be taken for the purchase of the same." Wis. Stats. §§ 32.05(2a) and 32.06(2a).
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Wisconsin's eminent domain laws give municipalities vast power to take property for public projects. In return, the law contains a strong safety net to ensure property owners obtain fair market value for their properties, and that owners and tenants receive just compensation for relocation costs. Plaintiffs allege that their properties were taken, that they did not receive fair market value, and that they did not receive any relocation compensation, much less just compensation. They are entitled to pursue claims for both under eminent domain laws. In re Country Side Restaurant, Inc., 2012 WI 46, ¶¶ 24-25, 340 Wis. 2d 355, 347 - 349, 814 N.W.2d 159; Wis. Stat. § 32.09. Property acquired through negotiation is considered "taken" under eminent domain law. Wis. Stat. §§ 32.05(2a) and 32.06(2a). Plaintiffs' constitutional takings claim is actionable. "Where a municipality has authority to enter into a given contract, but procedural requirements are not followed, the municipality may be liable under the theory of unjust enrichment." Ledges Const. Co. v. Village of Butler, 42 Wis. 2d 227, 236, 166 N.W.2d 202 (Wis. 1969). Plaintiffs allege that defendants had condemnation powers, did not follow eminent domain procedures in acquiring their property, and were unjustly enriched by obtaining the properties for less than the required fair market value. At this early stage of the proceedings, that is all that is required. Plaintiffs' unjust enrichment claim is actionable, as are the remaining two claims for a declaratory judgment and violation of eminent domain laws. Defendants' also seek dismissal of plaintiffs’ first, second, and fourth cause of action because plaintiffs failed to comply with the notice and damages itemization requirements contained in Wis. Stat. § 893.80(1d). Defendants argue that plaintiffs' failure to comply with Wis. Stat. § 893.80(1d) was so central to the legislature's statutory scheme
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to protect municipalities from unanticipated lawsuits, that it deprived this court "of competency to proceed with Plaintiffs' relevant causes of action." (Moving Brief, p. 13.) Although it went uncited by both parties, Nesbitt Farms, LLC v. City of Madison, 2003 WI App 122, 265 Wis. 2d. 122 directly controls defendants' argument that Wis. Stat. § 893.80(1d) requires dismissal of plaintiffs' first, second, and fourth causes of action. When eminent domain damages are at issue, as in this case, plaintiffs do not need to comply with Wis. Stat. § 893.80(1d). Id. The rationale for this rule is stated as follows: We therefore agree with the owners that it is not necessary to apply the notice of claim requirement under Wis. Stat. § 893.80(1) to condemnation award appeals in order to accomplish the informational purposes the legislature intended. Applying the requirement to Wis. Stat. § 32.05(11), moreover, would thwart what appear to be equally compelling legislative purposes underlying the provisions of § 32.05. The statutory scheme under Wis. Stat. § 32.05 for compensating landowners and permitting them to appeal their awards is designed, at least in part, to ensure that a condemnor pays a fair price for property it acquires by condemnation. See TFJ Nominee Trust v. DOT, 2001 WI App 116, ¶ 10, 244 Wis.2d 242, 629 N.W.2d 57, review denied, 2001 WI 117, 247 Wis.2d 1035, 635 N.W.2d 783 (Wis. Sep. 19, 2001) (No. 00–2099) (“Because the power of eminent domain under Wis. Stat. ch. 32 is extraordinary, we strictly construe the condemnor's power under Wis. Stat. § 32.05, while liberally construing provisions favoring the landowner, including available remedies and compensation.”). If we were to conclude that the requirements of Wis. Stat. § 893.80(1) must be layered onto the provisions of § 32.05, the incentives for a condemnor to tender fair compensation might well be disrupted. That is, a municipal condemnor might find it expedient to “lowball” jurisdictional offers in the hopes that many landowners will not contest their awards, and the claims of those who do could be compromised and settled after a notice of claim is filed, thereby avoiding the potential adverse consequences of defending an appeal.
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Accordingly, we conclude that the purposes underlying Wis. Stat. § 893.80(1) do not require its application to condemnation appeals under Wis. Stat. § 32.05(11). By undertaking the condemnation process, a municipality not only acquires notice of a potential claim against it regarding the value of the property taken, it actually creates the claim by acting in the first instance to acquire the property. Provided a municipality discharges in good faith its obligations as condemnor under § 32.05, it will learn the amount of compensation reasonably due a landowner, and it will have the opportunity to minimize the possibility of litigation through negotiation and the making of a fair jurisdictional offer. Although making the notice of claim statute applicable to § 32.05(11) would provide procedural benefits to a condemning municipality, we cannot conclude the legislature intended it to have them. Rather, to the extent a landowner whose property has been taken for public purposes enjoys some procedural advantages under § 32.05 which other litigants seeking redress from a municipal entity do not, we conclude that is what the legislature intended.
Nesbitt Farms, 2003 WI App 122, ¶¶ 26 - 28, 265 Wis. 2d 422, 439 - 441. In sum, defendants in this case created the alleged eminent domain claims when they acquired the Azarian Properties in alleged violation of eminent domain laws. As such, plaintiffs were not required to comply with Wis. Stat. § 893.80(1d) prior to filing their eminent domain claims in this case. Defendants also argue that plaintiffs' claims for eminent domain relocation benefits should be dismissed as time barred because plaintiffs did not file their relocation benefit claims within two years from when the property was sold. But that is not the law. The statute of limitations for filing a claim for relocation benefits is two years "after the condemnor takes physical possession of the entire property acquired." Wis. Stat. § 32.20. The condemnor did not take physical possession of the Azarian Properties until November
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2016. The plaintiffs filed their claims for relocation benefits on August 28, 2018, which was within two years of November 2016. Defendants argue that FDP is a necessary party to the case. The condemnor City, however, is already a party to the case. With the only statutory condemnor (according to defendants) already a party to the case, FDP is not a necessary party for purposes of eminent domain damages. Complete eminent domain relief can be accorded among the already joined parties. Wis. Stat. ยง 803.03(1)(a). Defendants argue that the intentional acts allegations regarding defendants and FDP turn certain claims into intentional tort claims. These intentional acts allegations do not turn any of plaintiffs' well pleaded causes of action into dismissable intentional tort claims. Intentional false statements regarding condemnation or relocation benefits are specifically prohibited under Wisconsin's eminent domain laws: 32.29 False statements prohibited. Any officer, agent, or employee of a governmental body or business entity granted condemnation power under s. 32.02 (1) or (3) to (16) who intentionally makes or causes to be made a statement which he or she knows to be false to any owner of property concerning the condemnation of such property or to any displaced person concerning his or her relocation benefits under s. 32.19, 32.20, 32.25, or 32.26 or who fails to provide the information required under s. 32.26 (6) shall be fined not less than $50 nor more than $1,000, or imprisoned for not more than one year in the county jail or both. Plaintiffs' are not acting as private attorneys general in this case, and are not seeking enforcement of Wis. Stat. ยง 32.29. Plaintiffs are, however, entitled to allege that such prohibited intentional acts occurred as part of the factual bases underlying their eminent domain claims. Finally, defendants take issue with those portions of the pleadings that cast FDP as a "straw man". FDP might be more aptly referred to as a "shell company", but "straw man"
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is not overly pejorative under the facts as pleaded in this case. Plaintiffs allege that FDP had no skin the game. No personal guarantees. No invested monies. No autonomy from the City's property acquisition wishes, and that FDP acted as the hand of the City. They allege FDP's acquisitions of the Azarian Properties were funded entirely from loaned City money. That FDP's interest payments to the City were paid with Azarian, and other Machinery Row property seller's environmental holdback monies.
That when other
people's money ran out, FDP defaulted on its City loan. And that when FDP defaulted, the City automatically acquired the Azarian Properties at less than fair market value, because deeds in lieu of foreclosure were in place from day one. The City retains the right to test and challenge these allegations as the case progresses. But at this early stage, and for purposes of the present motion, plaintiffs’ allegations are treated as true. Watts, 137 Wis. 2d at 512. NOW, THEREFORE, IT IS HEREBY ORDERED: 1. Defendants’ Motion to Dismiss is DENIED. 2. Plaintiffs shall file an amended pleading removing "Sam Azarian dba" from appearing as part of the name of the legal entity "Sam Azarian & Sons Marina, Inc." within 15 days of the date of this decision.
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