United States District Court, E.D. Michigan, Southern Division
OPINION & ORDER OVERRULING ROVER'S OBJECTIONS
(Dkt. 958), OVERRULING THE IRS'S OBJECTIONS (Dkt. 960),
AND ADOPTING THE COMMISSION'S IRS R&R (Dkt.
A. GOLDSMITH UNITED STATES DISTRICT JUDGE
Rover Pipeline, LLC has installed a 42-inch interstate
natural gas pipeline through Michigan and other states,
including through property owned by non-party John D.
Engelbert. Under the Natural Gas Act (“NGA”), 15
U.S.C. § 717 et seq., Rover has a right to
exercise the power of eminent domain to secure the easements
necessary to construct its pipeline. However, before it can
exercise the power of eminent domain, it must attempt to
reach a settlement with the impacted property owners to
compensate them for Rover's partial taking of their
property. For property owners with whom Rover could not reach
a settlement, Rover condemned their property in this action
and must pay them just compensation. Rover reached such a
settlement with Engelbert, but it failed to notify or
negotiate with another holder of an interest in
Engelbert's property, Defendant the Internal Revenue
Service. The IRS has a federal tax lien on the property for
an outstanding tax debt owed by Engelbert, which lien Rover
now seeks to condemn.
Court appointed a Commission to determine the amount of just
compensation owed to the IRS and others. The Commission held
hearings and submitted a Report and Recommendation
(“R&R”) (Dkt. 956) to the Court recommending
that $27, 400 would be just compensation for Rover's
easement through Engelbert's property. Both Rover and the
IRS have filed objections to the Commission's report
(Dkts. 958, 960). Rover's position is that the IRS lien
has not been impacted by Rover's taking in 2017, because
Rover had already settled with Engelbert in 2015. However,
Rover cannot evade the just compensation owed to the IRS so
easily. Its other objections to the IRS award are similarly
without merit. The same is true of the IRS objections.
reasons discussed below, Rover's objections are
overruled, the IRS's objections are overruled, and the
Commission's R&R is adopted.
has acquired non-exclusive 50-foot easements, as well as
temporary easements, across several properties in Michigan
and other states to install a 42-inch high-pressure
interstate natural gas transmission pipeline. For the
property owners from whom Rover could not obtain the
necessary easements through private transactions, Rover
obtained a Certificate of Public Convenience and Necessity
under the NGA, which allows for condemnation of property
necessary to build permanent natural gas pipelines. Rover
brought this action seeking to condemn any Michigan property
interests it was unable to obtain through private
R&R addressed in this Opinion involves two parcels of
land: MI-WA-59.500 (“the 59.50 Property”) and
MI-WA-060.000 (“the 60 Property”). The 60
Property is a thirty-five-acre parcel of land owned by
Engelbert. The 59.50 Property is an eight-acre strip of land
that was once part of the 60 Property but was later sold to
the Schaible family, who joined it to their property as a
single contiguous parcel of land. The IRS, Rover, and
Schaible were all allowed to present argument and evidence to
the Commission regarding just compensation attributable to
the 59.50 Property and the 60 Property (Dkt. 951). However,
the parties resolved the outstanding issues related to the
59.50 Property, which left only the 60 Property's just
compensation to be determined. Both Rover and the IRS
presented evidence at the Commission hearing. R&R at 1-2.
Commission hearing, the IRS offered Engelbert's testimony
and five contested exhibits related to Rover's
discussions with Engelbert as to the fair market value of the
60 Property and other nearby properties. R&R at 2. The
contested exhibits are “Right of Way Cost Estimates,
” which reflect the easement agreements between
Engelbert and Rover and the itemized values for the permanent
easements, temporary workspace, crop damages, administration
fees, and signing bonuses (Dkts. 972-7 to 972-11). The
Commission ruled that the testimony and the contested
exhibits were not admissible as evidence of fair market
value, because they did not reflect good-faith offers.
Id. at 3-9 (citing Dep't. of Transp. v.
Frankenlust Lutheran Congregation, 711 N.W.2d 453 (Mich.
Ct. App. 2006)).
called general real estate appraiser Anthony Sanna to
testify. Sanna submitted a report and testified that the
pre-taking value of the land was $245, 000, Sanna Report, Tab
6 to J.A., at 23 (Dkt. 972-6), and that the post-taking value
of the land on the day of the taking, using rounded numbers,
was $218, 000, id. at 32. Sanna's valuation was
based on valuing the land taken by the permanent easement
(the 50-foot easement) at $15, 400, and adding the value of
the land taken by the temporary easement (temporary workspace
to install the pipeline) at $12, 000. Id. at 12. The
Commission found Sanna's testimony credible and
determined that $27, 400 was an appropriate just compensation
award for the taking. Id.
the NGA, Rover can bring an action to condemn property when
it cannot agree with the property owner on the compensation
to be paid for the necessary right-of-way to construct its
pipeline. 15 U.S.C. § 717f(h). Although the action is
brought in federal court, the practice and procedure must
“conform as nearly as may be with the practice and
procedure in similar action or proceeding in the courts of
the State where the property is situated.”
Id.; see also Columbia Gas Transmission Corp. v.
Exclusive Natural Gas Storage Easement, 962 F.2d 1192,
1199 (6th Cir. 1992) (explaining that “although
condemnation under the Natural Gas Act is a matter of federal
law, § 717f(h) incorporates the law of the state in
which the condemned property is located in determining the
amount of compensation due”).
Michigan, such actions are governed by the Uniform
Condemnation Procedures Act (“UCPA”). Mich. Comp.
Laws. § 213.51 et seq. Under the UCPA, an
“owner” includes a governmental agency having an
interest, including a security interest, in a property being
condemned. Id. at § 213.51(f).
“Property” under the UCPA includes
“property rights.” Id. at §
213.51(h). A lien upon land qualifies as a property right
subject to just compensation in a condemnation proceeding.
See City of Pontiac v. Ottawa Tower II, L.L.C., No.
324548, 2016 WL 1038135, at *6 (Mich. Ct. App. Mar. 15,
Rover's Objections (Dkt. 958)
Rover makes four objections, they embody essentially two
arguments in support of its positions: (i) the IRS is not
entitled to just compensation because Rover has already
settled with Engelbert for its right-of-way easement through
the 60 Property; and (ii) if just compensation is to be
awarded, the IRS is not entitled to the entirety of the
award, because other entities with property interests in the
60 Property might be entitled to a portion of the award or
because the IRS has other collateral through which its lien
Objections One and Two
argues that the Commission erred in its just compensation
award by failing to take into account that Rover possessed an
easement on the 60 Property prior to the taking in 2017. Obj.
at 3-4. It reasons that because it settled with Engelbert in
2015, any diminution to the value of the property resulting
from Rover's easement had already occurred prior to the
date of the taking, March 10, 2017. See id.
Therefore, Rover argues, the value of the 60 Property before
and after the taking was the same, and the IRS is entitled to
no compensation. Id. at 6.
argument is flawed and, if adopted, would create a gaping
loophole in the UCPA. Under Rover's theory, it could
avoid any lien-whether created by a mortgage, tax liability,
or judgment-by first settling with the land owner,
recalculating the value of the land, and then arguing that
the lienor's interest before and after the taking is the
same. The result of such action would be that the lienor
would be entitled to no compensation, even though its
security interest in the land had been diminished.
condemnor cannot diminish a lien's value by negotiating a
separate peace with the property owner and then point to the
depressed value of the property at the time of taking as an
appropriate basis for establishing compensation. This reverse
alchemy-turning valuable liens into less valuable, possibly
worthless ones-would be patently unfair. And it would also
lead to great mischief by incentivizing condemnors not to
engage in pre-taking negotiations with lienors, despite a
statutory requirement that they do so, see 15 U.S.C.
§ 717f(h) (“When any holder of a certificate of
public convenience and necessity cannot acquire by contract,
or is unable to agree with the owner of property to the
compensation to be paid for, the necessary right-of-way to
construct, . . . it may acquire the same by the exercise of
the right of eminent domain . . . .”); see
also Mich. Comp. Laws § 213.55 (“If an agency
is unable to agree with the owner for the purchase of the
property, after making a good faith written offer to purchase
the property, the agency may file a complaint for the
acquisition of the property in the circuit court in the
county in which the property is located.”). Indeed, in
our case, Rover did not negotiate at all with the IRS before
the taking, even though the IRS held a significant interest
in the 60 Property.
adopt Rover's approach would ignore the fundamental
principle that a lienor has a property interest that is
distinct from the landowner's property interest. It is
for this reason that a lienor is made a party to condemnation
proceedings. See, e.g., City of Pontiac,
2016 WL 1038135, at *6. And it is for this reason that the
separate property interest must be valued as part of the
proceeding. See Mich. Comp. Laws § 213.63
(providing for the court to “divide the award among the
respective parties in interest, whether the interest is that
of mortgagee, lessee, lienor, or otherwise . . .
.” (emphasis added)).
Commission's approach was sound. It valued the property
before the taking of the IRS lien without regard to any
diminution in value attributable to the easement negotiated
with Engelbert. In that fashion, the award properly
recognized the impact of the taking on the IRS lien and was
in accord with fundamental principles of Michigan
condemnation law. “A guiding principle when awarding
just compensation in a condemnation suit is to neither enrich
the individual at the expense of the public nor the public at
the expense of the individual but to leave him in as good a
position as if his lands had not been taken.”
Michigan Dep't of Transp. v. Tomkins, 749 N.W.2d
716, 725 (Mich. 2008) (internal marks omitted). The
Commission's award is consistent with that “guiding
first two objections are overruled.
third objection, Rover argues that if there is a just
compensation award, it must be apportioned to other entities
possessing interests in the 60 Property, including the
Washtenaw County Water Resources Commissioner, Enbridge
Pipelines (Toledo), and Wolverine Pipe Line Company. Obj. at
6. However, the other property interest holders have
apparently resolved whatever impact the taking might have on
their interests. See Stipulated Orders of Dismissal
of Enbridge Pipelines (Toledo) (Dkt. 399), Wolverine Pipeline
Company (Dkt. 655), and Washtenaw County Water Resources
Commissioner (Dkt. 803).
the entities Rover argues should share in the just
compensation proceeds are not in the same position as
Engelbert or the IRS. The entities appear to have easements
on the 60 Property, entitling them to a limited possessory
interest. Because they are not interested in the value of the
property-rather, only undisturbed access-they are not in the
same position as a title holder, such as Engelbert, or a
lienor, such as the IRS. There has been no suggestion or
theory advanced that Rover's pipeline has somehow
interfered with any other entities' easement on the 60