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Eminent Corporate Domain: Double-Dipping and Alter Egos

January 31, 2014 Leave a comment Go to comments

From the first-ever eminent domain case to one of the most recent: Last week, the Georgia Supreme Court decided Dept. of Transp. v. McMeans, No. S13G0614 (Jan. 21, 2014), a case involving the condemnation of land owned by a man named Brian McMeans. McMeans Leasing, Inc. (“MLI”), a corporation solely owned by McMeans, operated as a business on the land.

McMeans filed an answer acknowledging ownership in the condemned property. MLI then filed an “amendment” to McMeans’ answer, asserting that McMeans’ original answer was for MLI; that it was a leasehold tenant on the property; and that it would suffer business-loss damages as a result of its removal from the property. McMeans filed another answer for himself, asserting that he would suffer damages from a) loss of the use of the property; b) interruption in business income; c) loss of business; and d) damage to business; in addition to the value of the property itself. McMeans then sought to amend his answer to add a separate business loss claim. The Georgia Department of Transportation (“DOT”) moved to strike MLI’s answer and McMean’s answer adding the business-loss claim, and the trial court granted DOT’s motion. McMeans immediately appealed.

The Georgia Court of Appeals reversed the trial court and, citing Dept. of Transp. v. Acree Oil Co., 266 Ga. 366 (1996), ruled that business loss is recoverable as a separate element of damages where the landowner owns the business and the taking results in a total loss of the business.

The Georgia Supreme Court reversed the appellate court. The court agreed with the court of appeals that, under Georgia law as enunciated in Acree Oil Co., business loss is recoverable as a separate element of damages (separate from the value of the taken land, the primary measure of damages in condemnation cases) when the business belongs to a lessee other than the landowner or when the landowner owns the business and the taking results in a total loss of the business. Basic tenets of corporate law apply to distinguish as separate legal entities McMeans and MLI, even though McMeans is the sole owner of MLI. Because MLI “owned the business located and operated on the condemned property,” MLI, not McMeans, was the party that could properly assert the business-loss claim.

Was McMeans’ error here the result of a basic misunderstanding of corporate law principles or a lack of precision in pleading? The inelegant series of answers and amended answers filed at the beginning of the action suggests he appreciated to some degree the legal distinction between himself, a natural person, and MLI, a corporate person, each with different, concurrent interests– an ownership estate and a leasehold estate, respectively– in the condemned realty.

My initial read of the case was that McMeans was trying to double dip: he wanted to claim business-loss damages for himself and for MLI. The Georgia Supreme Court appears to have interpreted the case that way as well, because it emphasized its corporate-law analysis, seemingly admonishing McMeans for forgetting that he and MLI were separate entities, and not engaging in any significant analysis of condemnation-law.

Maybe McMeans was trying to double dip by simultaneously respecting that he and MLI were separate legal entities and acting as MLI’s alter ego. The condemnation-recovery principle from Acree Oil Co. does seem to offer a potential avenue for McMeans, though:

Post-taking business losses can be recovered as a separate legal element in instances when the business belongs to a separate lessee or when the business belongs to the landowner and there is a total taking of the business.

Because “[t]he distinct corporate entity MLI owned the business located and operated on the condemned property,” the business-loss claim belonged to MLI, not McMeans.

While the court viewed this case under the first prong of the Acree Oil Co. language quoted above, as an “instance[] when the business belongs to a separate lessee,” the second– an “instance[] . . . when the business belongs to the landowner and there is a total taking of the business,” also seems to apply. McMeans, the landowner, does “own the business,” after all, even as “the business,” MLI, leases the land from McMeans.

Alternatively, as a matter of practical corporate law practice and parlance, “the business” and MLI may not be synonymous here. The possible confusion raised in the previous paragraph does illuminate the rub of this case, however. The administration of the power of eminent domain, in its compensatory facet, must balance the interests of those with direct interests in the taken property against those of the general public, the ultimate source of the compensatory funds. Double dipping by someone like McMeans harms the public at large. Additionally, when a corporate personhood element is in play, respecting corporate formalities is important in every case in order to protect the interests of, for example, leasehold tenants that lack a close legal relationship to the landowner.

Whatever entity “owns the business” in the McMeans case, there was only one business operating on the taken land, and the state therefore should pay, at most, one business-loss claim. In McMeans, as a practical matter, it did not make a difference whether McMeans or MLI brought the business-loss claim, as sole owner of MLI; McMeans was going to receive the money either way. By allowing only MLI to bring the business-loss claim, the court reached the correct result: it protected the citizens of Georgia from paying a windfall, and it protected the independent right of others with leasehold interests to recover in future condemnation actions.

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