April 30, 2016 Practice Points

Can't Buy Me Love?

Multimillion-dollar price tag for inverse condemnation judgment for Dallas Love Field says otherwise

by Kevin Brogan

Despite the Beatles’ claim, the Court of Federal Claims recently found that love can be bought: The U.S. government has been ordered to buy a part of Dallas Love Field Airport through an inverse condemnation judgment of $133.5 million.

In an unusually detailed opinion (70 pages with a two-page table of contents), on April 19, 2016, Judge Margaret M. Sweeney of the Court of Federal Claims ruled in Love Terminal Partners v. United States that the federal government was responsible for damages in an inverse condemnation action brought by leaseholders of property at Dallas Love Field Airport.  The plaintiffs claimed that the federal government, through the enactment of the Wright Amendment Reform Act of 2006 (WARA), prohibited use of the leasehold, thereby destroying all economic value and effecting a taking without just compensation, in violation of the Fifth Amendment to the U.S. Constitution. 

The opinion describes the interesting history of Love Field and the later creation of Dallas/Fort Worth International Airport.  In the late 1960s, eight of the carriers that serviced Dallas and Fort Worth out of Love Field agreed to transfer their operations to the new airport, but Southwest Airlines chose to remain at Love Field, which disrupted the planned consolidation of passenger service at a single airport.  In 1979, Congress passed the so-called Wright Amendment as section 29 of the International Air Transportation Competition Act of 1979, which limited flights from Love Field to locations within Texas and four adjacent states and limited the size of planes.  After years of clashes and reinterpretations of these limitations between the airlines operating at Dallas/Fort Worth and Love Field, Southwest initiated a campaign to repeal the Wright Amendment that limited use of Love Field.  Enacted on October 13, 2006, the WARA expanded service at Love Field but limited passenger air service to only 20 gates, which were then substantially remodeled by Southwest. 

The plaintiffs were leaseholders of property at Love Field, which had acquired the rights to a 1955 long-term master lease executed by the City of Dallas and Braniff Airlines.  Amended five times, the master lease eventually covered 26.8 acres on Love Field, and plaintiffs’ predecessors built the Lemmon Avenue Terminal, which would have six passenger gates, with a possibility of ten additional gates, with the main terminal having 26 gates. 

As part of WARA, the City of Dallas agreed to acquire portions of the lease on the Lemmon Avenue facility, up to and including condemnation. As a result of WARA’s limitations, plaintiffs could no longer generate sufficient revenue from the operations at the Lemmon Avenue facility to cover their annual rent payment and defaulted on their lease obligations.  The city demolished the Lemmon Avenue Terminal in 2009 and plaintiffs sought compensation for a taking.

In analyzing the claims of Fifth Amendment takings, the court described the two-step approach developed by the federal circuit:

  • First, “a plaintiff must identify the property interest that was allegedly taken.” 
  • Second, “once a property right has been established, the court must then determine whether a part or a whole of that interest has been appropriated by the government for the benefit of the public.” 

The court then discussed physical and regulatory takings and broke down regulatory takings into “Categorical Takings” in which “all economically viable use” has been taken by the regulatory imposition, as in Lucas v. S.C. Coastal Council 505 U.S. 1003, 1014–15 (1992) and “NonCategorial Takings,” which fall short of eliminating all economically beneficial use of the property, prohibiting or restricting “only some of the uses that would otherwise be available to the property owner, but leaves the owner with substantial viable economic use,” as described in Penn Central Transportation Co. v. City of New York 438 U.S. 104 (1978) and Palm Beach Isles Assocs. v. United States 231 F.3d 1354, 1347 (Fed. Cir. 2000). 

After analyzing the extensive evidence presented at trial, the court concluded that plaintiffs had a valid property interest at the time of taking—the 26.8 acres covered by the master lease, and that the WARA, a federal statute, destroyed all economically beneficial and productive use of the leasehold interest.  Thus, the court concluded that plaintiffs established a “Lucas categorical taking as to the entirety of the leasehold.”  In analyzing damages, the court found that the highest and best use of the leasehold before the enactment of WARA was as a passenger airport terminal, and that following the enactment of WARA, such use was completely prohibited. 

The court also found that plaintiffs established a non-categorical taking under the Penn Central factors.  The court found that WARA’s impact “was so complete in that there was no hope of using the property in any economically viable way…” and that WARA destroyed the plaintiffs’ distinct investment-backed expectations, which the court found were reasonable. 

In awarding damages, the court analyzed the various experts’ testimony, finding that the fair market value of the 26.8-acre leasehold was $133.5 million, which the court awarded as just compensation.  The court also found that plaintiffs were also entitled to interest and attorney fees. 

It’s possible that the $133.5 million price tag has caused the government to lose “that lovin’ feelin’,” but as Janet Jackson sang, “That’s the Way Love Goes.”

Kevin Brogan is a partner with Hill Farrer & Burrill LLP in Los Angeles, California.

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