Pivotal Condemnation Case Argued at Colorado Supreme Court

Carousel Farms decision could restrict land developers’ condemnation abilities

Land developers in Colorado can form a metropolitan district, which has the power to condemn private property for a “public use.” That unique maneuver is now under Colorado Supreme Court scrutiny.

The Supreme Court heard oral argument Wednesday in Carousel Farms Metropolitan District v. Woodcrest Homes, Inc., an eminent domain case that is closely watched by developers and land use attorneys. A landowner, Woodcrest Homes, is arguing that a developer, Century Communities, formed a metropolitan district just to seize Woodcrest’s property for its own benefit. Woodcrest claimed the condemnation wasn’t for a public use but rather as a workaround to help Century Communities satisfy a development agreement it had with the Town of Parker.

Siding with Woodcrest, the Colorado Court of Appeals held that a municipal district can’t condemn a property for the purpose of helping a private developer meet its contractual requirement with a government. The decision cast doubt on developers’ ability to form metropolitan districts to develop land — an otherwise common practice in Colorado.

The dispute arose when Century Communities sought to create a development called Carousel Farms by acquiring three parcels of land outside the town of Parker. It had acquired two of the parcels, but the owner of the third — Woodcrest Homes — refused to sell its 0.65 acre strip that was sandwiched between them. Century Communities then threatened to condemn the property, and when Woodcrest was unmoved, the developer formed the Carousel Farms Metropolitan District and took the property through condemnation proceedings.

The metropolitan district maintained that it lawfully took Woodcrest’s parcel for a public purpose, saying roadways and other infrastructure would eventually be built on that land. But Woodcrest contended that the condemnation was solely so the developer could satisfy its agreement with the Town of Parker, which required Century Communities to possess all three parcels before it could develop that land, and therefore the condemnation was for a private benefit.

The developer prevailed in state district court, which rejected Woodcrest’s arguments that Century Communities made its metropolitan district maneuver in bad faith.

A division of the Court of Appeals, however, sided with Woodcrest, saying in its November 2017 reversal that “when the primary purpose of a condemnation is to advance private interests, even if there will be an eventual public benefit, the condemnation is not for a public purpose.”

Carrie Bernstein of Denver firm Alderman Bernstein, arguing for the developer at the Supreme Court, said state law allows for “incidental private benefits” to come about from a condemnation. “And there’s no argument here that there were incidental private benefits here. But even if there is a private benefit, that doesn’t defeat the public use determination,” she said.

Justice Richard Gabriel asked Bernstein what the facts were that supported the taking was for a public use. Bernstein said Woodcrest’s parcel “was a strip of land … about as wide as this courtroom … and about 400 feet long,” that already had utility lines. But the Carousel Farms project would construct roadways on that parcel connecting it to Parker, which the town supported, she added.

Justice William Hood later asked Woodcrest’s counsel, “So why is [Bernstein] wrong when she says that the public improvements contemplated for this otherwise seemingly useless strip of land makes this public use?”

In response, David Schlachter of Greenwood Village firm Dymond Reagor said courts have consistently found that “the fact that there is an incidental or future public use doesn’t equate to public use at the time the condemnation is taken.” He added that there was no public use in place — or even evidence Parker approved the subdivision — when the metropolitan district condemned the Woodcrest parcel.

“What if the district was formed first?” Gabriel asked Schlachter. He wanted to know whether it would have made a difference if it were the district that struck the agreement with Parker, and not the developer. “I’m just wondering whether the argument is a timing issue.”

“I don’t think it’s just a timing issue,” Schlachter replied, “It’s what is the public use?” Gabriel said it sounded “undisputed” that the purpose for the Woodcrest parcel was to be used for infrastructure, “which sounds like a quintessential public purpose.” Schlachter said the developer, not the town, made the decisions regarding the infrastructure while looking at the proposed Carousel Farms development as a whole.

“This isn’t a situation where you can simply say, ‘Because there’s roads on [the parcel], it must be public use,’” Schlachter said. “You have to ask, was it a public use when the entire assembled project came into being and was being prepared to go forward?”

Jeffrey Redfern of the Institute for Justice, an amicus curiae for Woodcrest, argued that the metropolitan district was “the developer’s alter ego under its complete control,” and that “condemnations like this just don’t happen outside Colorado.”

Justice Monica Márquez said to Redfern that developers can create metropolitan districts under the Special Districts Act, and noted this case wasn’t challenging that law’s constitutionality. “So I’m worried about the implications of your argument … that because there’s a developer behind a district … there’s an alter ego situation, and therefore anytime you have a taking it’s pretextual because it ultimately might benefit that developer.”

Redfern replied that when a developer has sole control of a metropolitan district, it’s hard to see it satisfying the public use test when it condemns a property. “In every other state in the country, there’s no comparable mechanism where private developers can just create a quasi-governmental entity and then direct it to condemn property for its own benefit, yet development happens everywhere else without problems.”

“For landowners and developers, this is a major issue because metro districts are used all the time [by developers in Colorado],” Otten Johnson Robinson Neff + Ragonetti shareholder Brian Connolly told Law Week. “A lot of us in the development community are waiting with bated breath to see what the Supreme Court does with it.”

Connolly said the Court of Appeals opinion in Carousel Farms has deterred developers from forming metropolitan districts to condemn property, “which often can result in a project not happening if there’s a holdout landowner that doesn’t want to sell property to the developer,” Connolly said. He noted his firm is not involved in the Carousel Farms case although Century Communities is a client of theirs.

Connolly said if metropolitan districts formed by developers can’t use condemnation power, then that gives the landowners a lot more leverage when the two parties negotiate the land buy. Developers would either pay a higher price for the holdout parcels, or they would try to plan the development around the parcels in a way that costs more money and makes less structural sense, he added. Either way, the developer has to pass those higher costs onto the people who will eventually buy property on the new development, which comes at a time when Colorado has limited affordable housing, he said.

— Doug Chartier

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