Opinion
No. CV 04-0489106 S
October 29, 2008
MEMORANDUM OF DECISION RE COMPUTATION OF INTEREST
In this case the court in a previous decision held that after property of the defendants was seized by eminent domain the amount paid to the court $341,002 was inadequate. After an appeal pursuant to § 8-132 of the general statutes the court determined the value of the subject property was $1,986,600. [ 44 Conn. L. Rptr. 710.]
The court's task now is to determine a reasonable rate of interest in light of the fact that there has been a delay in the payment of just compensation to the owner of the property. Section 37-3c is the governing statutory section. That statute reads as follows:
Sec. 37-3c. Rate of interest recoverable in condemnation cases.
The judgment of compensation for a taking of property by eminent domain shall include interest at a rate that is reasonable and just on the amount of the compensation awarded. If a court does not set a rate of interest on the amount of compensation awarded, the interest shall be calculated as follows: (1) If the period for which interest is owed does not exceed one year, interest shall be calculated from the date of taking at an annual rate equal to the weekly average one-year constant maturity yield of United States Treasury securities, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of taking; and (2) if the period for which interest is owed exceeds one year, interest for the first year shall be calculated pursuant to the provisions of subdivision (1) of this section and interest for each additional year shall be calculated on the combined amount of principal, which is the amount by which the compensation award exceeds the original condemnation deposit, plus accrued interest at an annual rate equal to the weekly average one-year constant maturity yield of United States Treasury securities, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the beginning of each year for which interest is owed. Such judgment shall not include interest on any funds deposited by the condemnor as compensation for the taking for the period after such deposited finds become available for withdrawal by the condemnee. The interest shall accrue from the date of taking to the date of payment.
Section 37-3c was passed in 1987 but it is necessary to discuss prior case law in order to determine the appropriate ambit of the statute and the appropriate law to apply. The case of Laurel, Inc. v. Comm. of Transportation, 180 Conn. 11, was decided in 1980 before § 37-3c or an analogous statute providing for interest rates in condemnation cases was in existence. The discussion of the appropriate rate of interest on the compensation awarded the condemnee begins on page 46. There the court noted that the trial court found a fair and overall average interest rate was 8.17%. The Supreme Court noted that the trial court considered interest paid on pass book savings, certificates of deposit, corporate and utility bonds, state wide home mortgage loans, treasury bills and notes, and delinquent property taxes. If the opinion is read closely it does not say that these are the only appropriate matters to consider. It simply noted Laurel assigned error because the trial court despite finding that 8.17% was reasonable, only awarded six percent interest under § 37-3a which at that time provided for 6% interest as the return appropriate in "civil actions" in general. The court said: "The provision for interest in a condemnation award rests on equitable principles and noted that Laurel itself by claiming inverse condemnation itself created a delay of 18 months in the payment of compensation. Id. p. 47.
Then came Leverty Hurley Co. v. Commissioner, 192 Conn. 377, 381 (1984). This eminent domain case came three years before the statute applying to condemnation cases and the appropriate interest in such cases, i.e., § 37-3c. The defendant argued that the uniform rate of interest provided in all civil actions under § 37-3a "insures fair and equal treatment to all condemnees." Id. pg. 380.
The court soundly rejected that proposition and said: "The right to award interest in eminent domain actions does not depend upon statutory authority . . . The determination of just compensation under the Fifth Amendment is exclusively a judicial function . . . In condemnation cases, even in the absence of a provision for interest in the statute the constitution requires just compensation, and its ascertainment is a judicial function . . . A statutory rate of interest can, however, be applied to a claim for just compensation if that rate is deemed reasonable by the court . . ." Id., 192 Conn. page 380.
From the foregoing one can deduce that a reasonable rate of interest posits an actor striving to achieve it which would be a reasonably prudent investor. Also there is an indication in the case law that equitable considerations govern the award of interest not set statutory mandates such as in prior and present versions of § 37-3a. See Leverty at 192 Conn. page 381. Section 37-3c says nothing about an ascertainable statutory rate except in those cases where the court does not set a rate of interest and then oddly enough the statute refers to fairly conservative investments, treasury securities, as a guide to determine a reasonable rate of interest.
The defendants cite a litany of "equitable considerations" such as the fact that the property was condemned, as the court found, at a value that was 1/6th of its actual value, the plaintiff never negotiated with the defendants prior to the taking — it wanted to obtain the property for as little as possible and if possible for nothing. The plaintiff on the other hand argues that the reason for the large claim for interest by the defendants of 18% "is caused not so much by the delay in paying just compensation as it is by the defendant's failure to pay real estate taxes due and owing since the Grand List of 1993" which interestingly enough accrues at 1 1/2% per month or 18% a year. The response to this by the defendants would be by taking the property the plaintiff destroyed the investment opportunity and the ability to pay the taxes and accrued interest.
The foregoing discussion raises several difficulties, at least for the court. What do "equitable considerations" have to do with ascertaining the reasonable rate of return? It is an easy factor if they are such that the condemnee should get nothing but how did the Laurel court get from 8.17% (the reasonable rate) to the old statutory rate of 6% under § 37-3a — why is a 2% deduction equitably appropriate. The problem lies with juxtaposing pure market analysis with equitable considerations which have nothing to do with a market analysis of what a reasonably prudent investor would do. If the equitees are on the side of the condemnees, the defendants here, what does that translate into? Does it mean the skies the limit, does it mean we can thereby assume the injured party would only have invested in securities, bonds, mutual funds that would have returned the highest rate of return? Why?
Section 37-3c itself presents complications. It talks about "just compensation" repeating in line with what Leverty said about a court not being bound by statutory rates of appropriate interest but in the second sentence it says "if a court does not set a rate of interest on the amount of compensation awarded the interest shall be calculated as follows . . ." It then, as noted, refers to treasury securities, hardly investments with a high rate of return. What are the justifiable circumstances for not setting a rate of interest? If a court does not, do just compensation concerns go out the constitutional window — what happens to the fifth amendment demand for just compensation?
Turning to this case the court found that the plaintiff's expert's testimony regarding appropriate interest in the range of 5% was too limited given possible investment options especially as to equities. What the trial court permissibly considered in Laurel is not an absolute limitation on what a reasonably prudent investor would put his or her money into. On the other hand the defendants presented a listing of well recognized equity investments where returns ranged from 15% to over 45%. But this position suffers from the same limitations as the plaintiff's expert and his testimony. These investments do not represent the broad range of investments a prudent investor would want in his or her portfolio to take account of risks and market fluctuations. No satisfactory expert testimony, at least in the court's opinion was presented as to what a reasonably prudent investor would do given the spectrum of investment opportunities.
Under these circumstances the court will not award the 18% interest requested by the defendants but believes it appropriate to award 10% interest which is also the rate of interest for civil actions generally. Absent evidence warranting another result why should eminent domain litigants receive a lower rate of interest than other litigants, and the court concludes the reliance on treasury securities which would result if the court were not to set an interest rate would not be just compensation.
The fifth amendment mandates as to just compensation are not meant to be a straight jacket.
As to the defendant's request for compound interest, the court finds no support for this in the case law or the statutes. Under § 37-3c where the court does not set an interest rate and a formula is used relying on treasury securities the first year with an adjustment for future years compound interest is not provided for; it should not be available here.