Small Business Owners are Systematically Undercompensated in Eminent Domain

Date: September 25, 2017

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When government takes private property through eminent domain it’s supposed to pay “just compensation” for what is taken. But, shockingly, most courts say that this guarantee does not cover business-related losses. Case in point, the Louisiana Supreme Court ruled in, South Lafourche Levee District v. Jarreau, that a small business owner was entitled to compensation only for the fair market value of his land—notwithstanding clear and indisputable business losses that went uncompensated.

Specifically, Mr. Jarreau used his land to cultivate commercial-grade dirt—which he had already contracted to sell to a developer. Accordingly, he was forced into a real bind when the government issued notice that it was taking his land and would begin excavating the very dirt that he had already sold. At the end of the day Jarreau was compensated only approximately $12,000 for his land. And because he continued removing dirt to satisfy his outstanding contractual obligations, he was initially ordered to pay nearly $17,000 to the very authority that took his land.

Unfortunately, this is consistent with what we see in many other jurisdictions where businesses suffer terrible losses as a result of eminent domain condemnations—often forcing small businesses to close shop entirely. As we argue in our brief, small business owners deserve compensation when they can prove that they’ve lost goodwill or going-concern value as a direct result of a taking of their real property. Of course, it is true that some businesses may successfully relocate to another property without losing their existing customer base or going-concern value; however, that is not categorically true. And, therefore, there should be no categorical bar on compensating for business-related damages.

To give a concrete example, an entrepreneur might invest his or her savings, or take out a personal loan, to acquire an existing franchise. But suppose that the franchise agreement is tied to a specific property—as is common with gas station franchise agreements. That would mean that, if the property is taken through eminent domain, the owner would lose not only the underlying land but the right to continue operating the franchise in question—which may be the company’s most valuable asset.
Given how pervasive this problem is, we submit that this is an issue that truly deserves review. In fact, we would suggest that this is currently the most important petition for certiorari pending before the Supreme Court. Given that this issue might potentially affect any small business owner, it is difficult to think of an issue of greater nationwide importance at this time—though we are certainly hopeful that the Court will grant certiorari in some other very important matters this term as well.

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