A state appeals panel ruled Wednesday that the city of Chicago must go back to court to determine the value of property it took through eminent domain, finding evidence in the case — some improperly excluded, some improperly allowed — led to the original $2.5 million verdict.
The city took the vacant land as part of a project to expand Blommer Chocolate Co.’s cocoa bean-processing campus at 600 W. Kinzie St. — the source of the chocolate smell wafting through parts of the city since 1939.
The 1st District Appellate Court found the trial court improperly limited cross-examination of an expert called by the city, and the judge should not have let the jury factor in zoning restrictions when determining the property’s value.
The disputed parcel at 464 N. Jefferson St. was owned by Fred J. Eychaner, the CEO of Newsweb Corp. The Blommer factory is south of the land.
In 1999, the city proposed rezoning the area as a planned manufacturing district (PMD) in order to maintain the industrial activity in the neighborhood and to prevent conflicts with the high-rise residential developments that started to sprout nearby.
PMDs do not allow for residential or retail use. The restrictive zoning means there’s less demand from developers to buy the land, keeping property values lower.
The separation from residential areas also eases pressure on industrial operations with fewer residential neighbors to get upset over the sights, sounds, smells and snarled traffic the businesses may cause.
The city’s proposal claimed to protect 2,800 industrial jobs inside the PMD at businesses such as Blommer, the Chicago Tribune’s printing complex at 700 W. Chicago Ave. and the WaterSaver Faucet Co. at 701 W. Erie St.
Blommer conditioned its support for the PMD on getting help from the city to expand its campus northward so that it could relocate its truck-staging area off the street and farther away from a new residential development to the south.
The city council adopted the PMD in September 2000, the same month the city’s Community Development Commission started reviewing the plans for the River West tax increment financing district.
Blommer’s plans, submitted in May 2001, proposed acquiring 4.2 acres of land adjacent to its property, including Eychaner’s vacant parcel. In February 2002, it offered to buy the land from Eychaner for $824,980. He declined.
The city council voted to take Eychaner’s land in June 2002 after aldermen found it necessary to achieve the River West TIF district’s economic development objective.
The city filed a complaint in Cook County Circuit Court in August 2005 to condemn Eychaner’s property through eminent domain. In response, Eychaner moved to dismiss the case, challenging the constitutionality of the city’s move.
Associate Judge Rita M. Novak dismissed Eychaner’s motion in August 2006. The appellate court declined to hear an appeal over the city’s authority to take the land.
Instead, the case proceeded to a jury trial in 2013 to find the price for just compensation.
Eychaner disclosed four expert witnesses with the city’s attorneys. But before the trial, he opted not to call two of the experts — Michael MaRous and Joseph Thouvenell.
The city called MaRous and Thouvenell as its own witnesses and moved to bar Eychaner from cross-examining the two about any opinions the city did not elicit during direct examination. Circuit Judge Margaret Ann Brennan granted the motion.
Eychaner contended that the PMD’s zoning restrictions were not as ironclad as the city postured. He wanted to show it was possible to rezone the land for residential use, increasing its value.
Two of the city’s called expert witnesses testified it was very unlikely Eychaner’s property could ever be rezoned as residential under the PMD’s restrictions. One appraised the lot at $1.53 million, and the other said $1.4 million.
The city did not ask MaRous about the likelihood of the land’s rezoning, but he valued the land at $2.55 million and noted the PMD zoning restriction was an “extraordinary assumption” to make in setting the appraisal.
During cross-examination, Eychaner’s attorneys were barred from probing how that assumption would affect the appraised value.
Eychaner called land-planning expert Allen Kracower, who testified that the land’s “highest and best use” was for multiple-family residential use. Kracower told the court that it was possible to obtain rezoning, citing success in rezoning the nearby Kinzie Park and Kinzie Station developments just outside the PMD’s boundaries.
Next, Eychaner called Dale Kleszynski, a real-estate appraiser. Kleszynski testified that the area had already started to transition from industrial to residential, and he valued the land at $5.1 million.
The jury returned its $2.5 million verdict on Jan. 28, 2013.
On appeal, Eychaner argued the city could not constitutionally use eminent domain to take his land. He also contended the court should have allowed him to press MaRous on opinions beyond those elicited through the city’s direct examination.
In a 41-page opinion written by Justice Michael B. Hyman, the appellate panel found no constitutional error in the ruling but reversed the verdict for just compensation.
Hyman referenced the 2002 Illinois Supreme Court ruling in Southwestern Illinois Development Authority v. National City Environmental LLC, referred to as SWIDA, that found the government may use eminent domain for a public purpose and that a subsequent transfer of property to a private owner does not necessarily defeat that public purpose.
“Eychaner mischaracterizes SWIDA, arguing that the [c]ity cannot use eminent domain to transfer property from one party to another unless the property is blighted,” Hyman wrote. “But SWIDA focuses on the motive behind the taking, and does not support Eychaner’s position.”
As long as the public is the primary intended beneficiary of the taking — in Eychaner’s case, for economic redevelopment — eminent domain is fair game, Hyman wrote.
Taking Eychaner’s parcel “unquestionably serves a public purpose of preventing blight, promoting economic revitalization and protecting existing industry,” he wrote.
What existing case law doesn’t allow is citing public benefit merely as a pretext to allow a private entity to benefit from a “sweetheart deal,” allowing a business to acquire land without paying full market price. But the city’s detailed plans supported its reasoning, Hyman wrote.
“The [c]ity logically found that, given the increasingly residential nature of the area surrounding the Loop, existing manufacturing firms had little incentive to invest in their facilities — let alone stay in their current locations — especially knowing that rising land values and taxes would soon make their current locations unfeasible if nearby residents complained about factory operations,” Hyman wrote.
Turning to valuation, the panel found that PMD zoning should have been excluded from testimony under Illinois’ “scope of the project” rule.
Normally, condemned property is appraised at the time the condemnation petitions are filed — in this case, after the PMD zone was imposed. But under the “scope of the project” rule, when a property is condemned for public improvement, the depreciation in value should not be held against the property’s owner.
“The rule ensures that the price of the condemned land reflects the condemnee’s reasonable expectation that its land would or would not be taken as part of the original project,” Hyman wrote.
The panel found that the taking of Eychaner’s land was part of a single project that included the creation of the PMD zone and the River West TIF — which the city undertook in order to gain Blommer’s support for the project.
The city contended that Eychaner’s land would have been part of the PMD whether or not Blommer asked for it. Hyman found such an argument was speculative.
The panel additionally found the court abused its discretion when it limited Eychaner’s cross-examination of MaRous.
“[T]he opinion of an expert is only a[s] valid as the bases for that opinion,” Hyman wrote. “A litigant may develop on cross-examination circumstances within the witness’ knowledge or opinion that explain, discredit or destroy the witness’ testimony on direct although they may incidentally constitute new matter that aids the cross-examiner’s case.”
That the city limited MaRous’ opinion to a “canned statement” should not have limited Eychaner from pressing further on cross-examination, Hyman wrote.
Asking MaRous about the probability of rezoning the parcel was not eliciting a new opinion, Hyman wrote. Rather, it was eliciting the underlying assumptions supporting MaRous’ direct-examination testimony.
“Eychaner was entitled to impeach MaRous on cross-examination with his own opinion,” he wrote. “This would undermine the reliability of MaRous’ valuation opinion.”
The case, now remanded, will go back before a jury to determine a new value for the land — outside of the context that its use is restricted from residential development.
Justices Aurelia Pucinski and Terrence J. Lavin concurred.
The city was represented on appeal by Deputy Corporation Counsel Benna Ruth Solomon, Chief Assistant Corporation Counsel Myriam Zreczny Kasper and Assistant Corporation Counsel Justin A. Houppert.
A Law Department spokesman said in a written statement that the city will be prepared to present its evidence on the issue of the property’s valuation at the next trial.
Eychaner was represented by Thomas F. Geselbracht, senior counsel at DLA Piper. He declined to comment.
The case is The City of Chicago v. Fred J. Eychaner, 2015 IL App (1st) 131833.