When Inverse Condemnation and Eminent Domain Overlap: Owners Beware of Attorney Contingency Fee Arrangements

by Nossaman LLP

Property owners are routinely hiring attorneys well in advance of a public agency's filing of an eminent domain action.  Many times, the representation begins before it is even certain whether the agency will actually move forward with acquiring the property.  And sometimes, claims for inverse condemnation may ripen during the public agency's construction of the project on other nearby properties.  When this overlap exists between inverse condemnation and potential future eminent domain actions, owners should be careful to assess how the attorney will be compensated.  A recent Court of Appeal decision provides a cautionary tale.


In Wasserman, Comden, Casselman & Esensten v. Patel, the owner of a hotel retained a law firm on a contingency fee basis in connection with claims against various government agencies arising out of the construction of a shopping center and residential development immediately adjacent to the owner's hotel.  The hotel owners filed an inverse condemnation action, contending that the development's construction, traffic, trash unloading, congestion, noise, dust, fumes and blocked access significantly impacted hotel operations.  The owners sought damages for diminution in value, loss of revenue, loss of goodwill, property damage, and increased operating costs.

The hotel owner's engagement agreement with its law firm identified the subject matter of representation as "a claim for damages or other appropriate relief against whomever is responsible for the injury or loss suffered by Client" arising out of the construction and operation of the shopping center project.  The owner agreed to pay the law firm 40% of any recovery.

As the inverse condemnation action moved closer to trial, the government agencies notified the owner they were considering taking the hotel through eminent domain to further expand the shopping center.  The owner was offered $6 million for the hotel, even though the appraised value was significantly less.  The owner rejected the offer, and retained a separate law firm on an hourly basis to defend the potential eminent domain action.

The Settlement

Several months later, the offers for the hotel went up and up, and the parties finally reached an agreement at $16.25 million, plus $500,000 to settle the inverse condemnation action, plus the owner's ability to leaseback the hotel for nearly a year for only $1.  The agreement also contained a provision indicating that the parties disputed the allocation of the purchase price, and the figure agreed upon was in consideration for the hotel and for settlement of the inverse condemnation litigation.  The hotel owner's inverse condemnation attorneys were not involved in negotiating the settlement.

The Attorneys' Fees Dispute

The hotel owner thereafter offered the attorneys $200,000 -- 40% of the $500,000 the owner claimed was recovered to settle the inverse condemnation action.  The owners claimed the contingency fee was never intended to cover a sale of the property.  The attorneys claimed that the gross recovery on the owner's claim was $17.75 million ($500,000, plus the full $16.25 million allocated to the purchase price of the hotel, plus the $1 million valuation given to the $1 one-year lease-back of the property).

The Result

Pursuant to the contingency fee agreement, the law firm and the hotel owner participated in a binding arbitration to resolve the disputed amount of attorneys' fees owed.  The arbitration panel issued an award in the amount of $4.82 million (plus interest, plus attorneys' fees in the amount of $114,000 and costs of $88,000).  The arbitrators agreed with the law firm's position, explaining that the hotel owner had consistently contended that the inverse condemnation lawsuit was worth between $15 and $17 million (as indicated in the owner's own verified discovery responses in the litigation identifying past and future lost income, loss of goodwill, and damage to the hotel property).  

In addition, the total value of the settlement greatly exceeded (by a factor of three) the fair market value of the hotel as reflected in the various appraisals obtained during litigation, supporting the conclusion that the settlement was a direct result of the law firm's efforts in the inverse condemnation action.  However, the arbitrators concluded the "gross recovery" subject to the 40% contingency should not include the fair market value of the hotel, and they therefore based the contingency award on the total settlement amount ($17 million) less the property's $5.2 million value.

Both the trial court and the Court of Appeal subsequently affirmed the arbitration award.


The Patel case provides a cautionary tale for property owners retaining attorneys on a contingency fee basis.  The hotel owner's attorneys secured nearly $5 million in attorneys' fees on a case where they spent well less than $1 million in billable time under an hourly basis calculation.  It is hard to know just how much of a role the law firm played in securing the large settlement as opposed to the new firm assisting with the future eminent domain action, or the government agencies' (and the shopping center developer funding the litigation) simply wanting to avoid significant litigation now that the hotel property was needed for the shopping center's expansion.  But the contingency fee firm was entitled to the large fee award because of how broadly the contingency fee agreement was worded, and because the terms were not more clearly spelled out in the settlement.  

Property owners should think long and hard about whether a contingency fee arrangement makes sense, or whether an hourly fee arrangement is more appropriate (or perhaps a blend of both).  It all depends on the delta between the agency's offer and the owner's/attorney's belief on the likely award, and the owner's appetite for risk.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Nossaman LLP | Attorney Advertising

Written by:

Nossaman LLP

Nossaman LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.