In the latest turn of a more than decade-long fight for his property rights, Frank Kottschade earlier this month took the state of Minnesota to court for paying him far below the market value of 28 acres of his property that were taken through the power of eminent domain to expand an adjacent highway.

The state paid him roughly $875,000, but appraisers have put the value of the property in excess of $10 million because of the development potential of the land and its valuable gravel deposits. Kottschade was receiving $5 per yard for the gravel, which the Minnesota Department of Transportation used for its road project.

Kottschade said he believes the state and the city of Rochester, where the property is located, worked together to deprive him of his property rights.

“The city holds the values down and then the state comes in and acquires the property below market value because of the collaboration between the city and the state,” he said.

Minnesota’s transportation department indicated that it needed the land at a time when a complaint by Kottschade against the city was still making its way through the courts.

In 1999, Kottschade sought permits to build 104 townhouses on a 16-acre site on the west side of the city that had already been zoned for that use. The site was part of a much larger parcel on which Kottschade planned a mixed-use development.

The city responded that it would allow the project to move forward only if eight conditions were met — including a significant contribution of land to the city, a large monetary contribution to a road project and the downsizing of the project from 104 units to just 26.

The conditions made the project infeasible.

In 2001, Kottschade filed a takings claim in federal district court, hoping to rectify a strange precedent from the Supreme Court’s Williamson County decision, which requires property owners bringing regulatory takings complaints before a federal court to first “ripen” their cases by suing in a state court.

However, he eventually was forced to take his case to a state court after the U.S. Court of Appeals found that he had not satisfied the Williamson County rule and that the Supreme Court would have to change it for his case to move forward in federal court.

The Supreme Court, where four justices had signaled a need to revisit Williamson County, nevertheless decided not to hear his case.

Kottschade lost the first round before the District Court for the Third Judicial District of Minnesota, but that decision was reversed by the Minnesota Court of Appeals, which remanded the case for a trial on its merits.

The city of Rochester then chose not to go to court, but to settle for $3.6 million in net damages.

“NAHB did a great job in terms of supporting me with legal research and strategy,” Kottschade said. “There is no way I could have stayed with all these cases without NAHB’s assistance.”

The reported terms of the settlement included:

• $3 million in cash to Kottschade
  
  
• A $600,000 payment from the League of Minnesota Cities, the city’s insurer
  
  
• A waiver of the city’s sewer, water, storm water, park and building permit fees, estimated at $1.28 million
  
  
• A city payment of up to $675,000 to help build a frontage road on Kottschade’s property
  
  
• A $1.72 million payment from Kottschade to the city for a transportation assessment.

“If I had stood and fought I could have gotten more money,” he said. “But my goal was to get the city to abide by the law. I settled with the idea of moving forward.”

Kottschade, who has been a builder and developer for more than four decades, said he doesn’t know how his suit against the state will end, but he said he does know that he will keep fighting as long as it takes.

He said he still plans to develop his property.

“The last two years have not been an ideal time to move forward with a project of this type,” he added. “The site is strategically located and I have great plans for it, but there is no way I would move forward in this current economic environment.”

For more information, e-mail Christopher Whitcomb at NAHB, or call him at 800-368-5242 x8329.