Las Vegas Sun

September 19, 2014

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High price for low buildings

When Clark County imposed height restrictions on land surrounding McCarran International Airport, it hoped to prevent safety hazards such as a skyscraper popping up near the end of a runway.

But a state Supreme Court decision this month on the restrictions might amount to a financial crash landing for the airport - and passengers.

Although county and airport officials still are examining the implications of the ruling, some worry that McCarran's potential liability could approach $2 billion. That, in turn, is likely to raise the so-called facilities charge paid by McCarran's passengers from the current $4.50 per departure, one of the lowest in the country, to $7.22, according to court documents and airport officials.

The court decision - and the precedent it could set - concerns not only local airport and county officials, but also airports and airlines across the nation.

In their July 13 opinion, Nevada Supreme Court justices upheld a lower court ruling that awarded businessman and university regent Steve Sisolak $6.5 million for height restrictions the county placed on his property after he purchased it. The height restrictions constituted a "per se taking of the airspace above private land," the court determined. An award of just compensation was required, justices said.

The judgment amounts to nearly $17 million after costs, attorney fees and interest.

Airport officials have not decided what steps to take next. But with at least six similar cases involving height restrictions around McCarran pending before Nevada courts, some county commissioners are concerned about the potential effect of the case on the airport and, ultimately, on the county's bread and butter - tourism.

"It's pretty obvious to see the potential impacts could be significant," Commissioner Bruce Woodbury said.

"If everyone who has had restrictions put on them, or who will in the future, can sue for millions of dollars ultimately it is the airlines that are going to have to pay that, and that means flying in and out of McCarran Airport would be a lot less of a bargain by a long shot."

Commissioner Tom Collins called the case "a big Pandora's box."

"If we harm the tourism industry, it's going to have an effect on everyone," he said. "It could raise the taxes on everyone."

County Aviation Director Randy Walker did not return calls seeking comment.

However, court filings in the case reveal what McCarran officials fear.

More than 3,554 acres fall within a 20,000-foot radius of airport boundaries and have zoning similar to Sisolak's 10-acre site, according to court records. If other property owners were to win judgments similar to Sisolak's, airport staff calculate that McCarran's exposure amounts to nearly $2 billion.

"If this decision is interpreted in one way, it could affect a large amount of land in the valley," said Deputy District Attorney E. Lee Thompson, who represented McCarran and the county in the Sisolak case.

He said the decision also could affect land around Nellis Air Force Base.

Attorneys representing those bringing claims against the county, however, say allegations that billions of dollars are at issue are misleading.

"There are no more than a handful of properties" that could file claims, said Laura FitzSimmons, who represented Sisolak and has three other similar cases pending. The airport also owns land that it can trade to compensate affected landowners, she said. Sisolak proposed a land swap that would have put his property in the county's hands, but was turned down, she said.

Eminent domain attorney Kermitt Waters has three pending cases that argue for compensation based on airport height restrictions.

He said the airport can cover the compensation, adding that a 15-year statute of limitations prevents most potential plaintiffs from filing lawsuits. The height restriction ordinances cited in the Sisolak case were passed as a result of runway expansions at the airport in 1990.

"That airport makes enough money to burn a wet elephant," Waters said. "They've now stolen as much as they can with their stealth taking."

Waters filed his two most recent lawsuits last month. His firm is calculating the time element to see whether it beats the statute of limitations. But he said the clients in the cases didn't know about the ordinances when they were passed, so the deadline didn't start ticking until later.

In Waters' third case, a District Court jury awarded his clients, businessman Tien Fu Hsu and others, $13 million because of the effect of the county's height restriction ordinances on 37 acres of land on Tropicana Avenue.

But the state Supreme Court reversed that decision, noting that landowners had not exhausted administrative remedies. Other nearby properties had obtained variances on the height restriction, the court noted. The case was sent back to District Court and dismissed.

Waters has appealed, saying in part that the county incorrectly offered as part of its proof a claim that a height variance had been granted to erect a sign board on Hsu's property. The variance had, in fact, been granted for another property.

The Supreme Court is awaiting briefs from Waters and airport attorneys in that case. With costs, attorney's fees and interest, the judgment would be about $30 million, Waters said.

In the Sisolak case, which dealt with property bought in the 1980s - which he has since sold - about one mile from the west end of a McCarran runway, the court agreed with some of the arguments put forth by FitzSimmons and Waters.

"We reject the county's contention that the government cannot afford to regulate by purchase in matters concerning public safety," the court said in a footnote to its decision.

"First, the county is in a position to trade public property for other suitable property needed for airport operations," the court said. "Further, a McCarran Airport representative acknowledged that it is ultimately the airlines that would pay a judgment in an eminent domain proceeding, not the taxpayers, and any judgments against the county will not materially affect its financial condition."

But that doesn't make airports and airlines across the nation any more comfortable with the court's ruling.

Several national organizations expressed concerns via filings in the Sisolak case, including the Airports Council International, which represents airport authorities across the country, and the Air Transport Association of America, the trade organization of the principal U.S. airlines.

Thomas Beatty, local counsel for the Airports Council International, said members are worried that other courts will define what constitutes a "taking" in the same way as Nevada.

"They feel the issue is extremely important to airport cases all across the country," he said. "They are concerned that other airports across the country might be subject to the same rules."

Bob Montgomery, vice president of property for Southwest Airlines, wrote in a 2003 letter to McCarran officials that "the potential impact to (airport expenses) is close to $2 billion, effectively doubling the landing fees at McCarran. For Southwest Airlines, two customers on each flight represent our entire profit. This potential landing fee impact would effectively reverse our fortunes, turn a profit into a loss and would result in service disruptions for McCarran."

Southwest handles more passengers flying in and out of McCarran than any other carrier. During the first quarter of this year, it handled about 5 million passengers, nearly half of the airport's volume.

Montgomery could not be reached for comment.

McCarran officials, meanwhile, are planning their next move, and commissioners said they expect a briefing - or will request one - soon.

"We are talking to our legal experts and weighing our options," McCarran spokesman Elaine Sanchez said. "We are not going to rush into any hasty decisions."

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