November/December 2005
For scrap recyclers, eminent domain stories often have unhappy endings. Not so for Tom Ronnkvist and Mickey Minter, who managed to turn that potential negative into a positive opportunity for their business.
By Harvey Meyer
In their most downcast moments, with the threat of eminent domain hanging over their heads, Michael “Mickey” Minter and Tom Ronnkvist imagined the worst: That they would receive a fraction of what their company—Scrap Metal Processors Inc. (SMP)—was worth from the city of Minneapolis. That they would be forced to shutter the firm that provided a livelihood for them and 34 employees. And that they would be required to pay millions for cleaning up environmental contamination at their company’s site.
Despair was understandable at times. Minter, SMP’s president, and Ronnkvist, vice president, had engaged in several years of painstaking negotiations with the city to craft a decision on SMP’s future, particularly its whereabouts. With no deal struck, eminent domain proceedings loomed.
“We had to remain focused on the business but also spend time on [possible] condemnation, so it was hard not to get distracted,” Ronnkvist says. “It wasn’t fun. I’m not going to say we were close to submission, but we were getting emotionally spent.”
“It was tough,” Minter adds. “We never knew if we were on safe ground.”
Their strategy of taking a cooperative and proactive approach with the city worked, however. The firm avoided a hostile eminent domain decision. In fact, the ordeal enabled SMP to remake itself into a unique and thriving hybrid—a scrap-manufacturing-trucking operation that offers a number of synergies in a sprawling new all-indoor venue (see “Transforming the Company” on page 54).
While the tribulations with the city were often arduous, they were also instructive. Some scrap companies confronted with the prospect of eminent domain would reflexively strike a combative, zero-sum posture with a government agency. But SMP’s experience shows that a deliberative, nonconfrontational approach has its merits, especially when combined with hiring experts familiar with city government and eminent domain proceedings.
In the process, the company showed that comedian Woody Allen may have been onto something when he said, “85 percent of life is showing up.” In that regard, SMP officials attended perhaps 50 to 60 meetings, including neighborhood gatherings involving redevelopment plans as well as one-on-one and small-group confabs with city officials.
“More than anything, these meetings personalized us, gave us a human face. We weren’t just a scrapyard,” Ronnkvist says, mimicking a condescending tone. “We got ourselves heard, and we showed we were a good, legitimate employer.”
“They saw us as involved,” Minter remarks, “and that we were part of the process.”
An Eminent Domain Dilemma
It’s a drizzly, overcast late-summer day at an industrial zone in New Hope, a northwestern suburb of Minneapolis. Inside SMP’s facility, Minter stands up behind the desk in his second-floor office and leans his 5-foot 5-inch frame forward to peer through an oversized window. There is much to see in this cavernous, 190,000-square-foot building. As Minter offers a tour in his nonchalant, offhand manner, pointing out features like a 90-foot-long overhead crane capable of hoisting 30 tons, he seems proud and even incredulous at what he and Ronnkvist have wrought. At 64, Minter has been in the scrap business nearly all his life, but he never fathomed the scope and potential of SMP’s current operations. “Never in my fondest dreams did I think it would develop into this,” he says. “Never, never, never.”
As a youngster in the 1940s and 1950s, he helped his grandfather, who started a Minneapolis scrap company in his backyard. Minter launched his own operation in 1977, becoming the last firm to receive a scrap license from the city. SMP was an instant success, in part because it processed automobiles, a rarity in those days.
Like many municipalities, the city of Minneapolis didn’t exactly welcome scrap companies. So when a federal lawsuit settlement (which didn’t involve SMP) required the city to redevelop an industrial corridor in and around SMP’s property, the city gained an opportunity to remove a scrap operator. SMP had other plans. It suggested that the city pay to relocate it to a nearby location in what would be a state-of-the-art indoor scrap processing facility. But, at the time, the city lacked funds to negotiate such a deal.
That left SMP dangling, a situation that was underscored when the city imposed a moratorium on new buildings and even remodeling within the designated redevelopment area. “When we lost a building to a fire,” Ronnkvist says, “they wouldn’t even let us rebuild it.”
City officials tried to help SMP find other suitable land for relocating. But the specter of an outdoor scrapyard didn’t fly with city council members whose wards would house the operation. With no replacement property within city boundaries, there was the threat the city would simply invoke eminent domain. One option for SMP was to abandon its negotiations with the city and roll the dice, hoping that an eminent domain court would require the city to pay an attractive sum for the company. But Minter wasn’t ready to retire, and neither were his employees. Besides, Ronnkvist was bubbling with good ideas, including operating nonscrap enterprises at the firm.
Of course, there was also fear that the condemnation commissioners could valuate the company for much less than SMP could fetch on the open market. Of particular concern was that the commissioners wouldn’t consider “good will,” an amount companies receive for intangibles like their reputation and revenue potential.
Turning to an eminent domain court—thus bypassing a negotiated settlement for the proceedings—would also take time, energy, and perhaps several hundred thousand dollars in fees for attorneys and other experts. Meanwhile, SMP would be waiting months for the city to pay the amount decided by the court. And, in the end, there was no guarantee of a favorable ruling.
Another reason to seek a negotiated settlement: Minnesota government entities have a quick-take condemnation provision that enables them to seize a property within anywhere from 90 to 150 days of invoking the proceeding. “With a quick take, there’s just not enough time for a business to move to a new facility and get up and running,” Ronnkvist says. If it got that far, shuttering the business was a clear possibility.
Finally, by gambling with a decision in eminent domain court, SMP would still leave unaddressed questions about liability for possible environmental contamination at its site. Even with a satisfactory court decision, nothing would prevent the city and possibly other entities from suing SMP for millions of dollars. By staying in negotiations, the company could work toward reducing any environmental liability.
Clearly, Minter and Ronnkvist had a tough decision to make, with the future of their company virtually hanging in the balance.
An Innovative Approach
As it turned out, the city had its own reasons for avoiding eminent domain. The city may have been suffering litigation fatigue after settling a lengthy, acrimonious, and costly lawsuit with a Minneapolis-based scrap shredding operation. The city was also reluctant to summon eminent domain because of its “fundamental” belief in private property rights, says Chuck Lutz, deputy director of the Minneapolis Department of Planning and Economic Development.
Moreover, he adds, “in past condemnation settlements, the city hadn’t fared well. When the city would go to condemnation court, we’d end up paying in excess of what we thought the properties were worth. So, the city council is very, very reticent to use eminent domain except as a tool of last resort.”
Still, SMP didn’t know all the particulars of the city’s stance. Plus, there was no assurance that the city wouldn’t suddenly invoke eminent domain.
So, it was hardly clear which course was best to pursue.
As it turned out, SMP embraced a multipronged, multilayered approach that combined cooperation, flexibility, shrewd political analysis, and diligent research. In hopes of working out a negotiated settlement, SMP adopted a proactive but nonconfrontational posture in its dealings with neighborhood residents, city officials, and other government representatives. At the same time, it hired attorneys familiar with city officials and the inner workings of city government. And just in case the city launched an eminent domain proceeding, the company retained valuation and condemnation experts as well as an accountant. Meanwhile, because any future operations within the city appeared doomed, SMP sought property outside the municipality.
This approach proved to be a delicate dance that caused many hair-pulling moments for Minter and Ronnkvist, who worked six-day weeks and often met on Sundays to strategize their next moves. The anguish was magnified because negotiations with the city continued for several years, four of which Ronnkvist described as “intense.”
For Ronnkvist, 40, this was an especially trying period. The sturdily built, pack-a-day smoker who speaks in quick bursts joined SMP in 1998 after spending years operating his own successful manufacturing operations. Patience was not his strong suit.
“If I’m doing a deal with someone, I don’t want the discussions to last several months, especially if I know it can be done quicker,” he says. “I have a tendency to say, ‘This won’t work,’ and move on.”
Minter counterbalanced Ronnkvist’s hard-charging nature. His nonconfrontational style was reflected in meetings involving neighborhood residents and city officials. Early on, however, even Minter’s patience was tested. Asked for input into possible redevelopment on the SMP site and other business properties, neighborhood residents enthusiastically proposed eclectic shops, boutiques, a fountain, a pond, and other amenities.
“We added vitality to the neighborhood, but we weren’t appreciated,” Minter says. “Nobody really seemed to care we would lose our company and our employees.”
While the city ultimately forged ahead with its redevelopment plans, including a roadway that would knife through company property, SMP’s attendance at a dozen or so neighborhood meetings was duly noted. The company’s willingness to be part of the process was also evident in SMP-initiated one-on-one and small-group meetings with city officials to discuss relocation sites, costs, timing, and other matters. That cooperation and engagement helped mitigate the threat of eminent domain.
Minter and Ronnkvist even met several times with Sharon Sayles Belton, mayor of Minneapolis at the time. Those sessions elevated the profile of SMP and, more importantly, personalized the company. It was no longer just a faceless scrap firm that the city would just as soon discard.
“We never took a confrontational stance,” Minter says. “I think that when you see something like eminent domain coming down the line, it’s a good idea to get friendly with city officials. They will be less inclined to take you on. They’ll think, ‘I know this guy and I know what his business does, so I don’t want to pick a fight with him.’”
Building the Best Team
An important key to SMP’s success was hiring the best legal talent for its particular challenge. That talent was Charlie Nauen and Harry Gallaher of Lockridge Grindal Nauen P.L.L.P., a law firm in Minneapolis.
Both of these attorneys came with extensive experience in the ways of city government and eminent domain. Nauen, in fact, was hired by the city for several matters, and city officials still occasionally retain him. Both have advised companies in eminent domain proceedings. And Gallaher has served as a commissioner on a three-member condemnation court, which reviews targeted properties, hears testimony, and issues written findings on the properties’ value.
“Our broad knowledge of how government works and what’s important to city government” benefited SMP as it considered its financial options, Nauen says. “That’s an asset our law firm provides that many others don’t.”
Minneapolis’s Chuck Lutz agrees, noting that Nauen “has a great familiarity with certain folks in City Hall. I think our familiarity with the attorneys probably played a factor in the cooperative negotiations. It wasn’t a situation where they walked in the door and named their price. But it became more of a mutual problem-solving effort.”
In particular, the attorneys were helpful on environmental indemnification discussions involving SMP’s Minneapolis site. Though the company had operated a scrap yard there for 27 years, its environmental liability was uncertain. That’s because an unmanaged dump as well as ammunition and chemical manufacturers had operated on the site for years before SMP used the property. In addition, two neighboring Superfund sites may have contributed underground pollutants.
By maintaining these delicate discussions, the attorneys kept eminent domain at bay while also ensuring that the city or other parties wouldn’t sue SMP after the fact for millions in environmental liability. In a worst-case scenario, Minter says, “we thought the city might come in and blame us for all [the contamination] and we’d end up paying for everything.”
In the end, SMP agreed to establish an escrow account of up to $250,000 for any environmental liability. That money will be returned if no problems are discovered.
“I think we were fortunate to negotiate [indemnification] into the final deal for the company,” says Gallaher. As Ronnkvist adds, “It gave us peace of mind. It allowed us to look forward, not backward at any responsibility.”
Even as it negotiated with the city, the company had to search for a new home outside the municipality. Lingering uncertainty about whether the city would terminate negotiations and file a quick-take condemnation added urgency to this pursuit. SMP even launched nonscrap operations at its Minneapolis site to earn revenue to pay for its new property.
There was no denying, however, that SMP had reservations about operating at a new address. Would its employees be willing to relocate? Would customers follow it to a new site? SMP’s competitors fanned the anxiety by sowing doubt with the firm’s customers, saying eminent domain threatened its future.
SMP ended up purchasing 12 acres, including the humongous 190,000-square-foot facility, 14 miles away in the suburb of New Hope. The company operated both the Minneapolis and New Hope facilities for two and a half years before moving all operations to New Hope in September 2004. The company didn’t lose any preferred commercial customers, and it lost only one of its employees. “A scrapyard is a funny thing,” Ronnkvist observes. “People come to it like a homing pigeon. They may not even know your name or address, but they know how to get to you.”
In the end, the company largely got the relocation benefits it was seeking, Ronnkvist says. Specifically, SMP received money from the city for its Minneapolis property; for moving its inventory, including scrap as well as its office and plant equipment; and for nonmoveable apparatus like its old plant’s security system, underground truck scales, and oil-water separation system. The company did not reap any tax or other government benefits, nor did SMP receive anything for good will. Compensating for those points is the fact that the company’s new venue offers seemingly boundless revenue opportunities.
All in all, operating under the threat of eminent domain was an exhausting and anguishing experience—and one that thoroughly tested SMP’s business acumen. The way Minter sees it, if the company could juggle several years of intense negotiations with a city, run a successful scrap operation, move to a new venue, and launch several more thriving enterprises, all while eminent domain loomed, well, the future looks bright.
“Anything is possible,” Minter says. “The sky is the limit.”
Transforming the Company
If Scrap Metal Processors Inc. (SMP) hadn’t operated under the threat of eminent domain, it never would have moved to a new venue. And if it hadn’t relocated, it wouldn’t have converted from an outdoor scrapyard into an environmentally leading-edge indoor operation. Nor would the company be operating robust and synergistic scrap, manufacturing, and trucking enterprises.
Who’d have thought that an eminent domain threat would engender such a happy transformation? Certainly not SMP executives Mickey Minter and Tom Ronnkvist. They were satisfied with their profitable outdoor Minneapolis scrapyard, but a lawsuit-inspired city redevelopment initiative pushed the company to move all operations to New Hope, a suburb 14 miles away.
The company was environmentally responsible at the old site, where a $1-million outdoor oil-and-water containment and processing system was installed. Still, Minter and Ronnkvist took environmental stewardship to new levels at their huge 190,000-square-foot new facility, about half of which is devoted to scrap operations. All scrap for SMP’s commercial-only customers is processed on cement and under roof, and any outdoor scrap is in containers. As added insurance, a new 60,000-square-foot scrap processing bay will feature a trapping and drainage system that captures and processes all contaminants beneath the cement.
“We don’t have to worry” about contaminants being released or leaching into the soil at the new facility, Minter says. “We can absolutely sleep a lot better at night because of that.”
SMP’s new operation is also impressive for the nonscrap businesses the firm operates there. These units account for about two-thirds of the company’s revenues, mostly from manufacturing. Other revenues are generated through its scrap sales, mostly to China, where SMP has been an active supplier for eight years.
The six revenue-producing business units, most of which were launched at the new venue, include the scrap operation; World Transload, which unloads and stores rail-transported heavy steel commodities; World Transportation, a semitruck and trailer division that hauls those commodities to steel mills and other industrial venues; Tube Technologies, which manufactures equipment for drilling; Drill Pipe International, which primarily manufactures oil-field drill pipes; and Helical Anchors Inc., which produces deep-foundation augers. Two more business units are in the developmental stage.
Together, these businesses have about 100 employees compared with 34 at SMP’s former Minneapolis facility. But the company is much more cost-efficient, using the same number of administrative staff as at the old operation. Other synergies are also evident. For example, inbound trucks bring in raw materials for manufacturing and haul away scrap-related products.
“I don’t think you’ll find this type of scenario, combining scrap with other businesses, anywhere else in the country,” Ronnkvist boasts.
So, after weathering its eminent domain storm, life is good for SMP. Things are going so well, in fact, that the company’s biggest challenge is managing future growth.
“Our manufacturing businesses are growing, our scrap business is growing, and our trucking business is growing,” Ronnkvist says. “The possibilities are endless. Going forward, it’s going to be a lot of fun.”
Harvey Meyer is a writer based in St. Louis Park, Minn.
For scrap recyclers, eminent domain stories often have unhappy endings. Not so for Tom Ronnkvist and Mickey Minter, who managed to turn that potential negative into a positive opportunity for their business.