Opinion
2024-CA-0284-MR
12-06-2024
COMMONWEALTH OF KENTUCKY, TRANSPORTATION CABINET, DEPARTMENT OF HIGHWAYS APPELLANT v. LONDON MEDICAL PROPERTIES, LLC APPELLEE
BRIEFS FOR APPELLANT: James G. Womack Joshua L. Ellis Brian A. Lock Lexington, Kentucky BRIEF FOR APPELLEE: Stefan J. Bing Lexington, Kentucky William G. Crabtree London, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM LAUREL CIRCUIT COURT HONORABLE MICHAEL O. CAPERTON, JUDGE ACTION NO. 21-CI-00519
BRIEFS FOR APPELLANT:
James G. Womack
Joshua L. Ellis
Brian A. Lock
Lexington, Kentucky
BRIEF FOR APPELLEE:
Stefan J. Bing
Lexington, Kentucky
William G. Crabtree
London, Kentucky
BEFORE: THOMPSON, CHIEF JUDGE; ECKERLE AND A. JONES, JUDGES.
OPINION
THOMPSON, CHIEF JUDGE
The Commonwealth of Kentucky, Transportation Cabinet, Department of Highways ("KYTC") appeals from a judgment of the Laurel Circuit Court. KYTC argues that the trial court erred in excluding the testimony of its expert appraiser. We find no error and affirm.
FACTS AND PROCEDURAL HISTORY
This is an eminent domain case initiated by KYTC. KYTC sought to acquire 0.437 acres of land from London Medical Properties, LLC in order to expand a road. The 0.437 acres were part of a 5.431-acre tract of commercial property which contained a medical building. The strip of land that was being sought contained a large, brick sign, a section of the property's parking lot, and concrete curbing. Appellee agreed that KYTC could take the land, the only issue was the amount of compensation.
Both parties acquired experts to testify at trial and those experts' drafted reports which set forth their findings. KYTC's expert, Coby Mosley, utilized a cost approach method of appraisal. In that method, Mosley put a price on each individual part and improvement of the property to come to his appraisal value. He did such an appraisal on the entire piece of property before the eminent domain taking and after the taking. For example, as to the land before the taking, he believed the appraised value of the vacant portion of the entire 5.431-acre parcel would be $2,796,965, the value of the medical office building would be $4,657,000, the value of 34,877 square feet of asphalt on the property would be $52,316, and the value of 3,600 square feet of concrete sidewalks would be $12,960. In total, Mosley valued the 5.431-acre lot, with all of its improvements, before the eminent domain taking, at $6,453,810. Then Mosley valued the property after the taking. He valued each part of the property in the same fashion, but subtracted the parts of the property that would no longer be there. For example, instead of the 34,877 square feet of asphalt on the property that existed prior to the taking, after the taking there would be 33,297 square feet of asphalt, which he valued at $49,946. After pricing all the improvements to the land, he came to a valuation of the entire property, after the taking, of $6,350,105. He then took the difference in the two total values and came to $103,705. Valuations were then added regarding temporary easements the government would need in order to facilitate the taking and expand the road. In the end, Mosley believed Appellee was owed $131,927 in compensation.
Mosley priced other items and improvements on the land. These are just a few to illustrate how Mosley came to his valuation.
Appellee had two experts, both of which used a sales comparison approach method of valuation. That method looks at other, similar properties that have been recently sold and compares those values to the property at issue. Both of those experts valued the compensation owed to Appellee at over $500,000.
On December 18, 2023, the parties appeared for the trial to determine the compensation amount. One of Appellee's experts, John Lyon, testified, and explained the differences between the cost approach and the sales approach. During Lyon's cross-examination, the issue of "price tagging" was introduced. In price tagging, an individual price is affixed to each item or improvement on the land to come up with an amount of damages. For example, imagine a small piece of land being taken that has a tree and a section of sidewalk. We will give the land a value of $5,000, the tree a value of $500, and the section of sidewalk a value of $100. Price tagging would suggest damages to the property owner in the amount of $5,600. Kentucky case law states that price tagging is not an acceptable form of valuation for eminent domain cases. Commonwealth, Dep't of Highways v. Taylor, 400 S.W.2d 688, 690 (Ky. 1966); Commonwealth, Dep't of Highways v. Mann, 387 S.W.2d 848, 850-51 (Ky. 1965).
Eventually a bench conference was held where the issue of price tagging was discussed, and Appellee argued that KYTC's cost approach valuation appeared to be the same as price tagging. Appellee also indicated that it planned to move to exclude KYTC's expert's testimony if the testimony indicated price tagging was utilized. After hearing some brief arguments, the court dismissed the jury and held an impromptu hearing on the issue. The trial judge wanted to settle the issue of whether KYTC's expert was going to testify in a way that indicated he used a price tagging method to value the property. The trial judge reviewed Mosley's report and case law cited by Appellee regarding price tagging. Counsel for each side also presented arguments and KYTC's expert was brought in to be questioned. The judge asked Mosley questions about his report and his expected testimony. The judge also asked Mosley if he could give a valuation opinion without using the method set forth in the report. At the conclusion of the hearing, the trial court held that Mosley could not testify.
The case was then concluded with KYTC presenting no evidence as to the property valuation. The jury returned a verdict in favor of Appellee and awarded it $531,916, and the trial court later entered a judgment to this effect. This judgment also included a short discussion regarding the exclusion of Mosley's testimony and indicated it was excluded because it was improperly based on price tagging. KYTC later moved for a new trial. The motion was denied, and this appeal followed.
ANALYSIS
KYTC's first argument on appeal is that the trial court erred when it prohibited Mosley from testifying. We review evidentiary issues under the abuse of discretion standard. Goodyear Tire and Rubber Co. v. Thompson, 11 S.W.3d 575, 577 (Ky. 2000). "The test for abuse of discretion is whether the trial judge's decision was arbitrary, unreasonable, unfair, or unsupported by sound legal principles." Commonwealth v. English, 993 S.W.2d 941, 945 (Ky. 1999).
In eminent domain cases,
[t]he basic measure of damages, where part of a tract of land is taken by condemnation, is the difference in the fair market value of the tract before and after the taking. Improvements should be considered only to the extent that they enhance the value of the land to which they are affixed. For this purpose it is proper for the witnesses to testify as to the character and condition of the improvements.Commonwealth, Dep't of Highways v. Stamper, 345 S.W.2d 640, 642-43 (Ky. 1961) (citations omitted). There are three general approaches to determining the fair market value of property in eminent domain cases: the sales comparison approach, the cost approach, and the income approach. Commonwealth v. R.J. Corman Railroad Co./Memphis Line, 116 S.W.3d 488, 495 (Ky. 2003).
[I]t should be kept in mind at all times that the various elements and factors of damage that may be involved are not items of damage to be priced and totalled for the purpose of reaching a verdict, but are only reasons to be given in support of opinion testimony of before and after values - the tract of land would bring a stated price before the taking because of certain features it possessed, and would bring a stated (lower) price after the taking because of certain conditions resulting from the taking.Commonwealth, Dep't of Highways v. Tyree, 365 S.W.2d 472, 477-78 (Ky. 1963) (emphasis in original). The reason price tagging is not a proper method of valuation is that an individual item or improvement to a piece of land, while it may have some value in and of itself, may not provide any value to the land as a whole. Let us take the example we used earlier in this Opinion about the small piece of land being taken that contains a tree and a section of sidewalk. Now let us imagine that section of land is part of a much larger tract of land. The measure of damages to the landowner in this hypothetical is the value of the large tract of land before the taking of the small section with the tree and the sidewalk, and the value of the large tract after that small section is taken. It would be entirely likely that the tree and section of sidewalk, although having some value in general, added little to no value to the property as a whole. Property valuation in this case must determine the value of the property that remains, not the value of what is taken.
We believe the case of Stamper, supra, sets forth the most comprehensive discussion of fair market value, price tagging, and when the values of improvements can be considered; therefore, we will provide an extensive citation to it.
In attempting to arrive [at] fair estimate of the market value of the land with the improvements upon it there may by circumstances in which evidence as to the cost (less depreciation) of improvements may be received. For example, if it is shown that a particular improvement is well adapted to the location and tends to adapt the property to the use to which it could most advantageously be put, and there is nothing to show that the cost of the improvement was not paid in good faith and under normal conditions, the cost of the improvement, less depreciation, may be considered as proper evidence of the amount by which the improvement enhances the market value of the property. Thus in the case of a dwelling house which conforms to improvement standards of the particular locality evidence of cost (less depreciation) should be admissible.
A different situation is presented in the case of overdevelopment or imprudent investment. If an owner builds an expensive house on land in a slum area the cost of the house is not a fair test of the amount by which the house enhances the market value of the property, because as a practical matter the property will not be marketable for a sum commensurate with the cost of the house. Likewise, if an owner constructs an improvement that is attractive to him, but does not appeal to ordinary buyers, it cannot be considered to have enhanced the value of the property to the extent of the cost of the improvement.
The same will be true in the case of obsolescence. An old mansion standing in a neighborhood that once was a district of fine residences but since has become commercial or industrial in character cannot be considered to enhance the value of the land on which it stands in accordance with its structural cost.
Another type of case in which evidence of cost of an improvement may be admissible is where an improvement is of a special character having no value except in connection with the particular business or uses of the owner-a type of improvement for which there is no market. Examples of this would be a toll road; a railroad terminal; or perhaps an electric power company's substation.
In speaking of 'improvements' in this discussion we mean major structures and not such things as shade trees, wells, septic tanks or small outbuildings that are merely incidental to the use of a major structure. Evidence as to the cost of such items is not admissible as bearing on the value of the land taken. In the ordinary situation there [are] things that furnish comforts or conveniences of such a common nature that they are inherent elements of the value of the land and the major structure upon it. It must be kept in mind that we are talking about the value of the land taken; it may be that where an improvement on the land taken is an
appurtenance to a structure on the remainder of the tract its cost may be shown as an element of the resulting damages to the remainder.Stamper, 345 S.W.2d at 643-44.
In the case at hand, KYTC's expert gave a value to each individual item and improvement on the section of land being taken. He did this by pricing these items, as well as others that were not being taken, to arrive at a value of the property before the taking and after the taking. While the values of major structures, such as a dwelling or office building, may be presented into evidence according to Stamper, the improvements cited by KYTC and Mosley that were present on the land being taken were not major structures. Those improvements were a section of asphalt, a section of curbing, and a brick sign. While he viewed and valued the property as a whole, he did so by price tagging. Supporting facts describing how one came to a valuation are admissible; however, "dollar figures must not be placed on individual damage factors." Commonwealth, Dep't of Highways v. Boyer, 434 S.W.2d 630, 632 (Ky. 1968). By using specific dollar figures for the minor improvements that were being taken, KYTC's expert utilized price tagging. This valuation was impermissible, and the trial court did not abuse its discretion in prohibiting this testimony.
KYTC also argues on appeal that the evidence in the record at the time KYTC's expert was disqualified was inadequate to support the trial court's decision to prohibit the testimony. We disagree. The trial court heard arguments from counsel, reviewed Mosley's appraisal report, reviewed case law cited by Appellee regarding price tagging, and questioned Mosley under oath. All of this led that court to conclude that Mosley had utilized price tagging in determining his appraisal value. Considering price tagging is prohibited by law when valuing property in eminent domain cases, we see no error in how the trial court made its decision.
KYTC's final argument on appeal is that the trial court erred in denying his motion for a new trial. KYTC brought the motion for a new trial pursuant to Kentucky Rules of Civil Procedure (CR) 59.01(a). CR 59.01(a) states:
A new trial may be granted to all or any of the parties and on all or part of the issues for any of the following causes:
(a) Irregularity in the proceedings of the court, jury or prevailing party, or an order of the court, or abuse of discretion, by which the party was prevented from having a fair trial.
KYTC argues that it is entitled to a new trial due to the irregularity in which Mosley's testimony was excluded. KYTC claims that Mosley's expert testimony should have been tested prior to trial and Appellee should have brought a motion to exclude the testimony before trial. KYTC argues that Appellee had Mosley's appraisal report; therefore, it knew how he was going to testify. When reviewing motions pursuant to CR 59.01, we "must accord the decision of the trial court significant deference and, therefore, may reverse only upon a showing of clear error." Louisville SW Hotel, LLC v. Lindsey, 636 S.W.3d 508, 515 (Ky. 2021) (footnote and citation omitted).
We find no error. Mosley was not deposed in this case, but did produce an appraisal report; however, until he was questioned under oath, there was no evidence or testimony to exclude. Excluding testimony during trial was proper. In fact, in the cases of Taylor, supra, and Commonwealth, Dep't of Highways v. Shaw, 390 S.W.2d 161, 163 (Ky. 1965), testimony about price tagging was excluded during those trials. As we have previously discussed, excluding Mosley's testimony was not error and we now conclude the method of this exclusion was also proper.
CONCLUSION
Based on the foregoing, we affirm the judgment of the Laurel Circuit Court.
ALL CONCUR.