Opinion
No. CV05-4001920 S
July 29, 2009
MEMORANDUM OF DECISION
Factual Background
Robert Parker provided the relevant history of the plaintiff. Parker is a financier with significant corporate investment experience; he holds a Series 7 license and is founder of his own investment company which invested in the subject property. The Brookfield Quarry was started in the 1940s by E. Paul Kovacs, who was, in the early eighties, joined in the business by his son Ken. Tr., 9/4/08, Vol. I, at 10. Sometime thereafter, the Kovacs encountered serious financial constraints; there were state and federal liens against the property and the quarry's future was at risk. Parker's interest in 1987 was in purchasing the property as an "alternative" investment — a private equity offering for his investors. His interest was stirred by the fact this one hundred eight (108) acre site (more precisely, 107.71 acres) was an income producing asset with capital appreciation potential that posed a lower risk to investors at the same time it offered a quicker cash return. He was further attracted by the quarry's location in Northern Fairfield County, the fact it was zoned R-80 (residential), was the only fully-permitted crushed stone quarry in Fairfield County, had what Parker considered a significant transportation advantage because the product could be delivered to the Fairfield County consumer (its primary market) at a competitive price to include delivery, that the Danbury area was then the highest population growth area in the state, that the mining industry was the second largest mineral industry in the United States, that there was no debt against the property, and — very significantly — that there was a barrier to entry in the Fairfield County market. In July 1988, Parker partnered with Countywide Construction to form Quarry Associates and complete the purchase (Parker provided the money and Countywide the expertise to operate the mine). Beginning, however, in 1989, Parker's group liened the property, executed a deed in lien of foreclosure, and formed the plaintiff company (Rock Acquisition Limited Partnership — "Rock") to own the quarry and Fairfield Resources Management, Inc. ("Fairfield") as Rock's agent to operate it. Tr., 9/4/08, at 13, 32-36; Exh. C35. Of relevance is that, when Parker's group rescinded its investment in 1989 and withdrew from Quarry Associates as an equity partner, it liened the property for seven million dollars ($7,000,000) based upon an appraisal of a portion of the site only (without valuing the minerals in the ground) at two million one hundred thousand ($2,100,000). Countywide (of which Quarry Associates was then a part) had paid back approximately $1,700,000 by 1991 (when the deed in lieu of foreclosure was executed), paid new money of $2,500,000 for the land only based on a second appraisal, and Parker's group took title to forty (40) other Countywide properties (on which there was no debt) as collateral for the sum still owing. On January 31, 1992, Rock became owner of the quarry and continued to be until the date of taking (July 30, 2004). Id. It soon began converting the property to a crushed stone quarry, purchased some equipment with the intent of developing its own crushing operation, re-directed efforts from the "lake" area of the site to other locations thereon, and began core drilling to explore the feasibility of entering the "hard stone" business. In fact, Parker testified, the plaintiff shipped 450,000 tons of hard stone (or aggregate) in 1992. Tr., 9/5/08, at 31.
Zoning laws did not come into effect in Brookfield until the eighties; the quarry had since enjoyed the status of a pre-existing non-conforming use.
No mines had opened in that county for over thirty (30) years and regulatory and environmental issues in the industry dissuaded new competitors from entering the market. He testified that the "only way in," therefore, was to purchase this quarry.
Parker's group invested sixteen (16) million in the quarry in return for a sixty percent (60%) ownership interest in the business which had been valued at twelve-fourteen (12-14) million and minerals in the ground which had been valued at ten (10) million. Tr., 9/4/08, at 15-16.
In 1988, Edward Heberger's group (CBRE-CB Richard Ellis) had valued the land which comprised only the area which later came to constitute a lake on the property (approximately forty [40] acres of the one hundred eight [108] acre parcel) at $2,100,000. In 2004, the state DOT paid $4,100,000 (The state has agreed it would now pay $4.3 million) for all that was taken. When Kovacs sold the property to Parker's group in 1988 for $3,995,000 and an overriding royalty interest in future sales of minerals, Parker's group then also had another independent appraisal — this time to include the land and the minerals — of $10,000,000. Tr., 9/5/08, at 5. The sale by Kovacs was a distress sale.
The period from 1993-1996 proved difficult for the plaintiff. There was a water diversion issue with the DEP and a regulatory issue with the town regarding the plaintiff's de-watering of the property's "lake" area. By 1997, an agreement had been reached regarding both issues and the plaintiff's permits were again unchallenged. Id. at 33. Having spent considerable monies to address those issues, however, the plaintiff needed to infuse new money into the business; it therefore obtained yet another appraisal this time of the minerals in the Main mine only. That valuation — never refuted at trial — was for $16,200,000 on the strength of which Core States Bank, in April of 1997, loaned the plaintiff $2,300,000 and extended it a line of credit for $1,200,000 against inventory on the ground. Id. at 36. In the interim, the plaintiff had learned of the DOT's plan to begin construction of a Rte. 7 by-pass in Brookfield, which by-pass would go through the quarry. At a meeting with the DOT in June of 1996, Parker's attempt to persuade the defendant to move the taking line was rejected because that line, the DOT then represented, "had been set." Id. at 38. This later proved to be a misrepresentation by the DOT. At the same meeting, Parker was told the property would be taken by the end of 1999 or early 2000. He relied on that representation when, for example, he decided not to expend significant monies to purchase crushing equipment, choosing instead to enter into a sub-contracting agreement with another company to crush stone. Exh. C18. Using computer generated records, he testified to sales having increased by 46% between 1996 and 1997 and 8% between 1998 and the first six (6) months of 1999 (This, he explained, was as a result of the marketplace not yet being aware of the "planned" taking date). Exh. C14. When, on May 27, 1999, the plaintiff received certified notice of the taking (Exh. C 19.), the marketplace became aware of the DOT's plan — which at that time was to take seventeen (17) acres only. By April of 2000, no property had yet been taken nor had the state made a final offer or formally advised the plaintiff of its plan; what it did do was advise plaintiff's attorney that the business could continue to operate until year's end. Id. at 80; see also Exh. C32. It was not until a meeting on July 6, 2000 (a meeting attended by a local congressman, the state's then Lieutenant Governor, various DOT personnel, and the heads of various state and federal regulatory agencies), that it was learned that, despite the state having represented to the federal government (upon whom it depended for funds to complete the by-pass) that it (the DOT specifically) had prepared a LEDPA (Least Environmentally Damaging Practicable Alternative) statement — without which no monies (to include "design" funds) would be released, they had not in fact done so. Id. at 83. In fact the LEDPA was not to be completed until December 19, 2002. Tr., 9/15/08, Vol. II, at 89. Only then did the plaintiff learn the reason for years of delay and the reason for the DOT's not having kept the plaintiff informed. In the interim, the plaintiff's business decreased eighteen percent (18%) from July of 1999 to June of 2000 (having increased in the three [3] prior years) — a decline Parker attributed to a "cloud of condemnation" that only became evident in 1999 when the public became aware of the DOT's intent to take the quarry. At another meeting with the DOT on August 10, 2000, Richard Martinez of the DOT, haying again acknowledged that the state had "really messed up," advised Parker he (Parker) could look forward to "being taken at the end of 2001" despite a December 18, 2000, letter from the Army Corps of Engineers stating that Alternatives III and IV (the former of which would have permitted the business to operate and the latter of which would have closed it) were then possible. It was not until Richard Allen, by way of letter dated October 20, 2003, officially advised plaintiff the state was taking the property that a formal taking map (showing the taking of the entire quarry) was filed at the Brookfield Town Clerk's office. Exh. A35. Two (2) additional maps dated October 9, 2003 ( before formal notice was sent to the plaintiff) were filed with the same office on the date of taking. Tr., 9/5/08, Vol. II, at 124.
The property included three (3) working mines — the East (or Main) mine, the North mine (in the "lake" area), and the West mine. The DOT's plan then was to cut through the East — or Main — mine.
Parker asserted that, as early as 1997 or 1998, the DOT had as many as five (5) alternatives regarding construction of the bypass, four (4) of which alternatives would have permitted the quarry to continue to operate. Id. at 71-72. The alternative ultimately chosen — cutting right through the quarry — was the only alternative requiring a total taking of the property and the end of the quarry.
Parker testified he nevertheless sought out the loan from Core States Bank because: a) he had obligations to pay off vendors who had stayed with him during the period of regulatory difficulties, and b) he wanted to prevent ever having to sell at a distressed value (as had Kovacs and Countywide) because he knew he had a valuable asset. Id. at 42.
Parker asserted he had been made aware of a "preliminary" appraisal by the state as early as August of 1999 for $4,000,000. Since the DOT's plan from May through August of 1999 was to take seventeen (17) acres only, that preliminary appraisal was presumably the state's appraisal of only that portion of the property (The state had no fewer than three (3) sub-contract appraisers [in addition to those who testified at trial] for this property). Tr., 9/5/08 — Vol. II, at 64-67. The DOT paid 4.1 million for the entire one hundred eight (108) acres at taking. That amount did not include payment for 151,000 tons of finished goods on the ground ("personalty") for which the state additionally paid 3.1 million on February 5, 2005. Id. at 143.
The purpose of the meeting then, Parker testified, was to determine why, after three (3) years and significant monies spent by the state preparing for a taking (retaining experts to complete valuations, etc.), the DOT had moved away from Alternative III, which would have permitted the plaintiff to continue its business, to Alternative IV (which cut through the quarry). Relevant also is that, at this meeting, Mr. Martinez of the DOT, acknowledged the LEDPA had not yet been prepared; the release of funds from the FHA (Federal Highway Administration) — necessary for a project such as this because a public highway was involved — required issuance of a FONSI (Finding Of No Significant Impact) and the Army Corps of Engineers required receipt of a LEDPA before a FONSI was issued. At no time during trial, despite the frequent presence of DOT officials, were these representations ever refuted.
The plaintiff's claim at trial was that the state failed to fairly compensate it for the 108 acres — specifically, the 15.16 million tons of minerals remaining in the ground at taking (as opposed to those on the ground — which the state later purchased). That number had its basis in work done primarily by Mr. George Banino; he held both an undergraduate and graduate degree in geology, was certified by the American Institute of Professional Geologists, had authored numerous geological publications related to the mining and construction materials industries, and had been directly involved in mine planning for over thirty-five (35) years. Mr. Banino first examined the subject property in 1996 when retained by Parker to characterize the amount and nature of mineral reserves in the ground. Drilling and core extraction was performed in 1996 and 1997 to develop a mining plan (a "Bench Plan") that he then superimposed on a topographical map (Exh. B3B) prepared by a group identified as CCA. In addition to testing he and others at his direction did, he also had available to him the results of testing done in 1993 by Timmons Co. He prepared two (2) reports — one on June 4, 2004 (Exh. 1) and the second on July 22, 2005 (Exh. B5). Taking into consideration the setback requirements imposed by zoning regulations, that there could be no mining activity in wetland areas, and, mindful that, although CLP had a right of way over a portion of the property (for utility lines), the plaintiff could mine under that right of way, it was Banino's opinion, based upon reasonable geological certainty, that there was a total of 15.16 million tons of minerals in the ground and available for sale from the East, North, and West mines and, further, that, based upon the same reasonable geological certainty, the testing of samples taken from the ground demonstrated that the granitic gneiss there found constituted high quality construction aggregates and that the marble, while of lesser quality, was suitable for construction and other uses — i.e., as fill for driveways, etc.
Though he did no drilling or extraction in the West mine, he testified to there being "proven mineral reserves" in that mine and noted the rock to be found there was "well exposed."
William Schappert, Sr., a member of the Brookfield Zoning Commission from 1972 through July of 2007 and a former Zoning Enforcement Officer, testified the quarry had a permit (a "natural resources removal permit") since the early sixties. Thus the quarry was a pre-existing non-conforming use. Schappert testified the entirety of the property was permitted to be mined so long as there was compliance with the regulations.
Much was made during cross-examination regarding whether the West mine could be mined as of the date of taking. The claim that it was not so permitted is without validity. Schappert, who wrote the stipulations which appeared on each yearly permit, testified that, though the West mine was not a designated area (or "phase") called out in the permit, "it could have been so designated." The reality is that the plaintiff focused its mining efforts in concentrated areas ("phases") yearly and only those areas were referenced on the permit issued for that year. That the West mine was not so designated on any permit issued prior to the taking reflected only the plaintiff's intention not to mine in that area prior to taking; there was never an expression by the plaintiff to abandon all plans to mine there — particularly since it knew of the reserves there. Once having learned of the DOT's plan to take the property, there was no reason to designate the area as "active."
James Mahoney, the founder and managing partner of Mahoney, Sabol and Company, and a licensed CPA with an undergraduate and master's degree in taxes, testified to having prepared and/or supervised the preparation of the plaintiff's financial statements and tax returns since 1996. The financial statements, which were comprised of balance sheets and income and cash flow statements were reviewed before Mahoney's firm added its tax/financial opinion. That firm also prepared "pro formas," which were based upon hypothetical situations and the plaintiff's historical information (production, sales, etc.) upon which were imposed certain assumptions.
Based upon the tax returns and — primarily — the financial statements of both the plaintiff and Fairfield Resources Management, Inc., Mahoney was asked to render an opinion as to the pro forma damages the plaintiff had sustained as a result of having to subcontract out the crushing operation (as opposed to purchasing new equipment and doing the crushing in-house). Exhs. C9, C10. He accomplished this pro forma for the years 1999-2004 based upon actual sales figures for 1997 and 1998. No price changes were made; necessarily, however, "costs" were modified (to take into consideration such factors as the need to hire, estimated fuel and repair costs, employee benefits, etc). Using as a baseline the actual 1998 sales figures from the financial statements, Mahoney then assumed a 6% growth rate in the tonnage of product sold each year thereafter; that 6% growth rate was one of two primary assumptions made by Mahoney with regard to this pro forma (the second assumption being that the plaintiff had its own internal crushing operation). Using generally accepted accounting principles, the witness calculated the amount of the cumulative damages ("lost profits") sustained by plaintiff from June of 1997 through 2004 (The taking occurred July 30 of that year) were nine million four hundred thirty-nine thousand one hundred forty-eight dollars ($9,439,148.00). Tr., 9/9/08, at 151.
Actual financial statements for the years 1997-2002 were used and "internal numbers" were used regarding 2003 and 2004 figures. Tr., 9/10/08, at 37. The "financial statement" was prepared by plaintiff's management but was reviewed by the accounting firm which then affixed its opinion regarding the accuracy of the numbers there included.
The query was, "If there had been no cloud of condemnation and the plaintiff had purchased the necessary equipment to perform the crushing operation in-house, what would have been the effect — if any — on business profits?"
Issue: What is "just compensation" for the taking of the plaintiff's 107.71 acres to include the minerals in the ground?
Applicable Law
The fifth amendment to the United States Constitution, as applied to the states through the due process clause ( Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 160), provides that private property shall not be taken for public use without just compensation. Article first, § 11 of our state constitution provides the same. Santini v. Connecticut Hazardous Waste Management Service, 251 Conn. 121, 136 (1999), cert. denied, 530 U.S. 1225 (2000). The question what is "just compensation" is an equitable one rather than a strictly legal or technical one. The law intends that the condemnee shall be put in as good condition pecuniarily as he would have been in had the property not been taken. Northeast Ct. Economic Alliance v. ATC Partnership, 272 Conn. 14, 25 (2004) (Citations omitted). "The amount that constitutes just compensation is the market value of the condemned property when put to its highest and best use at the time of the taking." Id. "The highest and best use concept . . . has to do with the use which will most likely provide the highest market value, greatest financial return, or the most profit from the use of a particular piece of real estate." Id.; see also, State National Bank v. Planning Zoning Commission, 156 Conn. 99, 101 (1968). The inquiry regarding the highest and best use of a given property is a question of fact for the trier. Id. "In determining market value, it is proper to consider all those elements which an owner or a prospective purchaser could reasonably urge as affecting the fair price of the land . . ." Id. at 828. "Fair market value is the price a willing buyer would pay a willing seller based on the highest and best possible use of the land . . ." Minicucci v. Commissioner of Transportation, 211 Conn. 382, 384 (1989). "Where an ongoing profitable business is conducted on the land, such a use should be considered if the use is a factor in establishing market value because a willing buyer might offer more for the property since such a business use would indicate the suitability of the location for a similar enterprise." John Wronowski v. Redevelopment Agency of the City of New London, 180 Conn. 579, 584-85 (1980).
Although elements of takings such as lost profits or personal property are not independently compensable because they do not constitute real property, the value of such elements nevertheless may be considered in determining the fair market value of the land. See e.g. Alemany v. Commissioner of Transportation, 215 Conn. 437, 446-47 (1990); Seferi v. Ives, 155 Conn. 580, 583-84 (1967); Edwin Moss Sons, Inc. v. Argraves, 148 Conn. 734, 736 (1961); Harvey Textile Co. v. Hill, 135 Conn. 686, 690-91 (1949). Our state's highest court, addressing the operation of a retail supermarket on condemned land, had this to say about fair market value, "[T]he better reasoned cases hold that, although the value of a business which is being conducted upon the real property condemned may not ordinarily be added to the market value of the realty as damages for the taking, the fact that a given business is in operation on the property should be taken into consideration in determining the market value of the real property if in truth it is a factor in establishing that market value — if, that is, the use of the real property for that purpose enhances the value of it." Seferi, supra, at 583. Thus, enhancement value is properly considered in assessing a property's fair market value. Commissioner of Transportation v. Rocky Mountain, LLC, 277 Conn. 696, 731 (2006). In the case of land that is underlaid with marketable minerals . . . the existence of those minerals is a factor to be considered in determining the market value of the property. Edwin Moss and Sons, Inc. v. Argraves, 148 Conn. 734, 736 (1961). "While it is the land — not the minerals — to be valued, the fact that the land contains mineral deposits may and should be considered in determining the market value of the land." Hollister v. Cox, 131 Conn. 523, 526 (1945). "Put in another way, the rule is that the trier must take into consideration everything by which value is legitimately affected including those factors which a willing buyer and a willing seller would consider in fairly and advantageously negotiating an agreement." (Citations omitted.) Wronowski v. Redevelopment Agency, 180 Conn. 579, 586 (1980). "The general rule is that the loss to the owner from the taking, and not its value to the condemnor, is the measure of the damages to be awarded in eminent domain proceedings." Kimball Laundry Co. v. United States, 338 U.S. 1, 13 (1949).
Conn. Gen. Stat. § 13a-73(a) defines "real property" as "land and buildings and any estate, interest or right in land."
No single valuation formula fits all cases and, thus, no one method of valuation is controlling in the trier's determination of just compensation. Because each parcel of real property is in some ways unique, "trial courts are afforded substantial discretion in choosing the most appropriate method of determining the value of a taken property." Commissioner of Transportation v. Towpath Associates, 255 Conn. 529, 541 (2001).
Adjudication
Four experts testified at trial over many days — Dean Amadon and Kenneth Jones for the defendant and Edward Heberger and Trevor Ellis on behalf of the plaintiff. All experts considered the highest and best use of the property to be its continued use as a quarry.
Dean Amadon received a B.S. in 1966 and began taking real estate appraisal courses in 1980. He is a licensed appraiser in this state and a Member of the Appraisal Institute (MAI). He began working for Edward (Ned) Heberger in that year and credits his ten (10) years experience working for Heberger as providing a "strong basis for my appraisal experience." Tr., 9/17/08, at 3. He then started his own company, Amadon Associates, of which he continues to be president. At the request of the DOT, he prepared two (2) appraisals of the subject property — the first (Exh. C74) dated November 24, 2003, and the second (Exh. D15) dated as of the date of condemnation — July 30, 2004. He characterized the second report as a "redo" of the earlier appraisal. Id. at 5. The first evaluation was of two (2) distinctly different land parcels, only the first of which is pertinent here — the 107.71 acres identified as 98 Laurel Hill Road in Brookfield, Connecticut. In valuing the fee simple interest of the property, Amadon utilized both the income capitalization and sales comparison approaches (Tr., 9/18/04, at 4.) and concluded the fair market value of the quarry was $4.1 million dollars. The DOT requested Arthur Pincombe (a state consulting appraiser) and Kenneth Jones (the second appraiser who testified for the DOT) "review" Amadon's initial valuation. Both reviews were scathing assessments of Amadon's work (Query why Amadon appeared at trial since it was known that the DOT had received multiple other valuations of the property by other presumably qualified appraisers, none of which reports were provided Amadon). He testified — falsely — that he had "passed" Pincombe's review and that in that he subsequently "retained" Pincombe with regard to his (Amadon's) second valuation to assist him in geological matters (Amadon had little if any experience in assessing the quality of stones) and to help him in the determination of discount rates to be used. Id. at pp. 5, 6. In his review (Exh. C55.) of February 2, 2004, Pincombe criticized Amadon's methodology in using the traditional income capitalization approach as speculative because of the plaintiff's short period of ownership (It had owned the property for eleven [11] years when Amadon did his first appraisal) as well as for Amadon's use of the phrase "cloud of condemnation" on page 18 of this report (Exh. C74) — a phrase which all appraisers retained by the DOT rejected but which — interestingly — never appeared on page 18 as Pincombe had stated; Amadon did, however, delete any reference to that phrase in his second report — Exh. D15 — at Pincombe's suggestion (Tr. 9/18/08, at 99) though at trial he testified he recognized there was a "cloud of condemnation" on the property when he did his first valuation. Pincombe was also critical of Amadon's use of the "royalty rate income valuation model which reflects the income in the format of the royalty payments that a property owner would receive if the property were leased" (which this property was not) because Pincombe believed Amadon should have used the full net operating income-discounted cash flow (NOIDCF). Id. at 101. Pincombe believed Amadon's market analysis was not sufficiently developed (though Amadon retained the same analysis in his second report — Id. at 113). Pincombe concluded Amadon's first valuation (of $4.1 million — the report relied upon by the DOT when it paid that price at taking — Id. at 143) did not reflect the fair market value of the property. Id. at 143. Kenneth Jones — the second of the DOT's appraisers to testify at trial — reviewed Amadon's first valuation and rendered a report — about which Amadon had been questioned during his (Amadon's) deposition — in which he iterated many of Pincombe's criticisms (to include that the $4.1 million valuation was neither credible nor reliable and should be disregarded), that Amadon was less than competent and should not have undertaken the valuation, and that, in rendering such valuation, Amadon had violated the Uniform Standards of Professional Appraisal Practice (USPAP).
Amadon testified that, though he knew Rock was the owner/operator of the property and that there was no lease on the property, he considered the royalty agreement with Kovacs to be "the same as a lease." Tr., 9/18/08, at 102. He later testified it was "not exactly" the same. Id. at 114. Pincombe did not believe the Kovacs deed calling for royalty payments was properly considered as a "lease." Tr., 9/18/08, at 114.
Amadon's second valuation ("re-do") retained the same approach and methodology utilized in the first valuation (The second valuation was for $4.2 million.) though, as just discussed, there were a number of changes. Disturbingly, Brian Hanlon, Division Chief of Appraisals for the state, wrote Amadon a letter on February 26, 2004 — nine months prior to the taking — requesting Amadon review Pincombe's report of his (Amadon's) valuation and "consider revising" his report to meet the requirements of USPAP "and the other items addressed in Mr. Pincombe's review." Exh. C38. In a letter dated February 19, 2004 (Exh. C41), Amadon stated he had "considered a full income capitalization approach, but at your direction declined to do a going concern of the business." (Emphasis added.) It is not at all clear that in fact that is what Hanlon wanted. Amadon informed Hanlon he was going to use the "royalty approach" and then inquired of Hanlon whether Hanlon had any appraisals using royalty agreements or "anything else in state files" he might share with him. Tr., 9/18/08, at 156-57. Asked whether Amadon thought it appropriate that a client tell him what approach to use in a valuation, Amadon's first response was "appropriate . . . very appropriate" ( Id. at 157), but then said, "I would consider it (the approach) only if he asked me — not if he told me," and then concluded it "would not be appropriate for Hanlon to tell [me] what approach to use." Id. at 159-60. Amadon agreed that, in using the royalty approach as he did, he was intentionally not valuing the operator's interest. Id. at 161. As earlier stated, the plaintiff is the owner-operator of the property.
In his second report, Amadon valued the property at $2,650,000 using the sales comparison approach and $5,830,000 using the income approach based on the royalty method. He gave more weight to the latter because he considered it "more reasonable." Tr., 9/18/08, at 79. His explanation was that, "[s]ome of the sales that I had adjusted had adjustments as high as seventy percent, which is ludicrous, but I just included it (the sale) because of its proximity." The court's sense was that the gentleman's choice of sales for purpose of comparison approached serendipity. Ultimately, he reconciled the two valuations and fixed on a value of $4,200,000.
This court finds no reason to consider more specifically the problems inherent in the comparable sales Amadon used, his reason for doubling the price per ton of product sales at this quarry between the time of his first and second reviews, etc. Putting aside that Pincombe's firm (SCA) was contracted by the state to review appraisals by so-called "independent" appraisers such as Amadon and Jones, Amadon lacked any semblance of credibility or expertise with regard to this property. He was clearly uncomfortable testifying, often contradicted himself, and his opinions were unreliable. He lacked the experience to properly value a quarry and too often looked for an easy exit. The court gives no weight to his testimony or valuation.
Kenneth Jones, the second of two appraisers to testify on behalf of the DOT, was on the stand for numerous trial days. He stated that he had been in the real estate appraisal business since 1971, obtained a real estate broker's license in New Jersey in 1977 and a real estate agent's license in that state in 1982, and a national real estate appraiser's license in New Jersey in 1992. Tr., 9/18/08, at 183-84. He works for himself, doing business as Global Evaluations; it is Mr. Jones who, at the DOT's request, "reviewed" — and severely criticized — the work of the state's other expert (as above discussed) as well as that of the plaintiff's two trial experts. He testified to being a member of the American Society of Appraisers (ASA) and to holding a designation by that group as an "accredited senior appraiser in technical specialties and the technical and machinery evaluation of mines and quarries." Id. at 187. Though this designation required a college degree (which Jones has not), he was determined (by the ASA) to have "the equivalent of a college degree" in terms of his experience and "other professional education," having submitted to a personal interview and a "personal investigation" by that organization. Id. at 187. He stated he had been appraising mines and quarries since 1979 (before he began taking quarry appraisal courses in 1982 or becoming certified by the ASA in mine appraisals in 1991). Id. at 187-88, 193-94. An entrepreneurially motivated individual, Mr. Jones has authored a number of real estate appraisal articles in a self-published journal and on the internet and has taught real estate appraisal courses. He holds a temporary real estate appraiser license in Connecticut. Tr., 9/19/08, at 4.
In fact, he testified there were — at the time of trial — only five people who held this particular designation, which he attributed to the fact that obtaining such designation required climbing a lot of hurdles and getting all the necessary education and experience. Id. at 188.
Regarding this case, he was retained by the DOT to: 1) appraise the fee simple property rights of the subject property; 2) perform a technical analysis of the valuations of Amadon (Though authorized to review only Amadon's first appraisal in 2003, he reviewed both Amadon appraisals, the valuation of Edward Heberger as of the taking date [not his earlier `88 appraisal], and the valuation of Trevor Ellis); and 3) to provide DOT counsel "litigation support" — which he described as primarily consisting of reviewing deposition transcripts and noting for counsel certain testimony of town zoning officials, OG personnel (a competitor of the plaintiffs), and other experts. Id. at 17-20. It was in fact Mr. Pincombe who recommended Jones to defense counsel. Id. at 24. Before rendering his appraisal, he made only one (1) on-site visit and spent approximately two (2) hours there. Tr., 9/23/08, at 172. He testified that, given that this is an income producing property, the value of the land is tied directly to the amount of material that can be sold. Id. at 50. He considered the plaintiff's operation to have neither a transportation advantage nor disadvantage; though he agreed it was the only quarry in Fairfield County, he noted there were other mining operations in other parts of the state with access to main roads that led to major highways and therefore had a similar advantage. Id. at 51-52. Jones also considered the value of the "royalty agreement" between the plaintiff and Kovacs in valuing the property. "In mining, we call it a royalty because the term `royalty' is kind of a traditional name for land rent ( Id. at 53); though theoretically possible for the plaintiff to rent out a portion of its property and charge land rent, trial adduced no evidence that had ever been done. Nevertheless, Jones testified he looked at other "royalty contracts" from other sites with similar quality material (He was neither a geologist nor did he apparently rely on geological reports with regard to the quality of the rock on site.) and "maybe had similar markets available." Id. at 53. He noted the going rate for sand, for example, was $1.00-$1.25 (per ton/cubic yard) and he estimated what the market would be willing to pay for the land and the owner would be willing to accept. Id. at 53-54; see also p. 60. He valued the land using the income capitalization approach (considering "the income that is generated by the land through its royalty rent" — Id. at 64). He also, however, stated that where, as here, the property is not leased, the royalty approach "is nevertheless applicable because the property is viewed as vacant and thus could be leased." Id. at 99-100. The witness, relying solely on the 1988 report of CCA, concluded there were 10,200,000 tons of material in the ground. Id. at 86. He rejected Earth Tech's 2000 report (of 15.16 million tons) "because it included areas of the real estate parcel that were never permitted to be mined and were unlikely . . . to be permitted to be actively mined." Id. at 87. He used a royalty rate of fifty cents ($.50) per ton (comparing it to other properties that were generating material of "similar types, similar use, similar quality . . ." without further specification.) Id. at 106 Jones took issue with Heberger's using a production rate of six hundred sixty thousand (660,000) tons per year in his calculation because that number capped the tonnage to be "extracted" each year as opposed to the number of tons "sold." Id. at 112, 113-14. He noted he found no evidence of demand for six hundred sixty thousand (660,000) tons — again, without offering any evidence of what other quarry owners in this state were selling. Jones noted the highest amount sold at the subject quarry was in 2000 or 2001 and that was two hundred fifty thousand (250,000) tons and the lowest was in 2003 when one hundred eighty-four thousand (184,000) tons were sold. That ignores that the first notice of taking was in 1996, that sales increased forty-six percent (46%) between 1996 and 1997 and eight percent (8%) between 1998 and the first six (6) months of 1999. However, certified notice of the taking was on May 27, 1999 (Exh. C19) and it was thus no earlier than that date that the market could have had any notice of the taking. Not until October 20, 2003, did plaintiff receive the final taking letter and the formal taking map was filed at the Town Clerk's office. Though Jones gave no credence to the plaintiff's claim of a cloud of condemnation on the quarry's operation, this court cannot state the DOT's failure to do what was required of them once they expressed an intent to take (some or all of) the quarry was without any effect; Jones' characterization of diminished sales for some of the years following the DOT's notice of taking is to reward the defendant for its failure promptly and fairly to act to the potential detriment of the plaintiff.
He described "fee simple property rights" as all of the rights that can be legally owned subject to governmental police powers (i.e., zoning and environmental issues), eminent domain, taxation, and escheat); such "rights" embraced the right to sell, lease, rent, use, occupy, give away or bequeath, or to do nothing with the land. Id. at 32-33, 35.
This, however, ignored that the plaintiff sold primarily to Fairfield County and, thus, did not, for example, have to "rail in" its materials (as did Tilcon) but could load a truck for delivery within Fairfield County (or that the customer could truck the material to its own site) more cost effectively than if the plaintiff's primary market were at a greater distance. See Exh. A33A7.
Jones testified the land here had a lesser value than it would have if the operator leased the property. Id. at 72. He was not asked why that was so nor did he volunteer; if the buyer wished to lease the mining operation, it would not appear he would expect to pay less for this property or that the seller would expect to sell for less.
Jones testified to the value of the land being enhanced by its potential to be mined. Id. at 116, 126-27. His testimony was that, at the end of twenty-three years (his estimate of the quarry's useful life — Tr., 9/23/08, at 89), the highest and best use of the property was as a public water resource — primarily because a portion of the site was on an aquifer. Tr., 9/19/08, at 125. He ultimately concluded the subject property was an investment property and, as such, could only be valued by the investment analysis method (Exh. D21, at p. 67) — more frequently referred to as the income capitalization approach. He used a royalty rate of $.50 per ton net to the property owner ( Id. at 74), applied it to the estimated annual sales (as above quantified), and used a discount rate of twenty percent (20%) to determine the present worth of the future rental stream. Id. at 78. Finally, he valued the reversionary interest (value of parcel at the end of twenty-three years). Id. at 67-69. He concluded the present value of the cash flow from royalty/rent was $715,000 and the reversionary land value was $1,650,000 — thus, the property was valued at $2,365,000.
Jones' credibility was thoroughly undermined on cross-examination. Specifically:
1) Despite his testimony to the contrary, the witness was not listed as a member of the ASAs (American Society of Appraisers') sub-section for Mines and Quarries for the years 1997-2003 (He had testified at deposition to membership since 1990). In fact, for most or all of the same years, he was not even listed as belonging to the "Urban" appraisal section or as a general member of the association. It is clear he had failed to pay dues for a number of years and that he was reinstated in 2006 by paying those dues. Tr., 9/23/08, at 114-31. That he may now hold an ASA card stating, "Member since 1/6/99" does not address the falsity of his sworn deposition testimony or his admission at trial that, for the ten (10) years he did not pay that association's dues, he did "not have the authorization to use their ASA designation to state that I was an active ASA member, but I was still a member in the sense of their membership." (Emphasis added.) Id. at 131.
2) While not a member of the ASA, he was not associated with any other recognized appraisal society. Id. at 134-35.
3) No article he has published was ever peer reviewed. Id. at 126.
4) He allowed his N.J. license as a real estate appraiser to expire on 12/31/99 as a result of two (2) complaints against him — one (1) alleging he referred to the New Jersey Board of Real Estate Appraisers as "whores" ( Id. at 139) and the second resulting in the Board referring the matter for prosecution; Jones then decided not to renew his N.J. license (in 2000); that resulted in the matter being placed on "hold."
5) During the pendency of the N.J. investigation, he got a "reciprocal" license in N.Y. (N.Y. having no reason to know of the ongoing N.J. investigation) without the need to take a test. CT Page 13000 Id. at 145-47. He then used the N.Y. reciprocal license to obtain a New Hampshire license. On his April 18, 2002 application for the New Hampshire license, he was asked if any disciplinary action had ever been taken against him and he untruthfully replied, "No." That date was after the N.J. Board's investigation had resulted in an offer to settle for a suspension of six months and a $5,000 fine — which he declined (It was then the Board referred the matter to prosecution). He used the New Hampshire license obtained through reciprocity to apply for an Arizona license in April of 2002 (He conceded that part of his reason for applying in New Hampshire when he had no work commitments there was that he wanted to use the New Hampshire license to be admitted in Arizona on a reciprocal license). Id. at 149. Under penalty of perjury, he answered "no" to the question on the Arizona application that inquired whether he had ever withdrawn from or surrendered any license in any state at a time when a disciplinary proceeding against him was proceeding in that state. By way of explanation, he first said he had no idea when he let his New Jersey license "expire" that the N.J. Board had referred him for prosecution (not a question asked on the application). Id. at 153. He then rationalized his response by stating he did not "resign" or "withdraw" or "surrender" his N.J. license; it simply "expired" on its own and he did not renew it. Id. at 160. The Arizona application required him to state the details regarding any judgments entered against him; he listed only two (2) though he agreed to having more and testified he did so because told by phone by an unidentified person on the Arizona Board of Real Estate Appraisers that he "only needed to list those judgments involving an alleged impropriety in the practice of his profession." Id. at 156. He did list a judgment against him regarding a fee dispute. Id. at 162. He filed a second application in Arizona in May of 2005. On that application, he listed (in response to the same question concerning civil judgments) only his divorce judgment and omitted entirely the judgment over a fee dispute he had listed on the 2002 Arizona application. Id. Ultimately, despite his chequered history in New Jersey, he re-gained his appraisal license there — by reciprocity from the state of Arizona!
6) He testified that as an expert he could perform non-appraisal support services so long as he did "not appear to be in the cheering section" or appear a biased advocate for the party retaining his services. Id. at 172-73. The USPAP (Uniform Standards of Professional Appraisal Practice) ethics rule prohibits an appraiser from becoming an advocate for any party or issue; the comment to that rule states, "An appraiser may be an advocate only in support of his or her assignment results. Advocacy in any other form in appraisal practices is a violation of the ethics rule." Id. at 175-76. Mr. Jones' timesheet regarding work performed at the request of this defendant showed seven hundred forty-three and one-half (743 1/2 hours — at the rate of $200 per hour — beginning October 17, 2007, and ending July 31, 2008 (That included no trial testimony — which spanned five [5] days.) — for a total of $148,700 in total fees charged. That timesheet made clear he was directed by DOT counsel to provide "no draft" of his report. Pl. Exh. 87, at p. 2. He spent time not only preparing appraisal reviews of other experts who testified at trial (Amadon, Heberger, and Ellis) but also of other appraisers who did not so testify (See "Nocera" — Id). He provided names for a witness list for Practice Book § 13-4 ("expert") disclosures, devoted approximately thirty-three and three quarters (33 1/4) hours to preparing (writing), editing, and reviewing deposition questions addressed to members of the Brookfield Planning Commission (Tr., 9/24/08, at 178-80, "investigated" OG personnel and prepared "expert" documents re those persons (Pl. Exh. 87, at 2), attended the depositions of Brookfield zoning board members ( Id. at 5), developed responses to plaintiff's Requests for Admissions ( Id. at pp. 5-6), advised DOT counsel re the plaintiff's request for a thirty (30) day extension of time within which to respond to Requests for Admissions ( Id. at 6), etc. Providing DOT counsel with the names of potential trial witnesses, writing deposition questions, preparing and editing discovery responses, and investigating employees of a competitor are to solidly identify oneself as a member of the defendant's "cheering section." It is to venture far beyond the USPAP's prohibition of advocating for any party or issue other than one's own appraisal practices. Some of the functions for which Jones was paid (at "expert" rates) is work customarily done by a lawyer or paralegal; so inappropriate was his willing assumption of those tasks as to discredit his testimony and to seriously question the judgment and fair play of the party that retained him.
7) Jones' valuing of another property is instructive on the issue of his lack of objectivity. His March 13, 1987, report regarding a quarry in Bernardsville, N.J. (Exh. C-100), at the request of the quarry owner, reflected striking similarities between that property and the subject property. Bernardsville consisted of 111.01 acres; the subject property consists of 108 acres. The valuation of both properties included consideration of utility easements. Tr., 9/25/08, at 45. In both instances, he valued the real estate using the income capitalization approach and the royalty method. While Jones' report stated the Bernardsville property was to be taken subject to an eminent domain proceeding (as here), he conceded it was an inverse condemnation proceeding there. While he testified there were many more improvements on the Bernardsville site, he agreed that the machinery and equipment there was "personal property" and had "nothing to do with the value of the real estate . . ." Id. at 23-24. In Bernardsville, he appraised the market value of the fee simple (as here) and the related quarry business; he valued the land at thirteen million dollars ($13,000,000) while he valued the business at thirty-four million five hundred thousand dollars ($34,500,000).
There the property owner was making a claim against the town for damages allegedly sustained as a result of the town's having created a zoning regulation that prevented mining at a depth lower than the mine's current level. Tr., 9/25/08, at 5.
The differences between the properties and his approach to each are, nevertheless, stark. In his report (rendered seventeen years earlier than the report which was the subject of his retention here), he remarked that the royalty rates for quarry land were "remarkably stable" over the years. Yet, the royalty rate for Bernardsville was $1.00/ton; for the subject property, he used a royalty rate of $.50¢/per ton. The discount rate he used for the real estate in the Bernardsville valuation was 10%; he reasoned that, in 1987, there were few if any risks to an owner's ability to produce and sell, that environmentalists were "virtually an unknown species" at the time ( Id. at 40), and that, since there was no history of restricting mining properties, quarries were considered safe investments. "So . . . there was no reason for any . . . other concerns. This was not in the way of . . . a potential highway extension. So that the ten percent rate at the time was probably at the upper limits of what people would have used." Id. Jones used a 20% discount rate in valuing the subject property; that rate indicated significantly higher risk to a buyer. Asked to elaborate on the risk, he noted plaintiff's property had a prior history of litigation though he agreed both quarries had that in common and that the regulatory issues on the Brookfield site had all earlier been resolved. He felt the economics of the business had changed over the years (He did not elaborate.) and, without citation to any study, stated that discount rates at the time of the instant appraisal were averaging over eighteen percent (18%).
Perhaps most disturbing to the court was his testimony that the owner of each of the properties was operating in full compliance with all applicable federal, state, and local laws and regulations. See Pl. Exh. C-100, at p. 57; Def. Exh. 21, at p. 7. Yet, there was on the Bernardsville property an illegal dump containing asbestos; thus, there were remediation costs to be incurred there (and, since an inverse condemnation proceeding, most likely by the town) — a fact never stated by Jones until required at trial to concede his omission.
No credence is given his valuation. His testimony made patently clear his willingness to formulate opinions based upon the identity of the master he served — here, the DOT. His actions bellowed his partisanship and his conduct in performing legal (or quasi-legal) tasks for defense counsel far exceeded the ethical constraints imposed on "expert" appraisers by USPAP. He manipulated licensing boards in various states, lied or misrepresented information on applications submitted to them, parlayed one reciprocal license into multiple others (It is clear he never sat for any licensing examination), and was sufficiently deft in his use of the language and his ability to manipulate facts and numbers to (presumably) deceive this defendant who had retained him. It belies any semblance of reality to accept that — seventeen years earlier — a quarry with as gaping a wound as an illegal dump with multiple varieties of environmental contaminants would be valued at $47,500,000 (most of which was attributable to the "business," a value he added directly to the value of the land to arrive at the total value) as compared to the valuation of the subject property at $2,365,000. Yet, in Bernardsville, he had been retained by the seller; in Brookfield, he appraised at the buyer's request. Eventually, however, the music stops and the dance must end.
Trevor Ellis was one of two experts called by the plaintiff. He has an undergraduate degree in geology from the University of Melbourne in Australia and holds a Master's Degree in Business Administration and Mineral Economics from the Colorado School of Mines. Ellis is certified as a General Appraiser in this state and in Colorado, is a certified professional geologist with the American Institute of Professional Geologists, a Chartered Professional Geologist in Australia, and a Certified Minerals Appraiser with the American Institute of Minerals Appraisers, a U.S. based international institution for which he wrote the governing code of ethics and served as a past president. Tr., 9/11/08, at 187-88. He also headed a task force whose goal it is to develop international valuation standards for the minerals and petroleum industry. Id. at 189. He is the author and presenter of numerous papers on the valuation of mineral properties.
He prepared two reports regarding the subject property; one was a market valuation of the right and requirement to backfill and reclaim the property (Exh. C52) and the other was a market evaluation of the quarry property itself (Exh. C53).
Ellis inspected quarry rock and examined earlier test results of the same. He physically struck rock to visualize its layers and then examined it under a magnifying glass to determine the degree of alteration over geological time; his conclusion was that the rock in this quarry constituted some of the oldest rock in the state. Tr., 9/11/08, at 200. He explained that the AASHTO 96 test — referred to at trial as the "Los Angeles (or "L.A.") Abrasion Test — was a test commonly performed to determine the ability of the rock to withstand rubbing by "tumbling" the rock in a "rattler" (which he likened to a clothes dryer) for a specified period of time to determine how much of the rock "broke off." Connecticut specifications for road surface material required no more than a forty percent (40%) failure rate. Id. at 204. The witness estimated the granitic gneiss on site (composed of granite, quartz, mica, and other hard fills) made up approximately two-thirds (2/3) of the fifteen million plus tons in the quarry and passed all four standards imposed by the state. Ellis could offer no opinion whether, on a stand-alone basis, it passed the L.A. Abrasion Test but noted that, as per Amorossi's prior testimony that he (Amorossi) mixed the granitic gneiss with dolomitic marble from the quarry and, using on-site testing equipment, combined the rock so as to meet whatever specifications the state imposed for a given application. On the date of condemnation, there were approximately sixteen (16) stockpiles of that mixed rock on the property — all of which the state of Connecticut purchased (after their own testing) for $3,100,000 — or $20/per ton.
For this and other reasons, the court is perplexed by the defendant's attempts at trial to minimize or challenge the quality and marketability of the quarry rock.
Regarding the right (of the owner) and the requirement (of the local zoning board) to backfill the property and reclaim the site as per the approved reclamation plan (to include the right to sell the reclaimed realty), the witness testified he used the "income approach, the full cash flow method" Id. at 194. He also said he relied more heavily on the sales comparison approach. Id. That is, however, at variance with his report in which he stated that, though he "considered the Income Approach, the Sales Comparison Approach, and the Cost Approach," the "Income Approach is the only appraisal approach applied." Exh. C52, at 7. Having so stated, he "attempted to find acquisitions of quarry pits of similar order of magnitude" for use as disposal sites but could find none. Id. He did find transactions involving "much smaller pits" and "stockmarket listed waste management companies, (sic) of large landfills permitted for disposal of trash from residential and commercial sources." Id. While he did not clearly state that he used such information in his valuation of the right and requirement to backfill and reclaim the property, the reference to hearsay sources not apparently relevant to the use he suggests this site be dedicated remained unexplained.
Ellis concluded one of the two concurrent highest and best uses of the property was as an "advertised disposal site for clean fill, including for clean construction and demolition debris." Exh. C-52, at 2. Used in that way, he determined the property's value to be — as of the day prior to taking — twenty-five million dollars ($25,000,000). Id. He relied heavily on two reports developed by Brian Heidel. To test results and opinions Heidel developed in 2005 and 2006, Ellis made some adjustments ( Id. at 6) and did "a modest amount of verification of Heidel's test results using the Internet (a hearsay source) and interviews with Heidel." Id. He combined Heidel's conclusions with volumetric and tonnage calculations for fill requirements during the reclamation project, basing those calculations on Earth Tech mining plans dated March 2004, Earth Tech letter reports of May and July of 2005, and a "verbal" report (whether from Earth Tech or Heidel is unstated; see Exh. C-52, at 6). Ellis' valuation was reached without benefit of a final report from Earth Tech (His report of March 13, 2007, notes Earth Tech's final written report was "expected to be delivered shortly." [ Id.]). The court is provided no information that in fact occurred. Ellis' report spoke of the appropriateness of interviewing active participants in the recycling and disposal of the construction waste industry as perhaps leading to one or more transactions for a "sales comparison check on the result from the income approach" ( Id. at 7) — thus perhaps suggesting a further need to update his valuation.
They are letter reports dated April 25, 2005, and March 1, 2006 (included as Appendices 2 and 3 within Exh. C-52). Heidel's qualifications to express all of the opinions stated in those reports were never established. He never testified and thus wasn't cross-examined. Thus, Ellis' conversations with this gentleman did not constitute competent evidence. Heidel's resume (included in C-52 as Appendix 4) establishes the gentleman's background is in the shipping industry — not mining.
For all of these reasons — and more, this court cannot conclude — as did Ellis — that his appraisal of this particular property right conformed with other (or both) USPAP and Real Property Appraisal Standards. His willingness to speculate that a buyer "may decide to quickly increase the production rate to the permitted level of 660,000 tons/yr. "for the life of the operation" (22 years) and "increase average prices to $12.50/ton (2004 dollars)" ignores the very real potential for other scenarios. While he references the "lower" production rate of 660,000 tons/yr. (greater than has ever been achieved at the quarry), as the basis for his valuation ( Id. at 10), that number is the only production rate specified on each of the natural resources permits issued the plaintiff — and thus the ceiling for each year (as opposed to being the "lower" rate as Ellis described).
Elsewhere he references this production rate of 660,000 tons/yr. as an "increased" rate potentially chosen by a new buyer. Id. at 10.
The court has difficulty with Ellis' valuation of this property right using the Net Present Value (Discounted Cash Flow Method) and his selected discount rate (influenced, he stated, by the gold mining industry — which he considered a "relatively low risk sector of the mining industry"). Id. He considered the backfilling operation to be of the same low risk. His selection of a 6% per annum discount rate fails to recognize, however, the reality of the dispute with regard to whether the product meets the very fluid definition of "clean fill" provided by this state's DEP regulation found at C.G.S. § 22a-209-1.
The court questions Ellis' valuation of the market value of the right and requirement to backfill and reclaim this property. Aside from the problems earlier stated regarding his reliance on the reports of another non-appearing witness who himself offered "expert" opinions not previously disclosed, Ellis' valuation is filled with surmise unsupported by an evidentiary basis (i.e., "the likely buyer" . . . of the property for this purpose "would be a major operator in the aggregates business . . ." [C-52, at 9]; "the Net Present Value estimate provided" was developed to represent how the "likely buyer" . . . will manage the mining of the property and available markets . . .). Id. at 15. Additionally, the internal inconsistencies within his report and his willingness to move as quickly as he does from one valuation approach to another based upon information he acknowledges as "incomplete" is disconcerting in that he is a man trained in the sciences.
The second of two concurrent highest and best uses of the property was, in Ellis' view, to continue to mine the property as a hard rock quarry property. That valuation was found within Exh. C53. The valuation was of the surface and subsurface (the surface estate and the minerals) and the right to mine and process rock subject to setback restrictions and the CLP's easement rights. Prior to developing this appraisal (separate and distinct from the appraisal above discussed), he, as he did for the earlier appraisal, made two trips to the site (one in 2006 and the second five months later — in 2007), reviewed the drill core from two earlier drillings, spoke with plaintiff's management, reviewed geological and engineering reports of work done from 1992 to the present (and compiled in two reports not introduced at trial) as well as reports and maps by Earth Tech (many of which were produced at trial), interviewed some unidentified quarry purchasers in Connecticut, and reviewed U.S. Geological Survey publications on the supply and demand for crushed stone and sand in Connecticut (also not introduced at trial) Id. at 7. He considered all three appraisal approaches for this valuation (Income Approach, Sales Comparison Approach, and Cost Approach) but applied only methods from the Income and Sales Comparison Approaches (stating simply that the Cost Approach was not considered "appropriate for the type of data available" — without further explication.
The first report was one done by Leggette, Brashears Graham which described the results of 1998 drilling in the North mine and the second report was a 1997 report by Rust Environment and Infrastructure which described core drilling in the East mine.
Ellis expressed many opinions which were not only outside his area of expertise but also based on information not specifically identified or introduced at trial. He concluded the "direct average market share" (encompassing Fairfield, New Haven, and Litchfield Counties though quarry sales were in fact predominantly in Fairfield County) was 827,000 tons (which is to assume future permits allowed a production level significantly higher than the 660,000 ton limit previously imposed) but that "given the location . . . it could garner a much bigger share than that." Tr., 9/12/08, at 32. His yearly aggregate demand estimate ranged from 9,000,000 tons per year to 11,183,600 tons, which numbers were taken from "statewide demand . . . from the highway budget for the construction of highways . . . estimates of building going on in the state, and then average population consumption/demand." Id. at 33. Asked whether the use of estimates from such sources (never more specifically identified) was commonly accepted by mineral appraisers, Ellis responded, "Certainly in my concepts, yes." Id. at 33. Asked whether he had used such sources in past valuations, he stated, "I can't say I have used specifically this because this is a rather unique job of trying to get things down to such a level." Id. at 33-34. Because of the price advantage he believed the quarry enjoyed, he saw no reason the production level could not rise to 2,000,000 tons per year ( Id. at 34) and opined that the price of aggregates in Danbury was "like $25/ton." Id. at 36. There was no evidence that was so.
Eventually, however, he settled on the amount of tons sold yearly as being 644,000. His response to the question why he had backed off so considerably from the higher estimates he had offered was so as not to "scare everybody . . . [It] seemed like people were a little bit scared of what I was doing in my analysis at a million tons per year." Id. at 77 Ironically, Ellis repeatedly described his calculations as "conservative."
Using the Income Capitalization Approach, his valuation (for this continued use as a quarry) was $30,000,000 (as of 2004); using the Sales Comparison Approach, the valuation was $55,000,000. He reconciled the two approaches at $45,000,000 because "I relied a little heavier on the sales comparison number." Id. at 42. That $45,000,000, he testified, is the value contributed to the property by the mining operation — the extent to which it enhanced the property's market value. Id. at 93.
At other times, he testified to a "twenty-five million" valuation of the "backfilling and sale of the property." See e.g., Id. at 93-94.
Ellis' valuation using the Income Approach was replete with assumptions without an articulated or evidential foundation. He assumed the new owner would, in 2005, bring in additional equipment such that the mine would be operated with crushers, stacking equipment, and trucks, etc. (so as to reach his anticipated production level of 644,000 tons sold/year [ Id. at 76]), that the historic sale price of approximately $10/ton would increase $2.50-$3.00/per ton over "a period of time" ("to allow the new operator to introduce things to the market" [ Id. at 78]), and that the price per ton sold would level off at $12.50/per ton. Id. at 78-79. He deducted fifteen percent (15%) of sales revenue as a return to management ("in business, profit due to operator's initiatives and doing things." [ Id. at 79]). Little — sometimes, no — historical data or mathematical foundation supported these and other assumptions.
This problem was aggravated in Ellis' use of the sales comparison approach. He selected four sales transactions (one in New Milford, CT, one in Montrose, Colorado, one in East Granby, CT, and one in Naugatuck, CT). The challenge for him was "getting each of those transactions onto a footing that is compatible." Id. at 83. To do so, constant adjustments for the value of resources were required "to get them onto the uniform value with the reserves." Id. at 85. He then combined the values assigned to the reserves and the resources "in order to get it into the number that I can use." Id. at 86. The adjustments were made solely to view the four transactions as being "on equal footing" and, from there, to assign a value to the subject property. Thus, there was, for example, a downward adjustment for inflation for the New Milford property and a significant upward adjustment to a Naugatuck property to account for the much higher rate of return per ton of sales on the plaintiff's property. An adjustment was made for the subject property's "comfort factor of stability of tenure for the non-conforming pre-existing use permit." Id. at 89. There was another adjustment for the competitive advantage for the quarry's proximity to market and the barrier to entry (without the benefit of solid analysis of how other transactions compared vis-a-vis those two considerations). "And then there's an adjustment for the access to the highway." Id. at 90. How that advantage differs from the adjustment made for "distance to market" (or whether in fact it is largely duplicative) is unclear to the undersigned. Ultimately, he did a "reconciliation" based on his personal confidence and on differences not reflected on Table 5 of Exh. C53 — i.e., that East Granby sold during an "extremely depressed period of the Connecticut economy." Tr., 9/12/08, at 91. "And so I . . . sort of factored that up mentally in my adjustments to bring it up. And also say, well, maybe New Milford's a little bit high. And due to the strength of the market at the time, and/or something else. And so I end up with fifty-five million as the amount that I determined by the sales comparison approach . . ." He testified to having been "too conservative" in working the numbers using the Income Approach and in "getting things right about what the market is telling me in doing the sales comparison approach." Id. at 92.
Cross-examination established that Ellis has held a permanent real estate appraisal license in only the state of Colorado for approximately seven (7) years and, in that time, has performed approximately twenty (20) appraisals, some of which were mining properties. He obtained a temporary license in this state in August of 2008 for the purpose of this valuation. He conceded that he has many times treated the requirement of reclamation (as applicable to this property) as a liability as opposed to an income stream and that, in such circumstances, the effect would be to depress what a willing buyer would pay. Id. at 97.
Regarding the four (4) properties Ellis used (for both the Income Approach and Sales Comparison Approach used to derive net present value [ Id. at 127]), he was retained by the buyer in the transaction in Montrose, Colorado. Unlike the instant case, that action involved the acquisition of a mining company whose product was limited to crushed stone and sand. It sold in the second quarter of 2005 for $8,900,000, of which $7,150,000 was for the sand only. There were 8,000,000 tons in reserves and 5,700,000 tons of resources in the ground but they were not permitted to be mined because that portion of the property was dedicated to the building of a subdivision. The property was located in "a mountainous valley in a mountainous region of Colorado" (suggestive perhaps of a transportation disadvantage though Ellis described its location as "prime"). At the time of sale, the production level was 50,000,000 tons/yr. The property was not permitted for backfilling and could not receive such a permit. C53, Table 3. It appears the property consisted of one hundred sixty (160) acres. Id. Competition in the area was "intense." C53, Table 4. Significantly, for the purpose of comparing the four transactions chosen to Brookfield's valuation based solely on resource tonnage, Ellis adjusted the price of the Montrose land from $7,100,000 to $45,000,000 — an upward adjustment of approximately 629%. Tr., 9/12/08, at 163. Exh. C53 — Table 6.
The second transaction Ellis chose was that of ASI in New Milford, Connecticut. OG purchased this three hundred (300) acre property in the second quarter of 2006 for $37,000,000 ($32,000,000 of that amount was attributed to the real property). See Exh. C53, Table 4. Ellis, however, testified that he saw data indicating the sale price was actually $38,500,000 but that he "pitched it to a tad lower" and backed out $5,000,000 for goodwill, the plant, and equipment to arrive at a real property valuation of $32,000,000. Tr., 9/12/08, at 131-34. No direct evidence supports that conclusion. For the purpose of valuing the subject real property based solely on resource tonnage, Ellis adjusted this property downward by approximately 72%. Id.
The third transaction he chose for comparison purpose was a Tilcon property in East Granby, CT. That company, whose sole product was crushed stone (also sold to the DOT as was the plaintiff's product), was acquired in the second quarter of 2005 for $13,465,000 — of which $9,965,000 was attributed to the realty and minerals (Exh. C53, Table 7 indicates the purchase price of the real property alone was $10,665,000). The acreage of this site was never identified but Exh. C53, Table 4 indicates the reserves consisted of 25,000,000 tons and the resources (excluding the reserves) consisted of 5,700,000 tons. He noted the economy in Hartford County was "depressed" at the time of sale and that the quarry was the dominant supplier of hard crushed stone in that region. Nevertheless, Ellis adjusted the valuation of the realty to $23,200,000 — more than double the actual sale price. For the purpose of comparing this realty to the plaintiff property based upon resource tonnage alone, Ellis inflated the value of the Tilcon property approximately 190%. Id.
The final transaction involved the acquisition of property in Naugatuck, Ct. on June 3, 2003, for $1,225,000 (to include reserves of 12,000,000 tons of crushed stone with some sand and silt). This too was a "distressed" sale of a "failed operation" (It had been acquired by the seller in March of 2000 for $1,800,000). Ellis "adjusted" the sales price of this property to $46,500,000 — an increase in excess of 4,100%. Asked how, given that adjustment, he considered the transaction to be instructive regarding the value of the plaintiff's property, he replied (with reference to C53, Table 7), "[T]his is a preliminary set of calculations I did to verify my methodology for this particular case. But despite that, given the — everything that's involved in — in — working on — deriving information from — from various types of properties in different locations, that, to me this is a perfectly fine adjustment." Tr., 9/12/08, at 158.
Ellis testified the useful life of a mine was a function of the amount of reserves in that mine Id. at 161. Yet, there was not consistent application of that principle. For example, as demonstrated in Table 4 of Exh. C53, ASI in New Milford had the highest reserves (30-50 million tons, clearly a wide-ranging estimate) among the four transactions and the subject property; its useful life, according to Ellis, was one hundred (100) years from the seller's vantage point and seventy (70) years from the buyer's perspective. The Tilcon property in East Granby had reserves of 25 million tons and a useful life of twenty-eight (28) years; the Naugatuck property had 12 million tons of reserves and a useful life of thirty-fifty (30-50) years from the buyer's perspective; the Montrose property had an estimated 8 million tons of reserves and a useful life of eighty (80) years if a seller and thirty (30) years if a buyer (There was never a satisfactory explanation of this wide disparity). The subject property with an estimated 15.16 million tons of "reserves" and "resources," had, he believed, a useful mining life through 2026 (22 yrs.) and a useful life based on reclamation efforts through 2032 (28 years). Yet, he determined the value of the subject property was forty-five (45) million and the value of the backfilling and reclamation operation was twenty-five (25) million. The total value was therefore seventy (70) million dollars.
"Proven reserves," Ellis stated, "have a high level of geological knowledge related to the probability of continuity between points of sampling." Tr., 9/16/08, at 67. Elsewhere, he indicated he assumed 14.7 tons as the total amount of resources to account for what had been mined from 1999-2004. Tr., 9/16/08, at 73-4.
In a preliminary report sent to plaintiff's counsel, the value he placed on the right and requirement to backfill and reclaim the quarry was twenty (20) million; within two (2) months of that report, his valuation was increased by $5,000,000. He also stated that it was permissible to send the draft (D7) of his appraisal to defense counsel under prevailing Australian standards for the valuation of mining properties. Id. at 28. Yet, he conceded that providing a draft of the report to counsel prior to finalizing that report could, however, suggest an "impropriety." Id. at 38.
His qualifications aside, the court finds unreliable his valuation in view of the numerous inconsistencies and the less than persuasive explanations. That some adjustments will be required given the diverse conditions and characteristics of properties he chose to compare with the instant property is universally accepted. When, however, as was true in the selection, for example, of the Naugatuck property as a "comparable" transaction given the "extreme differences in the distance to market (Naugatuck is minutes from Rte. 8 and I-84 — both major state highways), the competition, the barriers to entry" ( Id. at 8), it is obvious a more appropriate transaction ought have been chosen (The adjustment exceeded four hundred thousand percent!). When this witness, as part of an April 2005, presentation he made in Denver (The subject was "Applying Standards to Determine Market Value Versus an Investment Value" — Id. at 81), proffered such advice to appraisers as "Minerals appraisers who provide high value estimates generally get the most work." and "The common practice of lenders of allowing their clients to choose and pay the minerals appraiser encourages very high appraised values." and "The minerals appraiser who provides a well-developed estimate of market value after another consultant has provided an astronomical value to the same client will generally not get his last invoice paid." ( Id. at 80-81), his personal ethics is seriously compromised. To be so blatant and so foolhardy as to reduce such "observations" to a written report that can, as here, be discovered is not merely unprincipled but is reckless. Ellis' valuation beggars credulity.
Edward Heberger has been active in the real estate appraisal business since his graduation from the University of Connecticut in 1958. He formed Edward F. Heberger and Associates, Inc. after working for a number of years for other appraisal companies in this state and in Ohio and, after approximately thirty (30) years running his own business, merged with CB Richard Ellis until he retired in June of 2008. Over a period of fifty years, he has testified approximately two hundred fifty (250) times in court, has specialized in appraising complex properties, has worked for the state of Connecticut (to include having done an air rights analysis for the DOT headquarters in Wethersfield), and has been retained for such diverse purposes as appraising railroad yards and railroad rights-of-way as well as performing bank update appraisals. He has been retained by numerous governmental agencies to include the Department of Justice and the Federal Highway Administration. Heberger has appraised approximately two hundred (200) mining properties. He is a forty-year member of the Appraisal Institute (MAI), is one of twenty-five members of Real Estate Counselors of America, a member of Valuation Network, and one of only two persons selected to the Board of the latter two organizations. Tr. 9/10/08, at 57.
Heberger relied upon technical reports prepared by Earth Tech regarding the removal of stone and the input of clean fill (Tr., 9/10/08, at 26) and he reviewed product and sales information (Exh. 32A). He acknowledged the advantage to the plaintiff of both a central location and a transportation advantage, noting it was the only mining operation in Fairfield County and the only major one (with the possible exception of ASI in New Milford whose product was different) in Litchfield County. He estimated the product price advantage to be $2.75 to $7.00/ton depending upon the client's location ("[I]t's all about miles and the closer you are to your market the more competitive you are price wise." Tr., 9/10/08, at 30).
Heberger first appraised this property in 1988 (prior to the plaintiff's ownership). That appraisal (Exh. C17) was of fifty (50) acres only for which he set two values: a) $12,000,000 for the land and minerals underground ( Id. at 35); and b) a value for the sand and gravel then on that same parcel (not in issue here because personalty). He also set a value of $2,150,000 for the entirety of the property assuming there was in fact no minerals below the land.
Countywide had estimated ten million tons of minerals there — an estimate Heberger believed was later confirmed (Tr., 9/10/08, at 43) and which the state did not refute at trial.
In 1988, there were "a number of issues" to include water and pollution issues. Id. at 34.
Heberger also rendered a 2006 report (B3A) which was based on Earth Tech's analysis of 15.16 million tons of minerals and 124,000 tons of sand and gravel in the west, north, and east mines. He concluded the highest and best use of the property was the continued use as a mining operation until the mineable content were exhausted and then to fill back up to elevation 240 as the local zoning commission required (People would come in and drop clean fill in the holes for which Rock would be paid $1.47/ton) Tr., 9/10/08, at 47; Id. at 51. Heberger testified that, as of 2007, 660,000 tons (the legally permitted amount) of aggregate would be yearly sold and removed from the site. Tr., 9/10/08, at 81.
Referencing the three (3) approaches to determining market value (cost, income capitalization, and sales comparison), he eschewed the cost approach (which is to "value the land separately and any improvements upon the land, replacement costs less depreciation." Id. at 54) because there were on the property only two trailers (which constituted personalty) and no structural improvements that contributed anything of value. He chose instead the income and sales comparison approaches. He first used the income capitalization approach — that is, he did a discounted cash flow analysis using the operating history of this property and appraisals and income and expense statements he had from other mining operations to determine if there were any "outriders" ( Id. at 62, 67) and to confirm that the information imputed was consistent within the marketplace. He then projected the discounted cash flow via a computer printout program using mineable reserves of 15.22 million tons (deducting from Earth Tech's earlier estimate the 280,000 tons mined since Earth Tech's report) and concluded that, in the year 2007, the plaintiff would then be removing six hundred sixty thousand tons of aggregate (starting in time before the "cloud of condemnation" occurred and appreciating the tonnage extracted at six percent per year to arrive at a removal rate — Id. at 50). He concluded it would take twenty-four (24) years to remove all of the mineable materials (a "plus" for the buyer — Id. at 69). He studied the quarry's sales figures and applied an average yearly growth rate of 4.25% given the market demand in Fairfield County. Data from the state of Connecticut (reproduced in Exh. C51, at p. 36) showed a growth rate of 9% in the number of tons of crushed stone sold from 1996-2002 and a 12.6% average increase over the same period in dollar revenues. He increased the price Rock would charge per ton ($9.00) by 3.5% (despite Rock's own sales figures showing an average of 3.66% increase in price per ton for the years 1996-2003) so as to be "conservative." See Exh. C51, at 34; Tr., 9/10/08, at 80-81. Having thus estimated production, sales, and price per ton over a twenty-four year life span, he deducted (from gross sales) expenses (cost of extraction, bad debt of 2.5%, insurance, taxes, sales and general administrative costs), using "63 or 64 percent" to "account for the profit and remove it from the cash flow . . . because I wasn't appraising a business." Id. at 85. These calculations permitted an estimate of the net operating income (for each of the twenty-four year quarry life span) which he then discounted to determine a net present value. Heberger used a twelve percent (12%) discount rate based on information gleaned from publications listing in-state sales of investment properties (His company, CB Richard Ellis, was the largest seller of investment property in the state). The discount rate reflected the measure of risk (by the buyer); the greater the risk, the higher the discount rate ought be. The further out in time one goes (along the twenty-four year continuum), the lower the discount rate because the discount rate is a function of risk (A discounted cash flow reflects that a buyer will pay less to receive money twenty-years from now than one would pay to receive the same amount of money two years from now). Tr., 9/11/08, at 13. Using the income approach, his valuation of the quarry was $29,065,410 — $22,861,000 attributable to the quarry (without the fill) and $6,204,410 for the filling operation (to bring the property up to elevation 240 as the town required); he rounded that number to 29,100,000. Exhs. C51, at 42-44; Tr., 9/11/08, at 14-15. In order to comply with the town's requirement and the closure map, the plaintiff needed to bring in 12.7 million tons of inorganic fill — for which there was a market. To arrive at his valuation of the clean fill operation, he began with a tipping fee of $1.50/ton (Rock had been charging $1.47/ton and other quarries were charging a tipping fee of $8.00/ton — or even $12.00/ton as in Stamford. Id. at 25) and he then increased that by 3.5%/yr. — an appropriately conservative number in this witness' view. Finally, he increased operating costs at the rate of two cents/ton for expenses related to this required operation and added a 4% per annum increase for such operating costs. The earlier used discount factor of 12% was again employed.
While Heberger himself sometimes fell into referring to a "royalty approach" (see e.g., Id. at 64), he more consistently stated there was no royalty "approach" — that it was a technique or method and that there was not here a true royalty payment to Kovacs but a spreading out of the purchase price as part of the purchase and sale agreement. He has never used the royalty method for an owner-operated property such as this — especially where, as also true here, there was no "lease" to Kovacs or anyone else.
Heberger testified that he received the Danbury newspaper daily and so was able to track the articles on the Rte. 7 bypass and recognize their impact on the quarry's operation. Id. at 72.
Using Rock's own production reports, Heberger concluded production in 1996 was up 45.56% over 1995 and that 1997 production increased by 12.19 percent Id. at 71.
Of interest is that, while Heberger projected 443,000 tons of aggregate mined in 1999 (an increase of 6% over 1993 when 312,970 tons were mined), Amadon — one of the state's two appraisers — started his analysis at 660,000 tons. Id. at 76.
Heberger acknowledged using a 20% and 25% discount rate in his 1988 appraisal; that, he explained, was because the 1986 tax act resulted in declining real estate prices. The stock market crashed in October of 1987 and banks gave fewer loans. At the same time, there were then many uncertainties regarding this property (There were DEP and other issues) and Kovacs was having serious financial concerns. Thus, the higher discount rates reflected the inherent risks in operating this quarry then. By 2004, the environmental and zoning issues had been resolved and a better product was being produced — ergo, a lower discount rate, Exh. C51, at 40.
Heberger also used the sales comparison approach to valuing the property primarily as a check on his valuation using the income capitalization approach. Acknowledging the difficulty of finding truly "comparable" quarry properties and that the ones that sell are those that "get themselves into financial difficulties" ( Id. at 55), he uncovered eleven (11) arm's length market transactions in Connecticut over a five-six (5-6) year period and chose five (5) upon which to focus. Given the diversity among the selected properties, Heberger concluded the best common denominator among them was the sale price per ton; the value variation ranged from $.87/ton to $1.72/ton (thus averaging $1.24/ton) and, since utilizing the income capitalization approach resulted in a price per ton of $1.49 ( Id. at 31) for the subject property (He testified the difference was partly explained by the fact none of the five sale properties chosen had a backfilling operation), he concluded his use of this approach lent support for his valuation based upon the income approach. Exh. C51, at 50; Tr., 9/11/08, at 32.
He testified those properties were "played out and somebody might be buying them strictly for the permit, and you have to try to adjust for those differences." That is the same scenario that resulted in the unrealistic adjustments made regarding the sales selected by other experts as above described.
Cross-examination focused upon what this expert valued in 1988 and in 2006 (The 2006 valuation was as of the taking date); the responses mirrored direct examination. Specifically, Heberger testified that a site's "mining operation" included all of the real estate and all of the minerals on site not already extracted and processed. Tr., 9/11/08, at 50-51. He repeatedly affirmed his appraisal was only of what constituted the real estate and he passed on numerous opportunities to concede that he included in his valuation an appraisal of the business itself, pointing out repeatedly that he was vigilant to remove all "profit" from the conduct of the quarry and to raise the actual expenses of forty-six percent (46%) to sixty-two percent (62%) — thus treating "profit" as an expense ( Id. at 60). He testified that, once the profit aspect is removed from consideration, valuing a quarry was akin to valuing a hotel or nursing home or bowling alley in that all were "businesses operating through real estate." Id. at 62. He noted he was also asked (by Countywide) to value the property to include the business in 1988; his valuation then was twelve to fourteen million ($12,000,000 — $14,000,000) — the land alone appraised at $2,150,000, the land and minerals in the ground at $10,000,000, and the remainder the valuation of the quarry operation then (At that time, the value was depressed because of the financial problems Kovacs was experiencing and because there existed the earlier referenced environmental and regulatory issues). Id. at 132-35. It was the extent of the minerals in the ground that was the basis of his projection of the tonnage to be produced and sold that enhanced the value of the site for a likely buyer. He explained it this way:
Within this analysis, we have attempted to project where tonnage sales may have been if the property was not under the threat of condemnation. In order to project this, we have taken the unaffected 1998 level of three hundred and twelve thousand, nine hundred and seventy tons from the chart above, and have increased this amount annually by six percent, a conservative increase compared to both state averages and the historical performance of the subject property.
We have based the six percent increase on historic levels of increase outlined above: twelve point two percent, 1998; eight point three percent in the first half of 1999, which was just prior to receiving the first condemnation notice, as well as consideration of historic increases on a statewide basis, as outlined below. Therefore increasing three hundred and twelve thousand, nine hundred and seventy tons by six percent per annum for six years will bring us to a projected tonnage of four hundred and forty-three thousand, nine hundred and fifty-three tons at the beginning of 2004 had the property not been under threat of condemnation. Id. at 112-13; see also Exh. C51, p. 35.
The witness noted he did not, as had others, valued the land reversion at the termination of the mining operation (twenty-four years in the future) because "too speculative." Tr., 9/11/08, at 136-37.
He testified during cross-examination that, in 2007, there was the sale of a New Milford property (consisting of a "couple of hundred acres") for "approximately $38,500,000" when the buyer could only mine "12 or 14 acres at a time." Id. at 156-57. With regard to the reclamation process, Heberger iterated that the plaintiff was required to fill up the holes that remained on the property after taking to a mandated level, that it was an activity about which the quarry owners had no choice, and that 12.7 million tons of inorganic fill would be required to reach that level. Id. at 160; Exh. C51, p. 38. He projected the net present value from that operation (future income from tipping fees charged over eight (8) years based on the then existing inventory in the ground minus expenses [profits] and applying a discount factor of 12%) to be $6,200,000 (which, when added to the projected net present value from mining operations [$22,900,000], yielded a net present value from all operations of $29,100,000). Exh. C51, p. 42. He noted the reclamation activity added to the market value of the property because of the need of those involved in construction and renovation projects to deposit natural soil, rock, brick, ceramics, concrete and asphalt paving fragments, etc. which were "virtually inert and posed neither a threat to ground or surface waters nor constituted a fire hazard." Tr., 9/11/08, at 166. He noted clean fill was being trucked from New York to the subject site for want of a closer place to deposit these materials and that Mr. Amorossi would inspect all of such materials ("checking and sniffing" — Id. at 167) to ensure only clean, inorganic fill was accepted.
Because the sale occurred after Heberger's 2006 report, he was not able to include it in his report. This testimony was in response to the defendant's question whether he knew of any other Connecticut property that had sold for more than the value he placed on this property ($29,000,000) over the last twenty years. He had seen the assessor's card which reflected the New Milford sale ( Id. at 157.) and stated he did not consider the New Milford property or any other in-state property to be "comparable" because, despite his familiarity with mining properties here, he knew of none that had a fill operation in place. Id.
Rock was charging a tipping fee of $1.47/ton; the plaintiff had been accepting clean fill for a number of years prior to the taking. Heberger rounded the current income from this activity to $1.50/ton based on that charged by a New York competitor and increased that by 3.5%/yr. to project future pricing. Exh. C51, p. 39.
The "comparables" chosen by Heberger make clear that the wide swath of variables among them suggests the lack of reliability in choosing this valuation approach as other than a "check" on another approach. On the low end of properties chosen was a site in North Stonington, Connecticut (All eleven [11] sites he chose were in-state and Heberger visited each one); it consisted of one hundred nineteen (119) acres, but, at sale, he suggested, no acres were permitted for mining. Exh. C51, Addendum C (Sale #1) suggests sixty-three (63) acres were permitted — thus, a suggested value of $12,698 per permitted acre. (The value paid per permitted acre of the subject property was $38,065). However, the "comments" included in Addendum C state the site had been approved for mining in the late 1990s but the "approvals had expired" though the buyer "intends to renew" the permits. Further, the product was limited to sand and gravel of average quality but not, as in the instant case, "road grade" and the reserves were limited to 660,000 tons. On the high end, Sale #2 occurred in Deep River in June of 2003 for $2,300,000 (of which $110,00000 represented buildings on site). The property contained 53.73 acres, only twenty (20) were permitted at the time of sale; the price per permitted acre was thus $115,000 (approximately three [3] times what was paid Rock). The Deep River quarry had not sold more than 350,000 tons in any prior year — a number akin to the subject quarry's prior sales; the sand, gravel, and stone from the Deep River site was "average quality rock but not road grade" ( Id., Sale #2) and it had fewer reserves — 11,000,000 tons (as opposed to 15.16 million tons) — only one-third of which was in the permitted area. Also on the high end was a Salem quarry (Sale #3) which sold in October of 2002 for $1,250,000. It consisted of 59.8 acres (as opposed to the subject's 107.71 acres) — 13.8 of which acres were permitted. The value per permitted acre of the Salem property was $90,580 (as compared to $38,065 for the subject property); both properties produced DOT standard road grade rock (though that quality rock was found only in the deeper layers of the Salem site [thus, higher production costs]). Estimated reserves of 1,104,070 million tons of stone were located in the permitted acres though there were estimated reserves of between 11-14,000,000 tons in the unpermitted area (as opposed to an estimated reserve of 15.16 million tons on the subject site — all on permitted acreage). Because of the vast dissimilarities among mining properties (i.e., topography, presence or absence of active permits, sale date, location of property, amount of available reserves, production costs, restrictions on extraction amounts, quality of rock, tonnage sold, market served, etc.), results yielded from valuation of a quarry through primary application of comparable sales (as opposed to using "comparables" as a "check" on a primary valuation based on another approach as done here) are considerably less reliable given the number and extent of adjustments made at the sole discretion of the appraiser.
Heberger presented as the most experienced appraiser of mining properties among the four experts. Neither his credentials nor his integrity were ever impugned at trial. He viewed the subject property and all other properties (used as "comparables") far more frequently than any of the other experts. He was familiar with their sales histories, production capabilities, and the markets they served. He had valued the subject property for various purposes at different times while under different ownership. He had a reasonable explanation for his conclusions, often referring to testing results or to Rock's financial, production, or sales figures with a comfortable familiarity and when, on those infrequent occasions when his memory failed him, he readily conceded the same. The valuation of mining properties was not for him a foray into unfamiliar territory. He was comfortable, conversational, gracious, and believable.
Conclusion
For reasons earlier stated, the court finds neither of the two (2) experts retained by the DOT demonstrated the preparation, experience, or professional credentials to render a fair valuation of the subject property, that they were proffered solely to minimize the quarry's value, and that both the witnesses and the DOT understood that purpose. There is no way to reconcile the Amadon/Jones valuations and the DOT's payment of $4,100,000 on July 30, 2004, with the DOT concession that two (2) earlier obtained "outside" fee appraisals ranged from $14,600,000 to $18,250,000 and that, after a trial, the award could potentially be in the neighborhood of $25,000,000. Exh. C-37. Nor can the DOT's June 14, 2000, estimate of the value of the Right-of-Way acquisition at $25,000,000 to $30,000,000 be reconciled with the payment four years later — of $4,100,000 for the entirety of the property (As earlier stated, the DOT originally planned only a partial taking). For different reasons (as herein described), the Ellis valuation is also disregarded as unreliable.
The court's single difficulty with the Heberger valuation lies in the value placed on the backfilling operation (the "reclamation" process) — that is, the accepting of "clean fill" in return for charging a tipping fee so as to fill up the "holes" on the property to reach elevation 240, a requirement imposed by the zoning commission and contained in the closure map. Exh. A2(b); Tr., 9/11/08, at 18. It was the plaintiff's burden to demonstrate the material being accepted on site constituted "clean fill" as opposed to solid waste materials which would require a solid waste management facility permit. Though the plaintiff described the procedure it used to assure only "clean fill" was accepted, the materials accepted were unwanted by others and discarded because their original purpose had been realized (i.e., brick or asphalt paving fragments or concrete used in construction activities) — thus, the likelihood of it being "solid waste." The court is not persuaded the materials in question met the definition of "clean fill" as defined in Section 22a-209-1 (as revised) of the Solid Waste Management Regulations in the Regulation of Connecticut State Agencies. An essential element of § 22a-209-1 is that materials must be inert and not pose a threat of contamination or a fire hazard. Absent such a showing, materials are "solid waste" and the backfilling operation would necessarily constitute a disposal activity requiring a separate permit to operate as a solid waste disposal area. See C.G.S. § 22a-208a and § 22a-209-4 of the Regulations of Connecticut State Agencies. As Diane Duva testified, even assuming a tipping fee were being charged for disposal of uncontaminated material ("clean fill"), prior permission of the DEP must be received to avoid the risk of later enforcement measures if it is determined that solid waste materials have been improperly managed. The court is not persuaded the plaintiff has properly considered the role of the DEP in the proposed reclamation process or the time that could be involved in the procuring of permit(s) for the filling activity. The risk is real that the same difficulties and delays the plaintiff encountered years earlier in obtaining a permit to operate this quarry would be duplicated. It is unlikely a knowing buyer would embrace such controversy. The court thus disregards as speculative the income (estimated by Heberger to be $6,100,000) attributed to this activity.
Ms. Duva is Assistant Director of Waste Engineering and Enforcement Division, Bureau of Materials Management and Compliance Assurance, Connecticut Department of Environmental Protection (DEP).
See In re West Chestnut Realty of Haverford, Inc., 166 B.R. 53 (Bankruptcy Court), E.D. Pennsylvania (Bankruptcy No. 93-15496 SR) (April 15, 1993) for an interesting — and persuasive — analysis regarding how tipping fees ought be classified under provisions of the federal bankruptcy code. Concluding such fees were "personal property rather than an interest in real property," the Court stated:
Although landfill operations occur on land (soil), tipping fees are not derived from the extraction of a product of the soil, as in mining or drilling for oil, nor is anything harvested or taken from the land, as in farming or logging; . . . (Emphasis added). Id. at *57.
Regarding the plaintiff's claim the subject property was negatively impacted by this state's delay in the taking by eminent domain, the plaintiff was first notified in 1997 that the property would be taken in 1999; in October of 2003, the DOT filed on the land records a taking map (contrary to the defendant's claim). See Exh. A35; Tr. 9/5/08, Vol. II, at 124. The court is unaware of an earlier filing of a taking map. Knowing the Rte. 7 by-pass was a federally funded project, the DOT was clearly aware of the need for a LEDPA designation which designation was never received until December 18, 2002 (five years after first notice was received). The delays and the failure to keep plaintiff advised of the status of that project (to include the failure to advise of the need for a LEDPA or the fact that one had not been applied for — for years — or that without such, the project could not be started because it would not be funded) was then further compounded by the selection of "experts" retained solely for the purpose of minimizing the value of the property. The closest the state ever came to accepting any responsibility was when a DOT employee confessed, "We really messed up." See earlier discussion herein. During the five (5) years between 1997 and 2002, the plaintiff, believing the taking was imminent, made business decisions most significantly, to contract out a rock crushing operation instead of purchasing new equipment and doing the crushing in-house. Mahoney's opinion was that, as a result of that decision (dictated by the state's unjustifiable delay and its unwillingness to concede its error), the plaintiff was damaged to the extent of $9,400,000. The court accepts the factual premise of this claim though she rejects the defendant's claim the plaintiff ought be precluded from recovering this sum because a 1988 prospectus (issued to raise investor monies) referenced the Rte. 7 project and the potential taking of some or all of the property. This entirely ignores that the plaintiff could not have "known" of the effect of the bypass on the property until first notified in 1997 and, until years later, could not have known that project would ultimately put them out of business entirely. The argument against recovery here, however, is that this sum represents lost profits. Mahoney consistently references those claimed damages as "lost profits;" it was he who performed the pro forma and, as an experienced CPA with a Master's Degree in Taxation, he clearly knew what constituted profits. See e.g., Tr. 9/9/08, at 148-9, 151, 162; Tr. 9/10/08, at 12, 21, 35, 58, 69, 86, and 104. His task was to estimate lost profits; asked why he was offering testimony on his pro forma analysis, his response was, "Because we were asked to put together an exhibit that would show the potential damages for lost profits." Tr. 9/10/08, at 21. While, generally speaking, lost profits are not independently compensable because they do not constitute real property, the value of such elements nevertheless may be considered in determining the fair market value of the land. Commissioner of Transportation v. Rocky Mountain, LLC, 277 Conn. 696, 712 (2006). Citing to Seferi v. Ives, 155 Conn. 580 (1967), the Court stated, "[W]here an ongoing profitable business is conducted on the land, such a use should be considered if the use is a factor in establishing market value because a willing buyer might offer more for the property since such a business use would indicate the suitability of the location for a similar enterprise." Com'r of Transp., supra, at 731, citing to Seferi, supra, at 581-82. The court is, however, persuaded no compensation ought be recovered either for the profits attributable to tipping fees or for the profits lost because of the need to contract out the operation as speculative given the uncertainty whether a permit was required and the fact that Mahoney's pro forma rested upon an assumption of what might have been generated in profits had the plaintiff purchased new equipment as opposed to contracting out the operation. Denial of recovery is based solely upon the undue delay damages not having been proven as was the plaintiff's burden. The delay between first notice of taking and the actual taking was clearly unreasonable and the defendant conducted itself throughout as unprofessional, lacking in diligence, and less than scrupulous. See Commissioner of Transportation v. Lorusso, CV 054004185S, judicial district of Waterbury, at Waterbury (Gormley, J.) (Aug. 4, 2006) for another recounting of the same conduct by many of the same players, conduct which disserved not only this plaintiff but which continues to disserve the residents of this state.
Connecticut General Statutes § 37-3c provides for an award of interest in a judgment of compensation for the taking of property by eminent domain. Such judgment shall be at a rate that is reasonable and just. Id. The statute does not provide for a specific rate of interest as applicable. Instructive, however, is our Supreme Court's decision in 1984 (three [3] years prior to the passage of § 37-3c in 1987) in Leverty Hurley Co. v. Commissioner, 192 Conn. 377 (1984). In rejecting the defendant's argument that the rate to be applied should be the uniform rate of interest provided in all civil actions under § 37-3a, the Court said the "determination of just compensation under the Fifth Amendment is exclusively a judicial function . . . In condemnation cases, even in the absence of a provision for interest in the statute, the [C]onstitution requires just compensation, and its ascertainment is a judicial function . . ." Id. at 380. The court is provided two (2) superior court decisions by- then-trial court judges, both of whom assessed interest at the rate of ten percent (10%). See North East Ct. Economic Alliance, Inc. v. ATC Partnership (D.N. X04CV940124630S, judicial district of Middletown, Complex Litigation Docket at Middletown, Nov. 8, 2005, Beach, J.) [ 40 Conn. L. Rptr. 241]; West Haven Housing Authority v. CB Alexander Real Estate, LLC (D.N. CV040489106S, judicial district of New Haven, at New Haven, Oct. 29, 2008, Corradino, J) [ 46 Conn. L. Rptr. 583]. This court finds that rate appropriate and notes it is the same rate for civil actions generally. See §§ 37-3a and b. Interest at 10% shall be applied to all funds not already deposited and paid (That sum if $4,100,000 and, as per § 37-3c, shall accrue from the date of taking to the date full payment is rendered).
The plaintiff, in its pre-trial memorandum of September 2, 2008, asked that interest on its offer of judgment be awarded. The same request was not made either in its post-trial brief or at final argument on April 13, 2009. The court therefore considers the request to be abandoned — and superfluous in view of the interest above awarded.
Award
Having found the income capitalization approach to be the most appropriate valuation tool for this income producing property, that the highest and best use of the land is its continued operation as a quarry, and having found the only reliable estimate of value to have been offered by Edward Heberger, the court finds the fair market value to be $22,900,000 to which shall be applied the interest rate as above discussed.
Judgment enters this date in that amount.