Broadhead v. Bonita Lakes Mall, Ltd. Partnership

• Decision Date: 23 October 1997
• Docket Number: No. 96-CA-00573-SCT,96-CA-00573-SCT
• Citation: 702 So.2d 92
• Parties: 122 Ed. Law Rep. 883 Paul BROADHEAD and Morris Nicholson v. BONITA LAKES MALL, LIMITED PARTNERSHIP; Bonita Properties, Inc.; Lauderdale County Board of Education, Lauderdale County Board of Supervisors, and State of Mississippi.
• Court: Mississippi Supreme Court

Page 92

702 So.2d 92

122 Ed. Law Rep. 883

Paul BROADHEAD and Morris Nicholson v. BONITA LAKES MALL, LIMITED PARTNERSHIP; Bonita Properties Inc.; Lauderdale County Board of Education Lauderdale County Board of Supervisors and State of Mississippi.

No. 96-CA-00573-SCT.

Supreme Court of Mississippi.

Oct. 23, 1997.

John F. Hawkins, John L. Maxey, II, Samuel L. Begley, Maxey Wann & Begley, Jackson, for appellant.

Mack Cameron, Jackson, Ralph Edward Young, Jr., Paul Scott Phillips, Glover Young Walton & Phillips, Meridian, Robert H. Compton, John G. Compton, Witherspoon &amp Compton, Meridian, Michael C. Moore, Atty. Gen., Nicole Akins Boyd and Susan Shands Jones, Special Asst. Attys. Gen., Jackson, for appellee.

Before PRATHER, P.J., and BANKS and McRAE, JJ.

BANKS, Justice, for the Court:

¶1 This case is before the Court on appeal from a decision in chancery court confirming two sixteenth section land leases. We conclude that the record amply supports a finding that the appraisals of school lands were performed by a competent appraiser, despite the fact that the appraiser had been assigned an interest in the proceeds of a sublease in the same sixteenth section. The appraiser's interest is fixed in value and unaffected by any value established for the subject property he appraised. Various other alleged violations of the USPAP appraisal standards are not sufficient to render the appraisals incompetent. We also conclude that the issues raised relating to the chancellor's evidentiary rulings and the school board's fiduciary duty have no merit. Accordingly, we affirm.

I.

¶2 The Lauderdale County Board of Education (LCBE), with supervision from the Lauderdale County Board of Supervisors (LCBS), holds sixteenth section lands in trust for the students within its district, and grants leases on these lands to raise revenue for their educational benefit. LCBE is represented by John Ed Ainsworth, a public administration consultant specializing in business related to school districts and state government agencies. In 1993, Ainsworth, on behalf of LCBE, entered into negotiations with developers Hardy Graham and Ed Johnson, owners of Bonita Lakes Mall Limited Partnership (BMLP) and Bonita Properties, Inc. (BPI) (referred to jointly as "Bonita" unless otherwise noted). These negotiations concerned a proposed shopping mall development on sixteenth section land in Meridian, Mississippi, which at that time was in two adjoining tracts, one containing approximately 120 acres and the other containing approximately 40 acres. In anticipation of granting a lease to Bonita, appraisals on these adjoining lands were conducted by Alex Smith to determine a fee market value upon which a lease value could be based. Smith, owner of Appraisers Associated, is a Member of the Appraisal Institute (MAI) and had conducted numerous appraisals for LCBE in the past. Separate appraisals on these properties were necessary because they had distinct chains of title and the smaller parcel was the subject of separate negotiations concerning release of previous leases back to LCBE.

¶3 The first of the appraisals was conducted on the 120-acre tract and was dated September 1, 1993. Smith placed a fee market value on this land of $264,000, or $2,200 per acre. The second appraisal was performed on the 40-acre tract and was dated September 10, 1993. Smith placed its value at $600,000, or $15,000 per acre. The higher value of the smaller parcel was due to flatter topography and valuable road frontage. Smith testified that even though this road frontage was encumbered by a pre-existing lease, he included the value of accessibility in his conclusion because his task was to assess a fee market value independent of leasehold interests. Smith declared the "highest and best use" of both properties to be commercial and/or industrial type development, predominantly commercial retail development.

¶4 After Smith's appraisals were completed, LCBE retained Jerry Mask, another MAI appraiser, to conduct review appraisals of the subject properties. Mask's review appraisals, dated October 12, 1993, indicated the values established by Smith were reliable. In conducting their appraisals, Smith and Mask both made use of the "sales comparison approach," in which the value of subject property is determined by examining assorted sales of other lands which are deemed, according to various factors, to be comparable.

¶5 Ainsworth checked the appraisal reports to insure they contained the required components and then relied on them in negotiating the land leases with Bonita. The development was negotiated as a single 160-acre tract, since it was contemplated there would be only one lease. Accordingly, Ainsworth instructed Smith to review, update and combine the appraisals done earlier. The report for this combined appraisal update is dated May 26, 1995, and the calculations are made as of January 1, 1995. The subject property of this update appraisal contained 159.85 acres. ¹ Smith placed the value of these combined parcels at $730,000, and Ainsworth demanded an annual rent of nine percent, or $65,700. Importantly, a small subparcel containing approximately five acres was not included in this update appraisal. This subparcel was land on which two restaurants were located, and was encumbered by a pre-existing leasehold interest to a company called Hannaford Properties. ² Since this subparcel contained the roadway frontage, Smith determined the combined remaining parcels to be essentially "landlocked" and lowered their value accordingly.

¶6 BMLP and BPI subsequently decided to take separate leases. The land was again divided into two tracts--though not in the same manner as they had originally been divided. In determining rent, Ainsworth prorated the annual rental amount of $65,700 between the two leases based on the number of acres to each lessee, and entered into leases with both Bonita entities on June 12, 1995. BMLP entered into a Commercial Lease Contract for 116.41 acres, at an annual rental cost of $48,338.62. BPI entered into a Commercial Lease Contract for 41.81 acres, at an annual rental cost of $17,361.38. Both leases were payable a year in advance over the forty years of the lease, with options to renew for twenty-five years.

¶7 After execution of the Commercial Lease Contracts, both were discovered to contain mistakes. The lease to BMLP missed a call in the metes and bounds description, and BMLP requested an amendment to correct the property description. In BMLP's case, there was no increase in the acreage as a result of this correction and Ainsworth determined that no updated appraisal was necessary. Accordingly, LCBE and BMLP executed an Amendment to Commercial Lease Contract in order to correct the error in the legal description. The property description in the lease to BPI also contained an error. The error omitted approximately 1.63 acres from the legal description along the Northern property line. BPI requested an amendment to include the additional acreage. Because additional acreage was being added to the lease, Ainsworth instructed Smith to perform an update appraisal on that tract, which now totaled 43.44 acres. Smith performed this update appraisal on August 23, 1995, and set the fee market value of this tract at $360,000, or $8,300 per acre. In accordance with Smith's update appraisal, an Amendment to Commercial Lease Contract was executed between LCBE and BPI providing for increased rent. Apparently, the increased rental amount was calculated by applying the increased per acre price to the additional 1.63 acres only.

¶8 On September 13, 1995, each Bonita entity filed a Complaint to Confirm Sixteenth Section Land Lease in the Lauderdale County Chancery Court. The Complaints sought to confirm the Commercial Lease Agreements and Amendments. The two actions were subsequently consolidated by the court below for trial purposes. Named defendants included LCBE, LCBS, the State of Mississippi and all other potentially interested parties. Appellants Paul Broadhead and Morris Nicholson were named as defendants since they had been involved in four previous lawsuits concerning the mall development site. ³ ¶p 9 Defendants LCBE and LCBS filed a joint answer to the Bonita Complaints on November 16, 1995, essentially admitting all averments by Bonita. Thus, defendants LCBE and LCBS support confirmation of the land leases and by their own admission are "more closely aligned" with plaintiff Bonita. ⁴ Defendants Broadhead and Nicholson, the only parties opposing the leases, filed for each Complaint an Answer, Defenses, Counter-Claim and Cross-Claim on October 16, 1995, alleging that the leases were void for failure of LCBE to obtain a rental of at least five percent of the current market value of the property as required by Miss.Code Ann. § 29-3-63(2), and that the leases and subsequent amendments were "furthermore illegal and void" under Miss.Code Ann. § 29-3-107. The Bonita entities, as counter-defendants, answered their respective counter-claims on November 13, 1995, denying them in all material respects. Likewise, LCBE and LCBS, as cross-defendants, answered the cross-claims on November 16, 1995.

¶10 The case was marked by numerous discovery disputes and motion hearings. Bonita filed a Motion for Partial Summary Judgment on March 15, 1996, requesting the court to adjudicate and confirm that the Commercial Lease Contracts and the Amendments were duly executed and recorded in compliance with Miss.Code Ann. § 23-3-1 et. seq. The chancellor granted the Motion for Partial Summary Judgment after a hearing conducted on March 25, 1996. The court found that only two issues were saved for trial: competency of the appraisals conducted on the properties and the adequacy of consideration in the two subject leases. At the same hearing, the chancellor considered argument on Bonita's Motion in limine requesting the court to exclude testimony during trial by David Bolton and ...