City of Charlotte v. Hurlahe

• Decision Date: 20 June 2006
• Docket Number: No. COA05-1074.,COA05-1074.
• Court: North Carolina Court of Appeals
• Parties: The CITY OF CHARLOTTE, a municipal corporation, Plaintiff, v. John P. HURLAHE, Jr., Linda D. Hurlahe, Robert Hull, William H. Hogue, and Thelma W. Hogue, Gary L. Betow, Thrifty Rent-A-Car System, Inc., Trste, Inc., Wachovia Bank, N.A., City/County Tax Collector, Affordable Transportation, Inc., Defendants.

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631 S.E.2d 28

The CITY OF CHARLOTTE, a municipal corporation, Plaintiff, v. John P. HURLAHE, Jr., Linda D. Hurlahe, Robert Hull, William H. Hogue, and Thelma W. Hogue, Gary L. Betow, Thrifty Rent-A-Car System, Inc., Trste, Inc., Wachovia Bank, N.A., City/County Tax Collector, Affordable Transportation, Inc., Defendants.

No. COA05-1074.

Court of Appeals of North Carolina.

June 20, 2006.

Appeal by plaintiff from judgment entered 9 November 2004 by Judge Yvonne Mims Evans, in Mecklenburg County Superior Court. Heard in the Court of Appeals 28 March 2006.

Morris York Williams Surles & Barringer, LLP, by Robyn M. Lacy and John P. Barringer, Charlotte, for plaintiff.

The Odom Firm, PLLC, by T. LaFontine Odom, Sr. and Thomas L. Odom, Jr., Charlotte, for defendants.

Rebecca Cheney, Charlotte, for City of Charlotte.

Nexsen, Pruet, Adams, Kleemeir, PLLC, by Robert H. Hull, Jr., Charlotte, M. Jay DeVaney and Eric H. Biesecker, Greensboro, for Trustee in the Deed of Trust.

Harkey and Lambeth, by Averill Harkey, Charlotte, for William Hogue.

LEVINSON, Judge.

Plaintiff, the city of Charlotte, appeals from judgment awarding defendants John and Linda Hurlahe damages of $2,000,000 plus interest, and from the trial court's denial of plaintiff's post trial motions for a new trial or judgment notwithstanding the verdict. Defendants cross-appeal from an order granting plaintiff's motion to extend the time for plaintiff to serve its proposed record on appeal, and denying defendants' motion to dismiss plaintiff's appeal. We affirm.

In 1986 defendants moved to Charlotte, North Carolina. Defendants bought property near Charlotte/Douglas International Airport in 1986; they bought an adjoining tract in 1993, for a total of approximately 3.6 acres. Defendants' land ("the subject property"), was located less than a mile from the airport terminal passenger drop-off area, and close to highways providing access to the airport. This appeal arises from plaintiff's condemnation of the subject property.

From 1986 to 2002 defendants operated a Thrifty Car Rental franchise on the subject property. Defendants also rented parking spaces to rental car customers and other travelers. The property had over 450 parking spaces, both paved and gravel. During the fall of 2001 defendants' business dropped off, following the events of 11 September 2001 and the resultant decrease in air travel. Defendants could not meet their financial obligations, and on 16 October 2002 Thrifty Car Rental terminated defendants' franchise. Several weeks later, defendants were contacted by the city about condemnation of the subject property.

On 30 December 2002 plaintiff filed a Complaint, Declaration of Taking, and Notice of Deposit, alleging that the city had on that day taken the subject property by eminent domain. Plaintiff sought determination of the amount of compensation owed to defendants, which plaintiff alleged was $842,500. Before trial all other issues were resolved, and a jury trial was conducted in October 2004 on the issue of the amount of compensation defendants were owed for the condemnation of the subject property.

At trial, both plaintiff and defendants presented the testimony of expert witnesses, who offered varying opinions on the fair market value of the subject property. On 15 October 2004 the jury returned a verdict finding that defendants were entitled to damages of $2,000,000 in compensation for the taking of the subject property. Upon this verdict, the trial court on 9 November 2004 entered judgment in favor of defendants. Plaintiff's post trial motions for a new trial or judgment notwithstanding the verdict were denied, and on 7 December 2004 plaintiff appealed both the judgment and the denial of these motions. On 7 June 2005 defendants filed a motion in the trial court, seeking dismissal of plaintiff's appeal. Defendants cross-appeal from the denial of this motion, and from the court's granting of plaintiff's motion for extension of time to serve its proposed record on appeal.

Background

Condemnation is defined as a "determination and declaration that certain property (esp. land) is assigned to public use, subject to reasonable compensation; the exercise of eminent domain by a governmental entity." BLACK'S LAW DICTIONARY 310 (8th ed. 2004). "Eminent domain" is the "inherent power of a governmental entity to take privately owned property, ... subject to reasonable compensation for the taking." BLACK'S LAW DICTIONARY 562 (8th ed. 2004). Plaintiff is authorized to exercise the power of eminent domain, and is directed to follow the condemnation procedures set forth in N.C. Gen.Stat. § 136-103 et seq. (2005).

N.C. Gen.Stat. § 136-112 (2005), sets out damages to which a condemnee is entitled, and provides in pertinent part that "[w]here the entire tract is taken the measure of damages for said taking shall be the fair market value of the property at the time of taking." N.C. Gen.Stat. § 136-112(2) (2005). The fair market value of a property may be defined as "the price which a willing buyer would pay to purchase the asset on the open market from a willing seller, with neither party being under any compulsion to complete the transaction." Carlson v. Carlson, 127 N.C.App. 87, 91, 487 S.E.2d 784, 786 (1997) (citation omitted).

Plaintiff's Appeal

Plaintiff argues that the trial court erred by "admitting evidence concerning the net income of a hypothetical valet parking business on the subject property." We disagree.

Plaintiff challenges the court's admission of certain testimony. "Admission of evidence is `addressed to the sound discretion of the trial court and may be disturbed on appeal only where an abuse of such discretion is clearly shown.' Under an abuse of discretion standard, we defer to the trial court's discretion and will reverse its decision `only upon a showing that it was so arbitrary that it could not have been the result of a reasoned decision.'" Gibbs v. Mayo, 162 N.C.App. 549, 561, 591 S.E.2d 905, 913 (quoting Sloan v. Miller Building Corp., 128 N.C.App. 37, 45, 493 S.E.2d 460, 465 (1997); and White v. White, 312 N.C. 770, 777, 324 S.E.2d 829, 833 (1985)), disc. review denied, 358 N.C. 543, 599 S.E.2d 45 (2004). Accordingly, we must determine whether the trial court abused its discretion in admitting evidence of the predicted net income from operation of a valet parking lot on the subject property.

"In a condemnation case the issue for determination is damages based upon the difference in fair market value of the property before and after the taking. Accepted methods of appraisal in determining fair market value include: (1) the comparable sales method, (2) the cost approach, and (3) the capitalization of income approach." City of Statesville v. Cloaninger, 106 N.C.App. 10, 16, 415 S.E.2d 111, 115 (1992) (emphasis added) (citing Metro. Sewerage Dist. of Buncombe Co. v. Trueblood, 64 N.C.App. 690, 308 S.E.2d 340 (1983); and 4 J. Sackman, NICHOLS' THE LAW ON EMINENT DOMAIN §§ 12B.04, 12B.08, 12B.11 (rev.3d ed. 1990)). "[T]he income approach is generally considered the most reliable method for determining the market value of investment property[.]" In re Appeal of the Greens of Pine Glen Ltd. P'Ship, 356 N.C. 642, 648, 576 S.E.2d 316, 320 (2003) (determination of fair market value for tax assessment). "Under the income approach, an appraiser calculates the economic rent the property earns and deducts normal operating expenses to arrive at net operating income. That figure is then capitalized [divided] by a rate of return [percent] to determine the fair market value of the property." Dept. of Transportation v. Fleming, 112 N.C.App. 580, 583, 436 S.E.2d 407, 409 (1993) (citing 5 J. Sackman, NICHOLS' THE LAW OF EMINENT DOMAIN § 19.01[2] (rev. 3d ed. 1993)).

In the instant case, the challenged testimony was offered by two of defendants' expert witnesses, both of whom used the income method to determine the fair market value of the subject property. The first, Bruce Tomlin, was recognized by the court as an expert in commercial real estate appraisal. Tomlin testified that the income approach was commonly used in the appraisal of commercial or non-residential property. He told the jury that "the income approach is where you consider what could you achieve in net income from the operation of the real estate[,]" and said that:

[You] ... collect rental comparables, to see what income you could generate. You will look at occupancy rates.... [T]hen you'll come down to an effective . . . gross income....

After you have your effective gross income, you take off your expenses[,] ... [to reach the] N.O.I. or net operating income.... And then, investors value that out in the market place.... Take the [net operating income] and divide it by [the appropriate] percent capitalization rate.

Tomlin explained that the capitalization rate was a measure of the perceived risk of investing in a property, and that the greater the risk, the higher the capitalization rate. Tomlin also testified about the procedure he used to obtain the information necessary for application of the income approach to the subject property.

Similar testimony was offered by defense witness Roscoe Shiplett, also recognized by the court as an expert in real estate appraisal. Shiplett testified that, because of the absence of comparable sales of airport parking lots at Douglas Airport, the income approach was the most appropriate method to determine the fair market value of the subject property. He explained the calculations required to convert the parking lot rental net income to fair market value. Both Tomlin and Shiplett testified regarding the reasons that the income approach was used, and the process by which they derived the necessary numerical values. We conclude that the testimony of both Tomlin and Shiplett was admissible on the issue of the subject property's fair market value as ascertained by the income approach, and that the trial court did not...