City of Detroit v. Gorno Steel & Processing Co.

• Decision Date: 16 April 1987
• Docket Number: Nos. 644,80712,Docket Nos. 80286,s. 644
• Citation: 157 Mich.App. 294,403 N.W.2d 538
• Parties: In the Matter of the Acquisition of Land for the Central Industrial Park Project in the Area Bounded by the Conrail Corporation Right-Of-Way On the North, the North Side of the Edsel Ford Service Drive on the South, the Grand Trunk Western Railroad on the West, and Mt. Elliott/Conant Avenues on the East. Parcel& 644FA. CITY OF DETROIT, a Michigan Municipal Corporation, Plaintiff-Appellee, v. GORNO STEEL & PROCESSING COMPANY and Quality Steel Pickling & Processing, Inc., Defendants-Appellants. 157 Mich.App. 294, 403 N.W.2d 538
• Court: Court of Appeal of Michigan — District of US

Page 538

403 N.W.2d 538

In the Matter of the Acquisition of Land for the Central Industrial Park Project in the Area Bounded by the Conrail Corporation Right-Of-Way On the North, the North Side of the Edsel Ford Service Drive on the South, the Grand Trunk Western Railroad on the West, and Mt. Elliott/Conant Avenues on the East. Parcel Nos. 644 & 644FA CITY OF DETROIT, a Michigan Municipal Corporation Plaintiff-Appellee, v. GORNO STEEL & PROCESSING COMPANY and Quality Steel Pickling & Processing, Inc., Defendants-Appellants.

Docket Nos. 80286, 80712.

157 Mich.App. 294, 403 N.W.2d 538

Court of Appeals of Michigan.

Submitted June 24, 1986.

Decided Jan. 21, 1987.

Released for Publication April 16, 1987.

[157 MICHAPP 296] James C. Cobb, Jr., Detroit, for plaintiff-appellee.

Mason, Steinhardt & Jacobs, P.C. by Walter B. Mason, Jr., and Frederick D. Steinhardt, Southfield, for defendants-appellants.

Before KELLY, P.J., and J.H. GILLIS and ERNST, ^* JJ.

J.H. GILLIS, Judge.

On November 24, 1980, plaintiff, City of Detroit commenced condemnation proceedings against approximately 5.5 acres of land (now identified as Parcels 644 and 644FA) located at 6565 Mt. Elliott Avenue in Detroit as part of the Poletown Project. On July 20, 1984, after approximately five weeks of trial, a jury rendered a verdict of $4,352,050 for defendants, the owners of the land and buildings thereon. On July 31, 1984, defendants filed motions for a new trial, judgment notwithstanding the verdict and additur, which were denied on September 11, 1984. Defendants now appeal as of right from the judgment entered [157 MICHAPP 297] on the jury verdict and the denial of their post-trial motions.

Defendants were a steel processing and pickling business incorporated in Michigan, with Joseph Gorno, Sr., being the sole shareholder and chief executive officer. Defendants employed over one hundred workers, and overall ran a rather successful operation, producing an annual income of approximately $950,000. The sizeable parcels of land involved in these proceedings contained a sixty-year-old building in generally good condition which contained nearly 100,000 square feet of working area.

Prior to 1970, defendant Gorno Steel & Processing Company was only involved in the processing of steel. Quality Steel Pickling & Processing, Inc., was located next to Gorno, but was owned by Chromalloy Corporation, a large metal fabrication and jet engine manufacturing operation. In 1970, Gorno purchased the Quality Steel operation from Chromalloy, but leased the land and building from Chromalloy for $75,000 per year. The lease contained an option for Gorno to purchase the property at any time for $1,100,000. While the rent increased to $100,000 per year in 1975, Gorno never exercised the option.

In mid-1980, Chromalloy contacted defendants to discuss the possibility of defendants' purchasing the Quality Steel real estate and building. Chromalloy commissioned Valtec Associates to do a "quick and dirty" appraisal of the property. After an analysis of the appraisal's $450,000 valuation and some negotiation, the property was sold to defendants for $500,000, plus fifty percent of all possible condemnation proceeds in excess of $550,000. This led to an eventual final price of $562,500, and the sale was completed on October 31, 1980. On that same day, plaintiff sent to defendants a [157 MICHAPP 298] condemnation offer of $1,175,000 for their real estate and building.

In January, 1981, plaintiff provided defendants with an additional offer of $1,800,000 for all movable fixtures located on their property. After the Michigan Supreme Court at first enjoined the Poletown Project and then eventually upheld it in March, 1981, plaintiff sent a notice to vacate the premises by July 8, 1981. After a hearing was held on the matter, the date by which defendants were asked to vacate was moved back to January 15, 1982. Defendants closed down their operations on that date and temporarily moved across the street to the facilities of a competitor to complete their existing contractual obligations. In July, 1982, Joseph Gorno, Sr., died, and by September, 1982, defendants had ceased doing any business in this state.

Before trial on the instant action was begun, the parties stipulated to the necessity of the condemnation of the property in question. In one of many pretrial motions, defendants asked that all reference to the Valtec appraisal be excluded from trial, on grounds that the appraiser was not available for cross-examination and that the appraisal was generally unreliable. The trial court granted the motion, but with the caveat that further discussion of the matter would be allowed outside the jury's presence if warranted by the development of the facts at trial. Defendants also requested that all evidence of the Chromalloy sale in 1980 be excluded, but the motion was denied since the trial court found the sale to be an arms-length transaction.

The focus of the dispute between the parties is the difference in their evaluation of the total value of the assets affected by the condemnation. During opening arguments, defendants proposed a figure [157 MICHAPP 299] of approximately $8,500,000, while plaintiff argued that the total value of the assets was just over $3,000,000.

In support of their position, defendants offered the testimony of Joseph Makowski, a plant manager at Interstate Metal Pickling of Toledo, Ohio, and former plant supervisor for defendants. Mr. Makowski testified that the property condemned by plaintiff was uniquely suited for steel processing and pickling, and had many advantages which would be nearly impossible to duplicate. Among these was its nearly five acres of storage space, its proximity to the majority of defendants' customers and to the freeway and rail systems, and the building's high ceiling and excellent water supply, which made it ideal for steel pickling (a process which removes scaling and rusting from steel). Makowski concluded that finding a suitable replacement would be very difficult.

In an effort to disprove the plaintiff's contention that defendants had resumed operations in Ohio under the Interstate Metal Pickling name, defendants questioned Makowski extensively regarding the Interstate operations. Makowski stated that Joseph Gorno, Jr., was a high-level officer of the defendant corporation, and was currently the president of Interstate, but was not the owner. However, Makowski could not explain why Interstate was previously called J.A. Gorno, Jr. Steel Processing, Inc., and before that its Ohio articles of incorporation revealed its name as Gorno Steel Processing. Makowski also indicated that Interstate was much smaller than were the defendants, that it performed only pickling operations rather than processing and pickling, and that its five thousand tons of output per month was much less than the defendants' thirty-five thousand tons per month pickling operation. This was allegedly due [157 MICHAPP 300] to the fact that the Interstate building held only eighteen thousand square feet of working area, housed only two cranes rather than the eight contained in the condemned building, and employed only fifteen workers. Makowski finally stated that although Interstate now possesses the equipment used by defendants to perform a unique pickling process for Ford Motor Company, and now performs that process for Ford, it had no past association with the defendants.

Defendants then presented the testimony of various experts whose appraisals had formed the basis for defendants' valuation of the property. William C. Banta testified that his appraisal of the fixtures included some 190 items inexplicably left out of the city's appraisal and which resulted in a $349,095 difference in the fixture valuation. Forest B. Lindsey testified that his property appraisal was based on the assumption that a facility of equal function would have to be built, and such a site would now require 7.3 acres, rather than the 5.5 acres defendants had occupied, due to building ordinances which did not exist when defendants' building was constructed. Mr. Lindsey stated that if a cost estimate was made for adapting an existing building, the cost would be roughly the same.

James A. Koester, a CPA who handled defendants' accounting needs, testified that he valued defendants' intangible assets based on an approach discussed in a ruling of the Internal Revenue Service. Mr. Koester also noted that, in his opinion, the property and the defendants' business were inseparable, which explained why, despite an extensive search, the defendants could not find a suitable replacement property. Koester finally indicated that, to the best of his knowledge, Chromalloy's book value on the property sold to defendants in 1980 was $500,000 (implying that the [157 MICHAPP 301] property was sold at a price which did not reflect the fair market value).

Defendants provided further testimony regarding the problems in attempting to relocate the business. One witness indicated that any relocation would involve a "laborious environmental licensing process" which could take as long as fifteen months. Another witness who had assisted in the unsuccessful search for replacement property stated his conclusion that the defendants' previous location was special purpose property which was inseparable from the business. Further, due to construction, zoning and environmental permit delays, any relocation would take a total of from twenty-four to twenty-seven months.

Defendants also sought to establish that the sale price of the Chromalloy property did not reflect its true value. A valuation consultant testified that, due to the long term association between Chromalloy and the defendants, the lack of any pre-sale analysis of the property by Chromalloy, and the fact that the purchase price was very close to Chromalloy's book value of the property, the sale price was of dubious relevance in determining its fair...