City of Phoenix v. Wilson

• Decision Date: 10 April 2001
• Docket Number: No. CV-00-0149-PR.,CV-00-0149-PR.
• Citation: 21 P.3d 388,200 Ariz. 2
• Parties: CITY OF PHOENIX, a municipal corporation, Plaintiff-Appellant, v. Jewel E. WILSON and Spouse, if Married on December 30, 1986; Stewart Allen Wilson, Trustee of the Stewart Allen Wilson Family Trust; Irvin Ivy Wilson, III, Trustee of the Irvin Ivy Wilson, III Family Trust; Catherine Louise Wilson, Trustee of the Irvin I. Wilson, Jr., Trust, Defendants-Appellees.
• Court: Arizona Supreme Court

21 P.3d 388

200 Ariz. 2

CITY OF PHOENIX, a municipal corporation, Plaintiff-Appellant, v. Jewel E. WILSON and Spouse, if Married on December 30, 1986; Stewart Allen Wilson, Trustee of the Stewart Allen Wilson Family Trust; Irvin Ivy Wilson, III, Trustee of the Irvin Ivy Wilson, III Family Trust; Catherine Louise Wilson, Trustee of the Irvin I. Wilson, Jr., Trust, Defendants-Appellees.

No. CV-00-0149-PR.

Supreme Court of Arizona, En Banc.

April 10, 2001.

Roderick G. McDougall, Phoenix City Attorney, by William F. McDonald, Jr., Phoenix, Attorneys for Plaintiff-Appellant.

Dushoff & McCall, P.C., by Leonard M. Bell, Phoenix, Attorneys for Defendants-Appellees.

OPINION

FELDMAN, Justice.

¶ 1 In this eminent domain case, the trial judge permitted the landowners' expert witness to estimate damages based on his opinion that a portion of the original parcel had a different highest and best use from the rest. Thus, the appraiser testified, the property should be treated as two separate units before the taking, with different valuations given to the 5-acre corner, in which the parcel to be taken was located, and the rest of the parcel. The jury verdict was based on that theory. The court of appeals reversed, holding that the trial judge erred in permitting such testimony. City of Phoenix v. Wilson, 197 Ariz. 456, 461 ¶¶ 19-20, 4 P.3d 999, 1004 ¶¶ 19-20 (App.2000). We granted review to determine whether the view adopted by the court of appeals deprived the landowners of the just compensation guaranteed by article 2, § 17 of the Arizona Constitution. We have jurisdiction pursuant to Arizona Constitution, article 6, § 5(3). Concluding that the trial judge correctly admitted the testimony, we now affirm the judgment entered on the jury verdict and vacate the court of appeals' opinion.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 2 The Wilsons owned a 23.24-acre parcel of vacant land at the southwest corner of 71st Avenue and McDowell Road in Phoenix. The City of Phoenix condemned 1.4 acres at the very corner of the parcel for a fire station. The central issue at trial was the valuation of the corner. At the time the condemnation action was filed, the entire 23.24 acre parcel was zoned RE-43, meaning it was limited to low-density residential development (one house per acre) or use as a school or place of worship. The General Plan for the City of Phoenix, however, classified the area that included the Wilsons' property as one that should be developed for high-density residential use such as apartments. The Wilsons' appraiser, Martin White, testified that rezoning was "very likely." Thus, White testified, portions of the property had different highest and best uses, and the property's highest value before the taking was as two parcels: a 5-acre lot at the corner, including the 1.4 acres to be taken, valued at $1.25 per square foot and the remaining 18.24 acres, valued at $0.60 per square foot. The 5 acre corner was suitable for a school, place of worship, or other commercial but residentially compatible uses such as professional offices, dependent care facility, hotel, or mini-storage. ¶ 3 All of White's opinions were supported by market data, which was described to the jury. In his opinion, the value of the 1.4 acres taken was $1.25 per square foot or $80,000 before the taking. He calculated the severance damages at $99,000, based on his belief that the value of the 3.6-acre portion remaining in the 5-acre corner parcel had been reduced to $0.60 per square foot because it was now only suitable for the same residential development as the Wilsons' other 18.24 acres.

¶ 4 Irvin Wilson, one of the owners, also testified, valuing the entire 23.24-acre parcel at $2,500,000, based on comparable sales in the area. He believed the highest and best use of the property was for high-density housing or commercial use and valued a 10-acre parcel at the corner, which included the 1.4-acre taking, at $3 per square foot and the remaining 13.24-acres at $2 per square foot. According to his calculations, the 1.4-acre parcel taken was worth $162,180 and the taking caused $371,915 in severance damages to the remainder.¹

¶ 5 However, in the opinion of Dennis Lopez, the City's appraiser, the highest and best use of the Wilsons' entire 23.24 acre lot was immediate development for single-family residential use. Lopez testified that, based on his estimate of highest and best use, no separate economic use existed for any portion of the property. Relying on sales he considered comparable, Lopez appraised the value of the Wilsons' entire 23.24-acre parcel at $0.55 per square foot. He therefore testified that the market value of the 1.4-acre parcel taken was $35,088 and that there were no severance damages. The jury rejected the views of Wilson and Lopez and accepted White's testimony, awarding $80,000 for the part taken and $99,000 in severance damages. Judgment was entered in those amounts.

¶ 6 The court of appeals reversed, holding that the property taken should have been valued only as a discrete, separate unit or as a part of the entire parcel, but not as part of a hypothetical unit less than the entire parcel. Wilson, 197 Ariz. at 461 ¶ 17, 4 P.3d at 1004 ¶ 17. The court believed that to allow the jury to follow White's methodology would be to apply an unrecognized method of valuation. Id. The court acknowledged that we had previously indicated that highest and best use determines whether land taken should be valued separately or as part of the whole. Id. at 459-60 ¶ 12, 4 P.3d at 1002-03 ¶ 12 (citing and quoting from State ex rel. Ordway v. Buchanan, 154 Ariz. 159, 162-63, 741 P.2d 292, 295-96 (1987)).

¶ 7 The court of appeals conceded that Buchanan had not prohibited White's approach. Id. at 460 ¶ 15, 4 P.3d at 1003 ¶ 15. But it believed that "numerous other Arizona cases have addressed these two methods as if they are the exclusive valuation methods to consider in partial-taking cases." Id. (citing Arizona State Land Dep't v. State ex rel. Herman, 113 Ariz. 125, 128, 547 P.2d 479, 482 (1976); Tucson Title Ins. Co. v. State ex rel. Herman, 15 Ariz.App. 452, 489 P.2d 299 (1971)). The court therefore concluded that the property, as it existed before the taking, could not be valued by dividing it into separate units. Id. at 461 ¶ 17, 4 P.3d at 1004 ¶ 17. In essence, the court of appeals treated the valuation issue as follows: to properly value land taken when it is a portion of a larger property, the land taken must either be severed and valued separately, or it must be valued as a ratable portion of the whole. Thus, the court held, White's testimony should have been excluded. Id. ¶ 19, 4 P.3d at 1004 ¶ 19. The court therefore reversed and remanded to the trial court. Id. ¶ 20, 4 P.3d at 1004 ¶ 20. The court did not reach the second issue raised by the City: whether severance damages were properly assessed.

ANALYSIS

¶ 8 The Arizona Constitution mandates payment of just compensation when the state takes land by eminent domain. Ariz. Const. art. 2, § 17. Just compensation is the amount of money necessary to put the property owner in as good a financial position as if the property had not been taken. Defnet Land & Inv. Co. v. State ex rel. Herman, 103 Ariz. 388, 389, 442 P.2d 835, 836 (1968). Market value, what a willing buyer would pay and a willing seller would accept, determines valuation. Buchanan, 154 Ariz. at 162,741 P.2d at 295 (citing Defnet, 103 Ariz. at 389,442 P.2d at 836). The value of the property taken and the amount of severance damages are questions of fact. A.R.S. § 12-1122; State ex rel. Morrison v. Jay Six Cattle Co., Inc., 88 Ariz. 97, 108, 353 P.2d 185, 192 (1960). In determining market value, the fact finder must consider the highest and best use of the land. Buchanan, 154 Ariz. at 162,741 P.2d at 295.

A. Valuation of part taken

¶ 9 The court of appeals erred in concluding that prior Arizona cases limit the Buchanan principle to only two methods of evaluation—the part taken as a separate unit or as part of the whole. Wilson, 197 Ariz. at 460 ¶ 15, 4 P.3d at 1003 ¶ 15. In Arizona State Land Department v. State ex rel. Herman, one of the cases on which the court of appeals relied, the Highway Department condemned a narrow strip of land approximately sixteen miles long, a total of 109.43 acres of both state trust and privately owned land, for widening of State Highway 40. 113 Ariz. 125, 127, 547 P.2d 479, 481 (1976). Babbitt Ranches, Inc., owned the private land and leased the trust land from the State Land Department. The Babbitt ranch settled with the Highway Department, and the issue of the Land Department's damages was tried without a jury.

¶ 10 The Land Department argued that its parcels should be valued in separate units, thus fixing the land's value at $80 per acre. The trial judge rejected this approach and adopted the Highway Department's argument that the value of the 109.43-acre parcel taken must be established pro rata as part of the entire 101,000-acre Babbitt ranch. The judge therefore fixed the value of the land at the $25 per acre figure ascribed to the entire ranch as a single unit. We reversed and remanded, commenting that if the property taken is capable of independent use, it must be valued separately and not as part of the whole. Id. at 128-29, 547 P.2d at 482-83.

¶ 11 The facts of that case gave us no reason to advert to the situation presented here. We merely held that the trust lands, checkerboarded over a right-of-way crossing sixteen sections, had independent value from the entire 101,000-acre ranch and should be valued separately under A.R.S. § 12-1122(A)(1),² which requires that if the parcel taken "consists of different parcels, the value of each parcel [must be determined] separately." In large part, this was because the federal allotments and state grazing leases were made in 640-acre squares. Id. at 129, 547 P.2d at 483. In reaching that result, we commented that if the part taken "is...