Comm'r Highways v. Karverly, Inc.

• Decision Date: 10 May 2018
• Docket Number: Record No. 170282
• Citation: 813 S.E.2d 322,295 Va. 380
• Parties: COMMISSIONER OF HIGHWAYS v. KARVERLY, INC.
• Court: Virginia Supreme Court

295 Va. 380

813 S.E.2d 322

COMMISSIONER OF HIGHWAYS

v.KARVERLY, INC.

Record No. 170282

Supreme Court of Virginia.

MAY 10, 2018

Stephen A. Cobb, Deputy Attorney General (Mark R. Herring, Attorney General; Jeffrey R. Allen, Senior Assistant Attorney General, on brief), for appellant.

L. Steven Emmert, Virginia Beach (Joseph T. Waldo, Norfolk; Joseph V. Sherman; Jeremy P. Hopkins ; Sykes, Bourdon, Ahern & Levy; Waldo & Lyle; Cranfill Sumner & Hartzog, on brief), for appellee.

Amicus Curiae: Local Government Attorneys of Virginia, Inc. (Sharon E. Pandak, Chantilly; Zachary C. Packard; Michael J. Connolly, Arlington; Greehan, Taves & Pandak, on brief), in support of appellant.

PRESENT: All the Justices

OPINION BY JUSTICE D. ARTHUR KELSEY

In this eminent domain case, the Commissioner of Highways initiated a condemnation proceeding to acquire a narrow strip of commercial property to create a multi-use trail. At a trial to determine just compensation, the trial court allowed the expert witness for the landowner, Karverly, Inc., to testify that the take caused $193,270 in damages to the remainder. The court, however, disallowed the Commissioner’s expert witness from testifying that the take caused $0 in damages to the remainder.

A five-member jury returned a split verdict: Three voted to award $167,866 in damages to the remainder, and two stated that they "felt that the value of the remainder after take was not correct, which prevented [them] from agreeing to the damages." J.A. at 309. The Commissioner contends that the majority’s award should be vacated and that he should be given the opportunity to present his expert testimony at a new trial. We agree.

I.

The Commissioner serves as the "chief executive officer of the Department of Transportation," Code § 33.2-222, and "is vested with" the power to initiate condemnation proceedings on behalf of the Commonwealth, Code § 33.2-1001. In 2014, the Commissioner filed a certificate of take, and later, a petition for condemnation, to acquire a 0.115 acre (5,009.4 square feet) strip of property, J.A. at 21, owned in fee simple by Karverly to create a multi-use trail and for the "reconstruction of Route 5 in Henrico County," id. at 313.¹

Karverly operates a child daycare center on the remainder of the property, which is approximately 5.17 acres. Id. at 118. It includes a daycare facility, parking lot, swimming pools, and playgrounds. It has a landscaped buffer of five or six trees and several bushes, and just behind the buffer, a fence. Both the buffer and the fence parallel Route 5, with the buffer positioned closest to the road. The strip of property taken includes the buffer but not the fence. At trial, Karverly argued that it would have to create a new buffer to provide the remainder of the property with privacy and security. The fence, Karverly added, would have to be moved inward to accommodate the new buffer. Both of those changes, Karverly concluded, would in turn require the relocation of the "playscapes" within the playground area as well. Id. at 65. The new buffer and the relocation of the fence and playscapes were the sole basis for Karverly’s claim for damages to the fair market value of the remainder.

At trial, the Commissioner proffered its expert witness, Joseph Bryan Call, III, who had performed "thousands of appraisals" during his career. Id. at 95. Call valued the remaining property’s acreage at $2.80 per square foot, and when asked about how he reached this estimate, Call explained that when he

originally looked at the property, [he] examined the plan sheets, viewed the property, went to the planning office ... to look at the approved plan of development for the ... [daycare] facility; confirmed the availability of utilities at the property with the Utility Department; looked at the Zoning and Planning Office to confirm the zoning and the zoning case that the County had pertinent to the current development, and concluded that the highest and best use of the property as improved was as a continuation of its present day care operation.

Id. at 100, 102.² Call then addressed whether the remaining property suffered damage as a result of the take. "Once [he] looked at everything that [he] could find, to find out the physical, functional and economic characteristics of that property," Call opined, "there was no way in the world that the [remaining] property was damaged in any way." Id. at 102. Karverly’s counsel objected after that statement, and the trial court determined that "it wasn’t responsive to the question."³ Id. at 103.

Call subsequently detailed his findings about the sale of four comparable properties along Route 5, including the sale of Karverly’s land, to establish his valuation of the acreage at $2.80 per square foot. He explained that "[t]he best way to estimate the value of commercial land [was] to go out into the marketplace and identify comparable sales of properties exhibiting the same highest and best use as that concluded for the property under appraisal." Id. He selected commercial-property sales along the Route 5 corridor "that [had] occurred recently, were similarly zoned, had the same utilities, were physically similar and had the same highest and best use." Id.

Later, when Call was again asked if there were any damages to the remainder of the property, Karverly’s counsel again objected. The trial court was initially "at a loss to say why" Call could not testify that there were "no damages." Id. at 109. Karverly’s counsel argued that, as a matter of law, Call’s testimony was inadmissible because he could not offer any opinion on the measure of damages without first preparing an appraisal of the fair market value of the remainder, including improvements, both before and after the take.

Outside of the presence of the jury, the court asked Call whether he valued the remainder and how. Call explained that he did value the remainder and recited statements in his appraisal report:

• "After the acquisition and construction, the remainder will contain 5.17 acres. It will continue to have the same irregular shape as it had before."

• "Grade in relation to the roads will not change. The land will be located at the northeast corner of the intersection formed by Midview and New Market Roads, as before."

• "Same utilities will be available after as before."

• "All of the improvements existing before will remain after."

• "The land will continue to maintain its former B-1(C) zoning."

• "The property can be accessed in the same manner as before."

• "The only difference in the property after as compared to before is the slight reduction of size and the existence of small sliver of permanent drainage and Dominion Virginia easement. Neither of these impact in a detrimental way on the utility or value of the remainder."

Id. at 118-19.

Based upon these facts, Call concluded "that the land remainder, if vacant, would have the same highest and best use and value after as compared to before and [that] the property suffer[ed] no diminution as a result of the proposed acquisition." Id. at 119. Furthermore, the "[p]roximity of the path" had "no measurable impact on the utility or value contribution of the existing improvements." Id. at 120. In other words, Call explained, "whatever value contribution the improvements had in the before instance, they have the same value contribution in the after instance." Id. at 119. When Karverly persisted in its objection, the trial court sustained it and held that the Commissioner’s counsel could not ask Call if the remaining property was damaged by the take.

Karverly’s case-in-chief featured its expert witness, Dennis William Gruelle. To determine the fair market value of the remainder, Gruelle first appraised the fair market value of the property actually taken, both the fee simple and the easements, which he concluded was $34,612. Id. at 171. He then deducted that amount from the fair market value of the entire property before the take, including improvements, which he concluded was $3,946,425. Id. at 144, 168. Finally, Gruelle calculated the net amount, or the estimated fair market value of the remainder before the take, which he concluded was $3,865,388. Id. at 173.

To determine the damages to the remainder, Gruelle estimated the "mitigation costs," which he described as the "costs basically to fix any problems or any changed conditions caused by the taking." Id. at 185. These costs included (i) moving the fence 20 feet away from the trail to provide space for a new buffer and (ii) moving the playscapes in the playground area to accommodate the newly positioned fence and the new buffer. Gruelle opined that, absent those modifications, buyers in the market for daycare properties would conclude that the new multi-use trail adjacent to the property created a "functional obsolescence," id. at 197-98,⁴ rendering the site an "inferior property" and subject to a $290,000 discount in the fair market value of the remainder before the take, id. at 198.

Gruelle conceded that he knew of nothing that "legally required" the fence to be moved. Id. at 254, 256. This concession was consistent with the parties’ stipulation that no local government regulation "require[d] the movement of the fence or the landscaping." Id. at 259, 263. In closing argument, Karverly’s counsel reiterated that "[n]o one[ ] ever said that legally [Karverly was] required to move [the] fence." Id. at 280.

Lacking any rationale based upon legal compulsion, Gruelle testified that it would nonetheless be prudent to relocate the fence because water runoff from the drainage easementwould cause a 2-inch stain on some posts, and a new buffer would provide greater privacy and security for the daycare facility. Moving the fence, Gruelle believed, was something Karverly could not "afford not to do to maintain the value of [the] property," even if it wasn’t "mandated to do [so]." Id. at 237.

In other words, Gruelle presupposed that buyers in the market for daycare properties would find the new multi-use...