County of Clark v. Sun State Properties

• Decision Date: 21 July 2003
• Docket Number: No. 35856.,35856.
• Parties: COUNTY OF CLARK, A Political Subdivision of the State of Nevada, Appellant, v. SUN STATE PROPERTIES, LTD., A Nevada Limited Partnership; and Ruth Pyles, Trustee of the Clarence and Ruth Pyles Trust, Respondents.
• Court: Nevada Supreme Court

72 P.3d 954

119 Nev. 329

COUNTY OF CLARK, A Political Subdivision of the State of Nevada, Appellant, v. SUN STATE PROPERTIES, LTD., A Nevada Limited Partnership; and Ruth Pyles, Trustee of the Clarence and Ruth Pyles Trust, Respondents.

No. 35856.

Supreme Court of Nevada.

July 21, 2003.

Rehearing Denied August 29, 2003.

David J. Roger, District Attorney, and Michael L. Foley, Deputy District Attorney, Clark County, for Appellant.

Carl E. Lovell Jr., Las Vegas, for Respondent Pyles.

Mushkin & Hafer and Mark C. Hafer and Michael R. Mushkin, Las Vegas, for Respondent Sun State Properties.

Brian Sandoval, Attorney General, and Margaret E. Kerr, Deputy Attorney General, Carson City, for Amicus Curiae State of Nevada.

Before the Court En Banc.

OPINION

ROSE, J.

In this appeal, we consider the proper procedure for determining just compensation in an eminent domain action when there are various interests involved in the condemned property. We hold that the eminent domain statutes codified the undivided-fee rule, which requires the court to first determine the value of the property as a whole, and in a subsequent hearing, to apportion the award among the various interests. Accordingly, we conclude that the district court erred when it first valued the various interests in order to determine the just compensation for the condemned property, and therefore, we reverse and remand for a new trial.

We also consider whether a condemnee is entitled to damages for lost profits resulting from the condemnor's delay in not bringing the action to trial within two years from when the action was filed. We hold that the condemnee may recover damages for lost profits when the condemnee has demonstrated that the condemnor caused unreasonable delay in bringing the action to trial. Because the record does not indicate what caused the delay, we direct the district court, on remand, to revisit this issue.

FACTS

On June 7, 1995, the County of Clark filed a complaint in condemnation of real property to acquire two parcels of land, which contained apartment units, located in downtown Las Vegas, in order to build a jail facility. Sun State Properties, Ltd., owned one of the parcels in fee simple. Clarence and Ruth Pyles, trustees of The Clarence and Ruth Pyles Trust (the Pyles), owned the second parcel in fee simple, but the Pyles leased the parcel to Sun State for $500 per month.¹ The lease for the second parcel was for fifty-five years, ending on February 1, 2018.

On July 14, 1995, the district court granted the County's motion for immediate occupancy of the two parcels. The district court also ordered the County to post a cash bond of $1,640,000. Following the parties' stipulation regarding the funds from the cash bond, several lenders that held deeds of trust on the parcels were paid in full, Sun State received $424,724.14, the Pyles received $122,100, and a balance of $77,900 was deposited into an interest-bearing account in trust for Sun State and the Pyles.

Because trial had not commenced within two years, the district court set the valuation date at June 22, 1999, the scheduled trial date. However, trial did not commence until November 30, 1999, because the district court granted the Pyles' motion for a continuance.

At trial, several appraisal experts presented various valuations for the acquired parcels. Shelli Lowe, Sun State's appraisal expert, testified that she valued the whole property, as it existed prior to the taking, at $6,100,000. She next valued the remaining property after the taking at $3,915,000. She then valued the parcels acquired by the County at $1,900,000 and Sun State's severance damages at $285,000—the diminished value of Sun State's remaining parcels that were part of the parcels being taken.² Lowe concluded that total just compensation for the acquired parcels and Sun State's severance damages would be $2,185,000.

Upon Sun State's request, Lowe provided an addendum to her appraisal report wherein she valued the leased fee interest and leasehold interest separately. In doing so, Lowe reviewed the rental value of the lease and the term of the lease. Before testifying to the separate valuations, Lowe opined that the improvements on the land would have no value at the end of the lease because, at the end of the term, the improvements would be forty-eight years of age. Nevertheless, Lowe valued the leased fee at $263,000 and the leasehold at $885,000.

Edward Rothenberg, a real estate appraiser, testified on behalf of Sun State and the Pyles. He appraised the leased fee interest and the leasehold interest separately, explaining that the two interests must be valued separately because the fee simple estate does not exist as long as it is subject to a long-term lease; thus, the fee simple estate cannot be sold. Rothenberg valued the leased fee at $1,030,000 and the leasehold at $1,000,000, which equates to $2,030,000 for the second parcel. He also estimated Sun State's damages for lost profits from immediate occupancy in June 1995 to the valuation date of June 1999 at $465,600.

John Kiehlbauch, the County's appraiser, testified that he valued the whole property before the taking at $5,940,000. He next valued the remaining property after the taking at $3,980,000. He then valued the parcels acquired by the County at $1,790,000 and apportioned the value: the Pyles' interest at $984,000 and Sun State's interest at $805,500. He calculated Sun State's severance damages at $170,000. Kiehlbauch testified that the total just compensation for the acquired parcels and Sun State's severance damages equaled $1,960,000.

Verne Cox, the Pyles' appraiser, did not testify at trial, but his appraisal report was submitted at trial. He valued the fee simple at $1,050,000 and apportioned this value as follows: the lease fee at $251,000 and the leasehold at $799,000.

At the conclusion of the trial, the County argued that under NRS 37.115, the district court was required to use the undivided-fee rule, whereby the property is valued under the statutory definition of fair market value, and then, in a subsequent hearing, the court is required to apportion the compensation among the various interests. On the other hand, Sun State and the Pyles argued that the district court was required to value the aggregate of their various interests in the first hearing, and in a subsequent hearing, the court was required to apportion the interests. Thereafter, the district court entered a written decision rejecting the undivided-fee rule as the law in Nevada, ruling that NRS 37.115 only sets forth the procedures in a condemnation action. In so ruling, the district court relied on People v. Lynbar, Inc.,³ a California appeals court case that construed a statute similar to NRS 37.115. The district court explained that the Lynbar, Inc. court construed the statute as a procedural statute, rather than as a substantive rule, such as the undivided-fee rule.

The district court found that Sun State's leasehold interest was a compensable interest and accepted Sun State's and the Pyles' valuation, stating that it was not contradicted at trial. Thus, the district court valued their interests at $3,634,000. Following NRS 37.115, the district court ordered the parties to present additional evidence on February 7, 2000, regarding the apportionment of Sun State's and the Pyles' interests.

After the apportionment hearing, the district court entered its findings of fact and conclusions of law. The district court made the following awards: $1,868,000 as just compensation for Sun State's fee interest in the first parcel and for its leasehold interest in the second parcel; $250,000 in severance damages to Sun State; $462,000 in damages to Sun State from the date of immediate occupancy; $1,030,000 as just compensation for the Pyles' leased fee interest; and $24,000 in damages to the Pyles from the date of immediate occupancy.

In addition to challenging the district court's procedure in determining the just compensation, the County challenges the district court's award of damages, which the County claims were inappropriately awarded as lost profits.

DISCUSSION

Standard of review

This court has consistently provided that the district court's findings of fact will not be disturbed on appeal if they are supported by substantial evidence.⁴ But the district court's conclusions of law are reviewed de novo.⁵

Whether NRS 37.115 codified the undivided-fee rule is an issue of statutory construction. Statutory construction involves a question of law that this court reviews de novo.⁶ This court gives effect to the legislature's intent by looking first to the plain language of the statute.⁷ But if the statutory language is ambiguous or fails to address the issue, this court construes the statute according to that which "reason and public policy would indicate the legislature intended."⁸

Undivided-fee rule

Under federal and state constitutional law, condemnation of private property requires the condemnor to pay just compensation.⁹ Constitutional principles provide that just compensation is measured by the fair market value of the condemned property.¹⁰ NRS 37.009(6) defines fair market value as the "most probable price," which this court has held is constitutional.¹¹

Regarding the evidence that the trier of fact must consider in a condemnation action, NRS 37.110, which is titled "Ascertainment and assessment of damages," provides in pertinent part:

The court, jury, commissioners or master must hear such legal testimony as may be offered by any of the parties to the proceedings, and thereupon must ascertain and assess:

1. The value of the property sought to be condemned and all improvements thereon pertaining to the realty, and of each and every separate estate or interest therein; if it consists of different parcels, the value of each parcel and of each estate or interest therein shall be separately assessed.

Additionally, this court has provided, "`The...