Department of Transp. v. M.M. Fowler, Inc., 305PA05.

Citation637 S.E.2d 885
Decision Date15 December 2006
Docket NumberNo. 305PA05.,305PA05.
CourtUnited States State Supreme Court of North Carolina
PartiesDEPARTMENT OF TRANSPORTATION v. M.M. FOWLER, INC.

Roy Cooper, Attorney General, by Richard A. Graham and James M. Stanley, Jr., Assistant Attorneys General, and W. Richard Moore and E. Burke Haywood, Special Deputy Attorneys General, for plaintiff-appellant.

Hutson Hughes & Powell, P.A., by James H. Hughes, Durham, for defendant-appellee.

NEWBY, Justice.

The issue is whether, in a condemnation action, the jury may consider quantified lost business profits in determining the fair market value of the land on which the business is located. Applying our well-established case law, we hold it may not, and accordingly, we reverse the Court of Appeals and order a new trial.

I. BACKGROUND

To safely accommodate increased traffic and promote public safety, the North Carolina Department of Transportation ("DOT") proposed improvements at the intersection of Garrett Road and Durham-Chapel Hill Road in Durham County. When DOT and landowner M.M. Fowler, Inc. ("MMFI") were unable to agree on a purchase price, DOT filed an eminent domain action to condemn a portion of MMFI's land for the construction project. MMFI's property, originally 47,933 square feet, contains a gasoline station and convenience store, which MMFI pays an independent contractor to operate. The DOT improvement project necessitated a 13,039-square-foot right-of-way as well as a 1,664-square-foot slope easement and a 6,166-square-foot temporary construction easement. After the permanent taking, the remaining property totaled 34,894 square feet.

In its complaint, DOT requested a determination of just compensation for the taking in accordance with Article 9 of Chapter 136 of the General Statutes. Concurrently, DOT deposited $166,850 with the Durham County Superior Court as its estimate of just compensation. MMFI answered and demanded a jury trial.

Prior to trial, DOT filed a motion in limine asking the court to exclude, inter alia, "[e]vidence concerning loss of profits or income, loss of business, loss of goodwill, or interruption of business." The trial court initially allowed the motion "until [it] should rule otherwise." At trial, the court heard arguments from both parties on the issues and ultimately denied DOT's motion in limine. However, the trial court gave the following limiting instruction purportedly derived from Kirkman v. State Highway Commission, 257 N.C. 428, 432, 126 S.E.2d 107, 110 (1962):

"[L]oss of profits or injury to a growing business conducted on property or connected therewith are not elements of recoverable damages in an award for the taking under the power of eminent domain. However, when the taking renders the remaining land unfit or less valuable for any use to which it is adapted, that factor is a proper item to be considered in determining whether the taking has diminished the value of the land itself."

MMFI's witnesses estimated the loss in value caused by the taking to be between $500,000 and $540,000. These estimates were based solely on capitalization of the company's alleged lost business profits. DOT's evidence indicated MMFI was entitled to approximately $169,000 to $225,700. The jury returned a verdict awarding $375,000 as damages for the permanent taking and $75,000 for the temporary construction and slope easements. On 8 October 2003, the trial court entered a judgment awarding MMFI a total of $450,000 plus interest from the date of the complaint until the date of judgment.

DOT appealed the jury's verdict on the permanent taking, arguing the trial court improperly admitted lost profits evidence. The Court of Appeals affirmed the trial court, holding that, although our case law generally forbids evidence of lost profits, Kirkman creates a limited exception in a partial taking when access to the remaining property is restricted or denied. DOT v. M.M. Fowler, Inc., 170 N.C.App. 162, 165-66, 611 S.E.2d 448, 450-51 (2005). We allowed DOT's petition for discretionary review to determine whether the Court of Appeals erred in affirming the trial court's admission of lost profits evidence.

II. CONDEMNATION PROCEEDINGS

Our Court has stated:

The right to take private property for public use, the power of eminent domain, is one of the prerogatives of a sovereign state. The right is inherent in sovereignty; it is not conferred by constitutions. Its exercise, however, is limited by the constitutional requirements of due process and payment of just compensation for property condemned.

State v. Core Banks Club Props., Inc., 275 N.C. 328, 334, 167 S.E.2d 385, 388 (1969) (citing Redevelopment Comm'n v. Hagins, 258 N.C. 220, 128 S.E.2d 391 (1962)). Both the state and federal constitutions limit the State's power of eminent domain. North Carolina's Constitution protects the rights of property owners through the "Law of the Land Clause," which provides that "[n]o person shall be . . . deprived of his . . . property, but by the law of the land." N.C. Const. art. I, § 19; see also McKinney v. Deneen, 231 N.C. 540, 542, 58 S.E.2d 107, 109 (1950) (citing N.C. Const. of 1868, art. I, § 17, the predecessor of the current N.C. Const. art. I, § 19). In other words, although the State can condemn land for public use, the owner must be justly compensated. As Professor John V. Orth has noted: "`Notwithstanding there is no clause in the Constitution of North Carolina which expressly prohibits private property from being taken for public use without compensation . . ., yet the principle is so grounded in natural equity that it has never been denied to be a part of the law of North Carolina.'" John V. Orth, The North Carolina State Constitution 58 (Univ. of N.C. Press 1995) (1993) (quoting Johnston v. Rankin, 70 N.C. 550, 555 (1874) (alterations in original)). Similarly, the Federal Constitution guards the due process rights of property owners through the Fourteenth Amendment. U.S. Const. amend. XIV, § 1 ("[N]or shall any State . . . deprive any person of life, liberty, or property, without due process of law . . . ."); see also Sale v. State Highway & Pub. Works Comm'n, 242 N.C. 612, 617, 89 S.E.2d 290, 295 (1955).

Although the State possesses the power of eminent domain by virtue of its sovereignty, "the right . . . lies dormant . . . until the legislature, by statute, confers the power and points out the occasion, mode, conditions and agencies for its exercise." Core Banks, 275 N.C. at 334, 167 S.E.2d at 389. Chapter 136 of the General Statutes codifies the statutory scheme authorizing condemnation by DOT for our state's system of roadways. Section 136-18 permits DOT to acquire land necessary for highways "by gift, purchase, or otherwise." N.C.G.S. § 136-18(2) (2005). Article 9 sets forth the procedure for acquiring land by condemnation. These proceedings commence when DOT files a complaint and declaration of taking accompanied by a deposit of the estimated just compensation in the superior court in the county where the land is located. Id. § 136-103(a) (2005). DOT must include in its complaint, inter alia, a prayer for determination of just compensation. Id. § 136-103(c) (2005). Upon filing and deposit, title to the land vests in DOT. Id. § 136-104 (2005). The right to just compensation vests in the landowner, who may apply to the court for disbursement of the deposit, file an answer requesting a determination of just compensation, or both. Id. §§ 136-104, -105, -106 (2005).

The statutes provide that just compensation includes damages for the taking of property rights plus interest on the amount by which the damages exceed DOT's deposit. Id. §§ 136-112, -113 (2005). When DOT condemns only part of a tract of land, just compensation consists of the difference between the fair market value of the entire tract immediately before the taking ("before value") and the fair market value of the land remaining immediately after the taking ("after value"). Id. § 136-112(1).

Although Chapter 136 offers no guidance on the calculation of fair market value, this Court has recognized:

[T]he well established rule is that in determining fair market value the essential inquiry is, "what is the property worth in the market, viewed not merely with reference to the uses to which it is at the time applied, but with reference to the uses to which it is plainly adapted—that is to say, what is it worth from its availability for all valuable uses?"

State v. Johnson, 282 N.C. 1, 14, 191 S.E.2d 641, 651 (1972) (quoting Barnes v. N.C. State Highway Comm'n, 250 N.C. 378, 387, 109 S.E.2d 219, 227 (1959) (alteration in original)); see also Black's Law Dictionary 1587 (8th ed. 2004) (defining "fair market value" as "[t]he price that a seller is willing to accept and a buyer is willing to pay on the open market and in an arm's-length transaction"). In most instances, landowners seek to prove fair market value through the testimony of the owners themselves and that of appraisers offered as expert witnesses. See, e.g., N.C. State Highway Comm'n v. Helderman, 285 N.C. 645, 207 S.E.2d 720 (1974). An opinion concerning property's fair market value must not rely in material degree on factors that cannot legally be considered. Id. at 655-56, 207 S.E.2d at 727. Likewise, regardless of professional qualifications, an expert's opinion must be reasonably reliable. DOT v. Haywood Cty., 360 N.C. 349, 352, 626 S.E.2d 645, 647 (2006) (holding the trial court properly excluded the testimony of three "experienced" expert appraisers because "the testimony lacked sufficient reliability"). To resolve this case, we must decide whether MMFI's witnesses...

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