Land Clearance for Redevelopment Auth. of the St. Louis v. Opal Henderson & Opal T. Henderson Revocable Trust

• Decision Date: 29 November 2011
• Docket Number: No. ED 95617.,ED 95617.
• Citation: 358 S.W.3d 145
• Parties: LAND CLEARANCE for REDEVELOPMENT AUTHORITY OF the CITY OF ST. LOUIS, Appellant, v. OPAL HENDERSON AND OPAL T. HENDERSON REVOCABLE TRUST, Respondents.
• Court: Missouri Court of Appeals

358 S.W.3d 145

LAND CLEARANCE for REDEVELOPMENT AUTHORITY OF the CITY OF ST. LOUIS, Appellant,
v.
OPAL HENDERSON AND OPAL T. HENDERSON REVOCABLE TRUST, Respondents.

No. ED 95617.

Missouri Court of Appeals, Eastern District, Division One.

Nov. 29, 2011.Motion for Rehearing and/or Transfer to

Supreme Court Denied Jan. 10, 2012.Application for Transfer Denied March 6, 2012.

[358 S.W.3d 148]

Lynn S. Brackman, Benjamin J. Siders, St. Louis, MO, for appellant.

C. John Pleban, Lynette M. Petruska, St. Louis, MO, for respondent.

GARY M. GAERTNER, JR., Judge.Introduction

Appellant Land Clearance for Redevelopment Authority of the City of St. Louis (LCRA) appeals the jury's award of $1,009,000 to Respondent Opal Henderson, after a trial of exceptions regarding the taking of Ms. Henderson's salvage yard. We affirm.¹

Background

Ms. Henderson was the owner and operator of Henderson Salvage Yard, located near the intersection of Interstates 55 and 44 in downtown St. Louis, for 61 years. When the business was established, there were no zoning regulations in place. The current City of St. Louis regulations would require Ms. Henderson to obtain a conditional use permit to operate a salvage yard on her property, but because her business was in operation beforehand, she was “grandfather protected” and was able to continue operating her salvage yard without zoning restrictions, as a legal nonconforming use.

In 2006, LCRA condemned her property and took it in its entirety, in order to put the property to commercial use, including a restaurant/bar and potential retail development.² A commissioners' hearing to determine the value of her property took place in 2008, and the commissioners determined just compensation to be $388,500. Henderson filed exceptions to this award, and a jury trial took place in April 2010.

At trial, Ms. Henderson offered expert testimony from Mark Leverenz, a certified public accountant and certified business valuation analyst. Mr. Leverenz used the capitalization of income method to determine the value of Henderson Salvage Yard, from the standpoint of its ability to generate income from that location. After analyzing the financial data of the business and making various adjustments due to the marketability of the business, Mr. Leverenz concluded that the value of Henderson Salvage Yard as of the date of the taking was $1,029,000.

Ms. Henderson also testified at trial, saying she believed her property was worth $2,000,000. She testified that she could not operate her salvage yard business elsewhere in the city, because she would not be able to obtain a conditional use permit. She also testified that relocation would hurt her business.

LRCA offered the testimony of its assistant secretary, Mr. Dale Ruthsatz, who stated that the LCRA had offered Ms. Henderson other properties where she could relocate. He also described the process through which Ms. Henderson could apply for a conditional use permit. He

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stated that LCRA did not take into account Ms. Henderson's legal nonconforming use of the property when LCRA determined to acquire the property.

LCRA also offered the testimony of an expert real estate appraiser, Mr. Thomas McReynolds. He testified that the highest and best use of the property would be to construct a small commercial building on the premises. Mr. McReynolds compared sales of three lots in the area, and from those he valued Ms. Henderson's property at approximately $230,600. Mr. McReynolds said he assumed in making his valuation that there was no environmental contamination of the property. He also testified that he did not assign value to Ms. Henderson's legal nonconforming use, because he considered the property worth more if used another way.

Mr. Stewart Ryckman, an environmental remediation expert, testified that Ms. Henderson's property did in fact have environmental contamination, which would cost $361,000 to clean up. He also testified he had previously given an estimate of the cleanup cost to LCRA, which at the time was $446,500.

At the close of the evidence, Ms. Henderson offered as rebuttal evidence a statement that the LCRA had taken the position on February 11, 2008, that the value of Ms. Henderson's property was $562,500, and the clean-up costs were $446,500.

The jury awarded Ms. Henderson $1,009,000 as just compensation for the taking of her property, and the court entered judgment for Ms. Henderson in that amount. This appeal followed.

LCRA raises four points on appeal. First, LCRA argues that the trial court improperly allowed the jury to consider the testimony of Ms. Henderson's expert, Mr. Leverenz, because his opinion as to the value of the property was based on the capitalization of income method and he was not qualified to testify as he was a business appraiser. In points II and III, LCRA challenges the constitutionality of Missouri Approved Instruction (MAI) 9.01, revised 2008, as given at trial. Finally, LCRA argues the trial court erred in allowing Ms. Henderson to introduce a document prepared for the commissioners' hearing which contained a prior valuation of the property by LCRA.

Standard of Review

Regarding Points I and IV, the admission or exclusion of evidence is a matter of the trial court's discretion. State ex rel. Mo. Highway Transp. Comm'n v. Kuhlmann, 830 S.W.2d 569, 571 (Mo.App. E.D.1992). We will not reverse the trial court's decisions in this regard absent substantial or glaring injustice. State ex rel. State Highway Comm'n v. Texaco, Inc., 502 S.W.2d 284, 289 (Mo.1973). “An appellate court will not ordinarily disturb a judgment for damages based on conflicting evidence in a condemnation proceeding where the amount awarded is the subject of conflicting evidence and is within the limits of the proof.” State ex rel. State Highway Comm'n v. Ellis, 382 S.W.2d 225, 236–37 (Mo.App.1964).

As it relates to Points II and III, we review the issue of instructional error de novo. Klotz v. St. Anthony's Medical Center, 311 S.W.3d 752, 766 (Mo. banc 2010). In order for us to reverse, LCRA must show that the disputed instruction “misdirected, mislead, or confused the jury,” and prejudice resulted. Sorrell v. Norfolk S. Railway Co., 249 S.W.3d 207, 209 (Mo. banc 2008).

Discussion Point I

LCRA argues that the trial court erred in admitting the testimony of Mr. Leverenz

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for two reasons. First, it argues that Ms. Henderson failed to show her business was inextricably linked to the land taken, thus it was inappropriate to introduce evidence of the value of her land based on capitalization of income from her business. Second, LCRA argues in any event that Mr. Leverenz was not qualified to testify as to the value of Ms. Henderson's property.

Appropriateness of Capitalization of Income Method

In condemnation cases, a landowner is entitled to just compensation for the property taken, equal to the fair market value of the property at the time of the taking. City of St. Louis v. Union Quarry & Constr. Co., 394 S.W.2d 300, 305. Historically, “fair market value” has been what a reasonable willing buyer would give and a reasonable willing seller would take, when at the same time neither is compelled to enter the transaction. Id. (citing Union Elec. Co. v. Saale, 377 S.W.2d 427 (Mo.1964)). Additionally, “[t]he landowner is entitled to the fair market value of the land at its highest and best use.” Id. (citing City of St. Louis v. Vasquez, 341 S.W.2d 839 (Mo.1960)). The various possible uses for the land may be considered in determining fair market value, and if a special adaptation “adds to its value, the owner is entitled to the benefit of it.” Id. “The value should be fixed ... with reference to the loss the owner sustains, considering the property in its condition and situation at the time it is taken, and not as enhanced by the purpose for which it was taken.” Kan. City Power & Light Co. v. Jenkins, 648 S.W.2d 555, 560 (Mo.App. W.D.1983) (quoting United States v. Chandler–Dunbar Water Power Co., 229 U.S. 53, 76, 33 S.Ct. 667, 57 L.Ed. 1063 (1913)).

The income capitalization approach is one of three methods used in Missouri to value property in complete takings. State ex rel. State Highway Comm'n v. S. Dev. Co., 509 S.W.2d 18, 27 (Mo.1974); Quincy Soybean Co., Inc. v. Lowe, 773 S.W.2d 503, 504 (Mo.App. E.D.1989) (method used only in complete takings). It consists of applying a capitalization rate to past income data from a business conducted on the land in order to project a value of the land. See St. Louis County v. Meyer Props., LLC, 250 S.W.3d 833, 836 (Mo.App. E.D.2008); Del–Mar Redev. Corp. v. Associated Garages, Inc., 726 S.W.2d 866, 872 (Mo.App. E.D.1987). Accordingly, this approach produces results that can be speculative in nature, so courts have further limited its use to two unique situations: (1) when the property taken is producing income as rental property, e.g., Bd. of Pub. Bldgs. v. GMT Corp., 580 S.W.2d 519 (Mo.App. E.D.1979); and (2) when the property is being put to a special, income-producing use, e.g., Union Quarry, 394 S.W.2d at 306.

In 2006, the Missouri legislature conducted a sweeping reform of eminent domain legislation.³ One result was a new definition of “fair market value” to be used in condemnation proceedings, which now explicitly includes each of the three accepted valuation methods. This definition is found in Section 523.001 RSMo. (Supp.2008):

[T]he value of the property taken after considering comparable sales in the area, capitalization of income, and replacement cost less depreciation, singularly or in combination, as appropriate,

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and additionally considering the value of the property based upon its highest and best use, using generally accepted appraisal practices.

The statute contemplates that all three methods will not necessarily be used in every case, but rather states that they may be used “singularly, or in combination, as appropriate.” Therefore, a party still must show that its...