Land Clearance Redevelopment Authority v. Kansas University and Endowment Ass'n, WD

• Court: Missouri Court of Appeals
• Writing for the Court: LOWENSTEIN
• Citation: Land Clearance Redevelopment Authority v. Kansas University and Endowment Ass'n, 797 S.W.2d 495 (Mo. App. 1990)
• Decision Date: 31 July 1990
• Docket Number: No. WD,WD
• Parties: LAND CLEARANCE REDEVELOPMENT AUTHORITY, Appellants, v. KANSAS UNIVERSITY AND, ENDOWMENT ASSOCIATION, et al., Respondents, Exceptions of Plaintiff and Defendants: Parking Systems, Inc., d/b/a Mutual Garage. 42248.

Page 495

797 S.W.2d 495

LAND CLEARANCE REDEVELOPMENT AUTHORITY, Appellants, v. KANSAS UNIVERSITY AND, ENDOWMENT ASSOCIATION, et al., Respondents Exceptions of Plaintiff and Defendants: Parking Systems Inc., d/b/a Mutual Garage.

No. WD 42248.

Missouri Court of Appeals Western District.

July 31, 1990.

Motion for Rehearing and/or Transfer to

Supreme Court Denied Oct. 2, 1990.

Application to Transfer Denied Nov. 20, 1990.

Lowell L. Smithson, Kansas City, for Land Clearance Redevelopment Authority.

Brian T. Meyers, Kansas City, for Kansas University Endowment Ass'n, et al. Parking Systems, Inc. d/b/a Mutual Garage.

Before TURNAGE, P.J., and LOWENSTEIN and GAITAN, JJ.

LOWENSTEIN, Judge.

Appellant Land Clearance for Redevelopment Authority of Kansas City, Missouri (LCRA) is a public body which condemned a downtown Kansas City parking facility, known as the Mutual Garage, leased to the respondent Parking Systems, Inc. (PSI) under a 99-year agreement. PSI had 40 years left on the lease and had purchased the landlord's interest in the award, so by stipulation PSI is to be considered the owner of the property in question. LCRA disputes the judgment on a verdict of $2,000,000, principally on the basis of the admission into evidence of capitalization of income or profits where the jury already had before it evidence of comparable sales. PSI filed in the Supreme Court of Missouri a cross-appeal pertaining to the constitutionality of the condemnation interest statute which after transfer here was consolidated with this appeal. This court's later order postured the cases as two separate appeals. The PSI appeal number 42616, by a separate opinion, and handed down concurrently, is transferred to the Supreme Court.

The land in question covered is in the 1000 block of Wyandotte, on which a basement and four story garage was built in 1926. The land itself covered 15,620 square feet. A very small portion of the building housed a cafe and bar--the rest was utilized as valet parking, where the driver gave an attendant the car to park. The PSI garage had some 325 spaces. LCRA obtained the property to assemble with other parcels to build a publicly owned self-park structure of over 1100 spaces. The trial court, over LCRA's objections, allowed expert evidence of PSI's future profits that could have been reasonably expected after the October 1985 date of taking over the next 40 years. These figures were projected on the basis of demand for downtown parking as well as PSI's income figures from fifteen of its prior years of operation of the Mutual Garage. The comparable sales included three pieces of property within three blocks of PSI's garage which sold within two years before the taking. Experts from both sides used these sales in their computations, but some of the PSI experts also relied on income figures and projections. LCRA's theory was the PSI garage was old and outmoded for the current self-park trend in the downtown area, plus many of the new office buildings provided their own parking.

PSI's evidence on the fair market value of the property included: $2,775,000 by Mr. Rubin, its president; $2,168,000, by witnesses Burns and Farout; $2,103,000 by witness Eaton, and $1,725,000 by witness Fern. LCRA's evidence was $1,000,000 by witness Flanagan and $950,000 by witnesses Nunnink and Slack. For the most part the PSI experts arrived at value figures based on capitalized future profits, the LCRA experts arrived at their figures using comparables based on sales of nearby parking lots. The Commissioners' award was $1,200,000.

The trial record and briefs are quite lengthly. The issues on appeal will be condensed and combined. The various motions of both parties complaining of the other's briefs are all denied.

THE LCRA APPEAL

I.

The underlying issue in this case is whether expert evidence of capitalization which is clear, certain, easily calculable not remote and subject to minimal conjecture as to past and future profits is admissible in a condemnation action where there is ample evidence of comparable sales.

The term "fair market value," which is the sum the trier of fact must determine to award the landowner, is defined as follows in MAI 16.02.

The phrase "fair market value" as used in this [these] instruction[s] means the price which the property in question would bring when offered for sale by one willing but not obliged to sell it, and when bought by one willing or desirous to purchase it but who is not compelled to do so.

In determining fair market value you should take into consideration all the uses to which the property may best be applied or for which it is best adapted, under existing conditions and under conditions to be reasonably expected in the near future.

The ultimate question under this point is, does the language of this instruction, or the law of evidence negate the admission of clear and substantial evidence of future profits of the landowner to the fact-finder if there is evidence of comparable land sales? A chronological examination of Missouri cases is now in order.

* In St. Louis Housing Authority v. Bainter, 297 S.W.2d 529 (Mo.1957), as in the case at bar, there was no contest on the issue of the condemned premises being put to the highest and best use. Id. at 533. The court stated at page 534 "it is incompetent to go into the profits of the business carried on the property," and our law only requires compensation for the property taken, and further stating evidence of profits of "a business conducted on property is too speculative, uncertain, and remote ... for computing ... market value ... in condemnation." Id. However, the court then approved admission of the landowner's evidence of gallonage of gasoline be pumped as a properly authenticated method for "... the jury on the issue of ... fair market value of the premises condemned...." "The jury was entitled to consider all of such evidence in determining the fair market value of the premises in question." Id. at 535. See also State v. Ellis, 382 S.W.2d 225 (Mo.App.1964).

* The landowner in Shelby County R-IV School District v. Herman, 392 S.W.2d 609 (Mo.1965), appealed after having his testimony stricken as to fair market value based on capitalization of farm profits. The court noted evidence of profits from a commercial business on land taken is "ordinarily inadmissible as a basis upon which to ascertain market value ... because it is too speculative, remote and uncertain." Id. at 613, citing St. Louis Housing Authority v. Bainter, supra. The farmer had picked by far and away his best year and used it to value future profits. The landowner lost, the court stating capitalization of the income method must be based on a "foundation, which minimizes, so far as possible conjecture and uncertainty." The court concluded saying the validity of an opinion based on capitalization of income depends on selection of an income figure "which was relatively stable, average and representative--of which there is a reasonable probability of permanence or persistence in the future." Id. at 614.

* City of St. Louis v. Union Quarry & Construction Co., 394 S.W.2d 300 (Mo.1965), involved the taking of an abandoned rock quarry being used as a private dump. There were no comparable sales of profitable partially filled holes in the vicinity. The landowner produced two experts who gave value figures based on capitalization of income over the life of the use as a dump. The condemnor's evidence was based on the square foot sales price of strips of adjoining property. The court recognized the case was unique and the highest and best use of the land was not as residential property, but as an urban landfill. People paid money to dump refuse and the profit was produced without the labor of the owner and those "profits derived from its use are the chief source of its value ..." The court recognized a general rule that "business profits are ordinarily not admissible evidence of the value of the land on which the business is located." Id. at 306.

The reason for that rule is business profits are "too speculative, uncertain, and remote to be considered as a basis for computing or ascertaining the market value." Id. The court further said The general rule, however, must be given an exception ex necessitate in this case, where the business is inextricably related to and connected with the land where it is located, so that an appropriation of the land means an appropriation of the business; where the evidence of net profits apparently is clear, certain and easily calculable, based upon complete records; where past income figures are relatively stable, average and representative, and future projections are based upon reasonable probability of permanence or persistence in the future, so that conjecture is minimized as far as possible, and where the body fixing the damages would be "at a loss to make an intelligent valuation without primary reference to the earning power of the business." For other reasons the variables are reduced to a minimum in this case. The period during which the income stream will continue to flow is fairly predictable. Many factors of uncertainty present in other types of cases are absent here: yields, weather, markets, supply and demand, uncertain fluctuations of labor costs, etc.

Id. at 305, (citations and one footnote omitted). The opinion in another footnote said the evidence showed "[t]he ever decreasing space available practically insures a continuous and persistent demand for the service offered." The court went on to state the income from the dump was "comparable" to the recognized criteria of rental income bearing on market value as espoused in Bainter, supra. Id. at 307. The court reiterated that the capitalization of income "in proper cases" is allowed in determining fair market value in condemnation cases. Id.

* State ex rel. State Highway Commission v. Barron, 400 S.W.2d 33 (Mo.1966), stands for this proposition:

And the tendency is...