Miller v. Glacier Development Co., L.L.C.

• Decision Date: 13 July 2007
• Docket Number: No. 94,999.,94,999.
• Citation: 161 P.3d 730
• Parties: Debra L. MILLER, in her Capacity as the Secretary of Transportation for the State of Kansas, Appellee, v. GLACIER DEVELOPMENT CO., L.L.C., et al., Appellants.
• Court: Kansas Supreme Court

161 P.3d 730

Debra L. MILLER, in her Capacity as the Secretary of Transportation for the State of Kansas, Appellee, v. GLACIER DEVELOPMENT CO., L.L.C., et al., Appellants.

No. 94,999.

Supreme Court of Kansas.

July 13, 2007.

Reid F. Holbrook, of Holbrook & Osborn, P.A., of Overland Park, argued the cause, and Judd L. Herbster, of the same firm, and Joy D. Hays, of Polsonelli Shalton Welte Suelthaus, P.C., of Kansas City, Missouri, were with him on the briefs for appellants.

Timothy P. Orrick, of Foth & Orrick, L.L.P., of Overland Park, argued the cause, and Renee M. Gurney, of the same firm, was with him on the brief for appellee.

The opinion of the court was delivered by ROSEN, J.:

In this appeal from an eminent domain proceeding, appellant Glacier Development Company, LLC (Glacier) challenges the jury's $800,000 award for the taking of its real property by the Kansas Department of Transportation (KDOT).

This appeal raises five questions: (1) Did the district court err in admitting evidence of the purchase prices of the subject parcels of land? (2) Did the district court err in rejecting Glacier's motion for continuance of the trial after ruling that evidence of the purchase prices would be admitted? (3) Did the district court err by excluding evidence of a value engineering study of alternative right-of-ways conducted on behalf of KDOT a year before the taking? (4) Did the district court err by refusing to quash the trial deposition of an opposing party in other litigation with Glacier? and (5) Did the district court err by allowing KDOT to (a) proceed first with its evidence and (b) make the last closing argument?

Factual and Procedural Background

Lester M. Dean, Jr., is the sole owner and manager of Glacier. In 1995 and 1996, Glacier purchased 32.6 acres of real property (Lot 3) along Southwest Boulevard in Kansas City, Kansas. In 1996, Glacier also purchased a 0.98-acre parcel (Lot 1) along Southwest Boulevard, upon which a brick office building is situated. Glacier purchased all of the property with the goal of developing the tracts into a business park.

Glacier invested considerable effort to validate its belief in the property's potential. In 1993, Glacier hired an engineering consulting firm to draft plans for buildings on the property. The property was zoned for heavy industrial use, and a final plat was approved. In addition, Glacier took steps to grade and level the property, which was visible from Interstate 35 (I-35), by moving earth and clearing vegetation.

Glacier also consulted engineers and architects on drainage and environmental impact, and obtained feasibility reports and surveys. In particular, Glacier hired Jerry Richardson, a professor of engineering at the University of Missouri-Kansas City, to develop a solution to intermittent flooding near the property. Richardson worked in conjunction with the U.S. Army Corps of Engineers to plan that solution.

During late July and early August 2001, KDOT engaged Ventry Engineering, LLC, (Ventry) to perform a value engineering study of the reconstruction of I-35 from Southwest Boulevard northeast to the Kansas-Missouri state line, which encompassed a large portion of Glacier's property. In September 2001, Ventry released its report, which contained estimates for right-of-way costs at or near Glacier's property. The report estimated the acquisition cost of a considerable portion of the property at $27 per square meter or approximately $2.51 per square foot. According to Glacier's calculations extrapolating from this number, the value of Glacier's land eventually taken by KDOT would be $3.5 million.

In April 2002, KDOT's counsel sent notice to Glacier that Lot 1 and Lot 3 would be taken for KDOT's I-35 reconstruction project. It later filed an eminent domain petition in Wyandotte County; the date of the taking was August 13, 2003. Court-appointed appraisers awarded Glacier $2.19 million for the fair market value of the property. KDOT appealed the appraisers' award to the district court.

In deposition testimony, Dean stated that he did not remember how much Glacier had paid for the subject property. He also testified at his deposition that he placed the value of the property at the time of the taking between $5.7 million and $6.5 million.

Trial Evidence on Fair Market Value

When, as here, an entire tract of land is taken in a condemnation action, the measure of compensation is the fair market value of the property at the time of the taking. K.S.A. 26-513(b); City of Wichita v. Meyer, 262 Kan. 534, 548, 939 P.2d 926 (1997); Urban Renewal Agency v. Tate, 196 Kan. 654, 657, 414 P.2d 28 (1966); The proper remedy for a taking in Kansas is controlled by statute. Butler County R.W.D. No. 8 v. Yates, 275 Kan. 291, 294, 64 P.3d 357 (2003). K.S.A. 26-513(e) defines "fair market value" as "the amount in terms of money that a well informed buyer is justified in paying and a well informed seller is justified in accepting for property in an open and competitive market, assuming that the parties are acting without undue compulsion." Whether a prior sale is too remote in time is a question to be determined by the district court in the exercise of judicial discretion. Mettee v. Kemp, 236 Kan. 781, 790, 696 P.2d 947 (1985); Willsey v. Kansas City Power & Light Co., 6 Kan.App.2d 599, 615, 631 P.2d 268 rev. denied 230 Kan. 819 (1981).

There are three generally recognized approaches to valuation of real property: (1) the cost approach, i.e., the reproduction cost of the property at the time of the taking less depreciation; (2) the market data approach, i.e., the value of the property based upon recent sales of comparable properties; and (3) the income approach, i.e., the capitalization of net income from the property. City of Wichita v. Eisenring, 269 Kan. 767, 774, 7 P.3d 1248 (2000). K.S.A. 26-513(e) provides that fair market value is determined by using any one or more of these methods.

The jury trial in this case began on June 13, 2005. At the trial, Dean did not offer his opinion of the value of the property at the time of the taking. Glacier's expert witnesses' values for the property's fair market value were $4,518,602, $4,000,000, and $4,657,000.

KDOT's experts set the total fair market value of the subject property at $463,000 and $530,000.

One of KDOT's experts was Bernie Shaner, a real estate appraiser. Shaner had appraised Lot 3 in 1993 when Burlington Northern Railroad, the property's previous owner, was going to sell it. His more recent appraisal work on Glacier's property began in July 2002.

Shaner acknowledged that the economic conditions in 1993 were "[p]robably not" the same as they were in 2003, but he indicated that the plat, which was in effect when Shaner performed his 1993 appraisal, had not been modified. Shaner also believed it significant that the property remained subject to a restriction under which it could not be developed until access from a public street was created on the property. This restriction was still in effect as of the date of the taking.

In Shaner's opinion, the highest and best use of the property was industrial, as a storage yard with a small office. Under this scenario, a building of approximately 2,000 square feet could be built and could use a septic system rather than extended utilities. Shaner testified that another alternative would develop 24.45 acres in the floodplain by using dirt fill and by extending the utilities to the property; however, Shaner expected the $3 million process necessary to prepare the property to outstrip its ultimate value. Another alternative, Shaner said, was to improve a smaller 4.5-acre site outside the floodplain. The estimated $312,000 cost associated with extending utilities and building road improvements would reflect the "worth" of the 4.5 acre building site.

The district court permitted KDOT to introduce, over objection, exhibits showing the prices Glacier paid in 1995 and 1996 for the two parcels of land. These prices were recorded in real estate sales validation questionnaires, or certificates of value (COVs), which are required to accompany a "deed or instrument providing for the transfer of title to real estate or affidavit of equitable interest in real estate" that is recorded in the office of the register of deeds. K.S.A. 79-1437c. Such questionnaires are to be retained for 5 years and then destroyed. The COVs showed the total paid for the subject property was $200,527—plaintiff's Exhibit 11 showed Lot 3 sold for $155,527, and plaintiff's Exhibit 12 showed Lot 1 sold for $45,000.

Shaner testified about the COVs, equating them to affidavits. Because of the passage of time between the purchases and the taking, Shaner said that the purchase prices "offer[ed] just a little indication as to what the market said that property was worth at that point in time." He admitted that he did not identify the information in the COVs as comparable sales in his valuation calculations for KDOT.

In conducting his appraisal on Lot 1, Shaner considered the market data approach and testified that the building on the property was of the lowest quality, despite improvements made by Dean. As part of this approach, Shaner examined four comparable sales and made adjustments for passage of time, market conditions, location, access, quality, design, age, condition, and flood zone location. Calculating the comparable sales to be between $14.20 and $20.04 per square foot, Shaner estimated the building on Lot 1 to have a value of $18 per square foot, or approximately $150,000.

Shaner also valued Lot 1 by using the income approach and examined rental comparables. After figuring the net operating income of the building on Lot 1 and calculating the capitalization rate, Shaner arrived at a value of $160,000.

Shaner used the market data approach to value Lot 3. He testified that, although Lot 3 consisted of more than 32 acres, approximately 8 acres lay in the channel of Turkey Creek. He...