Primetime Hospitality v. Albuquerque

• Decision Date: 20 February 2009
• Docket Number: No. 30,543.,30,543.
• Citation: 206 P.3d 112,2009 NMSC 011
• Parties: PRIMETIME HOSPITALITY, INC., Plaintiff-Petitioner, v. CITY OF ALBUQUERQUE, Defendant-Respondent.
• Court: New Mexico Supreme Court

206 P.3d 112

2009 NMSC 011

PRIMETIME HOSPITALITY, INC., Plaintiff-Petitioner, v. CITY OF ALBUQUERQUE, Defendant-Respondent.

No. 30,543.

Supreme Court of New Mexico.

February 20, 2009.

Rehearing Denied March 30, 2009.

Sutin, Thayer & Browne, P.C., Kerry Kiernan, Dennis M. McCary, P.C., Dennis M. McCary, Albuquerque, NM, for Petitioner.

Office of the City Attorney, Robert M. White, Peter S. Auh, Mark Hirsch, Robert Waldman, Albuquerque, NM, for Respondent.

OPINION

CHÁVEZ, Chief Justice.

{1} Primetime Hospitality, Inc. (Primetime) had begun constructing a hotel on its Albuquerque property when it accidentally ruptured an encroaching City of Albuquerque (the City) waterline, causing it to incur excess construction costs and delaying the hotel's opening. The City stipulated to liability for inverse condemnation, admitting that it deprived Primetime of all use and enjoyment of its property for the duration of the taking. As the issue of liability is not before us, the only question we must address is whether Primetime's lost profits and excess construction costs may be awarded as damages in inverse condemnation proceedings. The district court found Primetime's losses to be the direct result of the City's taking and awarded it damages, along with expert witness costs. The Court of Appeals reversed, holding that although lost profits might be considered, the direct award of lost profits in this case would constitute the impermissible award of the full measure of tort damages, and that the portion of the excess construction costs covering Primetime's damage-mitigating buttress wall must be subject to a test of reasonableness. Primetime Hospitality, Inc. v. City of Albuquerque, 2007-NMCA-129, ¶¶ 23-26, 35, 40, 142 N.M. 663, 168 P.3d 1087. The Court of Appeals also vacated the award of expert costs. Id. ¶¶ 23, 24. We granted certiorari to consider these issues.

{2} We hold that in an inverse condemnation proceeding, lost profits may be recovered when they are the best measure of the value of the lost use and enjoyment of condemned land. In addition, in such proceedings, excess construction costs directly resulting from a temporary taking are awardable. Accordingly, we reverse the Court of Appeals and reinstate the district court's award of damages and costs.

I. BACKGROUND

{3} The facts in this case are not in dispute. Primetime is a New Mexico corporation that develops hotels. It owned land in Albuquerque and had taken significant steps toward building a hotel on its land. Prior to construction, Primetime entered into a license agreement with Hilton Inns that obligated Primetime to construct a Hilton Garden Inn or face $385,000 in liquidated damages. In preparation for construction, Primetime hired an architect to draw up plans and employed a general contractor at a cost of $130,000 each. To finance the hotel's construction, Primetime took out a construction loan of $4,435,000.

{4} Not long after construction began in the spring of 2001, Primetime's contractor accidentally breached a 24-inch city waterline, flooding the property. Shortly thereafter, Primetime discovered a 12-inch waterline on the property as well. The City subsequently removed both waterlines and Primetime sued, seeking damages under New Mexico's inverse condemnation statute, NMSA 1978, § 42A-1-29 (1983), or, in the alternative, for trespass.

{5} Before trial, the City stipulated to liability for inverse condemnation and Primetime did not oppose the City's motion to dismiss its trespass claim. The district court then granted partial summary judgment regarding disputed elements of damages, ruling that lost profits "are a proper element of damages with respect to [Primetime's] claims for inverse condemnation in the amount to be determined at trial." At trial, over the City's continuing objection, Primetime and the City presented conflicting expert testimony on the proper measure of lost profits, with the City arguing for a before-and-after method of calculation and Primetime favoring a measure that would compensate it based on calculations of the profits it would have earned had the hotel opened as scheduled.

{6} At the conclusion of trial, the district court made several findings of fact that are not challenged on appeal. It found that construction was delayed 142 days, that the amount of lost profits due to the delay was $456,242, and that Primetime also incurred additional construction costs in the amount of $153,518.45 due to the delay. The additional construction costs included the costs of repairing water damage, the costs of the delayed construction, and the costs of constructing a buttress wall that had not been in the original design. Addressing the issue of lost profits, the district court concluded that "[w]hen reliable proof of damage and its amount is presented by a methodology other than a before and after appraisal, such proof is admissible on the damage issue," and found that evidence of lost profits was "reasonably ascertainable" with Primetime's methodology. Pursuant to its findings, the district court awarded damages for the additional construction costs and lost profits, and awarded the costs of Primetime's experts.

{7} The City appealed the district court's decision, claiming that the court erred in awarding lost profits, excess construction costs, and expert fees because such damages are consequential, and thus not recoverable in an inverse condemnation action. Primetime, 2007-NMCA-129, ¶ 1, 142 N.M. 663, 168 P.3d 1087. The Court of Appeals affirmed in part and reversed in part. Id. Discussing the award of damages for excess construction costs, the Court of Appeals held that generally speaking, repair and restoration expenses should be allowed, to put "the landowner in the same pecuniary position as though the taking had not occurred." Id. ¶ 23. Specifically, regarding the buttress wall, the Court of Appeals held that since the wall was an effort to mitigate damages, it was "not strictly required by the City's taking," id. ¶ 24, and the district court should have applied a test of "reasonableness under the circumstances" to decide whether it was compensable, id. ¶ 26. The Court explained that in condemnation cases, unlike contract or tort actions, mitigation expenses are not per se recoverable, id. ¶ 25, but they should not be denied completely, which would undermine a landowner's incentive to reduce losses, id. ¶ 26. Thus, the Court of Appeals remanded to the district court to determine reasonableness, perhaps by comparing "the cost of the mitigation effort to the value of the harm averted," taking caution to avoid double recovery. Id. ¶¶ 26, 27.

{8} Next, the Court of Appeals considered the award of lost profits, observing that no single measure of damages could apply in all temporary takings cases. Id. ¶ 22. However, finding guidance in federal cases, it held that rental value would be an appropriate measure in this case. Id. ¶¶ 37, 38. In defining rental value, the Court of Appeals held that the ultimate question must be "[w]hat would an objective property owner accept to delay construction of a hotel facility in this circumstance for a period of 142 days?" Id. ¶ 41. Under this standard, the Court held that lost profits should not be directly allowed, but might be considered as a component of rental value. Id. ¶¶ 39-40. As a result, the Court remanded the case to the district court to apply this measure, leaving "the details of the calculation to the parties' accounting and economics experts." Id. ¶ 41.

{9} Finally, because the Court of Appeals remanded the case to the district court for a determination of rental value, it vacated the district court's award of expert fees to "allow the judge to redetermine the costs to be awarded once it makes a proper award of eminent domain damages." Id. ¶ 45. Thus it held that, "[i]f the court finds that the expert's testimony is reasonable and necessary because lost profits are part of the mix of information the district court needed, ... then it may consider awarding the costs...." Id. Before this Court, Primetime challenges the Court of Appeals' holdings on lost profits, excess construction costs, and costs. We affirm the district court and reinstate its award of damages and costs.

II. DISCUSSION

A. STANDARD OF REVIEW

{10} This case first asks us to review, as a matter of law, whether the lost profits and excess construction costs awarded to Primetime were properly compensable in this temporary physical taking. We review these questions of law de novo, without deference to the district court's legal conclusions. See New Mexicans for Free Enter. v. City of Santa Fe, 2006-NMCA-007, ¶ 11, 138 N.M. 785, 126 P.3d 1149 ("Interpretation of statutes and constitutional amendments involves questions of law that an appellate court reviews de novo.").

{11} We are also asked to decide whether the district court's award of expert witness costs was proper. This issue is reviewed for abuse of discretion. Pioneer Sav. & Trust, F.A. v. Rue, 109 N.M. 228, 231, 784 P.2d 415, 418 (1989).

B. LOST PROFITS

{12} The district court found that "[a]s a direct result of the City's encroaching waterlines and their removal, the opening of the Hilton Garden Inn was delayed for 142 days such that Plaintiff incurred lost profits from operations for the period June 8 through October 28, 2002." (Emphasis added.) The City did not challenge either this finding or the finding that the lost profits totaled $456,242. Therefore, the question of whether Primetime's claimed lost profits were an accurate reflection of its loss is not before us. Thus, the district court's findings bind us to the premise that they were. We also emphasize that the district court made no separate award of damages for the property's value in addition to its award of lost profits. We conclude that the district court's award of lost profits was a permissible award to Primetime for the value of its lost use and enjoyment of the...