Rausch v. City of Marion

• Citation: 974 N.W.2d 103
• Decision Date: 06 May 2022
• Docket Number: 19-1582
• Parties: In the MATTER OF the CONDEMNATION OF CERTAIN RIGHTS IN LAND FOR the EXTENSION OF ARMAR DRIVE PROJECT BY the CITY OF MARION, Iowa. Phyllis M. Rausch, as Trustee of the William J. Rausch Family Trust, Appellant, v. City of Marion, Iowa, Appellee.
• Court: Iowa Supreme Court

974 N.W.2d 103

In the MATTER OF the CONDEMNATION OF CERTAIN RIGHTS IN LAND FOR the EXTENSION OF ARMAR DRIVE PROJECT BY the CITY OF MARION, Iowa.Phyllis M. Rausch, as Trustee of the William J. Rausch Family Trust, Appellant,

v.City of Marion, Iowa, Appellee.

No. 19-1582

Supreme Court of Iowa.

Submitted February 22, 2022

Filed May 6, 2022

Dean A. Spina (argued) of Bradley & Riley PC, Cedar Rapids, for appellant.

Robert W. Goodwin (argued) of Goodwin Law Office, P.C., Ames; Kara L. Bullerman of Allen, Vernon & Hoskins, P.L.C., Marion, for appellee.

Waterman, J., delivered the opinion of the court, in which all justices joined.

WATERMAN, Justice.

Landowners are generally allowed to give opinion testimony on the value of their own property. But should owners of commercial property who do not qualify as experts be allowed to support their valuation by testifying about allegedly comparable sales of property owned by others? This appeal presents that question. An Iowa municipality condemned part of the owner's undeveloped land for a road. The parties disagreed on the just compensation award. The district court allowed the owner to testify to his opinion on the site's reduction in value resulting from the taking but granted the municipality's motion in limine barring his evidence of comparable sales on the grounds that the owner relied on hearsay, lacked personal knowledge of those transactions, and was unqualified as an expert. The property owner appealed, and the court of appeals affirmed.

On our review, for the reasons explained below, we disagree with the district court's analysis on hearsay and personal knowledge. Public real estate records are readily admissible into evidence and this owner gained personal knowledge by reviewing the courthouse records and visiting the other properties. But we affirm the exclusionary ruling because this owner, a former restaurant manager, was not qualified as an expert under Iowa Rule of Evidence 5.702 to offer opinion testimony that sales of other commercial property were comparable where that opinion required technical or specialized knowledge. We decline to impose a categorical rule disallowing lay owner opinion testimony about specific comparable sales. On this record, the district court did not abuse its discretion by limiting the owner's testimony given his lack of expertise and the complexity of these commercial real estate valuations.

I. Background Facts and Proceedings.

In 1969, Phyllis and William Rausch bought a house on 20 acres of farmland in Linn County. The Rausch family farmed the land and lived there until 1977, when they turned the house into a rental property. In 1990, the Iowa Department of Transportation condemned part of the land and left the family with 9.57 acres. The house was removed from the land before 2017. The property is now vacant, undeveloped land that is partially wooded with a steep ravine. The site is ungraded and lacks commercial road access, although it is adjacent to a divided four-lane highway. The property is zoned general commercial and is located near the Lindale Mall development area.

The property is now owned by the William J. Rausch Family Trust (Trust). After William's death in 2002, Phyllis became the primary beneficiary of the Trust and the trustee. According to the Trust's attorney, Phyllis "receives all of the income from the trust" and "can invade the principal for her health, education, support and maintenance at her discretion." But, "[s]he has not done so." If Phyllis passes away and the property remains in the Trust, the Trust property will be divided evenly between William's five children, one of whom is James Rausch.

James had lived on the property with his family. He is forty-nine years old. He has an English degree from Coe College. He has been a restaurant manager since finishing college. He opened restaurants in Columbus, Ohio; Minneapolis, Minnesota; and Nashville, Tennessee. Two years before trial, he took a leave of absence from this work and began taking care of his mother full-time. James handles paying her bills, taking her to medical appointments, and arranging her medications. He also manages her assets which include her home, a barbershop, four rental houses, and over 700 acres of farmland that is leased out to a farmer. Phyllis recently sold 76 acres at $37,000 an acre, and James studied other properties in the area to determine where to reinvest the money to avoid paying capital gains taxes through a section 1031 like-kind exchange. See 26 U.S.C. § 1031.

James is not an appraiser or real estate agent. He has never bought or sold real estate himself. His only experience in buying and selling real estate involved helping his mother buy two pieces of farmland.

In 2017, the City of Marion condemned part of the 9.57 acres owned by the Trust to connect Armar Drive to Highway 100, Collins Road. The City took 0.63 acres to extend Armar Drive to intersect with the highway, which also required a temporary construction easement of 0.76 acres. The road extension split the property into two parts separated by Armar Drive: a small triangular section (0.61 acres) and a larger section (8.33 acres). The Trust retained an appraiser who opined the loss in value was $280,625. On March 29, the compensation commission awarded $403,000 as just compensation, 44% higher than the $280,625 figure put forward by the Trust's appraiser in that proceeding. Nonetheless, the Trust was dissatisfied with the result and sought $1 million in damages. The Trust did not retain an appraiser willing to testify to a higher amount than $403,000.

The Trust appealed the commission's award and demanded a jury trial. The City responded, stating, "[T]he only appealable issue is the difference in fair market value of the [property] immediately before and immediately after the acquisition on March 29, 2017." The district court entered a scheduling order requiring expert disclosures by April 1, 2018, for the Trust, and by June 1, 2018, for the City.

On May 4, after the Trust failed to designate an expert, the City moved for summary judgment and to exclude any expert witnesses on behalf of the Trust. The Trust resisted the motions. The City timely designated an expert who opined that just compensation was $82,900. The Trust informed the district court that it planned to call Phyllis to testify as to her opinion of value and to cross-examine the City's expert to prove its damages. The Trust filed Phyllis's affidavit and argued Phyllis's health issues contributed to discovery delays and that the exclusion of expert witnesses would be inappropriate. The City moved to strike Phyllis's affidavit. The district court denied the motions for summary judgment and to strike the affidavit but granted the motion to exclude the Trust's expert witnesses.

On April 12, 2019, the City filed a motion in limine requesting that the court exclude "[t]estimony or evidence of sales of real estate that are asserted by the [Trust] to be comparable to the [property] unless a foundation is laid by the [City's] expert witness" and "[t]estimony or evidence by the assessor's website of real estate comparable to the [property] because that would be on the assumption that the assessor has the expertise to express an opinion of comparability." Two days later the Trust filed its pretrial statement identifying James as a witness instead of Phyllis. Phyllis was unable to serve as a representative of the Trust at trial because of her medical condition.

The City objected to the Trust's designation of James and argued he was not properly designated as an expert, nor was he qualified to testify as an expert. The City further argued that an "[o]pinion testimony of a lay person concerning comparable sales and values is not appropriate in a condemnation appeal. Opinion testimony of a lay person must be based on firsthand knowledge of the witness," which James lacks because he was not "the buyer, or the seller or the realtor involved in" the comparable sales included in the Trust's exhibit list.

In a ruling five days before trial, the court prohibited James from testifying about comparable sales because such testimony would not be "based on his personal experience or familiarity with the transactions he wishes to call comparable and his information about the market value of the subject property is based on hearsay about how others valued the property at different times."

The Trust submitted an offer of proof on three comparable sales. In his deposition and offer of proof testimony at trial, James described his investigation into the other sales using the assessor's website to review the public real estate records. He also visited each property. He compared each site's highway access to the Trust property and their location, size, sale price, and date of sale. He testified that he found these sales while he was trying to help his mother reinvest proceeds from a sale of farmland, not at the request of the Trust's attorney for the condemnation proceeding. James conceded he otherwise had no "firsthand personal knowledge" of the three sales and that he is not an appraiser or realtor. The Trust's offer of proof included warranty deeds for a "subdivision proceeding or a tax parcel" and describes the three sales James considered comparable.

The first sale, the Fiesta Del Sol property, sold in September 2015 for $580,000 ($21 per square foot). It is located on Highway 100 about a half-mile away from the Rausch family's property, closer to the Lindale Mall development area. The new property owners demolished the structure on the property to create vacant land on which to build retail stores. Highway access was limited by a median, allowing traffic in only one direction to turn into the property. The second sale, the UnityPoint property, was purchased as vacant land in June 2016, with 3.23 acres, access to a divided four-lane highway controlled by a traffic light, and a sale price of around $9 per square foot. The land was...