State ex rel. Miller v. Wells Fargo Bank of Arizona, N.A.

• Decision Date: 20 August 1998
• Docket Number: No. 1CA-CV97-0389,1CA-CV97-0389
• Citation: 978 P.2d 103
• Parties: 277 Ariz. Adv. Rep. 4 STATE of Arizona, ex rel., Charles L. MILLER, Director, Department of Transportation, Plaintiff-Appellant, v. WELLS FARGO BANK OF ARIZONA, N.A. (f/k/a First Interstate Bank of Arizona, N.A.) Defendant-Appellee.
• Court: Arizona Court of Appeals

Page 103

978 P.2d 103

277 Ariz. Adv. Rep. 4

STATE of Arizona, ex rel., Charles L. MILLER, Director, Department of Transportation, Plaintiff-Appellant, v. WELLS FARGO BANK OF ARIZONA, N.A. (f/k/a First Interstate Bank of Arizona, N.A.) Defendant-Appellee.

No. 1CA-CV97-0389.

Court of Appeals of Arizona Division 1, Department E.

Aug. 20, 1998.

Review Denied May 25, 1999.

Grant Woods, Attorney General By James R. Redpath, Assistant Attorney General and Joe Acosta, Jr., Assistant Attorney General and George E. "Ted" Mariscal, Assistant Attorney General, Phoenix, for Appellant.

Streich Lang, P.A. By Dan M. Durrant and Robert E. Miles, Phoenix, and Bell Law Office By Leonard M. Bell, Scottsdale, for Appellee.

OPINION

GARBARINO, Judge.

¶1 The State appeals from the jury's award of severance damages to Wells Fargo Bank of Arizona (the Bank) to compensate for property taken to facilitate construction of the northwest section of the Outer Loop Freeway (the freeway) in the Phoenix area. The State asserts that the trial court erred by not granting its motions for a directed verdict or its motion for judgment notwithstanding the verdict (JNOV). The State also claims that it is entitled to a new trial because the trial court erroneously admitted evidence and improperly instructed the jury. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 The Arrowhead Ranch master planned community (Arrowhead Ranch) was designed in the early 1980's as a major residential community consisting of numerous subdivisions, two Arnold Palmer designed golf courses, a system of lakes, and many other amenities. On February 13, 1987, the State filed multiple condemnation cases in order to partially take residentially-zoned parcels in Arrowhead Ranch needed for construction of the freeway. After approximately eleven years of proceedings, the court held a condemnation trial on four of the parcels.

¶3 At trial, the Bank called Dr. Claude Gruen, an urban economist, to testify regarding the general negative effect of freeways on adjoining residential property values. Gruen stated that proximity to a freeway causes problems such as dirt, noise, pollution, and vibration, resulting in less demand and lower property value for the residential areas closest to the freeway. Gruen concluded that the freeway reduced the property value of the residential parcels which adjoined the freeway.

¶4 The Bank later called John Fiene, a real estate appraiser, to testify regarding the value of the parcels in question. Fiene stated that he had completed an evaluation and prepared a report regarding the parcels' fair market value. Fiene noted that the condemned parcels' highest and best use was residential. He stated that as a result of the condemnation, the parcels closest to the freeway lost their intrinsic value and could not be sold by themselves.

¶5 Fiene compared the sales data of other master planned communities to the sales at Arrowhead Ranch, and he compared sales of Arrowhead Ranch homes built by the same builder near the freeway to homes built further away from the freeway. He concluded that the values of the lots in close proximity to the freeway were generally much lower in comparison to lots more distant from a freeway.

¶6 The Bank offered evidence to prove that the uncertainty of the location of the freeway, its construction schedule, and its elevation further drove down the parcels' values. The Bank also offered evidence that the Arizona Department of Transportation had refused to commit to the location of the freeway or its completion date. After considering all of these factors and the proximity of the freeway to the condemned parcels, Fiene determined that the Bank's severance damages were more than thirty-five million dollars. Fiene noted that the freeway was not a benefit to Arrowhead Ranch.

¶7 At the conclusion of the Bank's case, the State moved for multiple directed verdicts on the issue of damages. The trial court denied each of these motions.

¶8 The State proceeded with its case and called John Herbert, an economist, who testified that the loss of sales volume and decreases in land value at Arrowhead Ranch were related to the economic downturn of the 1980's. The State also called Robert Francy as its appraisal expert. Francy testified that the freeway was a benefit to Arrowhead Ranch. He further stated that the freeway's construction delay neither caused a reduction in the value of the parcels nor deterred potential developers from buying the parcels. Francy implied that the lack of purchasers and the reduction in value resulted from the economic downturn of the 1980's. He concluded that the Bank should not receive severance damages for the parcels.

¶9 At the close of evidence, the State moved again for directed verdicts. The court denied the motions. The court instructed the jury, which after deliberations, awarded the Bank approximately four million dollars in severance damages for three of the four parcels. The court denied the State's motion for JNOV and its motion for a new trial. The State timely appealed.

ISSUES

I. Whether the State was entitled to a directed verdict or JNOV on the issue of severance damages.

II. Whether the trial court erred in its evidentiary rulings entitling the State to a new trial.

III. Whether the trial court improperly instructed the jury.

DISCUSSION

I. Directed Verdict or JNOV for Severance Damages

¶10 Severance damages are those "which will accrue to the portion not sought to be condemned by reason of its severance from the portion sought to be condemned...." Ariz.Rev.Stat. Ann. (A.R.S.) § 12-1122(A)(2) (Supp.1997). Damage resulting from proximity to a freeway built after condemnation is one type of severance damage. See generally State ex rel. Miller v. J.R. Norton Co., 158 Ariz. 50, 52, 760 P.2d 1099, 1101 (App.1988) ("[E]vidence of any factor bearing on the market value of the retained parcel, such as ... proximity to the highway ... is admissible.").

¶11 The State argues that the trial court should have granted its motions for directed verdict or, in the alternative, JNOV because: 1) the Bank failed to present evidence demonstrating that the proximity damages were special and unique to the three parcels or that people were denied access from the parcels to the public roadway, 2) the evidence was undisputed that the portions of the freeway affecting the parcels were completed in five years or less, not ten years, and/or 3) Fiene failed to use a recognized valuation method in determining the severance damages. We disagree.

A. Standard of Review

¶12 We review a denial of a motion for a directed verdict or JNOV de novo. Shoen v. Shoen, 191 Ariz. 64, 65, 952 P.2d 302, 303 (App.1997). "[W]e view the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party." Id. A directed verdict or JNOV is granted "only if the facts presented in support of a claim have so little probative value that reasonable people could not find for the claimant." Id.

B. Proximity Damages

¶13 Relying on J.R. Norton and Arizona Hercules Copper Co. v. Protestant Episcopal Church Corp. of Arizona, 21 Ariz. 470, 190 P. 85 (1920), the State claims that the Bank was not entitled to severance damages because it failed to demonstrate that the damage to the parcels was special and unique.

¶14 J.R. Norton also involved land taken by the State in order to facilitate construction of a freeway. 158 Ariz. at 51, 760 P.2d at 1100. In that case, the court accepted the concept that traffic noise constitutes general damage affecting all property owners in the neighborhood and, as such, is not compensable because it is not unique and peculiar to the property. Id. at 52, 760 P.2d at 1101. However, the court went on to explain that it could apply this general statement of the law to the facts of J.R. Norton because J.R. Norton involved a taking. See id. (distinguishing compensability of noise damage for non-condemned property owners as opposed to damages suffered by condemned property owners).

¶15 J.R. Norton, like the case before us, involved a severance. A taking is a necessary element of a severance case, and the taking, no matter how large or small, is the distinguishing factor. Once the condemnee establishes a taking, any factor bearing on the market value of the remaining parcel is admissible. See id. We do not believe that J.R. Norton or Arizona Hercules require that in order to collect severance damages as a result of a taking, the condemnee must show that the damages suffered are unique to the condemned property.

¶16 The State poses a hypothetical involving a freeway built abutting the land of two separate single family homes in order to argue that "public policy ... support[s] a rule prohibiting compensation for general proximity factors." In the hypothetical, the State takes a small part of Homeowner A's property in order to construct a freeway. The State does not take any of Homeowner B's property. The State argues that a rule allowing the jury to consider all damages potentially leading to the diminution of the land value only after a taking would lead to unequal treatment between the homeowners. For example, in the hypothetical, Homeowner A could claim severance damages while Homeowner B could not, because the State only took land from Homeowner A.

¶17 Although at first blush the outcome of the State's hypothetical may seem inequitable, we believe it is a fair representation of the method by which Arizona landowners are compensated for severance damages. The Arizona Constitution mandates just compensation for the taking of private property. See Ariz. Const. art. 2, § 17. In the hypothetical the State took property from Homeowner A, and it is constitutionally required to justly compensate for that taking. The State did not take land from Homeowner B, and it need not compensate Homeowner B. According to the State, equity would be better served if the State did not compensate either...