State ex rel. State Highway Commission v. Southern Development Co.

• Citation: 509 S.W.2d 18
• Decision Date: 08 April 1974
• Docket Number: No. 56949,No. 2,56949,2
• Parties: STATE of Missouri ex rel. STATE HIGHWAY COMMISSION of Missouri, Plaintiff-Respondent, v. SOUTHERN DEVELOPMENT COMPANY and the Kansas City Southern Railway Company, corporations, Defendants-Appellants
• Court: United States State Supreme Court of Missouri

Page 18

509 S.W.2d 18

STATE of Missouri ex rel. STATE HIGHWAY COMMISSION of

Missouri, Plaintiff-Respondent, v. SOUTHERN DEVELOPMENT COMPANY and the Kansas City Southern

Railway Company, corporations, Defendants-Appellants.

No. 56949.

Supreme Court of Missouri, Division No. 2.

April 8, 1974.

Motion for Rehearing or to Transfer to Court en Banc Denied

May 13, 1974.

Robert L. Hyder, Earl H. Schrader, Jr., Minor C. Livesay, Frank O. Benson, Kansas City for plaintiff-respondent.

Robert D. Youle, Thomas J. Wheatley, Kansas City, for defendants-appellants; Lathrop, Koontz, Righter, Clagett, Parker & Norquist, Kansas City, of counsel.

FINCH, Judge.

This is a condemnation suit wherein the State Highway Commission (SHC) acquired right-of-way easements for construction of a portion of Interstate Highway I--435, a circumferential highway around Kansas City. Commissioners who were appointed awarded $850,000 to Southern Development Company (Development) and $5,000 to Kansas City Southern Railway Company (KCS). Following trial in which the jury awarded them damages of $166,000 and $9,000, respectively, defendants have appealed. Since defendants' evidence supported damages in the amounts of $916,650 and $10,855, respectively, and this appeal was taken prior to January 1, 1972, we have jurisdiction on the basis of the amount involved. We reverse and remand.

In this suit SHC undertook to condemn right-of-way easements for approximately two miles of the route for I--435. The petition sought 82 acres of the 1481 acres then owned by Development and 1.67 acres of the 19.31 acres owned by KCS. Location of the lands owned by these defendants at the time of the taking, including the right-of-way condemned for I--435, was shown on Defendants' Exhibit 2, as follows:

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

The property owned by Development is designated on the foregoing exhibit as Tracts 2, 2A and 2B. KCS owned the long narrow strip known as the Hawthorne Lead Branch located between Tracts 2A and 2B. SHC condemned 0.86 acres from that strip. In addition, it condemned 0.81 acres from what was known as the Air Line Branch which was to the south of the foregoing tracts and does not appear on Defendants' Exhibit 2.

KCS is an operating railroad and Development is its wholly owned subsidiary engaged in landowning and development operations for the mutual benefit of the two companies. By the early 1950's Development had assembled for use as an industrial park a total of 1784 acres located south and west of the Missouri River and north of Blue River in the area generally referred to as the Northeast Industrial District of Kansas City. In the western portion of this tract Development had installed sewers and utilities and had dedicated some streets, including Front Street. By the time this condemnation suit was instituted, Development had sold some 28 tracts, consisting of approximately 303 acres, to 26 different business concerns. The size of the tracts varied from slightly more than one acre up to 50 acres. A considerable number of the tracts were sold in the west area where the improvements had been installed. The larger tracts, particularly the ones sold to Kansas City Power & Light Company and Chemagro Corporation, were in the eastern end of the industrial park.

Since the proposed I--435 crossed the KCS tracks at two places, SHC, as required by § 389.640, RSMo 1959, V.A.M.S., submitted to the Missouri Public Service Commission for approval the planned grade separations at those two locations. The Commission approved the plans as submitted. Construction plans which conformed to that approval were filed in the condemnation proceeding, and subsequently the grade separations were so constructed.

In support of their claim for damages, defendants used as their expert witness on value Donald T. McMahon, who had been involved in the acquisition of and sales from this industrial park as well as having similar experience with other industrial tracts. He testified that the fair market value of Development's property before the condemnation was $13,112,000 and that the fair market value after the taking was $12,019,450, or a decrease in fair market value of $1,092,550. In explanation of this decrease in value, he first detailed the sales previously made, including the fact that most recent sales in the more fully developed west and of Tract 2 had been on the basis of 40cents to 50cents per square foot, which, converted to a price per acre, would be $17,424 to $22,000, and that recent sales in Tracts 2A and 2B had been on the basis of $6,500 per acre. Based on his knowledge of the property, including prior comparable sales, he fixed the value of the 62 acres taken from Tract 2 at $10,000 per acre or a total of $620,000, and the 20 acres taken from Tracts 2A and 2B at a value of $6,500 per acre or a total of $130,000.

McMahon also testified as to damage to the remaining portions of the tract resulting from the taking. Severance damage to the 145 acres in Tract 2 lying east of I--435 was fixed at $1,000 per acre or $145,000. Severance damage to the portions of Tracts 2A and 2B lying west of I--435 were fixed at $16,650 and $5,000, respectively. In addition, McMahon testified that after construction of I--435, access to the 346.602 acres in Tract 2A, which were east of I--435, was limited to that provided by the railroad easements granted KCS by Kansas City Power & Light Company, and that the tract was landlocked insofar as access by road was concerned. This, he said, reduced the value of land in that area by $500 per acre or a total of $173,500. However, the trial court subsequently construed the Kansas City Power & Light Company railroad right-of-way easements as permitting construction of vehicular roads and required deduction by McMahon of said sum of $173,500 from his prior total damage figure of $1,092,550.

Defendants also contended at the trial that construction of the Hawthorne Lead Branch grade separation so as to allow room for only one railroad track instead of four, as requested by KCS, would result in inadequate rail service to tracts east of I--435 with a resultant further reduction in value of that land. Development sought by witnesses Smith and Zimmerman to show damage by reason of this item of $235,000. However, for reasons more fully developed subsequently in this opinion, that evidence was excluded. In addition, KCS sought to show a resulting diminution in value of its property of $13,000, but that evidence also was excluded.

The expert witness for SHC was Vincent J. O'Flaherty, an experienced appraiser. He testified that he did not use the comparable sales approach in determining value. By way of explanation, he pointed out that this was a large tract and it would be difficult to find a buyer for the whole property; also that sales were made more difficult by reason of certain deed restrictions applicable to all the property in the industrial park. These restrictions provided that any purchaser agreed that any inprovements placed thereon must have the prior approval of Development, that if at any time a purchaser desired to sell any unimproved part of his tract, he must first offer to sell that portion back to Development on the basis of the original sale price, and that the installation of all spur tracks must have the prior written approval of seller. It was O'Flaherty's contention that all of these factors affected marketability and made it impossible for him to use the comparable sales approach in determining fair market value.

O'Flaherty utilized what he described as a cost of development approach. He first concluded that average sales per year would be 24.75 acres and that based on a total tract of 1481 acres, it would take a period of 61 years to dispose of all the property. Then, on the basis of recent sales to Kansas City Power & Light Company and Chemagro Corporation (but not considering recent sale prices in the portion of the tract which had been improved with streets, sewers, etc.), he determined upon a price of $6,500 per acre. He then adjusted that figure by a $1,000 per acre increase for inflation, thus arriving at a basic value of $7,500 per acre. He then concluded that the rate of sale would be perhaps 30 acres per year, rather than his original estimate of 24.75 acres, reducing the total disposition period to 50 years. Since the money to be derived each year from sales would not be in hand at the first of the year but would take a full year to acquire, he discounted the sums, using the Inwood Tables. He multiplied the yearly income from sales times the discount, then times the total number of years to completely absorb the tract to arrive at a before taking value of $2,450,000 for the tract. Then, considering the addition of the Front Street diamond interchange and the proximity of access of the tract to I--435, he reduced the absorption rate to 28 years, and again discounting and multiplying, arrived at an after taking value of $3,700,000 for a net gain of $1,250,000 as a result of the taking of 82 acres. On that basis, he concluded that Development did not suffer any loss.

O'Flaherty did not testify with respect to a before and after value of the KCS land but did state that it suffered damage in an amount of at least $8,365.

Defendants assert various grounds for reversal and remand of this case for a new trial. One of those grounds is that the trial court erred in refusing Instruction B which would have withdrawn from jury consideration all general benefits to the remaining property of defendants resulting from the condemnation. That instruction was as follows:

'INSTRUCTION NO. B

'In determining the value of defendants' remaining property, you must not consider any general benefit which is conferred upon all property within useable range of the new highway.'

Instruction B was MAI 34.03 verbatim. Notes on Use with reference to that instruction stated, in part, as...