State v. Central Expressway Sign Associates

• Decision Date: 31 August 2007
• Docket Number: No. 05-06-00003-CV.,05-06-00003-CV.
• Citation: 238 S.W.3d 800
• Parties: The STATE of Texas, Appellant v. CENTRAL EXPRESSWAY SIGN ASSOCIATES and Viacom Outdoor, Inc. f/k/a Infinity Outdoor, Inc., Appellees.
• Court: Texas Court of Appeals

238 S.W.3d 800

The STATE of Texas, Appellant v. CENTRAL EXPRESSWAY SIGN ASSOCIATES and Viacom Outdoor, Inc. f/k/a Infinity Outdoor, Inc., Appellees.

No. 05-06-00003-CV.

Court of Appeals of Texas, Dallas.

August 31, 2007.

Rehearing Overruled December 6, 2007.

Susan Desmarais Bonnen, Office of Atty. Gen., and Jeff Blackwelder, Asst. Atty. Gen., Austin, MO, for Appellant.

Joe H. Staley, Jr., Law Offices of Joe H. Staley, Jr., Dallas, TX, Richard L. Rothfelder, Rothfelder & Falick, LLP, Houston, TX, for Appellee.

Before Justices MOSELEY, O'NEILL, and LAGARDE¹.

OPINION

Opinion by Justice O'NEILL.

The State of Texas appeals a condemnation award entered in favor of appellees Central Expressway Sign Associates (CESA) and Viacom Outdoor, Inc. f/k/a Infinity Outdoor, Inc. In three issues, the State contends (1) the trial court erred in excluding the State's expert appraisal witness, (2) the trial court erred in admitting valuation testimony of the property owners, and (3) the evidence is legally and factually insufficient to support the jury's damages award. For the following reasons, we affirm the trial court's judgment.

The State filed a petition for condemnation seeking to acquire land in the City of Dallas. The land was located at U.S. 75 and IH 635 and was required for a highway improvement known as the "high five interchange." At the time the petition was filed, the land was being used for a billboard site. The billboard was on an easement owned by appellee CESA who leased the billboard site to appellee Viacom. Viacom in turn sold space on the billboard to advertisers.

After the State filed its petition, the trial court appointed special commissioners, who determined the fair market value of the property was $2,012,300 to be awarded to the various fee owners, including CESA as the owner of the easement, and Viacom as the owner of the leasehold on the easement. The State objected that the award was excessive and demanded a jury trial on the issue of the fair market value of the land. Viacom and the State subsequently settled most of the dispute between them, including the issue of Viacom's compensation for its interest in the land taken. The issue of the fair market value of the land taken nevertheless had to be tried because the State did not settle with CESA.

Prior to trial, the court held a hearing to determine the admissibility of expert testimony. After the hearing, the trial court struck both the State's and CESA's valuation experts. As a consequence, no expert testimony was offered at trial and the only witnesses on value were CESA's principals, George Allen and Randolph Perry, who were permitted to testify as owners of the easement. Allen testified that, in his opinion, the fair market value of the land taken was $2,500,000. Perry opined that the land was worth between $2,500,000 and $2,800,000. The jury found that the fair market value of the land was $1,850,000. The trial court entered a judgment in favor of CESA and Viacom jointly in accordance with the jury's verdict. The State appeals.

In its first issue, the State asserts the trial court erred in excluding the testimony of its expert witness, Grant Wall. The testimony of an expert appraisal witness in a condemnation action, like other expert testimony, must be relevant to the issues in the case and based upon a reliable foundation. Exxon Pipeline Co. v. Zwahr, 88 S.W.3d 623, 628 (Tex.2002); Guadalupe-Blanco River Auth. v. Kraft, 77 S.W.3d 805, 807 (Tex.2002). When an expert's opinion is challenged, the trial court acts as an evidentiary gatekeeper to screen irrelevant and unreliable expert evidence. Zwahr, 88 S.W.3d at 629. The burden is on the proponent of the expert to establish reliability. Guadalupe-Blanco River Auth., 77 S.W.3d at 807. The trial court has broad discretion in determining the admissibility of expert testimony. Zwahr, 88 S.W.3d at 629.

Under the "undivided fee rule," in a condemnation proceeding where there are different interests in real estate, the valuation of the various interests is usually determined by ascertaining the market value of the property as though owned exclusively by one party. State v. Ware, 86 S.W.3d 817, 822-23 (Tex.App.-Austin 2002, no pet.) (citing City of Waco v. Messer, 49 S.W.2d 822, 823 (Tex.Civ.App.Waco 1932), rev'd on other grounds, 124 Tex. 417, 78 S.W.2d 169 (1935)); see also Urban Renewal Agency of City of Lubbock v. Trammel, 407 S.W.2d 773, 774 (Tex.1966). The market value so found should then be apportioned among the various interests. Ware, 86 S.W.3d at 823; Trammel, 407 S.W.2d at 774.

At the pretrial hearing, Wall testified that, in his opinion, the value of the property was about $360,000. Wall testified that he used an income capitalization approach to value the property. Specifically, he determined the rental income CESA received and then capitalized that income into a value. Wall testified that his value opinion included the value of both CESA's and Viacom's interest. In calculating a value, Wall considered only rent CESA received from "the ground;" he did not include any income Viacom received from advertisers because, in his opinion, such income was not attributable to the land, but was business income. Further, Wall opined that Viacom's leasehold interest was zero because the site was leased at the market rate.

After hearing the substance of Wall's testimony, the trial court determined it was unreliable apparently because Wall did not consider Viacom's interest when he valued the land. On appeal, the State argues this ruling was error for a number of reasons. We begin with its assertion that Wall properly disregarded Viacom's interest in valuing the property because Viacom had settled its dispute with the State.

Although Viacom and the State did reach an agreement regarding Viacom's recovery, Viacom was not dismissed from the case. In the jury charge, the jury was asked to determine the fair market value of the land taken, which included Viacom's interest. In accordance with the jury verdict, the trial court's judgment awarded the fair market value to CESA and Viacom jointly. None of the parties before us complains of the manner this case was submitted to the jury or that the judgment was entered in favor of both CESA and Viacom. Given these circumstances, the State cannot now assert that it was seeking to obtain only CESA's interest. See Ware, 86 S.W.3d at 824 (when State seeking to obtain only one interest, only the value of that interest need be determined).

Moreover, the State agrees that under the "undivided fee rule," any market valuation must include all interests in the property, including Viacom's interest. Under this rule, which the State concedes applies, the fact finder should determine the value of the entire property as though owned by a single entity. The State cannot take the simultaneous and inconsistent position that only CESA's encumbered interest should have been valued.

Having determined that the manner in which this case was submitted as well as the undivided fee rule requires valuation of the property as though it was owned exclusively by one party, we turn to the State's argument that Wall's opinion, which disregarded income Viacom received from advertising sales in determining income generated by the property, was nevertheless reliable. The State suggests Wall properly ignored income Viacom received from selling billboard space because the billboard structure itself was personal property, not real property. The State thus devotes much of its argument to whether the billboard structure was real or personal property. However, the trial court did not exclude Wall's testimony because he treated the billboard as personal property. To the contrary, the trial court ruled in favor of the State on this issue and excluded CESA's expert because he treated the billboard as realty. Moreover, at trial, the court specifically instructed the jury that the billboard was personal property. Thus, the State's argument that the billboard is personal property presents nothing to review.

Next, the State argues the trial court abused its discretion in determining Wall's method of applying the income approach to land valuation, under the facts of this case, was unreliable.² Under the income approach, income-producing property is valued by estimating its future income and applying a capitalization rate. City of Harlingen v. Estate of Sharboneau, 48 S.W.3d 177, 183 (Tex.2001). Although Wall used an income approach to valuing the land, he did not consider income this billboard site or comparable billboard sites generated through advertising. According to the State, income Viacom received from its use of the billboard site cannot be considered because the land did not generate the advertising income. Rather, the State contends that income was "business income," which is not recoverable in an eminent domain case. CESA responds that the advertising income Viacom received from using the property had to be considered because, utilizing the undivided fee rule, the income was generated by the property and all income generated from the property should be considered, regardless of whether it was retained by Viacom or paid to CESA as rent.

Profits received from conducting a business on property are generally not admissible to prove value in an eminent domain case. Herndon v. Housing Auth. of City of Dallas, 261 S.W.2d 221, 222 (Tex.Civ.App.-Dallas 1953, writ ref'd). This is because (1) the business, which was not taken, can be operated in another location, and (2) the amount of profit depends more upon capital invested, general business conditions and the trading skill and business capacity of the person conducting it than it does on the location of the business. Id. On the other hand, evidence of profits derived from the intrinsic nature of the real estate itself, as distinguished from profits derived from operating a business on the land, can be considered in determining land...