State v. Harrell Ranch, Ltd.

• Decision Date: 29 August 2008
• Docket Number: No. 03-07-00052-CV.,03-07-00052-CV.
• Citation: 268 S.W.3d 247
• Parties: The STATE of Texas, Appellant, v. HARRELL RANCH, LTD. and KGB Partnership, Ltd., Appellees.
• Court: Texas Court of Appeals

268 S.W.3d 247

The STATE of Texas, Appellant, v. HARRELL RANCH, LTD. and KGB Partnership, Ltd., Appellees.

No. 03-07-00052-CV.

Court of Appeals of Texas, Austin.

August 29, 2008.

Rehearing Overruled October 21, 2008.

Susan Desmarais Bonnen, Assistant Attorney General, Transportation Division, Austin, TX, for Appellant.

Kevin J. Maguire, Angela Clanton Green, P. Michael Jung, Strasburger & Price, L.L.P., Edward Dimare Vassallo, Jr., Dallas, TX, for Appellees.

Before Chief Justice LAW, Justices WALDROP and HENSON.

OPINION

G. ALAN WALDROP, Justice.

This appeal arises from a condemnation proceeding in which the State of Texas acquired 173.712 acres of land and a .087-acre drainage easement from Harrell Ranch, Ltd. for the construction of a state highway. The condemnation proceeding involved not only the determination of the value of the land taken and the resulting diminution in value of the remainder property, but also Harrell Ranch's counterclaim for lost profits from its cattle ranch business due to a temporary impairment of access to its remainder property. The State appeals Harrell Ranch's recovery of lost profits, arguing that (1) there was no material and substantial impairment of access, (2) Harrell Ranch's claim for lost profits was inconsistent with its position in determining the post-taking value of the remainder property that the property had lost its suitability for a cattle ranch business, and (3) Harrell Ranch's evidence of lost profits did not include necessary deductions for expenses. The State also complains that there was insufficient evidence to support the trial court's judgment on the diminution in value of the remainder property. We affirm the judgment of the trial court.

Factual and Procedural Background

This is a condemnation proceeding initiated by the State of Texas. The subject property, a 290.374-acre rectangular piece of land stretching from north to south, was eastern Travis County ranch land owned in fee simple by Harrell Ranch, Ltd. The property's southern boundary abutted FM 969, and a northern portion of the property extended to the east and abutted Gilbert Lane, an unpaved road.

The State acquired 173.712 acres of the Harrell Ranch property by condemnation for the construction of State Highway 130.¹ The condemned portion ran north to south through the Harrell Ranch property, leaving 116.662 acres divided into nine remainder tracts of land.² The remainder tracts on the east side of SH 130, from south to north, are: Tract 1, an 8.365-acre tract immediately to the north of FM 969; Tract 2, a 5.154-acre tract contiguous to Tract 1; Tract 3, a 7.879-acre tract contiguous to Tract 2; Tract 4, the largest tract, consisting of 46.792 acres and abutting Gilbert Lane to the east, but separated from all other remainder tracts; and Tract 5, a 1.251-acre triangular tract separated from all other remainder tracts. The remainder tracts on the west side of SH 130, from north to south, are: Tract 6, a 15.585-acre tract separated from all other remainder tracts; Tract 7, a 1.068-acre triangular tract separated from all other remainder tracts; Tract 8, a 13.820-acre tract contiguous to Tract 9; and Tract 9, a 16.748-acre tract immediately to the north of FM 969.

On June 24, 2005, the special commissioners awarded Harrell Ranch $2,107,650 for the condemnation. The State deposited this amount on July 14, 2005, to take possession of the condemned portion of the Harrell Ranch property. Harrell Ranch timely objected to the special commissioners' award and, subsequently, filed a counterclaim for inverse condemnation³ alleging denial of access to the remainder tracts.

At the trial, the parties' experts' valuations of the Harrell Ranch property differed significantly, with the two experts for Harrell Ranch providing values of $7,305,554 and $7,700,000, and the State's expert valuing the property at $2,890,080. The primary reason for this disparity was particulars having to do with the nature of Harrell Ranch's use of its property.

Harrell Ranch purchased the property in order to produce specialty beef cattle. According to Samuel Harrell and Howard Kay, owners of Harrell Ranch, the land was selected primarily because of a topsoil that would support high-protein grasses, available groundwater low in nitrate, and proximity to a major airport to fly in potential clients. Harrell Ranch spent $961,000 on improving the pastures with irrigation systems and high-protein grasses, and over $300,000 for the necessary buildings. In order to produce beef with a low amount of saturated fat and a high degree of marbling, Harrell Ranch cross-bred Japanese Wagyu bulls with Angus cows. The property itself was certified as organic by the Texas Department of Agriculture, which certification requires the land to be kept free from prohibited materials for at least three years. Harrell Ranch also obtained "NHTC" certification by the U.S. Department of Agriculture, which is necessary for shipment to the European Union and required, according to Harrell's testimony, that the cattle spend their entire lives on the Harrell Ranch property. Neither the organic certification nor the NHTC certification could be transferred to another property. The beef from the Harrell Ranch cattle was sold to high-end restaurants and hotels in Japan, Europe, and the United States, commanding prices above $3,000 per carcass rather than a price below $1,000 for regular cattle, according to Harrell. The initial purchase of land occurred in 1993, the first harvest was in 1999, the certifications were obtained in 2001, and Harrell Ranch harvested close to 600 head of cattle in 2003. The property maintained 1,130 head of cattle at one point.

In addition to its objection to the special commissioners' award for the taking of land, Harrell Ranch sought lost profits resulting from the State's denial of access to the remainder property commencing on the date of the taking. The court held a pre-trial hearing regarding Harrell Ranch's allegation of denial of access.⁴ The State's petition for condemnation granted access to all remainder tracts from the "service/access road" of SH 130. However, Harrell Ranch argued that such service road did not yet exist and that the haul road, which was completed in August 2005 for construction purposes and would eventually become the service road, was unsafe due to the State's construction vehicles and did not provide reasonable access. Harrell Ranch also argued that it had no access to FM 969 because the condemned property included a narrow strip of land separating Tract 9 from the road and a narrow strip of land separating Tract 1 from the road. The trial court held that there was a "total and temporary denial of legal access" to each of the tracts except for Tract 4, which, Harrell Ranch conceded, had access to Gilbert Lane. The trial court then held, alternatively, that there was a "material and substantial impairment of physical access" to the same tracts, except for Tracts 8 and 9 because the court concluded that Harrell Ranch could physically access those tracts from FM 969 by a driveway that existed prior to the taking.

At trial, Harrell Ranch submitted evidence that because of its lack of access to the property, 408 of the 432 head of cattle remaining on the property were removed and sold at liquidation prices between July 14 and August 4, 2005, resulting in a loss of $1,467,488. Regarding the 173.712 acres taken, Harrell Ranch's experts presented values of $4,458,256 and $4,100,044, whereas the State's expert testified to a value of $1,328,589. For the diminution in the value of the remainder, Harrell Ranch's experts testified to $2,816,820 and $2,661,934, and the State's expert testified to a diminution of $861,415. The jury found that Harrell Ranch was entitled to $2,312,026 for the property taken, $3,178,983.40 for the remainder property, and $1,467,488 in lost profits from the denial of access. The trial court rendered judgment on the verdict.

The State appeals the award of lost profits and the award for the diminution in value of the remainder. Regarding the award of lost profits, the State argues that (1) there was no denial of access, (2) because Harrell Ranch's appraisals of the diminution in value of the remainder included the property's loss of certifications and utility as a cattle ranch on the date of taking, no lost profits should have been available, and (3) Harrell Ranch failed to deduct expenses in its calculation of lost profits. Regarding the award for the remainder's diminution in value, the State argues that the amount is outside the range of value evidence presented at trial and is, therefore, not supported by the evidence.

Denial of Access

As a general rule, lost profits are not available in an eminent domain proceeding. See State v. Sungrowth VI, Cal., Ltd., 713 S.W.2d 175, 177 (Tex.App.-Austin 1986, writ ref'd n.r.e.). Evidence of lost profits may be admitted not as a separate item of damages, but as it bears upon the value of the land taken or the diminution in value of the remainder. See id. The exception to this rule is where there is a "material and substantial interference" with access to the property consisting of a total temporary restriction of access, a partial permanent restriction of access, or a temporary restriction of access resulting from illegal or negligent activity. City of Austin v. Avenue Corp., 704 S.W.2d 11, 13 (Tex.1986). But see AVM-HOU, Ltd. v. Capital Metro. Transp. Auth., 262 S.W.3d 574 (Tex.App.-Austin 2008, no pet. h.) (lost profits not compensable if there is a total taking leaving no remainder). The trial court found that Harrell Ranch had suffered a total temporary restriction of access to its remainder property.

Whether there has been a material and substantial impairment of access is a question of law. State v. Heal, 917 S.W.2d 6, 9 (Tex.1996). Consequently, a trial court's determination regarding a total temporary restriction of access...