Tri–county Metro. Transp. Dist. of Or. v. Posh Ventures Llc

• Jurisdiction: Oregon
• Parties: TRI–COUNTY METROPOLITAN TRANSPORTATION DISTRICT OF OREGON, an Oregon municipal corporation, Plaintiff–Appellant,v.POSH VENTURES, LLC, a Washington limited liability corporation, Defendant–Respondent,andMerrill Lynch Capital, a division of Merrill Lynch Business Financial Services, Inc., a Delaware corporation, Defendant.Posh Ventures, LLC, a Washington limited liability corporation, Third–Party Plaintiff–Respondent Cross–Appellant,v.City of Portland, Third–Party Defendant–Appellant Cross–Respondent.
• Citation: 244 Or.App. 425,261 P.3d 33
• Docket Number: 071214786; A142359.
• Court: Oregon Court of Appeals
• Decision Date: 20 July 2011

244 Or.App. 425

261 P.3d 33

TRI–COUNTY METROPOLITAN TRANSPORTATION DISTRICT OF OREGON, an Oregon municipal corporation, Plaintiff–Appellant,

v.POSH VENTURES, LLC, a Washington limitedliability corporation, Defendant–Respondent,andMerrill Lynch Capital, a division of Merrill Lynch Business Financial Services, Inc., a Delaware corporation, Defendant.Posh Ventures, LLC, a Washington limitedliability corporation, Third–Party Plaintiff–RespondentCross–Appellant,

v.City of Portland, Third–Party Defendant–AppellantCross–Respondent.

071214786; A142359.

Court of Appeals of Oregon.

Argued and Submitted Dec. 2, 2010.Decided July 20, 2011.

Gregory R. Mowe, Portland, argued the cause for appellant and appellant-cross-respondent.With him on the briefs were Stoel Rives LLP, James N. Westwood, Michelle Rudd, and Reilley D. Keating.Bruce H. Cahn, Portland, argued the cause for respondent-cross-appellant.With him on the briefs were Ball Janik LLP, Robert L. Taylor, and Jacob A. Zahniser.Before SCHUMAN, Presiding Judge, and WOLLHEIM, Judge, and ROSENBLUM, Senior Judge.ROSENBLUM, S.J.

PlaintiffTri–County Metropolitan Transportation District of Oregon(TriMet) and third-party defendantCity of Portland¹ appeal from a general judgment entered after a jury awarded $756,000 to defendantPosh Ventures, LLC(Posh) for the diminution of value to property owned by Posh.The action, and thus the jury's award, was based on ORS 105.855, which requires a city or mass transit district to compensate commercial property owners for the reduction in fair market value of property caused by restrictions to the street traffic lane adjacent to the commercial property.In this case, the jury found that the city restricted private vehicle access adjacent to a hotel property owned by Posh that diminished the fair market value of the property by $756,000.After the jury verdict, Posh sought attorney fees and costs and the trial court awarded a portion of the fees sought.TriMet appeals from the general judgment, and Posh cross-appeals from the supplemental judgment awarding only a portion of its attorney fees.We affirm.

Unless otherwise noted, the following facts are undisputed.This case arises out of TriMet's construction of the Portland Mall Segment of the South Corridor Light Rail Project in downtown Portland.As part of that project, TriMet constructed a light rail line on SW 6th Avenue and restricted private vehicle access along SW 6th Avenue, including the traffic lane adjacent to property owned by Posh.When TriMet originally identified the need to restrict private vehicle access on SW 6th Avenue next to the property, Starwood Hotels & Resorts Worldwide, Inc.(Starwood) was operating a Days Inn Hotel on the site.The main entrance of the Days Inn was located on SW 6th Avenue, but the hotel also had access from SW 5th Avenue and a secondary entrance to the hotel on SW Clay Street.²

In January 2006, TriMet initially informed the general manager of the Days Inn that TriMet intended to close the hotel's access from SW 6th Avenue.The general manager voiced concerns about the closure and asked TriMet to reconsider, but TriMet confirmed in March 2006 that the access would be closed.A few months later, Posh began to investigate purchasing the Days Inn.In February 2007, Posh and Starwood executed a letter of intent for Posh's purchase of the property for $14 million.Representatives from TriMet and Posh met in April 2007 to discuss the matter.In May 2007, Posh entered into a purchase and sale agreement with Starwood for the Days Inn property.The transaction closed on June 14, 2007.Posh continued to operate the hotel in its then current condition until November 2007, when it closed the hotel to renovate the property with the intent of reopening it as the Hotel Modera.

Although Posh initially believed that a variance might be negotiated to allow continued access from SW 6th Avenue, TriMet quickly confirmed, before the transaction closed, that the decision to close access from SW 6th Avenue was final.Once the planned closure was confirmed, Posh began plans to reconfigure the property in anticipation of the access restriction.In November 2007, Posh began construction on the hotel remodel.To remedy the problems caused by the lost access, Posh turned the SW Clay Street entrance into the main entrance of the hotel by creating a turnaround driveway and porte cochere ³ off the SW Clay Street entrance and reorienting and expanding the hotel lobby to the new entrance.They also “constructed a trash enclosure and other visual screens for the hotel's utilities,” converted the parking lot by the old SW 6th Avenue entrance into a courtyard, and added a ramp to the lower parking level to mitigate a traffic flow problem created by the restriction.

In the meantime, TriMet initiated a condemnation action against Posh on December 11, 2007, seeking a temporary construction easement and the permanent vehicle access restriction on SW 6th Avenue.TriMet's complaint maintained that the true value of the temporary easement and permanent access restriction was $21,625.In response, Posh filed an answer and third-party complaint against the City of Portland, seeking recovery under ORS 105.855 for the diminution of the property's value resulting from the access restriction.⁴

At TriMet's request, in April 2008, the City of Portland used its police powers to revoke the hotel's access from SW 6th Avenue effective May 1, 2008.Although not entirely clear, it appears that the bulk of the reconfiguration that Posh attributes to the access restriction was completed by May 1, 2008.Hotel Modera opened to the public on June 1, 2008.

Before trial, TriMet amended its complaint to remove the claim for a permanent vehicular access restriction because the city's action had removed the need for that claim, and the parties settled the claim for a temporary construction easement.The parties proceeded to trial on Posh's ORS 105.855 claim.That statute provides:

“Whenever * * * a city or mass transit district * * * restricts use of the street traffic lane immediately adjacent to a sidewalk abutting commercial property to public conveyances and the existing access to that property by the general public by means of private conveyances is thereby prohibited * * * the city or mass transit district shall be liable for and shall pay the difference between the fair market value of the property prior to the restriction and the fair market value of the property subsequent to the restriction, taking into account any special benefits to the property resulting from improvements made by the city or mass transit district in connection with the restriction.The fact that other access to the property from a public way is available shall relieve the city or mass transit district from liability if the other access is reasonably equal to the access prohibited or materially restricted.”

(Emphasis added.)The parties presented disparate evidence relating to the change in fair market value attributable to the access restriction, whether the SW Clay Street access was reasonably equal to the SW 6th Avenue access, and whether the light rail project provided any special benefits to the property.

The jury concluded that the SW Clay Street access was not reasonably equal to the SW 6th Avenue access and that Posh did not receive a special benefit from the light rail project—findings that are not at issue on appeal.The jury ultimately found that the fair market value of the property prior to the access restriction was $40,220,000 and that the fair market value subsequent to the access restriction was $39,464,000, for a difference of $756,000.TriMet appeals the general judgment and Posh cross-appeals the supplemental judgment, which awarded Posh some, but not all, of its attorney fees.

THE APPEAL

On appeal, TriMet's assignments of error generally focus on the admissibility of Posh's appraisal evidence about the change in fair market value caused by the access restriction.Therefore, before discussing TriMet's assignments, we briefly summarize that evidence.

Posh presented an appraisal prepared by Robert Greene.Greene, an experienced commercial appraiser, ultimately concluded that the access restriction caused a $2,108,000 reduction in the fair market value of the property.Greene used a three-step process to reach that determination.First, he evaluated whether the SW Clay Street access was reasonably equal to the closed access on SW 6th Avenue.After concluding that it was not, he calculated the fair market value before the restriction and the fair market value after the restriction.He then assessed whether any special benefits accrued to the property from the light rail project.For our purposes, Greene's evaluation of the fair market value “before” and “after” the restriction is at the heart of this appeal.

Generally, there are three standard approaches to property valuation: the cost approach, the comparable sales or market approach, and the income capitalization approach.City of Bend v. Juniper Utility Co.,242 Or.App. 9, 20, 252 P.3d 341(2011).Greene calculated the “before” value of the property with the income capitalization approach because he felt that it was the most appropriate approach to evaluate hotels purchased as investment vehicles.According to Greene, the income capitalization approach is widely used to appraise income-producing properties.He opined that the income capitalization approach “reflects the market's perception of a relationship between a property's potential income and its market value” by converting the anticipated net income into a value indication through capitalization.⁵A detailed discussion of the formula and figures Greene used to reach a fair market value of the Hotel Modera “before” the access restriction is not necessary for our purposes; what is key is that Greene's appraisal relied on certain “extraordinary assumptions and...