W. Va. Dep't of Transp., Div. of Highways, Corp. v. W. Pocahontas Props., L.P., No. 14-0381

CourtSupreme Court of West Virginia
Writing for the CourtJUSTICE KETCHUM delivered the Opinion of the Court.
Decision Date17 June 2015
PartiesWEST VIRGINIA DEPARTMENT OF TRANSPORTATION, DIVISION OF HIGHWAYS, a public corporation, Petitioner Below, Petitioner v. WESTERN POCAHONTAS PROPERTIES, L.P., a Delaware Limited Partnership; WPP, LLC, a Delaware Limited Liability Company; and BEACON RESOURCES, INC., Respondents Below, Respondents
Docket NumberNo. 14-0381

DIVISION OF HIGHWAYS, a public corporation, Petitioner Below, Petitioner
a Delaware Limited Partnership;
WPP, LLC, a Delaware Limited Liability Company;
and BEACON RESOURCES, INC., Respondents Below, Respondents

No. 14-0381


January 2015 Term
Submitted: February 24, 2015
June 17, 2015

Appeal from the Circuit Court of Tucker County
The Honorable Lynn A. Nelson, Judge
Civil Action No. 12-C-46


Leah R. Chappell, Esq.
Adams, Fisher & Chappell, PLLC
Ripley, West Virginia
Counsel for the Petitioner

Lori A. Dawkins, Esq.
Steptoe & Johnson PLLC
Denver, Colorado
Lauren K. Turner, Esq.

Steptoe & Johnson PLLC
Bridgeport, West Virginia
Counsel for Respondent
Beacon Resources, Inc.

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David H. Wilmoth, Esq.
Elkins, West Virginia
Jeffrey S. Zurbuch, Esq.

Busch, Zurbuch & Thompson, PLLC
Elkins, West Virginia
Counsel for Respondents
Western Pocahontas Properties, LP and

JUSTICE KETCHUM delivered the Opinion of the Court.

JUSTICE LOUGHRY dissents and reserves the right to file a separate opinion.

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1. The measure of just compensation to be awarded to one whose interest in real estate is taken for a public use in a condemnation proceeding is the fair market value of the property at the time of the taking.

2. In a condemnation action, the amount of raw profit lost from a business operated either on the condemned real estate or on its residue may not be the sole basis to establish just compensation. Stated another way, business profits lost as a result of a condemnation action may not be recovered as an independent element of damages.

3. In a condemnation action, under the income capitalization approach to appraisal, an expert witness's assessment of the income stream that real property produces may be relied upon to support a fair market valuation of an interest in real estate. Generally, the income capitalization approach weighs the anticipated income stream from the real estate as an element of fair market value, as of the date of taking, and accounts for likely forces and events in the market that would affect the revenue, expenses, and net operating income of the real estate interest.

4. "The admissibility of testimony by an expert witness is a matter within the sound discretion of the trial court, and the trial court's decision will not be reversed unless it is clearly wrong." Syllabus Point 6, Helmick v. Potomac Edison Co., 185 W.Va. 269, 406 S.E.2d 700 (1991).

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Justice Ketchum:

It is a well-established rule in the law of eminent domain that a jury may not award just compensation for the lost profits of a business on land taken by condemnation.1 However, in this appeal of a jury's $24 million verdict in a condemnation case, a litigant testified and valued his interest in a tract of condemned land using only the future lost profits of his business. Despite this evidence, the Circuit Court of Tucker County refused to instruct the jury to disregard lost business profits when calculating just compensation.

As set forth below, we reverse the circuit court's judgment on the jury's verdict, and remand the case for a new trial.


Respondents Western Pocahontas Properties, L.P., and WPP, LLC (collectively "Western Pocahontas") own several tracts of land in Tucker County, West Virginia. There is mineable coal2 beneath this land.

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On June 21, 2011, Western Pocahontas leased 187 acres of its land to respondent Beacon Resources, Inc. ("Beacon"). The lease allowed Beacon to extract the coal in exchange for royalty payments to Western Pocahontas.3 Shortly thereafter, in July or August, Beacon opened a surface mine on the land and began removing coal.

On August 15, 2011, Beacon signed a contract to sell coal to a neighboring mine;4 the contract expired by its own terms on March 31, 2012. Beacon claims it did not renew the contract because it learned some of the land would be taken through condemnation to build a highway and did not believe it would be able to fulfill the contract. However, Beacon continued to mine and sell coal for several months thereafter.

In April 2012, petitioner West Virginia Department of Transportation, Division of Highways ("the DOH") filed a condemnation action against Western Pocahontas and Beacon. The DOH sought to take approximately 30 of the 187 acres owned by Western Pocahontas and leased to Beacon to construct a portion of the Corridor H highway.5

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On July 25, 2012, the circuit court granted the DOH the right to take possession of the 30 acres of land. Around this same time, Beacon halted all mining operations on the entire 187 acres and began selling its equipment.

As required by law,6 on July 25, 2012, the DOH deposited $750,000 with the circuit clerk as its estimate of just compensation for the surface of the land taken; Western Pocahontas later accepted that valuation of the surface. However, the DOH also deposited $5,863,100 as the DOH's estimate of just compensation for the coal underlying the 30 acres of land taken. Beacon objected to the DOH's valuation of the coal, specifically the value of Beacon's lease to extract and sell the coal beneath the surface.

A three-day jury trial was held in July 2013 to establish the just compensation value for Beacon's leasehold interest in the coal taken by the DOH, as of July 25, 2012. The trial centered on two issues.

The first issue at trial concerned the amount of land affected by the DOH's take. The DOH asserted it was taking only about 30 of the 187 acres leased by Beacon, and that the remaining 157 acres of coal reserves would be unaffected by the construction

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of the highway. The DOH's experts therefore testified that Beacon was only entitled to just compensation for the 30 acres expressly encompassed by the take.

Beacon, however, argued that it was also entitled to compensation for the damage to the "residue," that is, the coal reserves beneath the remaining 157 acres covered by the lease. Beacon argued that the construction of the highway sterilized and made un-mineable the coal that remained on the leasehold.7 At the time of trial, Beacon had ceased mining operations and sold all of its equipment because, it claimed, it could no longer profitably mine the coal in its lease.

For purposes of this appeal, the second and more important issue disputed by the parties concerned the fair market valuation of Beacon's lease. The president of Beacon, Jason Svonavec, testified that, because of the profits he would lose from the DOH's taking, the fair market value of the 187-acre lease was $84 million. Mr. Svonavec based his valuation on Beacon's contract to sell coal dated August 15, 2011. The contract set a price of $120.00 per ton for metallurgical coal, which Mr. Svonavec claimed made up 90% of the coal mined by Beacon. The contract also set a price of $46.00 per ton for steam coal, which Mr. Svonavec said made up the remaining 10% of

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sales. Mr. Svonavec estimated that there are 525,244 tons of coal under the acreage taken by the DOH, and another 1,000,000 tons or so of now-unmineable coal in the residue. Mr. Svonavec further estimated that his mine was operating at about an 80% "recovery" rate, meaning that 80% of the coal mined was usable and marketable while the remaining 20% could not be sold because it was contaminated with rock and other materials.

Mr. Svonavec testified that he based his valuation of Beacon's lease solely on the $120.00 per ton sale price of the recoverable metallurgical coal, less production costs, and concluded that Beacon earned a profit of $65.00 on every single ton of coal sold. Mr. Svonavec confirmed that the $65.00 figure was his "profit margin on that coal" and was purely "profit per ton." Assuming that each ton of recoverable coal would earn Beacon $65.00 in profit, Mr. Svonavec testified that just compensation from the DOH would be $27 million for the area taken to build the highway and $57 million for the residue, a total of $84 million.

Beacon also offered the expert testimony of an appraiser on valuation. The appraiser's opinion likewise started with the assumption that Beacon sold all of the recoverable coal for $120.00 per ton, and that after production costs was left with about $65.00 in "gross profit to the leaseholder." This appraiser, whose opinion we discuss later, suggested that just compensation for Beacon's coal lease would be $48 million.

At trial, a problem arose when the DOH offered an expert valuation of Beacon's lease through a mining engineer, Thomas Gray. Mr. Gray intended to offer a valuation opinion derived from "comparable sales" of coal mining properties. However, Beacon moved to exclude Mr. Gray's comparable sales opinion because it was based

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solely upon newspaper articles and internet press releases. As we discuss later in this opinion, Mr. Gray did nothing to investigate the terms of these supposed comparable sales, or whether the sales were arms-length transactions. The circuit court agreed with Beacon and prevented Mr. Gray from testifying about comparable sales.

Still, the circuit court did permit Mr. Gray to testify that the value of the coal taken was only $2,355,266,8 although how this number was reached is not clear from Mr. Gray's testimony. It appears that, unlike Beacon's witnesses, Mr. Gray did not value the coal based upon its anticipated $120.00 per ton contract price; instead, he relied upon Beacon's reports of actual monthly sales. These reports showed Beacon's monthly sales varied from an average high price of $116.82 per ton in August 2011, to a low of $60.67 per ton in July 2012. Furthermore, based on his experience as a mining engineer, Mr. Gray testified that just compensation should be paid only for coal within the 30-acre area taken; he testified the coal reserves under the residue could be profitably mined after the DOH's construction of the highway.

At the...

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