Wilson v. City of Fayetteville

• Citation: 310 Ark. 154,835 S.W.2d 837
• Decision Date: 29 June 1992
• Docket Number: No. 91-290,91-290
• Parties: John Vernon WILSON, Appellant, v. CITY OF FAYETTEVILLE, Arkansas, Appellee.
• Court: Supreme Court of Arkansas

Page 837

835 S.W.2d 837

310 Ark. 154

John Vernon WILSON, Appellant, v. CITY OF FAYETTEVILLE, Arkansas, Appellee.

No. 91-290.

Supreme Court of Arkansas.

June 29, 1992.

Roy E. Stanley, Springdale, for appellant.

James N. McCord, Fayetteville, for appellee.

BROWN, Justice.

The appellant, John Vernon Wilson, is a landowner in Fayetteville who had eminent domain proceedings commenced against him in 1977 for a triangular piece of his land. The city wished to use the land for a traffic signal control panel and to relocate a sewer line. It paid into the court registry $100 as just compensation. More than eleven years later, a trial was held on October 5, 1988, and judgment was entered on October 11, 1988. The jury placed the value of the land at $29,000. The circuit court, however, refused to assess prejudgment interest, and the case was appealed to the Arkansas Court of Appeals.

The court of appeals, in an unpublished opinion dated November 15, 1989, affirmed the award of $29,000 as the value of the land. On cross appeal, Wilson argued that the circuit court erred in denying prejudgment interest. The court of appeals agreed and remanded the matter to circuit court for a determination of "a proper rate" of interest from the time of taking until judgment. Neither party argued to the court of appeals what the prejudgment interest should be.

On remand, the circuit court conducted a hearing, received evidence, and heard argument on prejudgment interest. The court found in its order entered June 9, 1990 that interest should not be compounded and that the interest rate should be based on average rates paid by local lenders on their certificates of deposit. Using this formula, it further found that the prejudgment interest rate should be 9.25 percent per annum. The court then calculated that interest at $30,718.32 as of October 11, 1988--the date of judgment--and added that amount to the judgment award for the value of the land for a total of $59,618.32. ¹ On the total sum of $59,618.32, the court allowed postjudgment interest at ten percent per annum from date of judgment.

Wilson now appeals, contesting the refusal of the circuit court to compound interest and arguing that the court should have included non-local interest rates on certificates of deposit and returns on seasoned corporate bonds and AAA-rated corporate bonds in ascertaining a proper rate. We affirm the circuit court's decision.

I. COMPOUND INTEREST

The essence of Wilson's first point is that he can only be fully compensated by compounding interest. He supports his argument by urging that this is what the Arkansas Constitution and case law require.

Wilson is correct in stating the standard for compensation. The Arkansas Constitution requires just compensation for taking private property for public use, and we have clearly held that "[j]ust compensation means full compensation." Ark. Const. art. 2, § 22; Arkansas State Highway Comm'n v. Stupenti, 222 Ark. 9, 13, 257 S.W.2d 37, 40 (1953). Statutory law, however, provides a six percent interest rate "as part of just compensation." Ark.Code Ann. § 27-67-316(e)(1) (1987). The question then arises whether six percent interest represents full compensation. We concluded that it did not under the circumstances in Arkansas State Highway Comm'n v. Vick, 284 Ark. 372, 682 S.W.2d 731 (1985), and we observed that interest "at a proper rate" was a good measure for deciding the amount to be added to the land value to compensate for deprived use of the land or its money equivalent. We allowed ten percent simple interest as the proper rate in Vick.

The award of prejudgment interest is a matter of law for the trial judge--not the jury--to determine. See USAA Life Ins. Co. v. Boyce, 294 Ark. 575, 745 S.W.2d 136 (1988). We have observed that the payment of interest upon interest is not generally favored by the courts. Hartford School Dist. No. 94 v. Commercial National Bank, Trustee, 208 Ark. 984, 188 S.W.2d 638 (1945). Furthermore, the General Assembly has not mandated compound interest as a necessary component of just compensation. Ark.Code Ann. § 27-67-316 (1987). One land condemnation case in the past has expressly affirmed a simple interest award. See Arkansas State Highway Comm'n v. Vick, supra. We can find no Arkansas case awarding compound interest as part of just compensation; instead, the cases appear to award only simple interest. See., e.g., Hopper v. Denham, 281 Ark. 84, 661 S.W.2d 379 (1983); Housing Authority of Little Rock v. Rochelle, 249 Ark. 524, 459 S.W.2d 794 (1970). Other jurisdictions have either refused to compound interest in land condemnation cases or deferred to the trial court's finding in disallowing compounded interest. See, e.g., State v. Doyle, 735 P.2d 733 (Alaska 1987); City of Phoenix v. Campbell, 151 Ariz. 497, 728 P.2d 1247 (Ct.App.1986); City of Austin v. Foster, 623 S.W.2d 672 (Tex.Ct.App.1981); Walker v. Acting Dir., Dept. of Forests & Parks, 284 Md. 357, 396 A.2d 262 (1979).

On the other hand, there is federal and state authority standing for the proposition that prejudgment interest should be compounded. See 40 U.S.C. § 258 e-1; United States v. 429.59 Acres of Land, 612 F.2d 459 (9th Cir.1980); United States v. 319.46 Acres of Land, 508 F.Supp. 288 (W.D.Okla.1981); Borough of Wildwood Crest v. Smith, 235 N.J.Super. 453, 563 A.2d 73 (1988); Lea Co. v. North Carolina Bd. of Transp., 317 N.C. 254, 345 S.E.2d 355 (1986).

This is an issue of first impression in Arkansas, and we are mindful that a landowner is entitled to the full equivalent of the value of the land as if paid contemporaneously at the time of taking. Arkansas State Highway Comm'n v. Stupenti, supra. However, were we to reverse the circuit court and mandate compound interest in this case, we would in effect be requiring that henceforth just compensation under the Arkansas Constitution include compound interest in land condemnation cases. We refuse to take such a dramatic step.

Here, the circuit court considered and rejected the compounding of interest. In doing so, he expressly noted that we approved only simple interest in Arkansas State Highway Comm'n v. Vick, supra. What constitutes appropriate interest is a question for the factfinder which will not be reversed unless clearly erroneous. See Washington Metropolitan Area Transit Authority v. One Parcel of Land in Montgomery County, Maryland, 706 F.2d 1312 (4th Cir.1983), cert. denied, 464 U.S. 893, 104 S.Ct. 238, 78 L.Ed.2d 229 (1983). We cannot say that the court clearly erred in awarding simple interest in this case.

II. PRUDENT INVESTMENT

Wilson's second point is related to the first. He urges that the circuit court should have also used average interest rates on certificates of deposit issued by non-local institutions or interest rates available on seasoned corporate bonds or on AAA-rated corporate bonds in determining the interest rate. The circuit court refrained from doing this and relied on an average of local CD rates which was a formula affirmed by the Arkansas Court of Appeals in a previous case. See Arkansas State Highway Comm'n v. Security Savings Ass'n, 19 Ark.App. 133, 718 S.W.2d 456 (1986).

Wilson would have us reverse the circuit court and hold that the failure to factor foreign interest rates into the court's equation in this case was clear error. As a concomitant to this, he contends that a prudent investor would have looked beyond local CD rates for a return on his or her money. He advances this position, even though he testified that in his private investments he had availed himself of investments in local CD's.

Again, the choice of an appropriate interest rate is a question of fact for the circuit court, and we cannot say that the court clearly erred in refusing to use foreign CD rates or interest rates on corporate bonds in its averaging formula. In certain cases, trial courts may well want to look beyond local interest rates, and there are multiple barometers for determining interest on accounts and securities. Yet, we would be unduly curtailing a trial court's factfinding role were we to say that one interest rate is more appropriately considered than another or that a certain formula should be utilized in all instances. We refuse to go that far. The decision of the circuit court is affirmed.

Affirmed.

HOLT, C.J., and DUDLEY and NEWBERN, JJ., dissent.

DUDLEY, Justice, dissenting.

In 1977, the City of Fayetteville deemed it necessary to condemn a tract of appellant Wilson's land and deposited $100.00 in the registry of the trial court as the amount necessary to make compensation for the land taken. See Ark.Code Ann. § 18-15-303(b)(1) (1987). The City then obtained an order of possession for the land, see Ark.Code Ann. § 18-15-303(b)(2) (1987), and has possessed the land since then. The appellant has had the $100.00, and the interest it has earned over that period of time. In October 1988, more than eleven years after the taking, the condemnation case was heard, and the jury found that the true value of the tract at the time of the taking was $29,000.00. The trial court entered judgment for the $29,000.00, less the $100.00 deposit, but refused to award interest from the time of taking until judgment. The court of appeals affirmed the award of $29,000.00, but remanded the case to the trial court "for a determination of 'a proper rate' of interest from the time of taking until judgment." City of Fayetteville v. Wilson, CA90-139, slip op. at 7 1989 WL 138626 (Ark.App. Nov. 15, 1989). Upon remand, the trial court found that the interest rate should be set at 9.25% per annum because that was the average rate paid by local banking institutions on certificates of deposit, but it made the award of simple interest.

I. Procedure

The majority opinion states that the trial court "considered and rejected the compounding of interest." In fact, the trial court did not exercise its discretion involving the compounding of interest,...