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West Virginia Department of Transportation v. CDS Family Trust, LLC

Supreme Court of West Virginia

November 14, 2017

WEST VIRGINIA DEPARTMENT OF TRANSPORTATION, DIVISION OF HIGHWAYS, A PUBLIC CORPORATION, Petitioner Below, Petitioner
v.
CDS FAMILY TRUST, LLC, A DELAWARE LIMITED LIABILITY COMPANY, Respondent Below, Respondent

          Submitted: October 31, 2017

         Appeal from the Circuit Court of Tucker County Honorable Lynn A. Nelson, Judge Civil Action No. 11-C-50

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

          Christopher B. Power Mychal S. Schulz Babst, Calland, Clements and Zomnir, P.C. Charleston, West Virginia Attorneys for the Respondent.

         SYLLABUS BY THE COURT

         1. When valuing wetland property for the purpose of just compensation in a condemnation proceeding, the highest and best use of the property as a mitigation bank may be considered to the extent that such a factor would be weighed in negotiations between private persons participating in a voluntary sale and purchase of the land at the time it was taken. However, the market price of mitigation credits that ultimately may be produced from the property cannot be the sole basis for measuring the land's value in determining just compensation.

          Davis, Justice.

         In this appeal, we are asked to rule upon the admissibility of expert testimony valuing wetland property for the purpose of just compensation in a condemnation proceeding where the highest and best use of the wetlands was determined to be the development of a wetlands mitigation bank. We conclude that, because the expert testimony at issue provided a value that was improperly based upon the market price of mitigation credits that could be developed from the land, as opposed to the fair market value of the land itself in a voluntary transaction between a willing and knowledgeable buyer and seller, the testimony was inadmissible. Accordingly, we reverse this case and remand for a new trial consistent with this opinion.

         I. FACTUAL AND PROCEDURAL HISTORY

         Respondents in this appeal, the CDS Family Trust, LLC ("CDS"), owned the surface interests of approximately 772 acres of land in Tucker County West Virginia. On November 30, 2011, the West Virginia Department of Transportation, Division of Highways ("DOH"), filed in the Circuit Court of Tucker County a petition seeking condemnation of 123.51 acres of the surface tract owned by CDS ("the Take Property"). DOH sought the land to use it for permittee-managed environmental mitigation incident to DOH's construction of Appalachian Corridor H.[1] In addition, DOH requested a jury trial to determine the amount of just compensation due the owner of the condemned acreage.

         Accordingly, wetlands mitigation is at the core of this case. With respect to wetlands mitigation, it has been explained that

the Army Corps of Engineers requires permits to be obtained before construction in certain areas designated as wetlands. If the construction will damage the wetlands, then the builder must mitigate that damage by creating new wetlands elsewhere or by restoring, enhancing, or preserving existing wetlands. "On-site" mitigation occurs when a builder uses part of his own property near the proposed construction to mitigate wetlands damage. "Off-site" mitigation, on the other hand, "is located someplace other than the property where the permit allows you to fill the wetlands." . . . [W]etlands mitigation banks are areas where large amounts of wetlands can be restored relatively cheaply, thereby generating a reserve of "mitigation credits" that can be sold to builders needing wetlands permits for other projects.

Department of Transp. v. Southeast Timberlands, Inc., 263 Ga.App. 805, 807, 589 S.E.2d 575, 579 (2003).[2] As noted above, DOH condemned the Take Property to use it for its own wetlands mitigation. CDS similarly determined, through its experts, that the highest and best use of the land was as a wetlands mitigation bank;[3] therefore, CDS sought to have it valued primarily as such.[4]

         By order entered March 20, 2012, the circuit court received a preliminary deposit from DOH equal to DOH's estimate of just compensation owed to CDS, which was $149, 800. By that same order, the circuit court vested defeasible title to the property to DOH. Thus, March 20, 2012, was treated as the "date of take."

         Prior to trial, CDS disclosed reports from three expert witnesses who would testify in support of its contention that just compensation for the condemned real property and damage to the remainder of the CDS property amounted to $4, 775, 000. DOH, on the other hand, retained an expert who opined that just compensation for the Take Property was $285, 000, with no damage to the residue. According to the DOH expert, the highest and best use of the Take Property was for natural resource development (i.e., mining)[5] and recreation (i.e., hunting and fishing).

         DOH filed a motion in limine to exclude the testimony of CDS's expert witnesses, arguing that the reports submitted by the experts failed to conform to any recognized methods or techniques necessary to produce a credible appraisal report. CDS filed a response, and, following a pretrial conference, the court entered its pretrial order on June 21, 2016, that, inter alia, summarily denied DOH's motion.

         A three-day jury trial to determine just compensation was held from June 21-23, 2016. The jury heard the evidence presented and rendered its verdict awarding CDS $1, 963, 972 as just compensation for the Take Property and $1, 495, 000 as just compensation for damages to the residue property. Thus, the jury's total award was $3, 458, 972. The circuit court deducted the amount DOH previously had deposited with the court and entered judgment in the amount of $3, 309, 172.

         DOH filed a motion for a new trial, which the circuit court denied by order entered November 15, 2016. This appeal followed.

         II. STANDARD OF REVIEW

         A circuit court's ruling denying a party's motion for a new trial is reviewed under the following standard:

Although the ruling of a trial court in granting or denying a motion for a new trial is entitled to great respect and weight, the trial court's ruling will be reversed on appeal when it is clear that the trial court has acted under some misapprehension of the law or the evidence.

Syl. pt. 4, Sanders v. Georgia-Pacific Corp., 159 W.Va. 621, 225 S.E.2d 218 (1976). Accordingly,

[t]his Court reviews the rulings of the circuit court concerning a new trial and its conclusion as to the existence of reversible error under an abuse of discretion standard, and we review the circuit court's underlying factual findings under a clearly erroneous standard. Questions of law are subject to a de novo review.

Syl. pt. 1, Burke-Parsons-Bowlby Corp. v. Rice, 230 W.Va. 105, 736 S.E.2d 338 (2012). To the extent that DOH herein appeals evidentiary rulings made by the circuit court, we additionally are mindful that "[t]he action of a trial court in admitting or excluding evidence in the exercise of its discretion will not be disturbed by the appellate court unless it appears that such action amounts to an abuse of discretion." Syl. pt. 10, State v. Huffman, 141 W.Va. 55, 87 S.E.2d 541 (1955), overruled on other grounds by State ex rel. R.L. v. Bedell, 192 W.Va. 435, 452 S.E.2d 893 (1994). See also Syl. pt. 4, State v. Rodoussakis, 204 W.Va. 58, 511 S.E.2d 469 (1998) ("A trial court's evidentiary rulings, as well as its application of the Rules of Evidence, are subject to review under an abuse of discretion standard."). In view of the foregoing standards, we will address the dispositive issues raised in this appeal. We will add additional standards for our review where relevant.

         III. DISCUSSION

         DOH raises several errors asserting that the circuit court erred by admitting the testimony of CDS expert witnesses Douglas Wise, Robert Sokolove, and Justin Reel, pertaining to the value of the Take Property.[6] At the heart of the issues raised by DOH is the method used by the CDS experts to value the Take Property. Because we find error in the manner in which the Take Property was valued by the CDS experts, we reverse and remand this case for a new trial. Thus, our resolution of this matter does not necessitate a thorough discussion of each of the issues expressly raised by DOH.[7] Instead, we address only the admissibility of the expert testimony related to the highest and best use of the Take Property and its fair market value.

         A. Highest and Best Use

         This Court has recognized that "[t]he 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." Syl. pt. 1, West Virginia Dep't of Transp., Div. of Highways v. Western Pocahontas Props., L.P., 236 W.Va. 50, 777 S.E.2d 619 (2015), cert. denied sub nom. Beacon Res., Inc. v. W. Virginia Dep't of Transp., Div. of Highways, ___ U.S. ___, 136 S.Ct. 1453, 194 L.Ed.2d 551 (2016). However,

[a]n important consideration in estimating fair market value is determining the "highest and best use" of the property. In determining a fair value, the landowner "is not limited to the use actually being made of the land at the time of the taking but is entitled to consideration of its value for any purpose for which it is then reasonably available in the immediate future."

Gomez v. Kanawha Cty. Comm'n, 237 W.Va. 451, 462-63, 787 S.E.2d 904, 915-16 (2016) (quoting Department of Highways v. Berwind Land Co., 167 W.Va. 726, 733, 280 S.E.2d 609, 614 (1981) (footnotes omitted)). See also Wood v. Wyoming Cty. Court, 100 W.Va. 29, 31, 129 S.E. 747, 747 (1925) ("The land owner . . . is entitled to compensation for the land taken based on the most valuable use to which the property is adapted."); Syl. pt. 9, Baltimore & Ohio R.R. Co. v. Bonafield's Heirs, 79 W.Va. 287, 90 S.E. 868 (1916) ("In proving its value the land-owners are not limited to the use which they are then actually making of the land taken, but are entitled to have the jury consider its value for any purpose for which it is then reasonably available."); Syl. pt. 3, Norfolk & W. Ry. Co. v. Davis, 58 W.Va. 620, 52 S.E. 724 (1906) ("As to the value of the property taken, the proper inquiry is, what is the value of the property for the most advantageous uses to which it may be applied?"); Menis E. Ketchum, West Virginia Pattern Jury Instructions for Civil Cases, § 1204 (2016).

         In a case very similar to the case sub judice, the Court of Appeals of Georgia addressed this very issue. See Dep't of Transp. v. Southeast Timberlands, Inc., 263 Ga.App. 805, 589 S.E.2d 575. In Southeast Timberlands, the Georgia Department of Transportation ("Georgia DOT") condemned certain land it desired to use "to mitigate damages to wetlands being destroyed by the construction of a nearby state road." Id. at 805, 589 S.E.2d at 577. Georgia DOT argued that expert testimony that the highest and best use of the subject land was development into a wetlands mitigation bank should not have been admitted in light of the former landowner's testimony that he had planned to develop the area into a high-end golf course community and marina, not a wetlands mitigation bank. Id. at 806-08, 589 S.E.2d at 579-80. Based, in part, upon the fact that Georgia DOT, itself, planned to use the land for wetlands mitigation, the Southeast Timberlands court rejected the argument and concluded that "the trial court did not abuse its discretion in admitting [the expert's] testimony that the land's highest and best use was for wetlands mitigation." Id. at 806-08, 589 S.E.2d at 579-80.[8] It reaching its conclusion, the Southeast Timberlands court reasoned that

the jury should be allowed to inquire as to all legitimate purposes, capabilities and uses to which the property might be adapted, provided that such use is reasonable and probable and not remote or speculative. The trial court has discretion to admit or exclude evidence of a proposed use for the land, and we will not disturb the court's decision absent a manifest abuse of that discretion.

Id. at 808, 589 S.E.2d at 579 (internal quotations and footnotes omitted).

         We find this reasoning to be in line with this Court's precedent discussed above. Indeed, "'[t]he 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)." Syl. pt. 4, Western Pocahontas, 236 W.Va. 50, 777 S.E.2d 619. Thus, under the particular facts of this case, we find the circuit court did not abuse its discretion in allowing CDS to present expert testimony that the highest and best use of the Take Property was development into a mitigation bank.[9]

         B. Fair Market Value

         Having determined the propriety of expert testimony that the highest and best use of the Take Propertywas development into a mitigation bank, we now consider testimony related to the value of that land.

         Over the DOH's objections, CDS was permitted by the circuit court to present expert testimony as to the value of the Take Property by Robert Sokolove ("Mr. Sokolove") and Douglas Wise ("Mr. Wise"). Mr. Sokolove is a lawyer who has been involved in wetland mitigation banking for over twenty years.[10] Mr. Sokolove valued only the wetlands portion of the Take Property. He testified that, in valuing the portion of the property that had the potential to be used for a mitigation bank, [11] he first "looked at . . . the overall value of the credits available - stream and wetland; and . . . concluded that the overall value [was] $5, 069, 000." (Emphasis added). From that amount, Mr. Sokolove deducted the cost of creating the mitigation bank. Mr. Sokolove indicated that these costs involved construction costs, engineering/design costs, and maintenance and monitoring costs. He stated that, after deducting those costs from the overall value of the stream and wetland credits available, he arrived at a value of $3, 551, 000, which he found to be the existing value of the stream and wetlands portion of the Take Property as of the March 20, 2012, date of take. Thus, the sole basis of Mr. Sokolove's valuation, i.e., the amount from which he deducted the costs of creating a mitigation bank to arrive at a final value, was the market price of mitigation credits that could be created from the Take Property.

         Mr. Wise provided testimony as to the value of the entire Take Property. He stated that he identified and valued the upland areas himself, [12] and he performed some calculations on Mr. Sokolove's valuation of the wetlands portion of the Take Property to arrive at a value for the entire Take Property. Mr. Wise was clear that he had no expertise in valuing wetlands and he, therefore, relied upon the value Mr. Sokolove placed on the wetlands in reaching his ultimate conclusions as to the fair market value of the Take Property. Mr. Wise additionally assigned a value for damage to the residue of CDS's land, part of which also contained wetlands.[13] After performing his calculations and applying a six percent discount rate, Mr. Wise estimated the value of the Take Property to be $2, 685, 000. He estimated damage to the residue at $2, 090, 000. Thus, combining these two figures, he estimated total just compensation to be $4, 775, 000.

         As we noted above, "[t]he 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." Syl. pt. 1, Western Pocahontas, 236 W.Va. 50, 777 S.E.2d 619 (emphasis added). In Western Pocahontas, we further explained that

The market value must be fair not only to the owner of the interest in the condemned real estate, but also fair to the public paying for the acquisition. The fair market value of the property taken has been defined as: "[T]he price for which the land could be sold in the market by a person desirous of selling to a person wishing to buy, both freely exercising prudence and intelligent judgment as to its value, and unaffected by compulsion of any kind." [Syl. pt. 5, Wheeling Elec. Co. v. Gist, 154 W.Va. 69, 173 S.E.2d 336 (1970).]

Id. at 61-62, 777 S.E.2d at 630-31 (emphasis added; footnotes omitted). There is little authority on how to value land when its highest and best use is the potential to be utilized as a wetlands mitigation bank.[14] In the instant case, CDS experts based their appraisal of the wetlands portion of the Take Property on the value of the stream and wetland mitigation credits they determined would ultimately be generated therefrom.[15] However, such an appraisal method does not ascertain the fair market value of the land, itself, in an arms-length ...


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