COUNTY OF CLARK, A POLITICAL SUBDIVISION OF THE STATE OF NEVADA, APPELLANT, v. SUN STATE PROPERTIES, LTD., A NEVADA LIMITED PARTNERSHIP; AND RUTH PYLES, TRUSTEE OF THE CLARENCE AND RUTH PYLES TRUST, RESPONDENTS.
No. 35856
SUPREME COURT OF NEVADA
July 21, 2003
Rehearing denied August 29, 2003
72 P.3d 954
In light of the above, I would affirm the judgments of conviction.35
Carl E. Lovell Jr., Las Vegas, for Respondent Pyles.
Mushkin & Hafer and Mark C. Hafer and Michael R. Mushkin, Las Vegas, for Respondent Sun State Properties.
Brian Sandoval, Attorney General, and Margaret E. Kerr, Deputy Attorney General, Carson City, for Amicus Curiae State of Nevada.
OPINION
By the Court, ROSE, J.:
In this appeal, we consider the proper procedure for determining just compensation in an eminent domain action when there are various interests involved in the condemned property. We hold that the eminent domain statutes codified the undivided-fee rule, which requires the court to first determine the value of the property as a whole, and in a subsequent hearing, to apportion the award among the various interests. Accordingly, we conclude that the district court erred when it first valued the various interests in order to determine the just compensation for the condemned property, and therefore, we reverse and remand for a new trial.
We also consider whether a condemnee is entitled to damages for lost profits resulting from the condemnor‘s delay in not bringing the action to trial within two years from when the action was filed. We hold that the condemnee may recover damages for lost profits when the condemnee has demonstrated that the condemnor caused unreasonable delay in bringing the action to trial. Because the record does not indicate what caused the delay, we direct the district court, on remand, to revisit this issue.
On June 7, 1995, the County of Clark filed a complaint in condemnation of real property to acquire two parcels of land, which contained apartment units, located in downtown Las Vegas, in order to build a jail facility. Sun State Properties, Ltd., owned one of the parcels in fee simple. Clarence and Ruth Pyles, trustees of The Clarence and Ruth Pyles Trust (the Pyles), owned the second parcel in fee simple, but the Pyles leased the parcel to Sun State for $500 per month.1 The lease for the second parcel was for fifty-five years, ending on February 1, 2018.
On July 14, 1995, the district court granted the County‘s motion for immediate occupancy of the two parcels. The district court also ordered the County to post a cash bond of $1,640,000. Following the parties’ stipulation regarding the funds from the cash bond, several lenders that held deeds of trust on the parcels were paid in full, Sun State received $424,724.14, the Pyles received $122,100, and a balance of $77,900 was deposited into an interest-bearing account in trust for Sun State and the Pyles.
Because trial had not commenced within two years, the district court set the valuation date at June 22, 1999, the scheduled trial date. However, trial did not commence until November 30, 1999, because the district court granted the Pyles’ motion for a continuance.
At trial, several appraisal experts presented various valuations for the acquired parcels. Shelli Lowe, Sun State‘s appraisal expert, testified that she valued the whole property, as it existed prior to the taking, at $6,100,000. She next valued the remaining property after the taking at $3,915,000. She then valued the parcels acquired by the County at $1,900,000 and Sun State‘s severance damages at $285,000—the diminished value of Sun State‘s remaining parcels that were part of the parcels being taken.2 Lowe concluded that total just compensation for the acquired parcels and Sun State‘s severance damages would be $2,185,000.
Upon Sun State‘s request, Lowe provided an addendum to her appraisal report wherein she valued the leased fee interest and leasehold interest separately. In doing so, Lowe reviewed the rental value of the lease and the term of the lease. Before testifying to the separate valuations, Lowe opined that the improvements on the land would have no value at the end of the lease because, at the end of the term, the improvements would be forty-eight years of age. Nevertheless, Lowe valued the leased fee at $263,000 and the leasehold at $885,000.
John Kiehlbauch, the County‘s appraiser, testified that he valued the whole property before the taking at $5,940,000. He next valued the remaining property after the taking at $3,980,000. He then valued the parcels acquired by the County at $1,790,000 and apportioned the value: the Pyles’ interest at $984,000 and Sun State‘s interest at $805,500. He calculated Sun State‘s severance damages at $170,000. Kiehlbauch testified that the total just compensation for the acquired parcels and Sun State‘s severance damages equaled $1,960,000.
Verne Cox, the Pyles’ appraiser, did not testify at trial, but his appraisal report was submitted at trial. He valued the fee simple at $1,050,000 and apportioned this value as follows: the lease fee at $251,000 and the leasehold at $799,000.
At the conclusion of the trial, the County argued that under
The district court found that Sun State‘s leasehold interest was a compensable interest and accepted Sun State‘s and the Pyles’ valuation, stating that it was not contradicted at trial. Thus, the district court valued their interests at $3,634,000. Following
After the apportionment hearing, the district court entered its findings of fact and conclusions of law. The district court made the following awards: $1,868,000 as just compensation for Sun State‘s fee interest in the first parcel and for its leasehold interest in the second parcel; $250,000 in severance damages to Sun State; $462,000 in damages to Sun State from the date of immediate occupancy; $1,030,000 as just compensation for the Pyles’ leased fee interest; and $24,000 in damages to the Pyles from the date of immediate occupancy.
In addition to challenging the district court‘s procedure in determining the just compensation, the County challenges the district court‘s award of damages, which the County claims were inappropriately awarded as lost profits.
DISCUSSION
Standard of review
This court has consistently provided that the district court‘s findings of fact will not be disturbed on appeal if they are supported by substantial evidence.4 But the district court‘s conclusions of law are reviewed de novo.5
Whether
Under federal and state constitutional law, condemnation of private property requires the condemnor to pay just compensation.9 Constitutional principles provide that just compensation is measured by the fair market value of the condemned property.10
Regarding the evidence that the trier of fact must consider in a condemnation action,
The court, jury, commissioners or master must hear such legal testimony as may be offered by any of the parties to the proceedings, and thereupon must ascertain and assess:
1. The value of the property sought to be condemned and all improvements thereon pertaining to the realty, and of each and every separate estate or interest therein; if it consists of different parcels, the value of each parcel and of each estate or interest therein shall be separately assessed.
Additionally, this court has provided, ” ‘The determination of market value includes the consideration of any elements that fairly enter into the question of value which a reasonable businessman would consider when purchasing.’ ”12
In determining the fair market value when there are various interests in the condemned property,
Where there are two or more estates or divided interests [in] property sought to be condemned, the plaintiff is entitled to have the amount of the award for such property first determined as between plaintiff and all defendants claiming any interest therein. The respective rights of such defendants in and to such award shall be determined by the court, jury, or master in a later and separate hearing in the same proceeding and the amount apportioned by order accordingly.
The County and the State, as amicus curiae, contend that the Legislature codified the undivided-fee rule in
When there are various interests in the condemned property, the majority of the jurisdictions applies the undivided-fee rule.13 The undivided-fee rule provides that condemned property is first valued as though it was unencumbered, and in a subsequent hearing, the total award is apportioned among the various interests. The reasoning behind the rule is:
The duty of the public to make payment for the property which it has taken is not affected by the nature of the title or by the diversity of interests in the property. The public pays what the land is worth, and the amount so paid is to be divided among the various claimants, according to the nature of their respective estates.14
Under the undivided-fee rule, the condemnor has no interest in the apportionment hearing because it has met its obligation when it pays the court the total award.15 Furthermore, the undivided-fee rule provides that “the division of a fee into separate interests cannot increase the amount of compensation that the condemnor has to pay for the taking of the fee.”16
On the other hand, the undivided-fee rule is not universal because a minority of jurisdictions applies the aggregate-of-interests rule or the summation rule when there are various interests in the condemned property.17 Under the aggregate-of-interests rule, each of
the various interests that contribute to the value of the real property are valued separately, and the total represents the market value of the real property.18 Notably, ” ‘[u]se of this method of appraisal has generally been rejected since it fails to relate the separate value of the improvements to the total market value of the property.’ ”19
We hold that
In rejecting the undivided-fee rule as Nevada law, the district court relied on People v. Lynbar, Inc.21 which respondents contend was appropriate. In Lynbar, Inc., the California Court of Appeal addressed an argument similar to the argument the County raises in this appeal—the bifurcation-of-proceeding statute, which parallels
We note that the California Supreme Court has not addressed the issue presented in Lynbar, Inc., and that cases from the California Court of Appeal have been inconsistent on this issue27—whether the undivided-fee rule or aggregate-of-interests rule is California law. Based on this and because we conclude that the plain language of
Although noting that the fairness of either the undivided-fee rule or aggregate-of-interests rule may be debated, the dissent concludes that to withstand constitutional muster and award just compensation, the aggregate-of-interests rule must be applied when there are various interests in the condemned property. But, if the undivided-fee rule fails to withstand constitutional muster, then
Similarly, the dissent‘s criticism of the undivided-fee rule is flawed. The dissent states that the undivided-fee rule may overlook situations in which there are separate estates, as in the instant case, thus failing to provide just compensation. However, as the County notes, the district court‘s application of the aggregate-of-interests rule resulted in an award that far exceeded the value of both parcels before the taking occurred. Lowe, Sun State‘s appraisal expert, valued the whole property before the taking at $6,100,000, and then valued the remaining property after the taking at $3,915,000. The district court awarded Sun State and the Pyles $3,148,000 in just compensation.31 Adding the award of just compensation and Lowe‘s value of the remaining parcels equals $7,063,000. Thus, the district court‘s just compensation resulted in an award more than what Sun State and the Pyles lost.32
The dissent next interprets
Damages for lost profits
The County next contends that the district court erroneously awarded Sun State and the Pyles damages for lost profits from the date of immediate occupancy until the date of valuation. We first recognize that the Legislature has not mandated an award for lost profits within the eminent domain statutes. Regarding the delay in bringing the action to trial, the Legislature has provided:
[I]f the action is not tried within 2 years after the date of the first service of the summons, and the court makes a written finding that the delay is caused primarily by the plaintiff or is caused by congestion or backlog in the calendar of the court, the date of valuation is the date of the actual commencement of the trial.33
The Legislature has defined “primarily” as
the greater amount, quantity or quality of acts of the plaintiff or the defendant or, if there is more than one defendant, the total delay caused by all the defendants, that would cause the date of the trial to be continued past 2 years after the date of the first service of the summons.34
The issue of whether a condemnee is entitled to damages as a result of the condemnor‘s delay in bringing the action to trial within two years is an issue of first impression. We note, though, that we have stated that in addition to the benefit of the inflated value pursuant to
In State, Department of Transportation v. Barsy36, this court held that the condemnor‘s precondemnation activities may entitle
Four years after NDOT announced its decision to implement the project, NDOT filed a condemnation action to acquire Barsy‘s property.40 Thereafter, Barsy filed a counterclaim, requesting damages for lost rental income caused by the unreasonable delay in commencing the condemnation action. The district court, however, dismissed Barsy‘s counterclaim.
On appeal, this court decided to follow the seminal case of Klopping v. City of Whittier41 regarding the rights of property owners who sustain damages as a result of the condemnor‘s pre-condemnation activities. This court noted that the California Supreme Court in Klopping “held that where a condemnor ‘acts unreasonably in issuing precondemnation statements, either by excessively delaying eminent domain action or by other oppressive conduct, our constitutional concern over property rights requires that the owner be compensated.’ ”42 This court further noted that “[t]he Klopping court ruled that a condemnee must demonstrate that the condemnor acted improperly following a precondemnation announcement by unreasonably delaying action or by other unreasonable precondemnation conduct and that such acts resulted in a decrease in the market value of the property.”43 Following Klopping, this court concluded that when the condemnee meets the evidentiary burden, “the condemnee must be compensated for loss of income due to precondemnation action or publicity.”44 Because this issue presented a question of fact, this court reversed the dismissal of Barsy‘s claim for precondemnation damages, and remanded the issue to the district court to determine whether NDOT‘s precondemnation conduct resulted in a decrease
Unlike Barsy, Sun State and the Pyles did not request pre-condemnation damages; rather, they had requested damages for lost profits resulting from the County‘s delay in bringing the action to trial. If, after filing an action, the condemnor unreasonably delays in bringing the action to trial within two years, then it would appear consonant with our concerns shown in Barsy that the condemnee receive damages for lost profits caused by such litigation delay.
Although
Here, the district court failed to make any findings regarding the litigation delay, and the record does not indicate what caused the delay. Therefore, on remand, the district court shall provide Sun State and the Pyles an opportunity to demonstrate that they are entitled to damages because the County unreasonably delayed in bringing the action to trial within two years.
CONCLUSION
In addition to receiving the benefit of the inflated value when trial has not commenced within two years, damages for lost profits are permitted when the condemnee demonstrates that the condemnor unreasonably delayed in bringing the action to trial. Even if the condemnee fails to meet this stringent standard, we note that the condemnee is entitled to prejudgment interest from the date of the taking. Because of the ambiguity regarding the cause of the litigation delay, we direct the district court, on remand, to allow Sun
AGOSTI, C. J., BECKER, J., and YOUNG, Sr. J., concur.
MAUPIN, J., concurring in part and dissenting in part:
As a general proposition, the undivided-fee rule governs the assessment of damages in condemnation cases brought under Nevada law. However, in those rare cases where the district court concludes that application of the undivided-fee rule may frustrate or prevent an award of just compensation, the district court should have the discretion to utilize the dissent‘s “aggregate-of-interests” rule in either calculating the award in a bench trial or in crafting instructions in a jury trial. This is one of those rare cases and, as discussed below, we should affirm the judgment rendered in this matter below.
In my view, the district court correctly concluded that the value of the Pyles’ interest was artificially low based upon the long-term lease rate. For any number of reasons, business or personal, a landowner may wish to artificially create a low lease rate. The governmental taking entity should not be able to take an economic advantage of the landowner‘s decision in that regard unless the low rate is dictated by some commercial necessity. Utilization of the “aggregate-of-interests” formula effected just compensation in this case and the fact finder could reasonably conclude that the Pyles’ lease rate was not truly reflective of the value of the property.
I appreciate the majority‘s concern that
GIBBONS, J., with whom SHEARING, J., agrees, concurring in part and dissenting in part:
While I agree with the majority that damages for lost profits resulting from the condemnor‘s unreasonable delay in bringing the action to trial are compensable, I respectfully dissent from the conclusion that the undivided-fee rule is the only proper means of determining just compensation.
The majority takes no issue with the fundamental principles stated above. Our divergence begins and ends solely on the issue of how just compensation is determined. While the undivided-fee rule is constitutional in most instances, I believe fairness dictates the “aggregate-of-interests” rule be used to determine just compensation when more than one estate is being condemned.
The majority cites several federal and state cases concluding the undivided-fee rule properly compensated the parties involved.5 I agree that in most cases, the undivided-fee rule is constitutionally permissible because it produces the same valuation as would the aggregate-of-interests rule. The majority ignores, however, the premise that in unusual circumstances, the undivided-fee rule must be set aside to prevent an unfair and distorted result in favor of the condemnor.
In defense of the undivided-fee rule, the majority implies that commentators suggest the aggregate-of-interests rule “is based upon faulty valuation techniques.”6 The composition of the “commentators” consists of one sixteen-year-old law review article.7 The majority does not cite a far more recent article concluding the undivided-fee rule is “conceptually flawed” in cases like the one now before the court.8 Further, the article indicates the undivided-fee rule makes “little sense in some applications.”9
The majority‘s contention notwithstanding, fair market value is “not the sole measure” of just compensation.10 “Market value
In addition to market value, ” ‘the court or jury [may] consider[] other elements that can fairly enter into the question of value and which an ordinarily prudent business man would consider before forming judgment in making a purchase.’ ”15 One such consideration is ” ‘the rental value of the property condemned, as well as the actual rent which the property produces, because such elements of value are material in the determination of “just compensation for the land taken.” ’ ”16
“Law is not a science, but is essentially empirical.”17 We must compensate an owner for the loss of property taken from him.18 In unusual circumstances, this requires using the aggregate-of-interests formula to adequately reimburse an owner for the taking. In Boston Chamber of Commerce v. Boston, the United States Supreme Court rejected the undivided-fee rule precisely because it overlooks scenarios such as the instant case.19 Apparently, the majority finds this unpersuasive.
California appellate courts, relying on identical statutes, have supported both methods of valuation.24 The California Court of Appeal, in County of Los Angeles v. American Savings & Loan Ass‘n, discusses a hypothetical identical to the instant case.25 The court theorizes that when using the undivided-fee rule, the sum of all the individual interests will equal what the value of the property would be with only one interest,26 but notes that the assumption is not always true. Under the aggregate-of-interests rule, however, “the condemnor pays to the owner of each individual interest its fair market value regardless of whether the total payment is more or less than the value of the fee if it had been owned by one person.”27
The aggregate-of-interests rule is therefore sometimes criticized as “giving the condemnor a windfall.”28 For example, a windfall occurs when a developer purchases several separate parcels that, when combined, result in land worth far more than the sum paid for the individual parcels.29 The court in American Savings & Loan Ass‘n explains, “[T]his frequently happens in the open market.”30 I agree; however, in this case we are not dealing with an “open market” transaction. This is a taking, and just compensation should be paid to all the interested parties.
Furthermore, the majority places much emphasis on the language of
“Typically motivated” sellers are not those whose land is taken away by eminent domain. We do not have before us a willing seller. It is difficult for me to envision a normal transaction in which the seller is forced to sell his or her interest in the land whether he or she likes it or not. This key distinction prevents a forced sale from being a “fair sale.”32
The majority confuses valuation with allocation. Under
Apparently, the majority assumes whatever determination of value made during the first hearing binds the court to that allocation at the second hearing. I disagree with that reasoning. The first hearing is solely to determine value, regardless of the method of valuation. The second hearing exists to allow the court, or the jury, to consider evidence as to how the entire sum should be allocated. The aggregate-of-interests rule does not interfere with the second hearing. To the contrary, the rule ensures the amount to be allocated is sufficient to compensate all interests justly.
We must remain true to the fundamental principles of the United States and Nevada Constitutions. ” ‘[T]he law . . . must jealously guard the rights of individual owners.’ ”33 We should not forget John Locke‘s principle that “governments were instituted to protect every person‘s property against the depredations of his neighbor.”34 It is unjust to take an individual property owner‘s land and refuse to properly compensate him for his loss. Respectfully, I would affirm the decision of the district court and allow the aggregate-of-interests rule to determine just compensation when more than one estate is being condemned.
ROSE, J.
SUPREME COURT JUSTICE