No. 12794 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1975 

THE STATE OF MONTANA, ACTING BY AND 

THROUGH THE DEPARTMENT OF HIGHWAYS OF 

THE STATE OF MONTANA, 

Plaintiff and Appellant, 

ARTHUR J. OLSEN and FLORENCE 0. OLSEN, 

husband and wife, and EUGENE G. HOLMES 

and EVELYN HOLMES, husband and wife, and 

ORION HEATH and ESTHER HEATH, husband and 

wife, as Contract Purchasers, 

Defendants and Respondents. 

Appeal from: District Court of the Fourth Judicial District, 

Honorable Jack L. Green, Judge presiding. 

Counsel of Record: 

For Appellant : 

Daniel J. Sullivan argued, Helena, Montana 

For ~espondents: 

Koch & McKenna, Hamilton, Montana 

Thomas P. Koch argued, Hamilton, Montana 

Boone, Karlberg & Haddon, Missoula, Montana 

William T. Boone argued, Missoula, Montana 

For Amicus Curiae: 

John Carl argued, Butte, Montana 

.- ;*kt? - ;' Filed: " 1975 

Submitted: January 10, 1975 

Decided : FED - 5 1975 
Mr. Justice Frank I. Haswell delivered the Opinion of the Court. 

These appeals arise from a condemnation action brought 

by the State Department of Highways in the district court, 

Ravalli County. Defendants, Orion and Esther Heath, the landowners, appeal from the district court's refusal to award them 

their alleged "expenses of litigation". The State crossappeals 

from the judgment awarding $68,000 as just compensation for the 

taking. 

Heaths owned and operated a "mom and pop" grocery store 

in Florence, Montana. The store, with living quarters attached, 

is situated on a lot fronting on U. S. Highway 93. State Department of Highways' plan for improving that highway involved 

widening of its right-of-way, necessitating a taking of part of 

the lot owned by the Heaths. The State offered the owners $3,460 

for the 31 1/2 foot strip fronting on the highway, which offer 

was refused. Following the refusal, the State filed this condemnation action in June, 1972. 

The landowners admitted the necessity of the taking, but 

disputed the extent of the taking and the amount of just compensation offered by the State. A jury trial was held in January 

1974, for a determination of these issues. During the course of 

trial, the State admitted that it had erred in its previous 

determination of the extent of the taking. It conceded the strip 

to be condemned included the sanitary facilities of the lot and 

that the taking would destroy the utility of the store and attached 

residence. 

As a result of this new position, the State's appraiser 

testified the value of the taking, using the "market data" valuation method, was $39,033. The landowners' appraiser, using a 

"capitalization of income" method, valued the taking at $86,500. 

The landowners did not testify as to the value of the taking. 
The jury returned a unanimous verdict of $68,000, and 

judgment was entered thereon. The landowners then moved for an 

award of the "necessary costs of litigation" under the provisions 

of section 93-9921.1, R.C.M. 1947. The amounts requested were: 

(a) Court fees $18.00 

(b) Appraiser's fee $2,300.00 

(c) Architect's fee $100.00 

(d) Engineer's fee $532.50 

(e) Sanitarian's fee $200.00 

(£1 Attorneys1 fees $16,150.00 

The State moved to retax costs: the motions were jointly heard, 

evidence was received, and the court entered an order denying 

all of the costs except the $18 court fees. 

The landowners appeal that order and the State crossappeals 

from the judgment. Considered together, the issues raised are: 

(1) Is a "capitalization of income" valuation appropriate 

on these facts? 

(2) If so, was that method properly applied to the facts 

presented? 

(3) Are defendants entitled to recovery of "necessary 

costs of litigation" under the provisions of section 93-9921.1, 

R.C.M. 1947? 

The first two issues are raised by the State, while the landowners present the third for consideration. Amicus curiae also 

briefed and argued the third issue. 

The State's first argument is essentially that income 

capitalization should not be used to value damage to business 

property. While admitting that method is appropriate in cases involving agricultural or rental property, it argues that business 

property should not be similarly valued because the income it 

produces depends more on the skill of the owner-operator than 

on the productivity of the property. 

The use of income capitalization in eminent domain 
valuations is not new in Montana. The admissibility of income 

evidence was recognized in State v. Peterson, 134 Mont. 52, 328 

P.2d 617, although capitalization of that income was not discussed. However, Peterson was cited in State Highway Commln v. 

Heltborg, 140 Mont. 196, 369 P.2d 521, for the proposition that 

income can be used in determination of market value. Heltborq 

affirmed an award based on capitalization of income derived from 

agricultural property. 

Caveats were attached to the use of this method in State 

Highway Commln v. Bare, 141 Mont. 288, 301, 377 P.2d 357, where 

we said: 

"While we do not reject the method in all cases, 

we believe for future guidance in eminent domain 

cases, the capitalization of income method should 

be carefully scrutinized even where it may be 

appropriate as one of the tools of the judicial 

workshop. We are aware that in some instances, 

where no comparable sales evidence is available 

or where it is shown to be not applicable for 

many reasons, the only usable method is the 

capitalization method. However, its use must be 

based on a foundation which minimizes to the 

extent possible conjecture and uncertainty." 

In Bare - we reversed the district court because the foundation for the use of the method involved an unacceptable amount 

of uncertainty and speculation. A similar result was reached in 

State Highway Commission v. Palin, 160 Mont. 486, 503 P.2d 524, 

for the same reasons. 

Our most recent encounter with the method, apart from 

the instant case, was State Highway Comm'n v. Bennett, 162 -. Mont. 

386, 513 P.2d 5, 8, 30 St.Rep. 702, where we approved the use 

of the method in a condemnation involving rental cabins and a 

service station. Bennett, and others heretofore cited, gives 

Montana a different rule from that urged by the State and suggested by 5 Nichols on Eminent Domain S19.3. 

Income capitalization is an appropriate valuation method 

in cases where it entails less conjecture and uncertainty than 
alterndtive methods. Its applicability is determined less by 

the type of property taken than by a comparison of the relative 

certainty resulting from the use of the various methods. While 

some types of property may lend themselves to a particular 

method, the appropriateness of any given method must necessarily 

hinge on the facts of the case being tried. 

The alternative methods of valuation were presented to 

the jury in the instant case. The landowners' appraiser discussed 

three: market data, reproduction cost, and income capitalization. 

He rejected the first two as inapplicable here, and valued the 

taking at $86,500 by using the income capitalization method. The 

State's appraiser also discussed the same three methods, rejecting the last two, and valuing the taking at $39,033 by applying 

the market data method. 

Each of the experts pointed out the flaws he felt to be 

inherent in the other's approach. Each was rigorously crossexamined by opposing counsel. No suggestion was made that the 

witnesses were unqualified to express an opinion. The dispute 

went solely to the applicability of the methods proposed. 

Under these facts we find Bennett to be controlling. 

Dealing with a similar problem there, we said: 

"Once proper foundation has been laid as to the 

witness' expertise he should be permitted to 

give his opinion using any of the accepted means 

of calculating value. It is thus incumbent upon 

the State to bring out any weaknesses of his 

valuation upon cross-examination." 

The foregoing discussion responds to both issues raised 

by the State. The use of the income capitalization method clearly was permissible under the authorities cited. The concern over 

the proper application of this method goes to the weight of the 

expert's testimony, not to its admissibility. Bennett, supra. 

Our review of the record here finds substantial evidence supporting the verdict and judgment. Accordingly, the judgment of the 
district court is affirmed. 

The final problem presented concerns the district court's 

denial of the landowners' alleged "necessary costs of litigation". 

Tne principal challenge concerns the applicability of section 

93-9921.1, R.C.M. 1947, to an action pending when that statute 

became effective. 

The State's complaint was filed in June 1972. At that 

time, awardable costs were determined under section 93-9921, 

R.C.M. 1947, which provided: 

"Costs may be allowed or not, and, if allowed 

may be apportioned between the parties on the 

same or adverse sides, in the discretion of 

the court." 

The costs provided by that statute did not include expert witness 

or attorney fees. State Highway Comm'n v. Heltborg, 140 Mont. 

136, 369 P.2d 521; Tomten v. Thomas, 125 Mont. 159, 232 P.2d 723, 

26 ALR 2d 1285. 

While this action was pending, section 93-9921 was repealed and section 93-9921.1, R.C.M. 1947, was substituted. It 

provides, in pertinent part: 

" * * * In the event of litigation, and when the 

private property owner prevails, by receiving 

an award in excess of the final offer of the 

condemnor, the court shall award necessary expenses of litigation to the condemnee." 

The title of the 1973 legislative act indicates section 93-9921.1 

was designed to implement Article 11, Section 29, of the 1972 

Montana Constitution. Chapter 453, Laws of 1973. 

The new statute and the new constitution went into effect 

during the time this suit was pending. The language of the new 

provision is clearly broader than the former law, and "necessary 

costs of litigation" includes expert witness and attorney fees. 

Tne Constitutional Convention notes appended to Art. 11, Sec. 29, 

of the 1972 Montana Constitution, recite: 
"Retains provisions in 1889 constitution 

[Art. 111, sec. 141 on eminent domain and expands 

its protection by guaranteeing that a property 

owner who goes to court and is awarded more money 

than offered for his property being condemned 

will be reimbursed for the necessary expenses of 

the lawsuit (such as appraiser and attorneys fees)." 

It thus becomes necessary to determine whether or not 

the new law applies to an action pending, when the right to 

expanded costs became operative. The State argues the question 

of applicability is controlled by the transition schedule which 

governs the change from the 1889 to the 1972 Constitution. Section 3 of that schedule provides: 

"Any rights, procedural or substantive, created 

for the first time by Article I1 shall be prospective and not retroactive." 

Since prior to the adoption of the 1972 Constitution and its 

implementing legislation there was no right to attorney and 

appraiser' fees as an element of costs, the State argues that 

the new provisions are prospective only and cannot be applied 

to suits commenced under the old law. 

We disagree. While the new statutory and constitutional 

provisions are clearly prospective in application, that does not 

prevent their application here. The right to necessary costs of 

litigation provided by section 93-9921.1, R.C.M. 1947, does not 

arise when the suit is filed, but vests only when the private 

property owner prevails, securing a verdict higher than the State's 

final offer. The right here vested after the statutory and constitutional provisions were operative. Their prospective application thus encompasses the present case. 

Our holding here is in accord with the general rule, 

recognized by case law and the authorities. See, e.g. Fellers 

v. State Highway Commission, 214 Kan. 630, 522 P.2d 341; State, 

Department of Mental Health v. Cholewinsk, 27 Conn. Sup. 286, 236 

A.2d 339; 20 C.J.S. Costs §3(b); Annotation, 96 A.L.R. 1428. We 
do not find that rule varied by the constitutional transition 

schedule here. That schedule merely makes the applicability of 

these costs prospective. As the landowners' right to these costs 

did not arise until they prevailed at trial, the date of judgment 

is controlling. The statute and constitutional provisions authorizing increased costs were both in effect at that time. 

The State further contends that, even if section 93-9921.1 

is applicable to this case, costs cannot be allowed thereunder because there was no "final offer" by the State--a condition precedent to an award of costs. 

Section 93-9912, R.C.M. 1947, requires the district court 

judge to appoint "condemnation commissioners" who are to assess 

the value of the taking. That assessment can be appealed under 

the provisions of section 93-9915, R.C.M. 1947. These procedures 

were not followed .here, and the State argues section 93-9921.1, 

R.C.M. 1947, speaks of a final offer only in terms of the offer 

it requires to be made within thirty days of the perfecting of 

the appeal from the commissioners' assessment. 

The record certified from the district court discloses 

nothing concerning why these procedures involving a commissioners' 

assessment were not followed. The State's appellate brief alludes 

to a waiver of this procedure, which we assume to be the case. 

The question thus presented is novel. The district court, 

apparently with the consent of the parties, failed to follow a 

mandatory statutory procedure--namely appointing comrnissioners 

and supervising their asskssment. Arguably, this defect was cured 

by the subsequent district court trial at which the issues which 

should have been presented to the commissioners were determined. 

Now the State seeks to avoid its statutory liability for necessary 

costs of litigation by asserting that it never made a final offer 

within the meaning of section 93-9921.1, R.C.M. 1947, and that it 
was not required to submit a final offer because no commissioner's 

hearing was held. 

To adopt such a theory here would contravene the intent 

of the statute and would violate the constitutional mandate. 

Article 11, Section 29, 1972 Montana Constitution requires that 

a Landowner be compensated for necessary expenses of litigation 

if he prevails. This constitutional directive cannot be frustrated 

by inadvertent or intentional violations of statutory procedure. 

There is no statutory prohibition against the State's 

making an offer at any time prior to trial. Section 93-9921.1, 

R.C.M. 1947, provides, in pertinent part: 

"The fact that an offer is made but not accepted 

does not preclude a subsequent offer." 

'Yhus, the State could nave made an offer at any time prior to 

trial, whether or not a commission hearing was held. Accordingly, 

we find the $3,460 offer made prior to the filing of this action 

was the State's final offer under the facts here. Since the 

ultimate award was far in excess of that offer, the landowners 

are entitled to an award of their necessary expenses of litigation. 

The State also challenges the necessity of some of the 

items of expense submitted in the landowners' motion for costs. 

Without detailing the specific claims alleged by the State, we 

note that they center around the charge that fees resulting from 

exhibits and witnesses n~t produced at trial should not be allowed. 

We have reviewed the entire record, including the hearing 

on the motion for costs, and find that the items claimed as 

necessary were made unnecessary only by the State's admission 

at trial that the taking included the sanitary facilities. The 

challenged expenses were incurred when the landowners prepared to 

prove that very fact. Although the State's admission relieved 

the landowners of the necessity of proof, it came too late to avoid 

liability for expense incurred in preparing that proof. 
The proceedings at the Constitutional Convention make it 

abundantly clear that it intended by Article 11, Section 29 

to make the landowner whole in eminent domain proceedings to the 

extent that the amount of the judgment for the taking of his 

land and improvements would be a "net recovery" with expenses 

of litigation assessed against the State, where the landowner 

prevailed. 

The large award of attorney fees as a necessary expense 

of litigation is the result of the peculiar facts of this case. 

Because of an error, the State originally did not include the 

sanitary facilities in the taking which resulted in an extremely 

low offer of only $3,460 to the landowners. At trial the State 

admitted its error and appraised the "take" at $39,033. However, 

the only offer made to the landowners was the original amount 

offered, $3,460. The jury fixed the award to the landowners at 

$68,000, a difference of $64,540. The contract between the landowners and their attorneys provided for an attorneys' fee of 25% 

of the increased value secured by the attorneys and proof of the 

reasonableness of this percentage was made at the hearing. The 

award of attorneys' fees was reasonable under these facts and 

necessary to make the landowners whole. 

Accordingly, the $68,000 judgment in favor of the landowners is affirmed. The denial of necessary expenses of litigation pursuant to section 93-9921.1, R.C.M. 1947, is vacated and 

necessary expenses of litigation are fixed and allowed in the 

total sum of $19,300.50 as requested by the landowners. 

Justice 
1:. *. i 

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Chief Justice