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

No. 16-1163

Supreme Court of Appeals of West Virginia.

Submitted: October 31, 2017 Filed: November 14, 2017

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

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 *783can 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 *784on 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 *785for 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 Property was 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 *786testimony 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 *787case, 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 transaction at the time of the taking. *See**Western Pocahontas* , 236 W. Va. at 61-62, 777 S.E.2d at 630-31 (defining fair market value).

Indeed, in the *Southeast Timberlands* case discussed *supra* , the Georgia Court of Appeals observed that the wetlands at issue in that case had not been valued based upon the worth of mitigation credits, thereby indicating that such an assessment would be improper. In this regard, the *Southeast Timberlands* court explained

> [Southeast Timberlands' expert] merely testified that the land's highest and best use was as a wetlands mitigation bank.... [H]e did not estimate how much income the land would generate if it operated as a wetlands mitigation bank. *And the trial court excluded testimony from another of Southeast's witnesses about how much the mitigation credits would be worth* . Thus, contrary to DOT's assertions, [the expert's] testimony about how many mitigation credits the land could yield simply explained and reinforced his determination of the land's highest and best use; it was not a post-taking valuation of the land. Moreover, [the expert] did not assume that the land already had been developed into a wetlands mitigation bank. To the contrary, he testified that the land would need to be restored to its original wetlands state, and he explained the costs associated with restoration and maintenance.

263 Ga. App. at 809, 589 S.E.2d at 580 (emphasis added; footnote omitted).

In discussing just compensation, this Court explained in *Western Pocahontas* that

> [t]he challenge in assessing just compensation in a condemnation case is this: what uses and factors would be considered in setting the market price by a willing buyer and a willing seller, each acting with complete freedom and knowledge of the property? "[E]very element of value which would be taken into consideration between private parties in a sale of property should be considered in arriving at a just compensation for the land proposed to be taken [.]" [Syl. pt. 1, *Norfolk & W. Ry. Co. v. Davis* , 58 W. Va. 620, 52 S.E. 724 (1906).] Conversely, "[c]onsiderations that may not reasonably be held to affect market value are excluded." [ *United States v. Sowards* , 370 F.2d 87, 90 (10th Cir. 1966).] Essentially, any factor that a reasonable buyer or seller would typically consider should be included in an analysis of fair market value.

> Thus, for the purpose of determining the market value of property taken by eminent domain,

> consideration should be given to every element of value which ordinarily arises in negotiations between private persons with respect to the voluntary sale and purchase of land, the use made of the land at the time ... it is taken, its suitability for other uses, its adaptability for every useful purpose to which it may *788be reasonably expected to be immediately devoted, and the most advantageous uses to which it may so be applied.

> [ *West Virginia Dep't of Highways v. Berwind Land Co.* , 167 W. Va. 726, 733, 280 S.E.2d 609, 614 (1981) (quoting Syl. pt. 7, in part, *Strouds Creek & M.R. Co. v. Herold* , 131 W. Va. 45, 47, 45 S.E.2d 513, 516 (1947) ).]

*Western Pocahontas* , 236 W. Va. at 62-63, 777 S.E.2d at 631-32 (footnotes omitted).

Based upon our analysis in *Western Pocahontas,* we now hold that, 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. *See, e.g.* , Wayne Rasmussen, *The Growing Demands for Wetlands: Should a New Class of Land Use Be Considered When Determining Highest and Best Use?* , Right of Way, 22, 24-25 (May/June 2011) ("If the appraiser feels that wetlands may potentially be the highest and best use for all or a portion of the project take, then the next step is to investigate *the price of comparable land* that was recently sold to non-government entities by local area conservation banks.... If the resulting *per-acre price* as wetlands turns out to be higher than the appraiser's alternative highest and best uses, then wetlands can be considered as the actual highest and best use for the area of the take. This can then be identified as a specific class of land use separate from the undevelopable open space classification." (emphasis added)).

Because the CDS experts improperly valued the Take Property based solely upon the market price of mitigation credits, we find the circuit court erred in admitting that testimony. We therefore reverse this case and remand for a new trial.

**IV.**

**CONCLUSION**

Based upon the foregoing analysis, we reverse the November 15, 2016, order of the Circuit Court of Tucker County and remand this case for a new trial consistent with this opinion.

Reversed and Remanded.

CHIEF JUSTICE LOUGHRY concurs and reserves the right to file a concurring opinion.

JUSTICE KETCHUM concurs and reserves the right to file a concurring opinion.

1

In other words, no portion of Corridor H would be constructed on this property. Instead, the property was to be used to mitigate, or replace, wetlands located elsewhere that were damaged or destroyed by the construction of Corridor H. The concept of wetlands mitigation is described *infra* .

2

The permit mentioned in this quotation refers to permits issued pursuant to the federal Clean Water Act. *See*33 U.S.C. § 1251*et seq* . The permits, which appear to be commonly referred to as Section 404 permits, are issued pursuant to 33 U.S.C. § 1344 (1987) (2012 ed.).

3

One court has explained that

> [f]ederal guidelines define wetlands mitigation banking as:

> [W]etland restoration, creation, enhancement, and in exceptional circumstances, preservation undertaken expressly for the purpose of compensating for unavoidable wetland losses in advance of development actions, when such compensation cannot be achieved at the development site or would not be as environmentally beneficial. It typically involves the consolidation of small, fragmented wetland mitigation projects into one large contiguous site. Units of restored, created, enhanced or preserved wetlands are expressed as "credits" which may subsequently be withdrawn to offset "debits" incurred at a project development site.

> Federal Guidance for the Establishment, Use and Operation of Mitigation Banks, 60 Fed. Reg. 58,605 -02, 58,606 (Nov. 28, 1995).

*South Carolina Coastal Conservation League v. United States Army Corps of Eng'rs* , 789 F.3d 475, 478 n.2 (4th Cir. 2015).

4

CDS expert Douglas Wise determined that the highest and best use of a portion of the CDS property that is not wetlands would be recreational use.

5

As noted above, CDS owned only surface rights. Mineral rights to the Take Property were owned by WPP, L.P. DOH has compensated WPP for coal related to the taking, and WPP is not a party to this appeal.

6

Specifically, DOH contends that the testimony of the CDS expert witnesses should have been found inadmissible under Rules 702 and 703 of the West Virginia Rules of Evidence, that the CDS experts improperly based their opinions on a frustration of business plans, and that the experts erroneously included business profit in their opinions of value.

7

DOH raises an additional error asserting a late-disclosed expert rebuttal witness. Because we reverse this case and remand for a new trial, it is unnecessary for us to address this issue.

8

The court also noted the former landowner's testimony that he " 'had always planned on utilizing the [taken] property' as on-site mitigation for the golf course community." *Department of Transp. v. Southeast Timberlands, Inc.* , 263 Ga. App. 805, 808, 589 S.E.2d 575, 580 (2003).

9

Although mitigation banks have existed for some time, their use apparently increased following the adoption of new standards in 2008. *See* United States Environmental Protection Agency & United States Army Corps of Engineers Wetlands Compensatory Mitigation Rule fact sheet, https://www.epa.gov/sites/production/files/2015-08/documents/mitigation_rule_factsheet.pdf ("On March 31, 2008, the U.S. Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (the Corps) announced innovative new standards to promote no net loss of wetlands by ... increasing the effective use of wetland mitigation banks...." (last accessed Nov. 6, 2017).

10

Mr. Sokolove based his valuation, in part, upon a "Stream Assessment, Wetland Delineation, and Mitigation Potential" report prepared by Rummel, Klepper, & Kahl, LLP ("RK&K"), and the related testimony of Justin Reel ("Mr. Reel"). Mr. Reel is an environmental scientist, professional wetland scientist, and manager in RK&K's transportation department. According to his curriculum vitae, Mr. Reel is responsible for managing, coordinating, and developing wetland and stream mitigation sites.

11

As previously stated in note 4 *supra,* CDS expert Douglas Wise determined that the highest and best use of a portion of the Take Property that is not wetlands would be recreational use.

12

Mr. Wise testified that he used the sales comparison approach in estimating the value of the uplands.

13

It appears that the wetlands portion of the residue of the CDS land also was valued based upon the market price for mitigation credits.

14

DOH contends that the circuit court erred by allowing CDS to offer evidence that the fair market value of the property, or any part of it, flowed from the property's highest and best use as a wetlands mitigation bank because a wetlands mitigation bank does not constitute a cognizable property interest. In support of its argument, DOH relies exclusively on the case of *Hearts Bluff Game Ranch, Inc. v. United States* , 669 F.3d 1326 (Fed. Cir. 2012). Because this case is distinguishable from the instant matter, we reject DOH's argument. The issue in *Hearts Bluff* involved whether the denial of a permit to create a wetlands mitigation bank by the United States Army Corps of Engineers amounted to a taking for Fifth Amendment purposes of a property right belonging to the landowner. In rejecting this argument, the Federal Circuit Court of Appeals reasoned that "[o]wning land in and of itself does not give rise to a right to run a mitigation bank, and obtaining a mitigation *instrument* is therefore not a cognizable property interest." *Id.* at 1331 (emphasis added). In the instant matter, unlike *Hearts Bluff* , there is no dispute over whether there was a taking of property. The issue in the case *sub judice* relates to how the taken property should be valued.

15

CDS asserts that Mr. Sokolove reviewed credit sales from more than 100 existing mitigation banks that were comparable to the bank that Mr. Sokolove believed could be developed on the Take Property. Based upon this data, Mr. Sokolove prepared an estimate *of the total net value of the wetlands credits and stream mitigation credits* that would have been associated with the Take Property had it been used as a mitigation bank.

LOUGHRY, Chief Justice, concurring:

While I agree with the majority's decision that a new trial was required in this matter due to the improperly and heavily-weighted reliance on the market price of potential mitigation credits, I find it necessary to write separately to address my additional concern that trial courts need to properly marshal evidence that is adduced for purposes of valuing wetlands. Other than quoting from the decision in *Department of Transportation v. Southeast Timberlands, Inc.* , 263 Ga.App. 805, 589 S.E.2d 575 (2004), the majority offers very little advice to the trial court for its handling of this case on remand. Accordingly, I wish to address certain issues that the trial court may need to consider when quandaries arise with regard to the admission of expert testimony on the valuation of the subject land.

First and foremost, the trial court needs to recognize that, as the majority acknowledged, there is no consensus on how to value land when its highest and best use is the potential to be utilized as a wetlands mitigation bank. *See* David M. Keating, MAI*, The Valuation of Wetlands* 37 (2d ed. 2002) ("The total economic value of wetlands is a relatively new concept, and scientists are working to formulate methods for estimating such values."). And, as the Division of Highways aptly observes in its reply brief, decisions with regard to environmental protection laws are affected by the political climate as demonstrated *789by the multitude of directives instituted by President Trump since taking office this past January. Included in those policy changes was Executive Order 13,778, "Restoring the Rule of Law, Federalism, and Economic Growth by reviewing the 'Waters of the United States Rule.' " That order, signed on February 3, 2017, has potential impact on the value of wetlands, and wetlands credits, as it mandates the withdrawal and reconsideration of the Clean Water Rule, 80 Fed. Reg. 37054 (June 29, 2015).1 Consequently, the regulations and guidelines previously utilized under the Obama administration are now in a state of flux due to the vagaries of the regulatory process itself2 and numerous lawsuits instituted to halt such changes.3 Given that the wetlands banking mitigation industry is unquestionably dependent on the current political climate, the valuation testimony provided below has clearly been called into doubt.

A secondary caution only hinted at by the majority is a need to ensure that the valuation is limited to adaptable uses that are "*reasonable and probable and not remote or speculative* ." *Southeast Timberlands* , 589 S.E.2d at 579 (emphasis supplied). The critical valuation for purposes of condemnation is always the market value on the date of taking, and yet the expert testimony proffered by CDS was linked to the *future* application for mitigation credits-something that may or may not transpire. Significantly, at no time prior to the taking had any steps been taken to construct a wetlands mitigation bank on the subject property. The experts hired by CDS testified solely in terms of the "potential" of the property to be developed for such purpose.

At least one court has ruled that the prospective application for mitigation credits has no relevance with regard to the issue of just and adequate compensation. In *Martha K. Wayt Trust v. City of Cumming* , 306 Ga.App. 790, 702 S.E.2d 915 (2010), the court considered the trial court's refusal to allow an expert to testify regarding the value of stream mitigation credits for purposes of valuing the condemned property. In affirming the trial court's decision, the appellate court reasoned:

> The evidence showed that, at the time of the taking, the proposed stream mitigation bank had not yet been created on the condemned property, and no stream mitigation credits had been awarded in connection with the condemned property. And no evidence was presented to show that the proposed future use of the property as a stream mitigation bank, or the value of stream mitigation credits it might have generated under such use, had an effect on its market value *on the date of the taking* .

*Id.* at 918. Citing *Southeast Timberlands* , the court reasoned further:

> The fact that the property is merely adaptable to a different use is not in itself a sufficient showing in law to consider such different use as a basis for compensation. It must be shown that such use of the property is so reasonably probable as to have an effect on the *present value* of the land. Even where a different use is probable, the jury cannot evaluate the property as though the new use were an accomplished fact; the jury can only consider the new use to the extent that it affects the market value *on the date of taking.*

*Id.* (quoting *Southeast Timberlands* , 589 S.E.2d at 580 ).

Of further concern is the fact that the experts hired by CDS to inflate the value of this property appear somewhat incestuous, relying on each other's data rather than having the necessary expertise to testify independently.4 This should be a warning sign to *790the trial court, when it conducts its gatekeeping function to determine whether such individuals have the appropriate expertise to testify on the valuation-related issues. Robert Sokolove, one of the three experts relied on by CDS was a Delaware lawyer, whose professional credentials reflect zero experience in real estate valuation or appraisal. Mr. Sokolove, a self-described "wetland mitigation banker," testified that the subject land "had a significant opportunity to be utilized as a mitigation bank." What is notable is that his report contained no opinions concerning the fair market value of the entire property before taking, the fair market value of the property taken, or the value of the residue of the property after the taking. Worse yet, is that he failed to rely upon any of the recognized methods of valuing real estate.5 Looking solely to his business experience in "get[ting] your values" from the sale of wetlands credits, Mr. Sokolove prognosticated that a willing buyer would pay $3,551,000 for the property at issue because he could then resell the mitigation credits for over $5 million later.

The record in this matter similarly calls into question the expert testimony provided by Mr. Wise, another expert hired by CDS.6 While he supplied a figure of $5,670,000 as the fair market value of the property before the taking, he failed to employ any acceptable approach for arriving at such figure.7 It cannot be overlooked that the singular basis for that figure was his reliance on alleged sales of wetlands mitigation credits provided to him by Mr. Sokolove. So rather than looking to any comparable sales or any other accepted appraisal theory, Mr. Wise simply subscribed hook, line, and sinker to the valuation that Mr. Sokolove provided to him-the lawyer's guestimate that 349.22 acres would have sold for $65,000 per credit acre and $2,042.21 per stream credit *if* the property had been developed into a wetlands mitigation bank. Not only is this credit-based method of valuation constructed upon speculation and illusion, but its foundational flaws are glaringly apparent.

The appraisal of wetlands has been recognized as controversial due to the differing conclusions that result from each distinct method of valuation. *See* Keating, *supra* , at 41. Despite this acknowledgment, in this case the entire valuation was conjured from the pen of a lawyer who admitted to making his living as a "wetland mitigation banker." This type of self-serving evidentiary foundation is wholly suspect and should not be permitted to suffice on remand. And, as this Court long ago recognized:

> Speculation as to what use may be made of property at some future indefinite date is insufficient.... Possible uses which are so remote and speculative and which would require the concurrence of so many extrinsic conditions and happenings as to have no perceptible effect upon present market value must be excluded from consideration.

*State Road Comm'n v. Penndel Co.* , 147 W.Va. 505, 511-12, 129 S.E.2d 133, 137 (1963). With this additional guidance, I respectfully concur.

1

The trial judge's efforts are more remarkable when you consider there seem to be only two reported appellate cases in the United States dealing directly with the introduction of wetlands mitigation credits in a condemnation case. *See**Dep't of Transp. v. Southeast Timberlands, Inc.* , 263 Ga.App. 805, 589 S.E.2d 575 (2003) (admission of evidence of valuation of wetlands mitigation credits, if error, was harmless); *Martha K. Wayt Tr. v. City of Cumming* , 306 Ga.App. 790, 702 S.E.2d 915 (2010) (evidence as to the value of stream mitigation credits was irrelevant and inadmissible).

2

Just compensation is not necessarily based upon the land's current use, but rather is based upon the property's reasonable use in the near future that will result in its highest value. West Virginia's recently-published pattern jury instructions suggests the following definition for "highest and best use of property":

> A landowner is entitled to have [*his/her/their/its* ] property valued on its highest and best use. "Highest and best use" means the use for which the property may be reasonably used that will result in its highest value.

> You should consider any uses which might reasonably have been made of the property in light of the conditions and circumstances existing when the property was taken on [*date condemnation application filed* ]. You should consider all of the natural advantages and disadvantages of the property, as well as the characteristics and needs of the surrounding community which existed at the time of the taking or which would exist in the immediate future.

> The uses to which the property is adaptable must be so reasonably probable as to have an effect on its fair market value. You may not consider imaginative or speculative uses of the property or merely speculative plans of the landowner.

Menis E. Ketchum, *West Virginia Pattern Jury Instructions for Civil Cases* , § 1204 (2017).

3

More specifically, getting a permit requires navigating the regulations of an Interagency Review Team (IRT) that includes the Corps of Engineers, the U.S. Fish and Wildlife Service, the U.S. Environmental Protection Agency, and others.

4

A pattern jury instruction defining "fair market value" is this:

> The fair market value is the price that the property would bring if it were offered for sale on the open market by someone who wanted to sell and was bought by someone who wanted to buy, both exercising prudence and intelligent judgment as to its value, and neither being under any compulsion to buy or sell.

> In determining fair market value, you may not consider that the property owner might have been unwilling to sell to [*name of agency* ], or that [*name of agency* ] has a need for the property, nor can you consider the use that [*name of agency* ] will make of the property.

*West Virginia Pattern Jury Instructions for Civil Cases* § 1204.

5

West Virginia also uses a variation on the unit rule called the "undivided fee rule," which requires "that property be valued as a whole rather than the sum of the values of the various interests into which it may have been carved, such as lessor and lessee, life tenant and remainderman, and mortgagor and mortgagee, etc." *Uniform**Appraisal Standards for Federal Land Acquisitions* at 53. *See generally* , Syllabus Point 1, *State by Dep't of Nat. Res. v. Cooper* , 152 W.Va. 309, 162 S.E.2d 281 (1968) ("Where the State of West Virginia, or any entity with statutory authority to take property for public use, undertakes to acquire the fee simple title to a parcel of land all persons who own an interest or an estate in such parcel must be joined as party defendants in the proceeding.")

6

*See supra* note 4.

7

*See supra* note 5.

Justice Ketchum, concurring:

The trial judge did a yeoman's job handling this novel and complex condemnation case.1 Despite the trial judge's Herculean efforts, I believe that the opinions of the landowner's experts were speculative and misleading. The trial judge should have found that their testimony was inadmissible.

*791The trial in this case devolved into a debate about the value of "wetlands mitigation credits." It should have been about the fair market value of the condemned land, that is, what an informed, willing buyer would pay an informed, willing seller for land on the open market. I write separately to emphasize that when, in a condemnation action, an expert's opinion of fair market value deviates into a speculative, misleading or confusing mess, the RULES OF EVIDENCE arm the trial judge with the power to exclude that valuation.

At trial, the evidence showed the Division of Highways built a new highway, Corridor H, in the mountains through various streams, valleys, and headwaters. The DOH was required, somehow, to either remediate the damage the construction caused to the environment or mitigate the damage by coming up with suitable replacement wetlands.

The DOH's solution was to condemn 123.51 acres of creek-bottom land owned by the CDS Family Trust. The DOH wanted to use the land as permanently preserved "wetlands" to replace the acres of wetlands filled or damaged by its highway construction.

CDS offered evidence that the highest and best use of the land2 was as a "wetlands mitigation bank" filled with "mitigation credits." Making a mitigation bank is a complicated, often expensive process involving engineers and environmental professionals, and which requires permits and intense scrutiny by the U.S. Army Corps of Engineers and other federal agencies.3

> A mitigation bank is a form of sell-out property resembling a residential subdivision. Instead of lots, however, a mitigation banker sells credits-usually acreage-based credits. The banker obtains these credits from applicable jurisdictional agencies for creating, enhancing, or restoring wetland functions in an area. The banker then sells these credits on the open market for the highest possible price in order to maximize revenues. The supply of credits awarded a bank is fixed, and once the credits are sold the property has no other means of generating income.

Davis Michael Keating, *The Valuation of Wetlands* , 62 (2nd Ed. 2002).

Wetlands mitigation banking is a novel concept that may give economic value to what otherwise might be unusable wetlands. Federal law recognizes that wetlands are critical to the environment, absorbing and filtering pollutants, reducing flooding, and providing a home for flora and fauna. When wetlands are dredged or filled, federal law requires a developer to either repair or somehow compensate for that damage. Federal regulations adopted in 2008 for the "Compensatory Mitigation for Losses of Aquatic Resources" identify ways to mitigate wetlands damage. One of the ways is through buying wetlands mitigation bank credits. *See*73 Fed. Reg. 19,594 -01 (April 10, 2008); 33 C.F.R. § 332.3 (b) (2008).

If the landowner can obtain the right permits from the Corps of Engineers, then the landowner can try to sell wetland mitigation credits to land developers, public works *792agencies, the DOH, or anyone else to offset damage done elsewhere to wetlands. *See* Yancey A. McLeod, III, "The Alchemy of Federal Wetlands Mitigation: Turning Wastelands into Gold," 31 Zoning & Planning Law Rep. 1 (No. 10, Nov. 2008). Obtaining a permit from the Corps of Engineers is an arduous but uncertain proposition.

The central problem in this case was the opinions of fair market value for the 123.51-acre tract of wetlands. Specifically, the experts for CDS lobbed million-dollar numbers at the jury, none of which had any relation to the definition of "fair market value." The experts talked largely about the market value of the mitigation credits, not the market value for the land. The lawyer for the DOH strenuously objected to the weird, speculative way that the CDS experts were testifying, but to no avail.

When the government takes land for a public purpose, it must pay just compensation. Just compensation is measured by the fair market value of the property. "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.' " *W.Va. Dep't of Transp., Div. of Highways v. Western Pocahontas Properties, L.P.* , 236 W.Va. 50, 61-62, 777 S.E.2d 619, 630-31 (2015) (quoting Syllabus Point 5, *Wheeling Elec. Co. v. Gist,*154 W.Va. 69, 173 S.E.2d 336 (1970) ).4 The federal government uses a similar definition for fair market value:

> Market value is the amount in cash, or on terms reasonably equivalent to cash, for which in all probability the property would have sold on the effective date of the appraisal, after a reasonable exposure time on the open competitive market, from a willing and reasonably knowledgeable seller to a willing and reasonably knowledgeable buyer, with neither acting under any compulsion to buy or sell, giving due consideration to all available economic uses of the property at the time of the appraisal.

Interagency Land Acquisition Conference, *Uniform Appraisal Standards for Federal Land Acquisitions* 30 (2000).

When an expert offers an opinion about the fair market value of land, that opinion must have solid grounding. The valuation has to account for those things that private parties would consider in arriving at a price for the land, while at the same time excluding things those reasonable private parties would not consider. *Western Pocahontas Properties* , 236 W.Va. at 62, 777 S.E.2d at 631.

When an expert's land valuation in a condemnation action seems amiss because it lacks grounding, trial judges have at least two tools under the RULES OF EVIDENCE to reject that valuation.

First, Rule 702 permits the admission of expert testimony only when the expert's "knowledge will assist the trier of fact ... to determine a fact in issue." In other words, if an expert's valuation testimony in a condemnation action is not helpful and will not assist the jury in calculating just compensation, then the trial judge may exclude the expert witness's testimony. "[I]f the elements considered by the witness in reaching his opinion are irrelevant, *speculative and conjectural, or otherwise incompetent* , the opinion should be excluded." *W.Va. Dep't of Highways v. Bellomy* , 169 W. Va. 791, 793, 289 S.E.2d 511, 512 (1982) (citing 5 *Nichols on Eminent Domain* , § 18.45, at 18-300 to 18-302 (3rd rev. ed. 1979)) (emphasis added).

Second, Rule 403 permits a judge to exclude relevant evidence if its probative value is outweighed by the danger of "confusing the issues" or "misleading the jury." "[T]he *793role of the trial court is to keep from the jury's eyes or ears evidence that may be misleading." *State v. Knuckles* , 196 W.Va. 416, 424, 473 S.E.2d 131, 139 (1996). Accordingly, where an expert's testimony is "confusing or misleading the trial judge may properly refuse to admit it." Syllabus Point 4, *Rozas v. Rozas* , 176 W.Va. 235, 342 S.E.2d 201 (1986). *See also* , *W.Va. Dep't of Transp., Div. of Highways v. Parkersburg Inn, Inc.* , 222 W.Va. 688, 700, 671 S.E.2d 693, 705 (2008) (excluding expert testimony as confusing). Put in the context of a condemnation action, if the probative effect of an expert's valuation opinion is outweighed by its confounding, misleading impact on the jury's assessment of the property's fair market value, the trial judge may exclude it.

In this case, the landowner's experts lobbed out disjointed valuations that were not grounded in the fair market value of the 123.51-acre tract. For instance, Robert Sokolove, a lawyer, testified the landowner would have to spend $1.8 million on construction to *create* wetlands on the tract, and then the landowner would have to apply to the government for permits, which might then have resulted in up to $5 million in wetlands credits sales, which-put together-meant the net value of the land was $3.2 million.

My overall reading of Mr. Sokolove's opinion is blunt: the opinion is utter nonsense as a fair market price. The value of mitigation credits generated by the land does not equal the fair market value of the land. West Virginia (and just about every other State) uses the "unit rule" which means that the values of the various parts of land do not necessarily equal the value of the whole. *See**W.Va. Dep't of Highways v. Berwind Land Co.* , 167 W.Va. 726, 280 S.E.2d 609 (1981) ; *Strouds Creek and Muddlety R. R. Co. v. Herold* , 131 W.Va. 45, 45 S.E.2d 513 (1947).5 Mr. Sokolove's opinion violates the unit rule. Let me explain.

Land can be seen as an aggregate of important, valuable pieces: a house, a barn, lots for a future subdivision, timber, strata of coal, oil and gas, or credits in a mitigation bank. An expert cannot value each separate component, then simply add them together as the property's fair market value for an obvious reason: no buyer in their right mind would pay that price. "[T]he value of an element can be considered in determining the fair market value of land," but it cannot be the only element, nor can the separate values of those elements merely be added together. *Berwind Land* , 167 W.Va. at 745, 280 S.E.2d at 620. "For example, the value of timber, as an independent component, cannot be added to the value of minerals in the same property as an independent component, and this sum further added to the value of the land." *Uniform Appraisal Standards for Federal Land Acquisitions* at 53-54. "The unit rule is a rule in condemnation proceedings that prohibits the separate valuation of timber, oil, and other commodities apart from the parcel that contains them. The land must be valued as a whole; thus, commodities may be considered only to the extent they enhance the property's overall value." *Dep't of Transp. ex rel. People v. Farnsworth* , 273 Ill.App.3d 631, 633, 210 Ill.Dec. 518, 519, 653 N.E.2d 423, 424 (1995). Condemned property must be valued as an integrated unit; the individual components can be considered only to the extent they effect that value. An appraiser cannot merely add the components together to arrive at a value.

Applying the unit rule to this case, no reasonable, prudent, informed buyer would pay $3.2 million today for land that might, perchance, someday produce $3.2 million in mitigation credit sales in the future. Mr. Sokolove never gave an opinion of the land's fair market value; instead, he offered valuation testimony as to one component separate *794and apart from the land. Moreover, reading the record, one is struck by the amount of speculation and effort necessary to *create* wetlands in the West Virginia Mountains, and by the fact that Mr. Sokolove's opinion presumed that the landowner would successfully convince the Corps of Engineers (and other government agencies) to approve use of the land for mitigation banking. His opinion appears to have also ignored that, once the landowner sold the mitigation credits, the landowner would have to continue to expend money and effort maintaining the land as wetlands in perpetuity, as well as paying taxes on the profits generated by selling the wetlands credits. Put simply, Mr. Sokolove's opinion centered on the value of a component of the 123.51-acre tract; he failed to suggest a fair market value for the tract as a unit.

The landowner's appraisal expert, Douglas C. Wise, gave testimony that relied upon Mr. Sokolove's opinions. Mr. Wise testified he had no expertise in mitigation banking, and then, just as quickly, gave his unsupported opinion that the remainder of the property could be used for wetlands mitigation banking. Then he said the DOH's taking of the 123.51-acre tract for use as wetlands impaired the use of the remainder for wetlands credits, a loss to the landowner of around $2 million. As far as I can tell, he considered no comparable sales, nor did he use any recognized appraisal approach in valuing the property.

The United States Supreme Court once cautioned that, when an expert witness relies on factual premises that may not be supported by any admissible evidence, a trial judge should instruct the jury "that an expert's opinion is only as good as the independent evidence that establishes its underlying premises." *Williams v. Illinois* , 567 U.S. 50, 81, 132 S.Ct. 2221, 2241, 183 L.Ed.2d 89 (2012). In my treatise on pattern jury instructions, I suggested judges give the following instruction:

> [*Name of witness* ], an expert witness, relied on out-of-court material in forming [*his/her* ] opinion. [*Name of witness* ] may not have had personal first-hand knowledge of this out-of-court material. An expert's opinion is only as good as the out-of-court material upon which [*he/she* ] relies in forming [*his/her* ] opinion. You may consider whether the out-of-court material relied upon by [*name of witness* ] is accurate and reliable and compare it to other evidence. It is up to you to determine the value of an expert witness's testimony. You can believe, or not believe, all or any part of an expert witness's testimony.

*West Virginia Pattern Jury Instructions for Civil Cases* , § 1308.

On remand, the trial judge may want to assure that the expert opinions offered by CDS are something more than a random assortment of million-dollar figures. Under the RULES OF EVIDENCE , the testimony cannot be speculative, confusing and misleading. More importantly, the expert testimony must actually be dedicated to the central purpose of a condemnation action: allowing the jury to determine a fair market value for the property taken and any damages to the remainder.

1

Because the terms "waters of the United States" is undefined in the Clean Water Act, 33 U.S.C. §§ 1251 -1387 (2012), it has been defined by regulation to include wetlands and intermittent streams.

2

Under the subject executive order, the EPA and the Army Corp of Engineers have been directed to publish a proposed rule rescinding or revising the Clean Water Rule.

3

*See*40 C.F.R. § 230.93(a) ; 33 C.F.R. § 332.1(b)(3).

4

Douglas C. Wise, an expert hired by CDS to estimate the total just compensation due for the taking and damages to the residue, stated in his report that he merely adopted the opinions and conclusions of CDS' other experts-Mr. Sokolove and RK&K. In reaching his conclusion, Mr. Sokolove relied upon the findings of RK&K and Mr. Reel.

5

Those methods include the sales comparison approach, the cost approach, and the income capitalization approach.