Title: STATE DEPT OF HIGHWAYS v OLSEN
Citation: N/A
Docket Number: 12794
State: Montana
Issuer: Montana Supreme Court
Date: January 10, 1975

No. 12794 I N T H E S U P R E M E C O U R T O F THE STATE O F MONTANA 1975 T H E STATE O F MONTANA, ACTING BY AND T H R O U G H THE D E P A R T M E N T O F H I G H W A Y S O F THE STATE O F M O N T A N A , P l a i n t i f f and Appellant, A R T H U R J. OLSEN and FLORENCE 0. OLSEN, husband and wife, and EUGENE G. H O L M E S and E V E L Y N HOLMES, husband and wife, and ORION H E A T H and ESTHER HEATH, husband and wife, a s Contract Purchasers, Defendants and Respondents. Appeal from: D i s t r i c t Court of t h e Fourth J u d i c i a l D i s t r i c t , Honorable Jack L. Green, Judge presiding. Counsel of Record: For Appellant : Daniel J. Sullivan argued, Helena, Montana For ~ e s p o n d e n t s : 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 M r . J u s t i c e Frank I. Haswell d e l i v e r e d t h e Opinion of t h e Court. These appeals a r i s e from a condemnation a c t i o n brought by t h e S t a t e Department of Highways i n t h e d i s t r i c t c o u r t , R a v a l l i County. Defendants, Orion and Esther Heath, t h e land- owners, appeal from t h e d i s t r i c t c o u r t ' s r e f u s a l t o award them t h e i r a l l e g e d "expenses of l i t i g a t i o n " . The S t a t e c r o s s a p p e a l s from t h e judgment awarding $68,000 a s j u s t compensation f o r t h e t a k i n g . Heaths owned and operated a "mom and pop" grocery s t o r e i n Florence, Montana. The s t o r e , with l i v i n g q u a r t e r s a t t a c h e d , i s s i t u a t e d on a l o t f r o n t i n g on U. S. Highway 93. S t a t e Depart- ment o f Highways' p l a n f o r improving t h a t highway involved widening of i t s right-of-way, n e c e s s i t a t i n g a t a k i n g of p a r t of t h e l o t owned by t h e Heaths. The S t a t e o f f e r e d t h e owners $3,460 f o r t h e 31 1 / 2 f o o t s t r i p f r o n t i n g on t h e highway, which o f f e r was refused. Following t h e r e f u s a l , t h e S t a t e f i l e d t h i s con- demnation a c t i o n i n June, 1972. The landowners admitted t h e n e c e s s i t y of t h e t a k i n g , but d i s p u t e d t h e e x t e n t of t h e t a k i n g and t h e amount of j u s t compen- s a t i o n o f f e r e d by t h e S t a t e . A j u r y t r i a l was held i n January 1974, f o r a determination of t h e s e i s s u e s . During t h e course of t r i a l , t h e S t a t e admitted t h a t it had e r r e d i n its previous determination of t h e e x t e n t of t h e t a k i n g . It conceded t h e s t r i p t o be condemned included t h e s a n i t a r y f a c i l i t i e s of t h e l o t and t h a t t h e t a k i n g would d e s t r o y t h e u t i l i t y of t h e s t o r e and a t t a c h e d residence. A s a r e s u l t of t h i s new p o s i t i o n , t h e S t a t e ' s a p p r a i s e r t e s t i f i e d t h e value of t h e t a k i n g , using t h e "market d a t a " valu- a t i o n method, was $39,033. The landowners' a p p r a i s e r , using a " c a p i t a l i z a t i o n of income" method, valued t h e t a k i n g a t $86,500. The landowners d i d n o t t e s t i f y a s t o t h e v a l u e of t h e t a k i n g . 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 land- owners 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 in- volving 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 dis- cussed. 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 foun- - dation 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 suggest- ed 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, reject- ing 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 cross- examined 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 clear- ly 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 support- ing the verdict and judgment. Accordingly, the judgment of the d i s t r i c t c o u r t i s affirmed. The f i n a l problem presented concerns t h e d i s t r i c t c o u r t ' s d e n i a l of t h e landowners' alleged "necessary c o s t s of l i t i g a t i o n " . Tne p r i n c i p a l challenge concerns t h e a p p l i c a b i l i t y of s e c t i o n 93-9921.1, R.C.M. 1947, t o an a c t i o n pending when t h a t s t a t u t e became e f f e c t i v e . The S t a t e ' s complaint was f i l e d i n June 1972. A t t h a t time, awardable c o s t s were determined under s e c t i o n 93-9921, R.C.M. 1947, which provided: "Costs may be allowed o r n o t , and, i f allowed may be apportioned between t h e p a r t i e s on t h e same o r adverse s i d e s , i n t h e d i s c r e t i o n of t h e c o u r t . " The c o s t s provided by t h a t s t a t u t e d i d n o t include e x p e r t witness o r a t t o r n e y f e e s . S t a t e Highway Comm'n v . Heltborg, 1 4 0 Mont. 136, 369 P.2d 521; Tomten v. Thomas, 125 Mont. 159, 232 P.2d 723, 26 ALR 2d 1285. While t h i s a c t i o n was pending, s e c t i o n 93-9921 was re- pealed and s e c t i o n 93-9921.1, R.C.M. 1947, was s u b s t i t u t e d . It provides, i n p e r t i n e n t p a r t : " * * * I n t h e event of l i t i g a t i o n , and when t h e p r i v a t e property owner p r e v a i l s , by receiving an award i n excess of t h e f i n a l o f f e r of t h e condemnor, t h e c o u r t s h a l l award necessary ex- penses of l i t i g a t i o n t o t h e condemnee." The t i t l e of t h e 1973 l e g i s l a t i v e a c t i n d i c a t e s s e c t i o n 93-9921.1 was designed t o implement A r t i c l e 11, Section 29, of t h e 1972 Montana Constitution. Chapter 453, Laws of 1973. The new s t a t u t e and t h e new c o n s t i t u t i o n went i n t o e f f e c t during t h e time t h i s s u i t was pending. The language of t h e new provision i s c l e a r l y broader than t h e former law, and "necessary c o s t s of l i t i g a t i o n " includes expert witness and a t t o r n e y f e e s . T n e C o n s t i t u t i o n a l Convention notes appended t o A r t . 11, Sec. 2 9 , of t h e 1 9 7 2 Montana Constitution, recite: "Retains provisions i n 1889 c o n s t i t u t i o n [Art. 111, sec. 1 4 1 on eminent domain and expands its protection by guaranteeing t h a t a property owner who goes t o c o u r t and is awarded more money than offered f o r h i s property being condemned w i l l be reimbursed f o r t h e necessary expenses of t h e lawsuit (such a s appraiser and attorneys f e e s ) . " I t thus becomes necessary t o determine whether o r not t h e new law a p p l i e s t o an a c t i o n pending, when t h e r i g h t t o expanded c o s t s became operative. The S t a t e argues t h e question of a p p l i c a b i l i t y is controlled by t h e t r a n s i t i o n schedule which governs t h e change from t h e 1889 t o t h e 1972 Constitution. Sec- t i o n 3 of t h a t schedule provides: "Any r i g h t s , procedural o r substantive, created f o r t h e f i r s t time by A r t i c l e I1 s h a l l be pros- pective and not r e t r o a c t i v e . " Since p r i o r t o the adoption of t h e 1972 Constitution and i t s implementing l e g i s l a t i o n t h e r e was no r i g h t t o a t t o r n e y and a p p r a i s e r ' f e e s a s an element of c o s t s , t h e S t a t e argues t h a t t h e new provisions a r e prospective only and cannot be applied t o s u i t s commenced under t h e o l d law. W e disagree. While t h e new s t a t u t o r y and c o n s t i t u t i o n a l provisions a r e c l e a r l y prospective i n a p p l i c a t i o n , t h a t does not prevent t h e i r a p p l i c a t i o n here. The r i g h t t o necessary c o s t s of l i t i g a t i o n provided by s e c t i o n 93-9921.1, R.C.M. 1947, does not a r i s e when t h e s u i t is f i l e d , but v e s t s only when t h e p r i v a t e property owner p r e v a i l s , securing a v e r d i c t higher than t h e S t a t e ' s f i n a l o f f e r . The r i g h t here vested a f t e r t h e s t a t u t o r y and con- s t i t u t i o n a l provisions were operative. Their prospective appli- c a t i o n thus encompasses t h e present case. Our holding here is i n accord with t h e general r u l e , recognized by case law and t h e a u t h o r i t i e s . See, e.g. F e l l e r s v. S t a t e Highway Commission, 214 Kan. 630, 522 P.2d 341; S t a t e , 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. W e do not f i n d t h a t r u l e varied by t h e c o n s t i t u t i o n a l t r a n s i t i o n schedule here. That schedule merely makes t h e a p p l i c a b i l i t y of t h e s e c o s t s prospective. A s t h e landowners' r i g h t t o these c o s t s d i d not a r i s e u n t i l they prevailed a t t r i a l , the d a t e of judgment is c o n t r o l l i n g . The s t a t u t e and c o n s t i t u t i o n a l provisions author- i z i n g increased c o s t s were both i n e f f e c t a t t h a t t i m e . The S t a t e f u r t h e r contends t h a t , even i f s e c t i o n 93-9921.1 is applicable t o t h i s case, c o s t s cannot be allowed thereunder be- cause t h e r e was no " f i n a l o f f e r " by t h e State--a condition prece- dent t o an award of c o s t s . Section 93-9912, R.C.M. 1947, r e q u i r e s t h e d i s t r i c t c o u r t judge t o appoint "condemnation commissioners" who a r e t o assess t h e value of t h e taking. That assessment can be appealed under t h e provisions of s e c t i o n 93-9915, R.C.M. 1947. These procedures were not followed .here, and t h e S t a t e argues s e c t i o n 93-9921.1, R.C.M. 1947, speaks of a f i n a l o f f e r only i n t e r m s of t h e o f f e r it r e q u i r e s t o be made within t h i r t y days of t h e p e r f e c t i n g of t h e appeal from t h e commissioners' assessment. The record c e r t i f i e d from t h e d i s t r i c t court d i s c l o s e s nothing concerning why these procedures involving a commissioners' assessment were not followed. The S t a t e ' s a p p e l l a t e b r i e f a l l u d e s t o a waiver of t h i s procedure, which we assume t o be t h e case. The question thus presented is novel. The d i s t r i c t court, apparently with t h e consent of t h e p a r t i e s , f a i l e d t o follow a mandatory s t a t u t o r y procedure--namely appointing comrnissioners and supervising t h e i r asskssment. Arguably, t h i s d e f e c t was cured by t h e subsequent d i s t r i c t c o u r t t r i a l a t which t h e i s s u e s which should have been presented t o t h e commissioners w e r e determined. N o w t h e S t a t e seeks t o avoid i t s s t a t u t o r y l i a b i l i t y f o r necessary c o s t s of l i t i g a t i o n by a s s e r t i n g t h a t it never made a f i n a l o f f e r within t h e meaning of s e c t i o n 93-9921.1, R.C.M. 1947, and t h a t it was not required t o submit a f i n a l o f f e r because no commissioner's hearing was held. To adopt such a theory here would contravene t h e i n t e n t of t h e s t a t u t e and would v i o l a t e t h e c o n s t i t u t i o n a l mandate. A r t i c l e 11, Section 2 9 , 1972 Montana Constitution r e q u i r e s t h a t a Landowner be compensated f o r necessary expenses of l i t i g a t i o n if he p r e v a i l s . This c o n s t i t u t i o n a l d i r e c t i v e cannot be f r u s t r a t e d by inadvertent o r i n t e n t i o n a l v i o l a t i o n s of s t a t u t o r y procedure. There i s no s t a t u t o r y prohibition a g a i n s t t h e S t a t e ' s making an o f f e r a t any time p r i o r t o t r i a l . Section 93-9921.1, R.C.M. 1 9 4 7 , provides, i n p e r t i n e n t p a r t : "The f a c t t h a t an o f f e r is made but not accepted does not preclude a subsequent o f f e r . " 'Yhus, t h e S t a t e could nave made an o f f e r a t any t i m e p r i o r t o t r i a l , whether o r not a commission hearing was held. Accordingly, w e find t h e $3,460 o f f e r made p r i o r t o t h e f i l i n g of t h i s a c t i o n w a s t h e S t a t e ' s f i n a l o f f e r under t h e f a c t s here. Since t h e ultimate award was f a r i n excess of t h a t o f f e r , t h e landowners a r e e n t i t l e d t o an award of t h e i r necessary expenses of l i t i g a t i o n . The S t a t e a l s o challenges t h e necessity of some of t h e items of expense submitted i n the landowners' motion f o r c o s t s . Without d e t a i l i n g t h e s p e c i f i c claims alleged by t h e S t a t e , w e note t h a t they c e n t e r around t h e charge t h a t f e e s r e s u l t i n g from e x h i b i t s and witnesses n ~ t produced a t t r i a l should not be allowed. W e have reviewed t h e e n t i r e record, including t h e hearing on t h e motion f o r c o s t s , and find t h a t t h e items claimed a s necessary w e r e made unnecessary only by t h e S t a t e ' s admission a t t r i a l t h a t t h e taking included t h e s a n i t a r y f a c i l i t i e s . The challenged expenses were incurred when t h e landowners prepared t o prove t h a t very f a c t . Although t h e S t a t e ' s admission relieved t h e landowners of t h e n e c e s s i t y of proof, it came too l a t e t o avoid l i a b i l i t y f o r expense incurred i n preparing t h a t 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 land- owners 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 land- owners is affirmed. The denial of necessary expenses of liti- gation 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 ---------------a--,-------------- Chief Justice