Opinion ID: 700512
Heading Depth: 2
Heading Rank: 1

Heading: Jury Instruction on Highest and Best Use

Text: The court instructed the jury that 26 fair market value in this case is to be regarded by you as that sum of money which considering all of the circumstances existing on March 22nd, 1988 probably could have been obtained for the property on the open market, that is the amount in terms of cash or its equivalent that in all probability would have been paid for the property after fair negotiations between a fully informed owner willing to sell and a fully informed purchaser willing and able to buy, with neither being under any compulsion to act and a reasonable time being allowed for negotiations. The same definition applies to the fair market value of the property which remains after the taking. 27 Now to determine the property's fair market value, you should consider its highest and best use. This means you should find how a fully informed purchaser in the marketplace would most likely use it in the reasonably near future after March 22, 1988 without the government's taking. 28 The land's highest and best use must be shown by substantial credible evidence to have been reasonably probable in the reasonably near future. Mere possibility of a use is not enough. Speculative schemes of the owner or witnesses are to be excluded from your consideration. 29 Jan. 27, 1993 Tr. at 235-236 (emphasis added). 30 The significance of the instruction defining highest and best use is made clear by the form of the verdict. Unless the jury found that the highest and best use was development as a mining staging area, the jury would never reach the question of market value. 31 CMMI takes issue with the italicized portions of the instruction. CMMI had objected to them at the end of the trial, 5 and had requested an instruction based on Cal-Bay Corporation v. United States, 169 F.2d 15, 18 n. 2 (9th Cir.), cert. denied, 335 U.S. 859, 69 S.Ct. 134, 93 L.Ed. 406 (1948). That instruction would not have required a finding of probable mining in the reasonably near future, but would have told the jury that [w]here there is reasonable possibility of production in paying quantities [mining] leases are common subject of barter and sale and, therefore, have a definite ascertainable market value. 32 We review the jury instructions as a whole, in light of the record, to determine whether they correctly state the applicable law and provide the jury with ample understanding of the issues and standards of the case. Shamrock Drilling Fluids, Inc. v. Miller, 32 F.3d 455, 459 (10th Cir.1994) (internal quotation marks and citations omitted). We will reverse the district court only if, after reviewing the record, we determine that an instructional error was prejudicial. F.D.I.C. v. United Pacific Ins. Co., 20 F.3d 1070, 1077 (10th Cir.1994). 33 The dispute concerning the instruction narrows down to whether, where land taken has access to valuable minerals, not yet developed, the owner cannot have the value of the minerals reflected in the fair market value unless he can show that the extraction of the minerals is the highest and best use of the land and would have been reasonably probable in the reasonably near future. Or would it be enough to show a reasonable possibility of production in paying quantities? 34 The reasonably probable in the reasonably near future requirement is derived from Olson v. United States, 292 U.S. 246, 255, 257, 54 S.Ct. 704, 708-09, 709, 78 L.Ed. 1236 (1934). Olson asserted that the highest and most profitable use is to be considered in determining just compensation. Olson, and many of the cases which apply its holding, did not involve evaluation of mineral deposits underlying the land being taken. See McCandless v. United States, 298 U.S. 342, 345, 348, 56 S.Ct. 764, 765-66, 766, 80 L.Ed. 1205 (1936); United States ex rel. T.V.A. v. Powelson, 319 U.S. 266, 275-76, 63 S.Ct. 1047, 1052-53, 87 L.Ed. 1390 (1943); Wilson v. United States, 350 F.2d 901, 908 (10th Cir.1965); United States v. 46,672.96 Acres of Land, More or Less, etc., 521 F.2d 13, 15 (10th Cir.1975); U.S. v. 77,819.10 Acres of Land More or Less, etc., 647 F.2d 104, 110 (10th Cir.1981), cert. denied, 456 U.S. 926, 102 S.Ct. 1971, 72 L.Ed.2d 441 (1982). 35 CMMI does not appear to have objected to the form of the special verdict, which made a finding that mining was the highest and best use a condition precedent to any further consideration of market value. Indeed, in its answer, it had alleged that providing surface mining access for its leasehold mineral interests was the highest and best use of the 25 acres. The Pretrial Order stated that CMMI and the Stichtings assert that the highest and best use of the property was for mining purposes. CMMI, however, argues on appeal: 36 The undue emphasis placed by the lower court on the challenged highest and best use instruction was improper in this case. The improper instruction obscured the proper measure of just compensation: market value. The jury was directed away from the market for the taken property and required to narrowly focus upon whether mining from that property was reasonably probable in the near future. 37 CMMI brief in No. 93-4138, p. 19. 38 CMMI is essentially contending that the Olson standard for considering a use not yet undertaken must be relaxed where the use is the extraction of minerals. In support, CMMI cites Montana Railway Co. v. Warren, 137 U.S. 348, 353, 11 S.Ct. 96, 97, 34 L.Ed. 681 (1890). There the Supreme Court approved an award based on opinion testimony as to the value of a relatively undeveloped mining claim through which the land being taken ran. The Court said, 39 It may be conceded that there is some element of uncertainty in this testimony; but it was the best of which, in the nature of things, the case was susceptible. That this mining claim, which may be called 'only a prospect,' had a value fairly denominated a market value, may, as the Supreme Court of Montana well says, be affirmed from the fact that such 'prospects' are the constant subject of barter and sale. Until there has been full exploiting of the vein its value is not certain, and there is an element of speculation, it must be conceded, in any estimate thereof. And yet, uncertain and speculative as it is, such 'prospect' has a market value; and the absence of certainty is not a matter of which the railroad company can take advantage, when it seeks to enforce a sale. 40 As recently as 1989, the Court cited Montana Railway as recognizing that the difficulty in appraising mineral rights does not defeat the existence of a market value in them. ASARCO, Inc. v. Kadish, 490 U.S. 605, 628 n. 3, 109 S.Ct. 2037, 2051 n. 3, 104 L.Ed.2d 696 (1989). 41 Several Courts of Appeals, including this one, have supported an award of market value, based on underlying gas, oil, or minerals, without requiring the owner to show that extraction was the highest and best use, or a reasonable probability that it would begin in the reasonably near future. Eagle Lake Improvement Co. v. United States, 141 F.2d 562, 564 (5th Cir.1944) (where oil interests are involved, ... where there is a reasonable possibility of production in paying quantities, mineral rights are a common subject of barter and sale, and therefore have a definite, ascertainable market value, even where the prospects of successful development are too speculative and remote to be 'reasonably probable.' ); Cal-Bay Corporation v. United States, 169 F.2d 15, 18-19 (9th Cir.), cert. denied, 335 U.S. 859, 69 S.Ct. 134, 93 L.Ed. 406 (1948) (error to refuse instruction that in the determination of the value of gas and oil leases, it may be based on the reasonable possibility of production in paying quantities, even though there were not a reasonable probability shown of such value); Phillips v. United States, 243 F.2d 1, 3, 6 (9th Cir.1957) (error to assume that appellant was entitled to payment only on the basis of highest and best use; error to foreclose appellant from making proof as to either possibility or probability of mineral deposits); United States v. Silver Queen Mining Company, 285 F.2d 506, 510 (10th Cir.1960) (some speculation inherent in the ascertainment of value of all resource property). 42 In two cases, this court has approved applying the Olson test before considering the value of the extraction of minerals. In United States v. 494.10 Acres of Land in Cowley Cty., 592 F.2d 1130 (10th Cir.1979), the government took farmland with sand and gravel under it. A Commission decided that the highest and best use was agriculture and other surface uses. It assigned no value to the gravel deposits. This court approved, citing Olson, and saying, The 'reasonably likely to take place in the near future' element of use is significant here. It is apparent that if the 'future' is beyond or very much beyond the 'near future,' the use becomes speculative. Id. 1132. See U.S. v. 179.26 Acres of Land in Douglas Cty., Kan., 644 F.2d 367, 368 (10th Cir.1981) (Commission found that highest and best use was that of commercial quarry and livestock and grain production; consideration of limestone reserves held not clearly erroneous). See also U.S. v. 69.1 Acres of Land, 942 F.2d 290 (4th Cir.1991) (finding that highest and best use was commercial and mining was not clearly erroneous; reasonably-near-future means near enough to affect the current value). 43 There seems to be some tension between the Olson requirement of reasonable probability of use in the reasonably near future, when applied to future extraction of mineral deposits, and the line of cases based on Montana Railway, permitting valuation of underlying minerals where there is a reasonable possibility of production in paying quantities. We conclude, however, that United States v. 494.10 Acres resolved any tension in this circuit, adopted the Olson requirement, and requires our approval of the instruction given in this case. 44 We note also our view that the difference between the instruction given and one requiring only a reasonable possibility would not, in this case, have produced a different verdict. As we read the record, the testimony of CMMI's witnesses, if fully credited, would establish that producing a profit by reopening the Mayflower Mine from the 25 acres was both possible and probable, but the testimony of government witnesses would establish that a profitable outcome was not even possible. That was the principal thrust of the government's closing argument, and if the jury's finding on highest and best use was not based on acceptance of government testimony, it would have been based, as argued by the Stichtings, on the view that mining was not practicable without consent by them. Nothing suggests that the jury believed that production at a profit was possible, but probably would not have occurred within the reasonably near future. 45