Court Opinion

ID: 6346594
Source: CourtListenerOpinion
Date Created: 2022-06-03 14:09:10.284631+00
Date Added: 2024-06-11T09:18:13.543115
License: Public Domain

RENDERED: MAY 27, 2022; 10:00 A.M.
                        NOT TO BE PUBLISHED

               Commonwealth of Kentucky
                         Court of Appeals

                            NO. 2021-CA-0399-MR

DLX, INC.                                                         APPELLANT

                APPEAL FROM JOHNSON CIRCUIT COURT
v.             HONORABLE JOHN DAVID PRESTON, JUDGE
                       ACTION NO. 19-CI-00185

COMMONWEALTH OF KENTUCKY
TRANSPORTATION CABINET
DEPARTMENT OF HIGHWAYS                                              APPELLEE

                              OPINION
                      REVERSING AND REMANDING

                                ** ** ** ** **

BEFORE: CALDWELL, MCNEILL, AND TAYLOR, JUDGES.

TAYLOR, JUDGE: DLX, Inc., brings this appeal from an April 6, 2021,

Amended Interlocutory Order and Judgment of the Johnson Circuit Court in an

eminent domain proceeding. We reverse and remand.

            On June 26, 2019, the Commonwealth of Kentucky, Transportation

Cabinet, Department of Highways (Cabinet) filed a petition to condemn mineral
rights1 owned by DLX in approximately 152 acres of real property located in

Johnson County, Kentucky. The property was condemned for the purpose of

correcting a rockfall hazard on Kentucky Highway 321. In the petition, the

Cabinet particularly described the mineral estate in the 152 acres subject to

condemnation but also sought to condemn the following:

                 Grantor further waives, forever, all rights and claims for
                 those coal reserves[2] outside the boundary of the property
                 conveyed herein which may become sterilized[3] as a
                 result of the construction of the highway and/or
                 construction contemplated herein, including the 150 foot
                 statutory barrier, and the loss of access for many
                 potential mining sites to the main highway.

Petition at 6.

                 DLX filed an answer and counterclaim. In the counterclaim, DLX

specifically claimed:

                 14. a. The Petitioner did not negotiate in good faith with
                     DLX, abused its discretion in so doing, and otherwise
                     acted unreasonably in regard thereto for reasons
                     which include, but are not limited to, the following:

                       i. The Petition alleges that DLX owns the mineral
                       underneath the tracts to be acquired, which total

1
 It appears that the oil and gas rights to this property were separately owned by Kentucky West
Virginia Gas. The surface estate was acquired by the Commonwealth of Kentucky,
Transportation Cabinet, Department of Highways (Cabinet) in 2015 for $2,499,000.
2
 It was established that DLX, Inc., owned approximately 443 acres of minerals adjacent to the
152 acres of minerals condemned by the Cabinet.
3
  According to expert testimony at the hearing, coal is sterilized when it cannot be removed as a
result of some action, involving the surface or mineral estate.

                                               -2-
  145.16 acres according to the Petitioner’s
  appraisal, and both it and its appraiser noted that
  DLX also owned other adjacent mineral parcels
  owned [sic] totaling, together with the 152.302
  acres to be acquired, approximately 596 acres,
  leaving approximately 443.698 acres after the
  proposed taking.

  ii. The Petitioner’s appraisal, upon which it
  claimed to have relied in making an offer of
  $60,900.00 to DLX, ascribed a value of
  approximately $400.00 an acre to DLX’s mineral
  rights in the property to be acquired and $0.00 for
  a decrease in the fair market value of DLX’s
  remaining adjacent mineral tracts, even though the
  Petition alleges that these interests in those
  properties are to be acquired:

       [A]ll rights and claims for those coal
       reserves outside of the boundary of the
       property conveyed herein which may
       become sterilized as the result of
       construction of the highway and/or
       construction contemplated herein,
       including the 150 foot statutory barrier,
       and the loss of access for many potential
       mining sites to the main highway[,]

  nor did it identify or appraise the other interests
  and damages that DLX would suffer as the result
  of the proposed taking as alleged elsewhere herein,
  which are incorporated herein, including the
  allegations and exhibits found in paragraphs 2 and
  3 of this Counterclaim.

....

  iv. Neither the Petition nor the Petitioner’s
  appraisal:

                        -3-
                 1. describe DLX’s adjacent properties
                 nor the area constituting the “150 foot
                 statutory barrier[.]”

    ....

15. In addition to the foregoing failure to negotiate in
    good faith, and other wrongful conduct that is alleged
    hereinabove, the Petitioner also failed to conduct
    these proceedings in good faith, abused its discretion
    in so doing, and otherwise acted unreasonably in
    regard thereto for reasons which include, but are not
    limited to, the following:

           a. the Petitioner unreasonably delayed the
           resolution of the taking from DLX while
           generously compensating others with interests
           in the same boundary of land;

           b. the Petition lacks Exhibit A, which is
           supposed to depict the boundaries of the
           proposed taking, thereby denying DLX
           important information;

    ....

           d. the Petition does not allege a sufficient basis
           for transferring the title to the coal in the
           project area to a private party and allowing
           them to profit therefrom at DLX’s expense;

           e. the Petitioner did not enable the
           commissioners to comply with their statutory
           requirements which included, but are not
           limited to, the following:

             i. the commissioners did not view the
             property to be condemned as it cannot,

                             -4-
                          without technical assistance seen, quantified,
                          assessed, or “viewed”;

                                        ....

                          iii. It is impossible that the commissioners
                          conducted their valuation correctly because
                          they failed to assign a “fair market value of
                          so much of the tract as remains immediately
                          after the taking[,]” which is approximately
                          443.698 acres, which also means that they
                          did not value all of the interest when
                          assigning a value of $136,000.00 to the
                          blank of the form for “A.”

Answer and counterclaim at 21-23, 26-28.

             The circuit court held an evidentiary hearing on March 15, 2021, as

concerns the Cabinet’s right to condemn the subject property. On the next day,

March 16, 2021, an order was entered that “overruled” DLX’s “objections.”

Kentucky Revised Statutes (KRS) 416.610. The circuit court held that it was

unable to conclude that the Cabinet abused its discretion or acted in an arbitrary or

capricious manner. Additionally, the circuit court decided that the Cabinet

negotiated with DLX in good faith. The circuit court reasoned, in relevant part, as

follows:

                     9) Applying that standard to the case at bar, it is
             necessary for the Court to determine if the Plaintiff
             abused its discretion or if the Plaintiff failed to act in
             good faith in bargaining with the Defendant prior to
             filing the lawsuit. The Court notes in this regard that the
             testimony indicated that the Plaintiff made an offer to the
             Defendant for $58,000.00 for the mineral interest in the

                                         -5-
tract in question in January 2017. The evidence indicated
that the Cabinet will ordinarily wait forty-five days
before proceeding further, but in this case the Plaintiff
showed remarkable patience, in that no action was filed
until August, 2017, some seven months after the initial
offer was made. The other further [sic] showed that the
Defendant failed to make any counteroffer whatsoever
after receiving the initial offer by the Plaintiff. It could
scarcely be said that the Plaintiff failed to negotiate in
good faith, when the position of the Defendant was
essentially that the Plaintiff should bid against itself.

       10) The question arises as whether the offer
made by the Plaintiff was reasonable or whether it was
arbitrary and capricious. The testimony submitted by the
Plaintiff’s witnesses, Steven Gardner and Daniel Laviers,
was to the effect that the coal in question was mineable
and merchantable, as was the coal on the tract not taken
by the Plaintiff. The witness for the Plaintiff, appraiser
Coby Mosely, offered evidence which would call into
question whether the coal on the Defendant’s property
was mineable and merchantable. He stated that the core
samples showed seams which ranged considerably in
height. He testified that he did not believe the coal in the
area not taken was not sterilized because it was non-
mineable. He also stated that the thickness of the seams,
economic conditions, and historical mining all combined
to make the coal on the tract of the Defendant not
mineable and merchantable. He questioned why the coal
on this tract had not been mined in all of the many years
that coal has been mined in Johnson County, Kentucky.
The Court takes note of the Defendant’s exhibit 10,
which was evidence of ten core drillings on the property
in question. The Defendant’s witnesses testified that the
Whitesburg and Van Lear seams were mineable. A
review of that exhibit shows that of the ten core drillings
sites on the Whitesburg seam, two of them contain no
coal whatsoever. Two more contained less than one foot
of coal and three more contained between one and two
feet of coal. Only one seam has much as [sic] two feet of

                            -6-
             coal and one seam had as much as three feet of coal. On
             the Van Lear seam, three of the core drilling sites had no
             coal at all, four of them had less than a foot, and another
             one had one foot. Only two of the core drilling sites had
             coal in excess of three feet. One does not have to be a
             mining engineer to understand that there is a legitimate
             issue as to whether or not the coal is mineable and
             merchantable. The Court concludes that the testimony of
             Mr. Mosley was reasonable and that is provided
             substantial evidence for the Plaintiff to make the offer it
             made to the Defendant.

March 16, 2021, Order at 7-9.

             Thereafter, by Amended Interlocutory Order and Judgment entered

April 6, 2021, the circuit court concluded that the Cabinet had a right to condemn

the mineral interests DLX held in the 152 acres of real property, which was

particularly described in the order. That description included the following:

             Grantor further waives, forever, all rights and claims for
             those coal reserves outside the boundary of the property
             conveyed herein which may become sterilized as a result
             of the construction of the highway and/or construction
             contemplated herein, including the 150 foot statutory
             barrier, and the loss of access for many potential mining
             sites to the main highway.

Amended Interlocutory Order and Judgment at 7. This appeal follows.

             It is unquestionable that the Commonwealth of Kentucky possesses

the right to take private property for public use through eminent domain.

Kentucky Constitution Section § 1, 13, and 242; KRS 416.540 – 680. With

eminent domain cases, there are “two considerations, the right to take for a public

                                         -7-
use and just compensation.” Commonwealth v. Cooksey, 948 S.W.2d 122, 123

(Ky. App. 1997). In this case, we are only concerned with the former

consideration – the right to take for public use. The just compensation issue has

not been resolved by the circuit court and this Opinion does not address that issue.

             The condemning governmental body has broad discretion in

exercising its right to take through eminent domain. Allard v. Big Rivers Corp.,

602 S.W.3d 800, 807 (Ky. App. 2020). However, the Commonwealth’s power of

condemnation does have limitations:

             A determination by the condemnor that the taking is a
             necessity is ordinarily conclusive, but the courts will
             review the condemning body’s exercise of discretion for
             arbitrariness or action in excess of its authority. The
             condemnor’s decision on the amount of land to be
             condemned will be disturbed only if it is unreasonable in
             relation to the public interest or welfare involved and the
             condemnor may consider the future, as well as the
             present, needs for the taking. Kentucky courts have also
             imposed a duty on the condemnor to negotiate in good
             faith the acquisition of the property prior to seeking
             condemnation.

Allard, 602 S.W.3d at 807 (quoting God’s Ctr. Found., Inc. v. Lexington Fayette

Urban Cnty. Gov’t, 125 S.W.3d 295, 299-300 (Ky. App. 2002). And, to negotiate

in good faith, the condemnor must make a reasonable effort to obtain the property

at a reasonable price. See Lexington-Fayette Urban Cnty. Gov’t v. Moore, 559

S.W.3d 374, 379 (Ky. 2018). The circuit court tried this case without a jury.

Kentucky Rules of Civil Procedure (CR) 52.01. Therefore, the circuit court’s

                                         -8-
findings of fact will only be set aside if clearly erroneous, and issues of law are

reviewed de novo. God’s Ctr. Found., Inc., 125 S.W.3d at 300.

             In its brief, DLX has raised numerous allegations of error:

             I.     The trial court erred in concluding that the Cabinet
                    had the right to take, thereby overruling DLX’s
                    objections, and its judgment is not supported by
                    the record.

             II.    Several of the court’s findings were clearly
                    erroneous and it erred with respect to several
                    conclusions, including the failure to make other
                    findings and conclusions.

             III.   The court improperly denied DLX’s efforts to
                    introduce documents and testimony about the
                    acquisition of the surface from the Christian
                    Appalachian Project.

             IV.    The court improperly denied DLX’s motion to
                    reschedule the hearing and to shorten the time for
                    the Cabinet to respond to discovery about purged
                    documents.

             V.     The court improperly denied DLX’s objection to
                    Mr. Mosley’s testimony about matters relating to
                    the quantity, quality, mineability, and
                    merchantability of DLX’s coal and then
                    improperly equated his opinions with those of Mr.
                    Gardner, a highly experienced mining engineer.

DLX’s Brief at iii – v.

                                          -9-
               Upon review of the record and applicable legal authorities, we

conclude that the above allegations of error are without merit, excepting one.4

Under its first argument, DLX particularly argues that the Cabinet did not have the

right to take its property because the Cabinet did not negotiate in good faith as

required by law and otherwise acted arbitrarily. For the reasons hereafter set forth,

we agree.

               As previously noted, in the Commonwealth’s petition and the circuit

court’s Amended Interlocutory Order and Judgment, the property to be condemned

included the description of DLX’s mineral interest in 152 acres and the following

additional description:

               Grantor further waives, forever, all rights and claims for
               those coal reserves outside the boundary of the property
               conveyed herein which may become sterilized as a result
               of the construction of the highway and/or construction
               contemplated herein, including the 150 foot statutory
               barrier, and the loss of access for many potential mining
               sites to the main highway.

Effectively the Commonwealth also condemned a 150-foot statutory barrier on

DLX’s adjoining property and “those coal reserves outside the boundary of the

property conveyed [condemned] herein which may become sterilized[.]”5

4
  We have conducted a thorough review of the circuit court record and the video-taped hearing to
reach our conclusion.
5
 The parties disputed whether the coal in DLX’s remaining property had been sterilized by the
Cabinet’s condemnation of the 152 acres. Although the Cabinet argued that DLX’s remaining
coal in the 443 acres was not sterilized by its taking of the 152 acres, the Cabinet, nevertheless,

                                                -10-
However, it is uncontroverted and admitted by the Cabinet’s appraiser, Coby

Mosely, that the Cabinet’s original offer of $60,900 to DLX for the property did

not consider or include the 150-foot statutory barrier or the coal on DLX’s

remaining property that may be sterilized. Instead, the offer was based solely upon

DLX’s mineral estate in the 152 acres of property.6

              To negotiate in good faith, the Cabinet’s offer to DLX must have

considered all the property or property interests sought to be condemned in order to

determine a reasonable value thereof. See Moore, 559 S.W.3d at 379. The failure

to do so not only constitutes bad faith but would exemplify the quintessence of

arbitrary power. Although the issue of good faith presents a question of fact, we

are compelled to conclude that the circuit court’s finding that the Cabinet

negotiated in good faith to be clearly erroneous based upon the above highlighted

uncontroverted facts. See Moore, 559 S.W.3d at 379. Therefore, we hold that the

Cabinet failed to negotiate with DLX in good faith for the acquisition of the

sought to condemn DLX’s rights in the remaining coal that may have been sterilized. It appears
that the Cabinet has taken two inconsistent positions in relation to the remaining coal owned by
DLX outside of the boundaries of the condemnation.
6
 The court appointed commissioners ultimately valued the property to be condemned at
$136,000 per their report of December 4, 2019. However, their appraisal, likewise, did not
address the value of the 150 foot barrier or the sterilized coal as set out in the property
description. Additionally, we note that DLX owns rights to access the surface of the property
which appear to have been condemned also and were not referenced in the Cabinet’s offer or the
Commissioner’s appraisal. These rights must also be identified and valued at the just
compensation trial.

                                              -11-
property before seeking condemnation and acted arbitrarily. We reverse the

Amended Interlocutory Order and Judgment and remand for the circuit court to

dismiss the petition. KRS 416.610(4).

             Nonetheless, this Opinion should not be misconstrued as holding that

the Cabinet is without authority to condemn DLX’s property for the highway

project. To the contrary, we simply conclude that the Cabinet must do so lawfully.

It may, of course, begin the process of condemnation anew with an offer to DLX

and with the subsequent filing of a petition, if necessary, that comports with the

holdings herein.

             For the foregoing reasons, the Amended Interlocutory Order and

Judgment of the Johnson Circuit Court is reversed and remanded for proceedings

consistent with this Opinion.

             ALL CONCUR.

BRIEFS AND ORAL ARGUMENT                   BRIEF AND ORAL ARGUMENT
FOR APPELLANT:                             FOR APPELLEE:

Wayne F. Collier                           Stacy D. Conley
Lexington, Kentucky                        Pikeville, Kentucky

                                        -12-