Court Opinion

ID: 9617297
Source: CourtListenerOpinion
Date Created: 2023-08-22 04:54:06.280306+00
Date Added: 2024-06-11T18:04:07.945080
License: Public Domain

Justice MARTIN
dissenting.
“[W]hen the taking renders the remaining land . . . less valuable for any use to which it is adapted, that fact is a proper item to be considered in determining whether the taking has diminished the value of the land itself.” Kirkman v. State Highway Comm’n, 257 N.C. 428, 432, 126 S.E.2d 107, 110 (1962). Specifically, “[t]he amount of fuel sold at a service station is ... significant to a buyer and a seller of the property in setting a purchase price.” 5 Julius L. Sackman et al., Nichols on Eminent Domain § 19.06[2] at 19-44 (rev. 3d ed. 2006). Here, evidence was admitted tending to show that the taking rendered defendant’s remaining land less valuable for use as a gasoline station. Accordingly, such evidence was a proper item to be considered by the jury in determining whether the taking has diminished the value of the remaining property. Id. § 19.01 [1] at 19-5 to 19-6.
I agree with the learned and experienced Superior Court Judge, Robert H. Hobgood, who admitted the Kirkman evidence, and our Court of Appeals, which unanimously affirmed Judge Hobgood’s *16admission of this evidence. The majority opinion differs, overruling sub silentio our decision in Kirkman, 257 N.C. 428, 126 S.E.2d 107.
In eminent domain proceedings under North Carolina law, “ ‘[a]ny evidence which aids the jury in fixing a fair market value of the land and its diminution by the burden put upon it is relevant and should be heard.’ ” Templeton v. State Highway Commission, 254 N.C. 337, 339, 118 S.E.2d 918, 920 (1961) (quoting Gallimore v. State Highway & Pub. Works Comm’n, 241 N.C. 350, 354, 85 S.E.2d 392, 396 (1955) (internal quotation marks omitted)). In the instant case, defendant had the right to present relevant valuation evidence to the jury under this Court’s decision in Kirkman. Because the majority opinion disregards well settled rules of law in overturning the jury’s assessment of fair market value, I respectfully dissent.
The majority opinion essentially characterizes the issue in terms of whether lost profits are directly recoverable, as a separate element of damages, in an eminent domain proceeding. That is not the issue before this Court. Rather, the issue is whether the jury may consider, in its determination of fair market value under N.C.G.S. § 136-112, the diminution in value caused by a taking that renders a tract less valuable for the highest and best use to which it is adapted and used.
In excluding the owner’s evidence, which showed how the taking by the North Carolina Department of Transportation (DOT) rendered the property less valuable for use as a gasoline station and convenience store, the majority departs from our forty-four year old landmark decision in Kirkman. We explained in Kirkman that a jury may consider evidence of lost revenue in determining its assessment of fair market value when the property itself contributes in a direct way to the revenue derived from a tract adapted to its highest and best use. 257 N.C. at 432, 126 S.E.2d at 110-11. North Carolina cases since Kirkman have consistently followed this rule of law. See, e.g., City of Fayetteville v. M. M. Fowler, Inc., 122 N.C. App. 478, 479-80, 470 S.E.2d 343, 344-45, disc. rev. denied, 344 N.C. 435, 476 S.E.2d 113-14 (1996); City of Statesville v. Cloaninger, 106 N.C. App. 10, 15-17, 415 S.E.2d 111, 114-16, appeal dismissed and disc. rev. denied, 331 N.C. 553, 418 S.E.2d 664 (1992); Raleigh-Durham Airport Auth. v. King, 75 N.C. App. 121, 123-25, 330 S.E.2d 618, 619-21 (1985); Raleigh-Durham Airport Auth. v. King, 75 N.C. App. 57, 62-64, 330 S.E.2d 622, 625-26 (1985). The majority opinion places North Carolina squarely within a small minority of jurisdictions nationwide that employ a per se ban on the admission of this type of evidence in eminent domain proceedings.
*17Our General Statutes provide that when DOT’s exercise of eminent domain power results in a partial taking of a tract of land, the measure of damages is the difference between the fair market value of the entire tract before the taking and the value of the remainder after the taking. See N.C.G.S. § 136-112 (2005). As indicated, “[a]ny evidence which aids the jury in fixing a fair market value of the land and its diminution by the burden put upon it is relevant and should be heard.” Templeton, 254 N.C. at 339, 118 S.E.2d at 920 (quoting Gallimore, 241 N.C. at 354, 85 S.E.2d at 396 (internal quotation marks omitted)). To that end, “[a]ll factors pertinent to a determination of what a buyer, willing to buy but not under compulsion to do so, would pay and what a seller, willing to sell but not under compulsion to do so, would take for the property must be considered.” City of Charlotte v. Charlotte Park & Recreation Comm’n, 278 N.C. 26, 34, 178 S.E.2d 601, 606 (1971).
The majority’s exclusion of evidence showing how the taking rendered the remainder less valuable is fundamentally inconsistent with the statutory requirement that the owner receive fair market value for involuntarily taken property. As Mr. Marvin Barnes, defendant’s owner, explained during his testimony, a “willing buyer” would have valued the fair market value of this tract immediately prior to the taking at $1.3 million: “[A]ny person who is knowledgeable about convenience stores and gasoline sales, who knew, in fact, exactly what that store was doing in terms of gallons sold, if he had that information, if there was no store there, he would pay that willingly and in a heartbeat.” (t 86) In excluding this evidence, the majority opinion prevents the jury from knowing what a “buyer, willing to buy but not under compulsion to do so, would pay.” City of Charlotte, 278 N.C. at 34, 178 S.E.2d at 606.
In so doing, the majority’s result is fundamentally at odds with the statutory objective of N.C.G.S. § 136-112: To compensate the “unwilling” seller with fair market value. That is, since the income potential of revenue-producing property is the most important characteristic in establishing the value for a voluntary exchange, the majority opinion excludes, as a matter of law, the very information that a willing buyer would want to know about this property. See 5 Julius L. Sackman et al., Nichols on Eminent Domain § 19.01 [1] at 19-6 (rev. 3d ed. 2006) [hereinafter Nichols]' (“Income derived from the property is recognized as a prime consideration of buyers and sellers in establishing a purchase price, and is therefore admissible as probative of a property’s fair market value.”). Consequently, despite *18the statutory commitment expressed by our General Assembly that owners receive fair market value, we can be assured of one thing on remand of this case: Defendant will not receive fair market value for DOT’s involuntary taking of this property.
As the majority recognizes, “injury to a business is not an appropriation of property which must be paid for.” Pemberton v. City of Greensboro, 208 N.C. 466, 470, 181 S.E. 258, 260 (1935) (quoting Sawyer v. Commonwealth, 182 Mass. 245, 247, 65 N.E. 52, 53 (1902)). The Court reaffirmed this rule in Kirkman, explaining that “[l]oss of profits or injury to a growing business conducted on property or connected therewith are not elements of recoverable damages in an award for the taking under the power of eminent domain.” 257 N.C. at 432, 126 S.E.2d at 110.
But the majority misconstrues Kirkman’s immediate qualification of this principle: “However, when the taking renders the remaining land unfit or less valuable for any use to which it is adapted, that fact is a proper item to be considered in determining whether the taking has diminished the value of the land itself. If it is found to do so, the diminution is a proper item for inclusion in the award.” Id. (emphasis added). In the next paragraph, the Court engaged in a more detailed discussion of property use, elaborating: “The highest and most profitable use for which property is adaptable is one of the factors pronerlv considered in arriving at its market value.” 257 N.C. at 432, 126 S.E.2d at 111 (emphasis added) (citing Williams v. State Highway Comm’n of N.C., 252 N.C. 514, 114 S.E.2d 340 (1960)).
Kirkman instructs that using lost revenue evidence to inform market value is distinct from recovering lost revenue itself. By analogy, with respect to an aggrieved party’s attempt to introduce evidence of lost rents, the Court commented: “When rental property is condemned the owner may not recover for lost rents, but rental value of property is competent upon the question of the fair market value of the property at the time of the taking.” 257 N.C. at 432, 126 S.E.2d at 110 (emphasis added) (citing Palmer v. N.C. State Highway Comm’n, 195 N.C. 1, 141 S.E. 338 (1928)); see also Ross v. Perry, 281 N.C. 570, 575, 189 S.E.2d 226, 229 (1972) (“In determining [a property’s] fair market value the rental value, or income, of the property is merely one of the factors to be considered. Income from the property is material only insofar as it throws light upon its market value.”). As noted by a leading treatise: “Loss of rents or profits may ... be admitted to prove diminution in value of remaining *19property caused by a taking.” Nichols, § 19.01[1] at 19-5 to 19-6 (emphasis added).
Despite the critical distinction that Kirkman draws between permissible and impermissible use of lost revenue or lost income evidence, the majority opinion misconstrues prior decisions in which landowners in eminent domain proceedings were barred from seeking compensation for lost profits. In Pemberton, for example, this Court disallowed the landowners’ evidence regarding loss to their dairy business. The Court ruled that the trial judge had improperly instructed the jury to consider such evidence “to estimate] the extent of the injury sustained,” resulting in an improper award of “compensation for the loss of their dairy business.” 208 N.C. at 470, 181 S.E. at 260. Likewise, in Williams v. State Highway Commission, the leaseholder alleged that “moving his grocery business to another location cost him business, customers, and good will,” and sought to recover therefor. 252 N.C. 141, 145, 113 S.E.2d 263, 267 (1960). The Court found that such damages were noncompensable in condemnation proceedings. Id. at 148, 113 S.E.2d at 268-69. In Williams, the Court stated: “[L]oss where made up of the profits which might have been made by the business but of which the owner was deprived by reason of the necessary interruption of such business by the condemnor is under the prevailing rule excluded from consideration in determining the damages to which the owner is entitled.” Id. at 147, 113 S.E.2d at 268. The Court’s decisions in Pemberton and Williams reiterated that evidence of lost profits is not admissible as a direct measure of the “loss . . . made up of the profits,” Williams, 252 N.C. at 147, 113 S.E.2d at 268, or as an “estimat[e] [of] the injury sustained,” Pemberton, 208 N.C. at 470, 181 S.E. at 260. These courts, however, did not address the use of lost revenue in appraising a property’s market value. As such, they are inapposite to the instant case.
The careful balance struck by this Court in Kirkman comports with modem principles of economics in the real estate market. Under the widely accepted income capitalization approach to real estate appraisal, the income derived from a tract of land is relevant to the property’s fair market value. See Nichols § 19.01 [2] at 19-8, § 19.02 at 19-11 to -16; Appraisal Inst., The Appraisal of Real Estate 449-68 (11th ed. 1996) [hereinafter Appraisal]. Under this approach, land value is appraised by taking the property’s projected income stream over several years and capitalizing it by applying a market rate of interest. See Nichols § 19.01 at 19-3, 19-8, § 19.02 at 19-11; Appraisal *20at 462 (“Yield Capitalization”). Alternatively, the property’s fair market value may be determined by multiplying its income for a single year by an “income factor.” Appraisal at 461-62 (“Direct Capitalization”).
In valuing location-dependent commercial properties like gas stations, the most effective appraisal technique is often the income capitalization approach. Indeed, at trial in the present case, DOT conceded that the income capitalization approach was “basically the best way to value a property, an income producing property, such as [defendant’s property].” (t 57) As this Court has emphasized: “In condemnation proceedings our decisions are to the effect that damages are to be awarded to compensate for loss sustained by the landowner. ‘The compensation must be full and complete and include everything which affects the value of the property and in relation to the entire property affected.’ ” State Highway Comm’n v. Phillips, 267 N.C. 369, 374, 148 S.E.2d 282, 286 (1966) (internal citation omitted) (quoting Abernathy v. S. & W. Ry. Co., 150 N.C. 80, 88-89, 150 N.C. 97, 108, 63 S.E. 180, 185 (1908)).
In the present case, the evidence showed that the property upon which the convenience store and gas station was located contributed in a unique way to the revenue derived by the owner based on adaptation of the property to its highest and best use. Witnesses for both DOT and defendant agreed that the highest and best use of the property was as a gas station and convenience store. Mr. Marvin Barnes, defendant’s owner, stated that the property in question had been adapted and developed for use as a gas station. Mr. Barnes testified that over the past thirty years he had evaluated and purchased approximately thirty to thirty-five properties for use as gasoline stations or combined gasoline station and convenience stores. Mr. Barnes indicated that convenience is one of the most important factors in determining the value of land used for a gas station. He testified at trial:
Q In evaluating a piece of property for purchase as a gas station site or a convenience store site, what factors do you look at to determine what the value of that site should be?
A Well, we look at all the surrounding demographics, traffic count and influx and whether the site lays well. Whether or not it will be or can be made convenient for people to buy gasoline there.
*21Q And what are the — Do you look at the orientation of the building ... to the road?
A Well we decide which roads. Generally we build on comer sites and we decide which way we want the store to face, which road it will face. And then we try to work out a configuration that will make the store easy for the public to come in to do business and then leave.
Q And is the orientation of the driveways that go in and out of the site, does that have any impact when you’re evaluating the site for value?
A Well, it’s one of the most important factors. It’s crucial. Gasoline is a commodity. And so people won’t go out of their way to purchase it. You’ve got to make it easy for them.
Q When you are evaluating a piece of property for, or making a determination about a potential value of a piece of property for purchase as a service — gas station or convenience store, do you take into of make any projections as to what you believe the potential sales volume of gasoline that that site might be able to make?
A I do. I have to decide how many units or gallons a particular site can sell on an annual basis.
Mr. Barnes also gave extensive testimony detailing why, as a result of the taking, it was less convenient for customers to access the gas station. Before the taking, the property was served by three driveways that were very convenient for customers. The first driveway, which faced Old Chapel Hill Road and centered on the four gasoline dispensers and the convenience store itself, “allow[ed] people to come in, get gas, [and then] either exit on Garrett Road or return to Old Chapel Hill Road.” A second driveway, located on Garrett Road near its intersection with Old Chapel Hill Road, “allowed people coming toward Durham on Old Chapel Hill Road to make a left-hand turn and go directly into the station in front of the [gasoline] dispensers to get gas and then leave by [a third driveway located farther from the intersection] on Garrett Road.” Alternatively, customers entering on the second driveway “who wanted to continue on down Old Chapel Hill Road toward South Square and Durham after getting gas again could turn around and go back out to Old Chapel Hill Road” on the first driveway.
*22Everything changed when DOT condemned a substantial portion of defendant’s lot. The second pre-taking driveway, located on Garrett Road near its intersection with Old Chapel Hill Road, “was done away with entirely.” The other driveway on Garrett Road became “more steep” and less convenient to customers because it was shortened and the resulting grade became more severe. After the taking, the two driveways established by DOT on Old Chapel Hill Road were “not as well positioned.” According to Barnes, “As you come up to the store from Durham . . . there is a gradual grade of a crest. . . just on the Durham side of the store. The truth is cars coming there can’t see cars coming out of this lower driveway because it’s down below them” due to the new grade. Mr. Barnes also stated that the “after taking” driveway layout often forced customers to “make a u-tum to go back out the way they came.”
Mr. Barnes testified that this lack of convenience “directly caused” a drop in the margin that this particular property achieved of “four cents” per gallon of gasoline. Based upon this “quantified” data, Mr. Barnes could accurately calculate that gasoline revenues would fall $90,000 in the first full year after completion of the DOT project. Based on the income capitalization approach, which the state conceded was appropriate for income-producing property such as defendant’s, Mr. Barnes gave his opinion as to the fair market value of the property before the taking, $1.3 million, and after the taking, $800,000.
Similarly, defendant’s expert appraiser, Mr. Frank Ward, testified that the property was worth $1.2 million before the taking and $700,000 after the taking. Mr. Ward stated that “the reduction in income [caused by the taking] had diminished the value of the property.” Mr. Barnes and Mr. Ward both testified that they based their “after value” on the loss in revenue directly caused by the impact of the taking on the property itself.
Accordingly, defendant’s witnesses gave their opinion as to the before and after value of the property as required by N.C.G.S. § 136-112. They explained the bases of their opinions, which included the “certain” reduction in revenue resulting from DOT’s taking.
Twice, Judge Hobgood gave a cautionary instruction, admonishing the jury that it was not to award damages for any loss in business income. The language carefully selected by Judge Hobgood for this instruction was a mirror image of the language of Kirkman, far from the “misreading of Kirkman” asserted by the majority:
*23Loss of profits or injury to a growing business conducted on property or connected therewith are not elements of recoverable damages and an award for the taking under the power of eminent domain. However, when the taking renders the remaining land unfit or less valuable for any use to which it is adapted, that fact is a proper item to be considered] in determining whether the taking has diminished the value of the land itself.
Having been properly charged under Kirkman, see 257 N.C. at 432, 126 S.E.2d at 110, it was the jury’s exclusive role to weigh the evidence, assess credibility where the evidence conflicted, and determine damages. See Williams, 252 N.C. at 519, 114 S.E.2d at 343. Nothing in the facts of the instant case differentiates it from cases in which we have allowed evidence of lost rents or lost revenue to inform the market value determination. As noted by our Court of Appeals in the instant case, “[t]he holding in Kirkman is not limited to instances where rental property is involved, as it was not a case involving rental property.” Dep’t of Transp. v. M.M. Fowler, Inc., 170 N.C. App. 162, 164, 611 S.E.2d 448, 450 (2005).
Notably, in the instant case, the majority’s opinion aligns North Carolina with a minority of states which apply a per se ban on this type of evidence in eminent domain proceedings. As a leading treatise observes, a majority of states follow the rule that “[r]ents and profits derived from the use to which property is applied are generally admissible as evidence which may properly be considered in ascertaining the market value of property taken by eminent domain.” Nichols § 19.01[1] at 19-4 to -5, and cases cited therein. Moreover, the same treatise notes the federal courts’ adherence to this general rule and cites four federal cases — one of which decided by a federal court in North Carolina, id. at 19-5 n.11. See United States v. 179.26 Acres of Land, 644 F.2d 367, 371-72 (10th Cir. 1981) (“The major factors to be considered in determining the market value of real estate in condemnation proceedings are: . . . (h) the net income from the land, if the property is devoted to one of the uses to which it could be most advantageously and profitably applied.” (internal citation and quotation marks omitted)); Spitzer v. Stichman, 278 F.2d 402, 410 (2d Cir. 1960) (“In the absence of a market value, [the award] may properly be determined by what the property brings in the way of earnings to its owner.” (citation and internal quotation marks omitted)); United States v. 298.31 Acres of Land, 413 F.Supp. 571, 573 (S.D. Iowa.1976) (“To determine the value of property by the capitalization of income method, the following is required: the future net income to be *24expected from the property is discounted to the present to provide for both a return on the investment and an amortization of the investment.” (citation and internal quotation marks omitted)); United States v. 121.20 Acres of Land, 333 F.Supp. 21, 32-34 (E.D.N.C. 1971) (utilizing, in part, an income capitalization approach to value condemned land). Thus, the majority’s categorical assertion that federal courts unanimously follow its minority approach is simply inaccurate.
Moreover, although not mentioned by the majority, the methodology and evidence relied upon by appraisal witnesses are subject to few limitations under the law of this state. See Bd. of Transp. v. Jones, 297 N.C. 436, 438, 255 S.E.2d 185, 187 (1979) (holding that N.C.G.S. § 136-112 does not restrict expert real estate appraisers to “any particular method of determining the fair market value of property”); State Highway Comm’n v. Conrad, 263 N.C. 394, 399, 139 S.E.2d 553, 557 (1965) (holding that an expert real estate appraiser may base his opinion on and testify to a broad range of sources, including those not otherwise admissible). Again, “[a]ll factors pertinent to a determination of what a buyer, willing to buy but not under compulsion to do so, would pay and what a seller, willing to sell but not under compulsion to do so, would take for the property must be considered.” City of Charlotte, 278 N.C. at 34, 178 S.E.2d at 606.
The majority concedes that evidence of lost revenue or lost profits may be considered broadly in determining the fair market value of condemned land, but objects to the admissibility of “quantified” evidence of lost revenue. Specifically, the majority acknowledges that “the trial court properly admitted Mr. Barnes’s testimony that DOT’S condemnation made it more difficult for customers to enter MMFI’s service station,” but objects to the introduction of a “quantified estimate” of lost revenue directly caused by DOT’s taking.
If the majority is truly concerned about speculative evidence, then it makes little sense to allow unquantifiable evidence while excluding quantifiable evidence based on expert appraisal testimony. It was undisputed in this case that the real estate appraiser’s qualifications were impeccable: he testified that he had been in the real estate appraising business for forty-two years, had been certified by the state ever since 1990, the first year certification was required, and had regularly appraised property for the State Department of Transportation for three decades. Given the reliability of the real estate appraisal here — which the state never challenged — it is difficult to find the logic or wisdom in a rule that would exclude the *25“hard” evidence provided by Mr. Ward, while allowing more speculative “soft” evidence of unquantifiable (and thus, largely unverifiable) losses.
The majority further hypothesizes: “[I]f business revenues were considered in determining land values, an owner whose business is losing money could receive less than the land is worth.” This is a red herring. According to Nichols:
If . . . the condemnor . . . seeks to bring out the actual income from the property, it should first be obliged to offer evidence that the use to which the land was actually put was one of the uses to which the land was best adapted .... It would, of course, be absurd to admit evidence of the income to be derived from raising potatoes on a valuable city lot, or renting it for a tennis court or for one-story booths, as evidence of the price it would bring as a real estate investment.
Nichols, § 19.01 at 19-3.
Perhaps most importantly, the General Assembly has not acted to amend the eminent domain statutes even after repeated decisions from this Court and the Court of Appeals over the course of many years indicating that evidence of lost revenue or lost profits may be used under these facts to inform market value. When, as here, the General Assembly has acquiesced in judicial construction of a statute, we must presume that it approves of the interpretation accorded to the statute by the courts. See Rowan Cty. Bd. of Educ. v. U.S. Gypsum Co., 332 N.C. 1, 9, 418 S.E.2d 648, 654 (1992) (“The legislature’s inactivity in the face of the Court’s repeated pronouncements [on an issue] can only be interpreted as acquiescence by, and implicit approval from, that body.”); see also State v. Jones, 358 N.C. 473, 484, 598 S.E.2d 125, 132 (2004) (“We presume, as we must, that the General Assembly had full knowledge of the judiciary’s long standing practice. Yet, during the course of multiple clarifying amendments ... at no time did the General Assembly amend [the relevant] section....”). Thus, the majority opinion not only alters a rule of law that has been in place for nearly half a century, but it also subverts legislative intent. If the General Assembly desired to change our law as the majority does today, it could easily do so. Indeed, as the majority itself points out, the General Assembly is in fact currently studying this issue. See N.C. H. Select Comm, on Eminent Domain Powers, Interim Report to the 2006 Regular Session of the 2005 General Assembly of North Carolina 9 (2006).
*26The jury in the present case should be entitled to consider how DOT’s taking rendered defendant’s property less valuable for use as a gas station and convenience store. In my view, the majority opinion will preclude many owners from receiving their statutory right to fair market value for involuntarily taken property. Far from “inflating” awards, adhering to the well-settled Kirkman rule simply ensures that when citizens find themselves in the path of the latest DOT project, they receive “just compensation” for their lost property— as the United States Constitution and Constitution of North Carolina both require. Put simply, the majority’s departure from Kirkman withholds essential valuation information from the jury. Because the majority decision impairs the jury’s ability to perform its duty of assessing fair market value under N.C.G.S. § 132-112, I respectfully dissent.
Justices WAINWRIGHT and TIMMONS-GOODSON join in this dissenting opinion.