Court Opinion

ID: 9698944
Source: CourtListenerOpinion
Date Created: 2023-08-25 20:04:34.990308+00
Date Added: 2024-06-11T18:20:44.829568
License: Public Domain

Newton, J.,
dissenting.
I find I must respectfully dissent from the opinion of Spencer, J. In doing so, I adhere to my dissent in Iske v. Metropolitan Utilities Dist., 183 Neb. 34, 157 N. W. 2d 887, and refer to it as a reference regarding certain legal propositions which I will not here reiterate. The evidence in this case does not sustain the verdict. The Iske land adjoins the Platte River on the north. The southerly portion consists of uncleared timber and accretion lands and a lake left after completion of gravel mining operations. The portion of primary interest lies to the north of this area. It consists of a 60-acre tract on the extreme north which is high or hill ground and to the south of approximately 160 acres of gently sloping bottom ground. The 300-foot easement runs along the extreme west boundary and consists of approximately 38 acres. The area alleged to be suitable for rock mining is in the hills and that alleged to be suitable for gravel removal operations, in the bottom ground.
The undisputed evidence shows that the gravel vein is overlaid with clay to a depth of 6 to 25 feet. The overburden becomes progressively deeper as one progresses to the north from the present lake. Under the clay are several feet of mixed dirt and sand, then several feet of fine sand is encountered, all above the gravel vein, and all unmerchantable. The clay must be stripped off by means of such machinery as bulldozers, turn-apuls, and drag lines. In all of the bottom land area the clay runs to a depth at least 2 to 3 feet below the water level, a factor which tends to interfere somewhat with stripping operations.
Plaintiff concedes that the clay overburden reaches *734a depth of 13 feet at a point approximately one-third of the way north on the bottom ground from the present lake and that beyond that point it would be economically unfeasible to maintain a gravel mining operation. Testimony as to the amount of available sand and gravel is limited to this southerly area. Plaintiff has completely failed to produce any evidence regarding cost of removal of the overburden. The record is likewise barren of any evidence tending to prove the economic feasibility of gravel mining operations on the southerly one-third of the bottom ground. On the other hand, defendant produced a witness who, though now retired, was for many years manager and employee of the Lyman-Richey Sand and Gravel Corporation which excavated the present lake on the Iske property while pumping out the gravel on that site. He was in charge of that operation and thoroughly investigated the area adjoining the lake on the north to ascertain the feasibility of extending gravel mining operations into that area. He testified unequivocally that it was not economically feasible to do this primarily because of the heavy overburden and also because clay strata were encountered in the gravel bed. Notwithstanding this situation, evidence was received as to the amount of gravel underlying the land and its royalty value. The entire case, including the verdict, is based on an unproved assumption that the gravel was so situated that mining operations would return a normal profit.
The same situation is found with the rock mining proposition. This area has a 25-foot overburden and there is no evidence to verify the economic feasibility of a mining operation. Plaintiff’s only witness along this line said he did not know if it was economically feasible as his only experience was with rock having a 4- to 6-foot overburden. It was also established that this type of limestone rock was very widespread throughout Douglas and Sarpy Counties and the surrounding area.
The proposed lake area which plaintiff alleges could *735be improved for recreation purposes covers the entire bottom land area notwithstanding that plaintiff concedes only the south one-third could be economically excavated in a gravel mining operation. Reception of this evidence is patently erroneous. A mere showing of the physical presence of minerals is not sufficient to show that the property was available for use as a source of supply of the minerals. A year before, one of plaintiff’s witnesses testified that this same rock land was worth no more than farmland. He based that testimony on a market data approach. This time he used an income capitalization approach and materially altered his testimony.
Plaintiff’s expert real estate appraisers testified there had been no other sales of somewhat similar property in the general area and that consequently they could not use the market data approach in determining value, yet a witness for defendant testified there were a very considerable number of such sales.
It is an accepted practice to permit the introduction of evidence relating to quantity of minerals present on the property and the royalty value per cubic yard. It must, however, be borne in mind that the end sought is the actual value of the land with the minerals in place thereon. It is ridiculous to assume that a purchaser would pay the full amount arrived at by multiplying the number of cubic yards of gravel present by the expected royalty rate. The purchaser would be interested only because he hoped to make a profit on his investment, a profit that could not be realized if he paid all that the royalty income would return to him. Such a purchaser would buy only if he could do so on a basis that would preserve for him all or a major portion of the royalty income. It is then evident that the royalty income has very little relationship to actual or market value. Compensation for land taken is measured by the market value at the time taken. See Leffelman v. City of Hartington, 173 Neb. 259, 113 N. W. 2d 107. The income *736capitalization method of arriving at value is reasonably accurate where a building is involved. It is a simple matter to determine net rentals and an assured annual rate of income from such rentals over a period of many years. In cases dealing with minerals, the material is sold and disposed of and the mine is constantly subject to a process of depletion. A steady, long-term return on the investment at a readily determined rate is not forthcoming.
The uncertainty of this type of evidence is referred to in 5 Nichols on Eminent Domain (3d Ed.), § 19.3 (3), p. 19-63, wherein it is stated: “Estimation of the amount of material to be mined and testimony of a fixed price per unit, the product of which is to be used as the measure of the income to be derived from the mining or quarrying operation has invariably been rejected in the determination of the market value of the land. Such evidence requires a degree of refinement in the measure of values which seems totally incompatible with the gross estimates involved in ordinary transactions. Though there may be the most accurate calculation of the quantity of material to- be mined, yet, without knowing exactly the expense of bringing it to the surface and carrying it to market, and the amount likely to be lost in mining and conveying, and the times in which it would be brought out, and the market prices at those times, the quantity is of no aid in valuing the land. The gross estimates of ordinary business transactions are all that courts and juries have skill enough to use as a measure of value. All other measures are necessarily arbitrary and fanciful.”
The distinction between showing the existence of minerals on the land and admitting expert evidence based on the multiplication of cubic yards by royalties is pointed up in State Highway Commission v. Arnold, 218 Ore. 43, 341 P. 2d 1089. It is there stated: “On the other hand Barnes definitely used the multiplication method in his estimate, and as far as we can discern *737from the transcript it was the sole method used by him. Whether or not it was the sole method we are of the opinion that its use in this case is ground for reversal. The evil of the method is not simply the danger of leading the appraiser to an inaccurate appraisal but more important, because it has the illusion of scientific certainty and validity, it is too likely to be grasped upon by the jury as the sole criterion of value even though the expert witnesses in making their estimates purport to eliminate from their computation the element of speculation. * * * ‘Both (appraisers) appraised the land upon the basis of returns inuring to the defendants out of future sales of the rock material. Both made inquiries and investigations with respect to the production, transportation and sale of rock material. Predicated thereon, they estimated the selling price in the future of the rock material and then made deductions by way of expenses for blasting, trucking, general operating expenses, allowance for risks and other unforeseen business contingencies and then, upon that concept, proffered their opinions as to the market value of the property. What they really did was to appraise the present value of the anticipated profits from the sale of the rock material and not the market value of the land itself as of the date of the taking. Such a modus of evaluation is not according to proper standards or criteria legally approved in the determination of market value.’ * * * ‘Fixing just compensation for land taken by multiplying the number of cubic feet or yards or tons by a given price per unit has met with almost uniform disapproval of the courts. This is true because such valuation involves all of the unknown and uncertain elements which enter into the operation of the business of producing and marketing the product. It assumes not only the existence, but the continued existence of a stable demand at a stable price. It assumes a stable production cost and eliminates the risks all business men know attend the steps essential to the *738conduct of a manufacturing enterprise. It eliminates the possible competition of better materials of the same general description and of the possible substitution of other and more desirable materials produced or possible of production by man’s ingenuity, even to the extent of rendering the involved material unmarketable. It involves the assumption that human intelligence and business capacity are negligible elements in the successful conduct of business. It would require the enumeration of every cause of business disaster to point out the fallacy of using this method of arriving at just compensation. No man of business experience would buy property on that theory of value. True it is that quality and quantity have a place in the mind of the buyer and the seller, but the product of these multiplied by a price per unit should be rejected as indicating market value when the willing seller meets the willing buyer, assuming both to be intelligent. Values fixed by witnesses on such a basis are practically worthless, and should not be accepted. To the extent the valuation fixed by any witness contains this speculative element, to the same extent is its value as evidence reduced”
In 5 Nichols on Eminent Domain (3d Ed.), § 18.41 (3), p. 18-154, it is stated: “An expert may be competent for one purpose and not for another. An ordinary real estate agent is not qualified, as such, to testify with respect to construction costs or with respect to the value of a type of property that has no market value by reason of the fact that such type is not commonly bought and sold. Thus, one who is an expert in valuing property for insurance purposes is not necessarily competent to testify in a condemnation proceeding. * * * In the absence of market value, resort may be had to the testimony of more specialized experts. Thus a witness who is an expert on timber may express his views on the value of timber land, and one who has an intimate knowledge of the availability of waterfront property or of property with peculiar subterranean water resources may *739testily as to the value of such property by reason of the special use which may be made of the property. The value of property for a special use to which it is adapted or put may be shown by persons familiar with such use, even though they are not familiar with land values generally.” Also, in § 18.42, p. 18-168, it is said: “When the property taken is of a character not commonly bought and sold, and differs essentially from other land in the immediate vicinity in the features which affect value, not only is testimony of witnesses familiar with its special value for the use to which it is adapted competent by reason of experience in their own business with similar property, but an expert in real estate generally who has no knowledge of the value of land of this character is incompetent, however much he may know of the prices paid for ordinary land in the immediate neighborhood.”
In the present case the three real estate appraisers called by plaintiff all conceded that in using the income capitalization approach they relied primarily on the figures showing the amounts of rock, sand, and gravel estimated to be present and the estimated royalties which might be received by the owner. They also conceded that they had no other knowledge or basis for fixing a value on this type of property as in their words, there were no comparable sales in the area. The following question was asked of one of these experts: “Q. What income did you use in arriving at those figures that you capitalized, what kind of income? A. Well, I used a royalty on the quantities that were given to me.”
One need not be a real estate expert to make such a computation. Probably any accountant, banker, or mathematician could do it as well or better. The basic reason for permitting experts to give opinion evidence is that they have peculiar knowledge of the subject not commonly possessed by others. Here the alleged experts were out of their depth or field. They had no special knowledge of the values of rock or gravel quar*740ries but attempted to determine value solely by means of a mathematical exercise based on other evidence in the record. The jurors were themselves capable of making such a computation were it permissible, but as has been seen, this represents an impermissible method of arriving at value. Plaintiff’s experts were not qualified to testify in a case of this nature and it was prejudicial error to receive such testimony.
Carter, J., joins in this dissent.