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United States v. 99.66 Acres of Land

filed: July 23, 1992.

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
v.
99.66 ACRES OF LAND, DEFENDANT, AND STEWART TITLE & TRUST CO., OF TUCSON, AS TRUSTEE UNDER TRUST NO. 3267; SUNBURST INVESTMENTS, INC., AN ARIZONA CORPORATION, BENEFICIARY OF TITLE INSURANCE OF MINNESOTA TRUST NO. 10,599, DEFENDANTS-APPELLANTS. UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE, V. 99.66 ACRES OF LAND, MORE OR LESS, IN THE COUNTY OF PIMA, STATE OF ARIZONA; TITLE INSURANCE CO. OF MINNESOTA, A MINNESOTA CORPORATION, AS TRUSTEE UNDER TRUST NO. 10,599, AND UNKNOWN OWNERS, DEFENDANT, AND SOUTHERN LEASING CO., DEFENDANT-APPELLANT.



Appeal from the United States District Court for the District of Arizona. D.C. No. CV-87-00434-WDB. A. Wallace Tashima, District Judge, Presiding.

Before: Cynthia Holcomb Hall and Charles Wiggins, Circuit Judges, and Judith Nelson Keep, Chief District Judge.*fn* Opinion by Judge Keep.

Author: Keep

KEEP, Chief District Judge:

Defendants/Appellants Stewart Title & Trust Co. and Sunburst Investments, Incorporated, the respective titleholder and beneficial owner of land involved in this suit, appeal the judgment in an eminent domain proceeding, contending that the district court erred in excluding valuation and damages testimony and also erred in denying their motion for a new trial. Appellant Southern Leasing appeals an order requiring it to pay restitution of the amount by which the government's pre-paid estimated compensation to the parties exceeded the jury award. Jurisdiction in the district court was properly established under 28 U.S.C. § 1345. We have jurisdiction over this timely appeal pursuant to 28 U.S.C. § 1291.

BACKGROUND

Appellant Sunburst Investments, Inc., is run by its sole employee Lowell F. Johnson, a Tucson-area real estate developer. In late 1984, Johnson began negotiating for the purchase of an approximately 360-acre tract of land known as San Joaquin Estates for development as a mobile home park. During the negotiations, Johnson learned that the Bureau of Reclamation had proposed a route for a large-scale federal water project through San Joaquin Estates. Nevertheless, Johnson and another investor*fn1 signed a one-year option agreement on the property for $160,000.

Johnson contacted the Bureau of Reclamation several times in early 1985, allegedly seeking information about the water project. According to the testimony presented by the Bureau, Johnson held himself out as the owner of San Joaquin estates, and sought to negotiate the sale of the portion of the tract within the proposed project route. After learning that Johnson did not yet own the property, the Bureau communicated exclusively with owner Stephen Peskoff regarding its acquisition.

When Johnson attempted to exercise his option on the property, Peskoff refused Johnson's tender of the balance of the purchase price. Johnson sued to enforce the contract, and in October, 1986, the parties stipulated to a sale of the property for a total of $1,400,000.00.

After purchase, Johnson began to develop portions of the tract not within the proposed route. Subdivision zoning was guaranteed, as the land had been formally platted into one-acre lots since 1976. The preparations included engineering plans for streets and utilities, a contract with a utility provider, and some construction of a drainage canal. Utilities were not installed, nor were there paved streets or lot sales. Two lots had been "reserved" but were not sold at the time of taking.

On July 7, 1987, six months after Johnson purchased the San Joaquin tract, the United States filed suit to condemn a 99.66 acre swath across the tract. At that time, title was held in trust for beneficiaries Sunburst Investments (Johnson's company) and Gregory Siefert. Southern Leasing Corporation held a note from the owners secured by a deed of trust on the property. The government did not name Southern Leasing as a defendant in the complaint.

The government deposited $1 million with the district court, pursuant to 40 U.S.C.A. § 258a (West 1988), which allows the government to take immediate possession of the property upon deposit of a reasonable estimate of value with the court. After the government deposited the funds, lienholder Southern Leasing contracted with the beneficial owners and the trustee to release its lien on the property in exchange for an assignment of the present and future proceeds of condemnation awards and a beneficial interest in the trust. Four days later, the former beneficiaries petitioned for withdrawal of the deposit. The $1 million was distributed pursuant to Federal Rule Civil Procedure 71A(j) to co-owners at the time of taking Sunburst, Gregory Siefert, and trustee Executive Title Company. Of the $1 million, the payess gave Southern Leasing $963,000.00 in accordance with their agreement.

The district court made several pre-trial evidentiary rulings. First, the court ruled that evidence of fair market value that was based on the "lot method," also known as the "developer's residual approach," would not be admitted because the proffered evidence was too speculative given the scant development of the tract. The effect of the ruling was to prevent Johnson from offering the opinion testimony of his appraiser Alfred Benson that the property was worth $2,765,000.00, since Benson based his opinion on the lot valuation approach.

Second, the trial court ruled that it would exclude evidence of severance damages for harm to the property occurring prior to Johnson's purchase. Johnson alleges that the Government's negotiations with Peskoff caused the litigation which delayed Johnson's acquisition of title and prohibited Johnson from developing the property. Third, the trial court ruled that it would exclude evidence of after-taking lot sales introduced in support of lot sale valuation. Some evidence relating to both severance and lot sales was introduced at trial nevertheless, as is discussed below.

During the trial, the court precluded Johnson's accountant from testimony as to the value of the land because he did not qualify as an expert and his information was not independent of that provided by Johnson, and was therefore not probative. Silcox used the lot method to determine value.

At trial, real estate appraiser Robert Dietrich testified on behalf of Johnson that just compensation would be $2,490,000.00, Johnson testified to his experience as a successful subdivision developer and presented his own and other lay testimony as to market demand for mobile home lots, and offered his opinion that just compensation was $2,500,000.00. His credibility was impeached with a 1980 mail fraud conviction.

Two government appraisers used comparable sales of large tracts of platted land, including the sale of the subject property six months before the taking for $1.4 million, to determine fair market value. Based on these calculations, and based on an assessment that the market was not ready to absorb all of the individual mobile home lots immediately, the government's experts arrived at compensation figures of $624,000.00 and $713,000.00.

After the jury awarded $713,000.00 Johnson moved for a new trial, arguing that the lot method evidence was excluded in error. The district court denied the motion. The final judgment required Siefert, Sunburst, Executive Title, Southern Leasing, and other distributees to reimburse the government $287,000.00, the amount by which the estimated compensation exceeded the actual award. Southern Leasing filed an objection to its inclusion in the repayment order and moved for relief from judgment. The district court denied the motion and declined to amend the order to exclude Southern Leasing.

QUESTIONS FOR REVIEW

The following issues are presented for review:

(1) Did the trial court abuse its discretion in excluding the landowner's valuation testimony based on the "lot method" or "developer's residual approach," which it held too speculative given the facts of the case, and in ruling that it would exclude testimony regarding severance damages that occurred before ...


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