SALT RIVER PROJECT AGRICULTURAL v MILLER PARK, L.L.C.

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SUPREME COURT OF ARIZONA En Banc SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, an agricultural improvement district organized and existing under the laws of the State of Arizona, ) ) ) ) ) ) ) Plaintiff/Appellant/ ) Cross Appellee, ) ) v. ) ) MILLER PARK, L.L.C., an Arizona ) limited liability company; ) MILLER PARK II, L.L.C., an ) Arizona limited liability ) company, ) ) Defendants/Appellees/ ) Cross Appellants. ) ) __________________________________) Arizona Supreme Court No. CV-07-0207-PR Court of Appeals Division One No. 1 CA-CV 05-0730 Maricopa County Superior Court No. CV2002-017637 O P I N I O N Appeal from the Superior Court in Maricopa County The Honorable Ruth Harris Hilliard, Judge AFFIRMED IN PART, VACATED IN PART AND REMANDED ________________________________________________________________ Opinion of the Court of Appeals, Division One 216 Ariz. 161, 164 P.3d 667 (2007) VACATED ________________________________________________________________ JENNINGS, STROUSS & SALMON, P.L.C. By Douglas Zimmerman Michael J. O'Connor John J. Egbert Attorneys for Salt River Project Agricultural Improvement and Power District Phoenix BRYAN CAVE LLP By Steven A. Hirsch Rodney W. Ott Attorneys for Miller Park, L.L.C. and Miller Park II, L.L.C. Phoenix AYERS & BROWN, P.C. Phoenix By Charles K. Ayers Melinda A. Bird Stephanie Heizer Attorneys for Amicus Curiae City of Phoenix ________________________________________________________________ B A L E S, Justice ¶ 1 This condemnation case presents two issues. We hold that the trial court did not abuse its discretion in excluding evidence of the land owner s prior statements of valuation for property tax purposes. We also hold that mandatory cost-based sanctions may be imposed under Arizona Rule of Civil Procedure 68 even though Arizona Revised Statutes ( A.R.S. ) § 12-1128(A) (2003) gives trial courts discretion to apportion costs among the parties in condemnation actions. I. ¶ 2 Miller Park, LLC and Miller Park II, LLC ( Miller Park ) bought undeveloped land near Buckeye in 1997 and 2000. Buckeye subsequently annexed the property and rezoned it for general commercial purposes. By the end of 2001, Buckeye s Planning Development Board had approved Miller Park s concept plan for the property s commercial development, water and sewer service had reached the edge of 2 the property, and nearby residential population had grown significantly. ¶ 3 In February 2002, Miller Park contracted to sell part of the property to a developer for more than $17.4 million, or about $4.00 per square foot. Project Agricultural One month later, the Salt River Improvement and Power District ( SRP ) announced its intention to condemn part of the land, including some of the property under contract to the developer, to build a 500,000-volt electric transmission line. plans, the developer canceled its When notified of SRP s purchase. SRP eventually condemned an easement extending over sixteen acres and installed thirteen utility towers on Miller Park s property. ¶ 4 to In September 2002, SRP filed this condemnation action determine the compensation owed to Miller Park. Before trial, Miller Park moved to exclude evidence regarding its April 2001 protest of the county s property tax assessment of the property. The Maricopa County assessor had set the full cash value at $18,500 per acre. Deloitte & Touche Property Tax Services ( Deloitte ) filed a tax protest on behalf of Miller Park arguing that the full cash value of the property was less than $10,000 per acre. Before trial, a Deloitte employee testified at a deposition that he had only calculated the full cash value for property tax purposes and had not attempted to assess the fair market value. ¶ 5 The trial court granted Miller Park s motion in limine 3 and excluded evidence regarding the protest of the property tax valuation. Pierce, At trial, Miller Park s managing member, Michael testified that the property s fair $174,240 per acre ($4.00 per square foot). market value was He said that the fair market value of the property condemned for the easement was $2.4 million and that the severance damage to the remaining property was $3.1 million. The parties also presented conflicting expert appraiser testimony regarding the fair market value. ¶ 6 The jury determined that just compensation for SRP s condemnation was approximately $4.7 million $2.5 million for the fair market value of the condemned property plus $2.2 million for severance damage to the remaining property. ¶ 7 Before trial, SRP had rejected Miller Park s offer of judgment for $2.3 million. After the jury awarded a higher sum, Miller Park requested sanctions under Rule 68 of the Arizona Rules of Civil Procedure. The trial court denied this request, reasoning that because A.R.S. § 12-1128(A) permits discretionary cost awards in condemnation cases, it precludes the imposition of cost-based sanctions under Rule 68. The trial court instead used its discretion under A.R.S. § 12-1128(A) to award Miller Park some costs. ¶ 8 SRP appealed the exclusion of the tax protest evidence and Miller Park cross-appealed the denial of Rule 68 sanctions. 4 The court of appeals held that the trial court had not abused its discretion by excluding the evidence. Salt River Project Agric. Improvement & Power Dist. v. Miller Park, L.L.C., 216 Ariz. 161, __ ¶ 35, 164 P.3d 667, 674 (App. 2007). The court of appeals also held that, at least in cases in which a land owner seeks sanctions against a condemnor, Rule 68 sanctions may be imposed. Id. at __ ¶ 50, 164 P.3d at 678. ¶ 9 We accepted review because this recurring issues in condemnation cases. case presents two Our jurisdiction is based on Article 6, Section 5(3), of the Arizona Constitution and A.R.S. § 12-120.24 (2003). II. ¶ 10 We first consider whether the trial court abused its discretion by excluding statements that Miller Park made through its agent Deloitte regarding the full cash property for purposes of the tax protest. value of the See State v. Spreitz, 190 Ariz. 129, 146, 945 P.2d 1260, 1277 (1997) (noting that trial court s decisions to admit or exclude property is evidence are reviewed for abuse of discretion). ¶ 11 An owner of condemned constitutionally entitled to just compensation. U.S. Const. amend. V; Ariz. Const. art. 2, § 17. Just compensation equals the fair market value of the property. City of Phoenix v. Wilson, 200 Ariz. 2, 6 ¶ 8, 21 P.3d 388, 392 (2001). To determine market value, the 5 fact finder must consider the highest and best use of the land. Id. Valuation for property tax purposes, on the other hand, is based on the property s full cash value, interpreted as limited to present usage. which we have A.R.S. § 42-13301(B) (2006); A.R.S. § 42-11001(6) (Supp. 2007); Golder v. Dep t of Revenue, 123 (discussing Ariz. 260, limitation on 265, full 599 P.2d 216, cash value in 221 (1979) A.R.S. § 42- 11054(C)-(D) (Supp. 2007)). ¶ 12 Because of the difference in valuation standards, tax assessments are generally inadmissible to property for purposes of just compensation. show the value of See, e.g., Jackson v. Pressnell, 19 Ariz. App. 221, 222, 506 P.2d 261, 262 (1973) (holding that the mere production of a tax appraisal is not admissible . condemnation . . on the hearing ). issue An of owner s fair own market value valuation for in a tax purposes, however, may be admissible in non-tax contexts as a party admission. See Ariz. R. Evid. 801(d)(2); see also 5 J. Sackman, Nichols on Eminent Domain ( Nichols ) § 18.12[1] (3d ed. 2006) (noting that statements of the owner, including a statement made to the tax assessor that his property is not as valuable as the assessment, may become admissions ). ¶ 13 protest SRP argues that statements Miller Park made in its tax were admissible either as admissions as to the property s value or for purposes of impeaching the testimony of 6 Miller Park s representative Michael Pierce. SRP further contends that the trial court erroneously excluded such evidence as irrelevant by following a court of appeals opinion that was later depublished, Found., Inc., depublished by see State 209 Ariz. 210 Ariz. ex 321, 232, rel. 100 109 Mendez P.3d P.3d v. 932 571 Am. Support (App. 2004), (2005), and by disregarding this Court s opinion in State ex rel. Morrison v. Jay Six Cattle Co., 88 Ariz. 97, 353 P.2d 185 (1960). ¶ 14 Miller Park moved to exclude the evidence under both Rule 402 and Rule 403 of the Arizona Rules of Evidence. Rule 402 generally provides that relevant evidence is admissible and irrelevant evidence is not. may be excluded if its Under Rule 403, relevant evidence probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence. ¶ 15 Ariz. R. Evid. 403. In granting the motion in limine, the trial court did not specify whether its ruling was based on Rule 402, Rule 403, or both.1 SRP in effect asks us to presume that the trial court relied only on Rule 402 and, after the case has proceeded to a 1 The trial court s minute entry stated only that it considered all legal memoranda, the court s file and relevant law. 7 had the jury verdict, to order a new trial because the excluded evidence was relevant. Under our case law, however, we instead presume in these circumstances that the trial court also relied on Rule 403 and we will uphold the trial court s ruling if supportable under that rule. See Readenour v. Marion Power Shovel, 149 Ariz. 442, 449 n.8, 719 P.2d 1058, 1065 n.8 (1986) (concluding that the trial excluding court exercised challenged evidence had as Rule 403 discretion in although the prejudicial, record reveal[ed] neither formal invocation nor application of Rule 403 ). ¶ 16 SRP contends that the trial court s failure to expressly discuss its application of Rule 403 itself requires a new trial in which the trial court may, in the first instance, apply Rule 403 s balancing test. SRP and its amicus cite two cases in support of this argument: Ariz. 287, (remanding 295-96 for ¶¶ new 31-36, Rule 403 85 Shotwell v. Donahoe, 207 P.3d 1045, determination 1053-54 because (2004) basis of original ruling was legally insufficient), and Yauch v. Southern Pacific Transportation Co., 198 Ariz. 394, 403 ¶ 26, 10 P.3d 1181, 1190 (App. 2000) (noting that Rule 403 balancing is peculiarly a function of trial courts and refusing to assume that the court would have excluded . . . proffered evidence based on Rule 403 ). 8 ¶ 17 In Shotwell, this Court remanded for a new Rule 403 balancing because the trial court erroneously gave conclusive weight to a non-dispositive factor. 207 Ariz. at 295 ¶¶ 31-32, 85 P.3d at 1053 (noting that trial court excluded evidence under Rule 403 solely on the ground that the [evidence] was conclusory, yet [a] document is not necessarily inadmissible . . . simply because it contains conclusions or is conclusory ). Similarly, the trial court in Yauch excluded evidence because of a legal reason unrelated to Rule 403; the court of appeals disagreed with the legal reasoning and refused to independently uphold the exclusion under Rule 403. 28, 10 P.3d at 1190-91. 198 Ariz. at 403-04 ¶¶ 26- Thus, in both Shotwell and Yauch, it was clear that the trial court had committed legal error and never conducted a proper Rule 403 balancing. Neither case suggests that a trial court necessarily commits reversible error by failing to describe on the record its application of Rule 403. ¶ 18 Although it is generally desirable for a trial court to a make record of its Rule 403 determinations, Readenour provides the correct framework for evaluating the trial court s ruling here. Miller Park sought to exclude the tax protest material under both Rules 402 and 403. To the extent the basis for the trial court s evidentiary ruling was ambiguous, it was incumbent upon SRP to seek to clarify the record rather than to 9 proceed to trial and later seek to upset the jury s verdict on appeal by arguing that the ruling could not be sustained on one of two possible grounds.2 ¶ 19 Presuming the evidence was sufficiently probative to meet the relevance threshold of Rule 402, we must also consider whether Rule 403 supports the trial court s decision to exclude the evidence. SRP contends that our decision in Jay Six establishes that the trial court should have admitted the tax protest material. In Jay Six, the Court held that the trial court had erred by not allowing the state to cross-examine an appraiser who had testified about the fair market value of condemned property with the witness s own prior appraisal for federal tax purposes. 88 Ariz. at 105-06, 353 P.2d at 190-91. The error Court called the merely technical and harmless because, even for purposes of impeachment, the evidence was of slight probative force and the state s examination and 2 We also reject SRP s argument that a new trial is required because the trial court relied on the subsequently depublished American Support opinion. Miller Park cited American Support in its motion in limine, but the trial court did not cite the opinion in its ruling. American Support did not hold that tax protest evidence is always irrelevant and thus inadmissible under Rule 402 in condemnation cases; and depublication, while eliminating an opinion s effect as precedent, does not imply that the court of appeals erred in resolving particular legal issues. 10 cross-examination extensive. ¶ 20 of the witness . . . was otherwise very Id. at 106, 353 P.2d at 191. Jay Six did not establish a per se rule that previous estimates of value for tax purposes are always admissible in condemnation actions; it merely held that the trial court abused its discretion under the circumstances of that case. Whether a land owner s prior statements of valuation for tax purposes are admissible in a subsequent condemnation action will depend on the facts of the particular case. ¶ 21 Here, several factors suggest that the evidence was of minimal relevance and potentially confusing to the jury. Miller Park s tax protest concerned a valuation of the property at a different time, under different conditions, and under a different standard than did the determination of fair market value for condemnation purposes. Seventeen months had passed since Deloitte submitted the tax protest material. time, Buckeye had approved Miller Park s During that concept plan for commercial development and the area had substantial residential growth. Moreover, Deloitte focused exclusively on the property- tax specific full cash value of Miller Park s property in its then-current use, not on fair market value, which depends on the highest and best use of the land. ¶ 22 Because of the different legal standards and the nature of the property tax and condemnation valuations here, the 11 tax protest evidence had little probative value, risked jury confusion, and could have unduly wasted the time needed to introduce and explain the evidence. ¶ 23 SRP argues that it should have been allowed to impeach Pierce with Deloitte s statements. statements of Miller Park s But even assuming that the agent may constitute a party admission in this context, the fact that the statements may not be hearsay under Rule 801(d)(2) of the Arizona Rules of Evidence does not mean they are admissible under Rules 402 and 403. See Shotwell, 207 Ariz. at 295 ¶ 29, 85 P.3d at 1053 (noting that satisfying hearsay rule does not necessarily satisfy Rule 403); cf. Nichols, supra ¶ 12, § 18.12[1] at 18-85 ( The value stated by the owner may be a type of value other than fair market value, and when this is the case, the statement is generally held not to be inconsistent and therefore not admissible as an admission. ). ¶ 24 Any impeachment value of the tax protest evidence was reduced because the Deloitte representative who prepared the protest did not testify at trial and Pierce, the Miller Park representative who did preparing tax protest. the distinguish this case testify, from had These Jay Six, not participated circumstances in which the further condemnor sought to examine a witness about his own prior appraisal. under those circumstances, Jay 12 Six concluded that in the Even prior statements had only slight probative value. The probative value of the tax protest material here was even less and the trial court could properly conclude that any probative value was outweighed by the risks of confusion and unnecessary delay. ¶ 25 of In short, we hold that a land owner s prior statements valuation for tax purposes may admissible in a condemnation action. be, but are not always, The trial court did not abuse its discretion in excluding such evidence here. III. ¶ 26 SRP contends that the trial court properly refused to award Rule 68 sanctions because the rule conflicts with A.R.S. § 12-1128. ¶ 27 Under Rule 68, an offeree who declines an offer of judgment and fails ultimately to obtain a more favorable judgment must pay, as a sanction, reasonable expert witness fees and double the taxable costs . . . incurred by the offeror after making the offer. Ariz. R. Civ. P. 68(g). In condemnation actions, A.R.S. § 12-1128(A) states that [c]osts may be allowed or not, and if allowed may be apportioned between the parties on the same or adverse sides, in the discretion of the court. ¶ 28 Although the rule and statute both refer to costs, there is no real conflict between the two. The statute provides for the discretionary allocation of costs in all condemnation 13 cases. Rule 68 does not provide for the recovery of costs as such, but instead authorizes sanctions that are measured, in part, by twice the costs incurred after the offer is made. Ariz. R. Civ. P. 68(g).3 ¶ 29 Because we conclude that Rule 68 and A.R.S. § 12- 1128(A) do not conflict, we overrule in part Pima County v. Hogan, 197 Ariz. 138, 3 P.3d 1058 (App. 1999). In Hogan, the condemnor sought Rule 68 sanctions after the jury awarded the land owner less than the condemnor had offered in settlement. 197 Ariz. at 139 ¶¶ 2-3, 3 P.3d at 1059. held that sanctions could not be The court of appeals imposed because Rule 68 conflicts with A.R.S. § 12-1128(A) and requiring the land owner to pay costs as a sanction arguably would reduce the land owner s constitutional entitlement to just compensation. 140 ¶¶ 7, 9, 3 P.3d at 1060. Id. at Cf. City of Phoenix v. Mori, 182 Ariz. 612, 615, 898 P.2d 990, 993 (App. 1995) (holding that right to just compensation limits court s discretion to allocate costs against land owner under A.R.S. § 12-1128(A)). 3 68 sanctions may also include prejudgment interest from the date of the offer on unliquidated claims. This sanction, as the court of appeals recognized, does not apply to amounts that are already subject to prejudgment interest, as was the case here because SRP obtained an order of immediate possession and Miller Park thereby became entitled to prejudgment interest under A.R.S. § 12-1123(B). Rule 14 ¶ 30 We agree with the dissent in Hogan that the rule and statute can be harmonized. P.3d at condemnor 1061 faces (Howard, See Hogan, 197 Ariz. at 141 ¶ 13, 3 J., sanctions in dissenting). this case, Because we need only not the decide whether applying Rule 68 against a land owner might violate the owner s right to just compensation. IV. ¶ 31 For the foregoing reasons, we affirm the judgment of the superior court in part and vacate it in part, vacate the opinion of the court of appeals, and remand to the superior court for proceedings not inconsistent with this opinion. _______________________________________ W. Scott Bales, Justice CONCURRING: _______________________________________ Ruth V. McGregor, Chief Justice _______________________________________ Rebecca White Berch, Vice Chief Justice _______________________________________ Michael D. Ryan, Justice _______________________________________ Andrew D. Hurwitz, Justice 15 16

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