R. J. CORMAN RAILROAD COMPANY/MEMPHIS LINE CONSOLIDATED APPEALS v. COMMONWEALTH OF KENTUCKY, TRANSPORTATION CABINET, DEPARTMENT OF HIGHWAYS
Annotate this Case
Download PDF
RENDERED:
DECEMBER 14, 2001; 2:00 p.m.
TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NOS. 2000-CA-002314-MR, 2000-CA-002389-MR,
2000-CA-002390-MR, 2000-CA-002391-MR,
AND 2000-CA-002393-MR
R. J. CORMAN RAILROAD COMPANY/MEMPHIS LINE
v.
APPELLANT
CONSOLIDATED APPEALS FROM LOGAN CIRCUIT COURT
HONORABLE TYLER L. GILL, JUDGE
CIVIL ACTIONS NOS. 96-CI-00048, 95-CI-00199,
95-CI-00560, 95-CI-00561 AND 95-CI-00565
COMMONWEALTH OF KENTUCKY,
TRANSPORTATION CABINET,
DEPARTMENT OF HIGHWAYS
APPELLEE
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
GUIDUGLI, HUDDLESTON AND JOHNSON, JUDGES.
JOHNSON, JUDGE:
R. J. Corman Railroad Company/Memphis Line has
appealed from a summary judgment entered by the Logan Circuit
Court on September 12, 2000, which ruled as a matter of law that
Corman had suffered no compensable loss as a result of the
Department of Highways’ installation of six crossings over its
railroad tracks.
Having concluded that there is a genuine issue
as to a material fact concerning the railroad’s claim for
compensatory damages, we reverse the summary judgment and remand
for further proceedings.
The right of way of Corman’s Memphis Line begins at a
point just south of Bowling Green, Kentucky, in Warren County,
runs south through Logan County and terminates at a point on the
Cumberland River, near Clarksville, Tennessee.
During the last
decade, the Department of Highways undertook a project to
relocate U.S. Highway 68/Kentucky Highway 80 through Logan County
and to widen the highway to four lanes with controlled access.
Acting under the Eminent Domain Act of Kentucky (1976),1 the
Department brought five separate proceedings in Logan Circuit
Court to condemn a total of six grade-level highway crossing
easements across Corman’s right of way as a part of this project.
Two of these easements replaced the crossings for two two-lane
roads which intersect Highway 68/80.
These replacements became
necessary when the intersections of these two roads with Highway
68/80 were relocated.
The remaining four easements are for new
crossings where the relocated and widened Highway 68/80 actually
crosses the railroad.
As mandated by KRS 416.580, the circuit court appointed
commissioners to make the initial awards of just compensation in
each action.
The commissioners arrived at their determination
for each crossing by taking the difference between the fair
market value before and after the taking coupled with the fair
1
Kentucky Revised Statutes (KRS) 416.540 through 416.670.
2
market value of temporary construction easements when
appropriate.
Both parties filed exceptions to each of the
commissioners’ awards and the cases remained on the circuit
court’s docket for further proceedings.
In response to a motion by the Department of Highways,
the circuit court ruled that the sole measure of damages
applicable in any condemnation case in Kentucky is set out in KRS
416.660 (the difference between the fair market value before and
after the taking).
The circuit court went on to state that it
anticipated “instructing the jury concerning this law and no
other alternative measure of damages.”
On June 8, 1999, the
circuit court entered an order consolidating the cases for trial
before a single jury.
The cases were brought on for jury trial
on May 25, 2000, following several continuances.
After the jury was empaneled, counsel for Corman was
permitted to interrogate Robert Knight, the Department of
Highways’s valuation witness, on voir dire, out of the presence
of the jury.
Testimony and discussion with counsel soon revealed
that the opposing experts had appraised different portions of the
railroad property.
Due to the disagreement of the parties on the
issue, the circuit court ruled that before the matter could be
presented to a jury, it was necessary pursuant to KRS 416.660 to
determine the precise boundaries of the “entire tract” as a
matter of law.
According to the circuit court, at least one of
the parties, if not both, incorrectly defined the tract of
property to be valued.
The circuit court concluded that any
3
ruling it made during the trial defining the tract might result
in the inadmissibility of the testimony of one or both experts
due to lack of relevance.
The Department of Highways moved for a
continuance following Knight’s testimony and the circuit court,
over an objection by Corman, declared a mistrial, dismissed the
jury and reassigned the cases for trial on September 21, 2000.
Shortly before the rescheduled trial was to begin, the
Department of Highways moved for summary judgment.
The
Department argued that Corman had, as a matter of law, suffered
no compensable damages by reason of the takings.
Corman filed a
motion in limine seeking a ruling which would permit it to prove
the fair market value of its right of way immediately before and
immediately after the takings utilizing a capitalization of net
income approach.
Corman also sought permission to have its
valuation expert and other witnesses explain the reasons for the
differences in the net income to be capitalized before and after
the takings, including all relevant factors that a knowledgeable
buyer would consider as having an impact on the income to be
capitalized as a result of the takings such as the maintenance
and liability costs created by the crossing easements.
In
support of its motion in limine, Corman submitted the affidavit
of its valuation witness, Howard Capito, which contained a brief
summary of the proposed method of valuation.
These motions were heard by the circuit court on
September 11, 2000.
The circuit court concluded that in the
interest of judicial economy and due to its inability to predict
4
in advance what this Court’s ruling would be, the best approach
for it to follow was to seek what can most accurately be called
an advisory opinion from this Court.
Accordingly, the circuit
court sustained the Department of Highway’s motion for summary
judgment and encouraged Corman to appeal its ruling.
This appeal
followed.
It is beyond dispute that a railroad’s right of way is
property entitled to constitutional protection and that the
taking of an easement across a railroad’s right of way must be
accompanied by the payment of just compensation.2
The continued
vitality of this rule was recognized in Loretto v. Teleprompter
Manhattan CATV Corp.3
The United States Supreme Court made a
narrow holding in the Loretto case, affirming the traditional
rule that a permanent physical occupation is a taking and the
property owner in such a case has an expectation of compensation,
but noting that it did not question the substantial authority
upholding a State’s broad power to impose restrictions on an
owner’s use of his property.4
Kentucky courts are in accord with
this line of reasoning as evidenced by the decision in Louisville
& Nashville R.R. Co. v. City of Louisville,5 in which the Court
stated that a railroad company is entitled to just compensation
2
Western Union Telegraph Co. v. Pennsylvania R. Co., 195
U.S. 540, 25 S.Ct. 133, 49 L.Ed. 342 (1904).
3
458 U.S. 419, 102 S.Ct. 3164, 73 L.Ed.2d 868 (1982).
4
Id., 458 U.S. at 441, 73 L.Ed.2d at 886.
5
131 Ky. 108, 114 S.W. 743, 748 (1908).
5
for the establishment of a highway or street over its line or
right of way regardless of whether the company is the owner of
the fee or merely holds an easement for right of way.
It is
worth noting that Kentucky’s highest court in City of Louisville
was specifically addressing the right of a railroad to just
compensation for an easement taken for the construction of a
grade-level roadway crossing.
This line of precedents left no
doubt that railroad property is entitled to the same
constitutional protection as individual property.
However, the
analysis does not end there, since we must also determine the
appropriate measure of compensation in such a case.
Section 242 of the Kentucky Constitution provides that
in condemnation proceedings the amount of damages shall “in all
cases, be determined by a jury, according to the course of the
common law.”
This Court has consistently upheld the principle
that, absent an effective waiver, Section 242 creates an absolute
right to a jury trial on the question of damages in a
condemnation proceeding in a line of cases beginning with
Louisville & Nashville R.R. Co. v. Lang,6 and extending through
Equitable Life Assurance Society of the United States v. Taylor.7
We therefore reiterate that if a railroad is entitled to payment
for a crossing, it is entitled to have the compensation assessed
by a jury.
However, not every acquisition of an easement for a
6
160 Ky. 702, 170 S.W. 2, 3 (1914).
7
Ky.App., 637 S.W.2d 663 (1982).
6
railroad crossing amounts to a compensable taking.
There must be
competent evidence of diminution in the value as a result of the
acquisition in order for it to constitute a compensable taking.
If no such competent evidence is presented, no compensable taking
has occurred as a matter of law, and there is no issue for the
jury to decide.
Kentucky’s highest court has stated unequivocally that
“[t]he only damage is the difference in market value before and
after the taking, and that is the only issue to be submitted to
the jury.”8
Similarly, the Court required that a jury in a
condemnation case decide from the evidence and include in its
verdict: (A) the fair market value of the property as a whole
immediately prior to the taking; (B) the fair market value of the
tract remaining immediately after the taking; and (C) the
difference between A and B which sum should be the amount of
compensation awarded for the taking.9
This measure of damages
has since been incorporated into the Eminent Domain Act of
Kentucky which governs cases such as the one before us, and
neither party attempts to discredit this method.10
dissension stems from its application.
The
Conceivably, a jury could
determine that the after value equals or exceeds the before value
after applying this formula.
As argued by the Department, in
8
Commonwealth, Dept. of Highways v. Sherrod, Ky., 367 S.W.2d
844, 854 (1963).
9
Commonwealth, Dept. of Highways v. Priest, Ky., 387 S.W.2d
302, 306 (1965).
10
See KRS 416.660.
7
such a case, no compensable taking has occurred and the property
owner is entitled to no payment.
The Department further argues
that if the only evidence produced by the property owner relating
to diminution in value is based solely on improper factors
considered by its only valuation witness with the result that the
evidence of the valuation witness is legally incompetent and
excluded, the necessary conclusion is that the value has not
diminished, and as a matter of law, no compensable taking has
occurred.
Returning to Sherrod, we observe that every physical
taking is not, by definition, a compensable taking as confirmed
by our highest court when it interpreted the reasoning of the
United States Supreme Court supporting its decision to uphold a
statute requiring that benefits be offset against both taking and
resulting damages:
The reasoning of the [U.S.] Supreme
Court was, in substance, that the “property”
of a landowner is a value unit, and when a
portion of the land is taken, and perhaps the
remainder damaged, the only question is: How
much has the unit been reduced in value,
without regard to what physical components
may have been taken from the unit? In other
words, “property” within the meaning of
constitutional eminent domain provisions is
value and not tangible substances. The
owner’s “property” is taken in condemnation
only to the extent he has lost value. We
think this view is sound [emphases
original].11
In Commonwealth, Dept. of Highways v. Tyree,12
11
Sherrod, supra at 856-57.
12
Ky., 365 S.W.2d 472, 476 (1963).
8
Kentucky’s highest court addressed the issue of relevancy as
presented in connection with the testimony of a witness who in
making his estimate of values relies upon an irrelevant measure
of value or an element of value that is legally noncompensable,
holding that if cross-examination of the valuation witness
reveals the factors that were considered by the witness, and “one
or more of those factors is invalid in that it involves an
irrelevant measure of value or a legally noncompensable element
of value, it would seem that his testimony should be subject to a
motion to strike because it is based upon irrelevant factors.”13
The Court elaborated by providing examples, stating that an
irrelevant measure of value might be the price paid by the state
in condemning another piece of property or the sale price of a
noncomparable piece of property and noncompensable elements might
include loss of profits or diversion of traffic.14
In Tyree, the
Court concluded that if irrelevant factors are used by the
witness, then his estimates are consequently invalid and are to
be excluded completely from consideration by the jury except for
instances where the witness has attributed a specific value to
the irrelevant factor and then the irrelevant factor can be
eliminated from his estimate, leaving the remaining estimate as
acceptable evidence.15
Two years later, the high court was again presented
13
Id. at 476.
14
Id.
15
Tyree, supra at 476.
9
with a case which demanded that it revisit the issue of how to
deal with a valuation witness, who, after giving apparently
competent testimony on direct examination, admits on crossexamination that he included an improper factor in his analysis.
The tenets set forth in Tyree were upheld as indicated by the
following excerpt:
At the conclusion of his cross-examination a
motion is made to strike his entire
testimony, as was done in this instance.
When the witness’s valuation is “based solely
or primarily on an improper factor his
estimate becomes invalid and is subject to a
motion to strike.” But when the improper
factor can be eliminated from his
calculations and the estimate revised
accordingly the appropriate remedy is an
admonition to the jury not to consider the
improper factor and a requirement of the
witness that he revise his figures and give
an opinion on the correct basis [citations
omitted].16
In the present case, Corman produced only one valuation
witness, Capito, who intends to testify at trial regarding the
before and after values of the property in question.
Accordingly, a review of his deposition in light of the foregoing
legal background is appropriate at this time.
Capito indicated
that he gathered information from several sources in order to
compute what he feels is a reduction in value of the Corman
Memphis Line as a result of the crossings imposed on the railroad
and the consequent taking of its property.
reviewed includes the following:
16
The information he
operational expenses prepared
Commonwealth, Dept. of Highways v. Shaw, Ky., 390 S.W.2d
161, 163 (1965).
10
by the railroad stemming directly from the maintenance of the
crossings; estimates of liability and litigation costs based on a
projected number of accidents on the crossings over 20 years
prepared by another consultant; and an estimate of expenses
directly related to cleanup of the projected accidents at the
crossings.
Capito also projected the expenses based on the
number of accidents anticipated over 20 years and then reduced to
present value annual added expense in order to arrive at the
proposed reduction in value.
His determination of the difference
in market value was based solely upon that factor; and if the
factor is determined to be a legally noncompensable element of
value as defined in Tyree, the circuit court would have been
compelled to strike his estimate of the diminution in value of
the railroad property attributed to the crossings.
The decisive question then becomes whether the sole or
primary factor employed by Capito in estimating the claimed
diminution in value of Corman’s property due to the installation
of these railroad crossings was a legally noncompensable element
of value.
As previously stated, Capito clearly states that his
valuation was based solely on the maintenance expenses associated
with the crossings, the number of accidents predicted to occur at
the crossings over a given period of time, the projected
liability and litigation costs resulting from each accident, and
the anticipated cleanup costs following each accident.
The
Department argues that the criteria cited by Capito as a basis
for his valuation was declared to be a legally noncompensable
11
element of value by Kentucky’s highest court in the City of
Louisville case referred to earlier:
So that it may safely be said, both upon
principle and authority, that the appellant
railroad company was not entitled to
compensation for the expense it might
necessarily incur in constructing,
maintaining, or protecting these streets
across its right of way. Nor was it entitled
to compensation for the increased liability
to damages that it might be required to pay
on account of accidents at these crossings.
This element is entirely too conjectural and
speculative to be considered. Accidents and
resulting litigation or damages may or may
not occur. But in no view of the case that
we can conceive of should this feature be
allowed to enter into a case upon the issue
of compensation.17
The Department claims City of Louisville speaks
directly to the question at hand.
It contends that railroads are
not entitled to compensation for the maintenance of crossings and
prospective accidents, along with the resulting litigation and
cleanup costs.
The Department claims that in arriving at his
estimate of the diminution in value suffered by Corman as a
result of the crossings, Capito relied solely on this
impermissible factor and, as such, his testimony should be
rendered unsalvageable as it does not lend itself to revision as
is permissible under the test set forth in Tyree, and should be
excluded from jury consideration.
The Department further argues that without the
testimony of Capito, there is no competent evidence that the
railroad crossings at issue reduced the market value of Corman’s
17
City of Louisville, supra at 749.
12
railroad property.
It claims that once Capito’s testimony is
excluded, Corman is left with no evidence which would create an
issue of fact for submission to a jury.
Accordingly, the
Department argues that Corman has failed to meet the burden
imposed upon it by the motion for summary judgment — to place
competent affirmative evidence in the record despite a more than
adequate opportunity to do so.
As the Supreme Court has said:
“In any case submitted for summary judgment, there is an
obligation to present at least some affirmative evidence showing
that there is a genuine issue of material fact for trial.
56.03.”18
CR
The Department contends that the only competent
evidence was produced by it in the form of testimony by its
valuation witness, Knight, who determined there was no decrease
in the value of the property as a result of the crossings.
Since a jury’s award must be within the range of valuation
testimony presented to it for consideration,19 the Department
argues the circuit court did not exceed its authority by granting
summary judgment in its favor.
Furthermore, the Department notes that it has paid
for all of the warning devices, gates and other equipment
installed at each crossing and has compensated Corman for
performing the construction work involved.
It points out that it
is a well-established doctrine that railroad companies cannot
18
Unisign, Inc. v. Commonwealth, Transportation Cabinet,
Ky., 19 S.W.3d 652, 657 (2000).
19
See Commonwealth, Dept. of Highways v. Stephens Estate,
Ky., 502 S.W.2d 71 (1973).
13
recover damages arising from the cost or expense of doing or
maintaining crossings that the state may compel them to do.
The
state may, pursuant to its police power, require railroad
companies to erect safety gates at some crossings, keep flagmen
at others, erect sign boards, give reasonable warnings of
approaching trains . . . and in all cases, railroads have been
required to maintain crossings in suitable repair for public
travel.20
For its argument, Corman points out that the
capitalization of net income approach to determining the before
and after fair market values of a parcel of commercial property
in a condemnation proceeding has been approved in Kentucky.21
Corman argues that the capitalization of net income method of
valuation does not violate the prohibition of “price-tagging” of
specific items of damages.22
In its brief, Corman argued:
The Department’s arguments
mischaracterize the nature of the
capitalization of net income method of
valuing property. Obviously, the necessary
first step in valuing property by
capitalizing its net income is to determine
the net income to be capitalized, and that
number is then divided by a capitalization
rate appropriate to the investment to
determine value. In the case at hand, as its
appraisal witness will testify, the
Railroad’s right of way could be generally
expected to produce the same gross income
20
Id.
21
Commonwealth, Dept. of Highways v. Tanner, Ky., 424 S.W.2d
384 (1968).
22
Commonwealth, Dept. of Highways v. Mann, Ky., 387 S.W.2d
848 (1965).
14
with the crossing easements in place as it
did immediately prior to the takings.
Similarly, he will testify that the
capitalization rate appropriate to the
investment would remain the same immediately
after the takings as immediately before.
However, as stated previously, the income to
be capitalized in determining value is net
income. Thus, both before and after the
taking of the crossing easements, willing and
knowledgeable buyers and sellers undertaking
to determine the value of the right of way by
the capitalization of net income, would
necessarily have to determine, as accurately
as they could, the operating expenses to be
subtracted from the gross income to yield the
net income to be capitalized. It is
undeniable that the right of way existing
immediately after the taking of the crossing
easements will be subject to operating
expenses which were not present immediately
prior to the taking, and it is equally
undeniable that knowledgeable and willing
buyers and sellers would account for those
additional operating expenses, as accurately
as they reasonably could, in determining the
net income to be capitalized to establish the
after taking value of the right of way
[emphasis original].
There is nothing in this process that
amounts to “price-tagging”. Although there
will always be clearly identifiable factors
affecting the net income to be capitalized,
these factors do not amount to separate items
of damage. Contrarily, the application of
the capitalization of income formula produces
one lump sum valuation of the whole property
interest immediately prior to the taking and
one lump sum valuation of the property
interest remaining immediately after the
taking. While it is inherent in applying the
capitalization of net income formula that the
factors reducing net income to be capitalized
must be identified and quantified, these
factors do not equate to, and are not
presented as, separate items of damage.
We agree with Corman’s argument and find support for
its position in the often-cited case of Sherrod, supra.
15
In
Sherrod, the Court noted that “the landowner himself is not
entitled to loss of profits,” “he is limited to loss of market
value.”23
The Court went on to reject “the rule requiring
separation of taking damages and resulting damages [as being]
based upon ‘artificial dichotomy’” [emphases original]; and to
restate that “[t]he only damage is the difference in market value
before and after the taking[.]”24
Importantly, the Court stated:
This conclusion does not mean that
evidence may not be introduced as to various
factors that will reduce the value of the
remaining land. But these factors are merely
to be considered as they may affect the
difference in market value before and after
the taking. See Greenup County v. Redmon,
Ky., 335 S.W.2d 335. Evidence of factors
bearing on diminution of value should be
addressed to how they will affect market
value and not how they will hurt the owner or
make less advantageous the use of the
property for his particular purposes, or
create conditions that he would like to
remedy. And no price should be put on the
individual factors. Commonwealth Dept. of
Highways v. Stamper, Ky., 345 S.W.2d 640;
Commonwealth, Dept. of Highways v. Tyree,
Ky., 365 S.W.2d 472 (decided March 1,
1963)[emphases original].25
The Court in Sherrod continued by addressing the
question of “offsetting benefits”, and concluded that “a proper
construction of the Constitution, Sections 13 and 242, requires
that benefits be taken into consideration in determining the
total loss of value the owner has sustained” [emphasis
23
Sherrod, supra at 849.
24
Id. at 853-54.
25
Id. at 854.
16
original].26
The Court then concluded by stating:
Our ultimate conclusion on this phase of the
case is that in cases where part of a tract
of land is taken by condemnation the only
fact for the jury to determine (as concerns
damages) is the difference in market value of
the tract before and after the taking.27
At 26 Am.Jur.2d. Eminent Domain §333 p. 745, it is
stated:
It has been held that lost profits and
business damages are intangibles which do not
constitute “property” in the constitutional
sense, and that, consequently, the right to
such damages is a matter of legislative
grace, not a constitutional imperative. On
the other hand, there are authorities
allowing recovery for injury to business or
loss of profits as an element of damages due
in consequence of a taking, at least where
the damages were suffered as a consequence of
the taking and not by virtue of market forces
or otherwise [footnotes omitted] [emphasis
added].
In State v. Halverson,28 the Supreme Court of Idaho
stated:
Appellant also contends that the court
erred in overruling its objection to the
expression of an opinion by Lee and Lenhart
as to the value of the triangle tract,
because their opinions were “based entirely
upon the profits of defendants’ business.”
Lenhart testified that in forming his opinion
he took into consideration the location of
the property, the buildings, the nature of
the business and the revenue produced by that
business. In addition to the elements
considered by Lenhart, Lee also noted that
the respondents had a water right of value.
26
Id. at 857.
27
Id.
28
384 P.2d 480, 483-84 (1963).
17
While loss of profits is not an element of
damages in a condemnation proceeding, income
derived from a business is a factor which may
be considered in arriving at the fair market
value of property. 18 Am.Jur. Eminent
Domain, § 260, p. 902; State ex rel. State
Highway Commission v. Flynn, Mo.App., 263
S.W.2d 854, (rental income); State Roads
Commission v. Novosel, 203 Md. 619, 102 A.2d
563; State v. Peterson, 134 Mont. 52, 328
P.2d 617.
In Harvey Textile Co. v. Hill, 135 Conn.
686, 67 A.2d 851, the following statement
appears:
In determining market values in
awarding damages for land taken, it is
proper to consider all those elements
which an owner or a prospective
purchaser could reasonably urge as
affecting the fair market price of the
land . . . . Determination of damages
to be paid for taking of land in
eminent domain proceedings requires
consideration of everything by which
value is legitimately affected.
In the case of State Roads Commission v.
Novosel, supra, the issue raised by the State’s
assignment of error herein was considered. That
court stated:
As a practical matter, a prospective
purchaser would hardly fail to
consider whether or not the business
conducted on the premises had proved
profitable, for this would be a
measure of the desirability of the
location, if not to him then to other
purchasers. The precise weight to be
accorded to this factor is a matter of
judgment on which experts may differ,
and of this the jury is the final
judge.
In the case sub judice, we conclude that the experts
should be allowed to consider the various factors related to the
railroad crossings both before and after the condemnation.
18
While
there are now six crossings with their attendant risks and costs,
it may be that the six well-marked crossings with lights and
perhaps gates actually lowered the railroad's risks from the
previous crossings.
The changes to the property are relevant in
determining before and after fair market values; and the
capitalization of net income approach is an accepted valuation
method.
Accordingly, the summary judgment of the Logan Circuit
Court is reversed and this matter is remanded for a jury trial on
the issue of damages in a manner consistent with this Opinion.
GUIDUGLI, JUDGE, CONCURS.
HUDDLESTON, JUDGE, DISSENTS AND FILES SEPARATE OPINION.
HUDDLESTON, JUDGE, DISSENTING:
Supreme Court Rule
(SCR) 1.030(8)(a) provides that this Court is “bound by and shall
follow applicable precedents established in the opinions of the
Supreme Court and its predecessor court [the former Court of
Appeals].”
Because I believe that the majority has failed to
follow what I perceive to be binding precedents, I am compelled
to dissent.
The majority correctly observes that in a case in which
only a portion of a landowner’s property is taken, the measure of
damages is the difference in the fair market value of the
property immediately before and immediately after the taking.29
While there are several approaches to arriving at fair market
29
Ky. Rev. Stat. (KRS) 416.660; Commonwealth, Dep’t of
Highways v. Sherrod, Ky., 367 S.W.2d 844, 854 (1963).
19
value — that is, the price a willing buyer would pay to a willing
seller, both in possession of all relevant facts and neither
under any compulsion to buy or sell, a price tag may not be put
on individual factors.30
If a valuation witness relies on an
irrelevant measure of damages or an element of damages that is
legally noncompensable, his testimony is subject to a motion to
strike31 and, as a result, may not be considered by the
factfinder in assessing damages for the taking of the property
being condemned.
The only valuation witness that R.J. Corman Railroad
Company proposed to call upon the trial of these cases to assess
the damages it allegedly sustained when the Department of
Highways constructed highway crossings for U.S. Highway
68/Kentucky Highway 80 over its railroad track extending from
Bowling Green, Kentucky, to Clarksville, Tennessee, is Charles
Howard Capito.
Capito is not an appraiser, but is instead a
commercial banker who has had a business relationship with R. J.
Corman for several years.
If his testimony is admissible, the
majority is correct that this case must be submitted to a jury to
fix the value of Corman’s property before and after taking by the
Department of Highways for the construction of several highway
crossings across Corman’s railroad track.
30
If, on the other hand,
Sherrod, supra, n. 1, at 854, 856-857. See also
Commonwealth, Dep’t of Highways v. Tyree, Ky., 365 S.W.2d 472,
476 (1963), and Commonwealth, Dep’t of Highways v. Shaw, Ky., 390
S.W.2d 161, 163 (1965).
31
Tyree, supra, n. 2, at 476.
20
Capito’s testimony is not admissible, the trial court correctly
decided that Corman is but entitled to nominal damages.
Because
of the importance of Capito’s testimony to the issue at hand, we
reproduce the pertinent parts of his sixteen-page deposition
below:32
A. I gathered information from several
sources to compute what I feel is a reduction
in value of the R. J. Corman Memphis Line as
a result of these crossings imposed on the
railroad, the taking of the property and the
building of the crossings.
I have reviewed some operational
expenses prepared for me by the company that
are expenses of direct maintenance of
operation of these crossings.
I have some estimates of litigation
costs based on a projected number of
accidents on these crossings over 20 years.
That was prepared by another consultant.
And I have an estimate of direct
expenses of cleaning up after the projected
accidents at these crossings. These would be
expenses incurred by the railroad in cleaning
things up.
I projected those expenses based on the
number of accidents projected over 20 years
and then did a present value on that annual
added expense and came up with what I feel is
a reduction in value of the railroad for each
crossing.
Q. All right. Did you go to the
railroad and the site of each of these
crossings and examine the facilities?
A.
No, sir.
* * *
Q. And you reviewed operational
32
Capito was interrogated by Phillip K. Wicker on behalf
of the Department of Highways.
21
expenses?
A.
Yes, sir.
Q. Who furnished you the information
concerning the operational expenses?
A. The railroad — what I describe as
direct operating costs were provided to me by
the company’s chief financial officer, Mr.
Ken Adams. The cost of litigation was
prepared by another consultant, Richards and
Associates, Boyd Richards, and I used some of
his data. He prepared a number of — he
estimated the number of accidents on these
crossings over 20 years based on railroad
traffic, as well as highway traffic — I
believe he got his information from the
Kentucky Cabinet — and estimated cost of
litigation based on a projected number of
incidents at [$]223,000 per case, average
settlement. That includes attorney’s fees
and settlement costs.
Q.
Okay.
A. I also use a number of $25,000 per
accident, which is an average cost to the
railroad to clean up and repair damage, not
only to the crossing, but railroad equipment,
and the railroad time and resources required
to repair damages.
* * *
A. We’ve reduced the projected number
of accidents to eight.
* * *
A. Auburn is one; Emerson is one;
Blanton is one; Kentucky Stone is one;
Stephenson Mill Road is .8; Muddy River is
.4; U.S. 79 is 1.8; and F. Lee Highway 431 is
one. That should total eight.
* * *
Q. Okay. And, of course, the total
cost per accident, $248,000, would remain the
same.
22
A.
Yes, sir.
* * *
A. But the total annual expenses should
read across, and then that is — I present
value that as if that was paid every year for
20 years and then discount it at the present
value factor of the rate of 13.4, 13.9, as
the case may be.
* * *
Q. Were you aware that that crossing is
not involved in this lawsuit?
A. I’m aware there’s six crossings that
are the formal — there’s six cases here, and
I included eight just for the matter of being
inclusive. I feel like it’s up to the
plaintiffs and the defendants to decide which
of these crossings to debate, but I included
all eight.
* * *
Q. I’m looking at the valuation
impairment. I have seen there that you’ve
got the beginning value of the railroad at
$33,495,000?
A.
Yes, sir.
Q. Ask then a reduction in value of
$211,518?
A. Yes, sir.
Q. Now, I believe that you indicated to
me that in fixing the $211,518, that you
reviewed the operational expenses, estimates
of litigation, and costs of the number of
accidents projected over 20 years and the
clean up after the accidents?
A. I estimated a clean up per accident;
yes, sir.
Q. Okay. And for that particular
Auburn Crossing, it amounted to $211,518?
A.
Yes, sir.
23
Q. Okay. Let me — you have got — how
did you get the beginning value of the
railroad at the Auburn Crossing?
A. What I did on that, Mr. Wicker, is I
computed the value of the R. J. Corman
Railroad Company Memphis Line for 1994, for
1995, and for 1996, and I computed that based
on a multiple of cash flow at seven times
cash flow.
I will define cash flow as earnings
before interest, taxes, depreciation, and
amortization. And that’s pretty much the
standard by which short line railroads trade.
In other words, in buyers and sellers of
railroads, they do a multiple of cash flow.
I, in that instance — so, in 1995, I
viewed the Memphis Line as sellable at
$33,495,000, and then you add in the — you
consider the reduction in value because of
the added expenses. And that’s the reduction
in value of the railroad.
In the case of 1996, I computed the
value of the railroad using the same multiple
of cash flow of seven times cash flow.
Q. Okay. And you have $42,287,000 as a
beginning value the rest of the way across
the board?
A. Yes, sir. Because all of those, I
was told, were 1996.
* * *
Q. All right, sir. So, looking at the
Auburn Crossing again, you started with a
beginning value of $33,495,000?
A.
Yes, sir.
Q. And then you computed the damages,
and that was $211,518?
A.
Yes, sir.
Q. And then you deducted the $211,518
from your $33,495,000, and arrived at your
after value of $33,283,482?
24
A.
That’s correct.
Q. Okay. And with respect to all of
the other seven crossings across the board,
is that the way you did it; you started based
on the factors you have told me and arrived
at a before value of $42,287,000?
A.
That’s correct.
Q.
And then you added up the damages?
A. On the far right is the sum of all
the crossings.
Q. Okay. And you added up the damages
and deducted them from the beginning value
and got the ending value of the railroad?
A.
Yes, sir.
* * *
Q. Okay. Did you consider any sales of
other railroad right-of-way in arriving at
the estimates of the value?
A. No, sir, I don’t. The sale of
railroad right-of-way, my experience is that
railroads sell based on their cash flow and
not based on any value of right-of-way. The
value of the right-of-way is merely a
franchise on which the business operates.
The value of the real estate underneath the
track is, in my opinion, irrelevant to the
value of the business.
Q.
Okay.
You value the business?
A.
Yes, sir.
Q. Have you appraised any other types
of properties, other than railroads?
A. I would say not, Mr. Wicker. My
banking work as a lender to short line
railroads requires that I be able to judge
the value of a railroad and what it’s worth
and what it — of course, as a lender, I have
to be able to make a pretty good guess as to
how they can repay a loan. But I’m not a
25
real estate appraiser.
Q. Okay. Have you had any specialized
or formal training in appraisal of property?
A. No real estate training. No, sir.
I have had a great deal of training in
business valuations, both in college and in
graduate school, and what seems like
limitless bank training in business
valuations, which are usually based on a
multiple or cash flow, depending on the
industry.
Nearly one hundred years ago, Kentucky’s highest court
held that a railroad is not entitled to compensation for the
increased likelihood that it might incur expenses resulting from
accidents that might at some future time occur at the point where
a highway crosses its tracks.
In Louisville & Nashville R.R. Co.
v. City of Louisville,33 the Court said:
So that it may safely be said, both upon
principle and authority, that the appellant
railroad company was not entitled to
compensation for the expense it might
necessarily incur in constructing,
maintaining, or protecting these streets
across its right of way. Nor was it entitled
to compensation for the increased liability
to damages that it might be required to pay
on account of accidents at these crossings.
This element is entirely too conjectural and
speculative to be considered. Accidents and
resulting litigation or damages may or may
not occur. But in no view of the case that
we can conceive of should this feature be
allowed to enter into a case upon the issue
of compensation.34
33
131 Ky. 108, 114 S.W. 743 (1908). Although this case
was decided long ago, it remains good law and has been cited in
several cases, including Idol v. Knuckles, Ky., 383 S.W.2d 910,
911 (1964).
34
Id. at 749. And see generally 26 Am. Jur. 2d Eminent
Domain § 398 (1996), in which it is said that:
26
As can readily be seen from his testimony reproduced
above, all that Corman’s valuation witness, Capito, did was to
estimate the expenses that Corman would incur each time an
accident occurred at one of the points where Highways 68/80
crosses35 its track and multiply those expenses by eight, the
estimated number of accidents that could be expected over a
period of twenty years.
He reduced the resulting sum to present
value and then subtracted that figure from the before value of
the railroad line to arrive at the supposed fair market value of
“It is generally held that the measure of damages is the
difference between the value of the right to the exclusive use of
the land in question for the purposes for which it was being used
and for which it was always likely to be used, and that value
after the [condemning authority] acquires the privilege of
participating in its use, by the opening of a street across it,
leaving the railroad tracks undisturbed. The measure is the
diminished value of the property for railway purposes; or, as
sometimes said, the difference in the value between the exclusive
and the joint use of the right of way.
* * *
“The railroad may not, however, recover for the interruption
or inconvenience to its business, nor for the probability that it
will be obliged to pay damages for accidents at the crossing, nor
for the increased liability of accidents at the crossing, nor for
the inconvenience caused by the observance of public regulations
designed to prevent the block of crossings.”
Id. at pp.805-806 (citing, inter alia, People v. Tulare Packing
Co., 25 Cal. App. 2d 717, 78 P.2d 763 (1938); Grafton v. S. Paul,
M. & M. Ry., 16 N.D. 313, 113 N.W. 598 (1907); Mauvaisterre
Drainage & Levee Dist. v. Walbash R. Co., 299 Ill. 299, 132 N.E.
559, 22 ALR 944 (1921); New York, C. & S. L. R. Co. v. Rhodes,
171 Ind. 521 86 N.E. 840 (1909); and Southern K. R. Co. v.
Oklahoma City, 12 Okla. 82, 69 P. 1050 (1902).
35
Capito computed the costs per accident at $223,000.00
for litigation expenses (including settlement costs and
attorney’s fees) and $25,000.00 for cleanup expenses based on an
estimate prepared by Boyd Richards of Richards and Associates.
27
the railroad line after the construction of the highway
crossings.
That simply is not a proper method of arriving at the
fair market value of the railroad property after the takings by
the Department.
The circuit court, in my opinion, correctly decided
that Corman proposed to offer no admissible evidence of the after
value of its railroad line.
In view of the fact that the
Commonwealth proposed to offer proof that Corman suffered no
compensable loss as a result of the installation of crossings
over its railroad track, the court properly determined that
Corman is entitled to but nominal damages for the takings.
In
the absence of any competent evidence pointing to damage, a
maximum recovery of nominal damages is sufficient to satisfy the
just compensation requirement of the
Constitution.37
I would,
therefore, affirm the summary judgment from which this appeal is
prosecuted, but I would remand for an award of nominal damages.38
37
See Village of Arlington Heights v. Illinois Commerce
Comm’n, 64 Ill. App. 3d 364, 380 N.E.2d 812 (1978).
38
As to the amount of nominal damages that should be
awarded, see Stoll Oil Refining Co. v. Pierce, Ky., 343 S.W.2d
810, 812 (1961) (fixing nominal damages at $1.00).
28
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
David R. Irvin
Nicholasville, Kentucky
Joseph B. Phillips
Bowling Green, Kentucky
George E. Strickler, Jr.
Bowling Green, Kentucky
Phillip K. Wicker
Shepherdsville, Kentucky
ORAL ARGUMENT FOR APPELLANT:
ORAL ARGUMENT FOR APPELLEE:
David R. Irvin
Nicholasville, Kentucky
Phillip K. Wicker
Shepherdsville, Kentucky
29
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
