Mazza v. Agency of Transportation

Mazza v. Agency of Transportation  (97-130); 168 Vt. 112; 716 A.2d 817

[Filed 19-Jun-1998]

       NOTICE:  This opinion is subject to motions for reargument  under
  V.R.A.P. 40 as well as formal revision before publication in  the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions, 
  Vermont Supreme Court, 109 State Street,  Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                                 No. 97-130


Samuel and Annette Mazza                    Supreme Court

                                            On Appeal from
    v.                                      Chittenden Superior Court

Vermont Agency of Transportation            December Term, 1997


Shireen Avis Fisher, J.

       Thomas  P.  Aicher of David L. Cleary Associates, P.C.,  Rutland, for
  Plaintiffs-Appellees.

       William  H.  Sorrell,  Attorney General, and  Scott  A.  Whitted,
  Assistant Attorney General, Montpelier, for Defendant-Appellant.


PRESENT: Dooley,  Morse, Johnson and Skoglund, JJ.,  and  Martin,
         Supr. J., Specially Assigned


       DOOLEY,  J.  The State of Vermont appeals from a Chittenden Superior 
  Court  condemnation award  in  favor  of  Samuel  Mazza arguing  that  the
  amount awarded for business loss was  improper because  the  business was
  incorporated and, therefore,  was  not owned   by  the  landowner.   The 
  landowner  has  cross-appealed claiming: (1) the amount awarded for the
  land was inadequate as a matter of law; (2) the amount awarded for business
  loss was  also inadequate  as  a  matter of law; and (3) the  jury  should 
  have awarded additional damages for relocation of an irrigation  line. We
  affirm.

       The land in question, approximately 7.3 acres, lies in  the proposed 
  path of the Chittenden County Circumferential  Highway, and about half of
  it, 3.9 acres, is used to grow pumpkins as part of  a  truck  farm 
  operation.   In March  1993,  the  Chittenden Superior  Court  found 
  necessity  for  the  Vermont  Agency   of Transportation  to  take  the
  land by  eminent  domain  from  its owners,  Samuel  and Annette Mazza.  At
  the time, the  landowners conducted  the  farm  operations  on  the 
  property  as  a   sole proprietorship.

 

       Shortly thereafter, in May 1993, landowners formed a family
  corporation known as S. Mazza Farmstand and Greenhouses, Inc.  to carry  on 
  their farm business.  The corporation was  established for estate and tax
  planning purposes.  Title to the land remained in  the  name of the
  individuals, but the land was leased to  the corporation pursuant to a
  written lease.

       Following  a hearing, the Vermont Transportation  Board  on September 
  9,  1994  set the value of the condemned  property  at $60,100,  and  did
  not include in that amount any business  loss. Landowners  appealed to the
  Chittenden Superior  Court.   Annette Mazza  died  before the trial,
  leaving Samuel Mazza as  the  sole landowner.

       The  main  issue  at the November, 1996 trial  was  whether landowners 
  were  entitled to business loss damages.   The  State argued they were not
  because the business was being conducted  by a  corporation which did not
  own the land, and because the  value of a farming business is necessarily
  included in the value of the land.   Landowner  argued that the nature  of 
  the  truck  garden operation was such that the value of the land did not
  reflect the value  of  the business.  Landowner also argued that he  and 
  his wife  owned  the  business at the time of the  taking,  which  he
  claimed was the date of the necessity determination, and, in  any event,  
  the   corporate  form  of  ownership   should   not   be determinative in a
  family business.

       The court submitted the issue of business loss to the jury, which 
  came  back  with  a verdict of $150,000  --  $140,720  for business loss,
  $5,850 for the tillable land, and $3,430  for  the non-tillable  land.  The
  court denied landowner's  motion  for  a judgment  as  a  matter of law
  which argued that  the  undisputed evidence  required the jury to set
  higher values on the land  and the business.

       On  appeal,  the  State  argues that  the  court  erred  in submitting 
  the  issue of business loss to the jury  because  the landowner  did not
  own the business.  The State has not  appealed the  court's decision that
  the value of the farm business is  not included  in  the value of the land,
  and we do not consider  that question.

       The  briefing  on  this  issue  has  centered  on  whether landowners
  owned the business on the date of taking, whether  the corporation's 
  leasehold interest was sufficient  to  support  an award  

 

  to  it,  and whether the court could pierce the  corporate form  for a
  family business.  We conclude that we need not  reach these arguments
  because we do not believe the applicable statutes require   that  the 
  landowner  own  the  business  as   a   sole proprietorship in order to
  recover business loss.

       "Vermont is one of the few states to recognize business loss as  an
  item of damage in a condemnation proceeding."  Raymond  v. Chittenden
  County Highway, 158 Vt. 100, 105, 604 A.2d 1281,  1284 (1992).   The
  authorization for this item of damages is contained in 19 V.S.A.  501(2)
  which provides, in part:

          Damages resulting from the taking or  use  of
          property under the provisions of this chapter
          shall  be  the value for the most  reasonable
          use of the property or right in the property,
          and  of the business on the property, and the
          direct and proximate decrease in the value of
          the   remaining  property  or  right  in  the
          property and the business on the property.
          
  Although  the statute does not state that the landowner must  own the 
  business outright in order to recover business  losses,  the State  argues
  that this requirement must be implied  because  the statutes  would not
  allow a business-owner who is not a landowner to  participate  in  a
  condemnation proceeding.   See  19  V.S.A. 501(3) (person interested in
  lands must have "a legal interest of record"); id.  511 (Cum. Supp. 1997)
  ("person having an  interest in   the   land"   may  participate  in 
  hearing   to   determine compensation).

       For  three  major reasons, we reject the State's  argument. First, 
  the  condemnation proceeding in  the  superior  court  is essentially  an
  in rem action with respect to the property.   See City of Winooski v. State
  Highway Bd., 124 Vt. 496, 498, 207 A.2d 255, 257 (1965).  Because of the
  nature of the action, we held in American Oil Co. v. State Highway Bd., 122
  Vt. 496, 504, 177 A.2d 358, 364 (1962):

          [W]e  take  the  view  that  the  legislative
          intention   is   correctly   interpreted   as
          contemplating a single proceeding against the
          property  in the nature of an in  rem  action
          transferring   to  the  highway   board   the
          required right in the property in return  for
          money    damages   representing   its    fair
          equivalent, passing in the first instance  to
          the  person  having  the  legal  capacity  to
          convey the interest acquired.

  American Oil Co. is instructive on this point.  The land involved was  used
  for a filling station. 

 

  The gasoline company as  lessee, the  filling station operator as
  sublessee, and the mortgagee all claimed  an  interest  in  the property 
  for  which  they  wanted damages.   This Court denied their claims,
  allowing the State  to bring  one proceeding and make one payment to the
  landowner.   As reflected in the statement that the payment passed "in the 
  first instance"  to the landowner, the landowner might be obligated  to pay
  over part of the damages to others.  Id.

       Because  of  our  view  that  the  condemnation  proceeding operates 
  in rem and that the State is required to make only  one payment,  there  is 
  no  impediment to including  an  amount  for business loss even if the
  business is not owned by the landowner. Of  course,  a damage award made
  "in the first instance"  to  the landowner  may have to be shared with the
  owner of  the  business which suffered losses.  The State need not be
  concerned about how that apportionment is made.

       Second,  the  State is relying on a distinction  without  a meaningful 
  difference.  The Legislature has determined  that  it will  compensate for
  business losses in condemnation proceedings. See  Record v. State Highway
  Bd., 121 Vt. 230, 237, 154 A.2d 475, 480  (1959)  (Legislature  responded
  to  inequity  created  where business  received no compensation although it
  was  "invaded"  by the  taking  "and  the yield of the business  [was] 
  lessened  or destroyed  as a result of the taking of the land upon  which 
  the business  is situated").  In implementing this policy, the  State has 
  suggested no reason for discriminating between  closely-held family 
  businesses owned directly by the landowner and  those  in corporate  
  ownership,   or  even  for   discriminating   against corporations
  generally if they do not own the condemned land.

       On the other hand, the rule the State seeks to impose is an
  unnecessary  trap for the unwary.  In order to  recover  for  its loss in a
  condemnation proceeding, a business must be tied to the land:

          It  is only to the extent that a business  is
          taken  by  the appropriation of the  land  on
          which  it  is  situated that the  legislature
          meant  that compensation be paid.  A business
          may  be  inextricably related  and  connected
          with the land where it is located so that  an
          appropriation   of   the   land   means    an
          appropriation of the business.
          
  Id.   This  requirement is most likely to be met where  there  is
  overlapping  ownership  of the land 

 

  and business  to  ensure  the availability  of the real property for
  business purposes.   Thus, the  main  effect  of the state's rule is to
  deny  business  loss compensation to some closely-held businesses that
  chose a form of ownership  of  the real property and business that  is 
  otherwise most  advantageous  for taxation or other purposes.   We  see  no
  legitimate state purpose behind this result.  See Rhodes v.  Town of 
  Georgia,  166  Vt.  153,  157, 688 A.2d 1309,  1311  (1997) (statutes
  should not be construed to produce "absurd or illogical consequences").

       Third,  and finally, the State's position is not consistent with  the 
  language of the controlling statutes.  The Legislature has  specifically
  provided that compensable damages include  "the value  .  .  . of the
  business on the property" without requiring that  the  business be in the
  same ownership as the  land  to  be condemned.  See 19 V.S.A.  501(2); see
  also In re Lunde, 166  Vt. 167,  169,  688 A.2d 1312, 1313-14 (1997)
  (statutes  should  be construed  in  accordance with the plain  meaning  of 
  the  words chosen).   As  we  held in American Oil Co.,  the 
  transportation board's  obligation to pay "each person from whom land or 
  rights are  taken,"  19  V.S.A.  512(a), contemplates a payment  to  the
  landowner,  again irrespective of the ownership of the  business. See 
  American Oil Co., 122 Vt. at 504, 177 A.2d  at 363.  At best, the  State has
  shown that the corporation may not have  the  full panoply  of  procedural 
  rights,  which  are  available  to   the landowner,  but a limit on
  procedural rights does not  mean  that the  State is excused from paying
  for all business losses  caused by its involuntary taking of the land.

       For  the reasons stated, the superior court was correct  in submitting
  the question of business loss to the jury despite  the corporate ownership
  of the business.

       The  landowner's first cross-appeal claim is that the  jury erred as a
  matter of law when it awarded only $1,500 per acre for the  tillable land
  and $1,000 per acre for the non-tillable land. The  landowner argues that
  all testimony, including that from the State's  own expert, set the value
  of all the land at $3,000  per acre,  and,  thus, the jury was not free to
  ignore the undisputed evidence.

       Normally,  land taken by eminent domain is  valued  at  its highest 
  and best use, termed in the statute "the most reasonable use  of  the 
  property."  19 V.S.A.  501(2); see Pinewood  

 

  Manor, Inc.  v.  Vermont Agency of Transp., 164 Vt. 312, 315,  668 A.2d 653,  656 (1995).  In this case, expert witnesses for both  sides found 
  that  the  highest and best use of the  property  was  for residential
  development, and based their per acre value  on  this use.

       When  there  is  a  claim for business loss,  however,  the business
  use and the use for which the property is developed must be  the same.  See
  Sharp v. Transportation Bd., 141 Vt. 480, 491, 451 A.2d 1074, 1079
  (1982).  Sharp involved the exact situation present here, a claim for
  business loss of a farm and a claim for loss  of  the  land used in the
  farm, but at a value for  housing development.   We  held "plaintiffs can
  use the land  either  for their  dairy operations or for residential
  building lots  .  .  . they  cannot  be compensated for both actual use and
  highest  and best use."  Id. at 493, 451 A.2d  at 1080.

       The  court in this case charged the jury in accordance with Sharp.  
  As a result, the jury was required to value the property for  farm  use 
  once  it decided to award  business  loss.(FN1)   The State's  appraiser 
  testified that the  land  was  worth  between $1,000  per  acre and $1,500
  per acre when valued for  farm  use. The  jury's  verdict was supported by
  this evidence,  and,  thus, must stand.

       For  the  first  time  on appeal, landowner  suggests  that
  nontillable  land, which is not directly involved in the  farming
  operation,  and  the  value of that land, must  be  increased  to $3,000
  per acre.  We cannot find that this argument was raised in the  superior 
  court.  See 

 

  Rossetti v. Chittenden County  Transp. Auth.,  165  Vt.  61, 68, 674 A.2d 1284, 1289  (1996)  (objection ground  not raised below is waived and may
  not be raised for  the first time on appeal).  In any event, the per acre
  value assigned by  the  appraisers  was for the entire 7.33 acres  and  was 
  not necessarily   applicable  to  a  portion.   Indeed,   the   exact
  characteristics  that made it nontillable may  have  reduced  its value 
  for residential development.  We cannot say that the  jury was  required,
  as a matter of law, to set the value of any of the land at $3,000 per acre.

       Second,  landowner  argues  that  the  undisputed  evidence required
  the jury to set the value of business loss at a  minimum of  $174,800,  the 
  amount testified to by his  appraiser.   This amount  was  undisputed, in
  landowner's view, because  the  State claimed that landowner was not
  entitled to business loss damages, and, as a result, offered no alternative
  value for such loss.

       The  short answer to landowner's claim is that the jury  is not bound
  by a value provided by an expert even if there is not a competing  value in
  evidence.   Valuation of real property  or  a business is "at best a matter
  of opinion."  Pinewood Manor, Inc., 164  Vt. at 315, 668 A.2d  at 656. 
  Thus, "opinion testimony  does not establish any material fact as a matter
  of law and is not  of controlling effect."  Green Mountain Marble Co. v.
  State  Highway Bd.,  130 Vt. 455, 464, 296 A.2d 198, 204 (1972).  Here, the
  jury apparently  accepted  the  landowner's appraiser's  testimony  in
  part, but not fully.  It acted within its power in doing so.

       Finally, landowner argues that the court erred in  refusing to  allow
  the jury to award him the cost of a new irrigation line he  was  required 
  to install on the remaining  farm  land.   The superior  court refused to
  submit this claim to the jury  because landowner provided no evidence on
  how the expense related to  the fair market value of the remaining land or
  business.  The statute authorizes  as  an  element of damage "the direct 
  and  proximate decrease  in the value of the remaining property . .  .  and 
  the business  on the property."  19 V.S.A.  501(2).  As  we  held  in Allen
  v. Burlington Hous. Auth., 129 Vt. 8, 13, 270 A.2d 588, 592 (1970), the
  cost of improvements is not necessarily reflected  in fair  market  value. 
  See also Demers v. City of Montpelier,  120 Vt.  380,  390,  141 A.2d 676, 683  (1958)  (although  cost  of construction was properly before the
  court, "the cost  could  not fix the compensation" because cost and value
  "are 

 

  not the same in fact  or  law").   Similarly, the amount a landowner 
  expends  to maintain  the  usefulness of remaining lands is  not 
  necessarily equal to the reduction in fair market value from the taking.  
  It was  incumbent on the landowner to relate the expenditure to fair market 
  value.   See  4A J. Sackman, Nichols  on  Eminent  Domain 14A.04[2][a], at
  14A-103 (3d ed. 1997).  He failed to do so.

       Landowner  argues,  however,  that  it  would  have   been impossible 
  to calculate the effect of relocating the  irrigation line  on  fair market
  value, and, in any event, the effect  would have been greater than the cost
  of relocation.  The evidence must be  sufficient  to allow an estimate of
  fair market  value  "with reasonable  certainty" and to avoid speculation. 
  In  re  Bolduc, 121  Vt. 20, 24, 146 A.2d 240, 242 (1958).  We believe the
  burden was  capable  of  being met.  Neither can we  conclude  that  the
  effect  of  the taking on the fair market value of the  remaining land  and 
  business  was necessarily greater  than  the  cost  of relocating the
  irrigation line.

       Affirmed.



                              FOR THE COURT:




                              _______________________________________
                              Associate Justice

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                                  Footnotes


       FN1.   In determining property condemnation compensation, Sharp allows 
  compensation  for  business loss  if  the  value  of  the business as a
  whole exceeds the value of the land at its  highest and  best use.  See 141
  Vt. at 487, 449 A.2d  at 1077.  In  making this  determination, the jury is
  required to: (1) value the  land at  its  highest  and best use; (2) arrive
  at  a  value  for  the business  as  a  whole; and (3) then derive a net 
  value  of  the business  by subtracting the value of the land from the
  value  of the  business as a whole.  See id.  The landowner is then awarded
  the  sum  of  the  value of the land plus the net  value  of  the business, 
  if any exists.  Here, the jury apparently  valued  the land as farm land
  and never determined the property's highest and best  use.   Nevertheless,
  because the value of the business  far exceeded  the highest and best use
  of the land, any  errors  made solely  in  the value of the land are
  harmless because  they  are offset  by  equivalent errors in the net value
  of  the  business. Thus,  if  the  value of the land in this case were
  increased  to $3,000  an  acre, or $21,990, the jury award for the  land 
  taken would  be  increased  by $12,710.  The award  for  business  loss
  would,  however,  be reduced by $12,710.  The total  award  would remain at
  $150,000.