State Route 00700, Section 21H v. Bentleyville Garden Inn, Inc.

The jury’s verdict in the eminent domain trial could not stand because the jury relied solely on the valuation of the PennDOT’s expert, “which was incompetent.”

He limited the damages to the partial taking property and did not consider the after-taking damages to the remaining property, a hotel. Further, the trial court erred in denying the condemnee’s motion for a new trial “because the after-taking valuation of the property offered by PennDOT’s expert was not competent or based on evidence in the record.” As a result, judgment was reversed and remanded for a new trial.

Background.

In 2015, the Pennsylvania Department of Transportation (PennDOT) filed for a partial taking of the condemnee’s 5.902-acre property for a new exit ramp for I-70. The taking was 10,140 acres for the ramp and 0.856 acres for construction. The project was completed in November 2018.

In 2017, the condemnee filed for a board of viewers, which the trial court approved. The parties provided expert testimony on the amount of just compensation owed to the condemnee. The board of viewers awarded condemnee $2,908,000. PennDOT appealed the award as excessive. On Oct.21, 2019, a trial was held for three days to determine the merits of PennDOT’s appeal. The condemnee provided testimony from Michael Towers, an expert in the valuation of hotel properties, and Merico Lignelli, a certified real estate appraiser. PennDOT testified to four witnesses. Dr. Gosai, president and owner of the condemnee, testified that, due to the two-year construction and new closeness (by 150 feet) of the ramp to the hotel, the post-construction occupancy rate had dropped to half of what it was preconstruction. After construction began, the hotel’s average daily rate (ADR) dropped from $100 per night to $80. Revenues for the condemnee’s hotel were depressed, and competitors’ revenues had increased. “[The General Manager for the hotel] testified that in 2013 and 2014, the hotel was running at approximately 90% occupancy. After PennDOT’s taking, occupancy declined to approximately 30% to 40%.” Towers testified that the property was ideal for a hotel. Towers also did a study in 2014 that predicted a significant decline in the hotel’s ADR, which experience has largely confirmed. Lignelli, an expert real estate appraiser, testified that the reconfiguration of the interchange impacted the property’s value in several ways. He considered these factors in his post-taking valuation of real estate. He valued the land PennDOT took at $359,600. He valued the entire property using the income approach at $5,614,000 before taking and $3,065,000 post-taking for indirect damages of $2,549,000 plus the $359,600 for total damages of $2,908,000.

Karel Cubic, an environmental planner, did a noise study for PennDOT and determined that the property would not require proper remediation due to construction and post-construction. John Dudash, its expert real estate appraiser, determined the value of the taken property at $355,000. Dudash used the hotel’s pre taking revenues to value the hotel. He decided that there was no loss in value of the hotel property before and after the project construction.

Jury verdict.

The jury awarded $355,000, Dudash’s amount, which the condemnee argued was grossly inadequate in a post-trial motion and did not include any post-damages to the property’s fair market value caused by the proximity of PennDOT’s project. The motion was denied.

The trial court recognized a decline in occupancy had occurred but reasoned it was due to a reduction in the oil and gas industry. The trial court also noted that the noise expert for PennDOT opined that the ramp reconfiguration did not impact the noise level at the hotel. The trial court also reasoned that the jury chose to credit the just compensationPennDOT’s expert proposed.

Appeal.

“On appeal, Condemnee raises one issue for our consideration, i.e., that the trial court erred and abused its discretion in denying its post-trial motion for judgment N.O.V. or for a new trial.” Condemnee argued the jury verdict was unlawful for two reasons: (1) PennDOT’s expert’s opinion was incompetent because “it was based upon the erroneous assumption that the Eminent Domain Code did not permit an accounting of the hotel’s depressed revenue to inform the calculation of the after taking the value of Condemnee’s real property”; and (2) the verdict cannot be sustained solely on the theory that a decline in the oil and gas industry was responsible for the hotel’s loss of income. The condemnee’s testimony disputed that.

The condemnee counters that Dudash’s testimony was incompetent because the loss of business is not compensable under eminent domain. Lignelli’s opinion was not competent, per PennDOT, because it used depressed revenue to determine the after-taking FMV, which the eminent domain code prohibited.

The court concluded that the testimony of PennDOT’s expert was not competent for reasons explained herein, and, therefore, there was no support for the trial court’s reason in affirming the jury verdict, and a new trial must be held.

Analysis:

Eminent domain code.

“Just compensation consists of the difference between the fair market value of the condemnee’s entire property interest immediately before the condemnation and as unaffected by the condemnation and the fair market value of the property interest remaining immediately after the condemnation and as affected by the condemnation.” FMV is determined by the typical willing buyer and seller but is conditioned by the present use of the property, the highest and best use for the property; the machinery equipment and fixtures part of the real estate taken; and other factors offered into consideration evidence. In a partial taking, FMV shall consider “the damages or benefits specially affecting the remaining property due to its proximity to the improvement for which the property was taken.”

Thecourtwenton to demonstrate with caselaw how the principles were applied. The court noted that, generally, the courts in Pennsylvania had not accepted the capitalization of income method to determine the real estate value. However, a Joint State Government Commission in 1964 stated an expert should be allowed to use this method and explained why the courts had accepted the method to set the FMV of commercial real property in many contexts. The discussion included the damages related to leasing holds where the damages would only result in the valuation of the real estate associated with the leasehold.

The court also discussed the Deer Creek Basin Authority (Deer Creek Drainage Basin Authority v. Pacoma, Inc.,87 Pa. Commw. 492, 487 A.2d 1033 (Pa. Cmwlth. 1985)), where the trial court allowed evidence showing the impact of receipts before and after condemnation and the appellate court affirmed. “This Court explained that loss of business is a factor to be considered in determining the depreciation of the market value of a property. Section 602 of the Eminent Domain provides that just compensation shall consist of the difference between the fair market value of the condemnee’s property interest before the condemnation and as unaffected thereby and the fair market value of his property remaining immediately. After such condemnation and as affected thereby.” In sum, the eminent domain code expressly allows the use of the income approach to determine the FMV of income-producing real property.

Expert valuation of Bentleyville Garden Inn Inc.

The condemnee argued that the testimony of PennDOT’s expert, Dudash, was incompetent because he based his opinion on an erroneous interpretation of the eminent domain code; Dudash erred in not considering the project’s effect on the remaining property, and he assumed facts, not in evidence.

Dudash was wrong in assuming that he could not use the depressed revenue in determining the value of the after-taking valuation of the condemnee’s property. Neither Dudash nor PennDOT understood the difference between valuing a leasehold interest and the operation of a business a tenant conducted. As long as income was capitalized for real property valuation, this method was specifically authorized. Also, “Dudash did not consider the ‘damages or benefits specially affecting the remaining property due to its proximity to the improvement for which the property was taken.” He was mistaken here also. Even after the construction ended, the property’s revenue did not improve. Lignelli’s valuation did consider the property was taken and the project’s impact on the remaining property and the proximity to the I-70 improvement project caused. PennDOT’staking had an immediate effect on the condemnee’s remaining property, so there was no violation of them immediately before and immediately after the rule. Towers performed his study on the impact on ADR of the taking in 2014, and construction started a year later in

Dudash did not testify how PennDOT’s actions impacted the property during construction. The court concluded that Dudash’s report was incompetent. In not awarding any compensation for injury to the remaining property, the jury’s reliance on Dudash’s report, which was incompetent, did not allow the jury’s verdict to stand.

Causation for the condemnee’s loss of revenue.

PennDOT did not rebut the condemnee’s evidence that the reduction in the rental value of the property-related solely to the construction and changes related to the PennDOT project and did not present evidence that the decline in revenue was related strictly to the decline in the oil and gas industry. Accordingly, the jury’s verdict cannot stand.

Conclusion.

The trial court abused its discretion by denying the condemnee’s motion for a new trial. The matter was remanded to the trial court for a new trial.