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State v. Grathol

Supreme Court of Idaho

February 11, 2015

STATE OF IDAHO, DEPARTMENT OF TRANSPORTATION, Plaintiff-Respondent-Cross Appellant,
v.
HJ GRATHOL, a California general partnership, Defendant-Appellant-Cross Respondent, and STERLING SAVINGS BANK, a Washington corporation, and DOES 1 through 5, Defendants

2015 Opinion No. 17

Page 481

[Copyrighted Material Omitted]

Page 482

Appeal from the District Court of the First Judicial District, State of Idaho, Kootenai County. Hon. Charles W. Hosack, Senior District Judge.

District court decision in eminent domain case, affirmed in part, vacated in part, and remanded.

Ramsden & Lyons, Coeur d'Alene, for appellant/cross-respondent. Douglas S. Marfice argued.

Hon. Lawrence G. Wasden, Idaho Attorney General, and Holland & Hart, Boise, for respondent-cross appellant. Mary V. York argued.

BURDICK, Chief Justice. Justices EISMANN, HORTON and WALTERS, Pro Tem, CONCUR. J. JONES, Justice, specially concurring.

OPINION

Page 483

BURDICK, Chief Justice

HJ Grathol (" Grathol" ) appeals the Kootenai County district court's judgment awarding Grathol $675,000 in just compensation from the Idaho Transportation Department (" ITD" ). This eminent domain case arose when ITD acted to condemn 16.314 acres to improve U.S. Highway 95 (" U.S. 95" ). Those 16.314 acres were part of 56.8 acres that Grathol owned in Athol, Idaho. After a bench trial, the district court held that just compensation would be based on the value of the 56.8 acre parcel. The court also held the property remaining after the condemnation suffered no severance damages. Grathol argues on appeal that the district court applied the wrong law and should have instead based just compensation on a 30 acre parcel. Grathol also argues that the district court ignored Grathol's severance damage evidence and improperly excluded testimony about damages from a proposed frontage road.

Grathol also appeals the district court's award of costs and discretionary fees to ITD, arguing that condemnors are not entitled to costs and that the court did not find ITD's discretionary costs were necessary and exceptional. ITD cross-appeals, arguing that the district court erred when it did not award ITD reasonable attorney fees under Ada County Highway District v. Acarrequi, 105 Idaho 873, 673 P.2d 1067 (1983). We affirm the district court's judgment, vacate the court's denial of attorney fees, affirm the court's award of costs, and remand.

I. FACTUAL AND PROCEDURAL BACKGROUND

Grathol purchased a 56.8 acre parcel in Kootenai County on May 28, 2008, for $1,450,000. Grathol is a California general partnership that develops commercial real estate projects for profit. Two days after Grathol purchased the property, it submitted a rezone application to change the property's zoning from rural to commercial. In November 2008, Kootenai County granted Grathol's request and rezoned the entire 56.8 acres to commercial.

ITD filed a complaint on November 19, 2010, to condemn a 16.314-acre portion (hereinafter " the 16 acres" ) of Grathol's property. Those 16 acres were in the western portion of Grathol's 56.8 acres. ITD needed to condemn those 16 acres as part of its plan to improve U.S. 95 from a two-lane to a four-lane highway between Garwood and Sagle in north Idaho.

Grathol's 56.8 acre parcel was located at the northeast corner of U.S. 95 and Highway 54, near Athol. The property was bare and

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undeveloped land, except for an old building on a .4-acre square on the southwest corner. That .4-acre square's northeastern corner touched the southwest corner of the other 56.4 acres. The property is bounded by U.S. 95 on the west, Highway 54 on the south, and Howard Road on the east. After the U.S. 95 project is done, part of Grathol's 56.8 acres will still have frontage on the former U.S. 95. The remaining property will be adjacent to a new interchange with Highway 54.

ITD moved for possession of the 16 acres on December 21, 2010. Grathol opposed, arguing that ITD's complaint did not offer a value for ITD's planned extension of a frontage road, named Sylvan Road, through Grathol's property. ITD responded that it was not constructing an extension of Sylvan Road on Grathol's property and was not planning to condemn Grathol's property for that purpose. At a January 2011 hearing, the district court held that the taking was necessary, complied with the statutory requirements, and did not include an extension of Sylvan Road across Grathol's property. Also, the court held that ITD had offered fair market value for the taking plus an additional 10%, but Grathol had refused the offer. The court later entered an order granting ITD possession of the real property in exchange for depositing $571,000 with the court towards just compensation. The court entered a Rule 54(b) certificate, and Grathol appealed that order to the Idaho Supreme Court in Department of Transportation v. HJ Grathol (Grathol I), 153 Idaho 87, 278 P.3d 957 (2012). The Court affirmed the district court's order in June 2012.

On January 6, 2012, ITD filed a motion in limine and a motion for summary judgment in the district court. In the motion in limine, ITD argued that the opinions of Grathol's valuation experts failed to meet admissibility standards. In the motion for summary judgment, ITD sought to dismiss Grathol's seven just compensation claims. One of those claims was for the taking of land for Sylvan Road. The other six claims were for items of special damages claimed as severance damages. These special damages were: (1) construction delay; (2) loss of visibility; (3) loss of access; (4) loss of profits; (5) loss of the value of an alleged gravel deposit; and (6) loss due to adverse impacts on Grathol's development plan.

The district court heard ITD's motions on February 2, 2012. During the hearing, Grathol's counsel conceded the claims for construction delay, lost profits, and loss of a gravel deposit. The court commented that Grathol's expert disclosures did not disclose any opinions (1) about the remaining property's fair market value before and after the taking or (2) the amount of damages Grathol sought as special damages claimed as severance damages.

The next day the district court entered separate orders for each motion. For the motion in limine, the court required Grathol to provide a supplemental expert witness disclosure with opinions that included the basis of a fair market value for the remainder property before and after the taking. The court ordered that these disclosures include the nature and amount of special damage items as severance damages. The court then granted ITD's motion for summary judgment in part, dismissing the three conceded special damage claims and the alleged Sylvan Road taking damage claim. The court denied ITD's summary judgment motion for Grathol's severance damage claims based upon the project's other alleged adverse impacts.

On February 10, 2012, Grathol filed its supplemental expert disclosure with opinions from two of its experts, Dewitt Sherwood and Alan Johnson. However, that disclosure did not include opinions about the specific amounts for the special damages Grathol claimed as severance damages. At a February 2012 hearing, Grathol's counsel conceded that Grathol did not seek money damages on its remaining claims for loss of visibility, loss of access, and adverse impact on the proposed development. Grathol asserted that any loss was incorporated into the fair market value difference in the property. Grathol limited its severance damage claims to the disclosed opinions that calculated the amount of damages based on the difference between the fair market value for the remainder before and after the taking.

Several days later, the court decided ITD's motion in limine. The court prohibited any

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testimony about severance damage amounts for any specific adverse impact and dismissed Grathol's damage claims for any special damage items claimed as severance damages. This left only Grathol's severance damage claims that were based on the difference in the remainder's fair market value before and after the taking. However, the court allowed Grathol's fact testimony on the loss of visibility, access, and development as evidence relevant to expert opinions on severance damages based on the difference in the remainder's fair market value.

The court held a five-day trial that began March 5, 2012. Four expert witnesses testified about the property's value. Sherwood testified as an expert appraiser for Grathol. His testimony and appraisal report were based on the value of a 30-acre parcel. He used 30 acres because he could not find any comparable commercial developments that needed more than 30 acres. His report also indicated that the remaining 26 acres might be used for self-storage, residential, or light-industrial. Grathol's other value witness was Alan Johnson, Grathol's Vice President and part owner. Johnson based his value for the property taken on a 30-acre parcel as well. He testified that he valued the western 30 acres at $3.23 per square foot and the eastern 26 acres at $1 per square foot. However, he based his value for severance damages on a 40-acre remainder parcel. He also stated that he believed the 30 acres had a value before the taking of $4 per square foot. He summarized his valuation in an exhibit presented at trial.

During Johnson's testimony, he was asked whether the proposed frontage road named Sylvan Road would impact his opinion of the remainder's value or use. ITD objected, arguing that it was impermissible testimony because ITD had not alleged it was building Sylvan Road as part of the case. ITD also argued that Johnson was not testifying to a discrete value so he was testifying to a decrease in value not reflected in his value figures. The court allowed Johnson to answer, but only with a yes or no. Johnson answered " yes."

ITD used appraiser Stan Moe as its first value witness. Moe determined the larger parcel was 56.39 acres and did not include the .4-acre parcel. Larry Pynes was ITD's second appraiser. Pynes based his analysis on the whole 56.8 acres and testified the value of the partial taking was $675,000. After trial, the parties submitted post-trial briefing on the larger parcel issue and the valuation methodology issue. Neither of ITD's experts testified that the property suffered severance damages.

The district court awarded Grathol $675,000 in just compensation based upon a larger parcel of all 56.8 acres. The court found that the preponderance of the evidence favored finding the larger parcel was 56.8 acres, not the 30-acre parcel Sherwood and Johnson testified to. The court found this based on the historical unity of title, use, and contiguity as well as the evidence of future commercial use because the property was currently all zoned as commercial. The court found no persuasive evidence that an owner would divide the 56.8 acres for anything other than commercial or retail use.

The district court then held there were zero severance damages because Grathol's evidence of a fair market value decrease after ITD's taking was unpersuasive. The court noted that Sherwood found the remainder's after value was $1,344,457, but Sherwood's testimony was unpersuasive because of his indirect and confusing testimony. The court's problems with his testimony included that he was inconsistent as to the size of the remainder, never referred to severance damages in his report, and never did the math on the severance damages in his report. The court emphasized that Sherwood did not clarify his damage amounts at trial, but instead testified that the value of the remainder parcel was $2.25 a foot both before and after the taking and expressly stated that there was " zero severance" when asked if there was severance damage.

The district court also found Johnson's severance damage conclusions unpersuasive because they were contradictory, confusing, and based on a 30-acre parcel. Johnson's valuation after the taking was contingent on Grathol's development being complete, and he never called his damages severance damages. Thus, the court found that Grathol did

Page 486

not establish a decrease in the remainder's fair market value after the taking.

ITD then requested attorney fees based upon the Acarrequi factors.[1] At an August 2012 hearing, the district court made its decision on attorney fees and costs from the bench. The court began by determining which statute provided for attorney fees. The court found Idaho Code section 12-117 applied as the exclusive source of awarding fees to a state entity. The court then found ITD could not recover fees because Grathol acted with a reasonable basis in fact or law. Next, the district court stated that costs could be awarded to condemnors outright as the prevailing party. The court found ITD was the prevailing party under the Acarrequi factors and awarded costs as a matter of right. The court also awarded ITD its discretionary costs for Pynes. Thus, the district court awarded ITD $24,298.56 in costs. Grathol timely appealed.

II. ISSUES ON APPEAL

1. Whether the district court erred in holding that Grathol's 56.8 acre parcel ...

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