SUPREME COURT OF ARIZONA
En Banc
SALT RIVER PROJECT AGRICULTURAL ) Arizona Supreme Court
IMPROVEMENT AND POWER DISTRICT, ) No. CV-07-0207-PR
an agricultural improvement )
district organized and existing ) Court of Appeals
under the laws of the State of ) Division One
Arizona, ) No. 1 CA-CV 05-0730
)
Plaintiff/Appellant/ ) Maricopa County
Cross Appellee, ) Superior Court
) No. CV2002-017637
v. )
)
MILLER PARK, L.L.C., an Arizona )
limited liability company; ) O P I N I O N
MILLER PARK II, L.L.C., an )
Arizona limited liability )
company, )
)
Defendants/Appellees/ )
Cross Appellants. )
)
__________________________________)
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. Phoenix
By Douglas Zimmerman
Michael J. O'Connor
John J. Egbert
Attorneys for Salt River Project Agricultural
Improvement and Power District
BRYAN CAVE LLP Phoenix
By Steven A. Hirsch
Rodney W. Ott
Attorneys for Miller Park, L.L.C. and
Miller Park II, L.L.C.
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 the property, and nearby
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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. One month later, the Salt River
Project Agricultural 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. When notified of SRP’s
plans, the developer canceled its purchase. SRP eventually
condemned an easement extending over sixteen acres and installed
thirteen utility towers on Miller Park’s property.
¶ 4 In September 2002, SRP filed this condemnation action
to 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
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and excluded evidence regarding the protest of the property tax
valuation. At trial, Miller Park’s managing member, Michael
Pierce, testified that the property’s fair market value was
$174,240 per acre ($4.00 per square foot). 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.
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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 case presents two
recurring issues in condemnation cases. 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 value” of the
property for purposes of the tax protest. See State v. Spreitz,
190 Ariz. 129, 146, 945 P.2d 1260, 1277 (1997) (noting that
trial court’s decisions to admit or exclude evidence are
reviewed for abuse of discretion).
¶ 11 An owner of condemned property is 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
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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,” which we have
interpreted as “limited to present usage.” A.R.S. § 42-13301(B)
(2006); A.R.S. § 42-11001(6) (Supp. 2007); Golder v. Dep’t of
Revenue, 123 Ariz. 260, 265, 599 P.2d 216, 221 (1979)
(discussing limitation on full cash value in A.R.S. § 42-
11054(C)-(D) (Supp. 2007)).
¶ 12 Because of the difference in valuation standards, tax
assessments are generally inadmissible to show the value of
property for purposes of just compensation. 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 . . . on the issue of fair market value in a
condemnation hearing”). An owner’s own valuation for 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 SRP argues that statements Miller Park made in its tax
protest 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, see State ex rel. Mendez v. Am. Support
Found., Inc., 209 Ariz. 321, 100 P.3d 932 (App. 2004),
depublished by 210 Ariz. 232, 109 P.3d 571 (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. Under Rule 403, relevant evidence
may be excluded if its 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.” Ariz. R. Evid. 403.
¶ 15 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 had
“considered all legal memoranda, the court’s file and the
relevant law.”
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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 court had exercised Rule 403 discretion in
excluding evidence challenged as prejudicial, although the
“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: Shotwell v. Donahoe, 207
Ariz. 287, 295-96 ¶¶ 31-36, 85 P.3d 1045, 1053-54 (2004)
(remanding for new Rule 403 determination because 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”).
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¶ 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. 198 Ariz. at 403-04 ¶¶ 26-
28, 10 P.3d at 1190-91. 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 make a 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
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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 Court called the error “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 of the witness . . . was otherwise very
extensive.” Id. at 106, 353 P.2d at 191.
¶ 20 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. During that
time, Buckeye had approved Miller Park’s “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. But even assuming that the
statements of Miller Park’s 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 testify, had not participated in
preparing the tax protest. These circumstances further
distinguish this case from Jay Six, in which the condemnor
sought to examine a witness about his own prior appraisal. Even
under those circumstances, Jay Six concluded that the prior
12
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 In short, we hold that a land owner’s prior statements
of valuation for tax purposes may be, but are not always,
admissible in a condemnation action. 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. The court of appeals
held that sanctions could not be 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. Id. at
140 ¶¶ 7, 9, 3 P.3d at 1060. 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
Rule
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).
14
¶ 30 We agree with the dissent in Hogan that the rule and
statute can be harmonized. See Hogan, 197 Ariz. at 141 ¶ 13, 3
P.3d at 1061 (Howard, J., dissenting). Because only the
condemnor faces sanctions in this case, we need not 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
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