State v. Bishop

Attorneys for Appellant Attorneys for Appellee
Steve Carter William O. Harrington
Attorney General Danville, Indiana

Janet Parsanko Marvin Mitchell
Deputy Attorney General Indianapolis, Indiana
Office of Attorney General
Indianapolis, Indiana
____________________________________________________________________________
_________________

In the
Indiana Supreme Court
_________________________________

No. 32S01-0302-CV-72

State of Indiana
Appellant (Plaintiff below),

v.

Stephen Bishop, Molly Bishop, Dale Gladden
and Hendricks County, Indiana
Appellees (Defendants below).
_________________________________

Appeal from the Hendricks Superior Court No. 1, No. 32D01-9612-CP-273
The Honorable Robert W. Freese, Judge
_________________________________

On Petition To Transfer from the Indiana Court of Appeals, No. 32A01-0106-
CV-238
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December 31, 2003

Shepard, Chief Justice.
This is an eminent domain proceeding in which the State condemned land
adjoining an interstate highway in order to build an interchange. We
consider two questions we have never addressed before. First, does a party
who has filed objections to the report of court-appointed appraisers have
an absolute right to withdraw the objections? Second, by what method does
one assess the fair market value of a billboard that is taken in
condemnation? We affirm in part and reverse in part.

Statement of Facts

On December 6, 1996, the State of Indiana filed an action to
appropriate a portion of Stephen and Molly Bishop’s real estate for the
purpose of constructing a cloverleaf interchange at the intersection of
Interstate 70 and State Road 267 in Hendricks County. The State had
previously offered the Bishops about $99,400 to purchase the land, which is
located along I-70 east of State Road 267 and is divided by I-70 into
northern and southern parcels. The State condemned 1.177 acres, 0.681
acres of the northern parcel and 0.496 of the southern parcel, upon which
four billboards were located. The residue of the Bishops’ land was some 73
acres.

The court-appointed appraisers filed their report on November 14,
1997, assessing the fair market value of the land as $23,565 and the fair
market value of improvements to the land as $167,945 (for a total value of
$191,510). On December 10, 1997,[1] the State filed exceptions to the
appraisers’ report as to the value of the improvements. The Bishops did
not file exceptions.

In early 1998, the State deposited $191,510 with the clerk of the
court.[2] The Bishops filed a request for payment of the appraisers’
amount. The State had no objection so the court ordered the clerk to pay
the Bishops the amount on deposit. About this time, the Bishops sold most
of the billboards to an outdoor advertising company for $2000 and gave an
easement to place them along the Interstate at a price of $598,000.

The court entered a scheduling order on June 7, 1999, setting the case
for trial on April 11, 2000. The parties filed witness and exhibit lists
and undertook discovery. An attempt at mediation failed to produce a
settlement. On March 28, 2000, the State moved to withdraw its exceptions
and asked for entry of judgment.[3] The Bishops objected to the State’s
request to withdraw its exceptions, and on May 4, 2000, the trial court
denied the motion.

On April 18, 2000, the Bishops filed a motion in limine, seeking to
prohibit testimony about compensation other than fair market value, by
which they meant the State’s desire to pay the value of the land taken, the
value of the one billboard taken, and the cost to move the remaining three
billboards onto the Bishops’ remaining property. The State filed a brief
in opposition. After a hearing, the trial court issued an order on January
31, 2001, prohibiting the State from presenting any evidence regarding the
cost of relocating the billboards or mentioning that the Bishops have
billboards on their remaining property. The State subsequently filed a
motion in limine to prohibit evidence of lost income or profits or the use
of the capitalization of income approach to determining fair market value.
The motion was denied.

The trial occurred in March 2001, and the jury returned a verdict of
$595,000. The court deducted the money the State had already paid, then
added $102,195.78 in interest and $2,500 in litigation expenses.

The State appealed, and the Court of Appeals affirmed. State v.
Bishop, 775 N.E.2d 335 (Ind. Ct. App. 2002). We granted transfer.

The State alleges three errors by the trial court: (1) the denial of
its motion to withdraw its exceptions, (2) the admission of evidence
regarding capitalization of income, and (3) the exclusion of evidence
regarding the cost to move the existing billboards. We will address the
denial of the motion to withdraw exceptions first and the two contentions
regarding the proper measure of damages second.

Can a Party Withdraw Its Exceptions?

The State argues that a party has an absolute right to withdraw its
exceptions to the appraisers’ report, and says the trial court thus erred
in disallowing the State’s motion to withdraw. The State correctly
observes that when the only party to file exceptions to the appraisers’
report later withdraws those exceptions, no issues remain for the trial
court to decide. State v. Redmon, 205 Ind. 335, 186 N.E. 328 (1933). The
State is incorrect, however, in its position that a party has an absolute
right to withdraw.

Although Denny v. State, 244 Ind. 5, 189 N.E.2d 820 (1963), appeared
to presume an absolute right to withdraw exceptions, subsequent cases have
held that a pretrial order can restrict a party’s ability to withdraw. See
State v. Blount, 154 Ind. App. 580, 290 N.E.2d 480 (1972) (party may
ordinarily withdraw exceptions if its motion is timely but when a party
agrees to a pretrial order limiting the parties’ ability to change the
trial plan, then does not seek to modify it, the party has no basis to
object when judge denies its motion); McGill v. Muddyfork of Silver Creek
Watershed Conservancy District, 175 Ind. App. 48, 370 N.E.2d 365 (1977) (in
absence of an express agreement or order, motion was timely and party could
withdraw); Public Serv. Co. of Ind. v. Rounder, 423 N.E.2d 666, 667 (Ind.
Ct. App. 1981) (“Absent an express pretrial agreement, a pretrial order or
other controlling order, a party may withdraw its exceptions to an
appraisers’ award.”).

In Daugherty v. State, 699 N.E.2d 780 (Ind. Ct. App. 1998), the Court
of Appeals recognized that the practical effect of these cases was to place
the decision whether to grant or deny the motion at the discretion of the
trial court. As Judge Kirsch wrote:
The effect of the Blount decision and the subsequent cases that
recognized this exception was to create a rule that was
regulated through the trial court's discretion. Our decision
here makes explicit what was implied in Blount: a party does
not have an absolute right to withdraw exceptions to the
appraisers' report; rather, the withdrawal of exceptions is
subject to the trial court's discretion. While the court in the
exercise of such discretion may ordinarily allow the withdrawal,
it may deny the request to withdraw or condition the withdrawal
upon such terms and conditions as the court deems necessary to
avoid injustice.

Id. at 782.

We conclude that the exercise of discretion concerning withdrawal,
based on factors such as timeliness and inconvenience to opposing parties
is more likely to produce just outcomes than a rule conferring an absolute
right of withdrawal. The Daugherty court held that “[t]he trial court in
exercising its discretion should allow the withdrawal of exceptions except
in instances where injustice would result.” 699 N.E.2d at 782-83. We
emphasize what the Daugherty court said—reiterated by the Court of Appeals
in this case: parties who wish to insure a trial on the merits should file
their own timely exceptions, and those who file should recognize that they
may not be permitted to withdraw those exceptions and terminate litigation
which they have begun.

The State argues alternatively that the trial court abused its
discretion in denying the motion. The Daugherty court proposed the
following non-exclusive factors for the trial court to consider in making
its determination:
[1] the length of time between the filing of the appraisers'
report and the motion to withdraw, [2] whether the withdrawing
party is attempting to do so on the eve of the trial, [3]
whether the withdrawing party and trial court have been put on
notice of the other party's dissatisfaction with the report,
either that be through the filing of belated exceptions or
otherwise, and [4] the extent of trial preparation which has
already occurred, including the securing of expert witnesses and
the extent of discovery.

Id. at 783. We adopt this approach, emphasizing that the factors are not a
four-part test but are merely a non-exclusive list of circumstances for the
trial judge to consider when exercising discretion. Appellate courts will
reverse only where the court’s decision “is clearly against the logic and
effect of the facts and circumstances before the court or the reasonable,
probable, and actual deductions to be drawn from those facts and
circumstances.” Lucre Corp. v. County of Gibson, 657 N.E.2d 150, 152 (Ind.
Ct. App. 1995).

Following this approach, we cannot say it was an abuse of discretion
for the trial court to deny the State’s motion. The State filed its
exceptions to the appraisers’ report on December 9, 1997, and did not seek
to withdraw its exceptions until two years and four months later—fifteen
days before the scheduled trial. In addition, the State was arguably put
on notice of the Bishops' dissatisfaction with the report through
information exchanged during discovery or during mediation. Finally, the
Bishops claim that they had exchanged interrogatories, retained two expert
witnesses and “spent several tens of thousands of dollars on attorneys’
fees, appraisers and other expenditures.” (App. at 189.)

The trial court might well have allowed the withdrawal, or conditioned
it upon the payment of the Bishop’s litigation expenses. Filing a request
to withdraw after two years and four months may be understandable in cases
where a party conducted discovery and attempted mediation then realized
that the appraisers’ amount was reasonable. Similarly, whether the
withdrawing party is attempting to withdraw on the “eve” of trial is also
relevant. See McGill, 175 Ind. App. 48, 370 N.E.2d 365 (motion to withdraw
made six days before trial held timely). The State also argues that the
Bishops would have incurred many of the same expenses even if the State had
withdrawn its exceptions much earlier. Finally, the State argues that the
Bishops did not demonstrate that the withdrawal would result in injustice.

Despite these arguments, we cannot say that the trial court abused its
discretion.

II. Fair Market Value of Billboards

The State argues that the trial court erred both in admitting evidence
relating to the capitalization of income approach for determining fair
market value and in excluding evidence of the cost to move the billboards.
Because both alleged errors relate to the proper way to determine damages,
we address them together.

“It is well established in Indiana that the basic measure of damages
in eminent domain cases is the fair market value of the property at the
time of the take.” State v. Church of the Nazarene of Logansport, 268 Ind.
523, 526, 377 N.E.2d 607, 608 (1978).[4] “Fair market value is the price
at which property would change hands between a willing buyer and seller,
neither being under any compulsion to consummate the sale.” Ohio Cas. Ins.
Co. v. Ramsey, 439 N.E.2d 1162, 1167 (Ind. Ct. App. 1982). “Anything
affecting the sale value [on the date of the taking] . . . is a proper
matter for the jury's consideration in attempting to arrive at a ‘fair
market value.’” Southern Ind. Gas & Elec. Co. v. Gerhardt, 241 Ind. 389,
393, 172 N.E.2d 204, 205-6 (1961).

Three widely accepted approaches to estimating the fair market value
of property taken by eminent domain are:
(1) the current cost of reproducing the property less
depreciation from all sources; (2) the 'market data' approach
or value indicated by recent sales of comparable properties in
the market, and (3) the 'income-approach,' or the value which
the property's net earning power will support based upon the
capitalization of net income.

State v. Jones, 173 Ind. App. 243, 251, 363 N.E.2d 1018, 1024 (1977)
(emphasis in original) (quoting State v. Covich, 260 Cal. App. 2d 663, 667
Cal. Rptr. 280, 282 (1968)); Ramsey, 439 N.E.2d at 1167. “In the appraisal
of real estate, any one or all three of these approaches to estimate the
fair market value may be applied.” Annon II, Inc. v. Rill, 597 N.E.2d 320,
327 (Ind. Ct. App. 1992).

The State argues that it was error for the trial court to exclude
evidence regarding the cost to move the billboards from the condemned
property to an appropriate location on the residue. We agree. The cost to
move the billboards was evidence of the cost to reproduce the improvements
situated on the condemned property and therefore should have been presented
to the jury.[5] Likewise, while capitalization of income is sometimes
admissible to establish the fair market value of condemned billboards, for
reasons which will be apparent from the discussion below, income
capitalization was not relevant to market value given the facts of this
case.[6]

Prevailing Rules on Valuation. Because this Court has not previously
addressed the question of the appropriate way to value billboards in an
eminent domain case and because we are remanding this case for a new trial
on values, we address the question now.

Other jurisdictions have treated billboards the same as other
improvements to realty, adhering to the guiding principle that
“improvements are compensable to the extent that they enhance the value of
the land as a whole.” Eminent Domain: Determination of Just Compensation
for Condemnation of Billboards or Other Advertising Signs, 73 A.L.R.3d
1122, 1125. In surveying the way various jurisdictions value billboards,
the A.L.R.’s editors concluded that “in arriving at this ‘enhancement’
value, virtually every court has appeared to limit its consideration to the
evidence of the replacement or reproduction cost of the appropriated sign,
less depreciation.” Id.[7] Evidence of the rental income that the
appropriated sign could be expected to produce “has been deemed admissible
only where it was shown that the condemnee was unable to relocate a sign
within the same market area.” Id.[8]

When the rental income approach is allowed, it is often subject to
limitations. For example, the Arizona Court of Appeals has held that the
income approach was permissible subject to two important limitations: (1)
the property itself must be income-producing rather than simply producing
income from business being conducted thereon, and (2) if the billboards can
be relocated in the same market area, the income approach is inappropriate.
Scottsdale v. Eller Outdoor Advertising Co., 579 P.2d 590, 597-98 (Ariz.
App. 1978). The New Hampshire Supreme Court has held that the “cost
valuation of the signs coupled with the income value of the ground leases
awarded all the value that could reasonably be expected to accrue to the
[owner]” and “that value is limited here by the brevity of the leaseholds
and their uncertain renewal prospects.” State v. 3M Nat’l Advertising Co.,
653 A.2d 1092, 1094 (N.H. 1995).

This approach is consistent with current Indiana eminent domain law.

It has long been the established rule that in determining the
value of property taken by condemnation or appropriation the
availability and adaptability of property for uses other than
that to which it is applied at the time of taking, so far as it
may appear from the evidence, may be taken into consideration,
but inquiry as to damages cannot go into an intended specific
use.

State v. Tibbles, 234 Ind. 47, 49, 123 N.E.2d 170, 170 (Ind. 1954)
(citations omitted). It follows that billboards on condemned property are
compensable to the extent that they enhanced the value of the property on
the day of the take but not for any “lost income” based on potential future
leases.

Capitalization of income evidence is allowed only in limited
circumstances. “Income from property is an element to be considered in
determining the market value of condemned property when the income is
derived from the intrinsic nature of the property itself and not from the
business conducted on the property.” Jones, 173 Ind. App. at 252-53, 363
N.E.2d at 1024 (quoting State v. Williams, 156 Ind. App. 625, 635, 297
N.E.2d 880, 886 (Ind. 1973)). Jones involved the appropriation of land
suitable for quarrying which was part of an ongoing quarrying operation.
The court distinguished the facts of that case from those in Williams,
which involved a restaurant business being conducted on the land, because
the quarrying business “derive[d] its income by processing material which
is an intrinsic part of the land.” Id. at 253, 1024. Billboards are more
akin to a restaurant than a quarrying operation because, like a restaurant,
a billboard can be relocated to another appropriate location and continue
to produce the same or similar income. Unlike a quarrying operation, its
value is not tied to the land itself.

The income approach is also limited to situations where the property
is being operated as a going concern, is in good condition, and is capable
of producing the income to be capitalized. J.J. Newberry Co. v. City of
East Chicago, 441 N.E.2d 39, 42-43 (Ind. Ct. App. 1982). We do not mean to
say that capitalization of income is never appropriate for determining the
fair market value of billboards, but the circumstances will be rare. While
it might be appropriate to consider the anticipated income from an existing
lease when calculating fair market value, attempting to determine the
potential future profits of an unleased billboard is inherently
speculative.

Finally, we note that the purpose of these proceedings is to
compensate the landowner for the value of what was taken, no less and no
more:
Irrespective of the method adopted for the ascertainment of such
value, it is incumbent upon the condemnor to endeavor to reach a
result that is truly ‘just compensation,’ that is, fair to the
public as well as to the owner of the property taken. The
criteria for determination of compensation and the elements
which command consideration have not become unalterably fixed,
and consideration must be given to the nature of the property
affected and the extent of the interest acquired. ‘Value’ is a
term which is relative in character.

Jones, 173 Ind. App at 220-51, 363 N.E.2d at 1023 (quoting 4 Nichols on
Eminent Domain, Third Edition, § 12.1 (citations omitted)). In this case,
the Bishops retained the ability to lease billboards on land adjacent to
the highway. They are not entitled to “compensation” for something that
was not taken.

Conclusion

We affirm the trial court’s refusal to permit the State to withdraw
its exceptions. We otherwise reverse the judgment and remand for a new
trial.

Dickson, Sullivan, Boehm, and Rucker, JJ., concur.
-----------------------
[1] Some of the entries in the Chronological Case Summary appear to
reflect the date that the filing was received instead of the mailing date,
which is when filing is complete under Indiana Trial Rule 5(E). Because
these dates do not affect the parties’ legal contentions, we use the dates
as entered.

[2] Indiana Code § 32-24-1-10 allows a condemning party to take possession
of the appropriated property and use it for the purposes stated in the
complaint if the party pays the amount assessed by the court-appointed
appraisers to the circuit court clerk. This possession is subject to an
appeal regarding the appropriation itself (as provided for in § 32-24-1-8)
and does not interfere with a trial on damages pursuant to a party’s filing
of exceptions to the appraisers’ report (under § 32-24-1-11). Ind. Code
Ann. §§ 32-24-1-8-11 (West 2002).

[3] On April 3, 2000, the State filed its statutorily-required pre-trial
offer to settle. Ind. Code Ann. § 32-24-1-12 (West 2002). The State
offered the Bishops $267,300 to settle all of the claims.
[4] Indiana Code § 32-24-1-9(g), which governs the amount of compensation
to be awarded in eminent domain cases, states:

For the purpose of assessing compensation and damages, the right
to compensation and damages is considered to have accrued as of
the date of the service of the notice provided in section 6 of
this chapter, and actual value of compensation and damages at
that date shall be:
(1) the measure of compensation for all property to be
actually acquired; and
(2) the basis of damages to property not actually acquired
but injuriously affected;
except as to the damages stated in subsection (c)(4).

(West 2002). The parties assume that the “measure of compensation”
contemplated by the statute is the fair market value of the property
acquired including the fair market value of improvements to the property,
which the appraisers are instructed to report under (c)(1) and (2). We
assume without deciding that this is correct.

[5] State v. Lincoln Memory Gardens, Inc., 242 Ind. 206, 177 N.E.2d 655
(1961), which declined to adopt the principle of substitution, does not bar
the use of the cost-of-reproduction approach when it is appropriate. That
case merely recognizes that where a taking splits a parcel of land that is
used for a single purpose by building a highway through it, “restoration of
the use of the property as a unified and combined whole is manifestly
impossible . . . [and the] land taken is irreplaceable by the substitution
of other land in a different location.” Id. at 213, 658.

[6] The State correctly argues that because the defendant in an eminent
domain proceeding bears the burden of proof and the condemning party’s case
is in rebuttal to the defendant’s case-in-chief, it did not waive this
issue when its own expert witness testified regarding the capitalization of
income approach at trial. See VanSickle v. Kokomo Water Works Co., 239
Ind. 612, 616, 158 N.E.2d 460 (1959).

[7] See, e.g., Rochester Poster Adv. Co. v. State, 213 N.Y.S.2d 812 (N.Y.
Ct. Cl. 1961), aff’d, 222 N.Y.S.2d 688 (N.Y. App. Div. 1961), aff’d 11
N.Y.2d 1036 (N.Y 1962) (holding that company was entitled to be compensated
for the signs to the extent that they enhanced the value of the property
and that the enhancement value was the fair market value of the signs as
determined by their replacement cost); Division of Admin. v. Allen, 447 So.
2d 1383 (Fla. Dist. Ct. App. 1984) (holding that the proper method of
valuing signs located on property condemned by the state was the cost of
removing the signs or, if not removable, the replacement value less
depreciation); State v. Chachere, 574 So. 2d 1306 (La. Ct. App. 1991)
(holding that trial court properly entered judgment on jury award based on
the replacement cost of two signs); Dept. of Transp. v. El Carlo Motel,
Inc., 232 S.E.2d 126 (Ga. Ct. App. 1976) (holding trial court did not err
in allowing evidence of the replacement cost of a sign twice as large as
the original when the increase in size was necessary for the sign to be
legible in its new location).

[8] See, e.g., State v. Obie Outdoor Advertising, Inc., 516 P.2d 233
(Wash. Ct. App. 1973) (holding that, given the evidence that the company
was unable to relocate the signs, the testimony based on the income method
was competent and jury should have been allowed to determine whether the
income approach testimony or the reproduction-cost-less-depreciation
approach testimony more nearly reflected the fair market value); Nat’l Adv.
Co. v. State, 993 P.2d 62 (Nev. 2000) (failing to consider the income
generated by the billboards was error where a county ordinance restricting
the replacement of existing billboards made it impossible for the company
to erect new billboards in a comparable location).