DelDOT v. PITB, LLC

SUPERIOR COURT
OF THE
STATE OF DELAWARE
Sussex County Courthouse
MARK H. CONNER 1 The Circle, Suite 2
JUDGE Georgetown, DE 19947
February 6, 2024
Richard A. Forsten, Esq. Bradley S. Eaby, Esq.
Pamela J. Scott, Esq. Deputy Attorney General
Saul Ewing LLP Department of Justice
1201 Market Street Suite 2300 800 South Bay Road
Wilmington, DE 19801 Dover, Delaware 19901
Attorney for Defendant Stafford Street Attorney for Plaintiff
Capital, LLC. DelDOT.
John W. Paradee, Esq.
Baird Mandalas Brockstedt & Federico
LLC
6 South State Street
Dover, DE 19901
Attorney for Defendant PITB, LLC
RE: DelDOT v. PITB, LLC et. al.
C.A. No. S21C-07-016 MHC
Submitted: December 29, 2023
Decided: February 06, 2024
Dear Counsel,
Before the Court is PITB, LLC’s (“PITB”) and Stafford Street Capital, LLC’s
(“Stafford Street”) motion for instructions. After reviewing the party’s briefings on
the issues and conducting substantial research on both mandatory and persuasive
authority, I have reached the following conclusions. First, Delaware Court’s must
follow the Unit Rule (also referred to as the Undivided Fee Rule) when determining
the fair market value of a property comprised of multiple interests or estates in a
condemnation action. Second, income generated from billboards is business
income, not rental income, and therefore not compensable in a condemnation action.
To keep Delaware highway projects eligible for federal funding our General
Assembly bound itself in 1971 to the Federal Uniform Relocation Assistance and
Real Property Acquisition Policies Act of 1970 (“Uniform Act”).1 The Uniform
Act’s regulations “set[] forth the requirements for real property acquisition
appraisals for Federal and federally-assisted programs.”2 The regulation specifies
that “[a]ppraisals are to be prepared according to these requirements, which are
1
126th General Assembly, 58 Del. Laws, c. 413, SB 626. “WHEREAS, the Federal Uniform
Relocation Assistance and Real Property Acquisition Act of 1970 establishes a new and different
program of relocation assistance and uniform real property acquisition policy; and …
WHEREAS, continued eligibility of the State of Delaware for various types of Federal Aid is
made contingent open compliance with the terms and provisions of the Uniform Relocation
Assistance and Real Property Acquisition Act of 1970.”
2
49 C.F.R. § 24.103(a).
2
intended to be consistent with the Uniform Standards of Professional Appraisal
Practice (USPAP).”3
The USPAP dictates:
When analyzing the assemblage of the various estates or
component parts of a property, an appraiser must analyze the effect on
the value, if any, of the assemblage. An appraiser must refrain from
valuing the whole solely by adding together the undivided values of the
various estates or components.4
DelDOT “may have appraisal requirements that supplement USPAP
requirements, including, to the extent appropriate, the Uniform Appraisal Standards
for Federal Land Acquisitions (UASFLA).”5 The UASFLA states:
There are several aspects of the unit rule that are important for
appraisers to understand in developing appraisals under these
Standards. The unit rule requires valuing property rather than by the
sum of the values of the various interests into which it has been carved-
such as lessor and lessees, or life tenant, and the holder of the
remainder. This requirement holds true in circumstances where the
physical components of the property are held under different ownership
such as the surface estate, mineral rights, water rights or timber. Even
when the physical components of the property are under the same
ownership, it is improper to separately value the various components
improvements, minerals, standing timber, crops and land and add them
up. The procedure results in an improper summation or cumulative
appraisal, which is inconsistent with both federal appraisal standards
and USPAP.6
3
Id.4
Uniform Standards of Professional Appraisal Practice, 2020-2021 Edition, Standards Rule 1-
4(e).
5
49 C.F.R. § 24.103(a).
6
Uniform Appraisal Standards for Federal Land Acquisitions, 6th Ed., §1.2.7.3.2,
p. 16.
3
Under Delaware Law, “…the intention of the legislature should be
controlling… it is the duty of the Court to consider the particular language of the
statute, the subject matter, the purpose for which the statute was enacted and its
importance, the relation of that provision to the general object intended to be secured
by the act and the consequences of contrary construction.”7 Our General Assembly
decided via legislative action that eligibility for federal highway project funding was
worth being bound to the aforementioned federal regulations. As such it was the
General Assembly’s intent that condemnation actions in Delaware must comply with
the Uniform Act and consequently the Unit Rule when determining the fair market
value of properties in such actions.
As for the issue of billboard income, the Court acknowledges that jurisdictions
such as Arkansas, Virginia, North Carolina, and others have found that billboard
income is compensable rental income in condemnation actions. However, other
jurisdictions (disregarded by counsel for Stafford Street in their initial briefings)
have found billboard revenue to be non-compensable business income in
condemnation actions.
The jurisdictions, discovered by Plaintiff’s counsel and the Court include, but
are not limited to, Indiana (“…a billboard can be relocated to another appropriate
7
City of Dover v. Cartanza, 541 A.2d 580, 583 (Del. Super. Ct. 1988). (citing State ex rel Stabler
v. Whittington, 290 A.2d 659, 661 (Del. Super. Ct. 1972)).
4
location and continue to produce the same or similar income.”),8 Connecticut
(“[b]illboards can be removed from the condemned property and placed on another
site, and the income they generate from the advertising placed on them can also be
replicated on another site.”),9 Kansas (“[b]ut location alone, no matter how unique,
does not create revenue.”),10 Pennsylvania (“…Outdoor could obtain a lease of
comparable location for the same amount of rent, construct its billboards at that
location, with the award for the replacement value of the billboards and realize an
identical income flow.”),11 Texas (“…appraisal based on billboard advertising
income impermissibly compensates for business profits.”),12 and several others.13
For the reasons set forth below Delaware joins these jurisdictions.
When assessing the fair market value of a property in condemnation actions
Delaware Courts have adopted a modern liberal approach allowing “proof of value
by any techniques or methods which are generally considered acceptable in the
financial community….”14 These techniques and methods “cannot be employed in
8
State v. Bishop, 800 N.E.2d 918, 926 (Ind. 2003).
9
Comm'r of Transp. v. Rocky Mountain, LLC, 894 A.2d 259, 284 (Conn. 2006).
10
City of Wichita v. Denton, 294 P.3d 207, 221 (Kan. 2013).
11
In re Urban Redevelopment Auth. of Pittsburgh, Allegheny Cnty., 272 A.2d 163, 165 (Pa.
1970).
12
State v. Cent. Expressway Sign Associates, 302 S.W.3d 866, 872 (Tex. 2009).
13
Although not an exhaustive list other jurisdictions include Kentucky (City of Newport Mun.
Hous. Comm'n v. Turner Advert., Inc., 334 S.W.2d 767 (Ky. 1960)), Ohio (Wray v. Stvartak, 700
N.E.2d 347 (Ohio Ct. App. 1997)), Louisiana (State Dep't of Transp. & Dev. v. Chachere, 574
So. 2d 1306 (La. Ct. App.), writ denied, 580 So. 2d 667 (La. 1991)), and Missouri (State ex rel.
Missouri Highway & Transp. Comm'n v. Quiko, 923 S.W.2d 489 (Mo. Ct. App. 1996)).
14
State v. Roseann H. Harkins Revocable Tr. Dated October 26, 1994, 732 A.2d 246, 250-251
(Del. Super. Ct. 1997) (citing Weinberger v. UOP, Inc., 457 A2d 701, 713 (Del. 1983)).
5
a speculative manner.”15 It is well settled Delaware law that “in determining
constitutional ‘just compensation’, the owner is not entitled to recover compensation
for a destruction of a business being conducted on the land taken.”16 This Court has
clarified that even under our modern liberal approach Delaware law precludes
recovery for business lost income.17
Well aware that lost business income is not compensable, learned counsel for
Stafford Street argues that they rent billboard space and therefore the income
generated from their billboard is compensable rental income as opposed to non-
compensable business income. To support this, they contend that a billboard is akin
to that of an apartment, office building, or shopping center in that it generates
revenue by collecting rent. However, unlike occupiable fixtures to real property
such as apartments, office buildings, and shopping centers, “a billboard is not
permanent improvement to the property in that it can be easily removed at minimal
cost.”18 This principal of Delaware law is demonstrated in the case at hand by
Stafford’s removal of the billboard from their interest on the condemned property.
In Delaware condemnation actions, “the owner is not entitled to the
compensation for the taking or even destruction of the business, because the business
15
Roseann H. Harkins Revocable Tr. Dated October 26, 1994, 732 A.2d. 246, 251 (Del. Super.
Ct. 1997).
16
State ex rel. Sec'y of Dep't of Highways & Transp. v. Davis Concrete of Delaware, Inc., 355
A.2d 883, 886 (Del. 1976).
17
State v. Catawba Associates, 2005 WL 481390, at *3 (Del. Super. Ct.).
18
Voshell v. Bd. of Adjustment of Kent Cnty., 1995 WL 656802, at *3 (Del. Super. Ct.).
6
is entirely distinct from the market value of the land upon which it is conducted….”19
Accordingly, the income generated from moveable personal property, such as
billboards, is distinct from the land upon which they sit and therefore not
compensable under our system of condemnation. This is distinguishable from
occupiable fixtures to real property such as office buildings, shopping centers, and
apartments who’s fixture to the realty is such that its rental income is not distinct
from the value of the land itself. In other words, business income is not compensable
in condemnation actions because of the moveable nature of a business and
billboards, like businesses, are moveable.
It may seem obvious that the location of a billboard is pivotal to its income
generating potential, however, the location of any business is pivotal to its potential
to generate income. In Davis Concrete the Delaware Supreme Court did not permit
recovery based on loss of business despite defendant’s business being operated at an
“ideal location.”20 These results may seem harsh, but our Supreme Court has
acknowledged “the rule excluding loss of a business as an element of constitutional
‘just compensation’ often works great hardship.”21 Taking into account such
hardships, to ensure constitutional just compensation the Court entitles the
presentation of evidence of:
19
Catawba Associates, 2005 WL 481390, at *2.
20
Davis Concrete of Delaware, Inc., 355 A.2d 883, n.3.
21
Id. at 886.
7
…not only the general and naturally adapted uses of the property, but
also any special value due to its adaptability for a particular special use,
and proof of fair market value permits proof of all valid elements of
value, including such facts as the owner would properly and naturally
use to influence a prospective purchaser.
Accordingly, although the value of a business conducted upon
the real property condemned may not be considered a separate and
independent element of damage to be added to the value of the real
property taken, it may be considered as a factor bearing upon the fair
market value of the realty. Thus, the special value of land, owing to its
adaptability for use in a particular business, is an element which the
owner of the land is entitled to have considered in the determination of
the amount to be paid as just compensation for the taking of the land.
In particular, the existence of a going business on the land may be
considered as indicative of the highest economic use to which the land
may be put. But the emphasis must not be on the loss of the business
Per se; it must be on the impact of its existence as a use which tends to
enhance the market value of the land.22
This approach is in line with other states who have ruled that income
generated from billboards is non-compensable business income. 23
In conclusion, in Delaware parties must comply with the Unit Rule as it
appears in the relevant federal regulations when assessing the fair market value of a
property that is an assemblage comprised of multiple ownership interests or estates,
as is the matter at hand. Further, parties may use any approach that is non-speculative
and generally accepted in the financial community to determine the fair market value
of the condemned property but may not present evidence of loss of income from the
22
Davis Concrete of Delaware, Inc., 355 A.2d 883, 887 (internal citations omitted).
23
Cent. Expressway Sign Associates, 302 S.W.3d 866, 874. “…[T]he trial court should not allow
evidence of valuation based on advertising income. General estimates of what the property
would sell for considering its possible use as a billboard site are acceptable.”
8
business of operating a billboard on the property. The parties are further instructed
to return to case scheduling to establish a new trial date.
Sincerely,
/s/ Mark H. Conner
Mark H. Conner
Judge
cc: Prothonotary
9