Commonwealth of Kentucky, Transportation Cabinet, Department of Highways v. Leah Atkinson

RENDERED: MARCH 17, 2023; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2021-CA-1461-MR
COMMONWEALTH OF KENTUCKY, APPELLANT
TRANSPORTATION CABINET,
DEPARTMENT OF HIGHWAYS
APPEAL FROM FLOYD CIRCUIT COURT
v. HONORABLE THOMAS M. SMITH, JUDGE
ACTION NO. 13-CI-00788
LEAH ATKINSON; ALICE TURNER; APPELLEES
ALLEN BARRE A/K/A ALLEN M.
BARR; ALLEN VAN TURNER;
ANITA GIBSON; ANTHONY
GIBSON; ARNOLD BRENT TURNER;
ARNOLD TURNER, JR.; BRENDA
COOK; CASSIE FRIEND; CHAD
DUNLAPP; CHERYL MARTIN;
CLAUDE MCKENZIE, JR.; DAVID
BRIAN GIBSON; DAVID GIBSON;
DAVID RICH; DEMORIS MARTIN;
DONNIE RAY MARTIN; DOUG
TURNER; EDWARD BILLIPS;
ELHANAN PETE GRIGSBY III;
ELIZABETH LYNNE BARRE A/K/A
ELIZABETH LYNN BARR;
ELIZABETH TURNER; EUGENE
TURNER; FLOYD COUNTY
RESOURCES, INC.; FRED B.
ANDERSON; GERI E. GRIGSBY;
HENRY WRIGHT; JAMES E.
WALTER; JAMES R. TURNER;
JENNIFER MARTIN; JEWELL
TURNER; JOAN CHAFFINS; JOE
TURNER; JOSEPH R. TURNER;
JOYCE TURNER HOWELL; JULIUS
MARTIN; KAREN GESWEIN (A/K/A
KAREN M. LOVE); KARENLYNN
TURNER; KENNETH HENRY; LEE
MAJAKEY; LISA RENEE CHAFFINS;
LORA CHAFFINS (LONG); LOUISE
MARIE WALTER; MACHELE
GRIGSBY; MARGARITE MARTIN;
MARTHA JUNE MCKENZIE; MARY
ROSE MARTIN; MAYTIFERN
WRIGHT; MELINDA GAYE
MAJAKEY; NORA LOU RICH;
NORMA TURNER; PETE GRIGSBY,
II; PRISCILLA HENRY; RALPH
TURNER; RICK JONES; ROSE MARY
RICE; SAM MARTIN, III; SANDRA
SUE SLONE MARTIN; SAS
RESOURCES, INC.; SKYE
GOODMAN CRAMER A/K/A SKYE
WEBER; TED TURNER; TERESA
BILLIPS; TERESA MARTIN; TERRY
TURNER; TIM MARTIN; TIMMY
MARTIN; TIMOTHY K. STEPHENS;
TODD DUNLAPP; UNKNOWN
RESPONDENTS, BEING THE
UNKNOWN OWNERS, IF ANY,
HEIRS AT LAW, GRANTEES,
DEVISEES, SECCESSORS, AND/OR
ASSIGNS, IF ANY; BEING ANY AND
ALL UNKNOWN PERSONS,
SPOUSES AND/OR ENTITIES IF
ANY, ENTITLED TO AND/OR
CLAIMING AN INTEREST IN
AND/OR TITLE TO; VIOLET
ELIZABETH ROWE; WALLACE G.
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COOK; PEGGY DAVIS; AND WILMA
FAYE MARTIN
OPINION
AFFIRMING
** ** ** ** **
BEFORE: CALDWELL, DIXON, AND TAYLOR, JUDGES.
TAYLOR, JUDGE: The Commonwealth of Kentucky, Transportation Cabinet,
Department of Highways (Transportation Cabinet) brings this appeal from a July
28, 2021, Trial Order and Judgment and a November 4, 2021, Amended Judgment
of the Floyd Circuit Court in an eminent domain proceeding. We affirm.
On September 9, 2013, the Transportation Cabinet filed a petition1 in
the Floyd Circuit Court to condemn sub-surface mineral interests owned by
appellees in approximately thirty acres of real property (condemned real property).
The condemned real property contained primarily coal. The property was needed
to complete a road connector in Floyd County.
Pursuant to Kentucky Revised Statutes (KRS) 416.580, the circuit
court appointed three commissioners to determine the fair market value of the
condemned real property. The commissioners’ reports fixed the fair market value
of the condemned real property (excluding oil and gas) before the taking at $500
1
An amended petition was filed on September 28, 2015.
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and the fair market value of the condemned real property (excluding oil and gas)
after the taking at $500.2 So, effectively, the commissioners did not believe that
the condemned real property’s fair market value was affected by the taking.
Numerous appellees filed exceptions and argued that the commissioners failed to
properly appraise the fair market value of the condemned real property, thus
denying them just compensation.
The circuit court subsequently rendered an Interlocutory Order and
Judgment.3 Therein, the circuit court ordered that the Transportation Cabinet had a
right to take through eminent domain the condemned real property owned by
appellees. The amount of compensation due to appellees for the taking of said
property was reserved for a jury trial. KRS 416.620.
Prior to the jury trial on the issue of just compensation, the
Transportation Cabinet filed a motion to exclude certain testimony from appellees’
expert witness, Samuel Johnson. Relying upon Gulf Interstate Gas Company v.
Garvin, 303 S.W.2d 260 (Ky. 1957) and Gulf Interstate Gas Company v. Garvin,
368 S.W.2d 309 (Ky. 1963), the Transportation Cabinet argued that Johnson’s
valuation of the condemned real property improperly included prospective royalty
2
The commissioners’ original report, filed on November 5, 2013, contained a clerical error. An
amended report was filed on November 21, 2013.
3
The Interlocutory Order and Judgment condemning the subject mineral property interest was
entered on March 25, 2014.
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income and must be excluded. In response, appellees argued that Johnson, a
mining engineer, utilized an income approach to value the condemned real
property, which included as a factor prospective royalty income that would be
derived from the mining of the coal therefrom. Appellees maintained that such a
valuation method was permitted in Big Rivers Electric Corporation v. Barnes, 147
S.W.3d 753 (Ky. App. 2004). The circuit court denied the Transportation
Cabinet’s motion to exclude Johnson’s appraisal opinion.
A jury trial was held on July 6, 2021, and July 7, 2021. The Cabinet
called as an expert, Dixon Nunnery, who testified that his appraisal of the fair
market value of the condemned real property before the taking as $380,600 and
after the taking as $235,000, by using the sales comparison method. Nunnery
opined that the taking by the Transportation Cabinet resulted in a $145,600 loss to
the owners of the property. Appellees presented the testimony of Johnson.
According to Johnson, the fair market value of the condemned real property was
$2,428,000 before the taking, and after the taking, it had no value. Based on
Johnson’s testimony, appellees suffered a $2,428,000 loss. The jury found that the
fair market value of the condemned real property before the taking was $1,083,000
and the fair market value after the taking was $533,000, resulting in a loss of
$550,000 in fair market value. By trial order and judgment and amended
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judgment, the circuit court awarded appellees $550,000 as just compensation for
the taking of the condemned real property. This appeal follows.
On appeal, the Transportation Cabinet contends the circuit court
erroneously admitted the testimony of appellees’ expert, Johnson, as to his
valuation of the condemned real property. The Transportation Cabinet alleges that
Johnson impermissibly utilized prospective royalty income that appellees would
have received from the mining of coal they owned in reaching his fair market value
calculations. Citing to Gulf Interstate, 303 S.W.2d 260 and Gulf Interstate, 368
S.W.2d 309, the Transportation Cabinet argues that the royalty income may not be
utilized to determine the fair market value of condemned real property that
contains valuable minerals. Instead, the Transportation Cabinet maintains that
condemned real property containing valuable minerals must simply be valued by
using a sales comparison approach, as performed by its expert.
The primary issue in this appeal looks to the court’s evidentiary ruling
in allowing the admission of Johnson’s testimony. The proper standard of review
of a trial court’s evidentiary ruling is abuse of discretion. Goodyear Tire & Rubber
Co. v. Thompson, 11 S.W.3d 575, 577 (Ky. 2000). The same standard applies
under Kentucky Rules of Evidence 702 regarding the testimony of expert
witnesses. Id. Our review proceeds accordingly.
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When private property is taken by eminent domain, the state must pay
the owner just compensation. Kentucky Constitution § 13 and § 242. To
determine just compensation, we look to the fair market value of the real property
immediately before the taking and the fair market value after the taking. KRS
416.660(1). Fair market value is defined as “the amount in cash that a willing
buyer would pay to a willing seller[.]” Paducah Independent School District v.
Putnam & Sons, LLC, 520 S.W.3d 367, 376 (Ky. 2017) (quoting Baston v. County
of Kenton, 319 S.W.3d 401, 406 (Ky. 2010)). And, there are three generally
accepted methods to determine the fair market value of real property in a
condemnation proceeding - the sales comparison approach, the cost approach, and
the income approach. Commonwealth, Dept. of Highways v. R.J. Corman R.R.
Co., 116 S.W.3d 488, 495 (Ky. 2003). Relevant to this appeal is the income
approach. Under this approach, fair market value is appraised “by analyzing a
property’s capacity to produce income and converting this potential into an
indication of fair market value.” R.J. Corman, 116 S.W.3d at 495 (quoting 7
Nichols on Eminent Domain § 4.04[3] (3rd ed., 1999)). Most importantly, the
income method can only be utilized where the income is “derived from the
intrinsic nature of the real estate itself, as distinguished from the profits derived
from a business operated on the land.” R.J. Corman, 116 S.W.3d at 496 (quoting
27 Am. Jur. 2d, Eminent Domain § 431).
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The income approach has been approved by the Kentucky Supreme
Court for valuation of condemned real property containing coal reserves in Big
Rivers, 147 S.W.3d 753. In Big Rivers, an expert opined that the highest and best
use of the condemned real property was as a coal reserve and testified:
[O]nce coal reached $25.00 a ton, surface mining would
be feasible with a twenty cent royalty split evenly
between the surface owner and the mineral owners.
Using the “recoverable coal” estimates from the . . .
(engineer/surveyor) report, times the royalty, and
discounting the future income for the time waiting to
mine, he estimated the present value would be less than
ten cents on the dollar of future sales. [The expert] then
concluded that the present value of the coal reserves
before the taking was $742,000.00, and the value after
the taking was $675,000.00, for a difference of
$67,000.00.
Id. at 759 (footnotes omitted).
Similar to the expert testimony in Big Rivers, 147 S.W.3d at 758-59,
Johnson testified that the highest and best use of the condemned real property was
for coal mining.4 Johnson also stated that the comparable sales approach was
insufficient to arrive at a fair market value of the condemned real property due to
the lack of comparable sales. So, Johnson concluded that the income approach
would best determine the fair market value of the condemned real property.
Under the income approach, Johnson stated that he used a mining plan prepared by
4
The parties do not dispute on appeal that the highest and best use of the mineral interest subject
to the condemnation is for coal mining.
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Gary Ousley, a mining engineer hired by appellees. Ousley determined the tons of
coal in place, mineable seams, and the method to extract the coal. Ousley
estimated that the condemned real property contained 1,122,437 tons of coal and
609,643 tons of mineable coal. By utilizing Ousley’s opinions and mining plan,
Johnson conducted a marketability analysis to determine the sale price of the coal
and then discounted the royalty income therefrom to present value. In the end,
Johnson testified that the fair market value of the condemned real property before
condemnation was $2,428,000 and after condemnation was zero.
Upon review of his testimony, Johnson clearly utilized the income
approach to reach a fair market value of the condemned real property and did
consider prospective royalty income among other factors. Johnson’s approach was
substantially similar to the expert valuation testimony approved in Big Rivers, 147
S.W.3d 753. Therein, the expert witness also utilized the income method and
considered prospective royalty income. And, as in Big Rivers, 147 S.W.3d 753,
the income considered herein was “derived from the intrinsic nature of the real
estate” and not from a business located thereupon. See R.J. Corman, 116 S.W.3d
at 496 (quoting 27 Am. Jur. 2d, Eminent Domain § 431).
Additionally, we do not interpret Gulf Interstate, 303 S.W.2d 260 or
Gulf Interstate, 368 S.W.2d 309, so broadly as to exclude Johnson’s testimony
concerning fair market value. Both cases simply prohibit a valuation of fair market
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value based solely upon the royalty income and number of acres. Rather, in the
case sub judice and in Big Rivers, 147 S.W.3d at 758-59, the income valuation
analysis considered a variety of factors, including royalty income, minable coal,
present value, and marketability.
Accordingly, we conclude that the circuit court did not abuse its
discretion by admitting Johnson’s testimony as to the fair market value of the
condemned real property.
We view any remaining contentions of error as moot or without merit.
For the foregoing reasons, the Trial Order and Judgment and
Amended Judgment entered by the Floyd Circuit Court are affirmed.
ALL CONCUR.
BRIEFS FOR APPELLANT: BRIEF FOR APPELLEES, LEAH
ATKINSON AND SAS
Stacy D. Conley RESOURCES, LLC:
Pikeville, Kentucky
John M. Williams
Melanie J. Kilpatrick
Lexington, Kentucky
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