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Board of County Commissioners of County of Weld v. DPG Farms, LLC

Court of Appeals of Colorado, Second Division

June 15, 2017

Board of County Commissioners of the County of Weld, a political subdivision of the State of Colorado, Petitioner-Appellee,
DPG Farms, LLC, Respondent-Appellant.

         Weld County District Court No. 14CV30182 Honorable Julie C. Hoskins, Judge

          Bruce Barker, County Attorney, Bob Choate, Assistant County Attorney, Greeley, Colorado; Hamre, Rodriguez, Ostrander & Dingess, P.C., Donald M. Ostrander, Joel M. Spector, Denver, Colorado, for Petitioner-Appellee

          Robinson Waters & O'Dorisio, P.C., Richard D. Judd, Brian A. Magoon, Jena R. Akin, Denver, Colorado, for Respondent-Appellant


          HARRIS JUDGE.

         ¶ 1 In this condemnation action, respondent, DPG Farms, LLC (DPG), appeals from a judgment entered on a jury verdict after a valuation trial. The issue on appeal concerns the proper method for determining compensation when the condemned property, and portions of the remainder, are capable of producing income.

         ¶ 2 DPG argues that the district court erred in (1) determining as a matter of law that water storage was not the highest and best use of the property; (2) excluding its lost income evidence which, it says, was admissible under its income capitalization approach to valuing the affected property; and (3) denying a substantial portion of its request for costs. We affirm.

         I. Background

         ¶ 3 Petitioner, the Board of County Commissioners of Weld County (the County), filed a petition in condemnation to extend a public road over 19 acres[1] of DPG's 760-acre property (the Property). When condemnation proceedings were initiated, the Property was used primarily for agricultural and recreational purposes.

         ¶ 4 The parties stipulated to the County's immediate possession of the nineteen acres and proceeded to a valuation trial.[2] DPG's valuation encompassed two steps: (1) determining the highest and best use of the Property; and (2) in light of that determination, calculating the fair market value of the condemned property as well as any diminution in fair market value to the residue.

         ¶ 5 According to DPG's experts, the highest and best use of the Property was mixed: portions of the Property were most advantageous for continued agricultural and recreational use, while other portions had the potential for gravel mining and subsequent water storage.

         ¶ 6 Specifically, approximately 280 acres of the Property contained gravel deposits. DPG's experts testified that those acres could be mined over a period of time and then repurposed for water storage. The evidence of the feasibility of mining and water storage was set forth in a detailed development plan (the mining plan). The mining plan split the 280 minable acres into four areas - referred to as "cells" - located in a horizontal line across the Property. The nineteen-acre strip condemned by the County ran through Cell C.

         ¶ 7 DPG's method of valuation proceeded as follows: first, it used primarily a comparable sales approach to calculate the pre-condemnation fair market value of the Property. DPG's appraiser relied on six similar properties (though only two had potential for mining and water storage) to arrive at a per-acre value of $11, 500, or $8.74 million for the entire 760-acre Property. The gravel mining expert, who was not an appraiser but had substantial experience buying and selling properties with mining potential, used a similar approach. He testified that, at the time of the condemnation, taking into account the expenses and losses inherent in gravel mining, a willing buyer would have paid approximately $5, 000 per non-income-producing (agricultural) acre, and $10, 000 per income-producing (mining) acre, or a total of $5.2 million for the Property. The County's own appraiser ultimately endorsed the mining expert's pre-condemnation, fair market value of the Property.

         ¶ 8 Next, to calculate the loss in value to the Property caused by the condemnation, DPG switched to what it calls an income approach. But rather than calculating a post-condemnation fair market value of the Property (that could be compared with the pre-condemnation value, as calculated by the appraiser and mining expert), DPG used its mining plan to compute the total income that could have been generated from the nineteen-acre strip ($1 million), as well as from a twenty-seven-acre portion of Cell C affected by the condemnation ($2.1 million). It then attempted to present the $3.1 million loss figure as its compensable damages.

         ¶ 9 The district court excluded only the ultimate loss figure, concluding that without any evidence of that figure's connection to the Property's fair market value, the figure amounted to inadmissible frustration-of-plan damages. In light of the court's ruling, DPG presented an alternative damages figure: the appraiser, using his $11, 500 per-acre fair market value figure, testified that the Property's value decreased by $550, 000 - the value of the approximately forty-six acres (plus the easements) that were either condemned or damaged by the condemnation.

         ¶ 10 The jury awarded DPG $183, 795 in damages for the condemned property[3] and nothing for any damage to the residue.

         ¶ 11 DPG filed a post-trial motion to recover its costs, as permitted by statute. It sought $248, 680.92, much of which was attributable to expert witness fees. The district court rejected a substantial portion of the requested costs on the grounds that the costs were disproportionate to DPG's success and that certain expert evidence had been excluded. The court awarded costs in the amount of $68, 808.96.

         II. DPG's Contentions on Appeal

         ¶ 12 On appeal, DPG contends that the district court erred in rejecting water storage as the highest and best use of certain portions of the Property and in excluding its lost income evidence. DPG also argues that the court erred in disallowing a significant portion of its costs.

         A. Highest and Best Use of the Property

         ¶ 13 The measure of compensation in an eminent domain case turns on the value of the entire property as it exists at the time of the condemnation, "taking into consideration its highest and best future use." Bd. of Cty. Comm'rs v. Vail Assocs., 171 Colo. 381, 389, 468 P.2d 842, 846 (1970). Under this principle, the property's value is based on the most advantageous use to which the property reasonably may be applied and is not limited to its current condition. Dep't of Highways v. Schulhoff, 167 Colo. 72, 77-78, 445 P.2d 402, 405 (1968); see, e.g., State Dep't of Highways v. Mahaffey, 697 P.2d 773, 775-76 (Colo.App. 1984) (highest and best use of property was gravel mining despite land currently being vacant and undeveloped). The four factors to be used in determining a property's highest and best use are legal permissibility, physical possibility, financial feasibility, and maximal productivity. See Appraisal Institute, The Appraisal of Real Estate 280 (14th ed. 2013).

         ¶ 14 Although the admissibility of evidence regarding property value is "governed by an expansive, rather than restrictive, rule, " City of Englewood v. Denver Waste Transfer, 55 P.3d 191, 195 (Colo.App. 2002), a district court will not consider evidence of a property's highest and best use that is overly speculative, Schulhoff, 167 Colo. at 75, 445 P.2d at 404.

         ¶ 15 Most of the Property's 760 acres could only be used for agricultural or recreational purposes. The dispute between the parties centered on the highest and best use of 280 acres of the Property, comprising cells A, B, C, and D, which contained gravel deposits. The district court determined that the highest and best use of those acres was gravel mining, but not water storage as well.

         ¶ 16 The determination of a property's highest and best use is generally a factual question for the jury unless the evidence of highest and best use is so improbable or speculative that it should be excluded from the jury as a matter of law. City of Quincy v. Diamond Constr. Co., 762 N.E.2d 710, 715 (Ill.App.Ct. 2002); cf. Bd. of Cty. Comm'rs v. Rodgers, 2015 CO 56, ΒΆΒΆ 13, 15-17 (explaining that, after presentation of evidence, if the court finds that a reasonable jury would not have a ...

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