United States District Court, D. Colorado
ORDER
RAYMOND P. MOORE UNITED STATES DISTRICT JUDGE.
This
action has been filed by the United States under its powers
of eminent domain on behalf of the Western Area Power
Association in connection with the Granby Pumping Plant
-Windy Gap Transmission Line Rebuild project. The United
States condemned approximately 8.11 acres that are a part of
a larger parcel of land owned by Defendant Lambright, LLC
(“Lambright”) in Grand County. Before the Court
now are three motions filed by the United States challenging
the admissibility of certain testimony concerning the market
value of the property taken. Those motions are as follows:
(1) the United States' Motion to Exclude Certain
Comparable Sales in the Appraisal of David B. Clayton (ECF
No. 65); (2) the United States' Motion to Exclude Case
Studies and Paired Sales Analysis of Appraiser David Clayton
(ECF No. 66); and (3) the United States' Motion to
Exclude Landowner Valuation Evidence Premised on Speculative
Residential Use (ECF No. 67). The motions are fully briefed
and ripe for determination.
I.
BACKGROUND
On June
30, 2017 (the “Date of Taking”), the United
States condemned a transmission line easement and an access
easement encumbering approximately 8.11 acres of
land.[1] The
8.11 acres are located on an approximately 154-acre parcel
owned by Lambright (sometimes called the “Larger
Parcel”).[2] At the time of the taking, the Larger
Parcel was already encumbered by two pre-existing easements
benefiting the United States.[3] The new transmission line easement
generally follows the same centerline as the two pre-existing
easements, but expands it from 30 feet to 100 feet.
Lambright
acquired the Larger Parcel in 2000. Between 2000 and 2005,
Lambright developed plans for an approximately 72-lot
residential subdivision of the Larger Parcel, with lots
ranging between one-half acre to five acres. (Lambright
Depo., ECF No. 95:15-16; ECF No. 67-4.) In 2005, Lambright
received preliminary, conditional approval from Grand County
for this subdivision plan. The proposed subdivision would be
known as “Trail Mountain at Lake Granby” or
“Lodges at Hudler Ranch.” Due to declining market
conditions, by 2006, Lambright decided not to go forward with
the development and did not complete all conditions
associated with the subdivision approval. Grand County never
approved the final plat. Thus, Lambright would be required to
resubmit any development plans to Grand County for approval
to develop the residential subdivision. The Larger Parcel,
however, could be divided into four 35-acre parcels without
any approval from Grand County. (Gerken Depo., ECF No. 73-6,
142:20-22; Final Pretrial Order, Stipulations, ¶ 28.)
For the
last 10 years, the Larger Parcel has not been actively listed
and there have been no offers to purchase or lease the entire
Larger Parcel. At the time of the taking, the Larger Parcel
was mostly unimproved agricultural land, essentially the same
use as when Lambright purchased the property.
The
sole issue in the case is the amount of just compensation for
the property taken. This value is measured by the difference
between the property's market value before and after the
Date of Taking. United States v. Virginia Elec. &
Power Co., 365 U.S. 624, 632 (1961). The parties offer
differing opinions of this value. The motions request the
Court to preclude some of this testimony based on various
arguments. The Court addresses each motion in turn.
II.
LEGAL STANDARD
Federal
Rule of Evidence 702 (“Rule 702”) requires a
district court to ensure that an expert's testimony is
admitted only if it is reliable and relevant. Bill
Barrett Corp. v. YMC Royalty Co., LP, 918 F.3d 760, 770
(10th Cir. 2019) (citing Daubert v. Merrell Dow
Pharmaceuticals, Inc., 509 U.S. 579, 597 (1993)). To do
so, the court follows three steps.
First,
the court must decide “whether the proffered expert is
qualified ‘by knowledge, skill, experience, training,
or education' to render an opinion.” Bill
Barrett Corp, 918 F.3d at 770 (quoting Rule 702).
Next,
if the expert is sufficiently qualified, the court
“‘must determine whether the expert's opinion
is reliable by assessing the underlying reasoning and
methodology, as set forth in Daubert.'”
Id. (quoting United States v. Nacchio, 555
F.3d 1234, 1241 (10th Cir. 2009) (en banc)). In doing so, the
court considers 1) whether “the testimony is based on
sufficient facts or data”; 2) whether it “is the
product of reliable principles and methods”; and 3)
whether “the expert has reliably applied the principles
and methods to the facts of this case.” Fed.R.Evid.
702(b)-(d).
There
are many factors which may bear on whether expert testimony
is based on sound methods and principles, including the
following: “whether the theory or technique has (1)
been or can be tested, (2) been peer-reviewed, (3) a known or
potential error rate, (4) standards controlling the
technique's operation, and (5) been generally accepted by
the scientific community.” Etherton v. Owners Ins.
Co., 829 F.3d 1209, 1217 (10th Cir. 2016).
“‘The focus, of course, must be solely on
principles and methodology, not on the conclusions they
generate.'” Id. (quoting Daubert,
509 U.S. at 595). And, where a court concludes there is too
great an analytical gap between the data and opinion offered,
it is not required to admit such opinion evidence.
Schulenberg v. BNSF Railway Co., 911 F.3d 1276, 1283
(10th Cir. 2018).
Finally,
after reliability, the court evaluates whether the testimony
is relevant. “Relevant evidence” is defined as
that which has “any tendency to make the existence of
any fact that is of consequence to the determination of the
action more probable or less probable than it would be
without the evidence.” Fed.R.Evid. 401. That is,
whether the testimony properly “fits” in the
case. “‘Fit is not always obvious, and scientific
validity for one purpose is not necessarily scientific
validity for other, unrelated purposes.'”
Etherton, 829 F.3d at 1223 (quoting
Daubert, 509 U.S. at 591).
The
trial court has discretion to determine “how
to perform its gatekeeping function under
Daubert.” Bill Barrett Corp., 918
F.3d at 770 (emphasis in original). A Daubert
hearing is not mandated. Id.
III.
ANALYSIS
A.
The Motion to Exclude David Clayton's Testimony Regarding
Three Sales
In the
Tenth Circuit, “the best evidence of market value of
real property in condemnation is, of course, found in sales
of comparable land within a reasonable time before the
taking.” United States v. 819.98 Acres of
Land, 78 F.3d 1468, 1471 (10th Cir. 1996) (brackets,
quotation marks, and citations omitted). “Comparability
is a question of fact, and the district court may exercise
broad discretion in determining the admissibility of evidence
of comparable sales.” Id. “A
dissimilarity between sales of property proffered as
comparable sales and the property involved in the
condemnation action goes to the weight, rather than to the
admissibility of the evidence of comparable sales.”
Id. That is not to say, however, that the Court
should abandon its responsibilities under Daubert to
determine whether the proffered evidence is reliable in the
first instance. Afterall, “[t]he threshold question of
admissibility of comparable sales generally rests in the
trial court's discretion.” United States v.
4.85 Acres of Land, 546 F.3d 613, 618 (9th Cir. 2008).
If the court finds sufficient similarities between the
properties sought to be used as comparable and the subject
property, then the jury should be allowed “‘to
determine for itself whether the described properties were in
fact comparable to the condemned tract, and if found
comparable, what weight should be given thereto.'”
United States v. 10.082 Acres of Land, No.
CV05-00362-PHX-NVW, 2007 WL 962846, at *4 (D. Ariz. Mar. 27,
2007) (quoting United States v. 84.4 Acres of Land,
348 F.2d 117, 119 (3d Cir. 1965)).
1.
The Clayton Report and Opinion
The
first step to help identify potentially comparable properties
is to identify the highest and best use of the property at
issue, here, the Larger Parcel. See The Appraisal of Real
Estate (14th ed. 2013) (“ARE”) at 43. Mr.
Clayton, Lambright's expert, determined the highest and
best use of the Larger Parcel was “interim hold and
future large-lot residential development” before and
after the taking. (ECF No. 65-3, Clayton Report, at p. 21,
Bates 580; ECF No. 65-1, Clayton Depo., 62:22-25, 63:9-11.)
Thereafter,
Mr. Clayton used the sales comparison approach to develop an
opinion of the market value of the subject property. Under
this methodology, the appraiser analyzes sales of properties
similar to the subject property. (ARE at 377.) Here, Mr.
Clayton selected six sales for analysis. Three of the sales,
Sales 3, 5, and 6 (collectively, the “Three
Sales”), are part of the “Chimney Rock
Cabins” located in an existing development known as C
Lazy U in Grand County, Colorado. The United States contends
these Three Sales are not comparable to the subject property
and, therefore, Mr. Clayton's testimony in reliance on
these sales is unreliable and violates accepted appraisal
methodology. As such, the United States seeks to exclude
these sales from consideration in determining market value.
2.
The Three Sales
C Lazy
U is a ranch development which consists of a guest lodge
along with four vacation home communities with individual
lots for sale. (Clayton Depo., ECF No. 65-1, 98:2-9;
99:21-25-100:1-9; see ECF No. 65-9, pp. 6, 7.) One
of the four communities is Chimney Rock Cabins. There is a
total of 40 home sites (lots) in the ranch; each site is
approximately 35 acres with a 1-2 acre building envelope.
(ECF No. 65-9, p. 6.) As acknowledged by Joseph Lambright,
the managing member of Lambright, C Lazy U is a
“high-end neighborhood” (ECF No. 65-2, 137:7-14);
it has thousands of acres and significant high-quality
amenities such as horseback riding, hiking, fishing, skiing
and tubing, and mountain biking (ECF No. 65-9, C Lazy U
website and brochure). A purchaser of a lot in Chimney Rock
Cabins must[4]
purchase a ranch membership which allows members access to
such amenities. The ranch membership is exclusive; it is
allowed only to purchasers of homesites. (ECF No. 65-9, p.
7.)
The
Three Sales at issue were sold on a per lot basis for $925,
000 each. The United States asserts the Three Sales should be
excluded as comparable sales because (1) they are not
comparable to the subject property due to differences in
size, in development status, and in the highest and best use;
(2) Mr. Clayton failed to analyze the effect of the C Lazy U
amenities on such sales; and (3) Mr. Clayton's opinion
failed to rely on sufficient facts and data and follow
accepted appraisal methodology. In response, Lambright
contends (1) the dissimilarities between the Three Sales and
subject property go to weight, not admissibility; (2) Mr.
Clayton accounted for the C Lazy U amenities in his analysis;
and (3) Mr. Clayton considered sufficient facts and data. In
reply, the United States reiterates the Court has gatekeeping
responsibilities, including a determination of whether the
Three Sales lack “threshold comparability” to the
subject property. The Court agrees with the first argument;
therefore, it need not consider the others.
First,
there is a significant size difference in the properties - 35
acre lots versus a 154-acre parcel.[5] Next, there is a substantial
difference in the development status of the Three Sales and
subject property. The C Lazy U has already been subdivided
and developed, the Three Sales lots were ready for
construction of new homes, and the lots are part of an
existing larger “high-end” development with a
guest lodge and other significant amenities. In contrast, the
154-acre parcel was mainly unimproved, was not ready for
immediate construction, and had no amenities. Finally, the
highest and best use for each of the Three Sales was a home
site in a luxury ranch development, with a 1-2 acre building
envelope. According to Mr. Clayton, the highest and best use
for the 154-acre parcel was interim hold and future large lot
development, and the most probable buyer was someone who
wanted to use it as a “trophy property” for a
large single home, or the development of a residential
subdivision of either 35-acre lots or higher density lots.
Thus, the Court finds Mr. Clayton's use of these Three
Sales would render his testimony unreliable.
Lambright
raises several arguments to the contrary, but the Court is
not persuaded. For example, Lambright contends the Three
Sales are “sufficiently comparable” and,
therefore, admissible as their differences go to weight
rather than admissibility. But, the Court has found in the
first instance that the Three Sales are not
“sufficiently comparable” to the subject
property. Similarly, Lambright argues Mr. Clayton accounted
for the differences in the properties, including the
availability of the high-quality amenities. But, the Court
finds the differences are too wide to be accounted for
reliably.[6]
Thus, the Court finds the transactions are too dissimilar to
the subject property to be used as comparable sales in the
first instance. This does not, however, leave Mr. Clayton
with no opinions to render as he also relied on three other
sales. Accordingly, the Court finds Mr. Clayton may not
testify regarding or use the Three Sales as comparable sales.
B.
The Motion to Exclude Mr. Clayton's Case Studies and
Paired Studies Analysis
1.
The Clayton ...