United States v. 8.11 Acres of Land

          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 ...