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Virginia Electric and Power Co. v. Hylton

Supreme Court of Virginia

June 16, 2016





         Virginia Electric and Power Company, d/b/a Dominion Virginia Power ("Dominion") appeals the decision of the trial court dismissing its petition for condemnation. Additionally, Dominion appeals the trial court's decision to award attorneys' fees to the respondent, Walter E. Hylton ("Hylton"). Dominion further takes issue with the trial court's denial of its motions in limine regarding evidence related to the separate value of coal reserves on the property, the value of a non-existent surface mine on the property and the devaluation of the surrounding property.

         I. BACKGROUND

         On December 3, 2007, Dominion applied for certificates of public convenience and necessity from the State Corporation Commission ("SCC"). Dominion's application related to a proposed 138 KV double circuit transmission line that would connect Dominion's recently approved power plant in Wise County with an existing substation in Russell County. On July 11, 2008, the SCC issued a final order granting Dominion the necessary certificates.

         On November 6, 2008, Dominion's agent delivered to Hylton a written offer to purchase a 7.88 acre easement on his property for $19, 100, to construct the transmission line. At the time, Hylton owned approximately 354 acres across 20 contiguous tracts and 2 non-contiguous tracts. He owned the surface and mineral rights of some tracts and only the mineral rights of others.

         As part of its offer, Dominion included a copy of its appraisal of the property subject to the easement and the damage to the residue. The appraisal had been prepared by Michael Elwell ("Elwell"), a certified general appraiser. Elwell based his appraisal on his inspection of the property, information from Hylton, public records, and a survey from Dominion. Elwell certified that the appraisal conformed to the Uniform Standards of Professional Appraisal Practice and was based on his personal, unbiased professional analyses and opinions, not "a predetermined value or direction in value that favors the . . . client."

         The appraisal stated the easement crossed three tax parcels that represented only 65 of Hylton's approximately 354 acres. Elwell noted that the property subject to the easement was zoned for Agricultural-Rural Residential uses and contained no improvements. Elwell noted the area's "primary land uses" were residential and agricultural and determined that the property's highest and best use was "rural residential and agricultural use." Elwell's appraisal acknowledged that, according to Hylton, two major coal seams run through or near the property subject to the easement and that Hylton's ability to sell or lease the associated mineral rights might be damaged if a power line is erected on the seams. However, Elwell instructed Hylton to discuss the issue of subsurface minerals with Dominion as they involve "engineering and operations issues." As such, Elwell did not consider the mineral rights in determining the fair market value of the property.

         On February 19, 2009 (the date of the "take") the parties signed an agreement granting Dominion the right to enter Hylton's property and construct the transmission line. On March 4, 2010, Dominion filed its petition for condemnation of the 7.88 acre easement on Hylton's land. In Paragraph 10 of the petition, Dominion alleged that it "has complied with all of its statutory obligations associated with the exercise of eminent domain as to the Easement." Further, Paragraph 11 of the petition alleged that "Dominion had complied with Code § 25.1-204 by making a bona fide offer to purchase the Easement . . ., but Dominion and Hylton have been unable to agree on price." The petition was limited to the surface use of Hylton's property; it did not seek to condemn any mineral rights.

         On June 17, 2010, Hylton filed his Answer and Grounds of Defense. Hylton expressly admitted the allegations contained in Paragraph 10 of Dominion's petition. However, Hylton went on to admit that Dominion "may feel that a bona fide offer of purchase has been made, however, [Hylton] denies the sufficiency of the offer, so, accordingly, the allegations of Paragraph 11 are DENIED." Hylton expressly elected to proceed with the empanelment of a jury for the determination of just compensation.

         On February 2, 2011 and February 8, 2011, Hylton filed praecipes certifying that the case was mature for trial on the merits and requesting the trial be set. On July 18, 2011, Hylton petitioned the trial court pursuant to Code §§ 25.1-224 and -243, to compel Dominion to pay him the $19, 100 Dominion had offered. Dominion did not object and the court ordered Dominion to pay that sum to Hylton.

         Discovery revealed that, after the take, Hylton hired Phillip Lucas ("Lucas"), a mining engineer, to investigate coal on Hylton's property. Lucas was expected to testify as an expert at trial. Lucas was expected to testify that the development of coal deposits on Hylton's property, including those deposits under the property at issue, "was consistent with one of the highest and best uses of the property on the date of valuation." Lucas was further expected to testify about analysis of several coal seams on the property as well as surface mine plans he developed. It was admitted, however, that, at the time of the take, there were no surface mining permits on Hylton's property. Lucas further opined that all coal reserves under the take area were lost and unrecoverable as a result of the take.

         Additionally, it was revealed that, for many years prior to the take, Rapoca Energy Company ("Rapoca") had leased an underground deep mine on Hylton's property. The mine partially extended under the property at issue. However, Rapoca had ceased mining operations prior to August 1, 2008, the mining permit was in "temporary cessation, " the mine was now flooded and Rapoca had no plans to reopen the mine. However, Hylton claimed that Rapoca continued to pay Hylton the minimum royalties required under the lease.

         On September 27, 2011, Dominion filed a motion in limine seeking (in relevant part) to prohibit Hylton from presenting evidence at trial of "the separate value of coal" on the property, "damage of any kind to any tracts not taken in these proceedings, " and "damages for duplicative or inconsistent claims." After briefing and argument, the trial court ruled:

The motion is denied insofar as it seeks to exclude from the trial the evidence of the separate value of coal, damage of any kind to tracts no part of which have been taken in these proceedings, the value of a potential surface coal mine, royalty income, the value of royalty income of a surface mine, and royalty income and the value of royalty income of an underground mine.

         On April 18, 2012, Hylton requested the trial court set the case for trial to determine the just compensation issue. The trial court set the trial for November 26, 2012.

         On October 9, 2012, Hylton deposed Elwell. Elwell testified that he had been licensed in Virginia for about nine months when he conducted the appraisal, that he had never appraised coal reserves, and that he was unfamiliar with and not qualified or trained in mineral evaluation. Elwell admitted that, although Hylton told him the property was leased for "mineral extraction" and he was concerned about damage to his coal, Elwell did not get a copy of the mining lease and did not ask whether the property was producing income. Elwell explained that his appraisal focused solely on surface rights and, therefore, he did not look at the plans for the towers or consider their impact on the value of the property.

         On October 23, 2012, Hylton filed a motion to dismiss the petition. Hylton argued that Dominion's pre-petition offer to purchase the condemned property was not a bona fide offer, as required by Code § 25.1-204. Therefore, according to Hylton, Dominion had failed to meet the jurisdictional requirements necessary to institute the present case. Hylton claimed that Dominion's offer was not bona fide because Elwell's appraisal 1) only considered 65 acres out of Hylton's approximately 354 acres, 2) did not consider the existing deep mine lease, 3) did not use the proper valuation technique, 4) misidentified the highest and best use of the property, 5) failed to consider the loss of coal under the towers that Dominion's mining expert conceded would have a value of $84, 258, 6) failed to consider a newer survey in favor of tax records, 7) failed to include the mineral rights, and 8) only represented approximately 22.9% of the actual value of the property according to Dominion's mining expert. In response, Dominion argued that Hylton had waived the issue as to whether the offer was a bona fide offer to purchase because Hylton had not objected to the issue in his answer and grounds for defense. Dominion further argued that its offer was made in good faith and, therefore, was a bona fide offer to purchase. After considering the parties' arguments on the matter, the trial court indicated that it would grant the motion to dismiss.

         On December 13, 2012, Hylton filed a motion for costs, expenses, and attorney's fees pursuant to Code § 25.1-419. In an April 22, 2013 letter opinion, the trial court informed the parties that, because it had determined that Dominion could not acquire the property by condemnation, Hylton's motion for costs, expenses, and attorney's fees pursuant to Code § 25.1-419 was "well taken."

          On August 1, 2013, the trial court entered an order granting Hylton's motion to dismiss. In its order, the trial court determined that Hylton had not waived the issue of jurisdiction because, in his answer and grounds for defense, Hylton sufficiently denied that Dominion had complied with Code § 25.1-204. The trial court further found that Dominion's offer was "deficient" because

(1) [the] appraiser made no comparative judgment as to what is the highest and best use of the property; (2) the appraiser did not consider coal or mineral estate of the property, but appraised only the surface when the landowner owned surface and mineral rights; (3) the appraiser did not consider that the property was income producing from an existing permitted deep mine lease; (4) the appraiser did not examine the plans or consider damage to the landowner's remaining residue property from the concrete and steel towers placed on the property and resulting effect on future surface and subsurface usage; (5) the appraiser did not appraise all of the landowner's tracts of land but only 65 acres of the total 350 acres, which were only four of the landowner's twenty contiguous tracts.

         According to the trial court, an appraisal with such deficiencies could not be considered a bona fide offer. It further found that Dominion "either failed to review its appraisal or approved the appraisal with its many facial deficiencies. Either of which would preclude any argument that [Dominion's] offer to Hylton was made in good faith."

         Although the trial court granted the motion to dismiss, it refused to enter a final order "until such time as the [trial court] takes evidence and decides by final written order the remaining issues in the competing motions for reimbursement filed by the parties." The trial court went on to explain that, because Dominion cannot acquire Hylton's property by condemnation, Code § 25.1-419 applies. It ...

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