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DEPARTMENT OF TRANSPORTATION v. M.M. FOWLER, INC.
FILED: 15 DECEMBER 2006
Eminent Domain_-fair market value--lost business profits
The trial court erred by allowing quantified lost business profits testimony in a
condemnation action, and an appraisal based on that evidence, for determining the fair market
value of the land on which a business is located, and the case is reversed and remanded, because:
(1) when evidence of income is used to valuate property, care must be taken to distinguish
between income from the property and income from the business conducted on the property; (2)
the longstanding rule in North Carolina is that evidence of lost business profits is inadmissible in
condemnation actions, and this rule comports with the federal rule; (3) when government takes
property, the damages are confined to the diminished pecuniary value of the property incident to
the wrong; (4) just compensation is not the value to the owner for his particular purposes since
awarding damages for lost profits would provide excess compensation for a successful business
owner while a less prosperous one or an individual landowner without a business would receive
less money for the same taking; (5) if business revenues were considered in determining land
values, an owner whose business is losing money could receive less than the land is worth; (6)
limiting damages to the fair market value of the land prevents unequal treatment based upon the
use of the real estate at the time of condemnation; (7) paying business owners for lost business
profits in a partial taking results in inequitable treatment of the business owner whose entire
property is taken; (8) the speculative nature of profits makes them improper bases for
condemnation awards, and the uncertain character of lost business profits evidence could burden
taxpayers with inflated jury awards bearing little relationship to the condemned land's fair
market value; (9) any determination of fair market value must be based on the diminution in
value, not just for the current owner of the property, but for any owner who would put the
property to its highest and best use; (10) there is no difference between using lost profits to
determine the fair market value of the land and awarding them as a separate item of damages
when by either improper calculation, the business receives compensation for its lost profits; (11)
allowing the jury to consider that the land may be less valuable due to the condemnation's effect
on the landowner's business does not require that quantified evidence of lost profits also be
admitted; and (12) a limiting instruction is insufficient to overcome the error resulting from
introduction of quantified evidence of lost business profits.
Justice MARTIN dissenting.
Justices WAINWRIGHT and TIMMONS-GOODSON join in this dissenting
On discretionary review pursuant to N.C.G.S. § 7A-31 of
a unanimous decision of the Court of Appeals, 170 N.C. App. 162,
611 S.E.2d 448 (2005), affirming a judgment entered on 8 October
2003 by Judge Robert H. Hobgood in Superior Court, Durham County.
Heard in the Supreme Court 13 February 2006.
Roy Cooper, Attorney General, by Richard A. Graham and
James M. Stanley, Jr., Assistant Attorneys General, andW. Richard Moore and E. Burke Haywood, Special Deputy
Attorneys General, for plaintiff-appellant.
Hutson Hughes & Powell, P.A., by James H. Hughes, for
The issue is whether, in a condemnation action, the
jury may consider quantified lost business profits in determining
the fair market value of the land on which the business is
located. Applying our well-established case law, we hold it may
not, and accordingly, we reverse the Court of Appeals and order a
To safely accommodate increased traffic and promote
public safety, the North Carolina Department of Transportation
(DOT) proposed improvements at the intersection of Garrett Road
and Durham-Chapel Hill Road in Durham County. When DOT and
landowner M.M. Fowler, Inc. (MMFI) were unable to agree on a
purchase price, DOT filed an eminent domain action to condemn a
portion of MMFI's land for the construction project. MMFI's
property, originally 47,933 square feet, contains a gasoline
station and convenience store, which MMFI pays an independent
contractor to operate. The DOT improvement project necessitated
a 13,039-square-foot right-of-way as well as a 1,664-square-foot
slope easement and a 6,166-square-foot temporary construction
easement. After the permanent taking, the remaining property
totaled 34,894 square feet. In its complaint, DOT requested a determination of just
compensation for the taking in accordance with Article 9 of
Chapter 136 of the General Statutes. Concurrently, DOT deposited
$166,850 with the Durham County Superior Court as its estimate of
just compensation. MMFI answered and demanded a jury trial.
Prior to trial, DOT filed a motion in limine asking the
court to exclude, inter alia, [e]vidence concerning loss of
profits or income, loss of business, loss of goodwill, or
interruption of business. The trial court initially allowed the
motion until [it] should rule otherwise. At trial, the court
heard arguments from both parties on the issues and ultimately
denied DOT's motion in limine. However, the trial court gave the
following limiting instruction purportedly derived from Kirkman
v. State Highway Commission, 257 N.C. 428, 432, 126 S.E.2d 107,
[L]oss of profits or injury to a growing
business conducted on property or connected
therewith are not elements of recoverable
damages in an award for the taking under the
power of eminent domain. However, when the
taking renders the remaining land unfit or
less valuable for any use to which it is
adapted, that factor is a proper item to be
considered in determining whether the taking
has diminished the value of the land itself.
MMFI's witnesses estimated the loss in value caused by
the taking to be between $500,000 and $540,000. These estimates
were based solely on capitalization of the company's alleged lost
business profits. DOT's evidence indicated MMFI was entitled to
approximately $169,000 to $225,700. The jury returned a verdict
awarding $375,000 as damages for the permanent taking and $75,000
for the temporary construction and slope easements. On 8 October2003, the trial court entered a judgment awarding MMFI a total of
$450,000 plus interest from the date of the complaint until the
date of judgment.
DOT appealed the jury's verdict on the permanent
taking, arguing the trial court improperly admitted lost profits
evidence. The Court of Appeals affirmed the trial court, holding
that, although our case law generally forbids evidence of lost
profits, Kirkman creates a limited exception in a partial taking
when access to the remaining property is restricted or denied.
DOT v. M.M. Fowler, Inc., 170 N.C. App. 162, 165-66, 611 S.E.2d
448, 450-51 (2005). We allowed DOT's petition for discretionary
review to determine whether the Court of Appeals erred in
affirming the trial court's admission of lost profits evidence.
II. CONDEMNATION PROCEEDINGS
Our Court has stated:
The right to take private property for
public use, the power of eminent domain, is
one of the prerogatives of a sovereign state.
The right is inherent in sovereignty; it is
not conferred by constitutions. Its
exercise, however, is limited by the
constitutional requirements of due process
and payment of just compensation for property
State v. Core Banks Club Props., Inc., 275 N.C. 328, 334, 167
S.E.2d 385, 388 (1969) (citing Redevelopment Comm'n v. Hagins,
258 N.C. 220, 128 S.E.2d 391 (1962)). Both the state and federal
constitutions limit the State's power of eminent domain. North
Carolina's Constitution protects the rights of property owners
through the Law of the Land Clause, which provides that [n]o
person shall be . . . deprived of his . . . property, but by thelaw of the land. N.C. Const. art. I, § 19; see also McKinney v.
Deneen, 231 N.C. 540, 542, 58 S.E.2d 107, 109 (1950) (citing N.C.
Const. of 1868, art. I, § 17, the predecessor of the current N.C.
Const. art. I, § 19). In other words, although the State can
condemn land for public use, the owner must be justly
compensated. As Professor John V. Orth has noted:
'Notwithstanding there is no clause in the Constitution of North
Carolina which expressly prohibits private property from being
taken for public use without compensation . . . , yet the
principle is so grounded in natural equity that it has never been
denied to be a part of the law of North Carolina.' John V. Orth,
The North Carolina State Constitution 58 (Univ. of N.C. Press
1995) (1993) (quoting Johnston v. Rankin, 70 N.C. 441, 442, 70
N.C. 550, 555 (1874) (alterations in original)). Similarly, the
Federal Constitution guards the due process rights of property
owners through the Fourteenth Amendment. U.S. Const. amend. XIV,
§ 1 ([N]or shall any State . . . deprive any person of life,
liberty, or property, without due process of law . . . .); see
also Sale v. State Highway & Pub. Works Comm'n, 242 N.C. 612,
617, 89 S.E.2d 290, 295 (1955).
Although the State possesses the power of eminent
domain by virtue of its sovereignty, the right . . . lies
dormant . . . until the legislature, by statute, confers the
power and points out the occasion, mode, conditions and agencies
for its exercise. Core Banks, 275 N.C. at 334, 167 S.E.2d at
389. Chapter 136 of the General Statutes codifies the statutory
scheme authorizing condemnation by DOT for our state's system ofroadways. Section 136-18 permits DOT to acquire land necessary
for highways by gift, purchase, or otherwise. N.C.G.S. § 136-
18(2) (2005). Article 9 sets forth the procedure for acquiring
land by condemnation. These proceedings commence when DOT files
a complaint and declaration of taking accompanied by a deposit of
the estimated just compensation in the superior court in the
county where the land is located. Id. § 136-103(a) (2005). DOT
must include in its complaint, inter alia, a prayer for
determination of just compensation. Id. § 136-103(c) (2005).
Upon filing and deposit, title to the land vests in DOT. Id. §
136-104 (2005). The right to just compensation vests in the
landowner, who may apply to the court for disbursement of the
deposit, file an answer requesting a determination of just
compensation, or both. Id. §§ 136-104, -105, -106 (2005).
The statutes provide that just compensation includes
damages for the taking of property rights plus interest on the
amount by which the damages exceed DOT's deposit. Id. §§ 136-
112, -113 (2005). When DOT condemns only part of a tract of
land, just compensation consists of the difference between the
fair market value of the entire tract immediately before the
taking (before value) and the fair market value of the land
remaining immediately after the taking (after value). Id. §
Although Chapter 136 offers no guidance on the
calculation of fair market value, this Court has recognized:
[T]he well established rule is that in
determining fair market value the essential
inquiry is, what is the property worth in
the market, viewed not merely with referenceto the uses to which it is at the time
applied, but with reference to the uses to
which it is plainly adapted_that is to say,
what is it worth from its availability for
all valuable uses?
State v. Johnson, 282 N.C. 1, 14, 191 S.E.2d 641, 651 (1972)
(quoting Barnes v. Highway Comm'n, 250 N.C. 378, 387, 109 S.E.2d
219, 227 (1959) (alteration in original)); see also Black's Law
Dictionary 1587 (8th ed. 2004) (defining fair market value as
[t]he price that a seller is willing to accept and a buyer is
willing to pay on the open market and in an arm's-length
transaction). In most instances, landowners seek to prove fair
market value through the testimony of the owners themselves and
that of appraisers offered as expert witnesses. See, e.g., N.C.
State Highway Comm'n v. Helderman, 285 N.C. 645, 207 S.E.2d 720
(1974). An opinion concerning property's fair market value must
not rely in material degree on factors that cannot legally be
considered. Id. at 655-56, 207 S.E.2d at 727. Likewise,
regardless of professional qualifications, an expert's opinion
must be reasonably reliable. DOT v. Haywood Cty., 360 N.C. 349,
352, 626 S.E.2d 645, 647 (2006) (holding the trial court properly
excluded the testimony of three experienced expert appraisers
because the testimony lacked sufficient reliability). To
resolve this case, we must decide whether MMFI's witnesses
improperly based their opinions on alleged lost business profits
and if so, whether the trial court erred in permitting the
introduction of such evidence despite its limiting instruction.
III. ADMISSIBILITY OF LOST BUSINESS PROFITS EVIDENCE
A. The Pemberton Framework
During a proceeding to determine just compensation in a
partial taking, the trial court should admit any relevant
evidence that will assist the jury in calculating the fair market
value of property and the diminution in value caused by
condemnation. Abernathy v. S. & W. Ry. Co.
, 150 N.C. 80, 89, 150
N.C. 97, 108-09, 63 S.E. 180, 185 (1908). Admission of evidence
that does not help the jury calculate the fair market value of
the land or diminution in its value may confuse the minds of the
jury, and should be excluded. Id.
at 89, 150 N.C. at 109, 63
S.E. at 185. In particular, specific evidence of a landowner's
noncompensable losses following condemnation is inadmissible.
Templeton v. State Highway Comm'n
, 254 N.C. 337, 339-40, 118
S.E.2d 918, 920-21 (1961) (finding trial court erred in admitting
evidence of the cost of silt and mud removal because it [was]
possible that the jury could have gotten the impression that the
removal . . . was compensable as a separate item of damage).
Injury to a business, including lost profits, is one
such noncompensable loss. It is important to note that revenue
derived directly from the condemned property itself, such as
rental income, is distinct from profits of a business located on
the property. Compare
5 Julius L. Sackman et al., Nichols on
§ 19.02-.05 (rev. 3d ed. 2006) [hereinafter 5
] (discussing rental income and the capitalization thereof
as a permissible appraisal method for determining the fair market
value of condemned land), with id.
§ 19-06 (devoting a separate
section of the treatise to Income from a Business and
articulating the general rule that the amount of profit earnedfrom a business conducted on the condemned property is ordinarily
not admissible in evidence); see also id.
§ 19.02, at 19-11
(While rents are within the broad category of business profits,
the are not subject to the general rule denying admission of
business profits as evidence on the issue of property value.).
This case is concerned with lost business profits. When evidence
of income is used to valuate property, care must be taken to
distinguish between income from the property and income from the
business conducted on the property. 4 Julius L. Sackman et al.,
Nichols on Eminent Domain
§ 12B.09, 12B-56 to -59 (rev. 3d ed.
2006) [hereinafter 4 Nichols
]. The dissent fails to make this
distinction throughout its discussion of the law and analysis of
the case sub judice
The longstanding rule in North Carolina is that
evidence of lost business profits is inadmissible in condemnation
actions, as this Court articulated in Pemberton v. City of
, 208 N.C. 466, 470-72, 181 S.E. 258, 260-61 (1935).
, the plaintiffs brought an action seeking damages
for wrongful appropriation of land containing their dairy farm.
at 467, 181 S.E. at 258. Overflow and runoff from the city's
newly constructed sewage treatment plant infected the plaintiffs'
cows with anthrax, destroying their entire dairy business. Id.
At trial, the plaintiffs introduced evidence of milk production
and approximate monthly earnings before the incident. 208 N.C.
at 468, 181 S.E. at 259.
The trial court overruled the city's objections to this
testimony but did give multiple limiting instructions. Id.
at467-69, 181 S.E. at 258-59. In particular, the trial court told
the jury not to consider the plaintiffs' evidence 'as any
measure of damages' and specified that the testimony was allowed
only for the jury to have the 'entire situation' before it.
at 468, 181 S.E. at 259. In the jury charge, the trial court
instructed that 'evidence tending to show the earnings and
production of plaintiffs' dairying proposition . . . is not
admissible as tending to show the measure of damages, but to aid
. . . in estimating the extent of the injury sustained.'
(See footnote 1)
Despite the trial court's admonitions, our Court
concluded it was
manifest from the court's rulings and the jury's verdict that
plaintiffs [were] awarded compensation for the loss of their
dairy business. 208 N.C.
at 470, 181 S.E. at 260. Thus, the
city was entitled to a new trial. Id.
at 472, 181 S.E. at 261.
In holding the limiting instructions were insufficient,
Court specifically noted the trial court's efforts to place
the 'entire situation' before the jury were at variance with
the rule for the measurement of damages in compensation cases.
at 470, 181 S.E. at 260 (citing Gray v. City of High Point
203 N.C. 756, 166 S.E. 911 (1932)).
Leading up to Pemberton
Court had consistently stated that when government takes
property, the damages are confined to the diminished pecuniary
value of the property
incident to the wrong. Moser v. City of
, 162 N.C. 116, 118, 162 N.C. 141, 144, 78 S.E. 74, 75
(1913) (emphasis added) (citing Metz v. City of Asheville
, 150N.C. 613, 150 N.C. 748, 64 S.E. 881 (1909)); see Gray v. City of
, 203 N.C. 756, 764, 166 S.E. 911, 915 (1932); Cook v.
Town of Mebane
, 191 N.C. 1, 11, 131 S.E. 407, 412 (1926); Metz v.
City of Asheville
, 150 N.C. 613, 615-16, 150 N.C. 748, 751, 64
S.E. 881, 882 (1909); Williams v. Town of Greenville
, 130 N.C.
65, 68, 130 N.C. 93, 97, 40 S.E. 977, 978 (1902).
Court adopted the reasoning behind
the rule prohibiting lost business profits evidence articulated
by U.S. Supreme Court Justice Oliver Wendell Holmes when he
served on the Supreme Judicial Court of Massachusetts:
It generally has been assumed, we think,
that injury to a business is not an
appropriation of property which must be paid
for. There are many serious pecuniary
injuries which may be inflicted without
compensation. It would be impracticable to
forbid all laws which might result in such
damage, unless they provided a quid pro quo
No doubt a business may be property in a
broad sense of the word, and property of
great value. It may be assumed for the
purposes of this case that there might be
such a taking of it as required compensation.
But a business is less tangible in nature and
more uncertain in its vicissitudes than the
rights which the Constitution undertakes
absolutely to protect. It seems to us, in
like manner, that the diminution of its value
is a vaguer injury than the taking or
appropriation with which the Constitution
deals. A business might be destroyed by the
construction of a more popular street into
which travel was diverted, as well as by
competition, but there would be as little
claim in the one case as in the other.
, 208 N.C. at 470, 181 S.E. at 260 (quoting Sawyer v.
, 182 Mass. 245, 247, 65 N.E. 52, 53 (1902)).
Justice Holmes's words underscore why excluding damages for lost
business profits is sound policy. Constitutional mandatesrequire that the government pay just
N.C. at 617, 89 S.E. 2d at 295. They do not require expenditure
of taxpayer funds for losses remote from governmental action or
too speculative to calculate with certainty. See Pemberton
N.C. at 471, 181 S.E. at 260-61.
Just compensation 'is not the value to the owner for
his particular purposes.' Williams v. State Highway Comm'n
N.C. 141, 146, 113 S.E.2d 263, 267 (1960) (quoting United States
v. Petty Motor Co.
, 327 U.S. 372, 377, 66 S. Ct. 596, 599, 90 L.
Ed. 729, 734 (1946)). Awarding damages for lost profits would
provide excess compensation for a successful business owner while
a less prosperous one or an individual landowner without a
business would receive less money for the same taking. Indeed,
if business revenues were considered in determining land values,
an owner whose business is losing money could receive less than
the land is worth. Limiting damages to the fair market value of
the land prevents unequal treatment based upon the use of the
real estate at the time of condemnation. Further, paying
business owners for lost business profits in a partial taking
results in inequitable treatment of the business owner whose
entire property is taken, in which case lost profits clearly are
not considered. See Williams
, 252 N.C. at 148, 113 S.E.2d at
Evidence of lost business profits is impermissible
because recovery of the same is not allowed. 5 Nichols
19.06, at 19-36. Additionally, the speculative nature of
profits makes them improper bases for condemnation awards as they depend on too many contingencies to be
accepted as evidence of the usable value of
the property upon which the business is
carried on. Profits depend upon the times,
the amount of capital invested, the social,
religious and financial position in the
community of the one carrying it on, and many
other elements which might be suggested.
What one man might do at a profit, another
might only do at a loss. Further, even if
the owner has made profits from the business
in the past it does not necessarily follow
that these profits will continue in the
. 19.06, at 19-37 to -38 (footnotes omitted). Recognizing
that profits can rarely be traced to a single factor, business
executives rely on complex models to determine profitability.
, Michael E. Porter, How Competitive Forces Shape
, 57 Harv. Bus. Rev. 137 (1979) (detailing Porter's
widely accepted five forces model that asserts profitability is
affected by five factors, each of which includes myriad
subfactors). Further, the uncertain character of lost business
profits evidence could burden taxpayers with inflated jury awards
bearing little relationship to the condemned land's fair market
Moreover, our well-established North Carolina rule
prohibiting lost business profits evidence comports with the
federal rule. See United States v. Petty Motor Co.
, 327 U.S.
372, 377-78, 66 S. Ct. 596, 599, 90 L. Ed. 729, 734-35 (1946)
(Since 'market value' does not fluctuate with the needs of
condemnor or condemnee but with general demand for the property,
evidence of loss of profits, damage to good will, the expense of
relocation and other such consequential losses are refused in
federal condemnation proceedings.); see also Mitchell v. UnitedStates
, 267 U.S. 341, 344-45, 45 S. Ct. 293, 294, 69 L. Ed. 644,
648 (1925); Joslin Mfg. Co. v. City of Providence
, 262 U.S. 668,
675, 43 S. Ct. 684, 688, 67 L. Ed. 1167, 1174 (1923).
Notwithstanding the dissent's contention to the
contrary, this Court's rule also accords with the holdings of the
majority of states applying the common law in condemnation
§ 12B.09, at 12B-59
(It is . . .
well settled that evidence of the profits of a business conducted
upon land taken for the public use is not admissible in
proceedings for the determination of the compensation which the
owner of the land shall receive.).
In summary, the prevailing rule excluding lost business
profits evidence in condemnation actions is firmly rooted in our
(See footnote 2)
As a case that comprehensively discussed andapplied this enduring rule, Pemberton
provides the framework upon
which we base our decision today.
(See footnote 3)
B. Application of Pemberton
In the present case, the only issue for the jury was
the amount of damages DOT owed MMFI. To establish its estimate
of fair market value, MMFI offered the testimony of two
witnesses: (1) Marvin Barnes, MMFI's president, who detailed the
business's lost profits; and (2) Frank Ward, the company's real
estate appraiser, who used MMFI's lost business profits to
develop a valuation of the land. Both witnesses stated the
highest and best use of the property in question was and is its
present use as a convenience store and gasoline station both
before and after the taking. Mr. Barnes opined that DOT's
condemnation impaired the remaining property and made it lessvaluable for these purposes. MMFI's evidence showed that DOT
relocated one of the driveways providing access to its property
from Garrett Road to Durham-Chapel Hill Road. The other two
driveways were left in essentially the same location, although
one was shorter and steeper after completion of the roadway
(See footnote 4)
Following the trial court's limiting instruction, Mr.
Barnes testified that MMFI lowered the price of gasoline, and
consequently, the profit margin on each gallon sold dropped four
cents in the five months following completion of construction.
He believed the price reduction was necessary because of
decreased customer access to the property resulting from DOT's
alterations of the driveways. Mr. Barnes multiplied MMFI's
alleged profit decrease by the number of gallons of gasoline sold
each year at the station and arrived at a figure of $90,000 as
the lost profits MMFI would suffer in the year following the
taking. Mr. Barnes then assigned a before value of $1.3 million
to the property and an after value of $800,000. He calculated
the after value using what he considered to be a conservative
factor of six times his estimate of yearly lost profits, which
resulted in a $540,000 reduction in value.
Although the trial court properly admitted Mr. Barnes's
testimony that DOT's condemnation made it more difficult for
customers to enter MMFI's service station, it should haveexcluded the quantified estimate of lost profits and any
valuation based solely on this evidence. One factor in
determining the value of condemned property is the highest and
best use of the land. Kirkman
, 257 N.C.
at 432, 126 S.E.2d at
111. If the condemnation renders the remaining property unfit
or less valuable for its highest and best use or any use to
which it is adapted, the jury may consider the injury to the
remaining land in its assessment of fair market value. Id.
432, 126 S.E.2d at 110. Further, a landowner may express an
opinion as to the fair market value of the property for the jury
to weigh because it is generally understood that the opinion of
the owner is so far affected by bias that it amounts to little
more than a definite statement of the maximum figure of his
, 285 N.C. at 652, 207 S.E.2d at 725
(citation and internal quotations omitted). However, a landowner
may not supplement this opinion with detailed evidence of lost
business profits. Williams
, 252 N.C. at 147-48, 113 S.E.2d at
268. Doing so suggests to the jury that the property owner is
entitled to those losses. See Templeton
, 254 N.C. at 340, 118
S.E.2d at 921 (finding error in trial court's admission of
evidence of loss of revenue from fishing as a separate item of
damage without taking into account what [e]ffect, if any, this
had on the fair market value of the land after the taking).
Any determination of fair market value must be based on
the diminution in value_not just for the current owner of the
property, but for any owner who would put the property to itshighest and best use. In this case, MMFI attempted to recover
for harm to its business rather than damage to the land itself.
Like Mr. Barnes's testimony, Mr. Ward's appraisal
testimony was improperly admitted to the extent it was based on
lost business profits. Mr. Ward testified he used the
capitalization of income approach to assess the value of MMFI's
land. Although not the preferable method of valuation, applying
the income approach was permissible in this case.
(See footnote 5)
appraisal method relies on actual or projected [income, such as
rental income,] . . . earned from the property itself or
comparable property. 5 Nichols
§ 19.01, at 19-1; see id.
19.02, at 19-11. However, with the income approach, the
appraisal must differentiate between income directly from the
property and profits of the business located on the land. 4
. 12B.09, at 12B-56 to -59.
Here, the commercial nature of the property lent itself
to appraisals based on comparable rental values even though MMFI
did not receive rent from the property. Mr. Ward used his
estimate of the rental value of the site in his appraisal of the
before value. However, Mr. Ward computed the after value of the
real estate by multiplying MMFI's estimate of its lost profits by
factors of five and six, averaging the two results, and then
subtracting the average from a before value of $1.2 million. Because he based his estimate of the after value solely on MMFI's
alleged lost profits, it was improper to allow Mr. Ward's
testimony concerning diminution in value.
C. Application of Kirkman
We disagree with the Court of Appeals analysis of
Kirkman in this case. Kirkman simply applied our holding in
Pemberton to its facts and did not, as the Court of Appeals held,
create an exception to Pemberton allowing admission of specific
lost business profits when partial takings result in restricted
access to the land. In Kirkman, the State Highway Commission
took a portion of the landowners' property containing a motel and
restaurant, eliminating direct access to the land from the
highway. 257 N.C. at 430, 126 S.E.2d at 109. The landowners'
expert witness testified he had considered the loss in value of
the site as used for a motel and restaurant in assessing the fair
market value after the taking. Id. at 431-32, 126 S.E.2d at 110.
Although he took into account that restricting access to the
property resulted in a loss of business, the expert did not
[attempt] to measure the loss of business in percentage or in
money. Id. at 432, 126 S.E.2d at 110. Rather than looking at
the particular losses of the business located on the property,
the expert broadly considered the way in which eliminating access
to the site made it less valuable for anyone who wished to use it
to operate a motel and restaurant. Id. The dissent wrongly
asserts, Kirkman instructs that using lost revenue evidence to
inform market value is distinct from recovering lost revenue
itself. Kirkman clearly does not permit quantified evidence oflost business profits. There is no difference between using lost
profits to determine the fair market value of the land and
awarding them as a separate item of damages. By either improper
calculation, the business receives compensation for its lost
Thus, in Kirkman, we did not approve the use of
quantified evidence of lost profits. To the contrary, this Court
held unquantified lost business profits are a fact that can be
generally considered in determining whether there has been a
diminution in value in the land that remains after a partial
taking. Id. Our decision in Kirkman must be read with our other
cases, which clarify that although the jury may consider adverse
effects resulting from condemnation that decrease the value of
the remaining property, these effects are not separate items of
damage, recoverable as such, but are relevant only as
circumstances tending to show a diminution in the over-all fair
market value of the property. Gallimore v. State Highway & Pub.
Works Comm'n, 241 N.C. 350, 355, 85 S.E.2d 392, 396 (1955)
(citing Raleigh, Charlotte & S. Ry. Co. v. Mecklenburg Mfg. Co.,
169 N.C. 204, 169 N.C. 156, 85 S.E. 390 (1915)); see also
Pemberton, 208 N.C. at 471, 181 S.E. at 261 ([D]iminished value
of [condemned] land . . . constitutes a proper item for inclusion
in the award, but a business per se is not 'property' . . .
requiring compensation for its taking under the power of eminent
domain. (citing State v. Suncrest Lumber Co., 199 N.C. 199, 154
S.E. 72 (1930))). Allowing the jury to consider that the land
may be less valuable due to the condemnation's effect on thelandowner's business does not require quantified evidence of lost
profits also be admitted. This is an important distinction which
unifies our analysis in both Kirkman and Pemberton. Neither
opinion sanctions admission of quantified lost profits evidence.
Furthermore, the trial court's limiting instruction,
based on a misreading of Kirkman, did not cure the incorrect
admission of lost profits testimony and appraisal testimony based
on this evidence. Our Court has expressly held a limiting
instruction is insufficient to overcome the error resulting from
introduction of quantified evidence of lost business profits.
Pemberton, 208 N.C. at 470, 472, 181 S.E. at 260, 261. Like
Pemberton, in this case, [i]t is manifest from . . . the jury's
verdict that MMFI has been awarded compensation for its alleged
loss in business profits. Id. at 470, 181 S.E. at 260. Thus,
the trial court's use of a limiting instruction failed to remedy
the admission of such evidence.
Because the trial court erroneously allowed quantified
lost business profits testimony and an appraisal based on that
evidence, we reverse the Court of Appeals and remand to that
court with instructions to further remand this case to the trial
court for a new trial.
REVERSED AND REMANDED; NEW TRIAL.
Justice MARTIN dissenting.
[W]hen the taking renders the remaining land . . .
less valuable for any use to which it is adapted, that fact is a
proper item to be considered in determining whether the takinghas diminished the value of the land itself. Kirkman v. State
Highway Comm'n, 257 N.C. 428, 432, 126 S.E.2d 107, 110 (1962).
[t]he amount of fuel sold at a service station is
. . . significant to a buyer and a seller of the property in
setting a purchase price. 5 Julius L. Sackman et al., Nichols
on Eminent Domain § 19.06 at 19_44
(rev. 3d ed. 2006).
evidence was admitted tending to show that the taking rendered
defendant's remaining land less valuable for use as a gasoline
Accordingly, such evidence was
a proper item to be
considered by the jury in determining whether the taking has
diminished the value of the remaining property.
Id. § 19.01
at 19_5 to 19_6
I agree with the learned and experienced Superior Court
Judge, Robert H. Hobgood, who admitted the Kirkman evidence, and
our Court of Appeals, which unanimously affirmed Judge Hobgood's
admission of this evidence. The majority opinion differs,
overruling sub silentio our decision in Kirkman, 257 N.C. 428,
126 S.E.2d 107.
In eminent domain proceedings under North Carolina law,
'[a]ny evidence which aids the jury in fixing a fair market
value of the land and its diminution by the burden put upon it is
relevant and should be heard.' Templeton v. State Highway
Commission, 254 N.C. 337, 339, 118 S.E.2d 918, 920 (1961)
(quoting Gallimore v. State Highway & Pub. Works Comm'n, 241 N.C.
350, 354, 85 S.E.2d 392, 396 (1955) (internal quotation marks
omitted)). In the instant case, defendant had the right to
present relevant valuation evidence to the jury under thisCourt's decision in Kirkman. Because the majority opinion
disregards well settled rules of law in overturning the jury's
assessment of fair market value, I respectfully dissent.
The majority opinion essentially characterizes the
issue in terms of whether lost profits are directly recoverable,
as a separate element of damages, in an eminent domain
proceeding. That is not the issue before this Court. Rather,
the issue is whether the jury may consider, in its determination
of fair market value under N.C.G.S. § 136_112, the diminution in
value caused by a taking that renders a tract less valuable for
the highest and best use to which it is adapted and used.
In excluding the owner's evidence, which showed how the
taking by the North Carolina Department of Transportation (DOT)
rendered the property less valuable for use as a gasoline station
and convenience store, the majority departs from our forty-four
year old landmark decision in Kirkman. We explained in Kirkman
that a jury may consider evidence of lost revenue in determining
its assessment of fair market value when the property itself
contributes in a direct way to the revenue derived from a tract
adapted to its highest and best use. 257 N.C. at 432, 126 S.E.2d
at 110_11. North Carolina cases since Kirkman have consistently
followed this rule of law. See, e.g., City of Fayetteville v. M.
M. Fowler, Inc., 122 N.C. App. 478, 479_80, 470 S.E.2d 343,
344_45, disc. rev. denied, 344 N.C. 435, 476 S.E.2d 113_14
(1996); City of Statesville v. Cloaninger, 106 N.C. App. 10,
15_17, 415 S.E.2d 111, 114_16, appeal dismissed and disc. rev.
denied, 331 N.C. 553, 418 S.E.2d 664 (1992); Raleigh-DurhamAirport Auth. v. King, 75 N.C. App. 121, 123_25, 330 S.E.2d 618,
619_21 (1985); Raleigh-Durham Airport Auth. v. King, 75 N.C. App.
57, 62_64, 330 S.E.2d 622, 625_26 (1985). The majority opinion
places North Carolina squarely within a small minority of
jurisdictions nationwide that employ a per se ban on the
admission of this type of evidence in eminent domain proceedings.
Our General Statutes provide that when DOT's exercise
of eminent domain power results in a partial taking of a tract of
land, the measure of damages is the difference between the fair
market value of the entire tract before the taking and the value
of the remainder after the taking. See N.C.G.S. § 136_112
(2005). As indicated, [a]ny evidence which aids the jury in
fixing a fair market value of the land and its diminution by the
burden put upon it is relevant and should be heard. Templeton,
254 N.C. at 339, 118 S.E.2d at 920 (quoting Gallimore, 241 N.C.
at 354, 85 S.E.2d at 396 (internal quotation marks omitted)). To
that end, [a]ll factors pertinent to a determination of what a
buyer, willing to buy but not under compulsion to do so, would
pay and what a seller, willing to sell but not under compulsion
to do so, would take for the property must be considered. City
of Charlotte v. Charlotte Park & Recreation Comm'n, 278 N.C. 26,
34, 178 S.E.2d 601, 606 (1971).
The majority's exclusion of evidence showing how the
taking rendered the remainder less valuable is fundamentally
inconsistent with the statutory requirement that the owner
receive fair market value for involuntarily taken property. As
Mr. Marvin Barnes, defendant's owner, explained during histestimony, a willing buyer would have valued the fair market
value of this tract immediately prior to the taking at $1.3
million: [A]ny person who is knowledgeable about convenience
stores and gasoline sales, who knew, in fact, exactly what that
store was doing in terms of gallons sold, if he had that
information, if there was no store there, he would pay that
willingly and in a heartbeat. (t 86) In excluding this evidence,
the majority opinion prevents the jury from knowing what a
buyer, willing to buy but not under compulsion to do so, would
pay. City of Charlotte, 278 N.C. at 34, 178 S.E.2d at 606.
In so doing, the majority's result is fundamentally at
odds with the statutory objective of N.C.G.S. § 136_112: To
compensate the unwilling seller with fair market value. That
is, since the income potential of revenue-producing property is
the most important characteristic in establishing the value for a
voluntary exchange, the majority opinion excludes, as a matter of
law, the very information that a willing buyer would want to know
about this property. See 5 Julius L. Sackman et al., Nichols on
Eminent Domain § 19.01 at 19_6 (rev. 3d ed. 2006) [hereinafter
Nichols] (Income derived from the property is recognized as a
prime consideration of buyers and sellers in establishing a
purchase price, and is therefore admissible as probative of a
property's fair market value.). Consequently, despite the
statutory commitment expressed by our General Assembly that
owners receive fair market value, we can be assured of one thing
on remand of this case: Defendant will not receive fair market
value for DOT's involuntary taking of this property. As the majority recognizes, injury to a business is
not an appropriation of property which must be paid for.
Pemberton v. City of Greensboro, 208 N.C. 466, 470, 181 S.E. 258,
260 (1935) (quoting Sawyer v. Commonwealth, 182 Mass. 245, 247,
65 N.E. 52, 53 (1902)). The Court reaffirmed this rule in
Kirkman, explaining that [l]oss of profits or injury to a
growing business conducted on property or connected therewith are
not elements of recoverable damages in an award for the taking
under the power of eminent domain. 257 N.C. at 432, 126 S.E.2d
But the majority misconstrues Kirkman's immediate
qualification of this principle: However, when the taking
renders the remaining land unfit or less valuable for any use to
which it is adapted, that fact is a proper item to be considered
in determining whether the taking has diminished the value of the
land itself. If it is found to do so, the diminution is a proper
item for inclusion in the award. Id. (emphasis added). In the
next paragraph, the Court engaged in a more detailed discussion
of property use, elaborating: The highest and most profitable
use for which property is adaptable is one of the factors
properly considered in arriving at its market value. 257 N.C.
at 432, 126 S.E.2d at 111 (emphasis added)
(citing Williams v.
State Highway Comm'n of N.C., 252 N.C. 514, 114 S.E.2d 340
Kirkman instructs that using lost revenue evidence to
inform market value is distinct from recovering lost revenue
itself. By analogy, with respect to an aggrieved party's attemptto introduce evidence of lost rents, the Court commented: When
rental property is condemned the owner may not recover for lost
rents, but rental value of property is competent upon the
question of the fair market value of the property at the time of
the taking. 257 N.C. at 432, 126 S.E.2d at 110 (emphasis added)
(citing Palmer v. N.C. State Highway Comm'n, 195 N.C. 1, 141 S.E.
338 (1928)); see also Ross v. Perry, 281 N.C. 570, 575, 189
S.E.2d 226, 229 (1972) (In determining [a property's] fair
market value the rental value, or income, of the property is
merely one of the factors to be considered. Income from the
property is material only insofar as it throws light upon its
market value.). As noted by a leading treatise: Loss of rents
or profits may . . . be admitted to prove diminution in value of
remaining property caused by a taking. Nichols, § 19.01 at
19_5 to 19_6 (emphasis added).
Despite the critical distinction that Kirkman draws
between permissible and impermissible use of lost revenue or lost
income evidence, the majority opinion misconstrues prior
decisions in which landowners in eminent domain proceedings were
barred from seeking compensation for lost profits. In Pemberton,
for example, this Court disallowed the landowners' evidence
regarding loss to their dairy business. The Court ruled that the
trial judge had improperly instructed the jury to consider such
evidence to estimat[e] the extent of the injury sustained,
resulting in an improper award of compensation for the loss of
their dairy business. 208 N.C. at 470, 181 S.E. at 260.
Likewise, in Williams v. State Highway Commission, theleaseholder alleged that moving his grocery business to another
location cost him business, customers, and good will, and sought
to recover therefor. 252 N.C. 141, 145, 113 S.E.2d 263, 267
(1960). The Court found that such damages were noncompensable in
condemnation proceedings. Id. at 148, 113 S.E.2d at 268_69. In
Williams, the Court stated: [L]oss where made up of the profits
which might have been made by the business but of which the owner
was deprived by reason of the necessary interruption of such
business by the condemnor is under the prevailing rule excluded
from consideration in determining the damages to which the owner
is entitled. Id. at 147, 113 S.E.2d at 268. The Court's
decisions in Pemberton and Williams reiterated that evidence of
lost profits is not admissible as a direct measure of the loss .
. . made up of the profits, Williams, 252 N.C. at 147, 113
S.E.2d at 268
, or as an estimat[e] [of] the injury sustained,
Pemberton, 208 N.C. at 470, 181 S.E. at 260
. These courts,
however, did not address the use of lost revenue in appraising a
property's market value. As such, they are inapposite to the
The careful balance struck by this Court in Kirkman
comports with modern principles of economics in the real estate
market. Under the widely accepted income capitalization approach
to real estate appraisal, the income derived from a tract of land
is relevant to the property's fair market value. See Nichols
§ 19.01 at 19_8, § 19.02 at 19_11 to _16; Appraisal Inst., The
Appraisal of Real Estate 449_68 (11th ed. 1996) [hereinafter
Appraisal]. Under this approach, land value is appraised bytaking the property's projected income stream over several years
and capitalizing it by applying a market rate of interest. See
Nichols § 19.01 at 19_3, 19_8, § 19.02 at 19_11; Appraisal at
462 (Yield Capitalization). Alternatively, the property's fair
market value may be determined by multiplying its income for a
single year by an income factor. Appraisal at 461_62 (Direct
In valuing location-dependent commercial properties
like gas stations, the most effective appraisal technique is
often the income capitalization approach. Indeed, at trial in
the present case, DOT conceded that the income capitalization
approach was basically the best way to value a property, an
income producing property, such as [defendant's property]. (t
57) As this Court has emphasized: In condemnation proceedings
our decisions are to the effect that damages are to be awarded to
compensate for loss sustained by the landowner. 'The
compensation must be full and complete and include everything
which affects the value of the property and in relation to the
entire property affected.' State Highway Comm'n v. Phillips,
267 N.C. 369, 374, 148 S.E.2d 282, 286 (1966) (internal citation
omitted) (quoting Abernathy v. S. & W. Ry. Co., 150 N.C. 80,
88_89, 150 N.C. 97, 108, 63 S.E. 180, 185 (1908)).
In the present case, the evidence showed that the
property upon which the convenience store and gas station was
located contributed in a unique way to the revenue derived by the
owner based on adaptation of the property to its highest and best
use. Witnesses for both DOT and defendant agreed that thehighest and best use of the property was as a gas station and
convenience store. Mr. Marvin Barnes, defendant's owner, stated
that the property in question had been adapted and developed for
use as a gas station. Mr. Barnes testified that over the past
thirty years he had evaluated and purchased approximately thirty
to thirty-five properties for use as gasoline stations or
combined gasoline station and convenience stores. Mr. Barnes
indicated that convenience is one of the most important factors
in determining the value of land used for a gas station. He
testified at trial:
Q In evaluating a piece of property for
purchase as a gas station site or a
convenience store site, what factors do you
look at to determine what the value of that
site should be?
A Well, we look at all the surrounding
demographics, traffic count and influx and
whether the site lays well. Whether or not
it will be or can be made convenient for
people to buy gasoline there.
Q And what are the _ Do you look at the
orientation of the building . . . to the
A Well we decide which roads. Generally
we build on corner sites and we decide which
way we want the store to face, which road it
will face. And then we try to work out a
configuration that will make the store easy
for the public to come in to do business and
Q And is the orientation of the driveways
that go in and out of the site, does that
have any impact when you're evaluating the
site for value?
A Well, it's one of the most important
factors. It's crucial. Gasoline is a
commodity. And so people won't go out of
their way to purchase it. You've got to make
it easy for them.
Q When you are evaluating a piece of
property for, or making a determination about
a potential value of a piece of property for
purchase as a service _ gas station or
convenience store, do you take into or make
any projections as to what you believe the
potential sales volume of gasoline that that
site might be able to make?
A I do. I have to decide how many units
or gallons a particular site can sell on an
Mr. Barnes also gave extensive testimony detailing why,
as a result of the taking, it was less convenient for customers
to access the gas station. Before the taking, the property was
served by three driveways that were very convenient for
customers. The first driveway, which faced Old Chapel Hill Road
and centered on the four gasoline dispensers and the convenience
store itself, allow[ed] people to come in, get gas, [and then]
either exit on Garrett Road or return to Old Chapel Hill Road.
A second driveway, located on Garrett Road near its intersection
with Old Chapel Hill Road, allowed people coming toward Durham
on Old Chapel Hill Road to make a left-hand turn and go directly
into the station in front of the [gasoline] dispensers to get gas
and then leave by [a third driveway located farther from the
intersection] on Garrett Road. Alternatively, customers
entering on the second driveway who wanted to continue on down
Old Chapel Hill Road toward South Square and Durham after getting
gas again could turn around and go back out to Old Chapel Hill
Road on the first driveway.
Everything changed when DOT condemned a substantial
portion of defendant's lot. The second pre-taking driveway,located on Garrett Road near its intersection with Old Chapel
Hill Road, was done away with entirely. The other driveway on
Garrett Road became more steep and less convenient to customers
because it was shortened and the resulting grade became more
severe. After the taking, the two driveways established by DOT
on Old Chapel Hill Road were not as well positioned. According
to Barnes, As you come up to the store from Durham . . . there
is a gradual grade of a crest . . . just on the Durham side of
the store. The truth is cars coming there can't see cars coming
out of this lower driveway because it's down below them due to
the new grade. Mr. Barnes also stated that the after taking
driveway layout often forced customers to make a u-turn to go
back out the way they came.
Mr. Barnes testified that this lack of convenience
directly caused a drop in the margin that this particular
property achieved of four cents per gallon of gasoline. Based
upon this quantified data, Mr. Barnes could accurately
calculate that gasoline revenues would fall $90,000 in the first
full year after completion of the DOT project. Based on the
income capitalization approach, which the state conceded was
appropriate for income-producing property such as defendant's,
Mr. Barnes gave his opinion as to the fair market value of the
property before the taking, $1.3 million, and after the taking,
Similarly, defendant's expert appraiser, Mr. Frank
Ward, testified that the property was worth $1.2 million before
the taking and $700,000 after the taking. Mr. Ward stated thatthe reduction in income [caused by the taking] had diminished
the value of the property. Mr. Barnes and Mr. Ward both
testified that they based their after value on the loss in
revenue directly caused by the impact of the taking on the
Accordingly, defendant's witnesses gave their opinion
as to the before and after value of the property as required by
N.C.G.S. § 136_112. They explained the bases of their opinions,
which included the certain reduction in revenue resulting from
Twice, Judge Hobgood gave a cautionary instruction,
admonishing the jury that it was not to award damages for any
loss in business income. The language carefully selected by
Judge Hobgood for this instruction was a mirror image of the
language of Kirkman, far from the misreading of Kirkman
asserted by the majority:
Loss of profits or injury to a growing
business conducted on property or connected
therewith are not elements of recoverable
damages and an award for the taking under the
power of eminent domain. However, when the
taking renders the remaining land unfit or
less valuable for any use to which it is
adapted, that fact is a proper item to be
consider[ed] in determining whether the
taking has diminished the value of the land
Having been properly charged under Kirkman, see 257
N.C. at 432, 126 S.E.2d at 110, it was the jury's exclusive role
to weigh the evidence, assess credibility where the evidence
conflicted, and determine damages. See Williams, 252 N.C. at
519, 114 S.E.2d at 343. Nothing in the facts of the instant casedifferentiates it from cases in which we have allowed evidence of
lost rents or lost revenue to inform the market value
determination. As noted by our Court of Appeals in the instant
case, [t]he holding in Kirkman is not limited to instances where
rental property is involved, as it was not a case involving
rental property. Dep't of Transp. v. M.M. Fowler, Inc., 170
N.C. App. 162, 164, 611 S.E.2d 448, 450 (2005).
Notably, in the instant case, the majority's opinion
aligns North Carolina with a minority of states which apply a per
se ban on this type of evidence in eminent domain proceedings.
As a leading treatise observes, a majority of states follow the
rule that [r]ents and profits derived from the use to which
property is applied are generally admissible as evidence which
may properly be considered in ascertaining the market value of
property taken by eminent domain.
Nichols § 19.01 at 19_4 to
_5, and cases cited therein. Moreover, the same treatise notes
the federal courts' adherence to this general rule and cites four
federal cases _ one of which decided by a federal court in North
Carolina, id. at 19_5 n.11.
See United States v. 179.26 Acres of
Land, 644 F.2d 367, 371_72 (10th Cir. 1981) (The major factors
to be considered in determining the market value of real estate
in condemnation proceedings are: . . . (h) the net income from
the land, if the property is devoted to one of the uses to which
it could be most advantageously and profitably applied.
(internal citation and quotation marks omitted)); Spitzer v.
Stichman, 278 F.2d 402, 410 (2d Cir. 1960) (In the absence of a
market value, [the award] may properly be determined by what theproperty brings in the way of earnings to its owner. (citation
and internal quotation marks omitted)); United States v. 298.31
Acres of Land, 413 F.Supp. 571, 573 (S.D. Iowa 1976) (To
determine the value of property by the capitalization of income
method, the following is required: the future net income to be
expected from the property is discounted to the present to
provide for both a return on the investment and an amortization
of the investment. (citation and internal quotation marks
omitted)); United States v. 121.20 Acres of Land, 333 F.Supp. 21,
32_34 (E.D.N.C. 1971) (utilizing, in part, an income
capitalization approach to value condemned land).
majority's categorical assertion that federal courts unanimously
follow its minority approach is simply inaccurate.
Moreover, although not mentioned by the majority, the
methodology and evidence relied upon by appraisal witnesses are
subject to few limitations under the law of this state. See Bd.
of Transp. v. Jones, 297 N.C. 436, 438, 255 S.E.2d 185, 187
(1979) (holding that N.C.G.S. § 136_112 does not restrict expert
real estate appraisers to any particular method of determining
the fair market value of property); State Highway Comm'n v.
Conrad, 263 N.C. 394, 399, 139 S.E.2d 553, 557 (1965) (holding
that an expert real estate appraiser may base his opinion on and
testify to a broad range of sources, including those not
otherwise admissible). Again, [a]ll factors pertinent to a
determination of what a buyer, willing to buy but not under
compulsion to do so, would pay and what a seller, willing to sell
but not under compulsion to do so, would take for the propertymust be considered. City of Charlotte, 278 N.C. at 34, 178
S.E.2d at 606.
The majority concedes that evidence of lost revenue or
lost profits may be considered broadly in determining the fair
market value of condemned land, but objects to the admissibility
of quantified evidence of lost revenue. Specifically, the
majority acknowledges that the trial court properly admitted Mr.
Barnes's testimony that DOT's condemnation made it more difficult
for customers to enter MMFI's service station, but objects to
the introduction of a quantified estimate of lost revenue
directly caused by DOT's taking.
If the majority is truly concerned about speculative
evidence, then it makes little sense to allow unquantifiable
evidence while excluding quantifiable evidence based on expert
appraisal testimony. It was undisputed in this case that the
real estate appraiser's qualifications were impeccable: he
testified that he had been in the real estate appraising business
for forty-two years, had been certified by the state ever since
1990, the first year certification was required, and had
regularly appraised property for the State Department of
Transportation for three decades. Given the reliability of the
real estate appraisal here _ which the state never challenged _
it is difficult to find the logic or wisdom in a rule that would
exclude the hard evidence provided by Mr. Ward, while allowing
more speculative soft evidence of unquantifiable (and thus,
largely unverifiable) losses.
The majority further hypothesizes: [I]f business
revenues were considered in determining land values, an owner
whose business is losing money could receive less than the land
is worth. This is a red herring. According to Nichols:
If . . . the condemnor . . . seeks to bring
out the actual income from the property, it
should first be obliged to offer evidence
that the use to which the land was actually
put was one of the uses to which the land was
best adapted . . . . It would, of course, be
absurd to admit evidence of the income to be
derived from raising potatoes on a valuable
city lot, or renting it for a tennis court or
for one-story booths, as evidence of the
price it would bring as a real estate
Nichols, § 19.01 at 19_3.
Perhaps most importantly, the General Assembly has not
acted to amend the eminent domain statutes even after repeated
decisions from this Court and the Court of Appeals over the
course of many years indicating that evidence of lost revenue or
lost profits may be used under these facts to inform market
value. When, as here, the General Assembly has acquiesced in
judicial construction of a statute, we must presume that it
approves of the interpretation accorded to the statute by the
courts. See Rowan Cty. Bd. of Educ. v. U.S. Gypsum Co., 332 N.C.
1, 9, 418 S.E.2d 648, 654 (1992) (The legislature's inactivity
in the face of the Court's repeated pronouncements [on an issue]
can only be interpreted as acquiescence by, and implicit approval
from, that body.); see also State v. Jones, 358 N.C. 473, 484,
598 S.E.2d 125, 132 (2004) (We presume, as we must, that the
General Assembly had full knowledge of the judiciary's long
standing practice. Yet, during the course of multiple clarifyingamendments . . . at no time did the General Assembly amend [the
relevant] section . . . .). Thus, the majority opinion not only
alters a rule of law that has been in place for nearly half a
century, but it also subverts legislative intent. If the General
Assembly desired to change our law as the majority does today, it
could easily do so. Indeed, as the majority itself points out,
the General Assembly is in fact currently studying this issue.
See N.C. H. Select Comm. on Eminent Domain Powers, Interim Report
to the 2006 Regular Session of the 2005 General Assembly of North
Carolina 9 (2006).
The jury in the present case should be entitled to
consider how DOT's taking rendered defendant's property less
valuable for use as a gas station and convenience store. In my
view, the majority opinion will preclude many owners from
receiving their statutory right to fair market value for
involuntarily taken property. Far from inflating awards,
adhering to the well-settled Kirkman rule simply ensures that
when citizens find themselves in the path of the latest DOT
project, they receive just compensation for their lost property
_ as the United States Constitution and Constitution of North
Carolina both require. Put simply, the majority's departure from
Kirkman withholds essential valuation information from the jury.
Because the majority decision impairs the jury's ability to
perform its duty of assessing fair market value under N.C.G.S.
§ 132_112, I respectfully dissent.
Justices WAINWRIGHT and TIMMONS-GOODSON join in this
Footnote: 1 This jury charge, found erroneous by our Court in
Pemberton, is essentially the theory of the dissent.
Footnote: 2 The Court of Appeals opinions that the dissent cites in
opposition to our holding are in fact consistent with the rule we
uphold today. These cases, like our opinion, distinguish between
valuations based on income from the business and income from the
land itself, such as rental income. See City of Fayetteville v.
M.M. Fowler, Inc., 122 N.C. App. 478, 479-80, 470 S.E.2d 343, 345
(allowing valuation based on impact of the [partial] taking on
the rental income generated by the property), disc. rev. denied,
344 N.C. 435, 476 S.E.2d 113 (1996); City of Statesville v.
Cloaninger, 106 N.C. App. 10, 16-17, 415 S.E.2d 111, 115
(allowing appraisal based on income approach without discussion
when utilization of other valuation approaches was inadequate and
the testimony challenged on appeal was admitted without
objection), appeal dismissed and disc. rev. denied, 331 N.C. 553,
418 S.E.2d 664 (1992); Raleigh-Durham Airport Auth. v. King, 75
N.C. App. 121, 123-24, 330 S.E.2d 618, 619-20 (1985) (allowing
valuation based in part on rental revenues); Raleigh-Durham
Airport Auth. v. King, 75 N.C. App. 57, 62-63, 330 S.E.2d 622,
625-26 (1985) (allowing valuation based in part on hypothetical
rental income derived from rental rates charged for other
property in the same area). Furthermore, the dissent ignores the
Court of Appeals decisions in Department of Transportation v.
Fleming, 112 N.C. App. 580, 436 S.E.2d 407 (1993) and Department
of Transportation v. Byrum, 82 N.C. App. 96, 345 S.E.2d 416
(1986), both of which faithfully apply the prevailing rule. SeeFleming, 112 N.C. App. at 583, 436 S.E.2d at 410 (excluding
appraisal based on income from landowners' plumbing and heating
business and not from any rental value attributable to the
land); Byrum, 82 N.C. App. at 99, 345 S.E.2d at 418 (excluding
lost business profits evidence and noting the landowner could
have offered evidence of the rents received but did not).
Footnote: 3 The General Assembly is empowered to change this well-
established rule and indeed, as of the time of the issuance of
this opinion, is studying the issue. The House Select Committee
on Eminent Domain Powers was created on 8 December 2005 to study
issues related to the use of the power of eminent domain. N.C.
H. Select Comm. on Eminent Domain Powers, Interim Report to the
2006 Regular Session of the 2005 General Assembly of North
Carolina 9 (2006). In its interim report the Committee indicated
it planned to consider [p]ayment of damages to persons who
operate businesses on condemned property that is affected by a
condemnation action when it resumed its work. Id. Of course,
we cannot know if any legislation will be enacted. Our duty,
however, is not to change the law but to apply it as it currently
exists. See Smith v. Norfolk & S. R.R. Co., 114 N.C. 445, 464,
114 N.C. 729, 757, 19 S.E. 863, 871 (1894) (If such a
revolutionary change is to be made in the law . . . , it should
be done by the Legislature and not by the Court. Jus dicere non
Footnote: 4 The Court of Appeals erroneously stated that DOT reduced
the number of entrances to the property from two to one. DOT
changed the location of one entrance but did not reduce the total
of three driveways serving the property.
Footnote: 5 Methods of appraisal acceptable in determining fair market
value include: (1) comparable sales, (2) capitalization of
income, and (3) cost. See 5 Nichols . 19.01, at 19-2. While the
comparable sales method is the preferred approach, the next best
method is capitalization of income when no comparable sales data
are available. 4 Nichols . 12B.08, at 12B-47 to -48.
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