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Dept. of Transportation v. Bouy





APPEAL from the Circuit Court of Macon County; the Hon. JOHN L. DAVIS, Judge, presiding.


This appeal involves an award of damages for a portion of defendants' cemetery land, appropriated for highway purposes, by the Department of Transportation of the State of Illinois. Defendants requested compensation for (1) the .803 acre of property taken for the roadway; (2) the .671 acre taken for a temporary easement during the period of construction; and (3) damages for injury caused to the remainder. The jury found the value of the property taken to be $72,700 and the value of the temporary easement to be $2,300. No award was made for the alleged damage to the remainder.

Defendants challenge the judgment contending essentially that the trial court improperly precluded admission of defendants' expert opinion testimony showing the value of the property taken was $228,854 and the damage to the remainder $43,447. The primary issue, on appeal, is whether this expert opinion evidence was properly excluded as a matter of law.

The cemetery, at the time of taking, was 58 years old and consisted of 95 acres. The parties stipulated that the highest and best use of the land is a cemetery and that this use is a special use.

At the trial, petitioner's witness, James Lloyd Brown, an appraiser, testified that he primarily used the "income approach" in appraising defendants' property. This method of appraisal is based on the income, expenses, and the profit that could be anticipated from the operation of the cemetery. In applying this formula, Brown first determined the cemetery's net yearly income ($79,000). He then calculated the estimated economic life of the cemetery (59 years) by multiplying the average number of graves sold per year, since the cemetery's existence, times the remaining available grave sites. Brown then determined the present value of the income to be received from the remaining available grave sites ($787,156) by multiplying the net yearly income by an "Inwood Coefficient" (a table measuring the present value of income to be received in the future) of 9.64. This multiple or coefficient was derived by measuring a capitalization rate of 10% (a figure representing the appraiser's estimate of the anticipated rate of return from the property's income) over the economic life of the cemetery.

Brown then divided the $787,156 figure (the product of the net yearly income and the Inwood Coefficient) by the remaining acres available for grave sites. The present value per acre ($19,679) was then multiplied by the .803 acre taken, producing a figure of $15,800 as the value of the property taken. Using a similar procedure he determined the value of the temporary easement to be $3,300. In addition, Brown testified that the valuation of the property taken should include the value of shrubs, trees, and other improvements which were destroyed. He concluded that the total value of the taking was $54,300.

The petitioner's other expert witness, Harry R. Arneson, testified that he also used the income approach in appraising the property. Arneson concluded that the value of the property permanently taken was $74,772 and the value of the temporary easement was $2,300. He used substantially the same procedure as Brown in applying the income method, although in his calculations, he had estimated the cemetery's net income to be $160,591 and its remaining economic life, prior to the taking, at 54 years. He also used a 12% capitalization rate, instead of the 10% employed by Brown, in arriving at an Inwood Coefficient of 8.31. This factor multiplied by the net income produced Arneson's estimate of the value of the available grave sites before the taking ($1,335,149). He then determined the net income figure per grave site to determine the value of the grave spaces actually taken. As had Brown, Arneson also included in his valuation an estimated value of the improvements which were destroyed. Both Brown and Arneson concluded that there was no damage to the remainder as a result of the taking. On cross-examination, Arneson stated that, in using the income approach, it would be inappropriate and speculative for an appraiser to use a different capitalization rate to measure the value of the property after the taking than was used to measure the value of the property before taking.

Donald Ward, a landscape and cemetery planner, testified for defendants. He stated that there had been a loss of aesthetics as a result of the taking. A substantial number of trees, shrubs, and other plantings, together with the brick main entrance had been destroyed. In his opinion, the frontal area, including the trees and plants, were the "showcase" of the cemetery. He estimated that, because these plants and trees could not be replaced by full size substitutes, it would be years before the cemetery would return to the same condition it was in prior to the condemnation.

Defendants' expert witness, William C. Henning, testified that he also used the income approach in making his appraisal. His method of valuation did not substantially differ from the approach used by petitioner's experts. Henning, however, determined the value of the cemetery before taking and then measured the value after the taking using a different capitalization rate for each calculation. He measured the damages to the property by taking the difference between the before-taking and after-taking figures.

Henning testified that, because different economic considerations would affect the choice of an appropriate capitalization rate, depending upon the nature of the taking, he selected different capitalization rates for determination of the value before taking and the value after taking. He noted that after the taking, due to the removal of plants and the effects of construction, the area became less desirable. The petitioner objected to this testimony on the grounds that those factors were not compensable and the evidence was being used to justify changing the capitalization rate.

Following this objection, the court, without objection from the parties, examined Henning out of the jury's presence. The court questioned Henning with respect to the so-called St. Agnes formula for measuring the value of a partial taking of cemetery property. (See St. Agnes Cemetery v. State (1957), 3 N.Y.2d 37, 163 N.Y.S.2d 655, 143 N.E.2d 377.) Henning noted that he was familiar with the St. Agnes case but that he was unfamiliar with the particular capitalization rate used there in measuring the value of the property before and after the taking. The court asked the witness, "Would you agree that the only effect upon that partial taking is to reduce the economic life of the cemetery?" Henning responded that he disagreed with that statement. He explained that in his opinion the condemnation would cause various factors, relevant to the capitalization rate, to change, thereby, necessitating the application of a different capitalization rate to derive the appropriate Inwood Coefficient.

After this inquiry, petitioner's initial objection to Henning's testimony was sustained. When direct examination of the witness resumed, he again attempted to explain why he felt the capitalization rate would change. Objections to this testimony were sustained. Following arguments by counsel, defendants made an offer of proof as to Henning's testimony.

Henning testified that, in appraising the property, he had used a capitalization rate of 10% before the taking and a 12% rate after the taking. He repeated that his justification for doing so was that, in his opinion, the factors involved in determining the capitalization rate would change when measuring the value of the property retained after the taking.

According to Henning, in arriving at a capitalization rate, an appraiser takes into consideration three factors: (1) the degree of risk in sales; (2) the liquidity or nonliquidity of the cemetery; and (3) an evaluation of prevailing interest rates and those likely to prevail over the expected economic life of the cemetery.

Henning stated that the degree of risk factor is directly related to the stability of sales. In his opinion, the taking would affect sales stability because of the loss of numerous mature plantings along the front of the cemetery. The lack of these plantings would make the cemetery less attractive and less desirable, affecting both the "immediate need" and "pre-need sales." Because of what he termed "heritage sales" (the proclivity of family members to be buried in the same cemetery) the decrease of present sales would have a long-term effect on sales throughout the life of the cemetery.

Henning also concluded that the condemnation would adversely affect the liquidity of the cemetery and the available interest rates. These effects were also attributable, in part, to the anticipated decrease in sales. The combination of these adverse effects would warrant a corresponding increase in the ...

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