IN THE SUPREME COURT OF THE STATE OF KANSAS
No. 97,581
UNIFIED SCHOOL DISTRICT NO. 232, JOHNSON COUNTY, STATE OF KANSAS,
Appellee,
v.
CWD INVESTMENTS, LLC, AND DUGGAN HOMES, INC.,
Appellants.
SYLLABUS BY THE COURT
1. The burden is not on the party moving for summary judgment to produce evidence showing the absence of a genuine issue of material fact. The moving party may discharge its obligation by pointing out to the district court that there is an absence of evidence to support the nonmoving party's case. The nonmoving party then has the affirmative duty to come forward with facts to support its claim, although it is not required to prove its case. These rules also apply in an eminent domain appeal under K.S.A. 26-508 where neither party bears the burden of proof on the issue of damages.
2. In a response to a motion for summary judgment, it is not for the court to seek out, but for counsel to designate, the facts that support the nonmoving party's position.
3. A party cannot evade summary judgment on the mere hope that something may develop at the trial.
4. A party may not remain silent in the face of a motion for summary judgment and later claim there is evidence to support its claims.
5. Under the facts of this eminent domain appeal to the district court, that court did not err in granting partial summary judgment to a school district to bar several of defendant landowners' damages claims for their failure to come forward with evidence.
6. The trial court is vested with broad discretion in supervising the course and scope of discovery.
7. It is an elementary principle of law that some purposes of the discovery rules are to educate the parties in advance of trial of the real value of the claims and defenses, to expedite litigation, to safeguard against surprise, to prevent delay, to simplify and narrow the issues, and to expedite and facilitate both preparation and trial.
8. The taking of pretrial depositions is part of the discovery process authorized by K.S.A. 60-226, and among the purposes to be served thereby is ascertaining what an adversary witness may know about matters in litigation and what his or her probable testimony will be, to the end that the element of surprise will be eliminated so far as possible.
9. Under K.S.A. 60-445, the trial judge may in his or her discretion exclude evidence if he or she finds that its probative value is substantially outweighed by the risk that its admission will unfairly and harmfully surprise a party who has not had reasonable opportunity to anticipate that such evidence would be offered.
10. Under the facts of this eminent domain appeal to the district court, that court did not abuse its discretion in granting a school district's motion in limine to bar several of defendant landowners' damage claims on the basis that they were not timely or adequately disclosed.
Appeal from Johnson district court, WILLIAM O. ISENHOUR, JR., judge. Opinion filed April 17, 2009. Affirmed.
Lynn Hursh, of Armstrong Teasdale, LLP, argued the cause, Darren K. Sharp, of the same firm, and Deron A. Anliker, of Duggan, Shadwick, Doerr & Kurlbaum, P.C., of Overland Park, were with him on the brief for appellants.
W. Joseph Hatley, of Spencer, Fane, Britt & Browne LLP, of Kansas City, Missouri, argued the cause, and Melissa Hoag Sherman, of Lathrop & Gage, L.C., of Overland Park, was with him on the brief for appellee.
The opinion of the court was delivered by
NUSS, J.: In an eminent domain appeal to the district court, a residential subdivision developer and its affiliated homebuilder challenged the court-appointed appraisers' valuation of a part of their property condemned by a school district. Before their jury trial, the district court granted several school district motions excluding evidence of certain categories of damage claims. A jury later awarded damages of $718,100.
The developer, CWD Investments, LLC, and the homebuilder, Duggan Homes, Inc., appeal those damage-limiting court rulings and the jury's award. The school district cross-appeals. This court has jurisdiction pursuant to K.S.A. 26-504 and 60-2101(b).
The issues on appeal, and our accompanying holdings, are as follows:
1. Did the district court err in granting partial summary judgment to bar several of defendants' damage claims for their failure to come forward with evidence? No.
2. Did the district court abuse its discretion in granting a motion in limine to bar several of defendants' damage claims on the basis that they were not timely or adequately disclosed? No.
3. Did the district court err in refusing to instruct the jury that fair market value could not be determined by the summation of two different valuation approaches? No need to address.
Accordingly, the district court's rulings and the jury's verdict are affirmed.
FACTS
John Duggan is a developer, a homebuilder, and a lawyer. He is the President of Duggan Homes, Inc. (Duggan Homes), a homebuilding company, and a member of FH Investments, LLC, which is itself a member of CWD Investments, LLC (CWD). CWD was formed to develop a residential subdivision called Farmington Hills, located near 55th Street and Clare Road in Shawnee, Kansas.
Unified School District No. 232 (District) condemned 17.914 of Farmington Hills' 131.51 acres for use as an elementary school. At the time of the taking, the City of Shawnee had approved the plats, but no ground had been broken. It is undisputed that residential development is the highest and best use of the taken property. As a result of the partial taking, defendants redesigned the remainder of the subdivision.
Court-appointed appraisers valued the partial taking at $626,850. Defendants appealed the award to the district court pursuant to K.S.A. 26-508. The taking was finalized when the District paid the $626,850 into court.
Discovery
Pursuant to a third amended scheduling order, the district court directed that all discovery, except by agreement of counsel, close on December 20, 2004. On or about April 26, 2004, defendants disclosed their three experts, including Duggan, to the District's counsel. After an assertion that Duggan was not necessarily an expert to the extent requiring a disclosure pursuant to K.S.A. 60-226(b)(6)(B), the disclosure nevertheless provided that he might be offering expert opinions:
"Defendants anticipate that Mr. Duggan will provide testimony concerning, among other things, the best and most advantageous use of the property taken by plaintiff and damages to defendants as a result of the taking. Thus, although Defendants are not required to make this disclosure, Defendants are disclosing Mr. Duggan at this time to the extent Mr. Duggan may be asked to offer or does offer opinions regarding the aforementioned matters." (Emphasis added.)
On September 14, 2004, defendants responded to the District's first interrogatories.
Interrogatory No. 3 asked them to "state the fair market value of the entire tract immediately before taking, the fair market value of the remainder after the taking, and the total compensation due as a result of the taking."
The part of the interrogatory response regarding defendant developer CWD basically concerned its lost profits on the sale of the 57 unimproved lots which were taken:
"Defendants state that the fair market value of the entire tract immediately before the taking as it relates to CWD Investments damages for the taking ranges from $11,394,250.00 to $12,581,100.00 based on the value of the property and the profits from the sale of 364 lots and the fair market value of the remainder after the taking as it relates to CWD Investments' damages ranges from $9,912,260.00 to $10,973,712.00 based on the value of the property and the profits from the sale of 307 lots."
The next part of the interrogatory response referred to defendant homebuilder Duggan Homes. It basically concerned damages for lost sales of homes to be built on the 57 lots:
"The fair market value of the entire tract immediately before the taking as it relates to Duggan Homes' damages ranges from $17,472,000.00 to $21,840,000.00 based on the sale of homes on 364 lots, and the fair market value of the remainder after the taking as it relates to Duggan Homes' damages ranges from $14,746,000.00 to $18,420,000.00 based on the sale of homes on 307 lots."
The final part of the response to Interrogatory No. 3 referred to both defendants and set forth the amounts of damages claimed by each:
"The total compensation due Duggan Homes, Inc., ranges between $2,600,000.00 to $3,500,00.00. The total compensation due CWD Investments, LLC ranges between $1,400,000 to $1,700,00 based on the value of the property, the inability of CWD Investments to distribute development costs across the entire 364 lot subdivision as platted and approved by the City of Shawnee, and the inability of CWD Investments to develop and sell 57 lots in Farmington Hills." (Emphasis added.)
Interrogatory No. 7 asked defendants to detail the facts relied upon to justify or support their damage claims. Their response concerning CWD again mentioned loss of 57 lots and loss of their ability to spread the entire subdivision's "development" costs over those lots:
"The property was purchased for development as a residential subdivision, and Plaintiff knew of Defendants' plans to develop the entire tract as a residential subdivision. The entire tract was platted as a residential subdivision, Farmington Hills, as of the taking by Plaintiff. The taking of the property in the Farmington Hills subdivision will preclude CWD Investments from developing and selling 57 lots thereby preventing CWD Investments from utilizing the property for its best and most advantageous use. The taking will also preclude CWD Investments from distributing development costs, across the entire Farmington Hills subdivision, which originally comprised 364 lots prior to the taking. These costs include to date engineering costs for redesign work, walking trails and an amenity package, the pool tract and cabana, offsite sewer costs, deceleration lanes for Claire [sic] Road, and costs for construction of extension of Clear Creek Parkway and an at-grade intersection at Clear Creek Parkway and K-7 required by the State of Kansas."
Defendants' response to Interrogatory No. 7 regarding factual support for Duggan Homes' damages again simply concerned its loss of ability to build homes on the taken lots:
"The taking will also preclude Duggan Homes from building and selling homes on the 57 lots thereby preventing Duggan Homes from utilizing the property for its best and most advantageous use."
Defendants expressly reserved the right to supplement their responses to Interrogatory Nos. 3 and 7.
All of defendants' interrogatory responses were signed by Duggan. In the verification, he swore that he had read them, had the authority to make them on behalf of the defendants, and that such answers were true and correct to the best of his knowledge and belief.
Several weeks after the District's receipt of these responses, on October 1, and then on November 2, 2004, Duggan was deposed as an authorized representative of both defendants, apparently pursuant to K.S.A. 60-230(b)(5). Consistent with the defendants' earlier designation of Duggan as an expert, he testified he anticipated offering expert witness testimony in the case, e.g., "to render opinions based upon the development in question and how we were going to proceed forward and make a profit on that." On the defendants' behalf, he now identified four specific categories of claimed damages.
First, Duggan identified lost profits on the 57 taken lots totaling approximately $1,054,500. He calculated each lot would have earned a profit of between $12,000 and $20,000, depending on its location. He calculated the figures by multiplying his estimate of the selling price for the fully developed lots (an average of $65,000–$75,000) by the historical profit margin he had obtained in his other developments: 25%–37.5%.
Second, Duggan testified that after reconfiguring the subdivision due to the taking, 10 of the remaining lots would "back up" to the new school. Because he opined that these were therefore less desirable, he devalued them at approximately $35,000 apiece for a loss of $350,000.
Third, Duggan testified that the inability to spread the original 364-lot subdivision's $900,000 "amenity costs" over the 57 taken lots would result in damages because "the profitability of the remaining lots goes down."
"And so we still have the expenses of building the amenities; but now we don't have an extra 57 lots over which to share that expense; and so the profitability of the remaining lots goes down by that number, and we think that number is somewhere between four and eight thousand dollars per unit, that we're now incurring on top of the costs we would have incurred anyway, because we're 57 lots short."
Duggan broke down the $900,000 in amenity costs as follows: $400,000 for monuments, walking trails, and water features; $350,000 for a swimming pool and its facilities; and $150,000 for other amenities ("wrought iron fences, some streets and sewer extensions to the community"). As a result, he calculated losing approximately $500 per lot on the remaining lots, so "[i]t looks like it's about $155,000 in lost profitability that we have, because we don't have [all] the lots to spread it [$900,000] out over."
Duggan identified the fourth and last category as legal and engineering costs incurred for reconfiguring the plats. He estimated these damages as between $40,000 and $70,000.
After Duggan had identified these four categories of damages being claimed by the defendants, he was asked, "Okay. Any other alleged damages?" He responded, "I'm not really sure at this time that I could think of any others." The District's counsel added together the monetary amounts Duggan provided for the four categories. Duggan then admitted that their total–$1,629,500–was the defendants' "maximum" amount of damages being claimed.
Duggan was also asked to identify the major factors that influence his profits. He testified:
"General economic conditions: Is the housing market in good shape or bad shape. Competition: What are the prices that your competitors are at on their lot price, comparing their lots to your lots. Do they have trees, and do they have walk-out lots, or things like that. So your general competition in the marketplace.
"And then I think of the other things that have to do with it are the efficiencies and the way you run your business. Are you borrowing your money at prime. Do you have long-standing relationships with your vendors, so you are getting the best prices. Are you a volume consumer of their products, like street paving, and sanitary pipes, and sewer pipes, so that you know that you're getting their best prices, because all of those things can drive your competitor's prices up, if you're doing a lot of volume.
"So I would say probably those general economic conditions, what your competitors are offering, and what prices they are at, and then your efficiencies that you create, in the way you do your own business, would probably be the main criteria to affect profitability."
Upon completion of Duggan's deposition on the second day, he formally waived his right to review the entire transcript, make changes in form or substance, and sign pursuant to K.S.A. 60-230(e).
Two days later the deposition of another defense expert, Dr. Michael Kelsay, was taken. Among other things, Kelsay testified that CWD sustained $705,758 in damages due to the loss of 57 lots, and Duggan Homes would have earned $2,376,506 in profits (reduced to present value) had it built homes on them.
Within the month, the District filed a motion in limine, which was denied. It then filed a motion to reconsider, limiting its request to exclude at trial all evidence regarding defendants' lost profits on sale of homes yet to be built on the 57 taken lots.
On April 27, 2005, in addressing the motion to reconsider, the district court ruled that "profits from home sales, per se, will not be considered in determining the compensation. . . . It's a separate item of damages." The court stated, however, that it might allow such evidence to be considered "in arriving at the value of the land" if there was evidence that the lost profits "would be a driving factor in increasing the market value" of the taken real estate.
On February 10, 2006, the Friday before the jury trial was to begin on the amount of compensation owed defendants, the district court made another ruling limiting their damages. The court orally ruled that it was "limiting the parties and experts to what they said in their depositions . . . and their reports and designation." This included a particular ruling that "items of damage not specified in the [Duggan] deposition were not going to be presented at trial." (Emphasis added.)
Mistrial
During defense counsel's opening statement to the jury the following week, he announced that defendants were seeking damages (as disclosed in Duggan's deposition) for lost profits on the taken lots; for devaluation of remaining lots backed up to the school; for replatting costs; and for $114,000 (reduced from $155,000) due to the inability to spread $900,000 in amenity costs over all 364 lots.
He also asked, however, for the following: "spreadout" costs of constructing a road from Highway K-7 to the subdivision of $169,000; spreadout costs of constructing a main arterial road through the subdivision of $278,000; spreadout costs of sewer and water lines and asphalt for Clare Road of $102,000; and tax and interest costs in an undisclosed amount. Also included on his damages flip chart shown to the jury was an item identified as "Home Construction $2,168,039."
The District objected. It asked that to be consistent with the court's ruling 3 days earlier, that these categories of damages which it asserted were not stated in Duggan's deposition should be excluded from evidence. The judge first ascertained that he had made such a ruling and asked if defense counsel understood it:
"THE COURT: Do you agree my ruling on Friday was that the defendants' damages are going to be limited to those items discussed by Mr. Duggan in his deposition?
"[DEFENSE COUNSEL]: Mentioned by him, yes, sir.
. . . .
"THE COURT: [E]verybody agrees the starting point was that items of damage not specified in the deposition were not going to be presented at trial." (Emphasis added.)
However, defense counsel later basically responded that Duggan had generally mentioned damages in his deposition and it was the obligation of the District's counsel to inquire about the specific types and their corresponding particular amounts:
"THE COURT: . . . In Duggan's deposition the $900,000 figure involving the amenities was mentioned, but none of these numbers that you have up here on the flip chart in red [e.g., spreadout costs of constructing a main arterial road of $278,000], Mr. Hursch, were mentioned.
"[DEFENSE COUNSEL]: That's correct. Nor was he asked about them, Your Honor, and that's the critical point."
The District also objected to the flip chart damages claim of $2,169,039 for "Home Construction" as being barred by the court's April 27, 2005, order excluding evidence of lost profits on the homes per se. Although the court overruled the objection, it warned defense counsel, "Now, my ruling was that evidence like this was going to be admissible to the extent that it affected the value of the real estate itself. Now, unless you tie that in, you are looking at a mistrial."
The District later renewed its objection regarding lost profits on the unbuilt homes. The court acknowledged that "it's not black and white that I ruled [in April 2005] that there was to be no mention of these figures, but I think what I did say was they are not to be brought up as potential profits per se for the purpose of compensation to be awarded to the landowner." The court ultimately concluded that the jury would consider those "home construction" financial figures for inappropriate purposes:
"Now, it's true that Mr. Hursh [defense counsel] was very explicit to the jury that they [were] not going to be asking for damages on account of these numbers [for home construction on the flip chart.] . . .
"[But] I don't think that you can just say to the jury, 'Okay. Here is a profit figure on house construction of $13,000 or down to $10,000, and that's going to result in a total loss of profits on home construction.' And that's what its title is, 'Home Construction,' 2,263,000 reduced to present value of 2,168,000–and then expect the jury to draw any conclusion except you want them to consider those numbers.
. . . .
"I think now looking at the [April 2005] ruling and reading that transcript that my ruling was pretty direct, and I did say, 'No. That kind of evidence is not going to come in except under very limited circumstances,' and I don't think we have gotten to those very limited circumstances here.
"Now, what I did say was evidence of lost profit, potential future profits. What I said at page 30 of the transcript was to the extent that you have got a developer who has got some dreams here and to the extent that that developer can show he has a track record and show he has done this at other locations and that he had a plan at the time of taking to do these things and to the extent that at the time of the taking those potential future profits would be a driving factor in increasing the market value and an expert is willing to say that and stake his reputation and if a jury believes it, then I think it could. It could affect the value of the lots and thus the value of the land taken and would be properly admissible." (Emphasis added.)
The court then granted the District's request for a mistrial, holding that defense counsel's showing the jury approximately $2.2 million for "Home Construction," i.e., in lost profits on sales of homes not built at the time of the taking, was barred by its April 2005 ruling. Retrial was set for May 22, 2006, 3 months later.
Partial summary judgment
Two months after the mistrial, on April 20, the District filed a motion for partial summary judgment. Characterizing many of defendants' purported damages as lost profits, it first asked the court to preclude "lost profits on the sale of homes to be built on the property." It also sought preclusion of "lost profits stemming from an inability to allocate the cost of amenities to the subject property [i.e., $155,000 claimed during Duggan's deposition, reduced to $114,000 at the mistrial]."
The District argued, inter alia, that the alleged lost profits relating to these amenity costs and to home sales were unique to these defendants and had no rational relationship to the land's fair market value. It highlighted Duggan's deposition testimony that defendants' profits depended in large part on "the efficiencies and the way [they] run [their] business," and not on the particular ground being developed. It also pointed to Duggan's deposition testimony to argue that the damages were speculative, e.g., "whether the defendants' long-standing relationships with vendors will remain intact." As a further example of speculation, it questioned whether the cost of materials to be used in developing the subdivision would remain constant.
In defendants' response, they only disputed one of the District's facts, No. 11, which states: "The Defendants are also claiming as damages lost profits from Duggan's inability to build and sell homes on the subject property." In controverting this fact, defendants contended that they were not seeking lost profits on future homes as a specific item of damage, but were entitled to present "evidence of income" to arrive at fair market value. They "are entitled, as a matter of law, to present evidence to the jury concerning the potential income stream from an attribute of the property that was taken by plaintiff as a factor considered by the jury in arriving at the taken parcel's overall fair market value." In the argument section, they contended:
"Defendants will not specifically ask the jury to award damages for lost profits on home sales. This court has already ruled on that issue. But defendants are entitled to present this evidence for the jury to consider how the property's intended use could have produced an income stream; therefore, the income producing stream from the taken property is one item that could affect the overall fair market value for the property."
As for the purported lost profits stemming from an inability to spread the cost of amenities, the defendants, in their additional statement of fact No. 3, stated, in relevant part:
"These [e.g., 'the additional costs for unallocated development amenities in the amount of $114,000'] are additional costs and expenses directly attributable to Plaintiff's taking and as such are relevant considerations to the determination of fair market value that the jury will make at trial. See Defendants' Supplemental Answers to Plaintiff's First Interrogatories to CWD Investments, LLC and Duggan Homes, Inc., attached as Exhibit F."
Defendants explained:
"Because defendants cannot allocate the amenity costs [e.g., $900,000] over a wider number of lots, this fact directly impacts the remaining property. For example, if defendants allocate the amenity costs to the remaining lots that are not taken, then the price for lots becomes exorbitantly high, which affects their ability to sell the remaining lots and affects the value of the remaining property. As such, defendants are not specifically seeking lost profits as a specific item of compensable damage. But defendants' inability to allocate the subdivision's amenity costs to all of the lots taken directly impacts and is certainly tied to the market value of the remaining property. [Citation omitted.] It is a factor that may be considered by the jury in arriving at the overall market value."
Defendants attached, among other things, a three-page affidavit from Duggan. It related to a subject not at issue on the appeal of the summary judgment: alternative types of access to the subdivision, e.g., from Highway K-7, and their estimated costs.
Among other things, the District's reply reiterated that the defendants' claimed damages relating to "amenity costs" were nothing more than lost profits that had no rational relationship to fair market value. It claimed, once again, these amenity costs ($900,000), as well as other lost profits, were unique to Duggan and related solely to how he chose to lay out his subdivision on this raw land:
"A willing buyer might not lay out the subdivision in the same way that Mr. Duggan did, might have different vendor relationships that impact its profitability, or for other reasons, might be able to avoid the alleged lost profits that were unique to Mr. Duggan. It is this very uncertainty that has led the Supreme Court to prohibit the use of lost profits to measure the value of property taken by eminent domain. City of Bonner Springs v. Coleman, 206 Kan. 689, 694-95, 481 P.2d 950 (1971)."
The District again argued that defendants had come forward with no evidence showing that the lost profits are linked to fair market value of the property. It further contended:
"It is not enough for them to make the self-serving argument that the lost profits 'directly affect the remaining property tract not taken.' More is required, and it is simply too late in the game for defendants to attempt to offer any expert opinions to establish a connection to fair market value."
On May 22, after the retrial scheduled for that day had been postponed, the trial court heard arguments and ultimately granted the District's motion for partial summary judgment. It characterized the stricken claims as lost profits for which defendants had shown no linkage to fair market value.
"Now, the [City of Bonner Springs v.] Coleman case makes a succinct, accurate statement, 'What one man might do at a profit, another might do at a loss.' . . . I'm still looking for that connection . . . between all of those development expenses and the value of the land to a ready, willing, and able buyer in a free market transaction.
. . . .
"I'm going to sustain the motion for partial summary judgment, and I'm going to preclude the defendants from claiming as damages [1] lost profits stemming from an inability to allocate the costs of amenities to the subject property and [2] lost profits on the sale of homes to be built on the property. I think those are separate items, probably capable of accurate calculations the defendants have done, but I don't think the connection between those accurate costs and the value of the land has been made to the Court's satisfaction, and to the extent I have searched the record, I can't find that connection.
"And I think on that basis, in the absence of such evidence, the relationship between those lost profits and the value of the land has not been established, and so the lost profits may or may not exist. But I think that the ruling of the supreme court in the Coleman case precludes the award of damages based on the profit of a business.
"The [Coleman] Court said that, 'The profits of a business are too uncertain and depend on too many contingencies to be accepted as any evidence of the usable value of the property upon which the business is carried on.'
. . . .
"And it seems to me that the principle of law as announced by the supreme court in Coleman is a sound one, and that absent the evidence linking the lost profits to the value of the land, it would be prejudicial to the plaintiff and confusing to the jury to allow the defendants to go into these items of lost profits." (Emphasis added.)
During discussion on defendants' later request in the hearing for an interlocutory appeal, they argued that providing evidence of linkage in response to the motion for partial summary judgment was not yet their obligation.
"In orde