THE STATE OF TEXAS v. CENTRAL EXPRESSWAY SIGN ASSOCIATES, ET AL. No. 05-06-00003-CV, 238
SW3d 800 (Tex.App.- Dallas, Aug. 31, 2007, pet. granted, Tex. No. 08-0061 )
AFFIRM and Opinion Filed August 31, 2007
In The
Court of Appeals
Fifth District of Texas at Dallas
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No. 05-06-00003-CV
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THE STATE OF TEXAS, Appellant
V.
CENTRAL EXPRESSWAY SIGN ASSOCIATES AND VIACOM OUTDOOR, INC.
F/K/A INFINITY OUTDOOR, INC., Appellees
.............................................................
On Appeal from the County Court at Law No. 4
Dallas County, Texas
Trial Court Cause No. CC-00-02122-D
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OPINION
Before Justices Moseley, O'Neill, and Lagarde See Footnote 1
Opinion By Justice O'Neill
The State of Texas appeals a condemnation award entered in favor of appellees Central Expressway Sign
Associates (CESA) and Viacom Outdoor, Inc. f/k/a Infinity Outdoor, Inc. In three issues, the State contends (1)
the trial court erred in excluding the State's expert appraisal witness, (2) the trial court erred in admitting
valuation testimony of the property owners, and (3) the evidence is legally and factually insufficient to support the
jury's damages award. For the following reasons, we affirm the trial court's judgment.
The State filed a petition for condemnation seeking to acquire land in the City of Dallas. The land was located
at US 75 and IH 635 and was required for a highway improvement known as the “high five interchange.” At the
time the petition was filed, the land was being used for a billboard site. The billboard was on an easement owned
by appellee CESA who leased the billboard site to appellee Viacom. Viacom in turn sold space on the billboard to
advertisers.
After the State filed its petition, the trial court appointed special commissioners, who determined the fair market
value of the property was $2,012,300 to be awarded to the various fee owners, including CESA as the owner of
the easement, and Viacom as the owner of the leasehold on the easement. The State objected that the award
was excessive and demanded a jury trial on the issue of the fair market value of the land. Viacom and the State
subsequently settled most of the dispute between them, including the issue of Viacom's compensation for its
interest in the land taken. The issue of the fair market value of the land taken nevertheless had to be tried
because the State did not settle with CESA.
Prior to trial, the court held a hearing to determine the admissibility of expert testimony. After the hearing, the
trial court struck both the State's and CESA's valuation experts. As a consequence, no expert testimony was
offered at trial and the only witnesses on value were CESA's principals, George Allen and Randolph Perry, who
were permitted to testify as owners of the easement. Allen testified that, in his opinion, the fair market value of the
land taken was $2,500,000. Perry opined that the land was worth between $2,500,000 and $2,800,000. The jury
found that the fair market value of the land was $1,850,000. The trial court entered a judgment in favor of CESA
and Viacom jointly in accordance with the jury's verdict. The State appeals.
In its first issue, the State asserts the trial court erred in excluding the testimony of its expert witness, Grant
Wall. The testimony of an expert appraisal witness in a condemnation action, like other expert testimony, must be
relevant to the issues in the case and based upon a reliable foundation. Exxon Pipeline Co. v. Zwahr, 88 S.W.3d
623, 628 (Tex. 2002); Guadalupe-Blanco River Auth. v. Kraft, 77 S.W.3d 805, 807 (Tex. 2002). When an expert's
opinion is challenged, the trial court acts as an evidentiary gatekeeper to screen irrelevant and unreliable expert
evidence. Zwahr, 88 S.W.3d at 629. The burden is on the proponent of the expert to establish reliability.
Guadalupe-Blanco River Auth., 77 S.W.3d at 807. The trial court has broad discretion in determining the
admissibility of expert testimony. Zawhr, 88 S.W.3d at 629.
Under the “undivided fee rule,” in a condemnation proceeding where there are different interests in real estate,
the valuation of the various interests is usually determined by ascertaining the market value of the property as
though owned exclusively by one party. State v. Ware, 86 S.W.3d 817, 822-23 (Tex. App.-Austin 2002, no pet.)
(citing City of Waco v. Messer, 49 S.W.2d 822, 823 (Tex. Civ. App. Waco 1932), rev'd on other grounds, 78 S.W.
2d 169 (1935)); see also Urban Renewal Agency of City of Lubbock v. Trammel, 407 S.W.2d 773, 774 (Tex.
1966). The market value so found should then be apportioned among the various interests. Ware, 86 S.W.3d at
823; Trammel, 407 S.W.2d at 774.
At the pretrial hearing, Wall testified that, in his opinion, the value of the property was about $360,000. Wall
testified that he used an income capitalization approach to value the property. Specifically, he determined the
rental income CESA received and then capitalized that income into a value. Wall testified that his value opinion
included the value of both CESA's and Viacom's interest. In calculating a value, Wall considered only rent CESA
received from “the ground; ” he did not include any income Viacom received from advertisers because, in his
opinion, such income was not attributable to the land, but was business income. Further, Wall opined that
Viacom's leasehold interest was zero because the site was leased at the market rate.
After hearing the substance of Wall's testimony, the trial court determined it was unreliable apparently because
Wall did not consider Viacom's interest when he valued the land. On appeal, the State argues this ruling was
error for a number of reasons. We begin with its assertion that Wall properly disregarded Viacom's interest in
valuing the property because Viacom had settled its dispute with the State.
Although Viacom and the State did reach an agreement regarding Viacom's recovery, Viacom was not
dismissed from the case. In the jury charge, the jury was asked to determine the fair market value of the land
taken, which included Viacom's interest. In accordance with the jury verdict, the trial court's judgment awarded
the fair market value to CESA and Viacom jointly. None of the parties before us complains of the manner this
case was submitted to the jury or that the judgment was entered in favor of both CESA and Viacom. Given these
circumstances, the State cannot now assert that it was seeking to obtain only CESA's interest. See Ware, 86 S.W.
3d at 824 (when State seeking to obtain only one interest, only the value of that interest need be determined).
Moreover, the State agrees that under the “undivided fee rule,” any market valuation must include all interests
in the property, including Viacom's interest. Under this rule, which the State concedes applies, the fact finder
should determine the value of the entire property as though owned by a single entity. The State cannot take the
simultaneous and inconsistent position that only CESA's encumbered interest should have been valued.
Having determined that the manner in which this case was submitted as well as the undivided fee rule requires
valuation of the property as though it was owned exclusively by one party, we turn to the State's argument that
Wall's opinion, which disregarded income Viacom received from advertising sales in determining income
generated by the property, was nevertheless reliable. The State suggests Wall properly ignored income Viacom
received from selling billboard space because the billboard structure itself was personal property, not real
property. The State thus devotes much of its argument to whether the billboard structure was real or personal
property. However, the trial court did not exclude Wall's testimony because he treated the billboard as personal
property. To the contrary, the trial court ruled in favor of the State on this issue and excluded CESA's expert
because he treated the billboard as realty. Moreover, at trial, the court specifically instructed the jury that the
billboard was personal property. Thus, the State's argument that the billboard is personal property presents
nothing to review.
Next, the State argues the trial court abused its discretion in determining Wall's method of applying the income
approach to land valuation, under the facts of this case, was unreliable. See Footnote 2 Under the income
approach, income-producing property is valued by estimating its future income and applying a capitalization rate.
City of Harlingen v. Estate of Sharboneau, 48 S.W.3d 177, 183 (Tex. 2001). Although Wall used an income
approach to valuing the land, he did not consider income this billboard site or comparable billboard sites
generated through advertising. According to the State, income Viacom received from its use of the billboard site
cannot be considered because the land did not generate the advertising income. Rather, the State contends that
income was “business income,” which is not recoverable in an eminent domain case. CESA responds that the
advertising income Viacom received from using the property had to be considered because, utilizing the
undivided fee rule, the income was generated by the property and all income generated from the property should
be considered, regardless of whether it was retained by Viacom or paid to CESA as rent.
Profits received from conducting a business on property are generally not admissible to prove value in an
imminent domain case. Herndon v. Housing Auth. of City of Dallas, 261 S.W.2d 221, 222 (Tex. Civ. App.-Dallas
1953, writ ref'd). This is because (1) the business, which was not taken, can be operated in another location, and
(2) the amount of profit depends more upon capital invested, general business conditions and the trading skill
and business capacity of the person conducting it than it does on the location of the business. Id. On the other
hand, evidence of profits derived from the intrinsic nature of the real estate itself, as distinguished from profits
derived from operating a business on the land, can be considered in determining land value. See id. Thus, it is
proper to consider profits derived from use of property where earnings depend on the location, soil or character
of the property itself. See Ark. State Highway Comm'n v. Cash, 590 S.W.2d 676, 678 (Ark. Ct. App. 1979). In
other words, “[w]here the character of property is such . . . that, independently of the labor, skill or knowledge of
its owner, it lends itself peculiarly to a particular use, a business based upon such use and the profits therefrom
may be considered in ascertaining the market value of the land.” A. G. Davis Ice Co. v. U.S., 362 F.2d 934, 937
(1st Cir. 1966) (quoting 4 Nichols on Eminent Domain § 13.3(2)).
The issue presented is whether the trial court abused its discretion in determining Wall did not properly
consider income Viacom received from the property. The billboard site, in a very busy location in North Dallas,
generated a significant amount of income from advertisers. Viacom received this income by entering into
“advertisement contracts.” The contracts were location specific and required Viacom to do little more than post
and maintain signs on the billboard structure. The value of the physical billboard structure itself was insignificant
to the value of the billboard site and would have little or no value without real property. The amount paid for the
advertising was thus largely (if not completely) based on the location of the billboard site, not the skills and
activities of Viacom or the structure of the sign. We conclude income generated from such advertising is
generated by the real property upon which the billboard structure is located. See Vivid, Inc. v. Fielder, 580 N.W.
2d 644, 654 (Wis. 1998) (concluding income generated by billboards not business income because such income
is generated by the location of the billboard and not the labor and skill of sign company); see Ark. State Highway
Comm'n, 590 S.W.2d at 678 (concluding income derivable from the sale of advertising space on a billboard was
income from the property itself and not income from conducting a business on the property).
We acknowledge that, as cited by the State, the Connecticut Supreme Court in Commissioner of Transportation
v. Rocky Mountain, 894 A.2d 259 (Conn. 2006), reached an apparently contrary result. In that case, the court
concluded income received from advertising on billboards was derived from conducting a business on real
estate. Rocky Mountain is distinguishable because it appears the landowner in that case was seeking a separate
award of lost business income. Moreover, we disagree with the reasoning of the Connecticut court. According to
the Connecticut court, income generated by a billboard site is “business income” and not the product of an
interest in real property because “[b]illboards can be removed from the condemned property and placed on
another site, and the income they generate from the advertising placed on them also can be 'replicated' on
another site.” Id. at 284. This argument presumes income is generated from the structure alone and not the
location upon which it is placed. However, as noted previously, income received from a billboard site is location
specific and not unique to the billboard structure. Further, to relocate the billboard, another such site would have
to be acquired. Any such income so generated is not being “replicated” any more than it could be said “ordinary”
rent is replicated when a landlord generates income after acquiring another rental property. Because we
conclude income received for billboards is primarily attributable to the land, we cannot agree with the Connecticut
court.
The State also suggests income generated by a billboard should not be considered because such income is
determined by traffic flow and damages for loss of “visibility” and “exposure to traffic” are not compensable. The
State relies on State v. Schmidt, 867 S.W.2d 769, 774 (Tex. 1993), which concerned how to determine damages
in inverse condemnation cases and in cases where there are alleged damages to the remainder. In such cases,
Schmidt explained, a landowner cannot recover for damages to land caused by lessened visibility or diversion of
traffic. The issue presented in Schmidt did not concern billboards or the method of determining fair market value
of land physically taken. The State has not provided any meaningful argument regarding why Schmidt should be
extended to the facts of this case. See Minnesota v. Weber-Connelly, Naegele, 448 N.W.2d 380, 385 (Minn. Ct.
App. 1989) (utilizing income from advertising on billboard to value property does not improperly award damages
for diversion of traffic). We conclude Schmidt is inapplicable.
In sum, the trial court could have determined Wall's testimony was not reliable because he completely
disregarded the income the property generated from advertising sales. Thus, we cannot conclude that the trial
court abused its discretion in excluding Wall's testimony. We resolve the first issue against the State.
In its second issue, the State contends the trial court abused its discretion in admitting the testimony of George
Allen and Randy Perry. Allen and Perry, CESA's owners, each testified to the value of the land taken. Allen
valued the land at $2,500,000 while Perry valued the land at between $2,500,000 and $2,800,000. The State
asserts the trial court erred in admitting this evidence because their testimony was based on capitalization
methods that included “business income.” It also asserts that Allen and Perry testified to inadmissible hearsay.
Allen's valuation testimony was repetitious and lengthy and the State's objections to that testimony were few
and far between. Specifically, Allen repeatedly offered his opinion testimony regarding value and testified to
hearsay. The State did not object every time Allen offered the offending testimony and did not seek or obtain a
running objection to Allen's testimony. Moreover, Perry's testimony duplicated Allen's complained-of testimony.
The State directs us to a single objection to Perry's testimony, and that objection was not ruled on by the trial
court. To preserve error in the admission of evidence, a party must object and obtain an adverse ruling each
time the complained-of evidence is presented or obtain a running objection to the evidence. See Davis v. Fisk
Elec. Co., 187 S.W.3d 570, 587-88 (Tex. App.-Houston [14th Dist.] 2006, pet. granted); Duperier v. Tex. State
Bank, 28 S.W.3d 740, 755-56 (Tex. App.-Corpus Christi 2000, pet. dism'd). We conclude the State did not
preserve error regarding the owners' valuation testimony. We resolve the second issue against the State.
In its third issue, the State asserts the evidence is legally and factually insufficient to support the jury's verdict.
The jury found the fair market value of the land taken was $1,850,000. According to CESA's principals, the fair
market value of the land taken in this case was between $2,000,000 and $2,500,000. They based their opinions
on their own calculations and on what experts in the billboard industry told them.
In this issue, after briefly reciting the standard of review, in a single paragraph of analysis, the State asserts the
only evidence of value was “incompetent as it was based on the loss of business income and personal property,
and loss of visibility and exposure to traffic.” Although the State purports to present both legal and factual
sufficiency complaints, its only contention concerns competency of CESA's evidence. As such, it has presented
only a legal sufficiency challenge. See Emerson Elec. Co. v. American Permanent Ware Co., 201 S.W.3d 301,
312 (Tex. App.-Dallas 2006, no pet.) (factual sufficiency challenge waived when not properly briefed).
Moreover, to show the evidence was incompetent, the State relies on its assertion that the owners improperly
considered “business income” in valuing the property. However, we have previously concluded that, contrary to
the State's assertion, income received for the billboards is
attributable to the land itself. See Footnote 3 Furthermore, unlike other types of incompetent evidence,
inadmissible hearsay admitted without objection is not denied probative value merely because it is hearsay. See
City of Keller v. Wilson, 168 S.W.3d 802, 812 n.29 (Tex. 2005). We conclude the State has not shown the
evidence was insufficient to support the jury's verdict. We affirm the trial court's judgment.
MICHAEL J. O'NEILL
JUSTICE
060003F.P05
Footnote 1 The Honorable Sue Lagarde, Justice, Court of Appeals, Fifth District of Texas at Dallas, Retired,
sitting by assignment.
Footnote 2 The parties agree no comparable sales were available to assess the market value of the property.
Footnote 3 CESA's principals were permitted to give valuation testimony in their capacity as owners of the
easement. An owner is competent to testify to the value of their own land even if he may not otherwise qualify as
an expert. Porras v. Craig, 675 S.W.3d 503, 505 (Tex. 1984); A.G.E., Inc. v. Buford, 105 S.W.3d 667, 676 (Tex.
App.-Austin 2003, pet. denied); Ramex Const. Co. v. Tamcon Servs., Inc., 29 S.W.3d 135, 138 (Tex. App.-
Houston [14th Dist.] 2000, no pet.). The State does not contend in this appeal that Perry and Allen were not
competent to testify to value because they did not own the “entire bundle of rights” taken. We express no opinion
in that regard.
File Date[08/31/2007]
File Name[060003F]
File Locator[08/31/2007-060003F]