Case of the Day – Wednesday, March 28, 2018

THE CURE IS TOO MUCH BETTER THAN THE DISEASE

We had a call recently from a North Dakota lawyer, who was involved in a tree case where the standard for measuring damages being considered was the “cost to cure.” He wondered whether we were familiar with the concept.

In losses due to wrongful cutting of trees, we traditionally see damages being applied as diminution of value of the property (noncommercial trespass), the value of the timber (in commercial trespass cases), and, occasionally, restoration value (the cost to restore that which was lost). The ultimate goal, as we once noted, “is compensation for the harm or damage done. Thus, a court may apply whatever method is most appropriate to compensate a plaintiff for his or her loss.”

The question posed our attorney friend from the Flickertail State left us scratching our heads, (not a good idea, because it dislodged some of the little hair we have remaining): it sounded to us that “cost-to-cure” was being used in the case as a fancier name for restoration costs (sometimes called replacement costs). The only place we had seen the term “cost to cure” used was in condemnation cases. A Texas appellate decision in such a case defined the “cost-to-cure” approach as “an appraisal technique used to arrive at the taken property’s market value and the diminished market value of the remainder, which included the cost to replace improvements taken, damaged, or destroyed, after they have been appropriately depreciated.

The attorney asked us whether we could verify “that the Cost of Cure Method has been accepted by the Courts.” Not really. Our problem is that “cost of cure” has been accepted by the courts in condemnation cases, where the government decides to take your property for some more-or-less debatable public “good.” But we have never seen it called “cost of cure” in a tree damage case, where “cost of restoration” is the term applied, when that measure of damage is called for.

Nevertheless, for today we found a condemnation case from Michigan, which tangentially involves trees (and thus, meeting our exacting standards for this blog). So, as a consolation prize, let’s see how a fruit farmer tried to jack up the value of the loss of 20% of his acreage with a “cost to cure” analysis, and how the Court – channeling Publilius Syrustold him the cure couldn’t be better than the disease.

Dept. of Transportation v. Sherburn, 196 Mich.App. 301, 492 N.W.2d 517 (Mich.App. 1992). Loris Sherburn was a fruit farmer along Lake Michigan. When the Michigan Dept. of Transportation decided to extend U.S. 31 in Berrien County, it took 28 acres of Loris’ 124-acre farm. A court battle ensued, as it often does, over the value of the property taken. The State argued the value of the 28 acres was $47,200. Farmer Sherburn argued the property carved off his farm was worth closer to $183,000, claiming that this was the cost to cure the loss caused by the loss of the acreage.

The trial court found Loris was entitled to $56,600 for the condemnation of 28 acres of the farm.

Loris appealed.

Held: Loris was only entitled to $56,600. The Court of Appeals acknowledged that in a condemnation case like this one, when only part of a larger parcel is taken, the owner is entitled to recover not only for the property taken but also for any loss in the value to his or her remaining property. The measure of compensation is the difference between the market value of the entire parcel before taking and the market value of what is left of the parcel after the taking.

Loris’ expert witness used the “cost to cure” method of calculating damages. The appellate court agreed that the cost to cure method is a measure of damages which may be considered by the jury, provided the cost to cure does not exceed that difference between the market value of the entire parcel before the taking and the market value of what is left of the parcel after the taking.

MDOT’s expert witness, an independent real estate appraiser, calculated the value per acre of the farm, which made the place worth $122,800 for all 124 acres. Using the same method, he found the 96-acre parcel remaining after condemnation to be worth $75,600. He therefore concluded that Loris Sherburn’s damages were $47,200, the difference between the value of the entire parcel and the value of the remaining parcel after condemnation.

Farm Sherburn had different ideas. His first expert witness, a real estate appraiser, using a comparable sales method testified that the market value of the farm before condemnation was $215,000. He also estimated it would cost the farmer about $183,000 to replace the mature vineyards, peach and apple trees, and buildings lost in the condemnation. The witness contended that Loris, in addition to retaining possession of the remaining 96 acres, should recover the $183,000 cost-to-cure damages.

Loris’ second witness, an independent fee appraiser, testified that, using the market data approach, the market value of defendants’ farm before the taking was $345,000, while the market value of the remaining 96-acre parcel after the taking was $139,000, leaving a difference of $206,000.

The Court of Appeals agreed with Loris that where a partial taking occurs, it is possible for the property not taken to suffer damages attributable to the taking. “These damages have been described as ‘severance damages’,” the Court held, “which may be measured by calculating the difference between the market value of the property not taken before and after the taking. Where severance damages have occurred, it may be possible for the property owner to take steps to rectify the injuries in whole or in part, thus decreasing the amount of severance damages and correspondingly increasing the parcel’s market value.” These actions constitute a “curing” of the defects, according to the Court of Appeals, and the financial expenditures necessary to do so constitute the condemnee’s cost to cure.

However, the Court held, the cost-to-cure damages in a given case are not unlimited. Where the market value of the property taken, the value of the property remaining, and cost-to-cure expenses exceed the market value of the land before condemnation, cost-to-cure damages will not be awarded. “An owner is not to be enriched because of the condemnation,” the Court said.

This leaves “cost-to-cure” damages as a valid measure of damages “only when it is no greater in amount than the decrease in the market value of the [remainder] property if left as it stood.” Thus, the Court concluded, “where there is no claim of severance damages, the maximum damages recoverable equal (the market value of the entire parcel before the taking) minus (the market value of the remainder after the taking). Where severance damages are claimed, the maximum damages recoverable equal (the market value of the parcel taken) plus (the market value of the remainder after the taking) plus (the cost-to-cure expenses); however, the total damages awarded may not exceed the fair market value of the whole parcel before the taking.”

For Farmer Sherburn, the trial court correctly concluded that cost-to-cure damages are not recoverable to the extent that they exceed the market value of the entire property before the taking.

– Tom Root

TNLBGray140407

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