Salt River Project Agricultural Improvement & Power District v. Miller Park, L.L.C.

SUPREME COURT OF ARIZONA
En Banc

SALT RIVER PROJECT AGRICULTURAL ) Arizona Supreme Court
IMPROVEMENT AND POWER DISTRICT, ) No. CV-07-0207-PR
an agricultural improvement )
district organized and existing ) Court of Appeals
under the laws of the State of ) Division One
Arizona, ) No. 1 CA-CV 05-0730
)
Plaintiff/Appellant/ ) Maricopa County
Cross Appellee, ) Superior Court
) No. CV2002-017637
v. )
)
MILLER PARK, L.L.C., an Arizona )
limited liability company; ) O P I N I O N
MILLER PARK II, L.L.C., an )
Arizona limited liability )
company, )
)
Defendants/Appellees/ )
Cross Appellants. )
)
__________________________________)

Appeal from the Superior Court in Maricopa County
The Honorable Ruth Harris Hilliard, Judge

AFFIRMED IN PART, VACATED IN PART AND REMANDED
________________________________________________________________

Opinion of the Court of Appeals, Division One
216 Ariz. 161, 164 P.3d 667 (2007)

VACATED
________________________________________________________________

JENNINGS, STROUSS & SALMON, P.L.C. Phoenix
By Douglas Zimmerman
Michael J. O'Connor
John J. Egbert
Attorneys for Salt River Project Agricultural
Improvement and Power District
BRYAN CAVE LLP Phoenix
By Steven A. Hirsch
Rodney W. Ott
Attorneys for Miller Park, L.L.C. and
Miller Park II, L.L.C.

AYERS & BROWN, P.C. Phoenix
By Charles K. Ayers
Melinda A. Bird
Stephanie Heizer
Attorneys for Amicus Curiae City of Phoenix
________________________________________________________________

B A L E S, Justice

¶ 1 This condemnation case presents two issues. We hold

that the trial court did not abuse its discretion in excluding

evidence of the land owner’s prior statements of valuation for

property tax purposes. We also hold that mandatory cost-based

sanctions may be imposed under Arizona Rule of Civil Procedure

68 even though Arizona Revised Statutes (“A.R.S.”) § 12-1128(A)

(2003) gives trial courts discretion to apportion costs among

the parties in condemnation actions.

I.

¶ 2 Miller Park, LLC and Miller Park II, LLC (“Miller

Park”) bought undeveloped land near Buckeye in 1997 and 2000.

Buckeye subsequently annexed the property and rezoned it for

general commercial purposes. By the end of 2001, Buckeye’s

Planning Development Board had approved Miller Park’s “concept

plan” for the property’s commercial development, water and sewer

service had reached the edge of the property, and nearby

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residential population had grown significantly.

¶ 3 In February 2002, Miller Park contracted to sell part

of the property to a developer for more than $17.4 million, or

about $4.00 per square foot. One month later, the Salt River

Project Agricultural Improvement and Power District (“SRP”)

announced its intention to condemn part of the land, including

some of the property under contract to the developer, to build a

500,000-volt electric transmission line. When notified of SRP’s

plans, the developer canceled its purchase. SRP eventually

condemned an easement extending over sixteen acres and installed

thirteen utility towers on Miller Park’s property.

¶ 4 In September 2002, SRP filed this condemnation action

to determine the compensation owed to Miller Park. Before

trial, Miller Park moved to exclude evidence regarding its April

2001 protest of the county’s property tax assessment of the

property. The Maricopa County assessor had set the “full cash

value” at $18,500 per acre. Deloitte & Touche Property Tax

Services (“Deloitte”) filed a tax protest on behalf of Miller

Park arguing that the full cash value of the property was less

than $10,000 per acre. Before trial, a Deloitte employee

testified at a deposition that he had only calculated the “full

cash value” for property tax purposes and had not attempted to

assess the fair market value.

¶ 5 The trial court granted Miller Park’s motion in limine

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and excluded evidence regarding the protest of the property tax

valuation. At trial, Miller Park’s managing member, Michael

Pierce, testified that the property’s fair market value was

$174,240 per acre ($4.00 per square foot). He said that the

fair market value of the property condemned for the easement was

$2.4 million and that the severance damage to the remaining

property was $3.1 million. The parties also presented

conflicting expert appraiser testimony regarding the fair market

value.

¶ 6 The jury determined that just compensation for SRP’s

condemnation was approximately $4.7 million – $2.5 million for

the fair market value of the condemned property plus $2.2

million for severance damage to the remaining property.

¶ 7 Before trial, SRP had rejected Miller Park’s offer of

judgment for $2.3 million. After the jury awarded a higher sum,

Miller Park requested sanctions under Rule 68 of the Arizona

Rules of Civil Procedure. The trial court denied this request,

reasoning that because A.R.S. § 12-1128(A) permits discretionary

cost awards in condemnation cases, it precludes the imposition

of cost-based sanctions under Rule 68. The trial court instead

used its discretion under A.R.S. § 12-1128(A) to award Miller

Park some costs.

¶ 8 SRP appealed the exclusion of the tax protest evidence

and Miller Park cross-appealed the denial of Rule 68 sanctions.

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The court of appeals held that the trial court had not abused

its discretion by excluding the evidence. Salt River Project

Agric. Improvement & Power Dist. v. Miller Park, L.L.C., 216

Ariz. 161, __ ¶ 35, 164 P.3d 667, 674 (App. 2007). The court of

appeals also held that, at least in cases in which a land owner

seeks sanctions against a condemnor, Rule 68 sanctions may be

imposed. Id. at __ ¶ 50, 164 P.3d at 678.

¶ 9 We accepted review because this case presents two

recurring issues in condemnation cases. Our jurisdiction is

based on Article 6, Section 5(3), of the Arizona Constitution

and A.R.S. § 12-120.24 (2003).

II.

¶ 10 We first consider whether the trial court abused its

discretion by excluding statements that Miller Park made through

its agent Deloitte regarding the “full cash value” of the

property for purposes of the tax protest. See State v. Spreitz,

190 Ariz. 129, 146, 945 P.2d 1260, 1277 (1997) (noting that

trial court’s decisions to admit or exclude evidence are

reviewed for abuse of discretion).

¶ 11 An owner of condemned property is constitutionally

entitled to “just compensation.” U.S. Const. amend. V; Ariz.

Const. art. 2, § 17. Just compensation equals the fair market

value of the property. City of Phoenix v. Wilson, 200 Ariz. 2, 6

¶ 8, 21 P.3d 388, 392 (2001). To determine market value, “the

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fact finder must consider the highest and best use of the land.”

Id. Valuation for property tax purposes, on the other hand, is

based on the property’s “full cash value,” which we have

interpreted as “limited to present usage.” A.R.S. § 42-13301(B)

(2006); A.R.S. § 42-11001(6) (Supp. 2007); Golder v. Dep’t of

Revenue, 123 Ariz. 260, 265, 599 P.2d 216, 221 (1979)

(discussing limitation on full cash value in A.R.S. § 42-

11054(C)-(D) (Supp. 2007)).

¶ 12 Because of the difference in valuation standards, tax

assessments are generally inadmissible to show the value of

property for purposes of just compensation. See, e.g., Jackson

v. Pressnell, 19 Ariz. App. 221, 222, 506 P.2d 261, 262 (1973)

(holding “that the mere production” of a tax appraisal “is not

admissible . . . on the issue of fair market value in a

condemnation hearing”). An owner’s own valuation for tax

purposes, however, may be admissible in non-tax contexts as a

party admission. See Ariz. R. Evid. 801(d)(2); see also 5 J.

Sackman, Nichols on Eminent Domain (“Nichols”) § 18.12[1] (3d

ed. 2006) (noting that statements of the owner, including “a

statement made to the tax assessor that his property is not as

valuable as the assessment,” “may become admissions”).

¶ 13 SRP argues that statements Miller Park made in its tax

protest were admissible either as admissions as to the

property’s value or for purposes of impeaching the testimony of

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Miller Park’s representative Michael Pierce. SRP further

contends that the trial court erroneously excluded such evidence

as irrelevant by following a court of appeals opinion that was

later depublished, see State ex rel. Mendez v. Am. Support

Found., Inc., 209 Ariz. 321, 100 P.3d 932 (App. 2004),

depublished by 210 Ariz. 232, 109 P.3d 571 (2005), and by

disregarding this Court’s opinion in State ex rel. Morrison v.

Jay Six Cattle Co., 88 Ariz. 97, 353 P.2d 185 (1960).

¶ 14 Miller Park moved to exclude the evidence under both

Rule 402 and Rule 403 of the Arizona Rules of Evidence. Rule

402 generally provides that relevant evidence is admissible and

irrelevant evidence is not. Under Rule 403, relevant evidence

may be excluded if its probative value is “substantially

outweighed by the danger of unfair prejudice, confusion of the

issues, or misleading the jury, or by considerations of undue

delay, waste of time, or needless presentation of cumulative

evidence.” Ariz. R. Evid. 403.

¶ 15 In granting the motion in limine, the trial court did

not specify whether its ruling was based on Rule 402, Rule 403,

or both.1 SRP in effect asks us to presume that the trial court

relied only on Rule 402 and, after the case has proceeded to a

                                                            
1
The trial court’s minute entry stated only that it had
“considered all legal memoranda, the court’s file and the
relevant law.”

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jury verdict, to order a new trial because the excluded evidence

was relevant. Under our case law, however, we instead presume

in these circumstances that the trial court also relied on Rule

403 and we will uphold the trial court’s ruling if supportable

under that rule. See Readenour v. Marion Power Shovel, 149

Ariz. 442, 449 n.8, 719 P.2d 1058, 1065 n.8 (1986) (concluding

that the trial court had exercised Rule 403 discretion in

excluding evidence challenged as prejudicial, although the

“record reveal[ed] neither formal invocation nor application of

Rule 403”).

¶ 16 SRP contends that the trial court’s failure to

expressly discuss its application of Rule 403 itself requires a

new trial in which the trial court may, in the first instance,

apply Rule 403’s balancing test. SRP and its amicus cite two

cases in support of this argument: Shotwell v. Donahoe, 207

Ariz. 287, 295-96 ¶¶ 31-36, 85 P.3d 1045, 1053-54 (2004)

(remanding for new Rule 403 determination because basis of

original ruling was legally insufficient), and Yauch v. Southern

Pacific Transportation Co., 198 Ariz. 394, 403 ¶ 26, 10 P.3d

1181, 1190 (App. 2000) (noting that Rule 403 balancing “is

peculiarly a function of trial courts” and refusing to “assume

that the court would have excluded . . . proffered evidence

based on Rule 403”).

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¶ 17 In Shotwell, this Court remanded for a new Rule 403

balancing because the trial court erroneously gave conclusive

weight to a non-dispositive factor. 207 Ariz. at 295 ¶¶ 31-32,

85 P.3d at 1053 (noting that trial court excluded evidence under

Rule 403 “solely on the ground that the [evidence] was

‘conclusory,’” yet “[a] document is not necessarily inadmissible

. . . simply because it contains conclusions or is conclusory”).

Similarly, the trial court in Yauch excluded evidence because of

a legal reason unrelated to Rule 403; the court of appeals

disagreed with the legal reasoning and refused to independently

uphold the exclusion under Rule 403. 198 Ariz. at 403-04 ¶¶ 26-

28, 10 P.3d at 1190-91. Thus, in both Shotwell and Yauch, it

was clear that the trial court had committed legal error and

never conducted a proper Rule 403 balancing. Neither case

suggests that a trial court necessarily commits reversible error

by failing to describe on the record its application of Rule

403.

¶ 18 Although it is generally desirable for a trial court

to make a record of its Rule 403 determinations, Readenour

provides the correct framework for evaluating the trial court’s

ruling here. Miller Park sought to exclude the tax protest

material under both Rules 402 and 403. To the extent the basis

for the trial court’s evidentiary ruling was ambiguous, it was

incumbent upon SRP to seek to clarify the record rather than to

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proceed to trial and later seek to upset the jury’s verdict on

appeal by arguing that the ruling could not be sustained on one

of two possible grounds.2

¶ 19 Presuming the evidence was sufficiently probative to

meet the relevance threshold of Rule 402, we must also consider

whether Rule 403 supports the trial court’s decision to exclude

the evidence. SRP contends that our decision in Jay Six

establishes that the trial court should have admitted the tax

protest material. In Jay Six, the Court held that the trial

court had erred by not allowing the state to cross-examine an

appraiser who had testified about the fair market value of

condemned property with the witness’s own prior appraisal for

federal tax purposes. 88 Ariz. at 105-06, 353 P.2d at 190-91.

The Court called the error “merely technical and harmless”

because, “even for purposes of impeachment,” the evidence “was

of slight probative force” and the state’s “examination and

                                                            
2
   We also reject SRP’s argument that a new trial is required
because the trial court relied on the subsequently depublished
American Support opinion. Miller Park cited American Support in
its motion in limine, but the trial court did not cite the
opinion in its ruling. American Support did not hold that tax
protest evidence is always irrelevant and thus inadmissible
under Rule 402 in condemnation cases; and depublication, while
eliminating an opinion’s effect as precedent, does not imply
that the court of appeals erred in resolving particular legal
issues.

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cross-examination of the witness . . . was otherwise very

extensive.” Id. at 106, 353 P.2d at 191.

¶ 20 Jay Six did not establish a per se rule that previous

estimates of value for tax purposes are always admissible in

condemnation actions; it merely held that the trial court abused

its discretion under the circumstances of that case. Whether a

land owner’s prior statements of valuation for tax purposes are

admissible in a subsequent condemnation action will depend on

the facts of the particular case.

¶ 21 Here, several factors suggest that the evidence was of

minimal relevance and potentially confusing to the jury. Miller

Park’s tax protest concerned a valuation of the property at a

different time, under different conditions, and under a

different standard than did the determination of fair market

value for condemnation purposes. Seventeen months had passed

since Deloitte submitted the tax protest material. During that

time, Buckeye had approved Miller Park’s “concept plan” for

commercial development and the area had substantial residential

growth. Moreover, Deloitte focused exclusively on the property-

tax specific “full cash value” of Miller Park’s property in its

then-current use, not on fair market value, which depends on the

“highest and best use” of the land.

¶ 22 Because of the different legal standards and the

nature of the property tax and condemnation valuations here, the

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tax protest evidence had little probative value, risked jury

confusion, and could have unduly wasted the time needed to

introduce and explain the evidence.

¶ 23 SRP argues that it should have been allowed to impeach

Pierce with Deloitte’s statements. But even assuming that the

statements of Miller Park’s agent may constitute a party

admission in this context, the fact that the statements may not

be hearsay under Rule 801(d)(2) of the Arizona Rules of Evidence

does not mean they are admissible under Rules 402 and 403. See

Shotwell, 207 Ariz. at 295 ¶ 29, 85 P.3d at 1053 (noting that

satisfying hearsay rule does not necessarily satisfy Rule 403);

cf. Nichols, supra ¶ 12, § 18.12[1] at 18-85 (“The value stated

by the owner may be a type of value other than fair market

value, and when this is the case, the statement is generally

held not to be inconsistent and therefore not admissible as an

admission.”).

¶ 24 Any impeachment value of the tax protest evidence was

reduced because the Deloitte representative who prepared the

protest did not testify at trial and Pierce, the Miller Park

representative who did testify, had not participated in

preparing the tax protest. These circumstances further

distinguish this case from Jay Six, in which the condemnor

sought to examine a witness about his own prior appraisal. Even

under those circumstances, Jay Six concluded that the prior

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statements had only “slight” probative value. The probative

value of the tax protest material here was even less and the

trial court could properly conclude that any probative value was

outweighed by the risks of confusion and unnecessary delay.

¶ 25 In short, we hold that a land owner’s prior statements

of valuation for tax purposes may be, but are not always,

admissible in a condemnation action. The trial court did not

abuse its discretion in excluding such evidence here.

III.

¶ 26 SRP contends that the trial court properly refused to

award Rule 68 sanctions because the rule conflicts with A.R.S. §

12-1128.

¶ 27 Under Rule 68, an offeree who declines an offer of

judgment and fails ultimately to obtain a more favorable

judgment “must pay, as a sanction, reasonable expert witness

fees and double the taxable costs . . . incurred by the offeror

after making the offer.” Ariz. R. Civ. P. 68(g). In

condemnation actions, A.R.S. § 12-1128(A) states that “[c]osts

may be allowed or not, and if allowed may be apportioned between

the parties on the same or adverse sides, in the discretion of

the court.”

¶ 28 Although the rule and statute both refer to costs,

there is no real conflict between the two. The statute provides

for the discretionary allocation of costs in all condemnation

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cases. Rule 68 does not provide for the recovery of costs as

such, but instead authorizes sanctions that are measured, in

part, by twice the costs incurred after the offer is made.

Ariz. R. Civ. P. 68(g).3

¶ 29 Because we conclude that Rule 68 and A.R.S. § 12-

1128(A) do not conflict, we overrule in part Pima County v.

Hogan, 197 Ariz. 138, 3 P.3d 1058 (App. 1999). In Hogan, the

condemnor sought Rule 68 sanctions after the jury awarded the

land owner less than the condemnor had offered in settlement.

197 Ariz. at 139 ¶¶ 2-3, 3 P.3d at 1059. The court of appeals

held that sanctions could not be imposed because Rule 68

conflicts with A.R.S. § 12-1128(A) and requiring the land owner

to pay costs as a sanction “arguably” would reduce the land

owner’s constitutional entitlement to just compensation. Id. at

140 ¶¶ 7, 9, 3 P.3d at 1060. Cf. City of Phoenix v. Mori, 182

Ariz. 612, 615, 898 P.2d 990, 993 (App. 1995) (holding that

right to just compensation limits court’s discretion to allocate

costs against land owner under A.R.S. § 12-1128(A)).

                                                            
3
   Rule
68 sanctions may also include prejudgment interest
from the date of the offer on unliquidated claims. This
sanction, as the court of appeals recognized, does not apply to
amounts that are already subject to prejudgment interest, as was
the case here because SRP obtained an order of immediate
possession and Miller Park thereby became entitled to
prejudgment interest under A.R.S. § 12-1123(B).

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¶ 30 We agree with the dissent in Hogan that the rule and

statute can be harmonized. See Hogan, 197 Ariz. at 141 ¶ 13, 3

P.3d at 1061 (Howard, J., dissenting). Because only the

condemnor faces sanctions in this case, we need not decide

whether applying Rule 68 against a land owner might violate the

owner’s right to just compensation.

IV.

¶ 31 For the foregoing reasons, we affirm the judgment of

the superior court in part and vacate it in part, vacate the

opinion of the court of appeals, and remand to the superior

court for proceedings not inconsistent with this opinion.

_______________________________________
W. Scott Bales, Justice

CONCURRING:

_______________________________________
Ruth V. McGregor, Chief Justice

_______________________________________
Rebecca White Berch, Vice Chief Justice

_______________________________________
Michael D. Ryan, Justice

_______________________________________
Andrew D. Hurwitz, Justice

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