Court of Appeals of Texas, Thirteenth District, Corpus Christi-Edinburg
appeal from the County Civil Court at Law No. 4 of Harris
Chief Justice Valdez and Justices Rodriguez and Hinojosa
V. RODRIGUEZ Justice
appeal concerns a trial court's award of damages for the
State's taking of property belonging to Luby's
Fuddruckers Restaurants, LLC. The trial court entered
judgment on a jury verdict awarding Luby's $1, 334, 183
as just compensation for the taking and awarding $480, 000 on
Luby's claim for lost profits. By two issues, the State
appeals the award of lost profits. By one issue, Luby's
cross-appeals the trial court's exclusion of certain
language from the jury charge regarding the value of the
cafeteria's kitchen equipment. We find no abuse of
discretion in the jury charge, but we agree with the State
that the award of lost profits constituted an impermissible
double recovery. We affirm in part and reverse and render in
subject of this suit is a Luby's cafeteria situated along
U.S. 290 and 34th Street in Houston, Texas ("the
cafeteria"). On August 7, 2012, the State filed this
condemnation suit to take a strip of the cafeteria's
parking lot for purposes of a project to widen U.S. 290. Both
parties agreed that the taking also rendered the cafeteria
incapable of operating in its current form; with a
substantial amount of parking gone, the cafeteria could not
comply with a Houston parking ordinance. Luby's further
contended that the parking situation was inadequate to meet
customer demand and would also breach a restriction in the
cafeteria's deed which set minimum parking requirements.
State agreed with Luby's that the taking rendered the
building and all improvements valueless in their current form
and that Luby's was entitled to compensation for this
loss. Luby's announced its intention to demolish the
current cafeteria and rebuild a smaller facility on the same
site which could comply with the parking ordinance, the deed
restriction, and market demand. The State further agreed that
Luby's was entitled to compensation for the cost to
achieve the demolition.
the parties disputed the amount of compensation owed. Special
commissioners were appointed to value the taken property, and
they returned a condemnation award of $1, 795, 853. Both
parties objected to the award, and the case proceeded to the
trial court. See Tex. Prop. Code Ann. § 21.018
(West, Westlaw through Ch. 49, 2017 R.S.).
to the jury trial, the State filed a motion to dismiss for
want of jurisdiction. According to the motion, Luby's had
lodged a counterclaim for lost profits; Luby's asserted
that the demolition and rebuilding of the cafeteria would
take twelve months to complete, and that Luby's was
entitled to compensation for lost profits during this period.
The State argued that no recovery for lost profits was
allowed under Texas law. Luby's responded that recovery
of lost profits was allowed under Houston Court of Appeals
precedent. The trial court agreed with Luby's and
overruled the State's motion.
trial, Luby's presented evidence that this location had
net profits of $40, 000 per month. Luby's also presented
evidence that it had begun preparation for the twelvemonth
process of demolition and construction, during which the
cafeteria would be closed and unavailable to generate income.
Luby's asked the jury to award $480, 000 to compensate
for lost profits during this process.
parties also presented evidence concerning the market value
of the strip of land taken and, on the remaining land, the
value of the soon-to-be demolished cafeteria and related
fixtures. Luby's offered an appraisal expert, Mark Sikes.
Sikes performed his valuation according to the "cost
approach, " which focuses on the cost of replacing the
taken property. Sikes valued the taking by comparing the
market value of the cafeteria property before the taking and
the market value after the taking. According to Sikes, the
property value before the taking was $4, 137, 024, the value
after the taking was $1, 179, 263, and the compensable taking
was the difference between the two: $2, 959, 737. Included in
this figure was roughly $444, 000 to compensate for various
kitchen equipment, such as vent hoods, prep tables, and a
fryer. Luby's contended that these pieces of equipment
were permanent fixtures to the cafeteria building, and
therefore the value of the equipment should be included in
any award for the taken building.
State offered Mike Welch, its own appraisal expert. Welch
testified that the cost approach was the least reliable of
three approaches used to appraise property, the other two
being the comparable sales approach and the income approach.
Welch determined the cafeteria's market value by
appraising the property under all three approaches and taking
their weighted average, placing more weight on the comparable
sales and income approaches. Following this method, Welch
estimated the compensable difference in market value to be
$1, 334, 183. Welch acknowledged that this valuation did not
account for the kitchen equipment that Luby's claimed was
worth $444, 000; he testified that most of this equipment was
not truly affixed to the property and could be easily removed
and salvaged, and therefore did not qualify as compensable
fixtures. Welch did, however, include a walk-in freezer in
his estimate, which he believed to be a fixture or permanent
charge conference, Luby's proposed a jury question and a
jury instruction, both of which related to Luby's claim
for the kitchen equipment. The proposed question would have
modified the main jury question and asked the jury to value
the whole property "including the building and the
fixtures and the constructive fixtures within the
building." The proposed instruction would have explained
the legal definition of a compensable "fixture, "
with language drawn from Texas case law. It would have also
informed the jury that under certain circumstances, personal
property can be "constructive fixtures"-that is,
not directly attached to the property, but still intended to
be a permanent improvement that is compensable in a taking.
The trial court refused the question and the instruction.
condemnation claim, the jury returned an award of $1, 334,
183, which was the amount proposed by the State and its
experts. Separately, the jury also awarded $480, 000 for lost
profits, which was the amount proposed by Luby's. These
appellate proceedings followed.
Claim for Lost Profits
first issue, the State argues that in light of the main
condemnation award of $1, 334, 183, any award for lost
profits was an impermissible double recovery. The State
argues that in partial takings cases, the general rule
forbids any independent claim for lost profits. Luby's
argues that under State v. Whataburger, recovery of
lost profits is allowed when a taking causes "material
and substantial impairment of access" to the property.
60 S.W.3d 256 (Tex. App.-Houston [14th Dist.] 2001, pet.
Denied). According to Luby's, Whataburger should
lead us to conclude that since the cafeteria must be
destroyed, this qualifies as a substantial impairment of
access, opening the door to an independent award of lost
profits. In response, the State argues that a careful reading
of the Whataburger court's reasoning should
instead lead us to conclude that lost profits are not allowed
under the facts of this case. We agree with the State.
governmental entity condemns only part of a tract, adequate
compensation is required for both the part taken and any
resulting damage to the remainder. Cnty. of Bexar v.
Santikos, 144 S.W.3d 455, 459 (Tex. 2004). But not all
damages to remainder property are compensable. Id.
Whether damages can be recovered depends on what kind of
damage is involved. Id. Compensability is a question
of law for the court, and it is subject to de novo review.
to remainder property are generally calculated by the
difference between the market value of the remainder property
immediately before and after the condemnation, considering
the nature of any improvements and the use of the land taken.
Id. Texas recognizes three approaches to determining
the market value of condemned property: the comparable sales
approach, the income approach, and the cost approach.
State v. Cent. Expressway Sign Assocs., 302 S.W.3d
866, 871 (Tex. 2009) (citing City of Harlingen v. Estate
of Sharboneau, 48 S.W.3d 177, 182 (Tex. 2001)). Under
the comparable sales approach, the appraiser finds data for
sales of similar property, then makes upward or downward
adjustments to these sales prices based on differences in the
subject property. Sharboneau, 48 S.W.3d at 182. The
comparable sales approach is preferred, id., but
when this approach is unworkable, courts will accept
testimony based on the income approach and the cost approach.
Id. at 183. The income approach is appropriate when
the property would, in the open market, be priced according
to the rental income it generates. Id. This approach
involves estimating the rental income of the property and
applying a capitalization rate to determine market value.
See Cent. Expressway, 302 S.W.3d at 870. The cost
approach looks to the cost of replacing the condemned
property minus depreciation, and it is best suited for
valuing improved property that is unique in character and not
frequently exchanged on the marketplace. Sharboneau,
48 S.W.3d at 183. All three approaches are designed to
approximate fair market value, which is the amount a willing
buyer would pay a willing seller for the property. Cent.
Expressway, 302 S.W.3d at 871.
law allows income from a business operated on the property to
be considered in a condemnation proceeding in two situations:
(1) when the taking, damaging, or destruction of property
causes a material and substantial interference with access to
one's property, lost profits may be awarded as damages,
id. (citing City of Austin v. Ave. Corp.,
704 S.W.2d 11, 13 (Tex. 1986)), and (2) when only a part of
the land has been taken, evidence relating to lost profits is
admissible, not as a separate item of damage, but as a means
of demonstrating the taking's effect on the market value
of the remaining land and improvements. Id.; see
City of Dallas v. Priolo, 150 Tex. 423, 426- 27 (1951).
Absent one of these two situations, income from a business
operated on the property is not recoverable and should not be
included in a condemnation award. Cent. Expressway,
302 S.W.3d at 871. Courts have applied this rule for two
reasons: first, because profits from a business are
speculative and often depend more upon the capital invested,