                  IN THE COURT OF APPEALS OF TENNESSEE
                             AT KNOXVILLE
                                   February 18, 2005 Session

       KNOXVILLE COMMUNITY DEVELOPMENT CORPORATION
                     v. EMANUEL BAILEY

                        Appeal from the Circuit Court for Knox County
                         No. 3-522-99 Wheeler A. Rosenbalm, Judge



                    No. E2004-01659-COA-R3-CV - FILED JUNE 21, 2005


This case involves a dispute over compensation for property taken by eminent domain. The
Knoxville Community Development Corporation insisted that the property was worth only $19,500
and deposited that amount into the court. The landowner claimed it was worth much more.
Following a trial, the jury found the fair market value of the property to be $25,700. The landowner
appeals, contending that the trial court erred in instructing the jury that they could consider the tax
assessment figures in their valuation of the property. We agree, and we reverse the trial court.

           Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
                                            Reversed
PATRICIA J. COTTRELL, J., delivered the opinion of the court, in which CHARLES D. SUSANO, JR. and
D. MICHAEL SWINEY, JJ., joined.

Carl W. Eshbaugh, Knoxville, Tennessee, for the appellant, Emanuel Bailey.

James N. Gore, Jr., Knoxville, Tennessee, for the appellee, Knoxville Community Development
Corporation.

                                               OPINION

                                                    I.

        The property at issue in this case is a two-story commercial building located on a 26 foot by
50 foot lot on University Avenue in the Mechanicsville area of Knoxville. Emmanuel Bailey, an
electrical engineer by profession, purchased the property in 1988 for $27,100. He invested in
improvements and repairs to the building, spending about $30,000 in all. He fixed the roof, built a
central corridor to the interior stairway on the first floor with steel fireproof doors on both sides, and
installed a laundromat, a kitchen, and additional restrooms.
        Mr. Bailey operated the laundromat himself. Other sections of the building were rented out
for a restaurant and lounge and for a trucking dispatch office. By 1998, for reasons that are unclear
from the record, all of Mr. Bailey’s tenants had left, and he closed the laundromat. Several windows
were subsequently broken in the vacant building, and Mr. Bailey had them covered with plywood.

        In 1998, the Knoxville Community Development Corporation (KCDC) decided to acquire
the subject property and other properties in Mechanicsville for a federally-sponsored neighborhood
revitalization program called the Hope VI project. KCDC notified the affected property owners of
its intentions and called a public meeting to inform them of the agency’s plans, the acquisitions
process, and the landowners’ rights, including the right to commission an independent appraisal.

        In October of 1998, Wayne Underwood, a licensed appraiser hired by KCDC, appraised nine
pieces of property in the neighborhood, including the subject property. Because Mr. Bailey was
unavailable, the appraiser was unable to inspect the interior of the building. Judging from the
roughness of its exterior appearance, he concluded that it was just a shell. Mr. Underwood used the
sales prices of vacant buildings in a different area of town as a basis for comparison and determined
that Mr. Bailey’s property had a fair market value of $19,500.

       On August 18, 1999, KCDC filed a Complaint for Condemnation of the property together
with a Declaration of Taking in the Circuit Court of Knox County, and deposited $19,500 into the
court. On October 19, 1999, the court filed an Order of Taking. The following day, Mr. Bailey filed
an Answer and Counter-Complaint. He asked the court to set aside its Order of Taking and
requested that a jury be allowed to determine the fair market value of the property, which he
contended could be as high as $50,000. In an Amended Complaint, he claimed that the fair market
value of the property could be as high as $150,000.

        Mr. Bailey subsequently hired another licensed appraiser, G.T. Ballenger, Jr., to produce his
own appraisal of the property. Mr. Ballenger was able to inspect both the interior and the exterior
of the building. He analyzed the value of the property using the three generally recognized
approaches: the comparable sales approach, income approach, and cost approach. See Spring Hill,
L.P. v. Tennessee State Bd. of Equalization, No. M2001-02683-COA-R3-CV, 2003 WL 23099679
(Tenn. Ct. App. Dec 31, 2003 )(no Tenn. R. App. P. 11 application filed). See also Elk Yarn Mills
v. 514 Shares of Common Stock of Elk Yarn Mills, Inc., 742 S.W.2d 638, 642 (Tenn. Ct. App. 1987).
Mr. Ballenger’s final report recited a fair market value of $73,500.

                                     II. TRIAL PROCEEDINGS

       The case was tried before a jury on February 17 and 18, 2004. Four witnesses testified,
including the two real estate appraisers, Mr. Bailey himself, and Terrance Carter, a former program
coordinator for KCDC. For the purposes of this appeal, we need only discuss the testimony of the
appraisers.




                                                -2-
                                                  A.

        G.T. Ballenger, Jr. testified that he had been involved in real estate and appraisals for forty-
seven years and that he and members of his family had themselves owned property in Mechanicsville
at times. He stated that he had inspected Mr. Bailey’s building both inside and out, and that for the
purpose of comparable sales analysis, he had used recent sales of three other small commercial
buildings in the same neighborhood, all occupied by small businesses, and all located within a few
blocks of the subject property. After visiting those buildings and talking to their occupants, he
concluded that the sales comparisons produced a valuation of $74,500.

        Mr. Ballenger also appraised the property using an income approach. Relying on figures
supplied by Mr. Bailey, he estimated that the property could generate $15,300 per year in rents. He
reduced that figure by ten percent to allow for vacancies because of high turnover, and also
subtracted likely expenses, including management fees, taxes, insurance, maintenance, utilities, and
reserves for basic repairs. This process resulted in estimated net income of $7,960. Mr. Ballenger
assumed that an individual investing in the property would want at least an 11% return, and he
calculated a valuation of $72,500 based upon such a return.

         To appraise the property under the cost approach, Mr. Ballenger estimated that replacing the
building with a comparable structure would cost $67,100. Adding $4,000 to this figure for the value
of the land, he reached an appraisal value of $71,200. The witness stated, however, that because of
the age of the building, he did not consider replacement cost a useful approach for determining the
value of this particular property. He therefore gave no weight to the cost approach. Instead, he gave
equal weight to the comparable sales approach and to the income approach, and came up with an
appraisal value of $73,500.

      Mr. Ballenger’s twenty page appraisal report was entered into evidence. On cross-
examination by counsel for KCDC, the following exchange took place.

       Q.     You mention on page nine of your report the tax assessment of $7,040. Why
       did you include that?

       A.     That’s just a normal thing we always put in. I put that in every appraisal I’ve
       ever done.

       Q.      In fairness, that’s not the appraisal value for the tax assessor’s office, because
       they calculate that on a percentage of the actual appraised value, is that correct?

       A.      That’s correct, but in every report, we always do for – not necessarily here,
       but the banks and everything else, it’s just a standard item that’s required on all the
       reports that we do.




                                                  -3-
         Q.      So I don’t want to mislead, the appraised value wasn’t $7,040, the appraised
         value from the tax assessor was more like $17,500. Is that correct?

         A.     That would be 40 percent of whatever the property assessor’s estimate of
         value was.1

       On redirect, Mr. Ballenger testified that while tax information is normally included in an
appraisal report, it plays no role whatsoever in the process of determining the fair market value of
the property. There was no objection to the discussion of the tax assessment.

                                                            B.

        Wayne Underwood testified that he had been doing appraisals since the early 1980s and that
he was hired by KCDC to appraise nine properties for their Hope VI project. He stated that he had
made several attempts to contact Mr. Bailey by phone or letter, but was unable to reach him,
apparently because Mr. Bailey was traveling at the time. Mr. Underwood then made an exterior
inspection of Mr. Bailey’s building, and found in to be in poor condition and that it had not been
properly maintained for several years.

       Based on his observations, Mr. Underwood concluded that the subject property was just a
shell. He looked for comparable sales of other vacant two-story commercial buildings in
Mechanicsville in similar condition to serve as a basis for his analysis, but could not find any. He
then looked further afield and found several such buildings in the downtown area, which adjoins
Mechanicsville. Using a sales price per square foot calculation, he formed an opinion that the fair
market value of the subject property was $19,500.

        Mr. Underwood admitted on cross-examination that an appraisal based solely on inspection
of the exterior of a building could be wrong. However, on direct questioning, he had stated that, “It’s
been my general experience that the condition you may see the building on the outside is probably
reflective of what you’re going to see on the inside. If it hasn’t been maintained on the outside, it
probably hasn’t been maintained on the inside.”

                                                            C.

         In his closing argument, KCDC’s attorney referred to the tax assessment of Mr. Bailey’s
property, stating in part, “[n]ow the Judge is going to tell you the tax appraisal is not something that
you should rely upon to place a value on this property. That’s for you to decide, but is it a factor for
you to consider? I think that it is.” He then went on to attack the credibility of Mr. Ballenger, arguing
that the wide divergence between the tax assessment amount and Mr. Ballenger’s appraisal made his
entire appraisal suspect.


         1
           In Tennessee, real property which is classified as industrial or co mmercial is assessed for tax purposes at 40%
of its value. Tenn. Code Ann. § 67 -8-501(a).

                                                           -4-
       After closing arguments, the trial judge gave the jury its instructions, including the following.

       Now, with respect to tax appraisals, the evidence for the tax appraisals was submitted
       without objection, and so you will give it such weight as you feel that it’s entitled.
       You’re instructed the tax appraisals are no more than someone’s opinion about the
       value of the property, a piece of property upon a particular date, and in this case,
       therefore, you will treat that as opinion testimony.

        The jury then met to consider their verdict. It found that the fair market value of the subject
property was $25,700. It also found that Mr. Bailey was entitled to his moving expenses in the
amount of $1,000. The court entered a judgment consistent with the verdict. Mr. Bailey filed a
Motion for New Trial or to Alter or Amend the Judgment, arguing that the trial court erred by
instructing the jury that it could consider the tax appraisal to be relevant evidence on the question
of the property’s value. The court denied the motion. This appeal followed.

                                      III. JURY INSTRUCTION

        On appeal, Mr. Bailey renews his argument that the trial court’s jury instruction about the
tax appraisal was contrary to Tennessee law and that it prejudiced his constitutional right to trial by
jury. He cites several cases for the proposition that tax assessment evidence has no legitimate role
to play in condemnation cases.

         In Wray v. Knoxville, LaFollette & Jellico Railroad Co., 82 S.W. 471 (Tenn. 1904), the
Tennessee Supreme Court reversed a jury verdict because of several errors by the trial court,
including the admission of a tax assessment into evidence. In West Tennessee Power and Light Co.
v. Hughes, 15 Tenn. App. 37 (Tenn. Ct. App. 1932), this court stated that the trial court was correct
to exclude all evidence of tax assessments. In Knoxville Housing Authority v. Bower, 308 S.W.2d
398 (Tenn. 1957), our Supreme Court found the admission of a tax assessment to be harmless error,
because the disparity between the property value found by the jury ($11,500) and the amount of its
assessed value ($600) was so great that it indicated that the jury did not consider the assessment in
its deliberations.

        The reason tax assessments are excluded from evidence in condemnation cases is because
such assessments are conducted for a purpose that is entirely different from establishing just
compensation for public acquisition of private property and because the tax appraiser uses a very
different appraisal process for that purpose.

       This court knows judicially and as part of the financial history of the state, that land
       is never assessed for purposes of taxation at its real cash value, though that may be
       the law, but only in comparison with other lands around it. . . .

Wray, 82 S.W. at 475.



                                                 -5-
       In a recent case, City of Murfreesboro v. Worthington, No. 01A01-9703-CV-00124 (Tenn.
Ct. App. December 17, 1997)(no Tenn. R. App. P. 11 application filed), this court was faced with
the question whether tax assessment documents may be used for the limited purpose of impeaching
a witness. We noted that a minority of states did allow tax assessment evidence to be used for this
purpose, but that the majority did not, and we found the majority view to be more persuasive.

         KCDC does not take issue with the holdings in the above-cited cases, but emphasizes the fact
that in every one of them, the appellant made timely objection to the introduction of tax assessment
information or documents. In the present case, the property-owner’s attorney did not make any such
objection. KCDC argues that Mr. Bailey is accordingly ineligible for relief because of the operation
of Rule 36(a) of the Tennessee Rules of Appellate Procedure.

       That rule authorizes appellate courts to grant whatever relief a party is entitled to on the law
and the facts, but declares that “[n]othing in this rule shall be construed as requiring relief to be
granted to a party responsible for an error or who failed to take whatever action was reasonably
available to prevent or nullify the harmful effect of an error.”

        We note that the language of the above-cited rule does not bar the appeals courts from
granting a party relief from errors that have not been timely objected to, but merely relieves our
courts from any obligation to do so. Several decisions have indicated that our courts have some
discretion in the application of Rule 36(a) and should grant the relief requested when the strict
application of the rule would result in substantial injustice. See State v. Brimmer, 876 S.W.2d 75,
82 (Tenn. 1994); State v. Johnson, 980 S.W.2d 414, 418 (Tenn. Crim. App. 1998).

        In the present case, however, Mr. Bailey’s challenge is not to the admission of the tax
assessment figures per se, but rather to the trial court’s instruction to the jurors that they could
consider those figures in their deliberations. Rule 51.02 of the Rules of Appellate Procedure deals
specifically with the timing of objections to jury instructions:

       After the judge has instructed the jury, the parties shall be given opportunity to
       object, out of hearing of the jury, to the content of an instruction given or to failure
       to give a requested instruction, but failure to make objection shall not prejudice the
       right of a party to assign the basis of the objection as error in support of a motion for
       new trial.

       The Advisory Commission Comments for Rule 51.02 state that “ . . . errors in the charge
should be available as grounds for relief on motion for new trial or on appeal, subject to the rules
regarding harmless error.” As we stated above, Mr. Bailey’s motion for new trial asserted that the
disputed jury instruction amounted to reversible error.




                                                 -6-
         KCDC argues that the jury instruction constitutes “invited error,” and cites Gentry v. Betty
Lou Bakeries, 100 S.W.2d 230 (Tenn. 1936), for the proposition that such an error precludes the
property owner from being entitled to relief. In Gentry, the judge charged the jury that the defendant
bakery was required to use “a reasonable degree of care and caution” in preparing its packaged bread.
After the jury returned a verdict for the defendant, the plaintiff argued that the charge was deficient
because a manufacturer of food for public consumption is actually held to a higher duty than ordinary
care in the preparation of such commodities. Our Supreme Court held, however, that the judge’s
instruction was invited error, because the plaintiff’s pleadings had only charged the defendant with
failing to exercise proper care, and she did not request any instruction in regard to a higher degree
of care.

       The present case is not directly analogous. Herein, tax assessment figures were included in
the reports prepared by both licensed appraisers, and both appraisals were admitted into evidence.
Although Mr. Bailey’s attorney failed to object when the opposing attorney asked Mr. Ballenger
questions about the tax assessments, he attempted to cure any prejudice by eliciting testimony from
the appraiser that such assessments were never used as part of the appraisal process.

        KCDC’s attorney used the tax assessment in his closing argument to undermine the
credibility of Mr. Ballenger and to suggest that by virtue of being closer to the assessment, Mr.
Underwood’s appraisal was also closer to the fair market value of the property. The trial court
instructed the jurors that they could treat the assessments as opinion testimony.

        The jury instruction was clearly erroneous since tax assessments cannot be considered in
determining fair compensation for land taken by eminent domain. Under the circumstances, we do
not believe it can be considered invited error. The only remaining question, then, is whether it was
harmless error or reversible error. Reversible error is error involving a substantial right, which more
likely than not affected the outcome of the case or prejudiced the judicial process. Tenn. R. App.
P. 36(b).

       KCDC argues that since the final figure adopted by the jury, $25,700, was above its own
appraiser’s figure and below its adversary’s figure, we should affirm because the outcome was within
the “range of reasonableness.” We agree that if the jury had arrived at its figure without the
erroneous jury instruction we would have been compelled to affirm it.

        KCDC further argues that since it is the jury’s role to weigh the credibility of the witnesses,
it would be improper for us to substitute our own judgment for the jury’s. However, KCDC argued
credibility by using the tax assessment to undermine the credibility of Mr. Bailey’s appraiser, in
contravention of the holding of City of Murfreesboro v. Worthington, supra.

        Analysis of the jury verdict makes it appear likely that the erroneous jury instruction did in
fact affect the outcome. The $25,700 verdict is only slightly more than KCDC’s appraisal amount
of $19,500 and the tax assessment of $17,500. All three figures can be considered to be in the same



                                                 -7-
ballpark. At the same time, the verdict is only about a third of the figure that Mr. Bailey’s appraiser
calculated. Not only is it not in the same ballpark, it is on the other side of town.

        In light of the fact that Mr. Ballenger thoroughly inspected the property, and analyzed its
value under the three recognized approaches, while Mr. Underwood failed to inspect the interior,
made assumptions about the building that were not accurate, and compared it to properties in a
different neighborhood, it is difficult for us to conclude that the jury was not influenced by the tax
assessment and by the inferences KCDC’s attorney encouraged the jury to draw from the assessment.
We therefore reverse the trial court.

                                                 IV.

      The judgment of the trial court is reversed. We remand this case to the Circuit Court of Knox
County. Tax the costs on appeal to the appellee, the Knoxville Community Development
Corporation.



                                                       ___________________________________
                                                       PATRICIA J. COTTRELL, JUDGE




                                                 -8-
