                                                                  FILED
                                                             November 14, 2017
                                                                   released at 3:00 p.m.
                                                               EDYTHE NASH GAISER, CLERK

                                                               SUPREME COURT OF APPEALS

                                                                    OF WEST VIRGINIA



No. 16 -1163 - W.Va. Dep’t of Transp., Div. of Highways v. CDS Family Trust, LLC

LOUGHRY, Chief Justice, concurring:

              While I agree with the majority’s decision that a new trial was required in this

matter due to the improperly and heavily-weighted reliance on the market price of potential

mitigation credits, I find it necessary to write separately to address my additional concern

that trial courts need to properly marshal evidence that is adduced for purposes of valuing

wetlands. Other than quoting from the decision in Department of Transportation v.

Southeast Timberlands, Inc., 589 S.E.2d 575 (Ga. Ct. App. 2004), the majority offers very

little advice to the trial court for its handling of this case on remand. Accordingly, I wish

to address certain issues that the trial court may need to consider when quandaries arise with

regard to the admission of expert testimony on the valuation of the subject land.



              First and foremost, the trial court needs to recognize that, as the majority

acknowledged, there is no consensus on how to value land when its highest and best use is

the potential to be utilized as a wetlands mitigation bank. See David M. Keating, MAI, The

Valuation of Wetlands 37 (2d ed. 2002) (“The total economic value of wetlands is a

relatively new concept, and scientists are working to formulate methods for estimating such

values.”). And, as the Division of Highways aptly observes in its reply brief, decisions with

regard to environmental protection laws are affected by the political climate as demonstrated

by the multitude of directives instituted by President Trump since taking office this past

                                              1

January. Included in those policy changes was Executive Order 13,778, “Restoring the Rule

of Law, Federalism, and Economic Growth by reviewing the ‘Waters of the United States

Rule.’”      That order, signed on February 3, 2017, has potential impact on the value of

wetlands, and wetlands credits, as it mandates the withdrawal and reconsideration of the

Clean Water Rule, 80 Fed. Reg. 37054 (June 29, 2015).1 Consequently, the regulations and

guidelines previously utilized under the Obama administration are now in a state of flux due

to the vagaries of the regulatory process itself2 and numerous lawsuits instituted to halt such

changes.3 Given that the wetlands banking mitigation industry is unquestionably dependent

on the current political climate, the valuation testimony provided below has clearly been

called into doubt.



                 A secondary caution only hinted at by the majority is a need to ensure that the

valuation is limited to adaptable uses that are “reasonable and probable and not remote or

speculative.” Southeast Timberlands, 589 S.E.2d at 579 (emphasis supplied). The critical

valuation for purposes of condemnation is always the market value on the date of taking, and

yet the expert testimony proffered by CDS was linked to the future application for mitigation

       1
        Because the terms “waters of the United States” is undefined in the Clean Water Act,
33 U.S.C. §§ 1251-1387 (2012), it has been defined by regulation to include wetlands and
intermittent streams.
       2
       Under the subject executive order, the EPA and the Army Corp of Engineers have
been directed to publish a proposed rule rescinding or revising the Clean Water Rule.
       3
           See 40 C.F.R. § 230.93(a); 33 C.F.R. § 332.1(b)(3).

                                                2

credits–something that may or may not transpire. Significantly, at no time prior to the taking

had any steps been taken to construct a wetlands mitigation bank on the subject property.

The experts hired by CDS testified solely in terms of the “potential” of the property to be

developed for such purpose.



              At least one court has ruled that the prospective application for mitigation

credits has no relevance with regard to the issue of just and adequate compensation. In

Martha K. Wayt Trust v. City of Cumming, 702 S.E.2d 915 (Ga. Ct. App. 2010), the court

considered the trial court’s refusal to allow an expert to testify regarding the value of stream

mitigation credits for purposes of valuing the condemned property. In affirming the trial

court’s decision, the appellate court reasoned:

                     The evidence showed that, at the time of the taking, the
              proposed stream mitigation bank had not yet been created on
              the condemned property, and no stream mitigation credits had
              been awarded in connection with the condemned property. And
              no evidence was presented to show that the proposed future use
              of the property as a stream mitigation bank, or the value of
              stream mitigation credits it might have generated under such
              use, had an effect on its market value on the date of the taking.

Id. at 918. Citing Southeast Timberlands, the court reasoned further:

              The fact that the property is merely adaptable to a different use
              is not in itself a sufficient showing in law to consider such
              different use as a basis for compensation. It must be shown that
              such use of the property is so reasonably probable as to have an
              effect on the present value of the land. Even where a different
              use is probable, the jury cannot evaluate the property as though
              the new use were an accomplished fact; the jury can only

                                               3

              consider the new use to the extent that it affects the market
              value on the date of taking.

Id. (quoting Southeast Timberlands, 589 S.E.2d at 580).



              Of further concern is the fact that the experts hired by CDS to inflate the value

of this property appear somewhat incestuous, relying on each other’s data rather than having

the necessary expertise to testify independently.4 This should be a warning sign to the trial

court, when it conducts its gatekeeping function to determine whether such individuals have

the appropriate expertise to testify on the valuation-related issues. Robert Sokolove, one of

the three experts relied on by CDS was a Delaware lawyer, whose professional credentials

reflect zero experience in real estate valuation or appraisal. Mr. Sokolove, a self-described

“wetland mitigation banker,” testified that the subject land “had a significant opportunity to

be utilized as a mitigation bank.” What is notable is that his report contained no opinions

concerning the fair market value of the entire property before taking, the fair market value

of the property taken, or the value of the residue of the property after the taking. Worse yet,

is that he failed to rely upon any of the recognized methods of valuing real estate.5 Looking

solely to his business experience in “get[ting] your values” from the sale of wetlands credits,

       4
        Douglas C. Wise, an expert hired by CDS to estimate the total just compensation due
for the taking and damages to the residue, stated in his report that he merely adopted the
opinions and conclusions of CDS’ other experts–Mr. Sokolove and RK&K. In reaching his
conclusion, Mr. Sokolove relied upon the findings of RK&K and Mr. Reel.
       5
       Those methods include the sales comparison approach, the cost approach, and the
income capitalization approach.

                                              4

Mr. Sokolove prognosticated that a willing buyer would pay $3,551,000 for the property at

issue because he could then resell the mitigation credits for over $5 million later.



                 The record in this matter similarly calls into question the expert testimony

provided by Mr. Wise, another expert hired by CDS.6 While he supplied a figure of

$5,670,000 as the fair market value of the property before the taking, he failed to employ any

acceptable approach for arriving at such figure.7 It cannot be overlooked that the singular

basis for that figure was his reliance on alleged sales of wetlands mitigation credits provided

to him by Mr. Sokolove. So rather than looking to any comparable sales or any other

accepted appraisal theory, Mr. Wise simply subscribed hook, line, and sinker to the valuation

that Mr. Sokolove provided to him–the lawyer’s guestimate that 349.22 acres would have

sold for $65,000 per credit acre and $2,042.21 per stream credit if the property had been

developed into a wetlands mitigation bank. Not only is this credit-based method of

valuation constructed upon speculation and illusion, but its foundational flaws are glaringly

apparent.



                 The appraisal of wetlands has been recognized as controversial due to the

differing conclusions that result from each distinct method of valuation. See Keating, supra,


       6
           See supra note 4.

       7
           See supra note 5.


                                               5

at 41. Despite this acknowledgment, in this case the entire valuation was conjured from the

pen of a lawyer who admitted to making his living as a “wetland mitigation banker.” This

type of self-serving evidentiary foundation is wholly suspect and should not be permitted

to suffice on remand. And, as this Court long ago recognized:

              Speculation as to what use may be made of property at some
              future indefinite date is insufficient. . . . Possible uses which are
              so remote and speculative and which would require the
              concurrence of so many extrinsic conditions and happenings as
              to have no perceptible effect upon present market value must be
              excluded from consideration.

State Road Comm’n v. Penndel Co., 147 W.Va. 505, 511-12, 129 S.E.2d 133, 137 (1963).

With this additional guidance, I respectfully concur.




                                               6

