Are Lost Profits for Obstruction of Access Lost in Texas Condemnation?

By:  Mary Colchin Johndroe*

The recent Luby’s Fuddruckers case seems to present an unsolvable dilemma for landowners seeking lost profits for interference with access in a Texas condemnation proceeding.  State v. Luby’s Fuddruckers Restaurants, LLC, No. 13-16-00173-CV, 2017 WL 2608296 (Tex. App.—Corpus Christi, June 15, 2017, no pet.) (mem. op.)

Ostensibly, the Luby’s Fuddruckers case suggests that a governmental condemnor can always defeat a landowner’s claim for lost profits just by introducing appraisal evidence based on the comparable sales or income approaches.  However, a closer scrutiny may belie such a strategy.

In Luby’s Fuddruckers, the State condemned a strip of the cafeteria’s parking lot to widen U.S. 290.  All parties agreed that the taking rendered the cafeteria incapable of operating.  Due to the loss of a substantial amount of parking, the cafeteria could not comply with a Houston parking ordinance and remaining parking was inadequate to meet customers’ needs and deed restrictions.  Luby’s filed a counterclaim for obstruction of access seeking lost profits for the period it would take to complete demolition and rebuilding of a smaller cafeteria on a different area of the property.

The parties also presented evidence concerning the market value of the strip of land taken and the value of the soon-to-be demolished cafeteria.  Luby’s appraiser performed his valuation according to the cost approach.  However, the State’s appraiser valued the property by the comparable sales, income, and cost approaches.  He took the weighted average, placing more weight on the comparable sales and income approaches.

The jury returned an award for the land taken and damage to the remainder (value of the soon-to-be demolished cafeteria) in the amounts opined to by the State’s appraiser.  Separately, the jury also awarded the amount for lost profits opined to by the Luby’s appraiser.

The Corpus Christi Court of Appeals reversed the judgment as to lost profits holding it was an impermissible double recovery because the property’s capacity to generate profit was already factored into the market value of the property since the State’s appraiser had valued the property based on the comparable sales and income approaches.

The Luby’s Fuddruckers court stated that it distinguished State v. Whataburger, Inc., 60 S.W.3d 256 (Tex. App.—Houston [14th Dist.] 2001, pet. denied), in which recovery for lost profits was allowed under almost identical facts, since the experts for both parties in Whataburger relied exclusively on the cost approach, and profitability was not reflected in their valuations.  The Luby’s Fuddruckers court found significant that the Whataburger court recognized that the sales comparison and income approaches both take account of a property’s ability to generate profits.  Yet, this discussion in Whataburger is dicta.

Luby’s Fuddruckers, and Whataburger and City of San Antonio v. Guidry, 801 S.W.2d 142 (Tex. Civ. App.—San Antonio 1990, no writ), upon which Luby’s Fuddruckers relies, were all partial takings.  However, in each, the partial taking resulted in a total, permanent destruction of the business on the remaining property.  The appraisers opined to the loss of value for the total business enterprise on the properties.

In Guidry, the city alleged that the landowner was allowed an impermissible double recovery for lost profits and the loss in value of his business.  The court recognized that Guidry could not recover for both kinds of damages during the same period.  After the business was destroyed, the landowner could recover its market value, but not lost profits.  But, the Guidry court clarified that the landowner could still recover lost profits for the total, temporary interruption of business before the business closed.  Guidry, 801 S.W.2d at 150.

To insure no impermissible double recovery in a Luby’s Fuddruckers-like case, a condemnation practitioner may wish to include an instruction in the charge to the jury not to include any amount awarded for the destruction of the business in any award for lost profits.  See, Guidry, 801 S.W.2d at 150 and fn 10; French v. Grigsby, 567 S.W.2d 604, 608 (Tex. Civ. App.—Beaumont, writ ref’d n.r.e.) per curiam, 571 S.W.2d 867 (Tex. 1978).

* Mary Colchin Johndroe is a Partner at Cantey Hanger LLP in Fort Worth, Texas.  Her principal practice areas include Eminent Domain and Condemnation.  She may be contacted at / 817-877-2810.  Her bio is at attorneys/mary-colchin-johndroe/.