State v. Whataburger, Inc.
60 S.W.3d 256, 2001 WL 1013409 (2001)
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Rule of Law:
In a partial condemnation case, a business owner may recover lost profits for a temporary but total impairment of access, in addition to compensation for the market value of the property taken, provided that the market value was calculated using the cost method, which does not account for the business's profitability.
Facts:
- Whataburger, Inc. owned and operated a restaurant on a tract of land at the intersection of a U.S. highway and an interstate frontage road in Houston.
- The State of Texas began a highway widening project that required it to condemn 8,421 square feet of Whataburger's property.
- The condemned portion of the land included both of the restaurant's entrances and a portion of its parking lot.
- The taking caused the existing restaurant building to extend beyond the new 25-foot building line, rendering it non-compliant.
- The damage to the property's utility was so extensive that the parties agreed the existing restaurant building had to be demolished.
- Whataburger subsequently demolished the restaurant and relocated it further from the highway on the remaining portion of its property, a process that took nine months.
Procedural Posture:
- The State of Texas initiated statutory condemnation proceedings against Whataburger, Inc.
- A special commissioners’ hearing was held, resulting in an award of $620,000 to Whataburger.
- Both the State and Whataburger filed objections to the commissioners' award in the trial court, with Whataburger asserting an additional claim for lost profits from impaired access.
- Following a trial before the court, the court awarded Whataburger $1,255,622.80 for the condemnation and an additional $268,524.00 for lost profits.
- The State of Texas (appellant) appealed the award for lost profits to the Court of Appeals (an intermediate appellate court), with Whataburger, Inc. as the appellee.
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Issue:
Does an award for lost profits stemming from a temporary but total impairment of access constitute an impermissible double recovery when the condemnation award for the property's fair market value was calculated using the cost method of appraisal?
Opinions:
Majority - Justice Hudson
No, the award does not constitute an impermissible double recovery. A business may recover lost profits for a temporary denial of access caused by a condemnation if that loss is not already factored into the primary condemnation award. The court reasoned that while a property owner is typically compensated for the market value of the property taken, a separate claim for lost profits due to impaired access is permissible under specific circumstances, such as a total but temporary denial of access. Here, the necessity of razing and rebuilding the restaurant constituted a total, nine-month denial of access to the business, even without a physical barrier to the land itself. The critical factor in avoiding double recovery is the appraisal method used to determine the property's market value. The comparable sales and income methods inherently incorporate a business's profitability into the property's value. In contrast, the cost method, used here due to the building's specialized nature, calculates value based on the cost to reproduce the structure plus land value, without considering business profitability. Because the appraisers for both the State and Whataburger used the cost method, the initial condemnation award did not compensate Whataburger for its business's profitability, making a separate award for lost profits during the reconstruction period appropriate and not a double recovery.
Analysis:
This case establishes an important clarification regarding damages in eminent domain law, particularly for businesses with specialized improvements. It carves out an exception to the general rule that disfavors separate awards for lost profits. The decision directly links the availability of lost profit damages to the specific appraisal methodology used to value the condemned property. By holding that the cost method does not account for profitability, the court provides a clear path for businesses with unique structures (like fast-food chains) to recover profits lost during a forced reconstruction, thereby preventing them from being undercompensated when the state's action effectively shuts down their operations temporarily.
