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Lori A. Butler, Bar No. 016139 W EIL & W EIL, PLLC 1600 S. Fourth Avenue, Suite C Yuma, Arizona 85364 Tel: (928) 783-2161 Fax: (928) 783-6082 Attorney for Cha Cha, LLC
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 By: /s/ Lori A. Butler Lori A. Butler v. 192.019 Acres of Land, more or less, located in Yuma County, State of Arizona, et al., Defendants. Cha Cha, L.L.C., an Arizona Limited Liability Company, replies to the United States' Response to Application for Fees and Expenses Under the Equal A ccess to Jus tice Act. This reply is sup ported by the fo llowin g Me moran dum o f Points and A uthoritie s. Respectf ully submitted th is 20th day of March, 2007. Weil & Weil, PLLC UNITED STATES OF AMERICA, Plaintiff, REPLY TO U NITED STATES' RESPONSE TO APPLICATION FOR FEES AND EXPENSES UNDER THE EQUAL ACCESS TO JUSTICE ACT Case No. CV03-2006-PHX-SRB IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA
MEMORANDUM O F POINTS AND AUTHORITIES The Equal Access to Justice Act provides for an award of attorney fees and costs to a preva iling par ty in litigation , such as Cha C ha, LL C, aga inst the U nited S tates.
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The United States claims fees and expense s should n ot be paid b ecause (1) its position was substantially justified; (2) Cha Cha, LLC is not entitled to the full amount of fees requested; and (3) a portion of hourly rates charged exceed the statutory cap. Cha Cha, LLC will esta blish that the position of the United States was not substantially justified, Cha Cha, LLC is entitled to the full amount of fees requested and any hourly rates charged that exceed the statutory cap are justified under the circumstances. I. The United States' Position Was Not Substantially Justified. Both parties agree that the Un ited States be ars the burd en of sho wing that its position was substantially justified. Both parties also agree that the Ninth Circuit has articulated the five considerations that should form the basis of the court's reasoning when deciding whether or not the government's position was substantially justified. Cha Cha, LLC discussed several of the above considerations in its Application and will not restate them in the reply. Rather, Cha Cha, LLC will add the following argument for unreasonableness of the appraisal, focusing on considerations 1(C) to (E ) the reasonableness and reliability of the government's appraisal based on : (C) The f actual basis of the appraisal (specifically, the reasons the ap praisal differs from that of the landowner), (D) Awards and sales of similar property in the area at or about the time in question, and (E) Whether the comparable sales used by the appraiser were comparable. A. Unreasonable Appraisal In considering the reasonableness the United States Supreme Court has directed the courts to ask whether the govern ment's po sition was ju stified to a de gree that w ould satisfy a reason able pe rson. See Pierce v. Underwood, 487 U.S. 552, 565, 108 S.Ct. 2541, 2550, 101 L.Ed.2d 4 90 (1988). The government was not justified in relying on its appraisal because the appraisal was unreason able and unreliable for many reasons. The government's appraiser, John
Dorchester, had no experience appraising property in Yuma, Arizona, he relied on sales
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transactions and appraisals allegedly verified by other persons, he failed to conduct independent verification of many properties that he used in his data, his data included insider transactions and partial interest sales even though such property values are not indicative of market value, he used outdated data and selective sales, and he failed to make any adjustmen ts to sales for market conditions. A ll of these factors resulted in M r. Dorchester's flawed methodology of simply averaging sales that occurred. A reasonable person would not have accepted the government's appraisal that used this erroneous data and the methodology of simply averaging sales. The appraisal is unreliable for numerous reasons. At trial, Mr. Dorchester testified that he prepared a "retrospective appraisal" and was not retained for over a year after the valuation date. Transcript of Trial Testimony of John D. Dorchester, Jr. (hereinafter "Tr."), p.47. Mr. Do rchester did n ot view the property until over a year after the valuation date. Tr., p.49, line 20. M r. Dorche ster had nev er appraised property in Yuma, Arizona. Tr., p.50, line 8. Most sign ificantly, Mr. D orchester relied on prior appraisals and sales transactions allegedly verified by other a ppraise rs. Tr., p.37, lines 17-20. Mr. Dorchester admitted that he did not make an independent investig ation on many pr operties . Tr., p. 81 , lines 10 -13. As a consequence , Mr. Dorchester m isrepresented critical facts regarding sales transactions th at were us ed in his data : 1. Inside r Tra nsactio ns. Mr. Dorchester used an insider transaction in his data. Mr. Dorchester's sale C-08 was a transaction between Mr. Wayne Keys to Associated Citrus Packers. Mr. Keys was a long-time director and stockholder o f the corporation As sociated Citrus Packers. M ark Spencer, Vice-president of Associated Citrus Packers, testified that the dollar amount listed in the sales document did not reflect the fair market value of the property the amount was set for insuran ce and co mmission purposes . Mr. Spen cer testified tha t the property did not sell for $15,000 an acre, but was a like kind exchange, and the exchange was a result of a
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close relationship between Mr. Keys and the corporation. Mr. Dorchester did not investigate this sale to d etermin e that it w as not a n arms -length transac tion. Tr., page 69, line 11. Mr. Dorchester agreed that sales betwee n members of a closely-related business entities are not arms-leng th transactions and that bu siness relation ships betw een parties to a sale affect the price. See Tr., page 69, lines 12-24. This sale should not have been averaged into other transactions to establish a value. A reasonable person would not accept an insider transaction that is not representative of fair market value. 2. Partial Interest Sale. Mr. Dorchester used a sale of partial interest of property in his data. How ever, Mr. Dorchester admitted tha t a sale of a partial in terest is n ot reflec tive of f air mark et value . Tr., page 58, lines 10-21. A reasonab le person w ould not ac cept a partial in terest sale that is n ot reflective o f fair market value. 3. Lack of Access. One of the "light industrial sales" used by Mr. Dorchester is a sale from J.R. Stephens to Bill Jewett in February 2002 for a price of $10,25 0.00 pe r acre (L I-14). Mr. Dorchester considers this agricultural land with potential for a light industrial use, but does not disclose that this is an interior parcel with access restricted to a dirt farm road and, thus, has no industrial access. Mr. Dorche ster admitted that this sale, w hich was averaged in to provide his appraisal value, did not have industrial access, whereas the subject property was located on a majo r truck ro ute with conve nient an d direct a ccess a nd visib ility. See Tr. page 76, line 12 thro ugh pa ge 77, lin e 13. A reasonable person would not accept a value of property with no industrial access to be reflective of fair market value of a property with access on a major truck route.
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4.
Failure to Use Later Sales of Same Property. a. Goldsm ith/Tana ka/Tuffly
In his data Mr. Dorchester used a transaction (L-10), from Goldsmith to Tanaka for a sale of 4 0 acres at $14,5 00 per a cre. Tr., p. 56, lines 8-12. Mr. Dorchester had information from two sources of a subsequent more contemporaneous sale of this same property from Tanak a to Tu ffly at $1 8,500 p er acre, ye t he faile d to inclu de this sa le in his d ata. Mr. Dorchester conceded that he reviewed a business record, prepared by his firm, stating that Nels Rogers, a real estate broke r in Yum a, related the sa le from T anaka to Tuffly at $18,500 per acre. Tr., p.51, lines 20-25; p.53, lines 23-25, pp. 55-56; Exhibit 229. Mr. Dorchester further conceded that he received data on this subsequent sale transaction directly from the govern ment in an other appra isal. Tr., p.57, lines 7-15. Yet, Mr. Dorchester disregards the information in order to skew the results by including only the lowest sale. [Mr. Weil] Q: "So, a broker tells you, "I have a sale from Tanaka to Tuffly for $18,50 0." Yo u disreg ard that i nform ation, and based upo n docum ents from another ap praiser, you inclu de in your data a differen t sale from Goldsmith to Tanaka. That's what you did, isn't that true? [Mr. Dorchester] A : I believe that what w e did here was try to follow the string of verificatio ns. This is one of the areas where you asked me a minute ago: Did we do any verific ation? Th is was the in formation that we had derived. [Mr. Weil] Q: Well, your information I'm just curious. You had all of this other sales data. I'll be happy to show you what I received after your deposition [ from the g overnm ent] if you wa nt to look at it. Would you like to see the sales sheet that talks about th e Goldsm ith to Tanaka sale for $18,500? I'm just trying to understand, why do you pick the lowest sale to include in your data and not the higher sale and more contemporaneous sale at $18,500? [Mr. Dorchester] A : I think the answer is part of what I gave you at the depos ition, and that wa s that w e got ve ry mixed inform ation ab out this." Tr., p. 57, line 22 to p. 58, lines 16.
25 b. 26 The Associated Citrus Packers property discussed above (Keys to Associated Citrus 27 28 5 Associated C itrus Packers P roperty
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Packers) was later purchased for $32,500 per acre. However, although Mr. Dorchester used the Keys to Associated Citrus Packers transaction (at $15,000), he ignored the sale of the same property that was closer in time to the date of taking because it had a much higher value ($32,500). [Mr. Weil] Q: "Why is it that Mark Sp encer testifies under oath that this property did not sell for $15,000, that it was like kind exchange. We've heard testimony that after the sale occurred, the Curtises traded this particular parcel for the number 2, the LI-number 2, the DJKM Investments, at a subsequent time for $32,500. So I'm trying to understand: Why is it that you get this wrong over and over regarding the actual price for which these properties are sold? ...
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 [Mr. Dorchester] A : All right. The reason that I have this wrong is that this had previously been verified by others at a time that was contem porane ous w ith the da te of va lue for t he info rmation that wa s here. . . How did I get it wrong? I allowed for the possibility that we didn't know everythin g there w as to kn ow in o ur repo rt." Tr., p. 80, line 21 to p. 81, line 18. A reason able person would n ot accept a f air market v alue that utilized an older sale when a sale more contemporaneous with the taking date was available. 5. Selective Use of Sales. Mr. Dorche ster testified that th e light industrial sales were really not comp arable because they were r emov ed from the spe cific loc ation. See Tr., p. 44 , lines 14 -16. Howeve r, Mr. Dorchester utilized one light industrial sale with a low value, inexplicably failing to utilize five contiguous or nearby parcels with hi gher va lues. See Tr., p. 77, line 14 to p. 80, line 4; Exh ibit 142 (Chart of All I ndustria l Sales o f Ow ners/Sa nders/D orches ter). Mr.
Dorchester misrepresents the facts there were five higher value industrial sales in the same location as the one lower value industrial sale that he included in his data. A reason able person w ould not ac cept the exc use that a sing le property represented fair market value where five contiguous or nearby properties were disregarded for no reason
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and the fact that the other five properties had higher sales prices highlights the unreasonableness of the selection. 6. Not in APZ. Mr. Dorchester included the Velda Ranch in an acciden t potential zon e (APZ ) in his valuation. He calculated his valuation of the Velda Ranch with this limitation. When M r. Dorchester learned that the Velda Ranch was not located in an APZ he declined to reevaluate his valuation of the property. A reasonable person would n ot accept a c hange in property use (to allow expanded use) without an increase in valuation, where the appraiser had originally devalued the property because of the limited use. 7. No Adjustments Made. Because Mr. Dorchester claimed that there were no comparable sales to the subject property, he sim ply averaged the value o f sales that he included in his report. It is a basic tenet of real e state valuation that adjustm ents must be m ade to prop erty sales for r easo ns of conditio ns of sale, time , loca tion, phys ical characteristics, location on asphalt roads, interior parcels o r other critical ele ments of c ompariso n. A sale of property that occurs four years prior to the taking should be adjusted for time. A sale of industrial prop erty, which is an interior parcel without access to a dirt road, has a different value than a sale of industrial property located on a trucking route with high visibility and adjustment should be made. A reasonab le person w ould not ac cept the failure to make adjustmen ts to property sales. 8. Flawed Methodology Mr. Dorchester testified that there were no comparable sales because the property was a limited market property. Tr., p.36, 18-21. Mr. Dorchester used an appraising transaction analysis where an appraiser looks for properties of various types of uses to see what sort of "price trends" occur. T r., p. 36, lin es 9-14 . Mr. D orchester testified that he looked at
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residential prop erty, v acan t property, citrus property and light industrial property. He then used bracketing which he described as follows: [Mr. Dorc hester] ". . . We look to see what all is going on around. If you could find prices higher and lower than what you're comparing with, maybe th at gives you an id ea it's so mew here in b etwee n." Tr., p.44, line 24 to p.45, line 2. Mr. Dorche ster then selec ted a num ber of pro perties, that he claims are not comparable, and then arrived at his valuation by taking a mathematical average of all sales (old sales and newer sales) and made no adjustment for timing of sales, location, zoning or other ele ments o f com parison require d. A reasonable person would not accept the averaging of flawed data from an appraiser as the fair market value of property taken by the government. The appraiser appears to have thrown out a ll prin ciple s of r eal e state appraisa l to ju stify a low valuation, rather than utilize such principles to offer an accurate valuation, and such action is unreasonable. In sum, the government's appraisal was unreasonable and unreliable. As a result, the government's position is not substantially justified and fees and expenses should be awarded under E AJA . B. No Efforts to Resolve Case Prior to Litigation As stated above, the government has the burden to prove its position w as substantia lly justified. In review ing a ques tion of sub stantial justification, the Ninth Circuit articulated one consideration to be the good faith, or lack thereof, of the government's efforts to resolve the case prior to litigation. Cha Cha, LLC was advised that the government does not se ttle condemnation cases. The government admits that it requested that the settlement conference be vacated. There was no e ffort by the go vernmen t to resolve this case, despite the agreement to hold a settlement conference and despite any reason the government now provides.
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The failure to make any effort tow ard settlement adds supp ort to Cha Cha, L LC's argument that the United States' position in this case was not substantially justified, and therefore, Cha Cha, LLC's request for fees and expenses should be granted. II. Eligibility of Fee Award Cha Cha, LLC meets the sta tutory requirem ents of an e ligible party in that it does not have over 500 employees and does not have a net worth of over $7,000,000. In support of this statement Cha Cha, LLC provided the Affidavit of Kathy McCloud, Comptroller of Cha Cha, LLC, stating these facts. The government claims that this affidavit is not sufficient and documentation of assets and liabilities are required Attached hereto as Exhibit A is the Supplemental Affidavit of Kathy McCloud, which provides documentation of assets and liabilities to show that at the time of filing of this case Cha Cha, LLC did not have a net worth of over $7,000,000. The Supplemental Affidavit and supporting documentation rely on generally accepted accounting principles ("GA AP") . See American Pacific Concrete Pipe Co. v. NLRB, 788 F.2d 586 (9 th Cir. 1986)(GAAP, which encompass deductions for accumulated depreciation, are to be use d in determinin g net wo rth for purposes of d eciding whether a p arty meets the net worth ceiling und er EAJA.) Acquisition cost of real property is used for valuation of assets, in accordance w ith GAAP. See Broaddus v. U.S. Army Corps of Eng ineers, 380 F.3d 162 (4 th Cir. 2004); Hoopa Valley Tribe v . Watt, 569 F.Supp. 9 43 (N.D .Cal. 1983 ); United States v. 88.88 Acres of Land, 907 F.2d 106 (9 th Cir. 1990)(Acquisition cost of the subject property shall be used, not the fair market value determined by the jury.) Depreciation is subtracted from the company's assets, again in accord ance w ith gene rally accep ted acc ountin g princ iples. See Continental Web Press, Inc. v. NLRB, 757 F.2d 321 (7 th Cir. 1985). Based on the fore going case law, and the Affidavit and Supplemental Affidavit of Kathy McCloud, Cha Cha, LLC meets the eligibility requirements for an award of fees and expenses under EAJA.
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III. REASONABLENESS OF REQUESTED AWARD Cha Cha, LLC submits that the requested attorneys' fee award is reasonable and provides the following explanation of the statement of fees. The statement of fees did not state the hourly rate for each attorney. The hourly rates for John Weil and Lori Butler are as follows: John W eil 2003: 2004: 2005: 2006: $175/hour $175/hour $225/hour $225/hour x x x x 16.50 22.55 38.45 237.35 hours = hours = hours = hours = $ 2,887.50 $ 3,946.25 $ 8,651.25 $53,403.75
Lori Butler 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
2003 - 1/2005: $125/hour x 45.75 hours = $ 5,718.75 2/2005 - 2006: $150/hour x 98.20 hours = $14,730.00
The statement of fees states that certain fees are split with the companion case of United States v. 33.845 Acres of Land. Many aspects of the two condemnation cases
involved work that benefitted both cases and could not be divided in any meaningful way between the two ca ses. Theref ore, the wo rk was bille d one-ha lf to United States v. 33.845 Acres of Land and one-half to United States v. 192.019 Acres of Land. Although the same entry will be viewed in the statement of fees for both cases, these are not duplicative services. For example, where John Weil expended 0.20 hours of time on a telephone conference with Bill Waldrip regarding U .S. Navy condemn ation and this matter conce rned a matter relevant to both case s, the law firm would split the charg e and bill 0.10 hour to United States v. 33.845 Acres of Land (at $175/hour for fee of $17.50) and 0.10 hour to United States v. 192.019 Acres of Land (at $175/hour for fee of $17.50). The statement of costs in the instant case states: DATE ATTY 1/27/03 JAW DESCRIPTION Telephone conference with Bill Waldrip re: U.S. Navy condemnation (split with 33 acres) HOURS 0.20 AMOUNT $17.50
The statement of fees in United States v. 33.845 Acres will state:
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DATE ATTY 1/27/03 JAW
DESCRIPTION Telephone conference with Bill Waldrip re: U.S. Navy condemnation (split with 192 acres)
HOURS 0.20
AMOUNT $17.50
Thus, the total fee for both cases is $35.00 (0.20 hours at $175 hour) and there is no duplication of fees, merely a split of fees. Furthermore, the hourly rates are reasonable. Lori Butler's fees meet the EAJA statutory rate and governm ent conce des this poin t. The governm ent contends that the hourly rates for John Weil exceed the EAJA statutory rate and claims the fees should be modified to reflect the following hourly rates: $150.70/hour in 2003, $154.25/hour in 2004, $158.96/hour in 2005, $164.40/hour in 2006. In this case, Ch a Cha, L LC con tends that sp ecial factors re quire the hig her hourly rate of John Weil to be awarded due to the limited availability of qualified attorneys for this case. John Weil has specialized experience in litigating condemnation actions, has represented the County of Yuma as plaintiff in numerous condemnation cases and has represented defendants in condemnation cases f iled by the State of Arizona. He has distinctive knowledge in the combination of condemnation, real property transactions, agriculture (such as citrus production), and zoning, all of w hich were needed f or this litigation. This is not a common trial case, rather this case invo lved the spe cialized skills fro m years practic ing in condemnation law. The re are few , if any, other attorneys that practice condemnation law in Yuma, Arizon a. In fact, in the f all of 2006 , when Jo hn Weil b ecame G eneral Co unsel to a private contractor and stopped representing clients at We il & Weil, PLL C, the firm transferred its condemnation cases to a law firm in Tucson, Arizona, due to the unavailab ility of attor neys practicing in this area. As such, Cha Cha, LLC submits that Mr. Weil's practice specialty was a special factor justifying an hourly rate higher than the statutory cap. In the event that the court declines to award fees at the hourly rate set forth in the invoices for Weil & Weil, PLLC, Cha Cha, LLC requests the court award fees at the rates
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cited by the government. As such, the revised fees would be as follows: John W eil 16.50 22.55 38.45 237.35 hours hours hours hours x x x x $150.70/hour in $154.25/hour in $158.96/hour in $164.40/hour in 2003 2004 2005 2006 = = = = $ 2,487.37 $ 3,478.33 $ 6,112.01 $39,020.34
Lori Butler's fees would remain the same for a total of $ 20,448.75. 5 Total revised fees would be $71,546.80. 6 IV. Reasonableness of Cost Award 7 Costs were requested in the amount of $8,743.43. The statement of costs was not 8 correctly filed with the Application. Counsel apologizes for the error and submits the 9 statement of costs in Exhibit B. 10 In addition, the in voices for the landowner's appraiser, Jim Sanders, are attached 11 hereto as Exhibit C. All invoices of Mr. Sanders have been paid by Cha Cha, LLC. Cha 12 Cha, LLC respectfully requests the court allow the Application for F ees and E xpenses to 13 include the appraiser's costs in the amount of $15,555.00, in addition to costs stated above. 14 Because Cha Cha, LLC paid one-half of the attorney's fees, appraisal costs and other 15 costs in this case (the remaining one-half was paid by Sam Perricone, Trustee), Cha Cha 16 respectfully requests the Court award one-half of attorney's fees and costs in the following 17 amounts: 18 Attorney's fees: 19 Appraisal costs: 20 Other costs: 21 22 Weil & Weil, PLLC 23 24 By: 25 26 27 28 12 /s/ Lori A. Butler Lori A. Butler Respectf ully submitted th is 20 th $ 4,371.72 (½ of $ 8,743.43) day of March, 2007. $ 7,777.50 (½ of $15,555.00) $44,671.25 (½ of $89,342.50)
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CERTIFICATE OF SERVICE I hereby certify that on March 20 th , 2007, I electronically transmitted the Application for Fees and Expenses Under the Equal Access to Justice Act (28 U.S.C. §2412) and all attachments to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Sue A. K lein Assistant U.S. Attorney Two Re naissance Square 40 North Central Ave., Ste. 1200 Phoenix, AZ 85004-4408 [email protected] I hereby certify that on January 30, 2007, I electronically transmitted the attached
10 document to the following: 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13 /s/ Lori A. Butler Lori A. Butler The Honorable Susan R. Bolton United States District Cou rt 401 West Washington Street, SPC 50 Phoenix, Arizona 85003 [email protected]
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