United States of America v. 25.202 Acres of Land and building affixed to the land located in the Town of Champlain, Clinton County, New York: and Amexx Warehouse Company, Inc., dba Duty Free Americas, Inc., et al.,

Filing 174

MEMORANDUM-DECISION & ORDER: It is ordered that the # 160 Motion for New Trial and the # 171 Motion for New Trial and denied. Signed by Chief Judge Norman A. Mordue on 9/30/2011. (jmb)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
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United States of America,
Plaintiff,
-v-

5:06-CV-428 (NAM/DEP)

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25.202 Acres of Land and building affixed to the
land located in the Town of Champlain, Clinton
County, New York; and Amexx Warehouse
Company, Inc., d/b/a Duty Free Americas, Inc., et
al.,
Defendants.
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APPEARANCES:

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Hon. Richard A. Hartunian, United States Attorney
Paula Ryan Conan, Esq., Assistant United States Attorney
100 South Clinton Street
Syracuse, New York 13261-7198
and
United States Department of Justice, Environmental Division
John O. Holm, Esq.
Michael K. Baker, Esq.
P.O. Box 561
Ben Franklin Station
Washington, D.C. 20044-0561
and
United States Department of Justice, Commercial Litigation
Kristin R. Muenzen, Esq.
P.O. Box 261
Ben Franklin Station
Washington, D.C. 20044-0261
Attorneys for Plaintiff
Hiscock & Barclay, LLP
David G. Burch , Jr., Esq., of counsel
Kevin R. McAuliffe, Esq., of counsel
One Park Place
300 South State Street
Syracuse, New York 13202-2078
and

Zimmer Law Office PLLC

Kimberly M. Zimmer, Esq., of counsel
Monroe Building, Suite 301
333 East Onondaga Street
Syracuse, New York 13202
Attorneys for Defendants.

Hon. Norman A. Mordue, Chief U.S. District Judge:
MEMORANDUM-DECISION AND ORDER
In this condemnation action, defendant1 moves (Dkt. Nos. 160, 171)2 for a new trial. On
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April 4, 2006, the government took 25.202 acres along the United States-Canadian border on the
east side of New York State Route 9 near Exit 43 from Interstate 87 in Champlain, New York
(“subject property”). After trial, the jury awarded defendant $208,000 for the subject property.
The Court assumes the reader’s familiarity with the background of the case.
Defendant argues that the award of $208,000 represents a miscarriage of justice resulting

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from erroneous evidentiary rulings and improper argument by the government. First, defendant
challenges this Court’s March 9, 2010 pretrial Order (Dkt. No. 92) adopting a Report and
Recommendation (Dkt. No. 77) of United States Magistrate Judge Gustave J. DiBianco, and
granting the government’s motion (Dkt. No. 43) to preclude the testimony of defendant’s expert
Michael E. Ellis to the extent that it relied on the income capitalization method of valuation.

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Using this method, Ellis arrived at a value of $10.3 million for four acres of the 25.202-acre
parcel. He used the direct sales comparison approach to arrive at a value of $150,000 for the

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The Court refers to “25.202 Acres of Land and building affixed to the land located in the Town
of Champlain, Clinton County, New York; and Amexx Warehouse Company, Inc., d/b/a Duty Free
Americas, Inc., et al.” as “defendant.”
2

Defendant has submitted two identical motions, one filed before the Judgment was signed and

one after.

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remainder of the subject property. In the exercise of its discretion pursuant to Rule 702 of the
Federal Rules of Evidence and Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993), the
Court found that Ellis’s application of the income capitalization method to this vacant property
was improper and resulted in an unreliable and speculative valuation.
The Order (Dkt. No. 92) further adopted Magistrate Judge DiBianco’s recommendation to
grant the government’s motion (Dkt. No. 44) to preclude valuation testimony by John A. Couri,
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Steven D. Zurcher, Simon Falic, Joseph W. Kearney and any other valuation witnesses, to the
extent that such testimony was based on Ellis’s income capitalization appraisal. The Court also
ruled that Falic and Kearney, in their capacity as owners of the subject property, may give
opinion evidence as to its value, on the ground that landowners are presumed to have special
knowledge of their property. See United States v. 68.94 Acres of Land, 918 F.3d 389, 397 (3d

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Cir. 1990).
In its challenge to the Daubert ruling, defendant complains that Magistrate Judge
DiBianco issued the Report and Recommendation without an evidentiary hearing. The transcript
of the proceeding before Magistrate Judge DiBianco on April 27, 2009 demonstrates that
defendant agreed to Magistrate Judge DiBianco’s suggestion to go forward without an evidentiary
hearing.3 Magistrate Judge DiBianco entertained exhaustive oral argument from both sides, and,

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The transcript of oral argument before Magistrate Judge DiBianco (Dkt. No. 82, pp. 3-4) reads:
THE COURT: We had some discussions in chambers, and in light of the extremely
voluminous depositions in this case, plus the exhibits, plus treatises and other
reference materials, I thought that testimony might not be necessary and that I would
certainly allow the parties to orally argue their positions in depth and refer to
whatever exhibits they'd like to. So, if both sides would like to do that, we will go
forward only with oral argument.
Is that agreeable with the government?

(continued...)
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after reviewing a voluminious record, decided the issue based on the law and undisputed facts,
finding no factual issues requiring an evidentiary hearing. In its objection (Dkt. No. 85) to
Magistrate Judge DiBianco’s Report and Recommendation, defendant argued that Magistrate
Judge DiBianco improperly made factual findings that “impinge on the jury’s role as fact-finder.”
A review of the record demonstrates, however, that the few “findings” to which defendant
specifically objected were supported by Ellis’ own report and/or were not a necessary ground for
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Magistrate Judge DiBianco’s recommendation. This Court found no material factual dispute that
would require a hearing.
As for the merits of the ruling, Ellis’ use of the income capitalization method of valuing
the property is clearly improper for the reasons set forth in Magistrate Judge DiBianco’s Report
and Recommendation, which this Court adopted. The Court does not repeat them here. A reading

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of the transcript of the oral argument before Magistrate Judge DiBianco highlights the flaws in
Ellis’ application of the income capitalization method.
On this motion, defendant contends that it should have been permitted to retain another
expert once Ellis’s income capitalization evidence was precluded. This action was commenced
on April 4, 2006. After extensions of time, the parties exchanged expert reports on or about April
30, 2007, and rebuttal expert reports by September 28, 2007. The 27-page in-depth rebuttal by

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the government’s appraiser E. Anthony Casale, dated August 21, 2007, challenged Ellis’s
appraisal on a number of grounds, including those relied on by Magistrate Judge DiBianco and
this Court. The parties deposed Ellis and other witnesses. On October 15, 2008 the parties made
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(...continued)
MR. HOLM: Agreeable with the government.
THE COURT: Defense?
MS. ZIMMER: Yes, Your Honor.

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motions, including the government’s motion to preclude Ellis’ evidence. On April 29, 2009,
Magistrate Judge DiBianco held oral argument, and on December 29, 2009, he issued his Report
and Recommendation, which this Court adopted on March 9, 2010. Defendant’s representatives
and their attorneys are very knowledgeable and may be presumed to have been aware of the
highly speculative and problematic nature of Ellis’s valuation. Having gambled on what it knew
or should have known was a manifestly improper valuation, and after the passage of years and the
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expenditure of a great deal of effort on the part of the government and the courts, defendant
cannot now reasonably be heard to complain.
According to defendant, the Court’s Daubert ruling wrongfully precluded Ellis from
testifying at trial to the fair market value of the subject property. This is not so; Ellis was
precluded from testifying to the fair market value only insofar as it was based on the income

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capitalization method. Defendant was, of course, free to introduce Ellis’ comparative sales
analysis if it had chosen to do so. Also, in its bench decision on motions in limine, the Court
ruled that defendant could introduce evidence of the subject property’s income potential as a
duty-free store and how that income potential would affect the property’s fair market value.4 See
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In its bench decision ruling on motions in limine, the Court ruled:

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Also in this motion, docket number 102, the government seeks preclusion of
valuation testimony based on the income approach to value. In the March 9th, 2010
memorandum decision and order, docket number 92, adopting the report and
recommendation of Magistrate Judge DiBianco, docket number 77, this court
precluded all testimony based upon Michael E. Ellis' income capitalization appraisal.
The Court did not, however, preclude all other evidence based on the income
approach and rulings on admissibility must await trial. The court does not intend to
charge the jury – excuse me -- excuse me, does intend. The court does intend to
charge the jury that it may consider such evidence only to the extent that it would
affect how much a willing buyer would be willing to pay and, further, that it would
be improper to value the property as if there were a duty-free store currently
operating on it.

(continued...)
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United States v. Meadow Brook Club, 259 F.2d 41, 45 (2d Cir. 1958) (“It would be improper to
value the property as if it were actually being used for the more valuable purpose. But the ‘extent
that the prospect of demand for such use affects the market value while the property is privately
held’ should enter into the calculation.”) (citing Olson v. United States, 292 U.S. 246, 255
(1934)). Defendant conducted the trial on this theory, contending that the fair market value of the
property was based on its highest and best use as a duty-free store. Defendant’s counsel first
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made the argument in her opening statement, saying: “The value of this piece of property that the
government took is based on the ability of that land to be used to operate a duty-free store.” She
added that the potential income stream from the prospective use of the property as a duty-free
store “is something that a buyer would take into account in determining how much they were
willing to pay to purchase the property.” She then stated that the “propert[ies] that the

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government claims are comparable are not comparable. The government is trying to compare a
piece of property that can be used to operate a duty-free store to properties on which a duty-free
store cannot operate.” Thus, she argued, the government’s evidence “does not represent the fair
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(...continued)

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Now the court intends to preclude all evidence based on the value of the property to
the landowner for his particular purposes or to the government for some special use.
Such evidence is irrelevant to the question of fair market value of the property. Thus,
the Court will preclude all testimony concerning the subject property's particular
value to the landowner for its own singular purposes, such as eliminating competition
or expansion of existing business.
***
As stated, the Court intends to charge the jury that it would be improper to value the
property as if there were a store currently operating on it, and that evidence of
income-producing potential of the property is relevant only to the extent that it would
affect how much a willing buyer would be willing to pay. Again, the Court will
preclude all testimony concerning the subject property's particular value to the
landowner for its own purposes, and, again, such as eliminating competition or
expansion of existing business. I think there was testimony about bus service,
additional bus services that they would now run and use that land for.

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market value of the property” because it does not reflect the highest and best use of the property,
and the government’s valuation at $184,000 is not just compensation.
At trial, after hearing an offer of proof outside the presence of the jury, and over the
government’s strong objection, the Court permitted defendant wide latitude in questioning Ellis
regarding the subject property’s income potential from possible future use as a duty-free store and
the effect of that income potential on the property’s market value. See Meadow Brook, 259 F.2d
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at 45. Ellis testified that the highest and best use was as a duty-free store and that such use would
generate far higher income than any other. He explained the correlation between ground lease
payments and the value of the property, and testified that a landowner who granted a ground lease
to an operator of a duty-free store would typically recover ground rent based on a percentage of
the store’s gross sales, usually 20 to 25 percent. He stated that the existing duty-free store at

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Chaplain generated about $4 million in retail sales in 2005 and $4.45 million in 2006.
On cross-examination of Ellis, the government elicited testimony that there were two
duty-free stores in Champlain, the existing one owned by defendant and another farther to the
south; that Ellis did not do an economic feasibility study to ascertain whether the area could
support a third duty-free store; that there has not been a new duty-free store in Champlain in 15
years; that defendant’s existing store is immediately off the Interstate 87 exit, whereas the only

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access to the subject property was by driving north past the existing store on a dead-end service
road; that the vacant 39.7-acre parcel immediately south of the subject property and north of the
existing store (the Ridella Corp. property) is zoned the same as the subject property; and that 50
acres of the vacant 89.5-acre parcel (referred to by Ellis as Parcel No. 2) immediately south of the
existing store is zoned the same as the subject property.

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Defendant claims it was unfairly prejudiced by the government’s questioning of Ellis
regarding the Court’s preclusion of his opinion of the subject property’s fair market value. Ellis
testified at trial that he had been qualified as an expert witness in state court “at least 50, maybe a
hundred” times. After hearing argument on the issue, the Court ruled that as a result of the
defendant’s holding Ellis out as a highly qualified expert in condemnation matters, the
government could cross-examine Ellis for purposes of impeachment by asking him “whether or
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not his proffered evidence in any condemnation proceeding regarding valuation of condemned
property has ever been rejected by any court.” The Court added: “If the answer is yes, there will
be no follow-up questioning on that issue.” This is precisely what happened; to the permitted
question, Ellis responded, “Yes, on one occasion only.” There is nothing unfair in this.
At trial, the Court also permitted defendant to introduce extensive – and practically

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unlimited – valuation testimony by its non-expert witnesses, including calculations based on the
income capitalization method. Joseph W. Kearney, an officer of defendant Duty Free Americas,
Inc. (“DFA”), testified at length regarding the income potential of the subject property. Kearney
testified to the annual sales revenue of the existing store and other duty-free stores at both the
Canadian and Mexican borders; the projected duty-free sales at the Champlain crossing; the
percentage of income that a landowner would likely receive from the operator of a duty-free store

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under a ground lease; and the manner in which DFA would market the subject property. Kearney
calculated that the subject property would generate $935,000 annually in ground rent income;
that, applying a nine percent capitalization rate to the ground rent income, the value of the
property was over $10 million; and that, even assuming that the subject property would attract
only 50 percent of the sales, the value would be approximately $5.2 million. Adjusting for other

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factors, he gave the value as $2 million.
On cross-examination, Kearney stated that he calculated the value of the subject property
by applying a capitalization rate to a stream of income. He acknowledged that there had not been
a stream of income from the subject property for many years and that no one had built a duty-free
store in the area for at least 15 years. He believed it would be possible to put a duty-free store on
Parcel No. 2. He was unaware that Parcel No. 2 had recently sold for about $1,840 an acre. He
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also acknowledged that he was not an appraiser.
Defendant also introduced testimony from John Couri, principal in the company that
owned the subject property from 1986 to 1997. Couri testified regarding the duty-free business in
general and the favorable location of the subject property for a duty-free store. He stated that the
Champlain crossing was one of the most attractive Canadian-border crossings for the duty-free

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business, based on the number of vehicles and other factors. He said that in 1986 the sales at the
Champlain crossing were about $2.5 million and that they increased in subsequent years. Simon
Falic, chairman of defendant DFA, which in 2001 had purchased the subject parcel and other
properties, including the nearby parcel on which DFA operates the existing duty-free store,
testified to the gross sales income at DFA’s duty-free stores at some other crossings, both on the
Canadian and Mexican borders. The sales figures indicated that income increased at some

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crossings after competitors entered the area. John P. Luksic, DFA’s director for regulatory
compliance, testified regarding regulatory requirements to obtain a permit for a duty-free store,
and stated his opinion that the subject property would be likely to obtain a permit. In sum, except
for precluding Ellis from testifying to his improper income capitalization method, the Court did
not significantly limit defendant’s proof at trial.

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Neither the government’s closing argument nor the jury charge created undue prejudice to
defendant. The comments by the government’s counsel during summation were not so severe or
significant as to prejudice defendant, particularly when viewed in context of the entire trial,
especially the summations. Both parties’ summations challenged the reliability, credibility, and
objectivity of the other side’s witnesses.5 The jury charge did not favor the government or
prejudice defendant in any respect, nor did it contain any error of law. The general “boilerplate”
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charge regarding credibility of witnesses did not prejudice defendant. Regarding opinion
testimony, the charge treated expert opinion testimony and landowner opinion testimony equally,
and the charge regarding the credibility of opinion witnesses clearly applied equally to both.6
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In particular, in his summation defendant’s counsel challenged the objectivity of the
government's appraiser Casale, arguing that, before beginning his appraisal, Casale already knew how
much the government wanted to pay for the subject property. Counsel stated: “[T]hey give him the
number in advance, I don’t find that unbiased. I don’t find that independent and, quite frankly, I don’t
think you should find that reliable.”
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Regarding opinion evidence, the Court charged:
Now the rules of evidence normally do not permit witnesses to testify as to opinions
or conclusions. An exception to this rule exists as to those we call expert witnesses.
Witnesses who, by education and experience, have become expert in some science,
profession or calling, and they may state their opinions as to relevant and material
matters in which they profess to be an expert and may also state their reasons for
their opinion.

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You should consider each expert opinion evidence in this case and give it such
weight as you think it deserves. If you should decide that the opinion of an expert
witness is not based upon sufficient education and experience or if you should
conclude that the reasons given in support of the opinion are not sound or if you feel
that it is outweighed by other evidence, you may disregard the opinion entirely. If
you decide that the reasons given in support of an expert's opinion as to fair market
value are valid, you may accept that opinion and give it any weight you think it
deserves.
You have also heard the testimony of the landowner's representatives, Simon Falic
and Joseph Kearney. Landowners are permitted to testify as to their opinion of the
subject property's fair market value. The testimony of a Landowner as to value is

(continued...)
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Moreover, defendant did not object to this aspect of the charge.
Finally, the Court rejects defendant’s contention that the cumulative impact of the alleged
errors deprived it of a fair trial. Apart from Ellis’ precluded income capitalization evidence,
defendant was permitted to make its case with virtually no limitation. For its own reasons,
defendant chose not to elicit fair market value testimony from Ellis regarding comparable sales.
The Court permitted extensive testimony from Kearney as the landowner regarding the value of
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the subject property, including valuation based on the income capitalization method. And
defendant supported Kearney’s evidence with evidence from other witnesses. It made full use of
its cross-examination of the government’s expert Casale not only to challenge his evidence but to
assist defendant in establishing its own position. Neither the government’s summation nor the
Court’s charge to the jury were prejudicial to defendant. Based on the evidence, the jury reached

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an eminently reasonable verdict. Defendant received a fair trial.

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(...continued)

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to be weighed and considered by you the same as that of any other witness
expressing an opinion as to fair market value of the property on the date of the
taking. As with any other witness, if you decide that his opinion is not based upon
sufficient information or experience or that the reasons given in support of the of the
opinion are not sound or it is outweighed by other evidence, you may disregard the
opinion entirely, or give to it such weight as, in your judgment, you think it merits
after considering all the evidence before you. If you decide that the reasons given
in support of a landowner's opinion as to fair market value are valid, you may accept
that opinion and give it any weight you think it deserves.
Now, both sides in this case have offered opinion evidence as showing the value of
the property taken. You are the sole judges of the credibility of the witnesses who
have testified before you and the weight to be given the testimony of each.
The jury should take into consideration the opportunities of the several witnesses for
seeing and knowing the things to which they testified, their conduct and demeanor
while testifying, their interest or lack of interest, if any, in the result of this
proceeding, the reasonableness or unreasonableness of their testimony, the extent
of their investigation to determine the facts, and from all the facts and
circumstances, consider the weight to be given the testimony of each.

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It is therefore
ORDERED that the motion for a new trial (Dkt. Nos. 160, 171) is denied.
IT IS SO ORDERED.
September 30, 2011

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