APPEAL FROM FRANKLIN CIRCUIT COURT HONORABLE THOMAS D. WINGATE, JUDGE ACTION NO. 03-CI-01502
The opinion of the court was delivered by: Nickell, Judge:
RENDERED: MARCH 22, 2013; 10:00 A.M.
CROSS-APPEAL FROM FRANKLIN CIRCUIT COURT HONORABLE THOMAS D. WINGATE, JUDGE ACTION NO. 03-CI-01502
AFFIRMING IN PART, REVERSING AND VACATING IN PART, AND REMANDING
BEFORE: COMBS, MOORE AND NICKELL, JUDGES.
This appeal determines the measure of damages for underground removal of limestone by a willful trespasser. We write on a clean slate. For the following reasons, we affirm in part, reverse in part and remand for further proceedings consistent with this opinion.
FACTS AND PROCEDURAL HISTORY
It is undisputed that B. Todd Crutcher, individually, and as trustee of the B. Todd Crutcher Living Trust, and his brother, James Donald Crutcher (collectively "Crutcher"), own and possess 36 acres of unimproved land in Franklin County bordering a 500-acre tract of land owned by Harrod Concrete and Stone Co. ("Harrod") and operated as an underground limestone quarry since 1958. It is further undisputed that in the course of mining its own property in 2002, Harrod learned*fn1 it may have encroached upon and removed 164,000 tons of shot rock (limestone loosened by blasting) from beneath Crutcher's land. David Harrod, President of Harrod, apprised Crutcher of the potential encroachment in December 2002 and in attempting to reach a settlement, offered to buy Crutcher's property; pay Crutcher a reasonable royalty for the limestone it had mistakenly removed; or mine more of Crutcher's property to increase the amount of royalty that would be earned.
Unable to reach a settlement, Crutcher filed a complaint in Franklin Circuit Court on November 25, 2003, alleging Harrod had encroached on its land, removed valuable stone without authority, and converted that stone for its own use with "intentional or reckless omission to ascertain the boundaries of [Crutcher's] land[.]" Crutcher maintained that had Harrod timely obtained a boundary survey of its property; adopted a system to correlate its surface boundaries to the annual mapping of its underground mining activity; and not "maintained ignorance" of its boundaries, the encroachment and resulting injury would not have occurred. In answering the complaint, Harrod stated any encroachment was "entirely inadvertent" and noted that Crutcher had rejected its proposal that the parties "cooperate to obtain a survey to determine to [Crutcher's] satisfaction whether or not an encroachment had occurred." Both parties demanded a jury trial.
Throughout the pendency of this case, Crutcher vigorously urged the trial court to measure compensatory damages for a willful encroachment and taking of limestone by the value of the material at the time of removal-without reduction for the expense of mining-coincidentally, the same measure that would apply to the removal of coal. Griffith v. Clark Mfg. Co., 212 Ky. 498, 279 S.W. 971, 972 (1926). "Where the trespass is willful, and not the result of an honest mistake, the measure of damages is the value of the coal mined at the time and place of its severance, without deducting the expense of severing it." North Jellico
Coal Co. v. Helton, 187 Ky. 394, 219 S.W. 185 (1920). Where the taking is due to an honest mistake, the owner is entitled to recover the value of the coal "in place". Griffith, 279 S.W. at 972. A similar measure has been applied to the taking of fluorspar. Hughett v. Caldwell County, 313 Ky. 85, 92, 230 S.W.2d 92, 96-97 (1950). Consistent with this approach and citing Griffith as authority, Crutcher further contended that any evidence of the value of its land, its "condition, nature, accessibility or use[,]" or "the ability or inability . . . to remove marketable stone from said property" was irrelevant and should be excluded from trial.
With equal vigor, Harrod argued Kentucky courts have held limestone is
not a mineral, Little v. Carter, 408 S.W.2d 207, 209 (Ky. 1966), and
therefore, the measure of damages could not be the formula applied to
the taking of valuable coal, Kentucky's state mineral. KRS*fn2
2.094. Harrod asserted the proper measure of recovery was the
difference in the fair market value (FMV) of Crutcher's land
immediately before and after the encroachment/removal-the traditional
measure of damages applied in non-coal/non-mineral cases. Ellison v. R
& B Contracting, Inc., 32 S.W.3d 66, 69 (Ky. 2000) (Kentucky courts
have affirmed two types of damages in injury-to-property cases: for
permanent injury, "the amount by which the fair market value of the
property decreased immediately prior to and after the trespass"; and
for temporary injury, "the cost to return [the property] to its
In July 2006, then-presiding Judge William L. Graham entered a pre-trial order declaring in pertinent part:
1. The damages [the Crutchers] may recover for inadvertent trespass is a royalty.
2. The damages [the Crutchers] may recover if intentional trespass is proven shall be the market value of the mined material at the mouth of the mine without an allowance for the expense of removal.
Following Judge Graham's retirement from the bench, Judge Thomas D. Wingate became the presiding judge and the question of how to measure damages was resurrected. Crutcher continued arguing it should be allowed to recover either a royalty or actual value of the mined limestone, depending upon whether the jury believed Harrod's trespass was an honest mistake or a willful act. Harrod forcefully argued the reduction in the land's FMV was the proper measure. On September 20, 2006, Judge Wingate entered his own pre-trial order changing the measure of damages and stating: [u]pon additional briefing of the parties, and the Court's own research, this Court finds that the measure of damages in a trespass case involving the removal of limestone should not be the same measure of damages as traditionally applied in Kentucky to the removal of coal and minerals. Indeed, Kentucky courts have long held that "limestone is not legally cognizable as a mineral." Little v. Carter, 408 S.W.2d 207, 209 (Ky. 1966). See also Elkhorn City Land Co. v. Elkhorn City, 459 S.W.2d 762, 764 (Ky. 1970) and Rudd v. Hayden, 97 S.W.2d 35 (Ky. 1936).
Accordingly, the measure of damages in this case shall be the traditional measure of damages in a trespass case not involving coal and minerals - - the difference between the fair market value of the [Crutcher's] property immediately before and immediately after [Harrod] trespassed upon the property. See Ellison v. R & B Contracting, Inc., 32 S.W.3d 66, 69 (Ky. 2000) ("the amount by which the injury to the property diminishes its total value operates as an upper limit on any damage recovery."). See also Burkshire Terrace, Inc. v. Schroerlucke, 467 S.W.2d 770, 772 (Ky. 1971) ("in no case, of course, may the amount of recovery exceed the diminution in market value[.]").
Because the Court has determined that the punitive formula for calculating damages in a coal and mineral trespass case (i.e., the market value of the mineral without an allowance for the expense of removal) does not apply in the case at bar, [Crutcher] will be entitled to seek punitive damages in this action should they make the requisite showing of proof to support such an award.
Nearly four more years passed before a jury trial*fn3 finally commenced in May 2010. Throughout this period, Crutcher persistently urged the trial court to reconsider and allow it to recover as compensatory damages either a royalty or the actual value of the mined limestone, but the court stood by its September 2006 ruling. However, once trial was underway, Crutcher was allowed, over Harrod's objection, to introduce proof of market and royalty values as that data could impact the award of punitive damages. Harrod strenuously argued such evidence was inadmissible and irrelevant and would be overly prejudicial to the defense.
As it had stated in a pre-trial stipulation, Crutcher offered no proof at trial of the FMV of its land. However, it did put on proof, through Stephen Gardner, a mining engineer offered as an expert witness, that in 2006, one ton of processed limestone sold in the market for an average of $7.30 and that 6% per ton was a common royalty value. Called to the witness stand by Crutcher, David Harrod testified he had told Crutcher the average market value of finished limestone in 2002 ranged from $5.50 to $5.65 per ton. Harrod also testified that while trying to settle the matter, he had mentioned to Crutcher that $0.05 per ton was a common royalty rate paid for limestone. A lease between parties unrelated to this action was introduced-revealing a royalty for limestone of $0.03 per ton. Harrod challenged Gardner's qualifications as an expert witness, ...