Paul Broadhead v. Bonita Lakes Mall ( 1996 )

IN THE SUPREME COURT OF MISSISSIPPI
NO. 96-CA-00573-SCT
PAUL BROADHEAD AND MORRIS NICHOLSON
v.
BONITA LAKES MALL, LIMITED PARTNERSHIP;
BONITA PROPERTIES, INC.; LAUDERDALE
COUNTY BOARD OF EDUCATION, LAUDERDALE
COUNTY BOARD OF SUPERVISORS, AND STATE
OF MISSISSIPPI
DATE OF JUDGMENT: 05/10/96
TRIAL JUDGE: HON. SARAH P. SPRINGER
COURT FROM WHICH APPEALED: LAUDERDALE COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANTS: JOHN F. HAWKINS
JOHN L. MAXEY, II
SAMUEL L. BEGLEY
ATTORNEYS FOR APPELLEES: RALPH EDWARD YOUNG, JR.
PAUL SCOTT PHILLIPS
MACK CAMERON
ROBERT H. COMPTON
SUSAN ALEXANDER SHANDS
NATURE OF THE CASE: CIVIL - REAL PROPERTY
DISPOSITION: AFFIRMED - 10/23/97
MOTION FOR REHEARING FILED:
MANDATE ISSUED: 11/13/97
BEFORE PRATHER, P.J., BANKS AND McRAE, JJ.
BANKS, JUSTICE, FOR THE COURT:
¶1. This case is before the Court on appeal from a decision in chancery court confirming two
sixteenth section land leases. We conclude that the record amply supports a finding that the appraisals
of school lands were performed by a competent appraiser, despite the fact that the appraiser had been
assigned an interest in the proceeds of a sublease in the same sixteenth section. The appraiser's
interest is fixed in value and unaffected by any value established for the subject property he appraised.
Various other alleged violations of the USPAP appraisal standards are not sufficient to render the
appraisals incompetent. We also conclude that the issues raised relating to the chancellor's evidentiary
rulings and the school board's fiduciary duty have no merit. Accordingly, we affirm.
I.
¶2. The Lauderdale County Board of Education (LCBE), with supervision from the Lauderdale
County Board of Supervisors (LCBS), holds sixteenth section lands in trust for the students within its
district, and grants leases on these lands to raise revenue for their educational benefit. LCBE is
represented by John Ed Ainsworth, a public administration consultant specializing in business related
to school districts and state government agencies. In 1993, Ainsworth, on behalf of LCBE, entered
into negotiations with developers Hardy Graham and Ed Johnson, owners of Bonita Lakes Mall
Limited Partnership (BMLP) and Bonita Properties, Inc. (BPI) (referred to jointly as "Bonita" unless
otherwise noted). These negotiations concerned a proposed shopping mall development on sixteenth
section land in Meridian, Mississippi, which at that time was in two adjoining tracts, one containing
approximately 120 acres and the other containing approximately 40 acres. In anticipation of granting
a lease to Bonita, appraisals on these adjoining lands were conducted by Alex Smith to determine a
fee market value upon which a lease value could be based. Smith, owner of Appraisers Associated, is
a Member of the Appraisal Institute (MAI) and had conducted numerous appraisals for LCBE in the
past. Separate appraisals on these properties were necessary because they had distinct chains of title
and the smaller parcel was the subject of separate negotiations concerning release of previous leases
back to LCBE.
¶3. The first of the appraisals was conducted on the 120-acre tract and was dated September 1, 1993.
Smith placed a fee market value on this land of $264,000, or $2,200 per acre. The second appraisal
was performed on the 40-acre tract and was dated September 10, 1993. Smith placed its value at
$600,000, or $15,000 per acre. The higher value of the smaller parcel was due to flatter topography
and valuable road frontage. Smith testified that even though this road frontage was encumbered by a
pre-existing lease, he included the value of accessibility in his conclusion because his task was to
assess a fee market value independent of leasehold interests. Smith declared the "highest and best
use" of both properties to be commercial and/or industrial type development, predominantly
commercial retail development.
¶4. After Smith's appraisals were completed, LCBE retained Jerry Mask, another MAI appraiser, to
conduct review appraisals of the subject properties. Mask's review appraisals, dated October 12,
1993, indicated the values established by Smith were reliable. In conducting their appraisals, Smith
and Mask both made use of the "sales comparison approach," in which the value of subject property
is determined by examining assorted sales of other lands which are deemed, according to various
factors, to be comparable.
¶5. Ainsworth checked the appraisal reports to insure they contained the required components and
then relied on them in negotiating the land leases with Bonita. The development was negotiated as a
single 160-acre tract, since it was contemplated there would be only one lease. Accordingly,
Ainsworth instructed Smith to review, update and combine the appraisals done earlier. The report for
this combined appraisal update is dated May 26, 1995, and the calculations are made as of January 1,
1995. The subject property of this update appraisal contained 159.85 acres.(1) Smith placed the value
of these combined parcels at $730,000, and Ainsworth demanded an annual rent of nine percent, or
$65,700. Importantly, a small subparcel containing approximately five acres was not included in this
update appraisal. This subparcel was land on which two restaurants were located, and was
encumbered by a pre-existing leasehold interest to a company called Hannaford Properties.(2) Since
this subparcel contained the roadway frontage, Smith determined the combined remaining parcels to
be essentially "landlocked" and lowered their value accordingly.
¶6. BMLP and BPI subsequently decided to take separate leases. The land was again divided into
two tracts--though not in the same manner as they had originally been divided. In determining rent,
Ainsworth prorated the annual rental amount of $65,700 between the two leases based on the
number of acres to each lessee, and entered into leases with both Bonita entities on June 12, 1995.
BMLP entered into a Commercial Lease Contract for 116.41 acres, at an annual rental cost of $48,
338.62. BPI entered into a Commercial Lease Contract for 41.81 acres, at an annual rental cost of
$17,361.38. Both leases were payable a year in advance over the forty years of the lease, with
options to renew for twenty-five years.
¶7. After execution of the Commercial Lease Contracts, both were discovered to contain mistakes.
The lease to BMLP missed a call in the metes and bounds description, and BMLP requested an
amendment to correct the property description. In BMLP's case, there was no increase in the acreage
as a result of this correction and Ainsworth determined that no updated appraisal was necessary.
Accordingly, LCBE and BMLP executed an Amendment to Commercial Lease Contract in order to
correct the error in the legal description. The property description in the lease to BPI also contained
an error. The error omitted approximately 1.63 acres from the legal description along the Northern
property line. BPI requested an amendment to include the additional acreage. Because additional
acreage was being added to the lease, Ainsworth instructed Smith to perform an update appraisal on
that tract, which now totaled 43.44 acres. Smith performed this update appraisal on August 23, 1995,
and set the fee market value of this tract at $360,000, or $8,300 per acre. In accordance with Smith's
update appraisal, an Amendment to Commercial Lease Contract was executed between LCBE and
BPI providing for increased rent. Apparently, the increased rental amount was calculated by applying
the increased per acre price to the additional 1.63 acres only.
¶8. On September 13, 1995, each Bonita entity filed a Complaint to Confirm Sixteenth Section Land
Lease in the Lauderdale County Chancery Court. The Complaints sought to confirm the Commercial
Lease Agreements and Amendments. The two actions were subsequently consolidated by the court
below for trial purposes. Named defendants included LCBE, LCBS, the State of Mississippi and all
other potentially interested parties. Appellants Paul Broadhead and Morris Nicholson were named as
defendants since they had been involved in four previous lawsuits concerning the mall development
site.(3)
¶9. Defendants LCBE and LCBS filed a joint answer to the Bonita Complaints on November 16,
1995, essentially admitting all averments by Bonita. Thus, defendants LCBE and LCBS support
confirmation of the land leases and by their own admission are "more closely aligned" with plaintiff
Bonita.(4) Defendants Broadhead and Nicholson, the only parties opposing the leases, filed for each
Complaint an Answer, Defenses, Counter-Claim and Cross-Claim on October 16, 1995, alleging that
the leases were void for failure of LCBE to obtain a rental of at least five percent of the current
market value of the property as required by Miss. Code Ann. § 29-3-63(2), and that the leases and
subsequent amendments were "furthermore illegal and void" under Miss. Code Ann. § 29-3-107. The
Bonita entities, as counter-defendants, answered their respective counter-claims on November 13,
1995, denying them in all material respects. Likewise, LCBE and LCBS, as cross-defendants,
answered the cross-claims on November 16, 1995.
¶10. The case was marked by numerous discovery disputes and motion hearings. Bonita filed a
Motion for Partial Summary Judgment on March 15, 1996, requesting the court to adjudicate and
confirm that the Commercial Lease Contracts and the Amendments were duly executed and recorded
in compliance with Miss. Code Ann. § 23-3-1 et. seq. The chancellor granted the Motion for Partial
Summary Judgment after a hearing conducted on March 25, 1996. The court found that only two
issues were saved for trial: competency of the appraisals conducted on the properties and the
adequacy of consideration in the two subject leases. At the same hearing, the chancellor considered
argument on Bonita's Motion in limine requesting the court to exclude testimony during trial by
David Bolton and Wayne Baer, witnesses whom the appellants sought to call as experts. The court
granted Bonita's Motion.
¶11. At trial, Lynn G. Scogin, expert witness for the appellants, sought to discredit the appraisals and
update appraisals performed by Smith and relied upon by LCBE in executing the leases with Bonita.
His main contentions were that Smith was not a disinterested appraiser and that Smith neglected to
include in his final estimate of value certain anticipated roadway and infrastructure improvements
which were tied to the mall project and funded by public monies.
¶12. The chancellor confirmed both leases and issued her Judgment on May 10, 1996, incorporating
by reference the findings and conclusions detailed in the court's earlier Memorandum Opinion and
Judgment. Broadhead and Nicholson now bring this appeal.
II.
¶13. Our standard of review for factual determinations made by a trial judge sitting without a jury is
the substantial evidence standard. Hill v. Thompson, 564 So. 2d 1, 10 (Miss. 1989); UHS-
Qualicare v. Gulf Coast Community Hosp., Inc., 525 So. 2d 746, 753 (Miss. 1987). We will not
disturb the findings of a chancellor when supported by substantial evidence unless the chancellor
abused his discretion, was manifestly wrong, clearly erroneous or an erroneous legal standard was
applied. Herring Gas Co. v. Whiddon, 616 So. 2d 892, 894 (Miss.1993).
III.
¶14. Appellants Broadhead and Nicholson first contend that the chancellor committed reversible error
in holding that Alex Smith's appraisals were competent in light of the fact that Smith holds an interest
in property located in the same sixteenth section as the land he was appraising. The property referred
to is a McDonald's restaurant located across the road from the subject property in this case.
Appellants argue this ethical violation invalidates Smith's appraisals and addendum updates upon
which LCBE and LCBS based their decision to lease school lands to Bonita, thus voiding the leases.
¶15. Appellants base their claim in part on an ethics provision in the Uniform Standards of
Professional Appraisal Practice (USPAP), a set of standards statutorily imposed on licensed real
estate appraisers under Miss. Code Ann. § 73-34-37 (1995). This provision reads as follows:
An appraiser must perform ethically and competently in accordance with the standards and not
engage in conduct that is unlawful, unethical, or improper. An appraiser who could reasonably
be perceived to act as a disinterested third party in rendering an unbiased appraisal, review, or
consulting service must perform assignments with impartiality, objectivity, and independence
and without accommodation of personal interests.
USPAP Ethics Provisions, Preamble at 2 (1993 ed.). The heart of Appellants' argument is that Smith
was not "disinterested" as defined by this standard.
¶16. In support of their claim appellants also cite Hill, 564 So. 2d at 12-13, a case involving
appraisers who were freeholders of sixteenth section land leases at the times of the appraisals. The
Hill Court defined the term "disinterested" as meaning "[n]ot concerned, in respect to possible gain
or loss, in the result of the pending proceedings or transactions; impartial, not biased or prejudiced,"
and noted that "interested parties" were generally defined as "parties who have a pecuniary interest in
the subject of the contest." Hill, 564 So. 2d at 13 (quoting Black's Law Dictionary 421 (5th ed.
1979) and Provenza v. Provenza, 201 Miss. 836, 843, 29 So. 2d 669, 670 (1947). Other states have
construed the term similarly in the appraisal context. See e.g., Schipper & Block, Inc. v. Carson
Pirie Scott &Co., 256 N.E.2d 854, 857 (Ill. App. Ct. 1970) ("[d]isinterested" defined as "[n]ot
having any interest in the matter referred to or in controversy; free from prejudice or partiality;
impartial or fair minded; without pecuniary interest; not previously interested; not biased or
prejudiced.").
¶17. In Hill, this Court concluded that fellow lessees of sixteenth section land in the county were not
disinterested, Hill, 564 So. 2d at 13, and voided the leases on land which they had appraised. The
statute at issue in Hill expressly required that appraisers of sixteenth section land be "disinterested
freeholders." Under current sixteenth section land law there is no longer an express statutory
requirement that appraisers be "disinterested." Instead, the law provides that "the board of education
shall appoint a competent appraiser." Miss. Code Ann. § 29-3-65(1) (1990).
¶18. USPAP Standard Rule 2-3 lays out the certification requirements that an appraiser must include
within every written real property appraisal report:
I certify that, to the best of my knowledge and belief:
--the statements of fact contained in this report are true and correct.
--the reported analyses, opinions, and conclusions are limited only by the reported assumptions
and limiting conditions, and are my personal, unbiased professional analyses and conclusions
--I have no (or the specified) present or prospective interest in the property that is the subject of
this report, and I have no (or the specified) personal interest or bias with respect to the parties
involved.
--my compensation is not contingent upon the reporting of a predetermined value or direction in
value that favors the cause of the client, the amount of the value estimate, the attainment of a
stipulated result, or the occurrence of a subsequent event.
--my analyses, opinions, and conclusions were developed, and this report has been prepared, in
conformity with the Uniform Standards of Professional Appraisal Practice.
--I have (or have not) made a personal inspection of the property that is the subject of this
report. (If more than one person signs the report, this certification must clearly specify which
individuals did and which individuals did not make a personal inspection of the appraised
property) (footnote omitted).
--no one provided significant professional assistance to the person signing this report. (If there
are exceptions, the name of each individual providing significant professional assistance must be
stated.)
USPAP, Standards Rule 2-3 (1993 ed.). It is apparent from the above provision, as well as the
USPAP preamble, that these standards do not render incompetent an appraiser with interests in
nearby land or in the subject property being appraised. The emphasis of USPAP is on disclosure of
any material interest which the appraiser may have.
¶19. In the present case, Smith's 1993 appraisal report clearly followed the form of the above
certification requirements. The issue, then, is whether Smith's interest in the nearby McDonald's
property was an interest which would have materially affected his opinion of value on the subject
property, and if so, whether it was disclosed. Appellants argue that "Mr. Smith's interest in the
McDonald's property will be more secure with the development of a major, regional commercial mall
constructed immediately adjacent to the McDonald's property."
¶20. Smith and his company each hold a five percent assignment of rents from a sublease between
McDonald's Corporation and the original sixteenth section leaseholders, which Smith accepted as
commissions for negotiating the sublease. The underlying sixteenth section lease is a confirmed 99-
year paid-up lease with approximately eighty years remaining. The sublease to McDonald's is a "base
land lease which calls for an average annualized increase of 2% with the payment schedule amount
adjusted every five years . . . It began based upon an annualized 6.43% return figured against a lot
value of approximately $350,000. . ." In other words, the starting point for the sublease is a
percentage of a fixed amount which increases according to a schedule. This confirms Smith's
testimony at trial that payments to him are predetermined and therefore unconnected with the value
of surrounding properties. As the appellees correctly argue, "the dollars owed to Mr. Smith were set
when the deal was done in 1990 and will remain set with 2% increases per year and re-adjusted every
five (5) years." Moreover, Smith testified that he disclosed his interest in the property to the School
Board attorneys through whom LCBE worked.
¶21. This case is factually distinguishable from Hill, in which the appraisers were found not to be
disinterested after they set a nominal value on sixteenth section land. In Hill, one of the appraisers
was a cousin of the original leaseholder of the subject property, and the appraisers themselves were
sixteenth section land leaseholders. In addition, directly after they completed their appraisal of the
property that was the subject of the suit their own sixteenth section leases were renewed. Id. Unlike
the freeholders in Hill, Smith cannot be said to have a "pecuniary interest in the subject of the
contest." Id. Thus, the chancellor was not manifestly in error when she found Smith competent,
notwithstanding his interest in the McDonald's sublease contract.
IV.
¶22. Broadhead and Nicholson next contend that Smith, in performing his appraisals and update
appraisals, violated numerous other professional standards under USPAP which rendered his
appraisals incompetent. An initial question on which the parties disagree is whether Smith's alleged
USPAP violations, standing alone, would invalidate the leases, or whether such violations merely
weigh in favor of invalidation. Bonita contends this case is really about one issue: whether the leases
issued by LCBE should be confirmed pursuant to the provisions of Miss. Code Ann. § 29-3-1 et. seq.
because the leases were issued for amounts that were not grossly inadequate in violation of Miss.
Const. Art. 4, § 95.(5) Implicit in this claim is that even if Smith had violated USPAP standards, his
violations would not invalidate the leases unless they constituted a material breach. Appellants
respond that Mississippi law requires "a disinterested, competent appraiser who, in the performance
of the appraisals complies with the legally mandatory provisions of [USPAP]" as codified by Miss.
Code Ann. § 73-34-37.
¶23. Not every breach of an appraiser's professional standards will render an appraisal invalid. Like
the other codes of ethics in Title 73, USPAP is codified so that state licensing agencies may pursue
those who continuously or materially breach ethical standards. See Miss. Code Ann. § 73-34-9(2)(d)
& (h)(1995) (granting Mississippi Real Estate Commission and Mississippi Real Estate Appraiser
Licensing and Certification Board powers to establish appropriate administrative procedures for
disciplinary proceedings and suspension or revocation of licenses).
¶24. The issue is whether there is substantial evidence to conclude that Smith did not commit material
violations of USPAP, such that LCBE failed to appoint a competent appraiser as required under
Miss. Code Ann. § 29-3-65 (1990). Lynn Scogin, the appellant's expert witness, reviewed Smith's
work and testified that Smith violated the following provisions of USPAP: Rule 2-1(a), requiring an
appraisal report to clearly and accurately set forth an appraisal in a manner that will not be
misleading; Rule 2-1(b), requiring an appraisal report to contain sufficient information to enable the
person(s) who receive or rely on the report to understand it properly; Rule 2-1(c), requiring an
appraiser to clearly and accurately disclose any extraordinary assumptions or limited conditions that
directly affect the appraisal and indicate its impact on value; Rule 2-2(h), requiring an appraisal report
to set forth the information considered, the appraisal procedures followed, and the reasoning that
supports the analyses, opinions, and conclusions; Rule 1-1(b), requiring appraisers not to commit a
substantial error of omission or commission that significantly affects an appraisal; and Rule 1-1(c),
requiring appraisers not to render services in a careless or negligent manner.
¶25. Scogin also opined that Smith had violated Rule 1-4(f), which provides:
In developing a real property appraisal, an appraiser must observe the following specific
appraisal guidelines, when applicable:
(f) consider and analyze the effect on value, if any, of anticipated public or private
improvements, located on or off the site, to the extent that market actions reflect such
anticipated improvement as of the effective appraisal date.
USPAP, Rule 1-4(f) (1993 ed.). Lastly, Scogin testified that Smith had violated USPAP Advisory
Opinion G-3, dealing with update appraisals.(6)
¶26. Violations of the first six general provisions are based in part on Scogin's opinion that two
separate value opinions should have been rendered in the 1993 appraisals--one based on comparisons
of vacant lands and one based on lands already leased--on the theory that this makes a difference in
the underlying value of the subject property. This makes no sense. The land Smith was appraising
was vacant and was being leased as a future shopping mall site. How the value of already leased lands
could alter the inherent value of vacant property being leased by the school board is not explained.
Neither does Scogin refer to any provisions in USPAP which would require this to be done as a
matter of course.
¶27. It is evident from his testimony that Scogin also based the general violations on the subsequent
charges that Smith had breached Rule 1-4(f) and Advisory Opinion G-3. After reciting that he had
found violations of the first six rules, Scogin testified:
Then we move to Rule 1-4(f), which states, consider and analyze the effects of value, if any, of
anticipated public or private improvements located on or off the site to the extent that market
actions reflect such anticipated improvements as of the effective appraisal date.
Well, these are the major items that I found in reviewing the appraisal reports. These sections
and subsections that I point out in Standard Rule, both 1 and 2. But these run hand in hand, as I
previously stated, if--they're like a domino effect. If one is violated, then it tends to pick up the
language in the other one. But these are the basic ones that pertain to my review of these two
appraisal reports and the two updates.
Scogin then went on to discuss the alleged violations under Rule 1-4(f) and Advisory Opinion G-3
almost exclusively.
¶28. The violation of Rule 1-4(f) relates to Scogin's opinion that Smith's final appraised value should
have included anticipated infrastructure and highway improvements in the shopping mall area which
would be paid for with public monies, on the theory that absence of consideration of these
improvements
. . .would have a strong effect on the highest and best use. It would have a strong effect on the
final estimate of value. It would be extremely important to determine if this was the developer's
cost, or if it was someone else's cost, and if it would be one of the controlling factors in the
selection of comparable sales considered for the final estimate of value.
The record shows that Smith did not neglect to consider the proposed improvements, but merely
arrived at a different conclusion than Scogin as to whether they affected the inherent value of the
land. On cross-examination, Smith stated his reasons for not including the proposed improvements in
his final estimate of value:
I don't believe I failed to consider anything that was pertinent to this. All these improvements,
you're talking about, are site specific for this project. Improvements that will happen in the
normal course of development in an area would be considered. If this project does not start,
these will not happen. In my opinion, at this point, with those plans and these items being tied
to whether or not this mall is or is not built, it is speculative with reference to the raw market
value of that piece of property.
Smith stated that he had looked at the information from the area and concluded there had been no
market impact in anticipation of the mall that showed any significant increase or change in property
values. Another expert, James Horne, agreed that "if the road were going to be built and not tied to a
specific development, it would probably enhance the market value. But if the road were tied to a
specific development, then it would not enhance the market value, in my opinion."
¶29. In support of their view, appellees offer the case of Jabbour v. Bassatne, 673 A.2d 201 (D.C.
App. 1996) wherein the parties got into a dispute as to the "market value" of certain property. As to
the definition of this term, the court ruled that
[a] reasonable person would assume land to be equivalent to specified cash only if valued in its
current condition on the competitive market, not after costly alterations as yet unmade had
turned it from raw land into a "developable" condition.
Jabbour, 673 A.2d at 203.
¶30. Broadhead and Nicholson also allege a violation of Advisory Opinion G-3, which deals with
update appraisals. The opinion provides:
Since the update is an extension of an original appraisal, three conditions must be met before an
update assignment is accepted:
1. The original appraiser/firm and client are involved.
2. The real estate has undergone no significant change since the original appraisal.
3. The time period between the effective date of the original appraisal (or most recent update)
and the effective date of the pending update is not unreasonably long for the type of real estate
involved.
USPAP, Advisory Opinion G-3, at 87 (1995 ed.). Appellants allege the second of these requirements
was breached because the subject property had undergone significant change since the first appraisals
were completed. They base this contention on the tentative plans for infrastructure improvements and
on the "entirely different configurations" of the properties appraised at various times and the
confusion which this created. While appellants argue that Smith and Horne both admitted the land
had undergone significant change, this is refuted by their testimony at trial. Smith consistently denied
it. Horne admitted only that the individual parcels ultimately leased had changed sizes, but that the
combined tract was the same general configuration as originally leased. Scogin testified that the
different configurations required a new appraisal.
¶31. Thus, two core issues were before the court: whether the anticipated improvements should have
been included in the fair market value of the land Smith appraised, and whether an update appraisal
was inadequate because the land had undergone significant change. As to other violations, Horne
testified that Smith violated Rule 2-1(b), since Smith had not adequately explained the proposed road
in his update appraisal. Horne stated that this omission would not have constituted a breach if the
original appraisal had been a restricted report to be relied upon by the client himself. But since the
original 1993 reports were "self-contained," Horne felt the proposed road should have been explained
since a plat included in the update appraisal raised a question not discussed in the original appraisal.
Horne also stated, however, that he nevertheless considered Smith's report a "reliable and valid
indicator of value." Moreover, Broadhead and Nicholson offered no independent evidence of the
value of the land which would call into question the materiality of any alleged violations by Smith.
Scogin himself testified that he was not able to determine the impact on value of the alleged standards
violations, but only that "it would raise additional questions that would require answers." When
expressly asked whether he could state the fair market value of the sites, he replied, "No, sir."
¶32. The chancellor considered the sparse law on these issues and the testimony of the conflicting
expert opinions in light of the facts, and found that Smith was correct in not considering the
anticipated improvements to the property. The chancellor concluded that the "school board cannot
lease that which is not there." She also noted that Scogin had conceded that the standards are so rigid
that it would be almost impossible to fully comply with them. Where conflicting testimony is
presented, expert and otherwise, the chancellor is required to make a judgment on the credibility of
the witnesses in order to resolve the questions before the court. Doe v. Doe, 644 So. 2d 1199, 1207
(Miss. 1994). The chancellor found that Smith prepared thorough appraisals of the subject property
and letter updates. Further, the language of Rule 1-4(f) and Advisory Opinion G-3 clearly grant some
discretion to an appraiser in Smith's position, and any violations of the standards were minor. Thus,
we conclude that the record, taken as a whole, amply supports the chancellor's findings.
V.
¶33. Appellants Broadhead and Nicholson next contend that the lower court, in light of the duty
imposed by the importance of a sixteenth section lease confirmation suit, abused its discretion in
excluding the testimony of David Bolton and/or Wayne Baer. Appellants hired Bolton shortly before
trial in response to the employment of expert witness James Horne by appellees:
With the designation of Mr. Horne as an additional expert appraiser, the defendants Broadhead
and Nicholson immediately set about to find an appraiser qualified to conduct the research
necessary to support a limited narrative appraisal report of the subject property. On or about
March 12, 1996, David Bolton of David R. Bolton, Inc., Real Property Appraisers, was reached
in Austin, Texas and invited to come to Meridian, Mississippi, to determine if there were
sufficient time and resources available for him to write a competent limited narrative appraisal
report based on the research necessary to write such a report. Mr. Bolton and Mr. Baer
evaluated the resources in Meridian on or about March 13, 1996, and determined that through
intensive research and writing, a report could be produced. . .
On March 15, 1996, Bonita filed a motion in limine to exclude the testimony and reports of Bolton
based on the fact that the appellants had violated the court's discovery orders. Bonita had served its
First Set of Interrogatories and Requests for Production of Documents on Broadhead and Nicholson
on November 29, 1995, asking them to identify their expert witnesses. The court's scheduling order
as originally entered gave a deadline for the completion of discovery of February 16, 1996. This
deadline was later extended to March 1, 1996, to accommodate the completion of discovery and
depositions. The court extended the deadline yet again for designation of additional experts to March
8, 1996, and required depositions to be completed by March 15, 1996. Broadhead and Nicholson
supplemented their interrogatory responses designating Bolton and Baer on March 13, 1996, but at
this time not even resumes of these experts were provided to opposing counsel. Trial was set to begin
on March 27, 1996, and no continuance was sought by either party.
¶34. At the hearing on March 25, 1996, Broadhead and Nicholson argued that Bonita's motion to
exclude should be denied, emphasizing the importance that Bolton's upcoming report on the value of
the subject property would bring to the lawsuit. They cited Eastover Bank for Savings v. Hall, 587
So. 2d 266 (Miss. 1991) for the proposition that "there is no hard fast rule as to what amounts to
seasonable supplementation or amendment of interrogatory answers." Appellants further proclaimed
a "public policy overlay of giant proportions." While recognizing the potential prejudice to opposing
counsel of allowing Bolton's testimony, counsel for appellants claimed it could be cured by allowing
them to depose Bolton during the week the trial was in recess.(7) Counsel for Bonita responded that
this action amounted to "trial by ambush" because Bonita did not know the contents or bases of
Bolton's opinions, and thus did not know "what to meet." Bonita emphasized that it was a day and a
half before trial and the report by Bolton on the value of the sixteenth section land was not yet
complete.
¶35. "[A]dmission or suppression of evidence is within the discretion of the trial judge and will not be
reversed absent an abuse of that discretion." Sumrall v. Mississippi Power Co.,693 So. 2d 359, 365
(Miss. 1997); General Motors Corp. v. Jackson, 636 So. 2d 310, 314 (Miss. 1992), cert. denied,
513 U.S. 928 (1994); Walker v. Graham, 582 So. 2d 431, 432 (Miss. 1991).
¶36. Miss.R.Civ.P. Rule 26(b)(4)(A)(i) requires that, upon request from the opposing party, a party
must disclose not only the name of his expert witnesses, but he also must "state the subject matter on
which the expert is expected to testify, and to state the substance of the facts and opinions to which
the expert is expected to testify and a summary of the grounds for each opinion." See also T.K.
Stanley, Inc. v. Cason, 614 So. 2d 942, 950 (Miss. 1992). The purpose of this, and other Rules of
Civil Procedure was stated in Harris v. General Host Corp.:
We have long been committed to the proposition that trial by ambush should be abolished, the
experienced lawyer's nostalgia to the contrary notwithstanding. We have sought procedural
justice through a set of rules designed to assure to the maximum extent practicable that cases
are decided on their merits, not the fact that one party calls a surprise witness and catches the
other with his pants down.
Harris, 503 So. 2d 795, 796 (Miss. 1986); In re Conservatorship of Stevens, 523 So. 2d 319, 320-
21 (Miss. 1988). Accord Jones v. Hatchett, 504 So. 2d 198, 201 (Miss. 1987). Rule 26(f)(1)(B)
further requires a party to supplement responses in regard to "the identity of each person expected to
be called as an expert witness at trial, the subject matter on which he is expected to testify, and the
substance of his testimony." When a breach of the discovery rules occurs, one of the sanctions
authorized under the rules is "an order refusing to allow the disobedient party. . . from introducing
designated matters in evidence." Miss.R.Civ.P. Rule 37(b)(2)(B); Conservatorship of Stevens, 523
So. 2d at 321.
¶37. Conservatorship of Stevens is an appraisal case which is almost directly on point. In that case,
the appellants claimed the lower court erred in not allowing the testimony of an appraiser. The
appellant had failed to respond to a request for production of appraisals or other documents
concerning the land in question until one day prior to trial, when the appellant finally supplemented
her responses to include the name of the appraiser and a copy of his appraisal report.
Conservatorship of Stevens, 523 So. 2d at 320. The lower court excluded the expert's testimony,
and this Court ruled that the exclusion was not an abuse of discretion. Id. at 321. See also Jones, 504
So. 2d 198 (providing medical expert's name four days before trial not sufficient to discharge rule to
supplement interrogatory answers, where supplement did not also reveal substance of expert
testimony).
¶38. In the present case, it was not until the day before trial began that Bolton produced a preliminary
report based on his research. The final report was not delivered until three days after trial had begun.
In arguing for admission, counsel for Broadhead and Nicholson offered vague justifications based on
public policy and the importance of the information. Further, they offered no convincing reason for
waiting so late to employ Bolton--it is a mystery why they considered an independent appraisal of
value important only "after the designation of Mr. Horne as an additional expert appraiser." In fact,
Horne was not called in Bonita's case-in-chief. He was a rebuttal witness to be called in response to
Scogin. As it happened he was subpoenaed and called by Broadhead and Nicholson during their case.
The chancellor considered the appropriate rules of civil procedure in ruling to exclude Bolton's and
Baer's testimony, and we conclude that her ruling was not an abuse of discretion.
VI.
¶39. In their next assignment of error appellants Broadhead and Nicholson raise additional
evidentiary issues, claiming the trial court abused its discretion by excluding the admission of certain
exhibits into evidence. These items fall into two groups: the first contains certain documents
submitted for the court's consideration after trial, and the second consists of certain documents
excluded by the court during trial.
¶40. The first group of exhibits for which appellants raise an issue are related to Alex Smith's interest
in the nearby McDonald's property, and were offered by appellants in a Motion to Supplement the
Record filed April 24, 1996. These three documents were a Consent Judgment Confirming Sixteenth
Section Land Leases, a Revised Memorandum Lease, and a Partial Assignment of Ground Sublease
and Rents. They were cumulative of Smith's undisputed testimony at trial and confirmed: that the
original lease was a paid-up, ninety-nine year lease confirmed by the Lauderdale Chancery Court; that
the ground lease had been sublet by the original leaseholders to McDonald's Corporation; that Smith
and his company, Appraisers Associated, had received a partial assignment of this sublease and the
rents derived from it; and that the rentals received by Smith represented a fixed sum.
¶41. Miss.R.Evid. 403 expressly allows a trial court to exclude evidence which it finds to be
cumulative. Knotts by Knotts v. Hassell, 659 So. 2d 886, 891 (Miss. 1995); see also Clark v. City of
Pascagoula, 507 So. 2d 70, 76 (Miss. 1987) (holding that trial judge did not abuse his discretion by
excluding cumulative evidence). "The touchstone of Rule 403 is whether or not the evidence--of
whatever type--is cumulative, and if evidence is in fact cumulative it is within the discretion of the
court to exclude said evidence." Knotts, 659 So. 2d at 891. Although these documents should be
argued to be the best evidence of Smith's arrangement, see Miss.R.Evid. 1002, the nature of the
arrangement is undisputed. The parties differ only over the consequences of the arrangement. Thus,
the chancellor did not abuse her discretion by failing to consider these documents in her ruling.
¶42. The second group of items for which appellants raise an issue consist mainly of documents
relating to the roadway infrastructure improvements proposed by various government agencies in
connection with the Bonita Lakes mall development project. Another document in this group is the
Participation Agreement entered into between LCBE and Hannaford Properties which settled the
lease confirmation lawsuit between those parties. It is worth noting that this document was already in
evidence, absent the unidentified handwriting found on appellants' proffered copy.
¶43. The lower court issued clear instructions for how discovery was to proceed, and as noted above
the court extended its deadlines numerous times. Moreover, when Broadhead did not comply fully
with Bonita's requests for discovery, Bonita filed a Motion to Compel Discovery, and the chancellor
issued an order compelling Broadhead to "produce any other documents which he relied upon in
support of his answer, counterclaim and cross-claim on or before March 8, 1996." When asked at
trial to explain the failure to produce these documents, Broadhead's lawyer admitted that he had been
in possession of the documents for some time and that failure to produce them was due to
"negligence" and "inadvertance on the part of counsel." The chancellor excluded the documents on
the ground that "inadvertance is not sufficient excuse to avoid the Orders of this Court." She also
noted that this was not the first discovery violation by counsel for appellants, and cited counsel for
contempt of court.
¶44. The control of discovery is a matter committed to the sound discretion of the trial judge. Barnes
v. A Confidential Party, 628 So. 2d 283, 290 n.7 (Miss. 1993); Dawkins v. Redd Pest Control Co.,
Inc., 607 So. 2d 1232, 1235 (Miss. 1992). The trial court has need of great flexibility in dealing with
abuses of the discovery rules, and this Court has stated that trial courts have considerable discretion
in the imposition of sanctions under Miss.R.Civ.P. Rule 37. Cunningham v. Mitchell, 549 So. 2d
955, 958 (Miss. 1989); White v. White, 509 So. 2d 205, 207 (Miss. 1987). Where a party fails to
comply with a court order permitting discovery, the court may refuse to allow the disobedient party
to support its claims with the undisclosed evidence. Ladner v. Ladner, 436 So. 2d 1366, 1370 (Miss.
1983). In the present case, there was no abuse of the chancellor's discretion.
VII.
¶45. Appellants Broadhead and Nicholson launch yet another attack to invalidate the leases, this time
based on the claim that the members of LCBE and LCBS breached their fiduciary duties as trustees
of school lands. The charge centers around the so-called Hannaford properties, which were the
subject of a confirmation suit against LCBE by pre-existing leaseholders Hannaford Properties,
L.P.(8) Settlement was reached and memorialized in a Participation Agreement between LCBE and
Hannaford, by which Hannaford would receive a portion of the revenue from the portions of land it
released back to LCBE. Broadhead and Nicholson contend
. . . The Court in this case merely relied on John Ed Ainsworth's formula of determining fair
market rental without considering the effect of the loss of the Hannaford Properties revenues.
Because of the Hannaford deal, 40% of gross revenue from significant portions of each of the
leases in question is not going to benefit the school children at all, but rather is going to an
interested, private third party. . . The Ainsworth formula conspicuously fails to consider the loss
of these revenues and there is no testimony on behalf of the School Board or Board of
Supervisors to explain how, with the loss of significant proceeds from the leases in questions
[sic], the School Board will receive the statutory minimum from the leases in question in this
case.
¶46. LCBE and LCBS argue that this claim was dispensed with in the court's grant of Partial
Summary Judgment, which established that the lease contracts were made and recorded in substantial
conformity with the law pursuant to Miss. Code Ann. § 29-3-52 and saved for trial only the issues of
competency of the appraisals and adequacy of consideration. Appellants' claim goes to the
fundamental issue of whether adequate consideration was obtained for the lease of sixteenth section
land. Therefore, the claim must be addressed on the merits, and reversed if it is shown the chancellor
was manifestly wrong in concluding that adequate consideration was paid in spite of a breach of
fiduciary duty on the part of LCBE and LCBS.
¶47. Sixteenth section school lands, or lands granted in lieu thereof, constitute property held in trust
for the benefit of the public schools and must be treated as such. Miss. Code Ann. § 29-3-1(1) (1990)
. The standard of care chargeable to members of school boards in the performance of this statutory
duty is the same standard applicable to a general trustee. As trustees, members of the Board "are
bound in the management of all the matters of the trust to act in good faith and employ such
vigilance, sagacity, diligence and prudence as in general prudent [persons] of discretion and
intelligence in like matters employ in their own affairs." Turney v. Marion County Board of
Education, 481 So. 2d 770, 777 (Miss. 1985); (quoting Bogert, Law of Trusts, § 93 (5th ed. 1973)).
see also Morrow v. Vinson, 666 So. 2d 802, 806 (Miss. 1995). Included in this standard of care is a
duty to obtain rental fees on leased land which meet the statutory minimum provided in § 29-3-63.(9)
¶48. The issue is whether LCBS and LCBE, in spite of the Participation Agreement with Hannaford,
breached their fiduciary duties by obtaining less than the statutory minimum of five percent of current
market value on lands currently being leased. However, it cannot be said that LCBE was under any
statutory duty for already encumbered land. Hannaford had a 99-year paid-up lease on the entire 40-
acre parcel. LCBE considered defending the confirmation lawsuit against Hannaford, but concluded
that it was unclear whether the lease would be confirmed and that it was better to settle. The
settlement, which released thirty-five crucial acres back to LCBE, allowed the shopping mall
negotiations to proceed--otherwise the land would have remained encumbered, and LCBE would
have gained nothing more from those sixteenth section lands until the lease expired in the year 2061.
The leases to Bonita do not extend beyond this time period. Thus, LCBE was under no duty to
obtain the statutory minimum from the thirty-five acres released back to them.
¶49. When the two Bonita entities decided to take separate leases, the land was divided into two
tracts, but were not divided as they originally had been in the original appraisals.(10) Thus, some
portion of the land for which LCBE is under a statutory duty to collect five percent of current market
value falls into each of these tracts. As to the 116.41-acre parcel, the amount obtained was well
within the statutory minimum. It has already been established that Smith's appraisals and updates
were an adequate and reliable indication of value. Ainsworth extracted nine percent of Smith's last
appraised value in his negotiations with Bonita. As to the 43.44-acre parcel, Smith performed an
update appraisal on this parcel after a mistake in the description added to its acreage, and he arrived
at a new value figure of $360,000 for the entire parcel. The record indicates that LCBE obtained at
least $18,038.23 for the lease of the 43.44-acre parcel.(11) Even assuming that LCBE was required to
obtain five percent of this larger figure for the part of the land currently being leased, it can readily be
concluded that it did so. Regardless of the portion of this parcel which was statutorily affected, it
would be pro-rated according to the figures cited. Thus, since $18,000 constitutes five percent of
$360,000, that percentage was obtained for the statutorily affected portion, albeit barely.
¶50. Appellants offer no evidence that the decision not to defend the confirmation suit was
fundamentally flawed. Absent convincing evidence to the contrary, it cannot be said that the members
of LCBE or LCBS breached their fiduciary duties. There is substantial evidence to conclude that the
school board extracted at least five percent of the fair market value of lands under the school board's
control, and the chancellor was not manifestly wrong in determining that adequate consideration was
obtained by LCBE on these lands in spite of the Participation Agreement with Hannaford Properties.
VIII.
¶51. Finally, Broadhead and Nicholson claim that the lease on the larger parcel rented to BMLP is
invalid because "the uncontroverted testimony contained in the record is that there simply is no
appraisal of the 116.41-acre tract of land representing the lease to [BMLP]." Appellees claim this
issue is waived under Supreme Court procedure because it was not listed in the appellants' Statement
of Issues on Appeal filed on June 5, 1996. The Statement of Issues is required under Miss. R. App. P.
Rule 10(b)(4). However, the Comment to Rule 10 clearly states that "[a] designation of certain issues
under subdivision (b)(4) does not preclude a party from stating other issues in its brief under Rule
28(a)(3)." Miss. R. App. P. Rule 10 cmt. Thus, the issue will be addressed on the merits.
¶52. Smith conducted appraisals of the original 120-acre parcel and the 40-acre parcel in 1993. On
May 26, 1995, Smith combined these parcels and performed his update appraisal on the resulting
159.85-acre tract of land, setting its value at $4,614.00 per acre. BMLP and BPI subsequently
decided to lease two separate properties for the mall development, and the land was again split into
two parcels, one containing 43.44 acres and the other containing 116.41 acres. A separate appraisal
was performed on the smaller parcel because an error in the metes and bounds description in the
original Commercial Lease Contract added to its acreage. No separate appraisal was performed on
the larger parcel.
¶53. As already noted, these parcels were not divided in the same manner as the earlier 120-acre and
40-acre tracts.(12) The 116.41-acre parcel thus includes the southern section of the original 40-acre
parcel. The chancellor mischaracterizes the facts in her Opinion when she states that "[t]he 116.41
acre tract leased to [BMLP] is part of the 120-acre tract on which the previous appraisals were
conducted." Appellants emphasize this mischaracterization by the court to form their argument.
Bonita attempts to persuade this Court to take the erroneous position adopted by the Chancery
Court and mistakenly subsume the 116.41 acre tract into the original 120 acre tract appraised
by Smith on September 1, 1993. . . . The 116.41 acre tract is not "part of" the 120 acres
appraised by Smith, nor is it "the same parcel of land" as incorrectly stated by the Chancellor in
this case. This can be easily seen by referring to the platted property descriptions of these
entirely different tracts of land.
¶54. It is likely that the chancellor's mistake was inadvertent, but, in any event, the mistake is not
material to the outcome of this issue. The character of the land is sufficiently similar to the original
120-acre tract. Approximately 100 of the acres were in that tract and the remainder was the southern
portion of the former 40-acre parcel, which is topographically similar. Moreover, appellants put forth
no contradictory evidence that there was any reason for LCBE to incur the expenses of conducting
another appraisal on that land. A competent and reliable update appraisal was done on the combined
tract, which was then divided. LCBE derived the same revenue that it would have gotten had the
tract not been divided. When an error occurred adding 1.63 acres to the smaller portion, it was
reappraised and adjusted accordingly. No acreage was added to the 116.41-acre parcel. Thus, there is
substantial evidence to support the chancellor's findings that "[a] competent appraisal has been
performed, and an appropriate letter update of that appraisal was also prepared. The division of
property into two parcels for leasing to the two Bonita entities is not a significant change which will
require a separate appraisal of the 116.41 acres."
IV.
¶55. For the forgoing reasons, the chancery court's confirmation of the sixteenth section land leases is
affirmed.
¶56. AFFIRMED.
PRATHER , P.J., PITTMAN, McRAE, ROBERTS, SMITH AND MILLS, JJ., CONCUR.
LEE, C.J., AND SULLIVAN, P.J., NOT PARTICIPATING.
1. The tract was originally thought to contain 158.23 acres, due to a mistake which omitted
approximately 1.63 acres.
2. The so-called "Hannaford Properties" referred to in this litigation essentially comprise the land
which was the subject of the original 40-acre appraisal. This land was the subject of a lawsuit
between LCBE and Hannaford Properties, L.P., the plaintiffs/then leaseholders of a sixteenth section
lease who sought confirmation as to adequacy of consideration. The suit was settled and
memorialized in a Participation Agreement by which the five acres of road frontage was confirmed.
The remaining thirty-five acres was surrendered back to LCBE and became a part of the two
sixteenth section Commercial Lease Contracts now on appeal. Hannaford Properties would also be
paid forty percent (40%) of the lease income from the land surrendered back to LCBE. The
Participation Agreement was approved by the Secretary of State.
3. Paul Broadhead owns the existing Village Fair Mall in Meridian, and there is disagreement
between the parties over the relevance of his true motivations. Broadhead correctly argues he was a
defendant in this lawsuit and merely answered the complaint. Therefore, the issues will be addressed
on their independent merits without regard to Broadhead's alleged ulterior motives.
4. Likewise, the State of Mississippi did not deny the averments of the complaint.
5. Miss. Const. art. 4, § 95 provides that "[l]ands belonging to, or under the control of the state, shall
never be donated directly or indirectly, to private corporations or individuals. . ." This provision has
been interpreted to prohibit inadequate consideration for leases on public lands.
6. Scogin originally found multitudinous violations of the Rules, which he recited in an Appraisal
Review dated December 27, 1995. However, many of these referenced rules appeared for the first
time in the 1995 version of USPAP, and it was brought out at trial that the 1993 version of USPAP
would apply to the appraisals being reviewed since they occurred in 1993.
7. Trial was conducted on March 27, 28 and 29 and April 8, 9, 10 and 12, 1996.
8. See supra note 2.
9. Miss. Code Ann. § 29-3-63(2) (Supp. 1996), provides that "[t]he board of education shall not
lease or extend a lease on land classified as industrial or commercial at an annual rental less than five
percent (5%) of the current market value, exclusive of buildings or improvements not owned by the
school district."
10. The original 120-acre parcel consists of the northeast, southeast and southwest quarter-sections
of the sixteenth section in issue. The original 40-acre parcel essentially comprised the remaining
northwest quarter-section. In the subsequent division, the 43.44-acre parcel lies north of proposed
Bonita Lakes Drive and covers roughly the top half of the northeast and northwest quarter-sections;
the 116.41-acre parcel lies south and constitutes the remaining land from the combined tract.
11. There is other evidence in the record to suggest that LCBE received slightly more for the lease.
Whichever figure was ultimately obtained, it apparently was calculated by applying the new estimate
of value only to the acreage which was added.
12. See supra note 10.