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City of Gulfport v. Dedeaux Utility Company, Inc.

Supreme Court of Mississippi, En Banc

February 15, 2018


          DATE OF JUDGMENT: 08/03/2016






         ¶1. This is the fourth appeal stemming from the City of Gulfport's taking of the Dedeaux Utility Company via eminent domain. The only issue on appeal is whether the interest rate on the judgment is appropriate. Because the trial court failed to follow our mandate to set an interest rate, we reverse and remand for entry of judgment consistent with the evidence presented.


         ¶2. In 1996, Gulfport filed an eminent domain complaint against Dedeaux. City of Gulfport v. Dedeaux Util. Co., Inc., 187 So.3d 139, 140 (Miss. 2016) ("Dedeaux III"). Gulfport did not take physical control of the utility until December 20, 2004, after a jury awarded Dedeaux $3, 634, 757. Id. Dedeaux appealed that verdict and Gulfport cross-appealed. Dedeaux Util. Co., Inc. v. City of Gulfport, 938 So.2d 838 (Miss. 2006) ("Dedeaux I"). In Dedeaux I, this Court reversed and remanded for a new trial, and the second jury awarded Dedeaux $5, 131, 676 for the taking. Dedeaux III, 187 So.3d at 140. Dedeaux again appealed, and Gulfport again cross-appealed. Dedeaux Util. Co., Inc. v. City of Gulfport, 63 So.3d 514 (Miss. 2011) ("Dedeaux II"). This Court again reversed and remanded in Dedeaux II, and the case was tried a third time, resulting in a jury verdict in favor of Dedeaux totaling $8, 063, 981. Dedeaux III, 187 So.3d at 140-41. The jury found that the fair market value of Dedeaux as of December 3, 1996, when the complaint was filed, was $7, 082, 778. Id. at 141. It found that the fair market value of tangible assets added to Dedeaux from December 3, 1996, to December 20, 2004, when Gulfport took physical control, was $981, 203. Id.

         ¶3. Based on payments already made by Gulfport to Dedeaux, the trial court found that Gulfport owed Dedeaux $1, 951, 102 plus interest on the amount of $7, 082, 778, and that it owed Dedeaux $728, 117 plus interest on the amount of $981, 203. Id. Gulfport appealed, and this Court affirmed the trial court on all issues except interest. Id. at 141, 150-51. The trial court had determined that Mississippi Code Section 75-17-1 applied and mandated that it award eight-percent interest. Id. at 148-49. This Court determined that Mississippi Code Section 75-17-7 applied, which charged the trial court to set an interest rate. Id. The Court then remanded "for the limited purpose of determining a reasonable rate of interest and issuing an order for payment of that interest." Id. at 149.

         ¶4. In response to our 2016 remand, Dedeaux filed a motion to set an interest rate. However, in its motion, Dedeaux argued that the trial court should consider rates of return and attached a copy of the S&P Stock Index obtained from the internet to support its argument. At the hearing, Dedeaux argued for rates higher than market interest rates. Alternatively, if the court was going to consider only interest rates, Dedeaux argued the court should compound the interest, despite this Court's prior ruling that simple interest was the law of the case. See Dedeaux I, 938 So.2d at 846 (Miss. 2006) (holding "legal interest" is not compounded, but is, rather, simple interest). Dedeaux offered only one exhibit in support of its argument. The exhibit was used to argue that if an eight-percent rate of interest was used, it would amount to a 4.894 percent rate of return over the entire time period.

         ¶5. Dedeaux's alternative argument remains that the rate of interest should in no event be less than eight percent, as this Court previously has upheld eight percent as being within a judge's discretion, citing noneminent-domain cases and, most critically, time periods outside the suppression of market interest rates by the Federal Reserve.[1] Dedeaux further argued that "an interest rate of higher than eight percent would be fair and reasonable as a prudent investor would have been able to receive a higher rate of return."

         ¶6. Dedeaux offered no legal authority to the trial court or to this Court to support its argument that courts should enter the speculative investment domain of rates of return on stocks and real estate to supplant the required statutory language of interest rates. See Miss. Code Ann. § 75-17-7 (Rev. 2016) ("All other judgments or decrees shall bear interest at a per annum rate set by the judge hearing the complaint from a date determined by such judge to be fair but in no event prior to the filing of the complaint.") (emphasis added). Both are subject to vastly fluctuating return and often are determined on unrelated market events and timing.

         ¶7. The City agrees that the trial court was charged with determining a rate of interest. To satisfy our mandate, the City offered the only witness at the hearing, Gary Wayne Kelly, Ph.D. Kelly currently serves as Chairman of the Department of Finance, Real Estate, and Business Law at the University of Southern Mississippi, where he teaches undergraduate, graduate, and doctoral-level classes. He has been involved in the study, teaching, and understanding of interest rates for thirty-six years. He received his Master of Economics from Tulane and his Doctorate of Finance and Business Administration in Finance from the University of Alabama. He previously was employed as a professor of finance and economics at Mississippi State University for twenty-four years. He serves as the chairman of a Mississippi federal credit union.

         ¶8. Upon accepting Kelly as an expert witness in finance and economics, the court stated that Kelly would be "allowed to testify as an expert concerning what an interest rate is and what market interest rates are. He will not be allowed to testify as to what the interest rate should be in this case since that is a legal decision to be made by me."

         ¶9. Kelly testified "as a concept, interest is always the rental price of borrowed funds." Kelly testified that an interest rate[2] was "a fee for the rental of funds." Conversely, Kelly defined "rate of return" as "all of the economic changes that happen to a position of an investor, either whether a lender or owner from one point in time to another point in time." In explaining the difference between interest rates and rates of return, Kelly testified that the two could not be "used interchangeably." Kelly not only testified that it would not be proper to use a "so-called average of the S&P 500 for the past twenty years" as a rate of interest, he explained the error of conflating the two.

         ¶10. Kelly testified that he "performed an analysis as to the interest rate that has historically been applied with respect to the City of Gulfport in the financial markets from 1996 . . . to the current year." He found that, over a twenty-year period, the City of Gulfport had a "number of bond issues and a number of long-term credit transactions of several types." Kelly testified and offered as part of an exhibit the average long-term financing rates for Gulfport during that time, which was "right about four percent - 3.9 to 4.04." He acknowledged some of those transactions had favorable tax advantages for the investors.

         ¶11. Kelly also provided market rates available to the general public by lending institutions and the U.S. Government in a summary of "Selecte[d] Interest Rates 1996-2016." He identified the interest rates for one-year certificates of deposit, five-year certificates of deposit, and ten-year treasury notes over the same interval. For rates of interest on certificates of deposit, Kelly used "the average hundred highest offer rates for CDs of 1 and 5 year maturities. Those are daily offers. So I managed to get every working day's offer rate for CDs. . . ." As to the ten-year treasury notes, Kelly testified that they were issued by the U.S. Treasury with a ten-year maturity.

         ¶12. In its argument to the trial court, the City politely reminded the trial judge of his duty:

Bottom line is the Supreme Court has asked Your Honor to determine the rate of interest and confined it to just that. In terms of that we can understand the Court has got to exercise discretion. And we know that discretion can't ...

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