Border Business Park v. City of San Diego

• Citation: 49 Cal.Rptr.3d 259,142 Cal.App.4th 1538
• Decision Date: 19 September 2006
• Docket Number: No. E035881.,E035881.
• Court: California Court of Appeals
• Parties: BORDER BUSINESS PARK, INC., Plaintiff and Appellant, v. CITY OF SAN DIEGO, Defendant and Appellant.

49 Cal.Rptr.3d 259

142 Cal.App.4th 1538

BORDER BUSINESS PARK, INC., Plaintiff and Appellant, v. CITY OF SAN DIEGO, Defendant and Appellant.

No. E035881.

Court of Appeal, Fourth District, Division 2.

September 19, 2006.

APPEAL from the Superior Court of San Diego County.¹ Vincent P. DiFiglia

and Raymond J. Ikola, Judges.² Affirmed in part and reversed in part with directions.

McKenna Long & Aldridge, Niddrie, Fish & Buchanan, Michael H. Fish; Niddrie & Hegemier, David A. Niddrie, San Diego; Thorsnes, Bartolotta & McGuire, Vincent J. Bartolotta, Jr.; Wasserman, Comden, Casselman & Pearson, David B. Casselman, Tarzana; and Geoffrey C. Hazard, Jr., Philadelphia, PA, for Plaintiff and Appellant.

Horvitz & Levy, Barry R. Levy, Lisa Perrochet, Curt Cutting, Encino; Latham & Watkins, Michael J. Weaver, San Diego, and Jared G. Flinn for Defendant and Appellant.

OPINION

McKINSTER, Acting P.J.

INTRODUCTION

The City of San Diego (the city) appeals a judgment for inverse condemnation awarding $65.3 million in damages to Border Business Park, Inc. (hereafter sometimes referred to as Border).

Border is a real estate development company which was developing a business park in Otay Mesa. Otay Mesa was then an unincorporated area in San Diego County adjacent to the Mexican border, and was later annexed by the city. Border asserted two causes of action for inverse condemnation. The first arose from the city's actions in connection with its announcements of a plan to create an international airport in Otay Mesa. Border contended that these announcements substantially interfered with sales of property within the business park and diminished the value of the property. The second inverse condemnation cause of action arose from the city's diversion of truck traffic, engendered by a newly opened crossing at the Mexican border, in a manner which allegedly interfered substantially with access to the business park.

The city asserts numerous grounds for reversal of the inverse condemnation judgment. Because we agree with the city's contention that the evidence was insufficient as a matter of law to support a finding of inverse condemnation on both theories, we address only that issue.

Border cross-appeals from an order granting the city's motion for a new trial on Border's cause of action for breach of the development agreement it entered into with the city. It contends that the trial court erroneously found that damages which accrued before a certain date were time-barred. We affirm the order granting the city's motion for new trial.

FACTUAL AND PROCEDURAL BACKGROUND

Border Business Park, Inc. is one of numerous business entities owned by the De La Fuente family. The family business was founded by Roque De La Fuente, Sr., and his wife, Bertha Guerra De La Fuente, but is now controlled by their son, Roque De La Fuente II.³ The trial court found that Mr. De La Fuente and the other De La Fuente family entities "are the alter ego of plaintiff Border Business Park, and of each other."

In 1983, the De La Fuentes purchased 312 acres of land in Otay Mesa, an unincorporated area in San Diego County adjacent to the Mexican border. 260 acres of the parcel they purchased were usable for development. The purchase was made through Border Business Park, Inc. Bertha Guerra De La Fuente was the sole shareholder, director, president and CEO of the corporation. Mr. De La Fuente managed the company through a corporation he owned, American International Enterprises.

In the early 1980's, the city became interested in annexing Otay Mesa. The area was then primarily raw land, but it included a small general aviation airport called Brown Field. In anticipation of annexation, the city created a community plan for Otay Mesa in 1981. The plan stated that a study by the San Diego Association of Governments (SANDAG), an association of local area governments, had identified Otay Mesa and Miramar Naval Air Station as "favored alternatives" for relocating San Diego's international airport, Lindbergh Field. The report recommended Otay Mesa as the "most likely" site for the new airport. In 1985, the city annexed Otay Mesa.

In 1986, the city entered into a development agreement with Border. The agreement provided that Border would pay certain fees and would bear the cost of various public improvements incident to the development of the business park. In return, the city agreed not to apply later-enacted rules or regulations to Border if they conflicted with laws in effect on the date of the agreement. The city also agreed not to hold Border responsible for revisions in certain types of fees or development standards, except under specified conditions.⁴ To finance the development, the city provided Border with funds from municipal bonds, requiring Border to repay the bonds through periodic assessments over 20 years.

In 1988, SANDAG revisited the idea of locating an airport in Otay Mesa, which was still largely undeveloped. To preserve the status quo during the continued study, the city issued a one-year moratorium on certain types of development in Otay Mesa. The moratorium exempted portions of Otay Mesa for which the city had already issued development permits, including the property owned by Border. Subsequent moratoria were limited to residential development.

In 1989, SANDAG issued an updated report identifying Miramar and Otay Mesa as potential sites for a new airport. The city decided that Otay Mesa was a more viable site than Miramar. It also concluded that the Otay Mesa site would probably require the use of Mexican airspace. In 1991, the city passed a resolution stating that an international airport in Otay Mesa was the preferred option for a new airport. It designated it the "TwinPort" plan, referring to the creation of an international airport spanning the border, using the existing Brown Field in Otay Mesa and Rodriguez Field in Tijuana. However, the city did not inquire of the appropriate officials in Mexico to determine whether Mexico had an interest in such a plan, or whether Mexico would allow the use of its airspace for an airport built solely on the American side of the border. Two years later, the city was forced to abandon the Otay Mesa airport idea, upon belatedly discovering that Mexico was not interested in the plan and would not cooperate.

During the time that the city was pursuing the Otay Mesa airport plan, sales within Border Business Park fell off precipitously. Public announcements of the airport proposal, some of which showed possible configurations of the airport which would place runways directly through Border Business Park, caused potential buyers to look elsewhere. There was a nationwide recession at the time, but Border's sales fell off more than would be expected as a result of the recession. As a result of the drop in sales, Border was unable to repay its bond obligations to the city. In 1993, the city brought a foreclosure action against 35 parcels within the business park. Border cross-complained for breach of the development agreement. Border was able to obtain financing and paid the delinquent assessments, although it remained obligated on outstanding penalties and other indebtedness. Border and the city agreed to a payment schedule. However, Border's financial difficulties continued, resulting in a judgment of foreclosure on some of its properties in 1995.⁵

Beginning in 1995, Border encountered further difficulties in selling properties within its business park as a result of the rerouting of truck traffic bound for the border crossing. In 1985, the federal government had opened a U.S.-Mexico border crossing in Otay Mesa. In 1993, the government closed the border crossing at San Ysidro to commercial truck traffic and routed all commercial truck traffic through the Otay Mesa border crossing instead. At the time, border-bound traffic was routed in such a way that it bypassed Border Business Park. In 1995, however, the city rerouted traffic in such a way that Border Business Park, which was located very near the truck crossing, was inundated with truck traffic. (Further details are discussed below.) Again, sales within the park suffered. In 1995, Border filed the present lawsuit, alleging breach of the development agreement. In 1996, Border filed for bankruptcy protection, and the breach of contract action was stayed. In 1998, the bankruptcy proceeding was dismissed, and proceedings resumed in the breach of contract suit. Border amended its complaint to add the two causes of action for inverse condemnation.

The issue of inverse condemnation was tried to the court.⁶ The court found that the city's airport announcements, made without having first ascertained that the government of Mexico would cooperate, were unreasonable and amounted to a taking. It also found that the diversion of truck traffic caused a compensable impairment of Border's access to its property. A jury awarded Border $25.5 million in damages resulting from the city's airport planning activities, and $39.8 million for the interference caused by the city's rerouting of truck traffic. The jury also found that the city breached the development agreement and awarded Border $29.2 million in damages. The trial court awarded Border $10.3 million in prejudgment interest for the airport planning claim and $16.1 million for the traffic routing claim.

The city filed a motion for judgment notwithstanding the verdict and a motion for new trial. The court denied the motion for judgment notwithstanding the verdict and granted the motion for new trial on the breach of contract claim only. The city filed a timely notice of appeal and Border filed a timely notice of cross-appeal.

DISCUSSION

THE AIRPORT INVERSE CONDEMNATION CLAIM

Border's inverse condemnation claim was based on the theory that the city acted unreasonably during the period it was considering developing the airport in Otay Mesa, because it failed to ascertain that Mexico either had an interest in...