City of Carlsbad v. Rudvalis
| Decision Date | 10 June 2003 |
| Docket Number | No. D039112.,D039112. |
| Court | California Court of Appeals Court of Appeals |
| Parties | CITY OF CARLSBAD, Plaintiff and Appellant, v. Joseph A. RUDVALIS as Cotrustee etc., et al., Defendants and Respondents. |
Ronald Ball, City Attorney; Matteoni, Saxe & O'Laughlin, Norman E. Matteoni, Peggy M. O'Laughlin, San Jose; Asaro, Keagy, Freeland & McKinley, Roscoe D. Keagy and Richard R. Freeland, San Diego, for Plaintiff and Appellant.
McDonough, Holland & Allen and Richard G. Rypinski, Oakland, for the cities and towns of Alameda, Bakersfield, Burlingame, Cerritos, Chino, Chula Vista, Coachella, Corte Madera, Cotati, Del Mar, Escondido, Fremont, Hollister, Huntington Beach, Kerman, Laguna Beach, Lakewood, Livermore, Lodi, Los Altos, Monterey, Monterey Park, Novato, Oceanside, Oxnard, Palm Desert, Palm Springs, Placentia, Redding, Redlands, Rialto, Ross, Sacramento, San Anselmo, San Buenaventura, San Diego, San Dimas, San Francisco, San Jose, San Luis Obispo, San Ramon, Santa Clara, Santa Paula, Santa Rosa, Signal Hill, Sonoma, Sunnyvale, Tiburon, Tracy, Vacaville and Vista as Amici Curiae on behalf of Plaintiff and Appellant.
Palmieri, Tyler, Wiener, Wilhelm & Waldron, Gary C. Weisberg, Michael H. Leifer and Ronald M. Cole, Irvine, for Defendants and Respondents.
In consolidated eminent domain actions brought by the City of Carlsbad (the City), the City appeals from a portion of a judgment in favor of defendants Joseph A. Rudvalis and Barbara G. Rudvalis (collectively Rudvalis) as trustees of the Joseph and Barbara Rudvalis Family Trust UDT 6/7/89 and Pamela Koide. Both Rudvalis and Koide own commercial nurseries. Among other damages, the jury awarded defendants severance damages consisting of diminution in value of nursery improvements and personal property on the theory the City's project, a road extension, accelerated residential development, thereby shortening the economic life of the nurseries and rendering their nursery assets valueless. The City also appeals a postjudgment order awarding defendants their litigation expenses and costs. The City's main contention is that defendants are not entitled to damages for diminution in value to tangible business assets suffered as a consequence of accelerated urbanization not directly or proximately caused by the road project or the taking in and of itself. We agree and therefore reverse the judgment with directions, that the superior court enter a new judgment omitting those damage awards.
Rudvalis and Koide own and operate separate commercial wholesale nursery businesses on adjoining lots within the City. Rudvalis as trustee of the Joseph and Barbara Rudvalis Family Trust UDT 6/7/89 is the fee owner of the land on which the Rudvalis nursery is located (the Rudvalis property); the Rudvalis nursery hybridizes and cultivates orchids. Koide, doing business as Bird Rock Tropicals, is a tenant under month-to-month tenancies whose nursery is located on a portion of land owned by William and Donna Baker (the Baker property), and also on an adjacent parcel owned by an entity referred to as Bolton. Koide hybridizes and cultivates bromeliads and orchids.
In June 1998, the City brought eminent domain proceedings to acquire portions of the Rudvalis and Baker properties for purposes of extending Poinsettia Lane and acquiring a 102-foot-wide right of way. The complaints incorporate the City's resolution of necessity (Code Civ. Proc., §§ 1240.240, 1245.220)1 describing its project as the City's proposal "to construct the extension of Poinsettia Lane from Aviara Parkway to Black Rail Road and Brigantine Drive from Poinsettia Lane north to the Oceanbluff [sic] development." The City sought to take .05 acres of the northwest corner of the Rudvalis property for slope and temporary construction easements. It sought to take approximately 3.07 acres of the Baker property for right-of-way and for slope, drainage and temporary construction easements. None of the buildings, fixtures or equipment of either nursery is situated on the condemned property and the land was not damaged as a result of the construction and operation of the project.
At the time the City filed its complaint, the Rudvalis and Baker properties were zoned limited control (LC) by the City, although the City's general plan had designated the property for residential use since 1965. The circulation element of the general plan showed Poinsettia Lane in 1965. The LC designation permits agricultural uses on the property, but the present nursery uses are nonconforming because the agricultural structures exceed certain minimum requirements within the LC zone. While the nurseries therefore cannot be modified or expanded, nothing in the City's planning or land use requirements prevents the continued use or operation of the businesses as they exist.
The cases were consolidated and proceeded first to a bench trial before superior court Judge John Einhorn to resolve whether defendants could claim economic damages consisting of diminution in value to their tangible business assets—their improvements, fixtures, equipment and inventory—due to the "accelerated] transition of the subject properties and the surrounding lands to incompatible residential development" stemming from the road extension. The City opposed the damage claims on numerous grounds including (1) they were speculative or conjectural; (2) defendants had waived any claim for loss of business goodwill, of which any diminution in value to tangible business assets was a part; (3) severance damages were limited to those caused by the taking or construction and use of the project; and (4) defendants could not recover diminution in value of movable equipment and inventory since marketplace factors—not the City's act of condemnation or the road extension project—caused any alleged need to relocate or inability to relocate their businesses.
After considering the parties' briefing, testimony and offers of proof, Judge Einhorn issued a written ruling permitting defendants to present their compensation claims to the jury. The judge in the compensation trial, Judge David Moon, ultimately interpreted this ruling as one permitting the issue of defendants' entitlement to these damages to be decided by the jury.2
At the compensation trial, in addition to physical damages to inventory,3 defendants sought economic damages on the theory that their nursery assets and improvements suffered a shortened economic life due to "massive development pressures" to more rapidly convert the property to residential use—all caused by the road extension. Both defendants sought damages for diminution in value of not only green-houses, shade structures, and other improvements unique to their nursery businesses, but also items such as telephone systems and paper towel dispensers, office equipment and furniture, appliances, office supplies including pencils and paper clips, portable hand and power tools, clocks, stereo equipment, and vehicles.
Defendants' expert real estate appraiser, William Hansen, testified that the Rudvalis property's highest and best use as of June 1998 before the taking (the "before condition") was ultimate residential use, with interim use for nursery operations for a period of eight to 10 years. He testified the Baker property's highest and best use in the before condition as of June 1998 was ultimate residential use with interim nursery use for a period of six to eight years. Thus, according to Hansen, recognizing the transitional LC zoning, a buyer in the before condition would look to continuing the nursery uses for those periods of time. Hansen testified that after the taking (the "after condition"), the demand for residential development would be immediate, and the highest and best use of both properties was residential. He concluded that in the after condition, the nursery assets and improvements would be valueless or reduced to liquidation value: On cross-examination, Hansen conceded urbanization—or converging growth and development in and around the properties— created the improvements' obsolescence, and the urbanization impacted the highest and best use of the property. According to Hansen, "[t]he difference between the remaining physical life of the improvements and the remaining economic life of the improvements is a result of this urbanization issue ... and that is a contributing factor to the accelerated depreciation."
Defendants also presented business appraisal expert Donna Desmond, who testified the tangible assets and inventory of the Koide and Rudvalis nurseries were marketable in place for respectively eight and 10 years of continued agricultural use in the before condition. According to Desmond, the economic pressure from the project shortened that interim agricultural use to a period from zero to two years, thus affecting how long the businesses could continue to economically and physically operate on the properties. Rudvalis's expert, Jeffrey Donahue, testified he agreed with Hansen's conclusion there was shortened expected life of Rudvalis's nursery improvements in the after condition of the property. For example, he testified the road project accelerated the economic obsolescence of the greenhouses so that in the after condition they were worth only 10 percent of their value.4 As for movable equipment and items such as chairs, file cabinets and tools, Donahue testified they would suffer economic loss if the business closed, which, in his opinion, it would have to do under the circumstances.
At the close of the defendants' evidence,...
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