City of Stockton v. Albert Brocchini Farms

• Decision Date: 10 September 2001
• Docket Number: No. C034813.,C034813.
• Citation: 92 Cal.App.4th 193,111 Cal.Rptr.2d 662
• Court: California Court of Appeals Court of Appeals
• Parties: CITY OF STOCKTON, Plaintiff and Appellant, v. ALBERT BROCCHINI FARMS, INC., Defendant and Appellant.

111 Cal.Rptr.2d 662

92 Cal.App.4th 193

CITY OF STOCKTON, Plaintiff and Appellant, v. ALBERT BROCCHINI FARMS, INC., Defendant and Appellant.

No. C034813.

Court of Appeal, Third District.

September 10, 2001.

Richard K. Denhalter, City Attorney, Barbara J. Anderson, Assistant City Attorney; Freeman, D'Aiuto, Pierce & Gurev and Maxwell M. Freeman, Ronald J. D'Aiuto, Stockton, Thomas H. Keeling, Sacramento, for Plaintiff and Appellant.

Brown, Hall, Shore & McKinley and John H. McKinley, Stockton, for Defendant and Appellant.

DAVIS, J.

Plaintiff City of Stockton (City) moved to exclude the testimony of the valuation expert for defendant Albert Brocchini Farms, Inc., in this action for eminent domain. The trial court found the expert's opinion did not have a sufficient factual basis and excluded it. The defendant then stipulated to entry of judgment at the value that the plaintiffs experts assigned. On appeal, the defendant argues the trial court should have allowed the expert to testify to the discounted cash value of the income that could be realized if a landfill operated on its property. Plaintiff City cross-appeals, arguing the trial court erred in failing to offset interest on the award with the value of the defendant's continued permissive occupation of the property after plaintiff City obtained the right of possession.

We conclude that the income to be derived from placing landfill on a property is not akin to income from mineral or other natural resources on a property, thus the attempt to base value on a hypothetical landfill operation is subject to the traditional ban on such evidence. We further conclude a business loss of a defendant in possession does not preclude offsetting the fair rental value against interest for the period of possession. We thus affirm as modified.

We eschew a separate statement of background facts. Those necessary to an understanding of the issues will be incorporated in the discussion.

Discussion

I. The Defendant's Appeal

A

As we noted, the plaintiff moved before trial to exclude the testimony of the defendant's valuation expert, who had crafted a discounted cash flow of the income that could be generated from hypothetical landfill operations on the defendant's agricultural property. Other public and private landfills are adjacent to the property, and the plaintiffs intended use of the property is as an extension of its current landfill. The plaintiff argued an income-based valuation of the property was invalid, the expert had failed to establish the likelihood that a private developer could obtain the necessary permits for a landfill,¹ and the expert had made speculative assumptions regarding costs and demand in projecting income. The plaintiff was willing to stipulate that a landfill was a suitable use, which would obviate the need for this opinion as proof on that issue.²

In opposition, the defendant argued a landfill was analogous to cases involving land with mineral rights,³ and thus it was proper to project potential income. The defendant also claimed its expert "did extensive investigation into the availability of permitting this site and concluded that it was not only possible but probable." Finally, it contested the characterization of its expert's assumptions as speculative.

During argument on the motion in limine, the plaintiff disputed the need to resort to any method of valuation other than comparable sales, because landfills can be placed on any land. The defendant asserted the proximity to existing landfills made the property unique. Moreover, landfill values were site-specific, so its expert had been unable to find any comparable sales. The defendant also argued a discounted cash value was the method used in the landfill business to determine a sales price between private parties.

In its remarks during argument, the court did not indicate any disapproval of the use of the income method for valuing the property, which it believed should have a value as landfill that was somewhat higher than ordinary agricultural acreage. However, with the highly competitive market in the landfill industry, the court was concerned with the assumptions on which the expert relied for costs and demand. "I don't have any question it is probably a better guess than any lay person would have. But even as an expert, it has to be based on something other than his best guess. [¶] It has to be factually something you can put your hands on and say this is historically true." The court thus excluded the testimony: "I find that his projection on anticipated income on the hypothetical business on the landfill operation and the many . . . unknown factors that he has to project for reaching the hypothetical income . . . too speculative under the eminent domain law." The court cited the expert's choice of a discount factor in particular. The defendant submitted an offer of proof of its expert's testimony, in which he concluded the value of the property as an extension of the adjoining landfills was within 10 percent either way of $7 million.

B

The parties stipulated the record on appeal would include the entirety of the expert's deposition transcript and all of its supporting exhibits. However, since the trial court confined itself to an examination of the expert's report, it would be inappropriate for us to go beyond that part of the record. As the trial court expressly did not rely on the other information in making its ruling, this would be tantamount to taking additional evidence on appeal in a matter on which we do not exercise de novo review.⁴ Moreover, the specifics of the factual underpinnings are irrelevant in light of our ruling.

California's statutory scheme for proceedings concerning eminent domain embody the protections in our state and federal charters that mandate the payment of just compensation for the taking of private property for a public use.⁵ However, despite the defendant's arguments to the contrary, this involvement of a constitutional right does not change the rules of evidence in an eminent domain proceeding. It does not deny due process to cut off a litigant's right to present evidence where the party fails to comply with established evidentiary standards for appraisal methods.⁶ Thus, when a valuation expert employs an unsanctioned methodology, the opinion may be excluded in part or in whole in the discretion of the trial court.⁷

Generally, a defendant may not present evidence of income from a business that is conducted on the condemned property, but may offer proof of rental income from the property itself and any improvements presently in existence.⁸ Thus, "vacant land cannot be the subject of an income study. . . ."⁹ The prohibition on evidence of business income dates back to the early days of our jurisprudence and is based on the principle that even profits from an actual business depend on so many variables that any valuation derived from them is too conjectural and speculative.¹⁰ A fortiori, the profits of a hypothetical business are viewed with greater skepticism.¹¹

The defendant attempts to escape from these evidentiary restrictions on admission of business income by analogizing a property's storage capacity to other valuable natural resources such as mineral deposits. The right to future exploitation of undeveloped natural resources has a present and ascertainable value for purposes of eminent domain.¹² In Pacific Gas & Electric Co. v. Zuckerman, we recognized a property's storage capacity in theory is a valuable interest, although the case does not help in formulating a method for computing this value, for we excluded the expert's opinion as improperly linking the market price for a commodity with the value of storing the commodity.¹³ An analogy between natural resources and storage capacity fails in two respects.

First, mineral interests are a commodity with an intrinsic value. "The opportunity for unbridled speculation" in basing an opinion on the value of such interests is remote where there are "substantial and consistent markets with a constant demand." ¹⁴

Landfill for solid waste, on the other hand, is an inchoate service. As the trial court noted, the market determining its value is highly competitive. Its volatility is also subject to political factors such as the award of collection franchises or public opposition to siting, and the efficacy of conservation and recycling efforts to change the disposal habits of the citizenry. Under these circumstances, a claimed expertise at fixing a value is chimerical.

Furthermore, the defendant fails to acknowledge that even where evidence of the value of mineral interests is admissible, the income is not an independent value that is added to the value of the unimproved land; the property is still valued as a unit with the enhanced value to a buyer of acquiring property with the mineral interest.¹⁵ The trial court, as we noted above, correctly articulated this concept when it stated the defendant should be entitled to an enhancement over the value of ordinary agricultural acreage, but the defendant needed to provide a basis for this other than hypothetical business income.

In short, we find no abuse of discretion in the exclusion of the proposed opinion of the defendant's valuation expert. For whatever value one should appraise out-of-state precedent on this issue, the recent decision of an intermediate Indiana appellate court—which is the sole other case we have found involving unimproved land condemned for use as a landfill—is in accord.¹⁶

In reaching this conclusion, we emphasize that we reject only an attempt to value the income from a hypothetical landfill operation. Nothing in this opinion is intended to restrict proof of the enhanced value of unimproved land to a prospective private landfill operator. Despite the claims of the present defendant's expert that each site is unique and thus comparable sales are unavailable, we are confident the private market has developed an acceptable...