Merced Irrigation Dist. v. Woolstenhulme

• Decision Date: 31 March 1971
• Court: California Supreme Court
• Parties: , 483 P.2d 1 MERCED IRRIGATION DISTRICT, Plaintiff and Appellant, v. Mazie WOOLSTENHULME, Defendant and Respondent. Sac. 7872.

Page 833

93 Cal.Rptr. 833

4 Cal.3d 478, 483 P.2d 1

MERCED IRRIGATION DISTRICT, Plaintiff and Appellant, v. Mazie WOOLSTENHULME, Defendant and Respondent.

Sac. 7872.

Supreme Court of California In Bank.

March 31, 1971.

Ross, Webber & Hackett, San Bruno, Robert S. Webber and Adams & Quigley, Merced, for plaintiff and appellant.

Harry S. Fenton, Sacramento, John P. Horgan, William R. Edgar, Robert R. Buell, San Francisco, John D. Maharg, County County Counsel, John H. Lauten, Adrian County Counsel, John H. Lauten, adrian Kuyper, Santa Ana, County Counsel, Orange, and Robert F. Nuttman, Asst. County Counsel, as amici curiae on behalf of plaintiff and appellant.

Ben Curry, Merced, for defendant and respondent.

Thorpe, Sullivan, Clinnin & Workman, Los Angeles, Otto A. Jacobs, Robert H. Jacobs, Santa Ana, Kilpatrick, Peterson & Ely, Vallejo, Desmond, Miller & Desmond, Richard F. Desmond, Sacramento, Fadem & Kanner and Gideon Kanner, Los Angeles, as amici curiae on behalf of defendant and respondent.

TOBRINER, Justice.

In response to the mounting social, environmental and health crises of recent years, governmental authorities have considerably expanded the planning and construction of 'public improvements.' Because the definite commencement of a public project is almost invariably preceded by significant publicity and public interest, land values in the vicinity of the potential project often will increase in response to this foreknowledge. A recurring issue in eminent domain litigation is whether, and to what extent, such increases ¹ in land values attributable to the proposed project comprise a proper element of the 'just compensation' to be paid to a land owner if his land is ultimately taken for a project. This question has not been definitely resolved by California decisions to date; ² three cases before our court today require us to confront this issue of the proper interpretation of our constitutional 'just compensation' clause directly, and additionally require us to probe the practical problems of application attending our constitutional conclusions.

For the reasons discussed hereafter, we have concluded that the few appellate decisions which have intimated that any increase in value arising from the expectation of the coming project should be excluded from just compensation must be reexamined in light of the realities of a landowner's position. In the early stages of a desirable project's development, land which is expected to be within the vicinity of the project, but is not expected to be taken for the project, will naturally increase in value, and a landowner who chooses to sell such land at this time will gain the benefit of this incremental value; similarly, one who buys such land at this time must pay this incremental amount for his purchase. It is not until a particular piece of property is reasonably expected to be condemned for the project that this enhanced market value, attributable to the land's anticipated proximity to the improvement, disappears. We have determined that it would be unfair, in computing just compensation, to eliminate the appreciation in market value which a specific piece of property in fact enjoyed before it was designated for condemnation, since that would in effect deny to the owner the market value of his property prior to the time it was pinpointed for taking.

1. The facts of the instant case.

Mrs. Mazie Woolstenhulme, defendant-landowner in the instant eminent domain action, owns a ranch of approximately 13,150 Acres in a remote portion of Mariposa County. One end of the ranch borders Lake McClure, an artificial lake created in 1927 and owned by Merced Irrigation District, the condemnor in this proceeding. In the present action, the district condemned 189 acres of defendant's land for use in connection with a new, multipurpose water project planned for the region. The jury awarded defendant $250 per acre for this land, and the district attacks this valuation on appeal.

Prior to the commencement of the district's new water project, little domestic water and no power was available in the Lake McClure region; land in the area was largely uninhabited and devoted primarily to cattle grazing. Lake McClure was subject to wide seasonal fluctuation, covering a maximum of 2,700 acres during the winter months, but contracting to merely 30 acres, surrounded by mudflats, in summer. The district owned a buffer strip of 200 feet around the lake, presumably adjacent to the lake's border in its high water stage. Evidence introduced at trial revealed that, during this pre-improvement stage, land in the area had not sold for higher than $125 an acre.

In the late 1950's the district began evolving plans for a new Lake McClure project that was considerably to alter the nature of the area. The new project was to increase the size of the lake, and eliminate most of the fluctuation in its coverage and depth; it was to provide the neighboring lands with power and domestic water bot available from the old dam and lake. By 1962 the district had begun a quest for federal funds to assist in the financing of the project, and early in 1963 several newspaper articles informed the public that the completed Lake McClure project would include recreational facilities, such as camping, boating and fishing. The trial court found that about January 1, 1963 the public, while unaware of 'exactly what area, what spots were to be recreation,' did know of the general recreation plans, and that, as a result, property values in the area began to increase within a short time thereafter. The court also found that by January 1, 1965 the plans for the project had progressed to a point where it became 'reasonably probable' ³ that the present parcel of defendant's land would be taken for the project. ⁴ During 1965 and 1966, a flurry of land sales occurred in the area at prices ranging from $250 to $600 an acre. The district filed the amended complaint on which this action is based in August 1967.

At trial plaintiff condemnor's appraisal witness testified that, omitting consideration of the new Lake McClure project, cattle grazing was the highest and best use of the 189 acres in question, and he valued the land, on the basis of the normal market value of such land in the past, at $125 an acre. Mrs. Woolstenhulme, the defendant-landowner, stated that in her opinion the property had a value of $600 an acre; she admitted, however, that in February 1966 she had sold a similar parcel of her ranch for $250 an acre. Defendant's expert appraisal witness, Richard Leuschner, testified that when used for grazing purposes as part of defendant's ranch, the land would have a value of $200 an acre. Leuschner declared, however, that viewing the 189 acres as a separate tract, 'development,' rather than cattle grazing, was the highest and best use of the property and he stated that, on the basis of his examination of sales of comparable properties, he would evaluate defendant's land at $600 an acre after deducting $50 an acre of 'enhanced value' arising from the Lake McClure project.

In attempting to explain this surprisingly small increment of value which he attributed to the pending improvement, Leuschner testified that he believed that he new Lake McClure project was only one of a considerable number of factors resulting in the rapid increase in land value in the region, and was not an overwhelming factor at that. The appraiser described a growing statewide trend, stretching over almost a decade, of sales of agricultural foothill property to city residents seeking a country 'home away from home;' he attributed the trend, in large part, to the tremendous population increase in California's urban centers in recent years. Leuschner also testified that although Mariposa County is relatively far removed from the heavily populated areas of Los Angeles and the Bay region, newly constructed freeways had reduced the traveling time considerably and had made the region accessible for 'recreational development' purposes. The appraiser concluded that even without the new water project, the area would have been an attractive 'development' site, for he considered the old lake adequate for swimming and fishing.

In support of Leuschner's valuation, defendants offered evidence of some of the 1965 and 1966 sales of neighboring parcels as 'comparable sales' under section 816 of the Evidence Code. The district objected to the introduction of these sales on the grounds that the sale prices reflected an increase or enhancement in value attributable to benefits created by the very project for which condemnation was sought, an enhancement which the district contended was not a proper element of 'just compensation.' The condemnor strongly disputed Leuschner's analysis of the increase in land values in the area, and argued that it was the new project which had transformed land, previously useful only for grazing, into valuable lakefront sites. The trial judge, although finding that the proffered sales reflected 'substantial enhancement' due to the recreational potential of the project, nevertheless admitted the evidence, indicating that he would instruct the jury to eliminate any post-January 1, 1965 enhancement attributable to the project from the determination of just compensation. The jury was so instructed, ⁵ and, as stated above, awarded defendant $250 an acre.

On this appeal the district raises two principal objections to the trial court's valuation rulings. First, the district contends that the court erred in instructing the jury to exclude Only that 'enhancement value' which arose after January 1, 1965. The district asserts that the general rule in this state is that, in determining just compensation, All 'enhanced value' attributable to the condemnor's proposed improvement must be excluded and that the court erred in permitting defendant to recover the pre-1965 increment in value which resulted from public knowledge and...