People ex rel. Dept. of Transportation v. Yuki

• Decision Date: 06 January 1995
• Docket Number: No. H011486,H011486
• Citation: 31 Cal.App.4th 1754,37 Cal.Rptr.2d 616
• Court: California Court of Appeals Court of Appeals
• Parties: The PEOPLE ex rel. DEPARTMENT OF TRANSPORTATION, Plaintiff and Appellant, v. Miyoko YUKI, et al., Defendants and Respondents.

Page 616

37 Cal.Rptr.2d 616

31 Cal.App.4th 1754

The PEOPLE ex rel. DEPARTMENT OF TRANSPORTATION, Plaintiff and Appellant, v. Miyoko YUKI, et al., Defendants and Respondents.

No. H011486.

Court of Appeal, Sixth District, California.

Jan. 6, 1995.

Allen S. Ruby, William Siamas, and Morgan, Ruby, Schofield, Franich & Fredkin, San Jose, for appellant.

Gerald Z. Marer and Marer, Marer & Schuck, Palo Alto, Ronald J. Mulcare, William J. Turner and Turner & Mulcare, San Mateo, for respondents.

BAMATTRE-MANOUKIAN, Associate Justice.

The State of California, the plaintiff in this eminent domain action, paid the property owners a judgment of $1,970,076.60 following a jury trial which determined the question of just compensation for the taking of property. In a subsequent motion by the property owners to recover reasonable expenses of litigation, pursuant to Code of Civil Procedure section 1250.410, ¹ the court awarded an additional $1,452,846.25 in litigation expenses, including attorney fees in the amount of $1,303,714.30.

The State appeals from the order awarding litigation expenses, challenging both the property owners' entitlement to expenses under section 1250.410 and also the amount of expenses awarded, in particular the attorney fee award. We will affirm the order of entitlement to litigation expenses, but we reverse the award of attorney fees on the ground that it includes an improper surcharge.

BACKGROUND

For more than forty years the Yuki family ² has owned numerous parcels of property in the vicinity of Lark Avenue in the town of Los Gatos. The property which is the subject of this action consisted of approximately 45 acres, bisected by Highway 17. Approximately 34 acres lay on the east side of Highway 17 with an additional 11 acres on the west side. These two parts of the property were connected by a concrete reinforced tunnel 10 feet high and 14 feet wide passing beneath the highway. The tunnel, called the "Yuki Underpass," was constructed when the highway was first built in the late 1950s so that the Yuki family could continue to have access from one side of their lands to the other.

In 1991, the State designated approximately 5.6 acres of the Yukis' property on the east side of Highway 17 for use in a project which involved widening Highway 17, improving the Lark Avenue interchange and constructing the Highway 17/85 interchange. The project would result in the destruction of the Yuki Underpass.

In March of 1991, the State appraised the property to be taken at $4,723,503. On April 15, 1991, pursuant to a Possession and Use Agreement, the Yukis granted the Santa Clara Traffic Authority the immediate right to possess and use the property in exchange for payment of $4,723,503. The agreement provided that if a judgment were later awarded in excess of that amount, the Traffic Authority would pay the Yukis the difference, plus interest from April 15, 1991. It further provided that if judgment were later rendered in an amount less than the $4,723,503, the Yukis would be obligated to refund the difference.

The State filed its complaint in eminent domain on December 19, 1991, asking that the court determine just compensation as of that date, condemn the property and give title to the State. The case was set for a jury trial to commence October 26, 1992.

On September 16, 1992, the Yukis and the State exchanged lists of expert witnesses and statements of valuation data. These documents disclosed each party's experts and contained reports by the parties' appraisers setting forth their opinions of the value of the property. The Yukis submitted two appraisals. One appraiser, Floyd Clevenger, valued the subject property at $6,493,450, plus $977,900 for severance damages to the remaining lands, a total of $7,471,350. The other, Desmond Johnson, valued the property at $6,350,000 plus $852,000 in severance damages, a total of $7,202,000. Neither appraiser included any amount for "special benefits." ³

The State's appraiser, Norman Hulberg, valued the property at $4,048,981, some $700,000 less than his original appraisal. According to the State, this discrepancy reflected declining values in the area between the time of the first appraisal in March of 1991 and the date of valuation, December 19, 1991. Hulberg included $-0- for severance damages and claimed $3,743,388 for "special benefits."

Severance damages represent the injury, if any, caused to the remaining property by the severance of the part acquired by the government agency and the construction and use of the project. (§ 1263.420.) Section 1263.410, subdivision (a), provides that severance damages are awardable, in addition to the fair market value compensation, "[w]here the property acquired is part of a larger parcel." Determination of severance damages thus involves a comparison of the value of the "larger parcel" both before and after the State's project.

The two appraisers retained by the Yukis considered the entire 45 acres of property on both the east and west sides of Highway 17 to be the "larger parcel" for purposes of severance damages. Although the State's initial appraisal, prepared in March of 1991, had likewise considered the entire 45 acres to be the "larger parcel," at the time of the exchange of valuation information the State had concluded that the "larger parcel" did not include the western portion of the Yuki lands for the reason that the Yuki Underpass did not provide a sufficient "ownership link" between the two sides of the property. Therefore, the September 16, 1992, appraisal confined itself to an evaluation of the effect of the project only on the eastern portion of the Yukis' property and found no severance damages.

As to special benefits, the State appraiser determined that the remaining property would benefit substantially from the widening of Los Gatos Boulevard and Lark Avenue. The Yukis' appraisers did not include special benefits for the reason that the widening of those streets was to be accomplished independently by the Town of Los Gatos The parties exchanged their final offer and final demand, pursuant to section 1250.410, subdivision (a), on September 25, 1992. The Yukis demanded $5,975,000 for the property taken plus $550,000 for severance damages to the remainder, a total of $6,525,000. The State offered $5,000,000. The parties were unable to reach any agreement at the ensuing settlement conference and the case went to trial as scheduled on October 26, 1992.

rather than by the State as part of the project.

A pre-trial motion sought a ruling as to what was to be considered the "larger parcel" within the meaning of section 1263.410, subdivision (a). The matter was briefed and argued and the court ruled that for purposes of compensation in this action, the "larger parcel" consisted of the entire 45 acres on both sides of the highway, connected by the Yuki Underpass.

At the end of the jury trial, which spanned several weeks, the jury rendered a verdict awarding the Yukis a total of $6,469,840, comprised of $6,146,690 representing the fair market value of the property taken, plus $323,150 for severance damages, and $-0- in special benefits. The State was credited with the $4,723,503 paid to the Yukis on April 15, 1991, leaving a balance of $1,746,337. Judgment was entered on January 28, 1993, awarding that amount to the Yukis, plus interest from April 15, 1991, which amounted to $223,739.60. On January 29, 1993, the Yukis acknowledged receipt of the total amount of $1,970,076.60, in satisfaction of the judgment.

From this sum the Yukis reimbursed themselves $163,636.95 for amounts expended on the appraisals, engineering reports and other expenses of litigation. Their net recovery was therefore $1,806,439.65. Pursuant to a contingency fee agreement with their attorneys, Turner & Mulcare, a Professional Corporation, the Yuki family paid 40 percent of this net recovery amount, a total of $722,575.86, to Turner & Mulcare for attorney fees.

On February 11, 1993, the Yukis filed their motion to recover litigation expenses, pursuant to section 1250.410, subdivision (b), ⁴ on the basis that the State's final offer had been unreasonable, thus requiring unnecessary litigation. In a memorandum of costs submitted with the motion, the Yukis claimed "Litigation Expenses" in the total amount of $1,452,846.25. This sum included reimbursement for the two appraisals paid for by the Yukis, at $42,941.30 and $41,055.00 respectively, engineering fees of $57,481.37, miscellaneous costs and expenses of $7,654.37 and attorney fees of $1,303,714.30, which were calculated based on a formula derived from the 40 percent contingency fee agreement.

Following a hearing on the motion, the court issued a written order, dated May 21, 1993, in which it found that the State's final offer was unreasonable and that the Yukis' final demand was reasonable. The court awarded the Yukis total litigation expenses of $1,452,846.25, the exact amount requested.

The State appeals from that order, challenging both the entitlement to litigation expenses and the amount of the award.

ANALYSIS

The Reasonableness Determination

The purpose of Code of Civil Procedure section 1250.410 is to encourage settlement of condemnation actions by providing incentives to a party who submits a reasonable settlement offer or demand before trial. (Santa Clara Valley Water Dist. v. Gross (1988) 200 Cal.App.3d 1363, 1368, 246 Cal.Rptr. 580; People ex rel. Dept. of Transportation v. Callahan Brothers (1977) 69 Cal.App.3d 541, 544, 138 Cal.Rptr. 239.) "A property owner who files a reasonable demand, but is required nonetheless to litigate because of the public agency's unreasonable position, can be fully compensated for his [or her] litigation expenses. Conversely, a condemnor who makes a timely reasonable offer may avoid having to pay the property owner's expenses except for taxable costs." (Santa Clara Valley Water Dist. v. Gross, supra, 200 Cal.App.3d at p. 1368, 246...