Redevelopment Agency of San Diego v. Mesdaq

Decision Date31 August 2007
Docket NumberNo. D047927.,No. D048490.,D047927.,D048490.
Citation65 Cal.Rptr.3d 372,154 Cal.App.4th 1111
CourtCalifornia Court of Appeals Court of Appeals
PartiesREDEVELOPMENT AGENCY OF the CITY OF SAN DIEGO, Plaintiff and Appellant, v. Ahmad MESDAQ, Defendant and Appellant.

Best Best & Krieger LLP, Bruce W. Beach and Karen F. Landers, San Diego, for Plaintiff and Appellant.

Thorsnes Bartolotta & McGuire, Vincent J. Bartolotta, Jr. and Karen F. Frostrom, San Diego; Higgs, Fletcher & Mack LLP and John Morris, San Diego, for Defendant and Appellant.

IRION, J.

In an exercise of its power of eminent domain, the Redevelopment Agency of the City of San Diego (the Agency) filed proceedings in the superior court to obtain possession of Ahmad Mesdaq's property (a cigar store and coffee shop) and made available to him $3,091,000 as "probable compensation." Mesdaq challenged the Agency's authority to take his property, leading to a series of three trials, two before the trial court and one before a jury. At the conclusion of these proceedings, Mesdaq's objections to the taking of his property were overruled, and he was awarded compensation in the amount of $7,785,131.83.

Both Mesdaq and the Agency appeal. The Agency contends that the compensation award must be reversed because it is based on: (1) an erroneous valuation date; (2) speculative expert testimony as to lost business goodwill; and (3) an improper award of damages based on the Agency's issuance of an environmental remediation notice under the Polanco Redevelopment Act (Health & Saf.Code, § 33459 et seq. (Polanco Act)). In addition, the Agency contends that the trial court erred in awarding Mesdaq $1,230,714.41 in litigation expenses under Code of Civil Procedure section 1250.410, subdivision (b).1

As discussed in greater detail below, we agree with the Agency's contentions. With respect to the first issue, our Supreme Court's recent opinion in Mt. San Jacinto Community College Dist. v. Superior Court (2007) 40 Cal.4th 648, 659, 54 Cal.Rptr.3d 752, 151 P.3d 1166 (Mt. San Jacinto) compels the conclusion that the trial court erroneously set the date of valuation as the date of trial, rather than the earlier date of deposit, for purposes of the jury trial on compensation. On the second issue, we agree with the Agency that the trial court abused its discretion in permitting expert testimony that relied upon a goodwill valuation methodology that did not value Mesdaq's actual business but instead valued a hypothetical business operating at Mesdaq's facility. Third, we conclude that the trial court's ruling allowing the jury to assess $77,823.83 of precondemnation damages based on the Agency's issuance of a Polanco Act notice was erroneous. As a result of these determinations, the jury's compensation award must be vacated and relitigated. We reverse as well the award of attorney fees to Mesdaq, which was based, in substantial part, on the now vacated award.

On appeal, Mesdaq contends that the trial court erred by failing to find that the Agency's action in taking his property constituted a "gross abuse" of the Agency's discretion and was not in the public interest, and by limiting the evidence that he was permitted to introduce in his challenge to the Agency's actions. We need not reach these contentions because, by statute, Mesdaq has waived his appellate right to challenge the taking of his property by consenting to the withdrawal of the Agency's deposit of "probable compensation" by his lender, First National Bank, to pay off Mesdaq's mortgage.

FACTS

In 2001, Mesdaq purchased a 5,000-square-foot commercial property at 502 J Street in the Gaslamp District of San Diego for $1.3 million. In 2003, after improving the property, Mesdaq opened the Gran Havana—a coffee shop and cigar store.

On April 27, 2004, the Agency adopted a "resolution of necessity," which resolved that the public interest and necessity required that Mesdaq's property be acquired through an exercise of the power of eminent domain, so that a planned 40,000-square-foot hotel could be erected on his and the adjoining properties. Three days later, the Agency filed a complaint in eminent domain with respect to Mesdaq's property. In concert with its complaint, the Agency deposited $3,091,000 as probable compensation for the property and requested an order for possession. After a hearing, the trial court denied Mesdaq's initial objections to the Agency's right to take his property and granted possession to the Agency. At Mesdaq's request, however, the court delayed actual transfer of title to allow Mesdaq to continue operating his business.

The court then held three separate trials with respect to the proposed taking: (1) a court trial regarding whether the Agency engaged in a "gross abuse of discretion" (§ 1245.255, subd. (b)) in adopting its resolution of necessity and whether the taking was for a public use; (2) a court trial regarding Mesdaq's request for precondemnation damages under Klopping v. City of Whittier (1972) 8 Cal.3d 39, 104 Cal.Rptr. 1, 500 P.2d 1345 (Klopping); and finally (3) a jury trial to determine "just compensation" for the taking of the property. At the conclusion of the first two proceedings, the trial court determined that the Agency had not engaged in a gross abuse of discretion; that the property was taken for a public use; and that the Agency had acted unreasonably by issuing a Polanco Act notice during precondemnation proceedings, and the jury could include damages for that conduct in calculating its compensation award. In the jury trial, Mesdaq was awarded $7,785,131.83 in compensation for the taking. The award consisted of: (1) loss of the fair market value of the property of $4,250,000; (2) loss of business goodwill of $3,361,208; (3) loss of furniture and equipment worth $96,100; and (4) precondemnation damages of $77,823.83. The trial court subsequently awarded Mesdaq attorney fees and costs in the amount of $1,230,714.41.

DISCUSSION
I

THE AGENCY'S APPEAL

A The Trial Court Erred by Riding That the Date of Valuation of the Property Was the Date of Trial

The Agency contends that the trial court improperly disregarded the statutory requirement that when probable compensation is deposited, the date of valuation for purposes of determining any compensation award is the date of the deposit, not the date of trial. We agree with the Agency under the authority of our Supreme Court's recent decision (ML San Jacinto, supra, 40 Cal.4th 648, 54 Cal.Rptr.3d 752, 151 P.3d 1166) and consequently reverse the jury's award of compensation to Mesdaq.

1. Applicable Statutory and Constitutional Principles

The starting point for any analysis of eminent domain law is the California Constitution which states in article I, section 19:

"Private property may be taken or damaged for public use only when just compensation, ascertained by a jury unless waived, has first been paid to, or into court for, the owner. The Legislature may provide for possession by the condemnor following commencement of eminent domain proceedings upon deposit in court and prompt release to the owner of money determined by the court to be the probable amount of just compensation."

The federal constitution also contains a provision regarding eminent domain, stating that private property shall not "be taken for public use, without just compensation." (U.S. Const., 5th Amend.)

The Legislature has promulgated a "comprehensive statutory scheme" to implement article I, section 19 of the California Constitution, known as the Eminent Domain Law. (Escondido Union School Dist. v. Casa Sueños De Oro, Inc. (2005) 129 Cal.App.4th 944, 959, 29 Cal.Rptr.3d 89 (.Escondido Union); § 1230.010 et seq.; cf. Mt. San Jacinto, supra, 40 Cal.4th at p. 656, 54 Cal.Rptr.3d 752, 151 P.3d 1166 ["There is a `strong presumption in favor of the Legislature's interpretation of a provision of the Constitution'"].)

The Eminent Domain Law delineates two different types of proceedings for the governmental taking of property. The first is a standard condemnation proceeding in which the public agency does not take possession and title to condemned property until after a jury has awarded just compensation; thus, the "taking" and the "compensation" are contemporaneous and occur at the conclusion of court proceedings. Until then, the property owner bears the risk of loss to the property. (Redevelopment Agency v. Maxwell (1961) 193 Cal.App.2d 414, 417-418, 14 Cal.Rptr. 170; § 1268.030.) The second procedure, a quick-take proceeding, allows a public agency to take possession of a condemned property and the property owner to obtain the probable compensation for that property well in advance of the termination of court proceedings. Under section 1255.010, a public entity may accomplish an early taking of property by making a deposit of the "probable amount of compensation" at any time prior to entry of judgment. The amount of the deposit must be based on an appraisal of an expert qualified to express an opinion as to the value of the property and must be supported by a written statement of, or summary of the basis for, the appraisal. (§ 1255.010, subd. (b).)2 After a deposit of probable compensation has been made, the court may order that possession of the property be transferred to the condemner, after considering any opposition from the owner of the property and making certain findings regarding the public entity's legal right to take the property and the relative hardships that would befall the parties were title not transferred until after legal proceedings are completed. (§ 1255.410.) Once the deposit is made, the property owner can apply to withdraw "all or any portion of the amount deposited," and the court "shall order the amount requested in the application, or such portion of that amount as the applicant is entitled to receive, 0to be paid to the applicant." (§§ 1255.210,1255.220.)

While the valuation date in standard condemnation proceedings "`is either the date of...

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