San Diego Gas & Elec. Co. v. Schmidt

• Decision Date: 14 August 2014
• Docket Number: D062671
• Court: California Court of Appeals Court of Appeals
• Parties: SAN DIEGO GAS & ELECTRIC COMPANY, Plaintiff and Appellant, v. Arnold J. SCHMIDT, as Cotrustee, etc., et al., Defendants and Appellants; Valerie Schmidt, as Cotrustee, etc., Defendant and Respondent. San Diego Gas & Electric Company, Plaintiff and Appellant, v. Arnold J. Schmidt et al., Defendants and Appellants.

228 Cal.App.4th 1280

175 Cal.Rptr.3d 858

SAN DIEGO GAS & ELECTRIC COMPANY, Plaintiff and Appellant,

v.Arnold J. SCHMIDT, as Cotrustee, etc., et al., Defendants and Appellants;

Valerie Schmidt, as Cotrustee, etc., Defendant and Respondent.

San Diego Gas & Electric Company, Plaintiff and Appellant,

v.Arnold J. Schmidt et al., Defendants and Appellants.

D062671

Court of Appeal,

Fourth District, Division 1, California.

Filed July 21, 2014

As Modified August 14, 2014

See 8 Witkin, Summary of Cal. Law (10th ed. 2005) Constitutional Law, § 1223 et seq.

APPEAL and cross-appeal from a judgment and orders of the Superior Court of San Diego County, Timothy B. Taylor, Judge. Affirmed in part and reversed in part. (Super. Ct. No. 37–2010–00094931–CU–EI–CTL) (Super. Ct. No. 37–2010–00094934–CU–EI–CTL)

San Diego Gas & Electric Company and C. Larry Davis; Horvitz & Levy, John A. Taylor, Jr., Daniel J. Gonzalez; Bartz Law Firm and Linda D. Bartz for Plaintiff and Appellant.

Rutan & Tucker, David B. Cosgrove, Alan B. Fenstermacher; Niddrie Fish & Adams and David A. Niddrie for Defendants and Appellants and for Defendant and Respondent.

McINTYRE, J.

Plaintiff San Diego Gas & Electric Company (SDG&E) initiated this eminent domain proceeding to condemn an easement for electric transmission lines across the property of defendants Arnold and Valerie Schmidt and Luis Naranjo after the parties could not agree on an appropriate valuation for the property. Agreeing with the property owner's experts that an open-pit mining operation was the “highest and best use” for the land, the jury valued the property at about $8 million. SDG&E appeals, contending the judgment and order denying its motion for judgment notwithstanding the verdict (JNOV) must be reversed. SDG&E argues that the evidence was legally insufficient to support the jury's verdict. SDG&E also contends it is entitled to a new trial because the trial court abused its discretion in (1) limiting the cross-examination of an appraisal expert and (2) allowing the appraiser to testify in violation of Evidence Code section 819. Arnold Schmidt and Luis Naranjo (together defendants) cross-appeal, asserting the trial court erred in denying their request for litigation expenses under Code of Civil Procedure section 1250.410. (Undesignated statutory references are to the Code of Civil Procedure.) We reject SDG&E's arguments and affirm the judgment and order denying JNOV. We reverse the order denying defendants' motion for litigation expenses.

GENERAL FACTUAL AND PROCEDURAL BACKGROUND

SDG&E filed two complaints for condemnation, one for each of two contiguous parcels of vacant land owned by defendants, and over which it required easements for its Sunrise Powerlink Transmission Project. Defendants' property totals 115 acres and is located near Highway 67 in the Lakeside area of San Diego County (the County). The easements included 300–foot wide corridors on which SDG&E erected transmission towers, power transmission lines and transmission supply access pads. On June 25, 2010, SDG&E deposited the probable compensation for the property, establishing this date as the “date of valuation” for a final determination of just compensation. (§ 1263.110, subd. (a).)

Because the parties could not agree on the amount of just compensation to which defendants were entitled, the case proceeded to trial on this issue. Before trial, the court denied SDG&E's in limine motions to exclude the testimony of defendants' experts. At trial, the jury heard evidence from SDG&E's real estate appraiser that residential development or habitat mitigation was the highest and best use for defendants' land. SDG&E concluded that $712,200 constituted just compensation for the property. SDG&E's appraiser assumed it was physically possible to mine the property and that such use would be legally permissible upon the issuance of a major use permit (MUP), but did not assess the probability of defendants obtaining a MUP to mine the property and had no opinion on the likelihood of defendants' obtaining such a permit.

Defendants believed that the highest and best use for their land before SDG&E's taking was a granite mining operation. Briefly, defendants' mining expert, Warren Coalson, opined that a “very competitive aggregate environment” existed in San Diego and “there would be takers” if the property were offered for mining as existing sites would be depleted in the next few years. The property was zoned for mining and defendants presented evidence that it was sandwiched on both the north and south by properties owned by a mining operator, Hanson Aggregates (Hanson), that held about 950 acres in that area. Hanson had previously approached defendants about leasing the property for mining, but these discussions ended as a result of SDG&E's taking of the property. Vincent Scheidt, defendants' biological expert, performed a biological survey of defendants' property. Scheidt stated an issue existed regarding the removal of coastal sage scrub from the property for the mining operation, but this issue would arise for any type of development and could be addressed through the purchase of mitigation credits.

Defendants also presented Orell Anderson, a real estate appraiser experienced in appraising property for mining. For appraisal purposes, Anderson stated that defendants' parcels had a unity of use such that they should be viewed together in determining their highest and best use. He testified that appraisers use four tests to determine the highest and best use for a property; namely, whether a use is physically possible, legally permissible, economically feasible and maximally productive. After applying all four tests to the property in its before condition and consulting with other experts, including Coalson and Scheidt, Anderson concluded that the highest and best use of the property would be to lease it for aggregate mining.

Anderson testified that a MUP was required to mine the property and that the property did not have such a permit, but it was legally permissible to obtain such a permit. Using a discounted cash flow method, Anderson determined the value of the property based on the present value of the property's projected rental income stream from mineral royalties. Using this method, Anderson opined the “before condition” value of the subject property was $10,359,000, the value of the “part taken” was $1,877,000, and the severance damages were $6,622,000. The total just compensation was $8,499,000.

The jury returned a verdict close to Anderson's figures. The jury agreed with Anderson regarding the value of the land in the before condition and the value of the part taken, but lowered the severance damages to $6,157,000, resulting in total compensation to defendants of $8,034,000.

SDG&E moved for new trial and JNOV, arguing that substantial evidence did not support the verdict. It also argued that the trial court improperly limited the testimony of its appraiser and cross-examination of defendants' appraiser. In a lengthy ruling, the trial court denied both motions. The trial court found Coalson credibly testified that the County was running out of aggregate mines, the location minimized likely opposition and permit processing time on other mines has been shorter than what SDG&E predicted for this theoretical mine. The court concluded that the evidence supported the verdict, specifically noting that Coalson's opinions “were unchallenged by SDG&E due to its fatal strategic error in not naming a mining expert of its own.”

SDG&E timely appealed from the judgment and the denial of JNOV. Defendants timely appealed from the order denying their motion for litigation expenses.

DISCUSSION

I. SDG&E' s Appeal

A. Legally Sufficient Evidence Supported the Jury's Verdict

1. General Legal Principles

Owners of private property taken for public use are entitled to just compensation for the full monetary equivalent of the property as of the date of the taking. (Almota Farmers Elevator & Warehouse Co. v. United States (1973) 409 U.S. 470, 473, 93 S.Ct. 791, 35 L.Ed.2d 1.) If possible, owners should be placed in the same monetary position they would have been without the taking. (United States v. Reynolds (1970) 397 U.S. 14, 16, 90 S.Ct. 803, 25 L.Ed.2d 12.) The measure of just compensation to be awarded for the property taken is the fair market value of that property (§ 1263.310), meaning “the highest price on the date of valuation that would be agreed to by a seller, being willing to sell but under no particular or urgent necessity for so doing, nor obliged to sell, and a buyer, being ready, willing, and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available.” (§ 1263.320, subd. (a).)

The jury determines the fair market value of the property based on the highest and best use for which the property is geographically and economically adaptable. (San Diego Metropolitan Transit Development Bd. v. Cushman (1997) 53 Cal.App.4th 918, 925, 62 Cal.Rptr.2d 121 (Cushman ); CACI No. 3502.) Section 501 of the State Board of Equalization Assessors' Handbook (Handbook) states that “[h]ighest and best use is perhaps the most fundamental concept in real estate appraisal.” (Handbook, § 501 at p. 48.) The highest and best use is defined as “that use, among the possible alternative uses, that is physically practical, legally permissible, market supportable, and most economically feasible.... The appraiser must make a determination of highest and best use as part of the appraisal process.” ( Ibid.; see 11 Miller & Starr, Cal. Real Est. (3d ed. 2011) § 30A:25, pp. 55–56 (Miller & Starr).) Courts may rely upon assessor handbooks in the interpretation of valuation questions. (Prudential Ins. Co. v. City and County of San Francisco (1987) 191 Cal.App.3d 1142, 1155, 236 Cal.Rptr. 869.)

The highest and best use for which...