San Diego Metropolitan Transit Development Bd. v. Cushman, D023829

Citation62 Cal.Rptr.2d 121,53 Cal.App.4th 918
Decision Date25 March 1997
Docket NumberNo. D023829,D023829
Parties, 97 Cal. Daily Op. Serv. 2196, 97 Daily Journal D.A.R. 3949 SAN DIEGO METROPOLITAN TRANSIT DEVELOPMENT BOARD, Plaintiff and Appellant, v. Stephen P. CUSHMAN et al., Defendants and Appellants.
CourtCalifornia Court of Appeals

Best, Best & Krieger, Bruce W. Beach and James B. Gilpin, San Diego, for Plaintiff and Appellant.

Procopio, Cory, Hargreaves and Savitch, Edward I. Silverman and James G. Sandler, San Diego, for Defendants and Appellants.

HALLER, Associate Justice.

In this eminent domain action, San Diego Metropolitan Transit Development Board (SMTDB) acquired a portion of a commercial parcel owned by Stephen P. Cushman, Stephen P. Cushman, Trustee, and Lawrence M. Cushman (collectively Cushman) for construction and operation of the Santee Light Rail Trolley Extension. At trial, the sole issue was the amount of severance damages, if any, owed to Cushman; the parties had settled the other components of just compensation as well as all other issues before trial. The jury awarded $322,217 in severance damages. SMTDB appeals from the judgment,

contending Cushman's expert presented improper valuation evidence. Cushman cross-appeals, contending the trial court erred in denying its motion for litigation expenses.

FACTUAL AND PROCEDURAL BACKGROUND

Cushman owned a five-acre parcel, which was improved with a thirty-three thousand two-hundred square-foot structure. The parcel is located on the northeast corner of the intersection of Marshall Avenue and Fletcher Parkway in El Cajon.

The Cushman property is zoned commercial, which requires one parking space for every 100 square feet of restaurant space and one parking space for every 300 square feet of retail space.

On April 13, 1993, SMTDB filed its complaint in eminent domain to acquire a fee taking of 6,425 square feet and a temporary construction easement of 3,005 square feet. SMTDB also deposited with the County Treasurer $91,770 as "just compensation" for the taking prayed for in the complaint.

On June 10, 1994, the parties exchanged Statements of Valuation Data. With respect to severance damages, Cushman valued the severance damages at $415,000, while SMTDB valued the permanent severance damages at $0.

On August 26, 1994, Cushman made a final demand for compensation of $355,000 and SMTDB made a final offer of compensation of $154,000.

At the date of valuation, Cushman leased the existing retail building to Levitz Furniture through the year 2009, with a five-year option. Before the condemnation, Cushman had submitted an application for a conditional use permit to the City of El Cajon to construct a 9,100-square-foot restaurant on the parcel.

Subsequently, the city issued the conditional use permit for the restaurant, which was constructed prior to the trial. Because of a grandfather provision for the retail building, the conditional use permit required a total of 173 parking spaces--82 to service the retail building and 91 to service the restaurant building. Otherwise, the zoning ordinance would have required 202 parking spaces. As of the date of valuation, there were 228 parking spaces on the Cushman parcel or 26 more spaces than required for the retail building and the restaurant.

Under the zoning ordinance, the 26 extra parking spaces would have allowed Cushman to expand the retail building by 7,800 square feet (26 X 300 = 7,800).

Cushman's experts testified that the highest and best use of the property was to develop the commercial retail space to its maximum capacity, which would mean the retail building would be expanded from 33,200 square feet to 41,000 square feet (33,200 + 7,800 = 41,000).

Cushman's experts opined that expansion capacity affects valuation because larger projects will appeal to more retailers, thereby giving owners greater flexibility in leasing the space.

According to Cushman's experts, the taking would eliminate 13 parking spaces under the zoning ordinance. The effect of this reduction in the number of parking spaces would be to cut in half the potential expansion of the retail building to 3,900 square feet (13 X 300 = 3,900). In other words, based on available parking requirements, before the taking the retail building could be expanded by 7,800 square feet while after the taking the expansion figure would be only 3,900 square feet.

Howard Berkson, Cushman's appraiser, opined a 7,800-square-foot addition was physically possible, legally permissible and financially feasible. Berkson, who determined the fair market value of the property before the taking using the comparable sales approach and the income approach, opined the income approach provided the better indication of value.

Under the income approach, Berkson determined the fair market value of the property at $6,929,000 in the before condition with full expansion capacity and at $6,509,500 in the after condition with one-half expansion capacity. The difference between the two numbers was computed to $419,500--Berkson's Under the income approach, Berkson determined the fair market value of the property at $6,929,000 in the before condition with full expansion capacity and at $6,509,500 in the after condition with one-half expansion capacity. The difference between the two numbers was computed at $419,500--Berkson's severance damages using the income approach.

severance damages using the income approach.

SMTDB's appraiser valued the severance damages at zero.

The jury awarded Cushman $322,217 as severance damages. Judgment was entered in favor of Cushman in the amount of $415,797: $93,580 for settlement of all just compensation claims other than permanent severance damages and $322,217 for severance damages.

The trial court denied Cushman's motion for litigation expenses.

DISCUSSION
I. SMTDB's Appeal

SMTDB contends Berkson's valuations of severance damages were admitted in error because they were based on a speculative future use and improperly used a specific plan of development to project future income. SMTDB also attacks Berkson's income-approach valuation as improperly utilizing capitalization of hypothetical income from a nonexisting improvement; SMTDB claims his approach was derived from the unfavored developer's approach methodology.

Legal Overview

An owner is entitled to just compensation for property taken for public use. (Cal. Const., art. I, § 19; U.S. Const., 5th Amend.; CODE CIV. PROC., § 1263.0101.) " 'The principle sought to be achieved by this concept [of just compensation] "is to reimburse the owner for the property interest taken and to place the owner in as good a position pecuniarily as if the property had not been taken." ' " (People ex rel. Dept. of Water Resources v. Andresen (1987) 193 Cal.App.3d 1144, 1163, 238 Cal.Rptr. 826.)

The measure of just compensation is the fair market value of the property (§ 1263.310), defined as "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), italics added.)

Fair market value is the highest and best use for which the property is geographically and economically adaptable. (City of Los Angeles v. Decker (1977) 18 Cal.3d 860, 867, 135 Cal.Rptr. 647, 558 P.2d 545.)

Once the highest and best use of the property is determined, one of several approaches to valuation must be selected. Evidence Code sections 815-820 set forth various methodologies sanctioned for use by valuation experts, including considering sales contracts of comparable properties (Evid.Code, § 816) and capitalizing income from the subject land and its existing improvements (Evid.Code, § 819).

Where there is only a partial taking, compensation must be given for damage, if any, to the remaining property in addition to compensation for the taking. (Cal. Const., art. I, § 19 ["Private property may be taken or damaged for public use only when just compensation ... has first been paid ...." (italics added) ]; U.S. Const., 5th Amend.; § 1263.410, subd. (a).) Such severance damages are compensation for injury to the remainder in a partial taking. (§ 1263.410, subd. (a).) 2

Severance damages, which are measured by the damage to the remainder reduced by any benefit to the remainder (§ 1263.410, subd. (b)), represent the diminution in the market value of the remaining portion of property. (Colusa & Hamilton R.R. Co. v. Leonard (1917) 176 Cal. 109, 112, 167 P. 878.) Severance damages consist of the difference in value of the remaining part before and after the taking. (City of San Diego v. Neumann (1993) 6 Cal.4th 738, 745, 25 Cal.Rptr.2d 480, 863 P.2d 725; San Diego Gas & Electric Co. v. Daley (1988) 205 Cal.App.3d 1334, 1345, 253 Cal.Rptr. 144.) In other words,

"The value of the remaining property taken as a part of the whole, described as the 'before condition,' must be compared with the value that portion has as a result of the take and the construction of the improvement in the manner proposed, described as the 'after condition.' Damages are computed simply by subtracting the market value of the remainder in its after condition from the market value of the remainder in its before condition." (Condemnation Practice in Cal. (Cont.Ed.Bar (1995)) Severance Damages, § 5.9, p. 198.)

Were the Severance Damages Improperly Based on Speculation?

Relying on venerable case law that denounces speculative damages (see, e.g., Oakland v. Pacific Coast Lumber, etc., Co. (1915) 171 Cal. 392, 400, 153 P. 705; Sacramento, etc., R.R. Co. v. Heilbron (1909) 156 Cal. 408, 410-412, 104 P. 979), SMTDB...

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