San Diego Metropolitan Transit Development Bd. v. Handlery Hotel, Inc.

• Decision Date: 17 June 1999
• Docket Number: No. D029645,D029645
• Parties: , 99 Cal. Daily Op. Serv. 5577, 1999 Daily Journal D.A.R. 7081 SAN DIEGO METROPOLITAN TRANSIT DEVELOPMENT BOARD, Plaintiff and Respondent, v. HANDLERY HOTEL, INC. et al., Defendants and Appellants.
• Court: California Court of Appeals Court of Appeals

Page 473

86 Cal.Rptr.2d 473

73 Cal.App.4th 517, 99 Cal. Daily Op. Serv. 5577,

1999 Daily Journal D.A.R. 7081

SAN DIEGO METROPOLITAN TRANSIT DEVELOPMENT BOARD, Plaintiff and Respondent, v. HANDLERY HOTEL, INC. et al., Defendants and Appellants.

No. D029645.

Court of Appeal, Fourth District, Division 1, California.

June 17, 1999.

Kathryn Reimann, Monterey, and Susan S. Hinz, Redding, for Defendants and Appellants.

Best, Best & Krieger, Bruce W. Beach and Shawn D. Hagerty, San Diego, for Plaintiff and Respondent.

WORK, J.

Handlery Hotel, Inc. ¹ appeals a judgment pursuant to CODE OF CIVIL PROCEDURE SECTION 631.8² in favor of San Diego Metropolitan Transit Development Board (MTDB) in a condemnation proceeding where the trial court held Handlery was not entitled to compensation for its claims for loss of its business of operating the now defunct Stardust Golf Course and goodwill, allegedly the result of unreasonable

precondemnation conduct by MTDB that caused the landowners not to renew on a long-term basis Handlery's lease of the 200-acre course parcel. Handlery presents multiple challenges to the trial court's decision. However, as we shall explain, we conclude the trial court correctly ruled no de facto or inverse taking of Handlery's golf course business occurred, because it had no compensable property interest that was interfered with or taken and MTDB's precondemnation conduct was not unreasonable. Further, under the codified Eminent Domain Law (§ 1263.510), Handlery is not entitled to recover lost business goodwill. Accordingly, we affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

The Handlery Hotel in San Diego is a 217-room facility, with a swim and tennis club and a cinema, located on 15 acres of land Handlery owns in fee adjacent to Hotel Circle Drive North in Mission Valley. ³ Until June 30, 1994, Handlery held a long-term lease on the 200-acre golf course property, paying $500 per month and operating it out of its hotel facilities. ⁴ Handlery had developed and operated the 27-hole regulation course for more than 40 years at its own cost and expense. All the parking, access and amenities critical to operating the course were located on land owned by Handlery, as each 9-hole segment began and ended at the clubhouse located at the hotel site. However, all the tees, fairways or greens of the course were located on leased property.

The fee interest in the 200-acre golf course was owned equally by Chevron Corporation ⁵ and the Levi/Cushman families. In 1988, they formed a partnership known as Paseo Del Rio, Limited (PDR) to develop the property. Chevron acted as the general partner and sole source of capital and the Levi/Cushman families were limited partners. PDR paid between $2-5 million per year for a 99-year ground lease for the property. Receiving only $500 per month in revenue from the long-term lease with Handlery, the arrangement resulted in an annual loss to Chevron of approximately $2.5 million.

The public project for which MTDB sought permanent and temporary easements in the golf course property was the development of the Mission Valley West Light Rail Transit Extension. The project would extend the trolley 6.2 miles from Old Town to a point east of what is now Qualcomm Stadium. In late 1993, MTDB announced it would complete the project by the 1998 Super Bowl to be held at the stadium. That goal was met.

The part of the project at issue here is the Levi/Cushman or Riverwalk segment, which bisects the 200-acre property. Specifically, it cuts through the middle of the golf course on a large berm that is 30 feet in height in some places, but is compatible with the future development of the property as described in the Riverwalk Specific In late 1992 when Chevron's development plans were unclear, Chevron and Handlery began negotiations for a new lease of the golf course pending ultimate development. During these early discussions, Chevron informed Handlery it wanted more control over the golf course. Chevron had explored ways of operating the course without Handlery and discussed the possibility of using a new operator or of reconstructing the course away from Handlery's facilities. In addition, Chevron advised Handlery it needed to maximize revenue from the course and anticipated between $1.2 to $2 million in net profit from the course which it believed to be consistent with Handlery's past revenue from, and its future projections for, the course. ⁷ On September 20, 1993, Handlery provided Chevron with a written proposal for a 15-year lease to operate the course. Handlery proposed to pay $866,500 per year in rent, less $200,000 in property taxes to be paid by PDR, generating $666,500 in revenue to PDR. In November, Chevron rejected the proposal and informed Handlery it would not make a counteroffer because the parties were too far apart. In December, Chevron proposed a 5-year management contract to Handlery. However, on January 11, 1994, Chevron informed Handlery it was pursuing other options and intended to reconstruct the course away from Handlery's facilities.

                Plan. 6  By late 1992 and early 1993, the Plan was on hold due to the recession
                

Simultaneous with these negotiations, Chevron began discussions with MTDB regarding its project and its compatibility with the Riverwalk Plan. Each party wanted the other to start development first, thus shifting the cost of certain trolley related improvements to the initiating party. In other words, if MTDB went first, it would have to condemn the property and pay damages; if Chevron went first, it would have to dedicate property and waive damages. However, during 1993, concerned the Riverwalk Plan was not going forward, MTDB proceeded to consider a "trolley first" option. This scenario required MTDB to analyze the impact the trolley would have on the course, causing it to commence studying ways to reconstruct the course in a "like-for-like" manner leaving the property owners with a 27-hole regulation golf course. On Chevron's recommendation, MTDB hired Ted Robinson as the course architect, to prepare initial plans for a reconfigured course under the "trolley-first" option. These plans were oriented around the existing Handlery facilities.

In late 1993, after Robinson had completed his plans for MTDB, Chevron met with him and requested him to prepare plans for moving the location of the clubhouse away from Handlery property. A relocated clubhouse would provide Chevron with more flexibility.

By late 1993 and early 1994, Chevron had taken over the design of the reconfigured course; hired Robinson to assist in the plans for the new course; and envisioned a reconfigured course as a way to maximize income from the course and as a long-term solution to its problems regarding During this time period, MTDB did not deal directly with Handlery because it knew the long-term lease was expiring and the property owners intended to take control of the course. However, in 1994, MTDB discovered it needed to acquire Handlery's 5-acre parcel for environmental mitigation, flood control and course reconfiguration. ⁸ Handlery received a notice of appraisal and an offer from MTDB to purchase the 5-acre property. The parties met to discuss the project and the need for the acreage in February 1995. The following month, MTDB adopted a resolution of necessity to acquire the acreage from Handlery for the cited reasons. MTDB's action to condemn the parcel was filed later that month. ⁹

the property. By May 1994, Chevron had decided to relocate the clubhouse away from Handlery property. Upon learning of Chevron's plans and consistently thereafter, MTDB emphasized to Chevron that it would not be involved with relocating the clubhouse; that it would not pay for the relocation or an access road; and that Chevron/PDR would have to pay for the relocation. Nevertheless, Chevron elected to relocate the clubhouse and formally retained Robinson to prepare final plans to accomplish the task. Chevron's reconfigured course required an additional 15 acres of property not part of the original 200-acre course property. The additional 15 acres included a portion of the 5-acre property owned by Chevron and condemned by MTDB for its project, a portion of a parcel already owned by MTDB, and a portion of the 5-acre property owned by Handlery.

In early 1994, after Handlery learned Chevron was not going to enter a new long-term lease with it, the parties negotiated a temporary, 6-month lease to generate revenue from the course pending MTDB's development project. The new lease, effective on July 1, was constructed in light of MTDB's project, contained a condemnation clause and did not contain an automatic right of renewal. The parties negotiated several short-term extensions to the lease. These latter extensions were set to terminate as of the day of MTDB's possession.

MTDB filed its condemnation action to acquire the right-of-way across the course on November 3, 1994. On November 17, it obtained an order for possession of the course property, but did not take possession at that time. ¹⁰ After MTDB took possession of the course in July 1995, the course was reduced from 27 to 18 holes. In anticipation of MTDB's possession, Handlery and Chevron executed a July 6, 1995 amendment to the lease, prepared by Handlery, for the continued operation of the 18-hole course. The lease included a nonnegotiable waiver clause ¹¹ that provided Handlery then amended its answer to claim loss of business goodwill and precondemnation damages. In October 1996, MTDB unsuccessfully sought summary adjudication on the basis that Handlery had no compensable interests. The court then granted MTDB's request to bifurcate the trial and hear Handlery's claims first. On January 24, 1997, MTDB filed a series of stipulations. These agreements between MTDB and Chevron/PDR included a stipulation for judgment in which MTDB agreed to pay Chevron/PDR $9.719 million for its property and interests necessary for the...