San Gabriel Valley Water Co. v. City of Montebello

• Decision Date: 18 April 1978
• Court: California Court of Appeals Court of Appeals
• Parties: SAN GABRIEL VALLEY WATER COMPANY, a California Corporation, Plaintiff, Respondent and Cross-Appellant, v. CITY OF MONTEBELLO et al., Defendants, Appellants and Cross-Respondents. Civ. 52264, Civ. 52265.

Page 830

148 Cal.Rptr. 830

84 Cal.App.3d 757

SAN GABRIEL VALLEY WATER COMPANY, a California Corporation, Plaintiff, Respondent and Cross-Appellant, v. CITY OF MONTEBELLO et al., Defendants, Appellants and Cross-Respondents.

Civ. 52264, Civ. 52265.

Court of Appeal, Second District, Division 2, California.

April 18, 1978.

[84 Cal.App.3d 760] J. Robert Flandrick, City Atty., and Dennis P. Burke, Williams & Sorenson, Los Angeles, for defendants, appellants and cross-respondents.

Beardsley, Hufstedler & Kemble, Burton J. Gindler and Evelyn S. Balderman, Los Angeles, for plaintiff, respondent and cross-appellant.

ROTH, Presiding Justice.

PRIOR PROCEEDINGS

Respondent and cross-appellant San Gabriel Valley Water Company ("the Company") filed its action in Los Angeles Superior Court against appellants and cross-respondents City of Montebello and the Montebello Community Redevelopment Agency (jointly, "the City") on May 15, 1974, seeking damages under Public Utilities Code sections 1503-04 and for injunctive relief restraining the City from imposing certain

conditions [84 Cal.App.3d 761] of approval for construction of new subdivisions within its confines. The injunctive relief sought was denied after hearing prior to the trial. Trial (1) as to the applicability of the sections and (2) as to damages was bifurcated by stipulation. The Company was awarded a judgment of $350,000 as just compensation for damage suffered as a result of the "taking" by the City of the Company's property under sections 1503-04 and the trial court having determined the action was one of inverse condemnation. The Company was also awarded its litigation expenses and attorney fees. The City appeals from the judgment against it; the Company cross-appeals claiming abuse of the trial court's discretion in its award of litigation expenses and City's fees

FACTUAL BACKGROUND

The Company initiated its water service as a privately owned utility in 1960 through acquisition of a mutual water company operating in certain areas of Montebello and thereafter until 1968 expanded the boundaries of its service area. By 1970 it had constructed facilities both within and without Montebello to meet requirements of customers within the service area. In 1967, the City purchased a small water system in the southern industrial portion of Montebello, outside the Company's service area and in 1972 acquired another privately owned utility whose system in part is adjacent to the Company's service area. Subsequent expansion and construction extended the City's service coverage within or adjacent to that served by the Company and the City instituted a policy whereby all new developments were required to take water service from the City as a condition of approval to coincident subdivision tract maps. The Company, maintaining it had been damaged by the City's actions, undertook the legal recourse described hereinabove.

ISSUES ON APPEAL

1. Establishing Valuation and Damages Under Public Utilities Code Sections 1503-04.

Public Utilities Code sections 1503-04 are part of comprehensive legislation (denominated The Service Duplication Law) enacted in 1965 based upon legislative findings that:

The Legislature recognizes the substantial obligation undertaken by a privately owned public utility which is franchised under the Constitution or by a certificate of public convenience and necessity to provide water service in that the utility must provide facilities to meet the present and prospective needs of those in its service area who may request service. At the same time, the rates that may be charged for water service by a regulated utility are fixed by the Public Utilities Commission at levels which assume that the facilities so installed will remain used and useful in the operation of the utility for a period of time measured by the physical life of such facilities.

The Legislature finds and declares that the potential loss of value of such facilities which may result from the construction and operation by a political subdivision of similar or duplicating facilities in the service area of such a private utility often deters such private utility from obtaining a certificate or extending its facilities to provide in many areas a water supply essential to the health and safety of the citizens thereof.

The Legislature further finds and declares that it is necessary for the public health, safety, and welfare that privately owned public utilities regulated by the state be compensated for damages that they may suffer by reason of political subdivisions extending their facilities into the service areas of such privately owned public utilities.

Those sections provide respectively:

" S 1503. ACT CONSTITUTING TAKING OF PRIVATE UTILITY'S PROPERTY FOR PUBLIC PURPOSE: CONSTITUTIONAL COMPENSATION

"The Legislature finds and declares that whenever a political subdivision constructs facilities to provide or extend water service, or provides or extends such service, to any service area of a private utility with the same type of service, such an act constitutes a taking of the property of the private utility for a public purpose to the extent that the private utility is injured by reason of any of its property employed in providing the water service being made inoperative, reduced in value or rendered useless to the private utility for the purpose of providing water service to the service area. . . ."

" S 1504. JUST COMPENSATION: FIXING BY AGREEMENT OR BY EMINENT DOMAIN PROCEEDINGS: POLITICAL SUBDIVISION'S AUTHORITY TO ACQUIRE PROPERTY, AND PAYMENT OF COMPENSATION

"Just compensation for the property so taken for public purposes shall be as may be mutually agreed by the political subdivision and the private utility or as ascertained and fixed by a court of competent jurisdiction pursuant to the laws of this state relating to eminent domain, including consideration of the useful value to the political subdivision of the property so taken.

"Whenever the compensation by a political subdivision under this section is an amount equal to the just compensation value of all the property of the private utility in the operating system that the private utility employs in providing water service to the service area, the political subdivision may, by resolution, provide for the acquisition of all such property.

"A political subdivision engaged in activities set forth in Section 1503 shall pay just compensation for the property so taken for public purposes."

The City challenges the award granted the Company, contending it was based on a method of valuation which should have been accorded little weight by the jury under instruction to that effect which the trial court declined to give. The Company's expert testified that in his opinion, damage resulting from the City's taking under the facts of the case could only be appropriately established through a method described as "reconstruction cost new less depreciation" ("RCNLD") whereby values are ascertained through cost factors of replacement of given facilities reduced by depreciation associated with those facilities as they exist at the time of valuation. In support of its challenge, the City relies on South Bay Irr. Dist. v. California-American Water Co. (1976) 61 Cal.App.3d 944, 133 Cal.Rptr. 166. We believe that case is, indeed, dispositive on the issue of valuation, though not in the City's favor. In South Bay, water company was the defendant in an eminent domain action wherein a division of its operation was sought to be taken in its entirety by plaintiff Irrigation District. The appellate court in a lengthy and well reasoned opinion made the following observations:

"The California Supreme Court, in the early case of Spring Valley W. W. v. Drinkhouse, 92 Cal. 528, 533, 28 P. 681, accepted the concept that the market value of property taken for public use equates 'just compensation' for the taking as the measure thereof in an eminent domain action; and is determined in view of all of the facts which would naturally affect its value in the minds of sellers and purchasers. In Sacramento, etc., R. R. Co. v. Heilbron, supra, 156 Cal. 408, 409, 104 P. 979, 980, the court gave definitive meaning to the measure theretofore approved and said: '(T)he rule is of universal acceptance that the measure of this damage is the market value; that is to say, the highest price estimated in terms of money which the land would bring if exposed for sale in the open market, with reasonable time allowed in which to find a purchaser, buying with knowledge of all of the users and purposes to which it was adapted and for which it was capable.'

" . . . br

"Market value as thus defined has been accepted and applied by the courts of California as the general rule governing the determination of just compensation in eminent domain actions (citations omitted) " . . .val

" . . . Thus, within the limits set by admissible opinion testimony of qualified experts, the jury or the court, premised on its evaluation of the evidence in the case, determines the price upon which the assumed knowledgeable buyer and seller would agree (citations omitted); in determining what factors would motivate them in reaching an agreement as to price, and in weighing the effect of their motivation, may rely upon the opinion of experts in the field and also upon its knowledge and experience shared in common with people in general (citation omitted); and draws its own conclusion of value by a process of balancing and reconciling the varying opinions on the subject (citation omitted). . . .

" . . .red

"The provisions of Evidence Code section 814, prescribing the foundational requisites to an opinion as to the value of property, sanction an opinion based on matters of a type that reasonably may be relied upon by an expert in forming such an opinion, including but not limited to the matters listed in sections 815-821, which, in substance, describe the appraisal trilogy consisting of three methods or...