San Diego Gas & Electric Company v. Schmidt (2014) · DecisionDepot
San Diego Gas & Electric Company v. Schmidt
California Court of Appeal Aug 14, 2014 No. D062671Published
Filed 7/21/14 Modified 8/14/14; Certified for Publication 8/13/14 (orders attached)
COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA
SAN DIEGO GAS & ELECTRIC D062671 COMPANY, Plaintiff and Appellant, (Super. Ct. No. v. 37-2010-00094931-CU-EI-CTL) ARNOLD J. SCHMIDT, as Cotrustee, etc., et al., Defendants and Appellants; VALERIE SCHMIDT, as Cotrustee, etc., Defendant and Respondent.
SAN DIEGO GAS & ELECTRIC COMPANY, (Super. Ct. No. 37-2010-00094934-CU-EI-CTL) Plaintiff and Appellant, v. ARNOLD J. SCHMIDT et al., Defendants and Appellants.
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. 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.
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 (collectively
defendants) after the parties could not agree on an appropriate valuation for the property.
Agreeing with defendants' 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
defendants' appraisal expert and (2) allowing the appraiser to testify in violation of
Evidence Code section 819. Defendants cross-appeal, asserting the trial court erred in
question contained two layers of hearsay: (1) the conversation Valdez had with Coalson
and (2) the note written by Valdez about the conversation. The second layer of hearsay
falls within the business records exception to the hearsay rule. (Evid. Code, § 1271.)
SDG&E, however, has not explained how the conversation Valdez had with Coalson fell
within an exception to the hearsay rule. Moreover, SDG&E had Valdez under subpoena
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and could have called him as a witness. Alternatively, it could have asked Coalson
directly about his comment to Valdez.
II. Defendants' Cross-Appeal regarding Litigation Expenses
A. Additional Facts
The parties exchanged their final offer and demand for settlement with SDG&E
offering $829,000 and defendants demanding $5.5 million. By the eve of trial, SDG&E
increased its offer to $954,000 and defendants lowered their demand to $4.5 million. The
jury determined that SDG&E owed defendants just compensation of $8,034,000.
Defendants moved to recover their litigation expenses under section 1250.410, seeking
about $656,839 in expert fees and attorney fees and about $19,504 in costs. The trial
court found defendants' demand was reasonable, but denied the motion as it could not say
SDG&E's final offer was unreasonable. The court stated the following:
"[G]iven the complexity of mining and obtaining permission to mine, it remains possible that even without its own expert SDG&E felt that it could undermine Coalson's opinions sufficiently that the jury would reject them. The fact that SDG&E failed to do so via cross examination or otherwise is really "Monday morning quarterbacking." Thus, as in San Diego Metropolitan Transit Development Board v. Cushman[] (1997) 53 Cal.App.4th 918, it was not unreasonable for SDG&E to 'stick[] fast to its legal theory' that the [highest and best use] of the subject property was its current [highest and best use] and that [defendants'] proposed new mining use was speculative and conjectural. This was a reasonable position, albeit one which ultimately failed in execution."
B. General Legal Principles and Standard of Review
Section 1250.410 provides for the pretrial exchange of a final offer of
compensation by the plaintiff in an eminent domain action and a final demand for
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compensation by the defendant. "These offers and demands shall be the only offers and
demands considered by the court in determining the entitlement, if any, to litigation
expenses." (§ 1250.410, subd. (a).) If the court finds plaintiff's offer unreasonable and
defendant's demand reasonable when "viewed in the light of the evidence admitted and
the compensation awarded in the proceeding," the costs allowed shall include the
The purpose of section 1250.410 is to encourage settlement of condemnation
actions "using a carrot-and-stick approach: the party whose offer is reasonable can be
awarded costs and attorney fees from the party whose offer was unreasonable." (Filbin v.
Fitzgerald (2012) 211 Cal.App.4th 154, 168; People ex rel. Dept. of Transportation v.
Yuki (1995) 31 Cal.App.4th 1754, 1763 (Yuki).) Before the trial court can award
litigation expenses to the property owner, it must find both that the property owner's
demand was reasonable and that the agency's offer was unreasonable. (Inglewood
Redevelopment Agency v. Aklilu (2007) 153 Cal.App.4th 1095, 1117.)
Several guidelines exist to help determine the reasonableness of an offer or
demand, namely (1) the amount of the difference between the demand or offer and the
compensation awarded, (2) the percentage of difference between the demand or offer and
the award, and (3) the good faith, care and accuracy with which the demand or offer was
calculated. (Los Angeles County Metropolitan Transportation Authority v. Continental
Development Corp. (1997) 16 Cal.4th 694, 720.) The mathematical relation between the
highest offer and the ultimate award is only one factor entering into the trial court's
determination; accordingly, our high court has disapproved any pronouncement
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purporting to find unreasonableness as a matter of law based purely on mathematical
disparity. (Id. at pp. 720-721.)
"The trial court's determination of [reasonableness] will not be disturbed on appeal
if supported by substantial evidence." (Redevelopment Agency v. Gilmore (1985) 38
Cal.3d 790, 808.) We do not reweigh the evidence presented, but consider the validity of
the trial court's decision in light of the evidence presented on the relevant factors. (Yuki,
supra, 31 Cal.App.4th at p. 1763.) " 'The measure of reasonableness is in the first
instance a factual matter for the trial court,' unless 'the uncontradicted evidence permits
only one conclusion . . . .' [Citation.]" (Id. at p. 1765; Tracy Joint Unified School Dist. v.
Pombo (2010) 189 Cal.App.4th 889, 895 (Pombo) [same]; People ex rel. Dept. of
Transportation v. Acosta (2009) 178 Cal.App.4th 762, 775 [same].) After reviewing the
case law, the Pombo court noted that "where relief was denied though numerical
comparisons favored an award of expenses, the third factor pointed forcefully in the
opposite direction." (Pombo, supra, at pp. 897-898.)
C. Analysis
The trial court found defendants' final $5.5 million settlement demand was
reasonable and SDG&E does not challenge this finding. We agree that defendants' final
demand and their later pretrial demand of $4.5 million were reasonable in the light of the
evidence admitted at trial and the compensation ultimately awarded by the jury. Thus,
we focus our analysis on whether SDG&E's final $829,000 settlement offer (later
increased to $954,000) was reasonable in light of the evidence admitted at trial and the
compensation awarded. SDG&E's final offers were about $7.1 million less than the
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verdict and amounted to about 11 percent of the verdict. Additionally, SDG&E's final
offers were mere token increases from its ultimate valuation of $712,200. Based on pure
mathematics, SDG&E's final offers were seemingly unreasonable.
We turn to the good faith, care and accuracy in how SDG&E determined the
amount of its final offer. On this issue, defendants argue that SDG&E's appraiser never
investigated mining as a highest and best use or seriously analyzed the mining use issue.
Instead it chose to adhere to its appraisal of the property as a residential development.
SDG&E asserts it acted in good faith because a fundamental disagreement existed
between the parties over what was to be valued and, as the trial court found, it did not act
unreasonably when it stuck to its legal theory regarding the highest and best use of the
property. We cannot uphold the trial court's determination that SDG&E's offer was
reasonable as the undisputed facts show only one conclusion was possible.
Defendants' evidence revealed that their property is located in a mining area and
contained a large amount of very high quality material that could be mined for
construction aggregate. They also presented evidence that the County's supply of
construction aggregate was low and that the future demand for this material and new
mining locations would be high. SDG&E presented absolutely no contrary evidence.
Dating back to 1890, our high court recognized that a prospective mining claim has a
market value and that witnesses should be permitted to testify as to their opinion and
judgment of its value. (Montana Railway Co. v. Warren (1890) 137 U.S. 348, 352.)
Stated differently, it is well established that the existence of mineral resources on
condemned property impacts the market value of land and is properly considered in
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fixing the compensation for the taking of property in condemnation proceedings. (Ante,
Part, I.A.1.) Moreover, the propriety of using the income approach, including the
capitalization of royalties and discounting them to determine the present worth of
projected future income as a method of valuing undeveloped natural resources, while
complex and necessarily speculative, is far from an issue of first impression. (Ante, Part,
I.A.3.) Finally, as our earlier discussion shows, SDG&E's challenges to defendants'
appraisal method went to the weight of the evidence, not its admissibility. (Ante, Part,
I.B.2 & 3.)
SDG&E's appraiser valued defendants' property by reviewing comparable sales,
but there is no evidence that these "comparable" properties contained an undeveloped
granite resource similar to that found on defendants' property. Rather, SDG&E's
appraiser testified he had no knowledge whether the comparable properties had over 100
acres of granite. He was not aware whether any of the comparable properties bordered
mining property, were the subject of discussion for a potential mine lease or had core
samples drilled. In contrast, Anderson testified he could not use the comparable sales
approach to value defendants' land as he found only one comparable property with
construction aggregate reserves and this was insufficient to conduct a sales comparison
approach evaluation analysis.
Counsel for SDG&E stated that the $125,000 difference in the final offer and later
pretrial offer reflected that "an investor might 'pay a little more' for the property" based
on the speculative mining use. It is unclear how SDG&E came up with this number as its
appraiser never considered the mining potential of the property. SDG&E's last minute
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addition of $125,000 to its final offer appears completely arbitrary, meaning it lacked
care and accuracy, as it ignored Anderson's appraisal of the property. This increase is not
evidence of SDG&E's good faith willingness to compromise on the question of value;
rather, it reflected a take-it-or-leave-it attitude contrary to the spirit of compromise
implicit in the statutory scheme.
We disagree with the trial court's assessment that similar to the condemning
agency in Cushman, SDG&E merely stuck to a reasonable legal theory that it failed to
execute. In Cushman, the parties' numerical valuations differed because they disagreed
on the "the purely legal issue of whether any severance damages [were] owed."
(Cushman, supra, 53 Cal.App.4th at p. 933.) As such, the appellate court concluded the
trial court justifiably gave the good faith factor greater importance as "a condemning
agency [need not] compromise its legal position just to avoid litigation." (Ibid.)
Here, the dispute centered on the highest and best use of the property, a factual
issue. (Cushman, supra, 53 Cal.App.4th at p. 925.) Accordingly, SDG&E was not called
upon to compromise a "legal position" to avoid litigation. Instead, SDG&E was required
to exercise good faith, care and accuracy regarding a factual matter. On this point, the
evidence presented at trial does not favor SDG&E as its shows SDG&E failed to give
defendants' contrary appraisal any serious consideration. SDG&E presented the
declaration of another appraiser in opposition to defendants' motion for litigation
expenses who concluded mining the property was unlikely due to numerous hurdles
defendants would need to overcome such as environmental restraints, regulatory issues,
lack of adequate water, traffic and access concerns and public opposition. The statute,
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however, requires a court to evaluate the reasonableness of an offer in "light of the
evidence admitted" at trial. (§ 1250.410, subd. (b).) SDG&E did not present this
evidence at trial. In any event, even if we were to consider the declaration of this second
appraiser, the appraiser advised SDG&E regarding the "credibility and defensibility [of
the opinions of defendants' experts]." These are factual matters that SDG&E could have
(and should have) presented evidence on at trial. This declaration does not support
SDG&E's implied suggestion that it carefully researched defendants' claimed highest and
best use or the propriety of defendants' valuation method.
In summary, we conclude that the undisputed facts show SDG&E's final offer of
compensation was unreasonable when viewed in the light of the evidence admitted and
the compensation awarded in the proceeding. Accordingly, the trial court erred in
denying defendants' motion for litigation expenses.
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DISPOSITION
The judgment is affirmed. The court's order denying appellant's JNOV motion is
affirmed. The order denying respondents' request for litigation expenses is reversed and
the matter is remanded to the trial court to grant the motion and award defendants their
reasonable litigation expenses under section 1250.410. Respondents are awarded their
costs on appeal.
MCINTYRE, J.
WE CONCUR:
HUFFMAN, Acting P. J.
IRION, J.
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Filed 8/14/14 CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA
SAN DIEGO GAS & ELECTRIC D062671 COMPANY,
Plaintiff and Appellant, (Super. Ct. No. 37-2010-00094931-CU-EI-CTL) 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, (Super. Ct. No. Plaintiff and Appellant, 37-2010-00094934-CU-EI-CTL)
v. ORDER MODIFYING OPINION
ARNOLD J. SCHMIDT et al., NO CHANGE IN JUDGMENT
Defendants and Appellants.
THE COURT:
It is ordered that the opinion filed herein on July 21, 2014, and certified for
publication on August 13, 2014, be modified as follows:
1. On page 2, the first full paragraph, beginning "Plaintiff San Diego Gas" is deleted and the following paragraph is inserted in its place:
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.
2. On page 39, the full paragraph entitled "Disposition" is deleted and the following paragraph is inserted in its place:
The judgment is affirmed. The court's order denying SDG&E's JNOV motion is affirmed. The order denying defendants' request for litigation expenses is reversed and the matter is remanded to the trial court to grant the motion and award defendants their reasonable litigation expenses under section 1250.410. Defendants are awarded their costs on appeal.
There is no change in the judgment.
MCINTYRE, Acting P. J.
Copies to: All parties
2
Filed 8/13/14 COURT OF APPEAL - STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION ONE
SAN DIEGO GAS & ELECTRIC COMPANY, Plaintiff and Appellant, v. ARNOLD J. SCHMIDT, Individually and as Trustee, etc. et al., Defendants and Appellants; VALERIE SCHMIDT, as Trustee, etc., Defendant and Respondent. D062671 San Diego County No. 37-2010-00094931-CU-EI-CTL San Diego County No. 37-2010-00094934-CU-EI-CTL
THE COURT:
The opinion filed July 21, 2014, is ordered certified for publication.
MCINTYRE, Acting P. J.
cc: All Parties
AI Brief
AI-generated · verify before citing
Holding. The court held that the jury's verdict was supported by substantial evidence, as the defendants properly used the income approach to value the property based on its highest and best use as a mining operation. Additionally, the court held that the trial court erred in denying the defendants' motion for litigation expenses under Code of Civil Procedure section 1250.410.
Issues
Whether the evidence was legally sufficient to support the jury's verdict regarding the property's highest and best use and valuation.
Whether the trial court abused its discretion in limiting the cross-examination of the defendants' appraisal expert and allowing testimony in violation of Evidence Code section 819.
Whether the trial court erred in denying the defendants' request for litigation expenses under Code of Civil Procedure section 1250.410.
Disposition. Affirmed in part and reversed in part.
Quotations verified verbatim against the opinion
“The right to future exploitation of undeveloped natural resources has a present and ascertainable value for purposes of eminent domain.”
“We reject SDG&E's arguments and affirm the judgment and order denying JNOV. We reverse the order denying defendants' motion for litigation expenses.”
“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.”