Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Imperial County No. ECU02179, Joseph W. Zimmerman, Judge.
HUFFMAN, J.
In these eminent domain actions, the City of El Centro (City) and County of Imperial (County; together Appellants) each sought to obtain title to adjacent portions of land owned by respondents Ralph and Sharon Menvielle (Respondents), for a street widening project. (Cal. Const., art. I, § 19.) In 2004, Appellants each deposited funds representing their estimates of the probable amount of just compensation for the right of way easements. (Code Civ. Proc., § 1255.010 et seq.; all further statutory references are to the Code of Civil Procedure unless noted.) The two actions were consolidated for trial and a jury determined the amounts of just compensation, which were not much larger than the deposits made by Appellants ($1,000 higher for the City and $7,000 higher for the County).
Subsequently, Respondents brought a motion for an award of litigation expenses. (§§ 1250.410, 1235.140.) Respondents argued that Appellants had made no pretrial final offer as anticipated by this section, instead relying solely on their initial deposit, and that Respondents' July 2006 demand for compensation was reasonable, and justified an award to them of litigation expenses. The trial court granted the motion, awarding $14,501.53 costs and expenses, and $66,470.25 attorney fees, for a total of $80,971.78.
Appellants now contend the trial court abused its discretion by awarding litigation expenses to Respondents, since the order is based on a misinterpretation of the statute and is not supported by substantial evidence. We agree and reverse the order.
FACTUAL AND PROCEDURAL BACKGROUND
A. Property and Proceedings
The subject property is a roadside strip of land, spanning the City-County border, and was used by Respondents as a truck access to their commercial scales operation. Their total parcel was almost 10 acres in size. In late 2004, Appellants each offered to buy and then prepared the appropriate resolutions to acquire the property from Respondents, as well as from other adjacent owners. (Only Respondents are parties to this appeal, as the others settled their disputes.) The property would be used to widen both streets at an intersection nearby the Imperial Valley Mall development that was scheduled to open in 2005, and work in the area was already ongoing.
In 2004, Appellants filed their respective complaints in eminent domain, utilizing the same law firm, and the actions were consolidated. In October 2004, Appellants each deposited probable compensation, in connection with their applications for three-day orders of possession under the "quick-take" statutory scheme. (See §§ 1255.010 et seq., 1255.410.) The portion sought to be taken by the City was approximately 4,221 square feet in size (10 feet by 422.1 feet). The City's deposit was $25,500. The portion sought to be taken by the County was 22,200 square feet, and each was located along the northern boundaries of Respondents' property. The County's deposit was $133,500. Both amounts were based on the appraisals and declaration by Appellants' appraiser, Darrell Dotson of the Ericksen firm. He stated that the parcel was zoned for manufacturing or commercial use (M2, Imperial County). He assumed the parcel could be evaluated for commercial use and utilized a sales comparison approach to value the parcels, as of July 2004. The total deposit by Appellants was $159,000 (same as the prelitigation offers).
In April 2005, Respondents obtained their own appraisal, prepared by William Smith, who stated that he also used the comparable sales or market data approach. He noted that the property was zoned for industrial use (M2, Imperial County), which included wholesale commercial or manufacturing uses, but he assumed that it could properly be appraised as commercial land. He evaluated the entire 9.98 acres at approximately $4.9 million market value before taking, or $11.50 per square foot. He therefore estimated that the City portion should be valued at $48,542, as of December 2004. He estimated the County portion to be valued at $255,300. The total by his figures was $303,842.
In July of 2005, Respondents withdrew the deposits after application to the court.
Due to the large discrepancy between the two sets of estimates, the parties agreed that the City would retain a third appraiser, John Ellis, to review the two reports and to analyze the property. The parties would then attempt further negotiations regarding just compensation, based upon the three reports. In March 2006, Ellis issued his report, which found that Appellants' amounts were closer to the true value as he determined it. Specifically, he questioned whether it was correct for both sets of appraisers to assume commercial use was appropriate (not industrial) and to make an allowance upward for the beneficial influence of the mall project under construction. He believed that industrial property should have been used for comparable sales, due to zoning requirements.
However, assuming that commercial use prospects should properly be considered, Ellis concluded that the Smith report had nevertheless made an excessive allowance on this factor. He also criticized the Smith report for using some inappropriate comparable properties (too small and in too narrow of an area), and for some errors in reporting sales prices. As noted, he also believed both appraisers had failed to take into account the correct zoning requirements. Ellis adjusted the value of the property for the passage of time and concluded that the City's parcel was worth approximately $26,500. The County's parcel was worth approximately $140,500. He concluded that both sets of appraisals had placed too high a value on the price per square foot, and noted that comparable larger parcels had sold for somewhere around $4-6 per square foot instead.
Trial was set for August 2, 2006. On July 13, 2006, Respondents served, and on July 14, filed their final demand for compensation under section 1250.410. From the City, Respondents sought $44,455, which included costs and attorney fees, but was exclusive of interest. Credit would be given for the deposit previously received ($25,500). From the County, Respondents sought $233,825, which included attorney fees and costs but was exclusive of interest. Credit would be given for the deposit previously received ($133,500). The total amount demanded before trial was $278,280, which was said to include costs and attorney fees, but was exclusive of interest (less credit to be given for the deposits). No dollar figure was specified for the requested attorney fees and costs at that time, before trial began.
Appellants did not file any formal final offer pursuant to section 1250.410. However, their attorney later filed a declaration stating that on July 13, 2006, he told Respondents' attorney that Appellants were not going to make any offers beyond the amount deposited as probable compensation, which would therefore represent Appellants' last and final offer. The declaration states that the attorneys then agreed that trial on the merits would be necessary.
Jury trial began August 24, 2006 to determine the amount of just compensation due. The parties presented evidence of value, including all three of the appraisals. Ellis testified about his methodology in comparing the two appraisals and in arriving at his figures, which were only somewhat higher than Appellants' deposits. Respondents presented evidence that they had previously contracted with a different buyer to sell the entire property for approximately $5 million, but that the deal had fallen through as permitted by that contract due to these eminent domain proceedings.
After deliberations, the jury returned a verdict by a 10-2 vote, awarding the same amounts recommended by Ellis: The City's parcel was valued at $26,500. The County's parcel was valued at $140,500. With interest added ($480.08 for the City, and $2,634.63 for the County), the judgment totaled $26,980.08 against the City. The County was liable for $143,134.63.
B. Litigation Expenses
In November 2006, Respondents brought a motion for an award of litigation expenses. (§§ 1250.410, 1268.710.) Respondents argued that since Appellants had made no pretrial final offer identified under this section, they had effectively offered zero. Respondents contended that their July 14, 2006 final demand for compensation was reasonable and well supported by their appraisal, such that an award of litigation expenses was justified. They attached their costs documentation and attorney declaration regarding fees incurred through trial and the present, seeking over $80,000.
In opposition, Appellants contended that their original deposit constituted their final offer, and it was reasonable. Alternatively, they argued Respondents' final demand was unreasonable, because the Smith appraisal had overvalued the property and was based on inaccurate facts, and Ellis had generally agreed more with Appellants' original appraisals.
In reply, Respondents continued to argue the original notice of deposit did not comply with the requirements of section 1250.410, subdivision (a). They defended their demand as reasonable, despite some inaccuracies in Mr. Smith's comparable sales data. Respondents conceded that $2,067 should be deducted from the attorney fees, since it had been incorrectly billed from a different case.
The trial court heard argument and issued a statement of decision, on which its order was based, granting Respondents' litigation expenses. The trial court first concluded that the original deposits did not constitute offers, and therefore, no offers amounted to unreasonable offers, within the statutory definitions. (§ 1250.410, subd. (a).) The court consequently ruled that entitlement to expenses was established, but that it could consider the original deposits in setting the amount of litigation expenses to be awarded.
With respect to the amount of the award, the trial court considered the criteria set forth in case law (outlined below), and found that the demand was reasonable insofar as it included, per statute, attorney fees and costs. The court found no indication of bad faith on Respondents' part in formulating their demand, even though the jury chose to believe Appellants' experts instead. Accordingly, the court awarded litigation expenses to Respondents, in a total amount of $80,971.78.
Appellants filed their notices of appeal.
DISCUSSION
On appeal, the award of litigation expenses is challenged on two major bases. First, Appellants contend their initial deposits were tantamount to final offers, and were understood as such, and were within a reasonable range. Second, they contend the Respondents' final demand was unreasonable when measured against the relevant criteria set forth in case law. After summarizing the applicable standards, we discuss those contentions in turn.
I
LITIGATION EXPENSE IN EMINENT DOMAIN: STANDARDS
The just compensation clause of California Constitution, article 1 "is primarily aimed at making a landowner whole for any governmental taking or damage to his or her property." (Los Angeles County Metropolitan Transportation Authority v. Continental Development Corp. (1997) 16 Cal.4th 694, 715 (Los Angeles County).) Section 1255.010 et seq. of the eminent domain law provides the procedure for deposits of probable compensation, which was followed here.
Here we are concerned with the portion of the statutory scheme that allows an award of litigation expenses under certain circumstances. "The purpose of section 1250.410 is to encourage settlement of condemnation actions by providing incentives to a party who submits a reasonable settlement offer or demand before trial. [Citations.] 'A property owner who files a reasonable demand, but is required nonetheless to litigate because of the public agency's unreasonable position, can be fully compensated for his [or her] litigation expenses. Conversely, a condemnor who makes a timely reasonable offer may avoid having to pay the property owner's expenses except for taxable costs.' [Citation.]" (People ex rel. Dept. of Transportation v. Yuki (1995) 31 Cal.App.4th 1754, 1763 (Yuki).) Section 1250.410 provides the structure for pretrial settlement offers or demands, and for an award of litigation expenses if no settlement is reached in light of reasonable offers or demands. (Los Angeles County Flood Control Dist. v. Mindlin (1980) 106 Cal.App.3d 698, 714-716 [discussing predecessor statute]; Escondido Union School District v. Casa Suenos de Oro, Inc. (2005) 129 Cal.App.4th 944, 985-986(Casa Suenos).)
The procedures set forth in section 1250.410 are outlined as follows, in relevant part:
"(a) At least 20 days prior to the date of the trial on issues relating to compensation, the plaintiff shall file with the court and serve on the defendant its final offer of compensation in the proceeding and the defendant shall [prepare] its final demand for compensation in the proceeding. . . . These offers and demands shall be the only offers and demands considered by the court in determining the entitlement, if any, to litigation expenses. . . .
"(b) If the court, on motion of the defendant made within 30 days after entry of judgment, finds that the offer of the plaintiff was unreasonable and that the demand of the defendant was reasonable viewed in the light of the evidence admitted and the compensation awarded in the proceeding, the costs allowed pursuant to Section 1268.710 shall include the defendant's litigation expenses.
"(c) In determining the amount of litigation expenses allowed under this section, the court shall consider the offer [under Gov. Code § 7267.2, the prelitigation offer], any deposit made by the plaintiff [under § 1255.010], and any other written offers and demands filed and served before or during the trial.
"(d) If timely made, the offers and demands as provided in subdivision (a) shall be considered by the court on the issue of determining an entitlement to litigation expenses."
The following factors apply in determining whether a condemnor's offer was "reasonable" under section 1250.410: " ' "(1) the amount of the difference between the offer and the compensation awarded, (2) the percentage of the difference between the offer and award . . . and (3) the good faith, care and accuracy in how the amount of offer and the amount of demand, respectively, were determined." ' [Citation.]" (Los Angeles County, supra, 16 Cal.4th at p. 720.) The Supreme Court there cautioned lower courts: "[T]he mathematical relation between the condemnor's highest offer and the award is only one factor that should enter into the trial court's determination." (Ibid.)
" ' "Reasonableness of the final offer and demand presents factual issues . . . which are matters to be evaluated by the fact finder." ' " (County of San Diego v. Woodward (1986) 186 Cal.App.3d 82, 89.) "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; Casa Suenos, supra, 129 Cal.App.4th at p. 986.) Implied as well as express findings by the trial court may be considered in reviewing its ruling. (Red Mountain, LLC v. Fallbrook Public Utility Dist. (2006) 143 Cal.App.4th 333, 367; City of Commerce v. National Starch & Chemical Corp. (1981) 118 Cal.App.3d 1, 19-20 (City of Commerce).)
An appellate court does not reweigh the evidence presented on such a motion, but considers the validity of the trial court's decision in light of the evidence presented on the relevant factors. (Yuki, supra, 31 Cal.App.4th 1754, 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.)
II
"FINAL OFFER" DEFINITIONS; CONTENTIONS
The terms of section 1250.410, subdivision (a) anticipate that the governmental entity "shall file with the court and serve on the defendant its final offer of compensation in the proceeding," and that this should take place at least 20 days prior to the date of the trial on issues relating to compensation. (§ 1250.410, subd. (a).) The defendant may then respond with its final demand. (Ibid.) To determine an entitlement to litigation expenses, the trial court may only consider these offers and demands in making its determination of the respective reasonableness of the pretrial financial demands of the parties. (§ 1250.410, subds. (b), (d).)
Once the entitlement issue has been determined, the court may consider additional factors in determining the amount of litigation expenses. These include, under section 1250.410, subdivision (c), the preresolution offer pursuant to Government Code section 7267.2, any deposit made by the plaintiff (§ 1255.010), and any other written offers and demands filed and served before or during the trial.
On the entitlement issue, Appellants contend that the trial court erred in ruling that since Appellants had effectively made no final offer within the meaning of these subdivisions of section 1250.410, therefore, Respondents' entitlement to expenses was established. They believe that their statutory deposits qualified as final offers. They rely on certain cases that effectively found substantial compliance with the statutory definitions of offers, under other circumstances. For example, in City of Commerce, supra, 118 Cal.App.3d 1 at page 19, the parties had stipulated at a pretrial conference that the statutory requirements for a final offer and demand would be satisfied through the inclusion of the final offer and demand in the mandatory settlement conference order. There, the trial court apparently accepted the stipulation, and proceeded to determine reasonableness of the property owner's demand under the statute, and the appellate court found no error in reaching that issue, or in awarding expenses.
For purposes of permitting recovery of litigation costs, some case authority has drawn a distinction between a litigant's failure to present a final offer or demand in a timely manner, which can constitute substantial compliance, as opposed to making no such filing at all, which cannot. (Santa Clara Valley Water Dist. v. Gross (1988) 200 Cal.App.3d 1363, 1371-1372 (Santa Clara).) An untimely filing may be deemed to be substantial compliance with the statute, such as where the parties have effectively stipulated to waive the statutory 30-day deadline. However, the court in Santa Clara said it was aware of no authority "for the proposition that the parties can, expressly or impliedly, waive the mandate of the statute entirely." (Id. at p. 1372.) Section 1250.410 imposes a duty upon both parties to act reasonably in an effort to settle their dispute, and both parties are equally subject to the filing requirements. (Ibid.) The court continued, "[T]wo corollary propositions hold true. First, the agency's noncompliance is no excuse for the property owner's failure to file. Second, the property owner's rights cannot be defeated by an agency's refusal to file. [Owner] has argued that filing a demand where the agency has made clear its intention not to file an offer would be a futile act. On the contrary, if the owner's demand were the only filing made, and the court found it to be a reasonable demand, the owner would virtually be assured of an entitlement to attorney's fees under the statute." (Id. at pp. 1372-1373, italics added.)
In City of San Leandro v. Highsmith (1981) 123 Cal.App.3d 146, the court likewise made a strict reading of the statute, and held "that a recital of the demand and offer in a settlement conference statement, or in any other document, is not an adequate substitute for the formal demand and offer contemplated by section 1250.410 unless the parties have stipulated to a less formal exchange. The Legislature did not direct the parties to 'apprise' each other or 'communicate' with each other about an offer or demand. It mandated that a 'final offer of compensation' and a 'final demand for compensation' shall be served on the opposing party and filed with the court in the manner prescribed for service of a notice of motion." (Id. at p. 155.) The appellate court rejected a claim of substantial compliance with the formal notice requirements of the statute. (Ibid.)
In our case, Appellants are contending there was an understanding between counsel that the 2004 deposits should be treated as a 2006 final offer. In support, they cite declarations from their current and former attorneys to that effect. However, a close reading of those declarations does not support a finding that the statutory scheme was expressly or impliedly complied with by Appellants. (§ 1250.410, subd. (a).) Instead, the declarations only show that negotiations were continuing before trial, because there was a dispute among the three appraisers about valuation, and therefore a trial on the merits was inevitable. Respondents had already withdrawn the deposits and were seeking more, which supports an inference that the original deposits did not serve the purpose of avoiding litigation.
As a preliminary matter, we agree with the trial court's interpretation of the statutory definition in section 1250.410, subdivision (a), to find that the original 2004 deposits cannot be construed as pretrial final offers in 2006. There is no adequate showing of any "understanding" between the parties that the original deposit amount remained effective or had been renewed or converted into Appellants' operative offers, for purposes of avoiding litigation. In fact, the parties viewed litigation as inevitable. The statutes providing for statutory deposits at the outset of a taking of property (to ensure some timely compensation pending litigation) serve a different purpose than the statute providing for pretrial settlement offers to be formally made within 20 days of trial (to avoid trial). (See Yuki, supra, 31 Cal.App.4th 1754, 1763.) The trial court correctly evaluated Appellants' conduct as resulting in only a zero pretrial offer.
However, that is not the end of the inquiry about entitlement to litigation costs, since section 1250.410, subdivision (b), requires the trial court to make findings on both the reasonableness of the agency's offer and the demand of the property owner. The trial court erred in finding entitlement to litigation expenses had been established, whether on a statutory or contract basis. As directed by the statutory scheme, we next examine the record on the reasonableness of Respondents' demand.
III
REASONABLENESS ANALYSIS
Under section 1250.410, subdivision (b), the trial court was charged with making a discretionary determination of reasonableness of the demand, before any award of litigation expenses could be ordered. Even though there was no operative offer by Appellants for purposes of determining the entitlement to litigation expenses, such noncompliance by an agency does not excuse an owner's failure to file a statutory demand. (Santa Clara, supra, 200 Cal.App.3d 1363, 1372-1373.) In such a case, the court opined that "if the owner's demand were the only filing made, and the court found it to be a reasonable demand, the owner would virtually be assured of an entitlement to attorney's fees under the statute." (Id. at p. 1373; italics added.)
In the trial court's consideration of the reasonableness of the owner's demand, and on review, it is appropriate to utilize the same factors used to evaluate a condemnor's offer under section 1250.410, as set out in Los Angeles County, supra, 16 Cal.4th at p. 720: " ' "(1) the amount of the difference between the [demand] and the compensation awarded, (2) the percentage of the difference between the [demand] and award . . . and (3) the good faith, care and accuracy in how the amount of offer and the amount of demand, respectively, were determined." ' [Citation.]" All these factors are important and none alone is dispositive. (Ibid.) They must be evaluated in light of the evidence presented at trial, the presentations of counsel, and the compensation ultimately awarded. (§ 1250.410, subd. (b); County of San Diego v. Woodward, supra, 186 Cal.App.3d at p. 90.) An offer by the condemnor may be considered to be reasonable even if it represents a large discrepancy with the ultimate verdict amount. (Id. at pp. 90-93.) Conversely, a demand can be unreasonable if it is only supported by the owner's personal opinion. (Ibid.)
Here, the evidence at trial included the prelitigation offers pursuant to Government Code section 7267.2, and the statutory deposits in the same amounts. (§ 1255.010.) The jury was informed of the views of all three appraisers, including Ellis's evaluations of the other two reports. With respect to the first of the relevant criteria (i.e., the amount of the difference between the demand and the compensation awarded), Respondents sought $278,280 (before credits given, not including interest), which was about $111,000 more than the net judgment amount of $167,000 (before credits given, not including interest). On its face, the demand stated that it included an unspecified amount of costs and attorney fees. At the time it was made, immediately before the scheduled trial date, an unknown amount of attorney fees had been accrued, and this was only going to increase if trial became inevitable. As pointed out in County of Contra Costa v. Pinole Point Properties, Inc. (1994) 27 Cal.App.4th 1105, 1113-1114, the parties are obligated to exchange "compensation" figures under this statutory scheme, not necessarily litigation expense information. Appellants contend, with some merit, that it could not be determined from the demand what proportion represented actual compensation, as opposed to costs and attorney fees, because no dollar figures were given.
As already stated, the purpose of a pretrial demand is to present the condemnor with an amount that it could reasonably accept in order to avoid further litigation. (Yuki, supra, 31 Cal.App.4th at p. 1763.) An objective analysis of the amount of this demand, in light of the statutory deposits that had been made ($159,000, based on Appellants' first appraisal), suggests that the first factor of "mathematical relation" works in favor of Appellants' position, but that is not the only consideration. (Los Angeles County, supra, 16 Cal.4th at p. 720.) The second criterion, the percentage of the difference between the demand and the jury's award, is likewise unfavorable toward Respondents.
Respondents mainly rely on an argument that their appraisal by Mr. Smith was prepared with the necessary "good faith, care and accuracy" (the third factor under Los Angeles County, supra, 16 Cal.4th at p. 720). Smith's appraisal had valued the property at $303,842, without including any costs or attorney fees. The trial court did not find any bad faith by Respondents in making their demand, which was somewhat less than their original appraisal figure.
In any case, the validity of the Smith appraisal had been seriously undermined by Ellis's appraisal report and testimony. Ellis criticized some of the methodology used by both parties' original appraisals, such as failing to allow for appropriate zoning considerations and utilizing inappropriate comparable sales in the analyses. On balance, however, his strongest criticisms were directed at the Smith appraisal, and the valuation he made was closer to Appellants' appraisal. Specifically, the Smith appraisal was deemed to inappropriately use relatively small comparable properties to establish an erroneous price per square foot, and those comparable properties were not taken from a wide enough range of locations.
The Smith appraisal also considered to some extent the outside $5 million sales contract that ultimately fell through, due to the eminent domain proceedings. Smith put a total value for the owners' approximately 10 acre parcel at $4,999,384, which represented a price of $11.50 per square foot of land, which was very similar to the failed contract price. However, Appellants convincingly argue that such evidence about the earlier sales contract was meaningless, since that buyer said this property was worthless unless he could combine it with another piece of property, which he could not, and he ultimately backed out.
In reviewing this matter, we do not decide de novo whether Respondents' demand was reasonable, but undertake to determine if the trial court's ruling was supported by substantial evidence. If " 'the uncontradicted evidence permits only one conclusion . . .' " then a trial court determination that goes otherwise should not be upheld. (Yuki, supra, 31 Cal.App.4th 1754, 1765.) We agree with Appellants that this is a case where only one conclusion was possible, and the trial court determination that Respondents' demand was reasonable cannot be upheld. First, if the trial court was impliedly determining that the approximately $81,000 litigation expenses in the cost memorandum was the same amount that was previously included in the pretrial demand, this represented an inappropriate hindsight view of the reasonableness of the demand. Before trial, Respondents' attorney fees were certainly much less than the $66,470.25 sought after trial, and the costs of $14,501.53 were also presumably somewhat less at that time. Even though an allowable amount of litigation expenses would be subject to a reasonableness standard under section 1235.140 (defining litigation expenses), a posttrial cost memorandum is not a reasonable measurement to include in a pretrial demand.
Next, since the jury's verdict came in at the $167,000 level set by the third appraiser, Ellis, the Respondent's demand of $278,280, even including some pretrial expenses, does not represent a reasonable amount. At the least, the minimal difference between that verdict and the deposit of $159,000 suggests that the demand was too high to serve its statutory function of promoting settlement, and did not qualify Respondents for an award of litigation expenses.
Accordingly, we conclude the trial court did not have an adequate basis to evaluate the final demand as within the range of reasonableness, based on the evidence at trial, the presentations of counsel, and the jury award. (Los Angeles County, supra, 16 Cal.4th at p. 720.) Its conclusions are unsupported by substantial evidence and therefore represent an abuse of discretion. Because of these conclusions, we need not address any issue of attorney fees on appeal under section 1250.410.
DISPOSITION
The postjudgment order granting Respondents' motion for litigation expenses is reversed with directions to enter a different order denying the motion. Each party shall bear its own costs on appeal.
WE CONCUR: McCONNELL, P. J., McINTYRE, J.