Opinion
C075878
09-13-2019
FREEPORT REGIONAL WATER AUTHORITY, Plaintiff and Appellant, v. M&H REALTY PARTNERS VI, L.P., Defendant and Appellant.
NOT TO BE PUBLISHED California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 34201000069481CUCOGDS)
When a condemnor takes only a part of an owner's property and, as a consequence, the remaining property decreases in value, the owner is entitled to "severance damages" as an element of just compensation. This appeal centers on the calculation of severance damages and other aspects of just compensation arising out of construction of a pipeline by a water authority on privately owned land.
Plaintiff Freeport Regional Water Authority (Freeport) sought to construct a pipeline system designed to carry water from the Sacramento River to a treatment facility (the Project). The Project ran across 800 acres of land (Property) owned by defendant M&H Realty Partners VI, L.P. (Partners). The Project required that Freeport obtain both temporary and permanent easements from Partners. Partners opposed Freeport's proposed route for the easements (Freeport's Preferred Alignment) and offered their own proposed route (Partners' Preferred Alignment). The parties entered into a contract (Agreement), in which they agreed to use Partners' Preferred Alignment and set forth a formula for determining just compensation and severance damages. After the parties failed to agree on the amounts due under the Agreement, Freeport brought suit, seeking declaratory relief. The parties stipulated to try the matter before a referee.
The referee found severance damages in the amount of $1.5 million and the fair market value for the Property was $275,000 per acre, and determined the dates of valuation for the temporary construction easement and temporary monitoring easement. Freeport appeals, challenging the sufficiency of the evidence in support of each of these findings. Partners cross-appeals, seeking its referee fees as a measure of just compensation. We shall affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
The Project
Freeport is a joint powers authority "created to construct and operate a system designed to transmit water from the Sacramento River approximately 17 miles northeast to a treatment facility." The Project required Freeport to acquire property rights from the owners of property in the Project's path. Among these property owners was Partners.
The Property
Partners purchased the Property, approximately 800 acres, with 679 acres located east of Interstate 5 for $100 million, or approximately $125,000 per acre. The sale closed in February 2005.
Partners intended to develop the Property for residential and commercial use, including a shopping center with over 1.2 million square feet of retail space. In November 2006 Partners submitted a tentative map to the City of Sacramento that included a 29-acre parcel designated as RC-2. The RC-2 parcel was intended as a regional retail center that would include a major anchor tenant such as Costco, Walmart, Home Depot, or Lowe's; smaller retailers such as Ross, Sports Authority, and Bed Bath & Beyond; and a restaurant.
Subsequently, Partners reached an agreement with Costco to include a 142,000-square-foot store on the parcel. Costco's involvement allowed Partners to reach agreement to lease the adjacent 104,000-square-foot building to Ross Stores, PetSmart, and REI. The anticipated rent for the Costco building was $25 million over the 25-year primary term of the lease and for the 104,000-square-foot building was $25 million for the 15-year primary tenancy of the lease. The city approved the planned unit development entitlements in January 2009.
Partners' plans to build the retail center required construction of an interchange on Interstate 5 and an extension of Cosumnes River Boulevard eastward through the Property to connect to the Interstate 5 interchange.
SunCal and Partners Enter into an Agreement
In 2005 Partners entered into an agreement with SunCal Delta Shores LLC, a residential land developer (SunCal), for the purchase of approximately 600 acres of the Property. They entered into an amended and restated agreement in 2007. SunCal agreed to a purchase price of $190 million, or $292,758 per acre, including a nonrefundable $35 million deposit that SunCal was required to pay for an option to purchase the remainder of the Property.
Sacramento Regional County Sanitation District Easements
In 2004 the Sacramento Regional County Sanitation District (District) brought suit against Partners' predecessor to acquire temporary and permanent construction easements on the Property. The District sought to install underground wastewater pipes and surface appurtenances required for operation and maintenance of the pipes. The District's permanent easement ran across the Property from east to west and was from 60 to 75 feet wide. As part of the District's action, Partners claimed severance damages in the amount of $7.2 million, based on an appraisal by Chris Carneghi (Carneghi Report).
Freeport's Easement
The Project required the installation on the Property of an underground, 84-inch water pipeline with surface appurtenances. Installing the pipeline required a 40-foot-wide easement across the Property. In addition, the Project would require a temporary construction easement and a temporary monitoring easement.
The parties disagreed over what route the easement would take. Freeport's Preferred Alignment would run through the RC-2 parcel and through the proposed Costco site. Partners objected, arguing the route would result in substantial severance damages that would significantly exceed any costs incurred by using Partners' Preferred Alignment. Freeport's engineers believed Partners' Preferred Alignment would result in a significant increase in construction costs.
The Agreement
In April 2007 the parties entered into the Agreement at issue on appeal. The Agreement contains the following provisions:
1. The Project would use Partners' Preferred Alignment.
2. Freeport would pay Partners an agreed amount of money representing the deposit of probable compensation for Partners' Preferred Alignment and the permanent easement under Code of Civil Procedure section 1255.010 and Government Code section 7267.2.
All further statutory references are to the Code of Civil Procedure unless otherwise designated.
3. The date of the valuation of the Property would be the date Partners received the deposit, or June 6, 2007.
4. The determination of just compensation due Partners for easements granted would be determined under principles of California eminent domain law.
5. Partners would pay the excess cost, if any, of constructing the Project along Partners' Preferred Alignment in comparison to construction along Freeport's Preferred Alignment.
6. Partners' payment obligation to Freeport would be offset by the increased just compensation that Freeport would have paid had the Project used Freeport's Preferred Alignment, including any severance damages.
7. The payment obligations under the Agreement would be determined by negotiation or, in the event the parties could not reach an agreement, through a declaratory relief action in the trial court, or through an alternate resolution process.
Freeport's Action
When it became apparent the parties could not resolve their dispute over payment obligations, Freeport filed an action for declaratory relief in the trial court. Freeport sought determinations of the parties' obligations under the Agreement: the amount of just compensation to Partners for Freeport's acquisition of the temporary and permanent easements under Partners' Preferred Alignment, the amount of just compensation to Partners for Freeport's acquisition of the easements under Freeport's Preferred Alignment, and the cost of constructing the Project pursuant to Partners' Preferred Alignment and pursuant to Freeport's Preferred Alignment in order to calculate the excess cost for constructing the Project under Partners' Preferred Alignment.
The Referee's Statement of Decision
The parties agreed to try the case before a referee. Following a trial, the referee issued a statement of decision finding the following: the Property was worth $275,000 per acre on the date of valuation, June 6, 2007; the additional cost of construction resulting from the use of Partners' Preferred Alignment was $1.3 million; Partners would have incurred severance damages of $1.5 million from the Project's use of Freeport's Preferred Alignment; just compensation for the temporary construction easement should be based on the land's agricultural rental value through the easement's expiration on July 31, 2009, in the amount of $20,121; and just compensation for the temporary monitoring easement should be based on the fair market value as set out in the report of expert Eric Sussman, in the amount of $60,858.
Following entry of judgment, Freeport filed a timely notice of appeal. Partners filed a notice of cross-appeal.
DISCUSSION
I
FREEPORT'S APPEAL
Freeport challenges the sufficiency of the evidence supporting four aspects of the referee's decision. We shall review the evidence surrounding each issue in turn.
Standard of Review
When a party challenges the trial court's factual findings on the ground there is no substantial evidence to support it, our power begins and ends with a determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, that will support the finding. If we find such evidence, it is of no consequence that the trial court, believing other evidence or drawing other reasonable inferences, might have reached a contrary conclusion. (Jameson v. Five Feet Restaurant, Inc. (2003) 107 Cal.App.4th 138, 143 (Jameson).)
Substantial evidence is evidence of ponderable legal significance; evidence that is reasonable, credible, and of solid value. (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633 (Kuhn).) We accept the evidence most favorable to the judgment as true and discard the unfavorable evidence as not having sufficient veracity to be accepted by the trier of fact. (In re Michael G. (2012) 203 Cal.App.4th 580, 589.)
Partners' Severance Damages of $1.5 Million
Freeport contends the only appraisal testimony supporting a finding of $1.5 million in severance damages—an amount in excess of the increased construction cost resulting from the use of Partners' Preferred Alignment—came from expert Sussman. According to Freeport, Sussman's methodology was invalid for multiple reasons: property value cannot be based on a specific plan of development, property cannot be valued through the "developer's approach," and vacant land cannot be valued through the capitalization of nonexistent improvements.
The Referee's Findings
The referee found that the weight of evidence supported a finding that Partners would suffer significant severance damages flowing from the impact on flexibility of design, probable loss of building square footage, parking complications, the impact on anchor tenants, and various other factors had Freeport's Preferred Alignment been used. In addition, the referee determined Partners had established Freeport's Preferred Alignment would have aggravated the conditions caused by the District's easement and resulted in lost square footage, reduced development flexibility, located appurtenances in the retail area that further complicated development, and increased maintenance costs, all of which would have a significant impact on a willing buyer and fair market value. In addition, when added to the District's easement, Freeport's Preferred Alignment would have further intruded into the planned area of the anchor tenant, disrupted parking, complicated flexibility in working within the easement, and would add significant difficulties and costs associated with dealing with multiple agencies.
The referee stated: "Given that the weight of the evidence is very strong that [Freeport's Preferred Alignment] itself and as it aggregates with the [District] easement will significantly impact the property in so many ways that it would actually negatively impact fair market value, an award of severance damages is appropriate." The referee concluded: "[I]n evaluating all of the evidence presented . . . the severance damages attributable to [Freeport's Preferred A]lignment would be at least equal to the additional cost of construction. Given the provisions in the contract, I need not go further. However, as requested by [Freeport], the referee would find hypothetical severance damages of $1,500,000.00."
Just Compensation Under Eminent Domain Law
The measure of just compensation for property taken under the power of eminent domain is the fair market value of the property taken. (§ 1263.310.) Fair market value refers to the highest price that would be agreed to by a buyer and seller "with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available." (§ 1263.320, subd. (a); CACI No. 3501.)
Fair market value is based on the property's "highest and best use." The highest and best use is the most profitable, legally permissible use for which the property is physically, geographically, and economically adaptable. (§ 1263.320; CACI No. 3502.)
Just compensation is intended to reimburse the owner for the property interest taken and to place the owner in as good a position as if the property had not been taken. Compensation is based on the loss to the owner, not the benefits to the taker. (City of Carlsbad v. Rudvalis (2003) 109 Cal.App.4th 667, 678.) The constitutional requirement that a landowner whose property is taken for a public purpose is entitled to just compensation is not only for the benefit of the owner, but also for the benefit of the public. A landowner may not receive a windfall at public expense. (City of Fresno v. Cloud (1972) 26 Cal.App.3d 113, 123.)
The trier of fact must decide the value of the property based on the testimony of witnesses who have given their opinion of fair market value. In order to understand and evaluate the testimony, the trier of fact may consider other evidence. The factfinder may not disregard valuation evidence and render a verdict outside the limits of the valuation testimony. (CACI No. 3515.) Neither the property owner nor the condemnor has the burden of proving the amount of just compensation. (CACI No. 3514.)
When the condemned property is part of a larger parcel, the property owner is entitled to severance damages, compensation for any injury to the remaining property. To determine severance damages, the trier of fact compares the value of the remainder before the project and the value after the project. (§ 1263.410; CACI No. 3511A.)
Property may not be valued based upon the property's use for a projected special purpose of a hypothetical business. (County of San Diego v. Rancho Vista Del Mar, Inc. (1993) 16 Cal.App.4th 1046, 1059.) Vacant land may not be valued through capitalization of nonexistent improvements. (City of Stockton v. Albert Brocchini Farms, Inc. (2001) 92 Cal.App.4th 193, 199.)
Discussion
Freeport agrees the evidence supported "the potential" that the use of Freeport's Preferred Alignment "could have resulted in severance damages" but argues there was no "admissible evidence supporting the Referee's finding that [Partners] would have incurred severance damages of $1.5 million, or damages in any other amount" from the use of Freeport's Preferred Alignment. Specifically, Freeport argues the referee improperly based his $1.5 million finding on (1) Sussman's calculation of severance damages through the income capitalization method and (2) the severance damage analysis in the Carneghi Report, part of Partners' valuation data in the District's earlier eminent domain action.
In addressing a challenge to the sufficiency of the evidence, we consider the entire record, not just the evidence objected to by the appealing party. In considering the evidence, the referee noted CACI No. 3515 provides guidance in considering valuation testimony. It provides: "You must decide the value of the property based solely on the testimony of the witnesses who have given their opinion of fair market value. You may consider other evidence only to help you understand and weigh the testimony of those witnesses. [¶] You may find the same fair market value testified to by a witness, or you may find a value anywhere between the highest and lowest values stated by the witnesses. [¶] If the witnesses disagreed with one another, you should weigh each opinion against the others based on the reasons given for each opinion, the facts or other matters that each witness relied on, and the witnesses' qualifications." (CACI No. 3515.)
The referee reiterated that severance damages compensate a property owner for the injury to the remaining portion of his or her property when a part of the property is taken and found: "In this case the weight of the evidence supports a finding that [Partners] would suffer significant severance damages flowing from the impact on flexibility of design, probable loss of building square footage, complications related to parking and the impact on anchor tenants, and the various other factors indicated above."
The referee summarized the evidence on severance damages: "[Freeport's witnesses] found there was [sic] no severance damages based on representations by [Freeport] and evidence presented to them that the building configuration could be adjusted without consequence. Sussman concluded there would be substantial severance damages. Carneghi, in his valuation for [Partners] for purposes of the [District] action, concluded there would also be substantial severance damages resulting from the [District] easement." The referee found the evidence established the Freeport Preferred Alignment would have an appreciable and substantial effect on the "various preferred commercial models" contemplated by Partners for the property, over and above the District easement. In addition, there would be a need to coordinate with two governmental agencies, producing delay and additional costs. Additional appurtenances would further encumber use of the property and parking.
In considering Sussman's testimony, the referee observed Sussman utilized a "couple of approaches, 'one was trying to gauge what a willing buyer would be willing to pay because, as we discussed earlier, when someone is looking at a piece of property, its value is based on the potential future cash flows of the property, that's what a willing buyer is willing to pay, discounted to present value.' He further opined that there would be 'significant concern for an alignment that crosses right through the middle of the property' including the need to advise prospective tenants. Ultimately he calculated a range of values reflecting the potential loss of the prime corner lot and the potential loss of an anchor tenant and also the other impacts reflected above as it would impact a prospective purchaser and [Freeport] depending on the finding of the referee."
The referee addressed Freeport's claim that Sussman's valuation methodology was a "developer's approach" and thus inadmissible as based on speculation. The referee cited San Diego Metropolitan Transit Development Bd. v. Cushman (1997) 53 Cal.App.4th 918 (Cushman) as instructive on the issue.
In Cushman, a metropolitan transit development board acquired a portion of a commercial parcel in eminent domain. At trial, the only issue was the amount of severance damages, if any, due to Cushman, the property owner. (Cushman, supra, 53 Cal.App.4th at p. 923.) Cushman valued the severance damages at $415,000, while the board valued the permanent severance damages at $0. (Ibid.) The jury awarded $322,217 in severance damages, based on a loss of parking facilities. (Ibid.)
At the date of valuation, Cushman leased the existing retail building through 2009, with a five-year option. Prior to condemnation, Cushman submitted an application for a conditional use permit to construct a restaurant, which the city granted. Under the applicable zoning ordinance the property had sufficient parking spaces for both the retail building and the proposed restaurant. (Cushman, supra, 53 Cal.App.4th at pp. 923-924.)
Cushman's experts testified the highest and best use of the property was to develop the retail space to its maximum capacity. According to Cushman's experts, expansion capacity affects valuation because larger projects appeal to more retailers and give the owners greater flexibility in leasing the space. (Cushman, supra, 53 Cal.App.4th at p. 924.) The taking would eliminate 13 parking spaces, and "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." (Ibid.) Using an income approach, Cushman's expert testified regarding the difference in the property's fair market value with and without its full expansion capacity. (Ibid.)
The transit development board argued severance damages resulting from the loss of flexibility were based on a speculative future use and improperly used a specific plan of development to project future income. (Cushman, supra, 53 Cal.App.4th at pp. 925-927.) The Court of Appeal disagreed, stating: "Notwithstanding the long-standing antipathy for speculative damages as an improper element of severance damages [citation], courts have acknowledged the present value of property may reflect its development potential." (Id. at p. 927.) The court cited City of San Diego v. Neumann (1993) 6 Cal.4th 738, in which the Supreme Court noted the realities of the marketplace and that future use may affect the present value of real property: " 'When the government impairs that integrated use by taking some of the property, the property remaining declines in value, and the owner, under the constitutional guarantee of just compensation, should be compensated for that injury. The diminution in value for which compensation is compelled is not speculative, but rather actual: Before the taking, the development potential of the separate parcels considered as a whole added to their collective present value; the taking of part diminishes the present value of what remains.' " (Cushman, at p. 927, quoting Neumann, supra, 6 Cal.4th at p. 756.)
The transit development board also argued the proposed expansion was based on a number of contingencies, none of which were reasonably probable. The court held these contingencies go to the weight of the evidence, not its admissibility, and they were reasonably probable. (Cushman, supra, 53 Cal.App.4th at p. 928.) In addition, the court held that this was not an impermissible reliance on a "specific plan of development." (Id. at p. 929.) Cushman had presented sufficient evidence of various places the additional retail space could be accommodated. (Ibid.) Although the court found the capitalization of income approach used by Cushman's expert was improper under Evidence Code section 819, it found the expert had also presented a severance damages figure using fair market values of the remainder in the before and after conditions determined under the comparable sales methodology. This latter valuation, based on a comparable sales approach, was not prohibited under Evidence Code section 819 and was sanctioned under Evidence Code section 816. (Cushman, at pp. 930-931.)
Here, the referee determined that Partners established the Freeport Preferred Alignment itself would have aggravated the conditions caused by the District easement and resulted in lost square footage, reduced development flexibility, required appurtenances in the retail area that further complicated development, and increased maintenance and other costs, all of which would have a significant impact on a willing buyer. The referee found that Sussman, like the expert in Cushman, used an income capitalization approach to calculate the potential losses and to present a potential range of impacts on the fair market value that a potential buyer would consider, along with the other impacts of the easement as it impacted fair market value. The referee also noted Sussman relied on the Carneghi Report prepared by Partners in the District litigation.
Freeport argues the referee improperly based the severance damages findings on the Sussman appraisal. Not so.
The appraisal, according to the referee, "illustrated various probabl[e] plans all of which imposed greater constraints on design and layout that negatively impacted the value of the remainder. Carneghi determined the severance damages by reviewing the comparable properties impacted by a 'significant public utility easement' and those that were not. After making certain adjustments due to the particular properties he concluded that there was an approximate 10% discount on fair market value for properties burdened with a significant easement. That is not to say that the 10% factor is necessarily appropriate in this case, particularly considering the pre-existing [District] easement, but it is evidence to further support a finding of severance damages as a function of fair market value considerations of a hypothetical buyer and to support the opinions of Sussman." The referee considered the Carneghi Report in relation to the impact of easements on the Property, not to determine the amount of severance damages based on comparable sales.
Following an exhaustive examination of the evidence, case law, and the relevant statutes, the referee concluded: "As indicated above the [Freeport] proposed easement further intruded into the planned area of the anchor tenant, further disrupted parking, further complicated flexibility in working within the easement, was a principal impact on the location of the lower pad, and would add significant difficulties and costs dealing with multiple agencies. As a minimum it would intrude beyond the [District] easement in the critical areas 10-20 feet. Albeit this may not seem significant in itself, when combined with the [District] easement it is proportionately very significant. . . . Finally it should be mentioned that this whole exercise is speculative and based on a hypothetical easement that will never be built and who's [sic] exact location and impact is still in considerable doubt.
"There is no doubt that I have been troubled about this aspect of the case and have raised these concerns at various times during trial. Given that the weight of the evidence is very strong that the [Freeport] easement itself and as it aggregates with the [District] easement will significantly impact the property in so many ways and that it would actually negatively impact fair market value, an award of severance damages is appropriate."
The referee concluded the severance damages attributable to the Freeport Preferred Alignment would be at least equal to the additional cost of construction: "Given the provisions of the contract I need not go further. However, as requested by [Freeport], the referee would find hypothetical severance damages of $1,500,000.00."
Our review of the entire record reveals substantial evidence in support of the referee's determination. The evidence considered by the referee is reasonable, credible, and of solid value. (Jameson, supra, 107 Cal.App.4th at p. 143; Kuhn, supra, 22 Cal.App.4th at p. 1633.) We find no error in the referee's consideration of Sussman's valuation, which utilized but was not restricted to an income capitalization approach, or in Sussman's reliance on the Carneghi Report.
Underlying Fee Value of the Property
Freeport challenges the referee's finding that the Property's underlying fee value was $275,000 per acre, arguing it is not supported by substantial evidence. Freeport faults Sussman's valuation testimony as legally invalid "because it was based on an ersatz comparable sales methodology and on evidence of the price that SunCal agreed to pay for the property in the event it exercised its purchase option, in violation of Evidence Code section 822[, subdivision ](a)(2)."
Evidence Code section 822 provides: "(a) In an eminent domain . . . proceeding . . . the following matter is inadmissible as evidence and shall not be taken into account as a basis for an opinion as to the value of property: [¶] . . . [¶] (2) The price at which an offer or option to purchase or lease the property or property interest being valued or any other property was made, or the price at which the property or interest was optioned, offered, or listed for sale or lease . . . ."
The referee found both David Jarrette, Freeport's expert, and Sussman, Partners' expert, were qualified to present expert testimony on the Property's value. Jarrette valued the property at $125,000 per gross acre and $178,500 per developable acre. Sussman valued the property at $441,657 per acre.
The referee considered the evidence presented by both experts and determined the value at $275,000 per acre. However, Freeport asserts that "[b]ecause the only admissible valuation testimony came from Jarrette, the Referee was obligated to find value and just compensation based on that testimony." We disagree.
In arriving at his valuation, the referee considered problems with the valuations offered by both Jarrette and Sussman. The referee noted Jarrette used comparable sales that were large parcels of undeveloped land outside of the area. Jarrette believed the market was flat in both residential and commercial values. In addition, Jarrette was critical of the comparable sales used by Sussman and disagreed with the other expert's opinion that the market for both residential and commercial property had been strong from the date of the original purchase to the date of valuation.
The referee observed that Sussman used comparable sales that were closer in location but were significantly smaller and much further along in development. Sussman believed the market was still growing, was not flat, and had risen in value. Both Jarrett and Sussman considered appraisals done by other valuation experts, including Bender Rosenthal, Inc., C.H. Elliott & Associates, and Carneghi.
Sussman and Jarrette differed over the import of the SunCal transaction. Jarrette asserted it was an option and should not be considered. He termed it the most overpriced sale he had seen in 30 years and opined that it was a function of a purchaser with none of its own money in the game. Sussman concluded it was not an option, but a sale related to the subject property and the most significant comparable. Sussman believed it needed to be adjusted upward in that it was residential and the Property is commercial.
The referee noted the SunCal agreement was modified around the date chosen for valuation of the Property: "The changes in the agreement lowered the purchase price, removed contingencies, and significantly raised the amount of the non-refundable deposits. Jarrette was unaware of the changes removing contingencies. He reluctantly acknowledged that these changes made it more akin to a purchase and sale but still claimed it was an option because the purchaser could 'walk away.' In reality it was hardly a 'walk away.' To do so meant they had to forfeit $35,000,000.00 which was a substantial percentage of the purchase price. The fact that they could breach the agreement and limit their damages to the amount of the deposits does not make it an option. The restated and amended agreement was a purchase and sale and is legally permissible to be considered."
Freeport disagrees and insists the SunCal agreement was an option and therefore ran afoul of Evidence Code section 822, subdivision (a)(2). We disagree. Moreover, the referee noted that while it was appropriate to consider the SunCal agreement, there was evidence it had been overvalued and therefore cast some doubt on the experts' valuation of the property.
Taking into consideration all the evidence before him, the referee, Solomon-like, attempted to chart a middle ground between Sussman and Jarrette. Sussman's valuation required "substantial downward adjustment" since the comparables he used were "significantly smaller in size and at a greater stage of entitlement and development." The evidence supported Sussman's opinion that the market had continued on an upward trend since the Partners' purchase of the Property through the valuation date of June 2007. The evidence did not support Sussman's conclusion that commercial property had increased at a more rapid trend than residential, or the very significant increase in value found by Sussman.
In contrast, the referee determined that Jarrette's valuation required an upward adjustment. The evidence did not support Jarrette's conclusion that the market had remained flat since the purchase. Jarrette's comparables were distant from the Property and lacked the Property's unique features. The Property was the last remaining large block of undeveloped property in the area and was ideally located, flat, and had valuable freeway visibility and access.
Taking into account the issues with each expert's valuations, the referee found the fair market value of the Property as of the date of valuation to be $275,000. Sufficient evidence supports the referee's calculation, which is a compromise between that offered by Jarrette, $178,500, and Sussman, $441,657.
Valuation of Temporary Construction Easement
The referee found Partners was entitled to just compensation for the temporary construction easement based on the fair market rental value as agricultural property through the end of March 2009, but thereafter based its fair market value as a function of land ready to be developed. Freeport challenges the referee's choice of April 2009, arguing it was not based on any evidence that the Property was then ready to be developed to its highest and best use.
Background
The Agreement provided for a temporary construction easement from April 2, 2007, through December 16, 2008. Partners sought just compensation at a rental rate of 6.2 percent to the Property's development value. Freeport argued just compensation must be based on the Property's fair market value during the period of the temporary construction easement, which was agricultural. Once again, the parties' experts calculated wildly different values: Sussman found just compensation at $623,607; Jarrette found just compensation at $1,394.
Referee's Decision
The referee set forth the evidence underlying the temporary construction easement. Partners' witnesses assumed the highest and best use of the rest of the Property was applicable at the time of the temporary construction easement and valued the Property on the premise Partners could have rented it at fair market value during this period. Freeport challenged this valuation method, arguing the Property could not have been rented during this period and would constitute a windfall to the Property owner in violation of eminent domain law.
The referee noted the parties disputed the date at which the temporary construction easement would delay construction of the retail center and provide a basis for a greater rental value. According to the referee, "[t]he evidence related to this subject was notably imprecise and offered ranges of possibilities." Partners' expert testified that at the date of valuation it was expected that construction of the interchange would start as early as June 2008 and would lead to the opening of the retail center in late 2009 or early 2010, with interchange construction overlapping retail construction. He testified: "So the plan was to ensure that the interchange started construction and at a certain point in that construction period commence our construction with the intent of opening the retail, either concurrent with the interchange or shortly thereafter."
Jarrette stated a planner told him he expected the entitlements to be completed in 2008. The referee found the evidence supported the following chronology: Entitlements were expected to be completed by January 2008; interchange construction would begin in June 2008 and retail construction would overlap with interchange construction; the retail space would open by January 2010, with construction beginning around March 2009. To avoid challenges under the California Environmental Quality Act (Pub. Resources Code, § 21000 et seq.), the area of the temporary construction easement would remain agricultural until entitlements were completed.
The referee found the weight of the evidence established the temporary construction easement did not delay construction until the end of March 2009 and could not have been "rented" as contemplated by Sussman's valuation since it would remain agricultural. Such an award would be a windfall. Therefore, the referee determined the temporary construction easement should be valued as done by Jarrette through March 2009 with the rental value for the extended acreage as determined by Sussman from that date until the termination of the temporary construction easement, for a total compensation due in the amount of $20,121.
Freeport takes issue with the referee's choice of April 2009 as the date on which the highest and best use of the property would increase, arguing it is not supported by substantial evidence. According to Freeport, the evidence surrounding when the interchange construction would begin and when the entitlements would be completed was merely speculation.
However, the evidence supports the referee's determination. As of the date of valuation, June 6, 2007, testimony stated the expectation was that entitlements would be complete by the end of 2007. Interchange construction would begin in June 2008, with construction on the retail center starting in 2009 and the center opening in late 2009 or early 2010.
In considering the sufficiency of the evidence we accept the evidence most favorable to the judgment as true and discard the unfavorable evidence as insufficient to be accepted by the trier of fact. (In re Michael G., supra, 203 Cal.App.4th at p. 589.)
Just Compensation for Temporary Monitoring Easement
Freeport renews the preceding argument regarding the referee's finding that Partners was entitled to just compensation for the temporary monitoring easement. According to Freeport, the referee's determination based on the Property's rental value as development property is not supported by substantial evidence. Just compensation should have been based on the Property's fair market agricultural rental value until the development of the Property began.
Again, we disagree. The referee explained he set the date of March 2009 as the date that the Project was delayed for the purposes of calculating damages for both the temporary construction and monitoring easements. Partners believed the date should be earlier; Freemont argued for a later date. The referee noted the evidence of the date of commencement of development was "notably imprecise and offered ranges of possibilities." The referee noted the date chosen "is the earliest that was supported by the weight of evidence." The referee again reiterated the evidence in support of his choice of March 2009. Again, although Freeport labels this evidence speculative and posits other dates, sufficient evidence supports the referee's determination.
II
PARTNERS' CROSS-APPEAL
Partners cross-appealed, contending the referee erred in failing to reimburse it for judicial reference fees in the amount of $30,581.55. The referee, Partners argues, abused his discretion in finding the attorney fees saved by Partners in trying the case by judicial reference under section 638 rather than by jury offset these costs.
Following briefing by the parties, the referee issued a decision on costs in which he noted the Agreement "defined 'just compensation' as 'determined under principles of eminent domain law.' " Moreover, the referee concluded the proceeding was in " 'the nature of an eminent domain' " proceeding. Partners submitted a memorandum of costs. Freeport submitted a motion to tax costs, which Partners opposed.
Responding to Partners' memorandum of costs, in which Partners sought the payment of "litigation expenses" as defined in section 1250.410, the referee noted that this statute permits an award of such expenses only in a limited situation where the parties exchange final offers at least 20 days prior to the date of trial and the court finds that the condemning party's offer was unreasonable and the property owner's offer reasonable it may award these enhanced expenses; otherwise, the property owner is only entitled to costs in ordinary civil actions pursuant to section 1032. There is no legal or statutory basis to award "litigation expenses."
The referee rejected the argument that Partners substantially complied with this section by orally offering to "reduce the compensation in the 'six figures' to avoid litigation expenses" and found that Partners "is only entitled to costs as allowed pursuant to [section] 1032 and [section] 1033.5." Freeport argued Partners should not be awarded judicial reference fees because utilizing the referee system enabled Partners to avoid significant attorney fees in a court trial. The referee accepted this argument and denied Partners recovery for judicial reference fees. Partners does not challenge this finding on appeal. Instead, Partners argues the referee abused his discretion in denying them judicial reference fees as an element of its costs.
We review a trier of fact's decision denying costs for an abuse of discretion. (Chaaban v. Wet Seal, Inc. (2012) 203 Cal.App.4th 49, 52.) To find such an abuse, we must find the determination exceeds the bounds of reason. (Shamblin v. Brattain (1988) 44 Cal.3d 474, 478-479.)
Partners argues that in denying an award of judicial reference fees the referee denied them an element of just compensation. Freeport's argument, the fact that both parties theoretically saved attorney fees, does not permit the referee to impose this cost on Partners.
As Partners points out, section 645.1, subdivision (b) allows the court to order the parties to pay the fees of referees in any manner determined to be fair and reasonable. However, in order to be "made whole" for the taking, Partners insists the fair and reasonable allocation of the referee's fees, a cost of the taking, should be allocated to Freeport.
Partners also points to section 1273.010, subdivision (a), which provides that "Any person authorized to acquire property for public use may enter into an agreement to arbitrate any controversy as to the compensation to be made in connection with the acquisition of the property." Under such an agreement, "The party acquiring the property shall pay all of the expenses and fees of the neutral arbitrator." (§ 1273.020, subd. (a).) Partners concedes the statute applies to arbitration but argues the "concept" is identical to proceeding under judicial reference.
A property owner in an eminent domain action "shall be allowed their costs." (§ 1268.710.) The costs allowable to the property owner are identical to those allowable in civil actions under section 1032. (Ferrell v. County of San Diego (2001) 90 Cal.App.4th 537, 542-544.) Section 1033.5, subdivision (a) lists allowable cost items; subdivision (b) lists the items not allowable as costs. Section 1033.5, subdivision (c)(4) states: "Items not mentioned in this section and items assessed upon application may be allowed or denied in the court's discretion." Judicial reference fees are not listed in either subdivision (a) or (b) and, by default, fall under subdivision (c)(4).
The referee's determination does not exceed the bounds of reason. Indeed, it is reasonable that the referee found Partners' savings in trying the case through judicial reference offset potential litigation in the trial court. We find no abuse of discretion.
DISPOSITION
The judgment is affirmed. The parties shall bear their own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(5).)
RAYE, P. J. We concur: HULL, J. BUTZ, J.