Opinion
D082760
05-01-2024
SAN BERNARDINO COUNTY TRANSPORTATION AUTHORITY, Plaintiff and Respondent, v. KUZINA DEVELOPMENT, LLC, Defendant and Appellant.
Joseph S. Dzida for Defendant and Appellant. Woodruff & Smart, Craig G. Farrington, Michael C. Valdez, and Laura A. Morgan, for Plaintiff and Respondent.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Bernardino County, No. CIVDS1829991 John M. Tomberlin, Judge (retired) and Winston S. Keh, Judge. Affirmed.
Joseph S. Dzida for Defendant and Appellant.
Woodruff & Smart, Craig G. Farrington, Michael C. Valdez, and Laura A. Morgan, for Plaintiff and Respondent.
McCONNELL, P. J.
INTRODUCTION
In this eminent domain action, the San Bernardino County Transportation Authority (SBCTA) acquired a portion of property owned by Kuzina Development LLC (Kuzina) for a transportation improvement project. The parties stipulated that SBCTA had the right to acquire the property interests, but they disagreed on the amount of severance damages owed to Kuzina as a result of the taking. Kuzina's expert initially calculated severance damages by purportedly relying on a lease Kuzina entered with another party to develop and lease the property. After the trial court granted SBCTA's motion in limine to exclude evidence of the lease and Kuzina's expert opinion in reliance on the lease, Kuzina's expert revised his valuation to rely instead on another expert's feasibility study of the property site. The trial court then granted SBCTA's motions in limine to exclude the feasibility study and the revised opinion of Kuzina's expert.
Including the motions to exclude Kuzina's expert opinion and the lease upon which it was based, the trial court granted 12 motions in limine by SBCTA. The parties then entered a stipulated judgment of condemnation. Kuzina appeals, asserting the court's in limine rulings effectively prevented it from presenting any evidence on severance damages.
We conclude the trial court was obligated to exclude Kuzina's expert's opinions, and the evidence upon which it was based, under its essential gatekeeping function to exclude unreliable expert testimony. We find no errors in the court's other evidentiary rulings and therefore affirm the stipulated judgment.
FACTUAL AND PROCEDURAL BACKGROUND
I.
The Taking
Pete Kontos formed Kuzina with this mother in 2014. Kuzina's sole asset is a 46,752 square foot parcel of land in Ontario, California (the Property). Kontos and his mother are the principal members of Kuzina, and Kontos is the manager of the Property.
The Property is bounded by the SR-60 Freeway and located at a corner location on Archibald Avenue. Before the eminent domain action, the Property contained a vacant 2,838 square foot commercial building that was built in 2001; a paved parking lot; and an undeveloped 35,931 square foot parcel the parties refer to as the "Pad." According to Kontos, his family purchased the Property in order to develop it.
In 2018, SBCTA brought an eminent domain action to condemn a portion of the Property. SBCTA acquired (1) a fee interest consisting of an 1,811 square foot strip on the eastern side of the Property that abutted Archibald Avenue; (2) a 1,034 square foot permanent utility easement; (3) a 545 square foot temporary construction easement; and (4) abutter's rights south of the driveway from Archibald Avenue onto the Property (together, property interests). In total, SBCTA took approximately 4 percent of the Property's square footage, with the underground easement adding another 2 percent to the acquisition, as part of "the Archibald Avenue Improvement Project" (the Archibald Project) to create and widen freeway on-ramps to the SR-60 freeway from Archibald Avenue, and improve sidewalks, crosswalks, and curb ramps.
SBCTA recorded a notice of the pending eminent domain proceeding, or lis pendens, on November 28, 2018. The parties agreed SBCTA had the right to condemn the property interests and stipulated to an order for prejudgment possession. They also agreed Kuzina was entitled to just compensation. They disagreed, however, as to the amount of just compensation owed to Kuzina, in particular severance damages.
A "lis pendens is a recorded document giving constructive notice that an action has been filed affecting title or right to possession of the real property described in the notice." (BGJ Associates v. Superior Court (1999) 75 Cal.App.4th 952, 966.)
II.
The Lease
In June 2019, almost six months after the recording of the lis pendens, Kuzina leased the Property to a developer, Brixton Enterprises, Inc. (Brixton). The lease permitted Brixton to build a gas station and car wash on the Pad, and to repurpose the existing commercial building as a convenience store. After a $5 million investment, Brixton built and began operating the commercial complex.
The lease provided Kuzina with a reversionary interest, in which the existing commercial building and all improvements made by Brixton "shall automatically upon construction become the sole and absolute property of [Kuzina], without cost to [Kuzina]." Rent of the Property was for a term of 34 years, with a graduated schedule of payment as follows:
| Lease Year | Fixed Monthly Rent |
| 1 | $11,000 |
| 2 | $11,750 |
| 3 | $12,500 |
| 4 | $13,250 |
| 5 | $14,000 |
| 6-10 | $15,400 |
| 11-15 | $16,940 |
| 16-20 | $18,634 |
| 21-25 | $20,497 |
| 26-30 | $22,547 |
| 31-34 | $24,802 |
The lease included a clause, paragraph 20.4 titled "Existing Eminent Domain Claim," in which Brixton acknowledged the Archibald Project and "the pending eminent domain case affecting" the Property. Paragraph 20.4 also provided: "Tenant acknowledges and agrees that the Rent herein was equitably adjusted to reflect a discount of at least four thousand dollars ($4,000) per month due to the Archibald Project and the taking in the Eminent Domain Case." (Italics added.)
III.
The Experts' Initial Statements of Valuation
In the pending eminent domain action, the parties exchanged expert designations and statements of valuation. Kuzina designated James Stein as its property appraiser and valuation expert, and SBCTA designated Stuart DuVall.
Stein and DuVall agreed the highest and best use of the Property as vacant was a "high intensity commercial development," or in other words, "[r]estaurant or fast food (with or without drive-through), strip retail, convenience store with fueling, car wash, or a combination of the above, or similar uses." The experts also agreed the highest and best use of the Property as improved was to "[u]tilize the existing building for retail or commercial use (one to three tenants) and develop the remainder with strip retail, fueling, car wash, or other complementary use."
DuVall and Stein, however, drew significantly different conclusions on damages. Both used the same three methods to determine the value of the Property before the taking: an income approach, sales comparison approach, and cost approach. To determine the value of the remainder of the Property after the taking, DuVall used the same three methods. Stein, however, relied solely on the income approach to determine the value of the remainder.
" 'The Evidence Code codifies three basic methods of appraising real property, including income capitalization [(§ 819)], reproduction costs [(§ 820)] and comparative sale data [(§§ 816, 818)]." (San Diego Gas & Electric Co. v. Schmidt (2014) 228 Cal.App.4th 1280, 1289.)" 'In the comparative sales approach, the appraiser estimates market value by comparing the subject property to comparable properties of similar utility that have recently sold under competitive market conditions.'" (Torres v. San Francisco Assessment Appeals Board No. 1 (2023) 89 Cal.App.5th 894, 900.)" 'Using the income approach, an appraiser "estimates the future income stream a prospective purchaser could expect to receive from the enterprise and then discounts that amount to a present value by use of a capitalization rate." '" (Ibid.) Under the cost approach, a "witness may take into account as a basis for [their] opinion the value of the property or property interest being valued as indicated by the value of the land together with the cost of replacing or reproducing the existing improvements thereon, if the improvements enhance the value of the property or property interest for its highest and best use, less whatever depreciation or obsolescence the improvements have suffered." (§ 820.)
A. DuVall's Statement of Valuation
DuVall concluded the value of the improved Property before the taking was $2.2 million; the value of the property interests taken was $73,165; and thus the value of the remainder was $2,126,835. He determined the value of the remainder after the taking was $2,069,000. He calculated severance damages at $57,835 (the difference between the before and after condition values of the remainder). He concluded the total just compensation owed to Kuzina was $135,465, consisting of the value of the taken property interests ($73,165), severance damages ($57,835), and the value of the temporary construction easements ($4,465).
DuVall valued the 1,811 square foot fee interest before the taking at $55,115; the utility easement at $15,747; the temporary construction easement at $2,303; and the abutter's right as nominal.
B. Stein's Original Statement of Valuation
Stein issued his original statement of valuation in March 2020. Stein determined the value of the improved Property before the taking was $4.5 million; the value of the property interests taken was $201,118; and thus the value of the remainder was $4,298,882.
Like DuVall, Stein used all three valuation methods to determine the value of the Property before the taking. But in determining the value of the remainder of the Property after the taking, Stein (as he later testified in his deposition) "rel[ied] entirely on the leased value," that is the Brixton lease. Factoring the first lease year with monthly rent of $11,000, Stein calculated gross annual income to be $132,000 and adjusted annual net income (less vacancy and expenses) to be $125,400. Using a capitalization rate of 5 percent, he determined the total value of the remainder after the taking was $2,510,000. Stein then calculated severances damages to be $1,788,882. He concluded the total just compensation owed to Kuzina was $1,993,924, consisting of value of the property interests taken ($201,118), severance damages ($1,788,882), and the temporary construction easements ($3,924).
Stein explained the capitalization rate "is the return that someone (with full knowledge [in this case, of SBCTA's Archibald Project]) leasing a property expects to receive. It is a measure of risk from a given lease. The greater the risk the higher the expected return. The greater the risk the lower the value of a given property. Because the cap[italization] rate is divided into the net operating income, numerically lower cap[italization] rates lead to higher values."
At his deposition in May 2021, Stein was asked about his reliance on the Brixton lease, specifically paragraph 20.4. He testified he did not follow through with the same valuation approach in the after condition that he used to value the before condition "because of paragraph 20.4 of the lease." He further testified that if paragraph 20.4 "didn't exist in the lease," his valuation would "[p]robably not" be the same. Instead, "[s]everance damages would have been less." (Italics added.) He stated he did not know how he would calculate severance damages if paragraph 20.4 was "not available."
IV.
SBCTA's Motions in Limine Nos. 1 to 6
On June 8, 2021, SBCTA filed six motions in limine to exclude evidence related to Kuzina's calculation of severance damages. SBCTA sought to exclude in motion in limine no. 1, evidence of the lease entered after the recording of the lis pendens; in no. 2, Stein's expert opinion on severance damages; and in no. 5, evidence regarding temporary construction-related impacts.
Kuzina does not appeal from the trial court's orders granting SBCTA's motions in limine nos. 3 and 6, and we therefore do not discuss them.
A. SBCTA's in Limine Arguments
In motion in limine no. 1, SBCTA moved to exclude evidence of the lease agreement between Kuzina and Brixton under Evidence Code sections 817 and 822. According to SBCTA, section 817 prohibited the use of the lease to establish damages because it was executed after SBCTA filed the lis pendens. SBCTA further argued that section 822, subdivisions (a)(4) and (6), prohibited Stein's reliance on the lease to value the Property because the lease pertained to "interests other than what is being valued." Finally, it argued the lease should be excluded under section 352 because Kuzina attempted to manufacture damages through the lease's terms, specifically paragraph 20.4, and therefore evidence of the lease was more prejudicial than probative. For these same reasons, in motion in limine no. 2, SBCTA moved to exclude Stein's expert opinion which relied on the lease.
Undesignated statutory references are to the Evidence Code.
In motions in limine nos. 4 and 5, SBCTA sought to exclude the order of prejudgment possession as well as evidence related to purported construction-related damages. The prejudgment order of possession permitted SBCTA to possess the acquired property during the pendency of the eminent domain proceedings and required SBCTA to protect the infrastructure of the remaining property. SBCTA anticipated that Kuzina would use the order of possession to assert damages based on SBCTA's construction of its transportation improvement project in a manner that violated the order. It argued the appraisal experts did not attribute any damages related to SBCTA's construction, and regardless, Kuzina received the full value of the rent paid by Brixton during construction and therefore Kuzina could not establish damages.
B. Developments After SBCTA Filed Motions in Limine Nos. 1 to 6
1. Stein's June 15, 2021 Declaration
After SBCTA filed motions in limine nos. 1 to 6, Stein prepared a declaration in support of Kuzina's opposition to the motions in limine. In his declaration, Stein tried to explain his statement of valuation. Stein averred, contrary to his deposition testimony, that he "did not rely solely on the rent that the parties to the lease negotiated" and instead "deducted potential expenses," as he did in valuing the before condition, "which left a projected after condition income for the Property of $125,400 per year or $10,450 per month." Stein stated, however, this projected after condition income "was far below" what he believed the Property, at its highest and best use, could actually generate. In his opinion, the Property could generate net income of at least $223,250 per year. The diminution in income of $97,850 ($223,250 less $125,000) "further supported [his] belief and opinion that SBCTA's taking had caused severe severance damages in the form of decreased rental value." Thus, "[w]hile the parties to the lease agreed that the reduction was 'at least' $4,000 per month, [his] own research showed that it was much higher ($18,604 minus $10,450 equals an $8,154 difference, more than a $4,000 difference)." He opined that the disruption and uncertainties caused by construction of the Archibald Project, anticipated to span 30 months, would impact the value of the Property in its after condition, specifically the rent any potential tenant is willing to pay.
Stein did not explain how he arrived at the projected after condition income, but it is the same figure based on his use of the lease's first year rent.
Stein also stated that Kontos informed him during his assignment that, before the taking, "the site was intended to be leased to two tenants, one that would occupy the current building and a second which would occupy the [P]ad area on the southern end of the parcel. It was represented by the owner that the original plan was not possible in the after condition due to change of size and shape of the [P]ad, thus the owner sought a tenant that would lease the entire site, including the in-place improvements." Thus it was Stein's opinion that "Kuzina's inability to use the full potential of the Property by having two separate developments on it, instead of only one, would also cause severance damage to the Property." Stein's opinion regarding the loss of a second income stream was not presented in his original statement of valuation.
2. June 19, 2021 Errata to Stein's Deposition Testimony
After Stein finalized his declaration, Kuzina's counsel filed an errata to the transcript of Stein's May 2021 deposition testimony materially changing his testimony. The errata made, among others, the following corrections:
"Q If that clause with the $4,000 didn't exist in the lease that you're referring to, would your valuation be the same as is in this Statement of Valuation?
"A Probably not. Yes.
"Q In what way might it have been changed?
"A Severance damages would have been less. If the project had not caused the rental reduction, rents would have been higher which would result in less, or even no, severance damages.
"Q And how would you have calculated those severance damages if that clause was not available? [¶ . . . ¶]
"[A] Yeah, I don't know." (Italics added.)
"Q And as you testified today, you don't know how you would have valued severance damages if that clause [(paragraph 20.4)] did not exist?
"A No, I didn't do that analysis. The analysis would not change. Section 20.4 supports my conclusions. Severance damages would have been calculated in the same manner."
"Q So you just rely entirely on the leased value?
"A Correct. Correct as to what the parties negotiated, but in determining severance damages my reliance was on the complete analysis which included cap rates, expenses, vacancy among other market conditions."
3. July 2021 in Limine Hearing
The trial court (Judge John M. Tomberlin) conducted an in limine hearing on July 14, 2021. Judge Tomberlin granted SBCTA's first six motions and reserved ruling on two additional motions that SBCTA filed six days prior to the hearing.
SBCTA's motions in limine nos. 7 and 8 were granted at a subsequent hearing that we discuss in detail later in this opinion.
In granting motions in limine nos. 1 and 2, the court excluded evidence of the lease and Stein's testimony to the extent he "relie[d] on the existence of the lease." The court found that paragraph 20.4 of the lease was "unreliable" and "irrelevant" to show the market's diminution in rent as a result of the taking. The purported $4,000 discount in rent, the court said, was "simply a matter of something that was stuck into that lease for the purposes of trying to prepare for litigation." The stated discount was not a "bargain[ed] for consideration" between Kuzina and Brixton because "[i]t didn't cost [Brixton] anything to agree to whatever amount [Kuzina] wished to put into the lease." Without analysis, the trial court also granted motions in limine nos. 4 and 5.
The court then continued the motion in limine hearing to allow Stein to prepare a supplemental report within the parameters of the court's rulings, and to allow the parties to conduct additional depositions.
V.
October 1, 2021 Feasibility and Site Utilization Study by Doug Lau Following the initial in limine hearing, Kuzina provided a "Feasibility [and] Site Utilization Study" for the Property prepared by an architect, Doug Lau. Lau concluded that before the taking, a trio of businesses-a convenience store, gas station, and car wash-could "legally fit" on the undeveloped Pad "without affecting the ability to continue separately leasing the existing retail building to maintain its additional income stream." Lau concluded that after the taking, the trio of businesses "can no longer fit" on the Pad "without reduction" of the building area, parking, and fuel pumps; and reduction of fuel pumps "reduces yield below industry standard." Lau's report included a diagram purporting to show the physical feasibility of the trio of businesses fitting onto the Property alongside the pre-existing commercial building, before the taking.
VI.
Stein's July 29, 2022 Revised Statement of Valuation
On July 29, 2022, Stein issued a revised statement of valuation. Stein again concluded the highest and best use of the Property as-vacant was a "high intensity commercial development," and as-improved to be "[c]ontinued use of the [existing commercial] building and development of the excess land" as a high intensity commercial development. This time, again using all three methods of valuation, Stein determined the value of the Property as improved before the taking was $4,790,000 (higher than his original figure of $4.5 million); the value of the property interests taken remained the same at $201,118; and thus the value of the remainder was $4,588,882 (higher than his original figure of $4,298,882).
Notably, Stein appeared to no longer rely on the lease or paragraph 20.4 to value the remainder of the Property after the taking. Instead, he explicitly relied on Lau's feasibility study and made several "Extraordinary Assumptions" at the request of Kuzina's counsel. (Boldface &underscore omitted.) Chiefly, Stein assumed the Property after the taking "would be able to generate only one of the two highest and most profitable income streams that it could have generated in the before condition, and while the building still exists and has been absorbed into the development of the remainder in order to fit the gas station/car wash/c[onvenience] store, the separate additional income stream from that retail building has been lost." In other words, Stein assumed the income from the existing commercial building had been completely lost because of the taking.
Based on these assumptions and using rental comparables, Stein determined gross annual market rent for the Property as improved was $115,788 and adjusted net income was $109,998. At a capitalization rate of 5 percent, he calculated a market income stream of $2,199,960, which he concluded was the net severance damages to the remainder of the Property. Thus, relying on an assumed loss of the second income stream from the existing commercial building, Stein's estimate of the severance damages to the remainder increased by over $415,000. Consequently, his revised conclusion on total just compensation owed to Kuzina increased to $2,409,593.
VII.
SBCTA's Motions in Limine Nos. 7 to 12
Following the disclosure of Kuzina's supplemental expert statements, SBCTA filed additional in limine motions. In motions in limine nos. 7 and 8, SBCTA moved to exclude two of Kuzina's trial exhibits-Exhibits 294 and 295-and the anticipated expert testimony supporting the exhibits; in no. 9, evidence of Lau's feasibility study and specific development plans; in no. 10, Stein's revised severance damages opinion; in no. 11, expert testimony of Lau; and in no. 12, Kontos's testimony regarding highest and best use of the Property.
On August 25, 2022, the matter was called for trial before Judge Winston Keh. Judge Keh confirmed he would not disturb the previous rulings granting SBCTA's motions in limine nos. 1 through 6. As to motions in limine nos. 7 and 8, Kuzina's counsel proffered that Exhibits 294 and 295 "have old data that's never going to go in front of the jury" and thus both were "not in play" at the moment. Nevertheless, Judge Keh granted motion in limine no. 8 to exclude Exhibits 294 and 295. Although Judge Keh did not make an express ruling on motion in limine no. 7, the exhibit at issue in this motion-Exhibit 294-was excluded by the court's ruling granting in limine motion no. 8. The court then granted the remainder of SBCTA's motions in limine-nos. 9 to 12-for the reasons we discuss further below.
Judge Tomberlin had retired.
Following the August 2022 in limine hearing, SBCTA and Kuzina entered a "Stipulation for Final Appealable Judgment." They agreed Kuzina would be paid $206,475.50 for compensation of the property interests taken by SBCTA, with Kuzina "fully retaining all of its appellate rights with respect to all of the [c]ourt's [in limine] rulings." The court entered a "Final Appealable Judgment in Condemnation" the same day, incorporating the terms of the parties' settlement agreement. This appeal followed.
DISCUSSION
I.
Applicable Legal Principles
Article I, section 19, of the California Constitution requires the owner whose private property is taken or damaged for public use to be paid just compensation. (See also U.S. Const., 5th &14th Amends.) The purpose of an eminent domain action is to fix the amount of just compensation, the measure of which is the fair market value of the property taken. (Code Civ. Proc., § 1263.310.) "The fair market value of the property taken is the highest price on the date of valuation that would be agreed to by a seller, being willing to sell but under no particular or urgent necessity for so doing, nor obliged to sell, and a buyer, being ready, willing, and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available." (Id., § 1263.320, subd. (a).) Fair market value is not limited to value of the property "as used at the time of the taking," but takes into account the" 'highest and most profitable use to which the property might be put in the reasonably near future, to the extent that the probability of such a prospective use affects the market value.'" (City of San Diego v. Neumann (1993) 6 Cal.4th 738, 744 (Neumann).)
"When the property taken is part of a larger parcel, the owner is compensated not merely for the injury to the part taken but also for the injury, if any, to the remainder. ([Code Civ Proc.,] § 1263.410, subd. (a).) Compensation for injury to the remainder is the amount of the damage to the remainder caused by the taking, reduced by the amount of the benefit to the remainder caused by the taking. ([Code Civ. Proc.,] § 1263.410, subd. (b).) Such compensation is commonly called 'severance damages.'" (Metropolitan Water Dist. of So. California v. Campus Crusade for Christ, Inc. (2007) 41 Cal.4th 954, 965.) "Severance damages . . . consist generally of the diminution in the fair market value of the remainder property caused by the project." (Id. at pp. 970-971.)
The determination of severance damages involves several steps. First, there must be a determination of the "highest and best use" of the subject property. (City of San Diego v. D.R. Horton San Diego Holding Co., Inc. (2005) 126 Cal.App.4th 668, 680.) "Once the highest and best use of the property is determined, one of several approaches to valuation must be selected. [S]ections 815-820 set forth various methodologies sanctioned for use by valuation experts, including considering sales contracts of comparable properties [(§ 816)] and capitalizing income from the subject land and its existing improvements [(§ 819)]." (San Diego Metropolitan Transit Development Bd. v. Cushman (1997) 53 Cal.App.4th 918, 926 (Cushman).)
We review a trial court's in limine rulings to exclude evidence for an abuse of discretion. (City of San Diego v. Sobke (1998) 65 Cal.App.4th 379, 395 (Sobke); Piedra v. Dugan (2004) 123 Cal.App.4th 1483, 1493.) Here, however, Kuzina argues the abuse of discretion standard should not apply here because the trial court's rulings on all 12 SBCTA motions disposed of Kuzina's "entire severance damages case" by excluding its expert's opinions. Citing to City of Livermore v. Baca (2012) 205 Cal.App.4th 1460 (Baca) and Garner v. BNSF Railway Co. (2024) 98 Cal.App.5th 660, Kuzina contends the court's rulings were the equivalent of a nonsuit and should be reviewed de novo. We disagree.
Unlike Baca, the trial court here did not prohibit the parties from presenting evidence of severance damages, nor did it order the wholesale exclusion of Kuzina's expert testimony. To the contrary, after the court granted the first six of SBCTA's in limine motions, it continued trial so that Kuzina could have its expert prepare a supplemental expert report. And unlike Baca, in which there was a dispute as to the availability of severance damages altogether, here the parties agree that Kuzina is entitled to compensation for its damages. (Baca, supra, 205 Cal.App.4th at p. 1464 [trial court granted in limine motions to exclude all evidence of severance damages].) The disagreement between the parties is premised on the amount and the basis on which severance damages owed to Kuzina should be calculated. Because we conclude the court's rulings did not result in a nonsuit, we decline to review the trial court's discretionary rulings de novo. Instead, we review the rulings for abuse of discretion.
II.
Admissibility of the Lease and Stein's Opinion Based on the Lease (Motions in Limine Nos. 1 and 2)
Kuzina and SBCTA disagree on whether, because the lease was filed after the lis pendens was recorded, section 817 serves as a categorical bar to the admissibility of the lease and Stein's opinion in reliance on the lease. Aside from section 817, SBCTA argues Stein's opinion was inadmissible because it failed to appraise the fair market value of the Property in its aftercondition; rather he appraised something less. SBCTA emphasizes that Stein's opinion failed to consider the revisionary interest in the Property following Brixton's five-million dollar investment or the graduated rent increases under the terms of the lease.
Here, we need not determine whether admission of the lease was precluded under section 817 as a matter of law because, as we explain below, Stein's expert opinion of severance damages, based upon his use of the lease, was improper and his income valuation methodology distortive. (See Philip Chang &Sons Associates v. La Casa Novato (1986) 177 Cal.App.3d 159, 173 ["If evidence is excluded on an improper objection but the evidence excluded is subject to objection on a different ground, it does not matter that the reason advanced by counsel or relied upon by the court was wrong."].) As such, under its gatekeeping function, the trial court properly excluded the opinion. (Sobke, supra, 65 Cal.App.4th at p. 396.) Without Stein's opinion, the lease had no independent relevance, and the trial court properly ordered its exclusion.
We note, however, that the purpose of the proscription against considering property sales or the terms of a lease executed after the filing of the lis pendens is to "prevent the possibility of influencing the valuation by means of collusive sales," or a collusive lease agreement, in order to manipulate, "the valuation upward at the expense of the condemning entity." (San Diego Gas & Electric Co. v. 3250 Corp. (1988) 205 Cal.App.3d 1075, 1084.) Kuzina's lease with Brixton is precisely the type of evidence that section 817 intended to exclude. The terms of the lease-including paragraph 20.4, which provided for a rent reduction due to the eminent domain proceeding-is an attempt to manufacture evidence in order to increase the Property's valuation.
We first turn to the principles governing the admissibility of valuation evidence in eminent domain proceedings. In these cases, the only type of evidence which may be used to establish property value is "the opinion of qualified experts and the property owners." (Aetna Life and Casualty Co. v. City of Los Angeles (1985) 170 Cal.App.3d 865, 877 (Aetna).) In evaluating the admissibility of expert evidence, including valuation evidence, the trial court has a "duty to act as a 'gatekeeper' to exclude speculative expert testimony." (Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 753 (Sargon).) The trial court's gatekeeping function permits it to inquire into the material relied upon by the expert and assess its reliability in determining admissibility of their opinion. (Sargon, at p. 772; see also § 802.)
Expert valuation opinion must employ an established valuation method that is "sanctioned by California law;" otherwise the evidence may be excluded. (County Sanitation Dist. v. Watson Land Co. (1993) 17 Cal.App.4th 1268, 1282.) California courts have sanctioned the "income approach" to valuation in eminent domain cases so long as the valuation does not capitalize the rental value of "planned or future improvements not in existence as of the date of value." (Cushman, supra, 53 Cal.App.4th at p. 930.) The income approach is codified in section 819, which provides, "the capitalized value of the reasonable net rental value attributable to the land and existing improvements thereon" may be taken into account to determine the value of property. (See also Cushman, at p. 930, fn. 5 [section 819 codifies the Dunn rule, which provides," 'income from property in the way of rents is a proper element to be considered in arriving at the measure of compensation to be paid for the taking of property.' [People v. Dunn (1956) 46 Cal.2d 639, 641]"]; §§ 817, 818 [permitting a witness to consider the rent reserved within the lease of a property, or leases of comparable property, to determine the value of a subject property].)
Through a sanctioned valuation methodology, including an income approach, severance damages are measured by determining the market value of the remainder property as a part of the whole in its before condition and deducting from it the market value of the remainder in its after condition. (San Bernardino County Flood Control Dist. v. Sweet (1967) 255 Cal.App.2d 889, 904 (Sweet).) Here, Stein's valuation statement purported to use an income approach, but he improperly measured severance damages by determining the market value of the remainder property as a part of the whole in its before condition as a fee simple estate, but in its after condition as a ground lease without the reversionary interest including the Brixton improvements called for in the lease. (See New Haven Unified School Dist. v. Taco Bell Corp. (1994) 24 Cal.App.4th 1473, 1479). Although Stein indicated he did not rely solely on the lease in forming his first statement of valuation, the figures he used to determine the after-condition income of the Property were based on the lease's first year rent.
Moreover, Stein's income valuation methodology also was improper as it did not capitalize market rents, or even the income to be actually paid over the life of the 34-year lease. Instead, it capitalized the lease's discounted first year $11,000/month rent, in a lease with significant escalating rents. (See § 819; Sargon, supra, 55 Cal.4th at p. 772 ["the trial court acts as a gatekeeper to exclude expert opinion testimony that is ... based on reasons unsupported by the material on which the expert relies"].) Thus, Stein's valuation statement relied on certain selective provisions cherrypicked from the lease-the terms of which were entered into after Kuzina received notice of the eminent domain action-and in doing so he failed to reliably appraise the Property in its condition after the taking.
In other words, although Stein's valuation statement purported to utilize the income approach to determine severance damages, his methodology was distortive and improper. This evidence is precisely the unreliable expert testimony cautioned against by our high court in Sargon, and the trial court was obligated to exclude it. (See Sargon, supra, 55 Cal.4th at p. 753 [the trial court has a "duty to act as a 'gatekeeper' to exclude speculative expert testimony"]; see also Sacramento, etc. Drainage Dist. ex rel. State Reclamation Bd. v. Reed (1963) 215 Cal.App.2d 60, 69 [Courts have "judicial responsibility for limiting the permissible arena in condemnation trials"].) Without Stein's testimony, the lease had no independent evidentiary value because Kuzina did not present another qualified valuation witness to capitalize the rent reserved in the lease, nor does Kuzina suggest that Kontos was qualified to provide such opinion testimony as the property owner. (See Contra Costa Water Dist. v. Bar-C Properties (1992) 5 Cal.App.4th 652, 661 ["The generally recognized right of an owner to testify is not absolute. In stating an opinion as to the value of property, an owner is bound by the same rules of admissibility as any other witness."].) Opinion evidence of a property's value is critical in eminent domain cases because the trier of fact cannot render a verdict that "either exceeds or falls below the limits established by the testimony of the witnesses." (Aetna, supra, 170 Cal.App.3d at p. 877.)
Moreover, the trial court's findings that a provision of the lease, paragraph 20.4, was unreliable, irrelevant, and not part of the bargained for consideration of the contract, were implicit findings under section 352 and provide a further basis for the lease's exclusion. (See People v. Villatoro (2012) 54 Cal.4th 1152, 1168 [trial court's implicit § 352 analysis supported court's admission of evidence]; People v. Padilla (1995) 11 Cal.4th 891, 924, overruled on other grounds in People v. Hill (1998) 17 Cal.4th 800 ["we are willing to infer an implicit weighing by the trial court on the basis of record indications well short of an express statement"].) As the trial court commented, the rental discount provided by paragraph 20.4 did not reflect market conditions since Brixton had no economic interests in an amount it would never actually pay, and therefore it lacked incentive to bargain the final amount included in paragraph 20.4. Stein's first statement of valuation relied on the lease that the court found to be, at least in part, unreliable. The court's findings in this regard provided further justification for the lease's exclusion, and Stein's opinion in reliance on the release. Accordingly, we find no abuse of discretion in the trial court's rulings granting motions in limine nos. 1 and 2.
III.
Admissibility of the Feasibility Study and Related Expert Opinion Testimony (Motions in Limine Nos. 9 through 11)
In motion in limine no. 9, SBCTA moved to exclude evidence of Lau's feasibility study and specific development plans. In motion in limine no. 10, it sought to exclude Stein's revised severance damages that relied on Lau's feasibility study. And in motion in limine no. 11, it sought to exclude Lau's expert testimony. The trial court granted each of these motions.
In making its rulings, the trial court found that Lau's feasibility study demonstrated the frustration of Kuzina's specific plan of development, which is inadmissible to show loss of profits or enhanced damages. Further, because the parties did not dispute the highest and best use of the Property, the court found there was no basis to admit evidence establishing the feasibility of a plan of development. Finally, the court found that Stein's opinion on severance damages was based on the impermissible assumption the only highest and best use of the Property was the use preferred by the property owner, and therefore his opinion was not admissible.
Turning first to the legal principles governing the admissibility of Lau's feasibility study, we note that "the reduction in probable income from the operation of [a business on land affected by an eminent domain taking] would be considered by a prospective purchaser in determining the fair market value and the price [they] would be willing to pay, and it therefore constitutes an acceptable reason for the opinion of severance damage asserted by defendants' appraiser." (Ventura County Flood Control District v. Security First National Bank (1971) 15 Cal.App.3d 996, 1002.) Generally, however, "[e]vidence of the owner's plan of development is not admissible where its purpose is to show loss of profit or enhanced damages which would be suffered by being prevented from carrying out a particular scheme of improvement." (Sweet, supra, 255 Cal.App.2d at p. 899.) In other words, with some limited exceptions, "evidence as to what the owner intended to do with the land cannot be considered." (People v. La Macchia (1953) 41 Cal.2d 738, 751, overruled on other grounds in County of Los Angeles v. Faus (1957) 48 Cal.2d 672, 679.)
Relying on Cushman, supra, 53 Cal.App.4th 918, Kuzina argues the feasibility study was admissible to show, "(a) the taking impaired the ability to 'fit' the highest, best, and most profitable use on the Property in its after taking condition; (b) the impact of the elimination of the square footage and depth needed in order to 'fit' that use; and (c) the impact on the practicalities (cost and 'fit') involved in fulfilling the highest, best and most profitable use." We disagree. The feasibility study functioned to demonstrate the frustration of Kuzina's specific plan of development. It was therefore inadmissible and the trial court did not abuse its discretion in excluding it.
In Cushman, a governmental transit agency acquired a portion of a commercial parcel of land that contained a retail building. (Cushman, supra, 53 Cal.App.4th at p. 923.) The property owner, Cushman, sought severance damages for the reduction in the square footage available for expanding the retail development. (Id. at pp. 924-925, 929.) Cushman's expert opined that the highest and best use of the property was to develop the retail space to its maximum capacity. The transit agency argued Cushman's intended expansion was dependent on a number of contingencies that were not "reasonably probable." (Id. at pp. 924, 928.) At trial, Cushman introduced into evidence three feasibility diagrams demonstrating the reasonable probability of the commercial building's expansion, and the transit agency challenged the admission of this evidence on appeal. (Id. at p. 929.)
This court concluded that Cushman was permitted to seek severance damages based on its inability to fully expand the existing business on the remainder of their property after the eminent domain taking. (Cushman, supra, 53 Cal.App.4th at pp. 928-929.) We also found the expansion diagrams were not evidence of the frustration of a specific development plan, but rather demonstrated the highest and best use of Cushman's property. (Id. at p. 929.)
Cushman is distinguishable from this case because it involved a retail building already in existence at the time of the taking. (Cushman, supra, 53 Cal.App.4th at p. 929.) By contrast, here, Kuzina's property had a vacant commercial building and an undeveloped lot on the date of the taking. Kuzina's feasibility diagrams demonstrated the frustration of one specific future plan of development-a plan for a gas station, car wash, and convenience store, along with the existing commercial building. The parties agree that the Property's highest and best use was through a high intensity commercial development, which was in fact developed on the land, albeit not in the manner originally intended by Kuzina. Cushman therefore does not support Kuzina's argument.
Kuzina also points to Sweet as support for its claim. In Sweet, a government agency acquired an easement to install a storm drain conduit on a largely unimproved parcel of land, and the property owner sought severance damages. (Sweet, supra, 255 Cal.App.2d at pp. 893-894.) At trial, the property owner's expert testified the property's highest and best use was for a gas station and a complementary business, like a restaurant. (Id. at p. 896.) Because of the taking, the size of the remainder of the property would no longer support a restaurant the size of which the owner originally contemplated, and therefore the value of the property was reduced. (Ibid.)
On appeal, the government agency challenged the admission of evidence that demonstrated the frustration of the property owner's "projected plan of development." (Sweet, supra, 255 Cal.App.2d at p. 899.) The Sweet court upheld the trial court's decision to permit the expert's valuation testimony, explaining: "[w]hile there may be some support for plaintiff's contention that [the property owner's expert] may have based his opinion, in part, on the effect the taking had in preventing the owner from pursuing its contemplated plan of development, his testimony indicated that he considered proper and relevant factors such as the feasibility of utilizing the surface of the easement for a service station, the normal site requirement for a restaurant, the effect of the loss of 40 feet of frontage on the uses to which the frontage was adaptable prior to the take and the limited uses to which it would be adaptable thereafter .... Such factors as the size and shape of the remainder, loss of highway frontage, and impairment of the use of the property by showing the uses to which the property was adaptable prior to the taking and the limited uses to which the property may be devoted thereafter may properly be considered in determining severance damage." (Id. at p. 902.)
The Sweet court clarified the circumstances under which a plan of development is admissible for valuation purposes. The court explained, "[e]vidence of the owner's plan of development is not admissible where its purpose is to show loss of profit or enhanced damages which would be suffered by being prevented from carrying out a particular scheme of improvement. [Citations.] Under certain restricted circumstances, however, the owner's projected plan is admissible where the feasibility of the proposed use is a relevant consideration in determining market value. [Citations.] But evidence of value in terms of money which the land would bring for a specific use or under an owner's projected plan of development is not admissible." (Sweet, supra, 255 Cal.App.2d at pp. 899-900.)
Here, the feasibility diagram created by Lau demonstrated a single development scheme that was frustrated by the taking, and its purpose was to show loss of profits from the commercial building. Stein's revised valuation statement also considered the loss of income from the commercial building that was absorbed into the business plan. Accordingly, the diagram, Lau's expert opinion in reliance on the diagram, and Stein's revised valuation opinion were inadmissible under the principles of Sweet because they were offered to show the loss of profits from Kuzina's inability to develop its business plan as it originally intended. (Sweet, supra, 255 Cal.App.2d at p. 899 ["Evidence of the owner's plan of development is not admissible where its purpose is to show loss of profit"].)
Further, when feasibility studies have been deemed admissible, the parties have disputed the highest and best use of the land. For example, in Los Angeles v. Decker (1977) 18 Cal.3d 860, 864, the trial court properly allowed conflicting evidence about whether the highest and best use of a property was for airport parking or a residential development. In Neumann, supra, 6 Cal.4th at pages 755-757, the parties also disagreed about the highest and best use of condemned property, justifying evidence on that point. But here, the parties agree that the highest and best use of the Property is a combination of high intensity commercial businesses, and therefore a feasibility study is not needed on this point. (See also Los Angeles v. Kerckhoff-Cuzner Mill &Lumber Co. (1911) 15 Cal.App. 676, 677 [a property owner could not introduce into evidence a diagram showing proposed shops, improvements, and a railway switch track to be constructed on the condemned property]; People v. Chevalier (1959) 52 Cal.2d 299, 309 [the trial court did not err in denying admission of an architect's sketch showing a proposed motel and restaurant project where the experts agreed on best use of the land]; People ex rel. Dept. Pub. Wks. v. Princess Park Estates, Inc. (1969) 270 Cal.App.2d 876, 884-885 [the trial court did not err in denying admission of an economic feasibility study showing development of a proposed subdivision, especially when it was not disputed the highest and best use of the property was a subdivision development]; Emeryville Redevelopment Agency v. Harcros Pigments, Inc. (2002) 101 Cal.App.4th 1083, 1104 [the trial court erred by allowing evidence of a specific development project where all the parties and the court agreed the highest and best use of the property was mixed commercial use].)
In summary, the trial court was within its discretion to exclude the feasibility study and expert opinion relying on it. This is not to suggest the parties' experts were not permitted to consider the change in size and shape of the Property and any resulting reduction in value in calculating severance damages. "Such factors as the size and shape of the remainder, loss of highway frontage, and impairment of the use of the property by showing the uses to which the property was adaptable prior to the taking and the limited uses to which the property may be devoted thereafter may properly be considered in determining severance damage." (Sweet, supra, 255 Cal.App.2d at p. 902.) We do not construe the trial court's ruling excluding evidence of the feasibility study as preventing Kuzina's experts from considering these other relevant factors.
The trial court also found Lau's opinion relied on out-of-court statements that were inadmissible under the prohibition against hearsay and our high court's holding in People v. Sanchez (2016) 63 Cal.4th 665. Kuzina argues on appeal that the court's rulings in this regard were erroneous. Because we conclude the trial court did not err in excluding the feasibility study on the basis that its purpose was to demonstrate the frustration of a specific development plan, we need not address this claim.
Kuzina also argues the trial court erred in excluding the feasibility study because Judge Keh was not permitted to "revisit" Judge Tomberlin's order in which the court continued "the trial so that Kuzina could obtain a feasibility study and revamp its appraisals if needed in light of that study." We disagree with Kuzina's description of the record. Kuzina does not cite to the record where Judge Tomberlin "required" a feasibility study, presumably because there was no such order or statement by the court. Rather, the court excluded the expert testimony of Farid Cohen, which Kuzina does not challenge on appeal, because there was insufficient foundation to support his opinion without a feasibility study. At no point did the court require a feasibility study, or suggest that a feasibility study like the one created by Lau would be admissible if an expert had relied on it. The court indicated it would permit "a continuance for the purpose of allowing a supplemental report specifically to be prepared, [and] for an additional deposition to be taken of Mr. Stein."
IV.
Exclusion of the Prejudgment Order of Possession and Evidence Relating to Construction Damages (Motions in Limine Nos. 4 &5)
At the initial in limine hearing, Judge Tomberlin granted SBCTA's motions in limine nos. 4 and 5 to exclude evidence of the prejudgment order of possession and construction-related damages. Kuzina asserts that through motions in limine nos. 4 and 5, SBCTA sought to preclude Kuzina from claiming "any damages except for those supported by expert appraisal opinion." According to Kuzina, damages in an eminent domain proceeding are not limited to those supported by expert opinion. SBCTA argues the trial court properly excluded the evidence because Kuzina's valuation experts did not disclose an opinion regarding the alleged construction-related damages or any violations of the prejudgment possession order.
Kuzina correctly asserts that damages to the Property resulting from SBCTA's construction of their project may be recoverable in eminent domain. Indeed, just compensation" 'is not limited to physical invasions of property taken for "public use" in eminent domain, but also encompasses special and direct damage to adjacent property resulting from the construction of public improvements.'" (Regency Outdoor Advertising, Inc. v. City of Los Angeles (2006) 39 Cal.4th 507, 516, fn. 2.) However, contrary to Kuzina's argument on appeal, the trial court did not categorically preclude testimony from nonexperts. On the contrary, with regard to Kontos, Kuzina's principal member, the trial court ruled "[h]e can give testimony as a percipient witness."
However, the record does not establish the foundation on which Kontos could have provided an opinion regarding the amount of alleged construction-related damages, nor does the record reveal a statement of valuation by Kontos assuming such foundation was established. Stein's statement of valuation did not include an opinion as to the amount of any damages stemming from SBCTA's construction or any violations of the order of possession. Code of Civil Procedure section 1258.250 requires the parties to exchange statements of valuation that include opinions regarding the amount of damages resulting from an eminent domain taking." 'The [disclosure] requirements imposed by [Code of Civil Procedure] section 1258.250 apply both to expert appraisers retained by parties and to property owners.'" (Redevelopment Agency of San Diego v. Attisha (2005) 128 Cal.App.4th 357, 378.) Accordingly, we find no abuse of discretion in the trial court's rulings excluding evidence not properly included and exchanged through the parties' statements of valuation.
V.
Exhibits 294 and 295 and Related Expert Testimony (Motions in Limine Nos. 7 &8)
In motions in limine nos. 7 and 8, SBCTA moved to exclude two of Kuzina's trial exhibits-Exhibits 294 and 295-and the anticipated expert testimony supporting the exhibits.
Exhibit 294 was titled "Kuzina's Loss &Damages" and included three tables. (Boldface and underscore omitted.) The first table depicted a total loss of $1,081,175 and was partially based on the money Kuzina spent to develop a restaurant on the Pad. Underneath the table was a visual model of a restaurant. The second table indicated a total loss of $2,870,057, and was purportedly based on Stein's statement of valuation. The third table indicated a total loss of $3,475,415, and was based on Kuzina's inability to use the pre-existing commercial building in addition to the trio of businesses developed by Brixton.
Exhibit 295 was titled "DuVall's Value of Existing Building's Lost Rent," and indicated a "[l]oss of over $1,401,860" with damages totaling "$1,479,490." (Boldface and underscore omitted.) Contrary to this exhibit, however, DuVall's valuation statement calculated the just compensation owed to Kuzina, including severance damages, to be only $135,465.
SBCTA objected to the admission of Exhibit 294 because it included damages not identified in Stein's statement of valuation, and because the values exceeded Stein's estimation of just compensation. SBCTA argued both Exhibits 294 and 295, and the values of loss depicted in them, were inadmissible because a jury's award in an eminent domain case may not exceed the witnesses' estimation of just compensation. Further, as to Exhibit 295, SBCTA argued the exhibit attempted to "mix and match" parts of Stein's appraisal opinion with DuVall's opinion, and that it deliberately attempted to exaggerate and manipulate DuVall's estimation of severance damages.
At the August 2022 hearing, Judge Keh granted motion in limine no. 8 because the court found the exhibits contained valuation data other than the evidence provided for in the experts' reports. The court did not make an express ruling on motion in limine no. 7. However, Exhibit 294 at issue in motion in limine no. 7 was excluded in the court's ruling granting motion in limine no. 8.
On appeal, Kuzina asserts several errors regarding the trial court's exclusion of the exhibits and the expert opinion underlying the exhibits. First, Kuzina argues that because Judge Tomberlin determined that motion in limine no. 8 was "moot" at the initial motions hearing in July 2021, Judge Keh was not permitted to "revisit[ ] Judge Tomberlin's prior rulings." Kuzina posits, "because Kuzina had withdrawn its original exhibits, Judge Keh's granting of the motion created an anomaly. Just what exactly did Judge Keh intend to exclude?"
Kuzina's rhetorical question does not make clear what remedy it seeks, nor does Kuzina provide legal authority to support its argument. If Kuzina truly withdrew the exhibits and did not intend to offer them at trial, then there is no beneficial remedy available from this court and the issue is moot on appeal. (In re Miranda (2011) 191 Cal.App.4th 757, 763 [case moot where "there is no beneficial remedy available"].)
Further, we disagree with Kuzina's view of the record. Nowhere in the record does Judge Tomberlin rule that motion in limine no. 8 was moot. Judge Tomberlin expressly reserved any ruling on motion in limine no. 8, continued trial and directed the parties to exchange further briefing on both motions in limine nos. 7 and 8, if necessary. The minute order from the hearing states that Kuzina's counsel represented to the court that they would be withdrawing the exhibits at issue in motion in limine no. 8, but there was no finding of mootness by the trial court. At the continued trial call and hearing before Judge Keh, Judge Keh explained that Judge Tomberlin's rulings on motions nos. 1 through 6 would stand, but the court concluded that a ruling on motion in limine no. 7 was necessary because "Judge Tomberlin did not rule upon" it. Although Kuzina claims to have withdrawn the exhibits at issue in motion in limine no. 8, its counsel expressly represented to Judge Keh they were "not foreclosing using something like [the exhibits] later." Accordingly, Judge Keh did not err in addressing the motions to exclude evidence that counsel proffered they may be attempting to use at a later time.
Kuzina's argument on appeal also misses the substantive point of the trial court's rulings. The court held that Kuzina was not permitted to introduce expert valuation evidence not included in the experts' reports. The valuations in Exhibits 294 and 295 were purportedly based on calculations by the expert appraisers. But many of the wildly differing figures in the exhibits did not appear in the experts' statements of valuations at all. For example, one of the tables in Exhibit 294 showed a total loss of $3,475,415; we did not find this value to appear in either parties' statements of valuation. Code of Civil Procedure section 1258.250 requires the parties to indicate the amount of just compensation being claimed in their statements of valuation, and the trial court was well within its discretion to exclude the exhibit for failing to comply with this statutory requirement.
VI. Expert Testimony by Kontos (Motion in Limine No. 12)
In motion in limine no. 12, SBCTA moved to exclude testimony from Kontos regarding the highest and best use of the Property. SBCTA argued the court should exclude this testimony because: (1) Kontos was not identified as an expert or qualified to provide expert testimony; (2) Kontos did not provide a statement of valuation; and (3) because the parties did not dispute the highest and best use of the Property. The trial court granted the motion to the extent Kontos intended to offer opinions within the purview of expert testimony. In issuing its ruling, the court stated, "[Kontos] is not to offer any expert opinion. He can offer lay opinion, proper lay opinion, what he saw, what he heard. That's fine. But anything beyond that is not permissible."
Kuzina purports to appeal this ruling by emphasizing the dispute between the parties regarding the highest and best use of the Property and through a sentence in their opening brief that states, "[i]n this appeal, Kuzina challenges the rulings granting all these motions except for Nos. 3 and 6." However, Kuzina does not specify in what manner the court abused its discretion by permitting Kontos to testify as to his lay opinion and observations, and by prohibiting him from providing expert testimony. In its opening brief, Kuzina seemingly agrees with the trial court's ruling, stating "Kontos does not intend to offer expert testimony, but will testify as to case specific facts underlying the expert opinions of other experts." It is therefore unclear that Kuzina is asking this court to reverse the trial court's ruling or what remedy it seeks. But regardless, Kuzina presents no legal authority to support its argument and we will not develop its argument for it. (Meridian Financial Services, Inc. v. Phan (2021) 67 Cal.App.5th 657, 684 ["The reviewing court is not required to develop the parties' arguments or search the record for supporting evidence and may instead treat arguments that are not developed or supported by adequate citations to the record as waived.") Accordingly, we perceive no abuse of discretion in the trial court's ruling granting SBCTA's motion in limine no. 12.
DISPOSITION
The stipulated judgment is affirmed. Kuzina shall recover its costs on appeal. (Code Civ. Proc., § 1268.720.)
I CONCUR: IRION, J.
Do, Concurring and Dissenting.
I concur in all parts of the majority opinion but respectfully dissent as to its decision affirming the trial court's orders granting SBCTA's motion in limine no. 1, to exclude evidence of the lease between Kuzina Development LLC (Kuzina) and Brixton Enterprises, Inc. (Brixton), and motion in limine no. 2, to exclude the original valuation statement of Kuzina's expert, James Stein.
I.
The Trial Court Erred by Excluding the Lease, and Stein's Opinion in Reliance on It, Pursuant to Evidence Code Sections 817 and 822
Undesignated statutory references are to the Evidence Code.
SBCTA advanced three reasons for the exclusion of the lease: (1) section 817 barred its admission because it was entered six months after notice of the lis pendens; (2) section 822, subdivisions (a)(4) and (a)(6), prohibited its use in valuing the Property because the lease pertained to "interests other than what is being valued"; and (3) under section 352, evidence of the lease was more prejudicial than probative because, in SBCTA's view, the lease-specifically paragraph 20.4-was an attempt by Kuzina to manufacture damages. For these same three reasons, in its motion in limine no. 2, SBCTA also sought to exclude Stein's original statement of valuation to the extent it relied on the lease.
Kuzina's 46,752 square foot parcel of land in Ontario, California.
At the July 2021 hearing, the trial court granted both motions but on the basis of the first two reasons advanced by SBCTA only. As I discuss later, the court rejected SBCTA's assertion there was anything "fraudulent" or "sham" about the lease, and made no explicit or implicit finding that the lease itself was inadmissible under section 352. The court ruled "that [sections] 817, 822 taken together says the lease doesn't come in," specifically the lease was "not going to be admissible because it was entered into six months after the filing of the lis pendens." Kuzina contends the trial court erred in its interpretation of sections 817 and 822, as a matter of law. I agree.
A. Section 817 Does Not Bar Admission of the Lease, or Stein's Original Valuation Statement
Section 817, subdivision (a), provides, "when relevant to the determination of the value of property, a witness may take into account as a basis for an opinion the rent reserved . . . except that in an eminent domain proceeding where the lease includes only the property or property interest being taken or a part thereof, such lease may not be taken into account in the determination of the value of property if it is entered into after the filing of the lis pendens." (Italics added.) By its own terms, section 817 prohibits consideration of a lease entered into after the filing of the lis pendens where the lease is of the taken property interest. It does not categorically bar admission of a lease created after notice of condemnation for valuation to prove damages, as SBCTA urges.
This conclusion is confirmed by the California Law Revision Commission comments to section 817. (See HLC Properties, Ltd. v. Superior Court (2005) 35 Cal.4th 54, 62 ["While not binding, the [California Law Revision] Commission's official comments reflect the intent of the Legislature in enacting the Evidence Code and are entitled to substantial weight in construing it."].) The Commission stated: "Subdivision (a) of [s]ection 817 is amended to add the limitation that a lease of the subject property is not a proper basis for an opinion of value of the property after the filing of the lis pendens in an eminent domain proceeding.... Nothing in subdivision (a) should be construed to limit the use of leases created after filing of the lis pendens to show damages to the property." (Cal. Law Revision Com., com., 29B pt. 3A West's Ann. Evid. Code (2009 ed.) foll. § 817, p. 183, italics added (Comments).)
The California Law Revision Commission further observed that section 817 "is comparable to a provision of [s]ection 815 (sale of subject property)." (Comments, § 817, p. 183.) Section 815 similarly prohibits evidence of the sale of a property for valuation purposes where the sale was entered into after the lis pendens was filed and where the sale includes "only the property or property interest being taken or a part thereof." Although a court has yet to construe the phrase, "property or property interest being taken or a part thereof," within the meaning of section 817, this court considered the scope of the very same phrase found in section 815 in an eminent domain action. (See San Diego Gas &Electric Co. v. 3250 Corp. (1988) 205 Cal.App.3d 1075, 1084-1085 (3250 Corp.).)
Section 815 provides, in full: "When relevant to the determination of the value of property, a witness may take into account as a basis for an opinion the price and other terms and circumstances of any sale or contract to sell and purchase which included the property or property interest being valued or any part thereof if the sale or contract was freely made in good faith within a reasonable time before or after the date of valuation, except that in an eminent domain proceeding where the sale or contract to sell and purchase includes only the property or property interest being taken or a part thereof, such sale or contract to sell and purchase may not be taken into account if it occurs after the filing of the lis pendens." (Italics added.)
In 3250 Corp., a gas and electric company brought an eminent domain action to establish an easement for an electric transmission line and a service road on private property. Following the condemnation, the subject property was sold in federal bankruptcy proceedings to new owners. (3250 Corp., supra, 205 Cal.App.3d at pp. 1079, 1082-1083.) The trial court admitted evidence of the bankruptcy sale for valuation purposes even though the sale occurred after the filing of the lis pendens. (Id. at pp. 1082-1083.) We concluded the court did not err in admitting evidence of the sale because the property sold was not the same as the property interest taken through eminent domain. (Id. at p. 1083.) Rather, the property sold was a fee interest in the property, and the property interest taken was a nonexclusive easement. (Id. at p. 1084.) Because "[t]he sale after the lis pendens . . . did not include only the property interest being taken," we held section 815 did not bar evidence of the sale to establish damages. (Ibid.)
The same result obtains here. The lease between Kuzina and Brixton was only of the untaken remainder of the Property following notice of SBCTA's condemnation. The lease included a diagram demonstrating the perimeter of the leased property and it did not include the land or property interests taken by SBCTA. Thus section 817's proscription against the use of a lease entered into after the filing of the lis pendens to show damages is inapplicable here. The trial court erred, as a matter of law, when it interpreted section 817 to mandate the lease's exclusion, regardless of "whether it relates to the property taken or the remainder."
SBCTA does not dispute that the lease pertains only to the remainder. It instead argues paragraph 20.4 of the lease ascribes damages to the property interest being acquired and is evidence of collusion. As we noted in 3250 Corp., the proscription against consideration of a sale-or, in this case, a lease-after the lis pendens is filed "is designed to prevent the possibility of influencing the valuation by means of collusive sales manipulating the valuation upward at the expense of the condemning entity." (3250 Corp., supra, 205 Cal.App.3d at p. 1084.) But contrary to SBCTA's argument, the trial court did not find the lease to be a "sham," or "anything that was done [with respect to the lease] that was underhanded" or "fraudulent." Indeed, the court emphasized, "I'm not saying that at all." Although SBCTA argues on appeal that manipulation of the lease's rental value was apparent on the face of the lease, the court did not make that factual finding. Its express comments preclude even an implicit factual finding of manipulation.
For these reasons, I disagree with the majority's footnoted conclusion that "[t]he terms of the lease-including paragraph 20.4, which provided for a rent reduction due to the eminent domain proceeding-is an attempt to manufacture evidence in order to increase the Property's valuation." (Maj. opn., at p. 18, fn. 10.)
Section 817 thus did not categorically bar evidence of the lease, or Stein's reliance on it to value the property and calculate severance damages. B. Section 822 Does Not Bar Admission of the Lease, or Stein's Original
Valuation Statement
In its motions in limine nos. 1 and 2, SBCTA argued that if the lease is of the untaken remainder, or as SBCTA put it, "the lease is of an adjacent parcel," and not prohibited by section 817, then the lease is of a "different property" than what is being valued and prohibited under section 822, subdivisions (a)(4) and (a)(6). The trial court granted motions in limine nos. 1 and 2 on the basis of section 822 too, but without elaboration. And although SBCTA relied on section 822 in the trial court, in its respondent's brief on appeal, it fails to address Kuzina's argument that the court's exclusion of the lease, and Stein's opinion in reliance on it, under section 822 was error. Regardless, I would conclude the court erred in this respect too. Section 822 does not apply here.
In an eminent domain action, section 822, subdivision (a)(4), provides that "[a]n opinion as to the value of any property or property interest other than that being valued" is "inadmissible as evidence and shall not be taken into account as a basis for an opinion as to the value of property." (Italics added.) Likewise, subdivision (a)(6) makes inadmissible evidence of "[t]he capitalized value of the income or rental from any property or property interest other than that being valued" as a basis for an opinion as to the value of the property. (Italics added.)
As I have already discussed, the lease between Kuzina and Brixton is for the untaken remainder of the Property after SBCTA's condemnation. The untaken remainder is the property interest being valued in this eminent domain proceeding. Thus the lease does not include the value of a "different" property or property interest other than that being valued, and Stein's opinion capitalizing the value of the rental income from the remainder is from the property interest being valued. The limitations set forth in section 822 are simply not implicated by the lease.
In sum, I conclude sections 817 and 822 were not a proper basis for excluding evidence of the lease and Stein's reliance on the lease to render his expert opinion on severance damages. The trial court erred, as a matter of law, in granting SBCTA's motions in limine nos. 1 and 2 on these grounds.
II.
Neither Sargon Nor Section 352 Permits Us To Affirm On the Record Before Us
The majority declines to resolve whether the trial court erred in excluding evidence of the lease and Stein's original expert valuation under sections 817 and 822. Instead it affirms exclusion of the evidence on an alternative ground-the trial court was "obligated" to exclude Stein's expert opinion pursuant to its gatekeeping role under Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747 (Sargon). (Maj. opn., at pp. 20-21.) And because the majority finds that "the lease had no independent relevance" without Stein's opinion, it holds the trial court also properly excluded the lease. (Maj. opn., at p. 18.) It also concludes the trial court implicitly found the lease was more prejudicial than probative under section 352, and thus was properly excluded. (Maj. opn., at p. 21.) On the record before us, I disagree these are bases on which we can affirm.
Under California law, the trial court has a substantial duty to act as a gatekeeper in determining whether to exclude expert testimony from trial. In carrying out its gatekeeping function, the court is governed by sections 801 and 802. (See Garner v. BNSF Railway Co. (2024) 98 Cal.App.5th 660, 675, citing Sargon, supra, 55 Cal.4th at pp. 753, 770.) Under section 801, the trial court acts as a gatekeeper to exclude speculative or irrelevant expert opinion, which our Supreme Court has explained, is an opinion based on assumptions of fact without evidentiary support, or rest on "guess, surmise or conjecture." (Sargon, at p. 770 [cleaned up].) Section 802 "permits the trial court to find the expert is precluded by law from using the reasons or matter as a basis for the opinion. 'Law' includes constitutional, statutory, and decisional law." (Sargon, at p. 771 [cleaned up].) Thus under sections 801 and 802, "the trial court acts as a gatekeeper to exclude expert opinion testimony that is (1) based on matter of a type on which an expert may not reasonably rely, (2) based on reasons unsupported by the material on which the expert relies, or (3) speculative." (Sargon, at pp. 771-772.)
The trial court's gatekeeping role is one involving its broad discretion. (Sargon, supra, 55 Cal.4th at pp. 769, 772-773; see Bader v. Johnson &Johnson (2022) 86 Cal.App.5th 1094, 1105.) But "the court's discretion is not unlimited, especially when . . . its exercise implicates a party's ability to present its case. Rather, it must be exercised within the confines of the applicable legal principles." (Sargon, at p. 773.) For that reason, our Supreme Court has warned that trial courts "must also be cautious in excluding expert testimony." (Id. at p. 772.) "The trial court's preliminary determination whether the expert opinion is founded on sound logic is not a decision on its persuasiveness. The court must not weigh an opinion's probative value or substitute its own opinion for the expert's opinion. Rather the court must simply determine whether the matter relied on can provide a reasonable basis for the opinion or whether that opinion is based on a leap of logic or conjecture." (Ibid.) In short, "[t]he goal of trial court gatekeeping is simply to exclude 'clearly invalid and unreliable' expert opinion." (Ibid.)
Here the trial court gave no indication it did or would exercise its discretionary gatekeeping role to exclude evidence of the entire lease, or Stein's reliance on the rental value of the lease. Nor did it give any indication that it found this evidence more prejudicial than probative and would exercise its discretion to exclude all of it on this basis. In fact, just the opposite.
The trial court rejected SBCTA's argument that "to the extent the lease impacts value in any way it should be inadmissible," including "the income that's received from it." The court did not agree with SBCTA's view that "anything that stems from the lease is a problem," including that Stein "relied on the lease in order to determine his severance damages," and that "eliminates the severance damage discussion by the expert." The court found paragraph 20.4-which purported to attribute a $4000 "discount" in monthly rent to the eminent domain action-was unreliable because the amount stated was not a "bargain for consideration." But the court also stated:
"However, the lease that does exist, the value that is paid in rent, that's -that is a bargain for consideration. As far as I'm concerned, that makes sense, it's reliable, and I think it should be admissible. And I don't know why it shouldn't be." (Italics added.) Noting that rent was being paid under the lease, the court further stated: "So as far as I'm concerned the amount that the lessee is paying the lessor I think should come in. And all these other things that you're talking about you can attack. You can tell the jury how this is, in your opinion, a sham. I don't see how it could be a sham if the money is actually being paid." (Italics added.)
There is no dispute that Brixton had invested $5 million of capital into completing construction of the entire commercial complex and was operating it as a tenant under the terms of the lease at the time of the hearing.
After additional arguments by counsel for Kuzina and SBCTA, the trial court ultimately ruled sections 817 and 822 barred admission of the lease "because it was entered into six months after the filing of the lis pendens," which I conclude was error for the reasons previously discussed.
It is true, as the majority opinion notes, that "[i]f evidence is excluded on an improper objection but the evidence excluded is subject to objection on a different ground, it does not matter that the reason advanced by counsel or relied upon by the court was wrong." (Philip Chang &Sons Associates v. La Casa Novato (1986) 177 Cal.App.3d 159, 173; see Maj. opn., at p. 18.) But I have not found a case in which this principle has been invoked to affirm a ruling incorrect as a matter of law, on the alternative basis of discretion the trial court simply did not exercise, whether under Sargon or section 352. (See Erika K. v. Brett D. (2008) 161 Cal.App.4th 1259, 1273 ["We cannot affirm on the basis of a discretionary finding the [trial] court never made."].)
In Philip Chang, the Court of Appeal emphasized, "If the exclusion is proper upon any theory of law applicable to the instant case, the exclusion must be sustained regardless of the particular considerations which may have motivated the trial court to its decision." (Philip Chang, at p. 173, italics added.) And there, the alternative theory of law upon which the Court of Appeal affirmed the trial court's erroneous ruling was the collateral source rule. (Ibid., citing Davey v. Southern Pacific Co. (1897) 116 Cal.325, 329 [affirming judgment of nonsuit and order denying new trial in personal injury action on alternative theory of law that there was material variance between the pleadings and proof].)
Sargon involved the trial court's actual exercise of discretion to exclude expert testimony at trial, and only after the court conducted an inquiry under section 802 as to the reasons for the expert's opinion to determine whether those reasons are supported by the material on which the expert relied. (Sargon, supra, 55 Cal.4th at p. 771.) That inquiry was undertaken over an eight-day evidentiary hearing in which the expert testified. (Id. at p. 755.) After the hearing, the trial court in a 33-page ruling concluded that the expert's opinion on the lost profits of a small dental implant company was" 'not based upon matters upon which a reasonable expert would rely,'" that it was speculative and that the reasons for the opinion were unsupported by the material on which he relied. (Id. at pp. 761, 766-767.) On this developed record, our Supreme Court concluded the trial court "properly found the expert's methodology was too speculative for the evidence to be admissible" and affirmed the court's exercise of its discretion. (Id. at pp. 776, 781.)
We do not have such a record here. Unlike Sargon, the trial court in this case did not conduct an evidentiary hearing, and there was no examination of Stein pursuant to section 802.
The majority, however, finds Stein's methodology "distortive and improper" because he failed to consider the reversionary interest in the lease and did not capitalize the graduated rent increases under the lease. (Maj. opn., at p. 20.) But even in eminent domain actions, the proof required to establish damages need not be calculated with absolute certainty. "The law requires only that some reasonable basis of computation of damages be used, and the damages may be computed even if the result reached is an approximation." (GHK Associates v. Mayer Group, Inc. (1990) 224 Cal.App.3d 856, 873; accord Sargon, supra, 55 Cal.4th at pp. 774-775.) While I share the majority's" 'healthy dose of skepticism'" (Sargon, at p. 768) over the ultimate persuasiveness of Stein's valuation of severance damages, I cannot say his methodology or opinion is" 'clearly invalid or unreliable'" (id. at p. 772) as a matter of law, or that a trial court would have no discretion but to exclude his expert opinion.
In his original statement of valuation, Stein determined the value of the remainder of the Property after the taking by capitalizing the monthly rent for the first year of the lease term. Courts have sanctioned this valuation method, referred to as the income approach, so long as the valuation does not capitalize the rental value of "planned or future improvements not in existence as of the date of value." (San Diego Metropolitan Transit Development Bd. v. Cushman (1997) 53 Cal.App.4th 918, 930.) Under section 819, "the capitalized value of the reasonable net rental value attributable to the land and existing improvements thereon" may be taken into account to determine the value of property. Sections 817 and 818 expressly permit a witness to consider the rent reserved within the lease of a property, or leases of comparable properties, to determine the value of a subject property. (§§ 817, subd. (a), 818.) This court has recognized the income approach as a proper valuation method. (Cushman, at pp. 929-930, [acknowledging as a basis for valuation the capitalization of rental income under § 819, so long as the rental income stream does not pertain to "nonexisting improvement[s]"].) As we explained in Cushman, " 'income from property in the way of rents is a proper element to be considered in arriving at the measure of compensation to be paid for the taking of property.'" (Id. at p. 930, fn. 5, citing People v. Dunn (1956) 46 Cal.2d 639, 641.)
In my view, Stein's failure to consider the lease's reversionary interest in the lease and to capitalize its graduated rent increases are factors a trial court may properly consider within its discretion to weigh probative value against prejudice. And in People v. Padilla (1995) 11 Cal.4th 891, 924, our high court stated that a reviewing court evaluating a trial court's discretionary, evidentiary ruling may "infer an implicit weighing by the trial court on the basis of record indications well short of an express statement."(Italics added.) Such record indications include "argument of counsel or comments by the trial court, or both, touching on the issues of prejudice and probative value from which we might infer that the court was aware of the . . . section 352 issue and thus of its duty to weigh probative value against prejudice." (Ibid.) It may also include the court's use of the "talismanic word 'prejudice.'" (Ibid.) But to infer an implicit weighing by the trial court, we ask are "[t]hose guideposts . . . sufficiently present in the record"? (Ibid.) For reasons I have already discussed, I believe they are not in this case.
I would also note that Padilla and People v. Villatoro (2012) 54 Cal.4th 1152, 1168 relied on by the majority involved a trial court's ruling admitting evidence under sections 1101 and 1108, respectively. Unlike the legal issues in this case, both statutes expressly incorporate section 352.
III.
Conclusion
I dissent from the majority's decision to affirm the trial court's granting of SBCTA's motions in limine nos. 1 and 2. I would reverse the stipulated judgment and remand to the trial court for it to exercise the discretion that belongs to its "exclusive province." (Gouskos v. Aptos Vill. Garage, Inc. (2001) 94 Cal.App.4th 754, 762.)