Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County No. GIC843645, John S. Meyer, Judge.
AARON, J.
I.
INTRODUCTION
Crystal Lakeside Village Center, LLC (Crystal) appeals from a stipulated judgment in condemnation granting the County of San Diego (the County) the right to acquire a perpetual easement and two temporary construction easements across the parking lot of a shopping center owed by Crystal (the Property), for the purpose of constructing a flood drainage pipe.
Prior to trial, the County filed a motion requesting that Crystal be barred from claiming damages for the burden the easements placed on Crystal's ability to develop the Property. The basis of the County's motion was its claim that Crystal had no existing right to develop the portion of the Property impacted by the easements.
The trial court granted the County's motion. The trial court noted that the easements would traverse an area of the Property that was currently subject to covenants, conditions, and restrictions (CC&R's), and leases, both of which precluded development of the impacted parking area. The court ruled that Crystal would not be permitted to present evidence at trial of potential future development plans for the impacted parking area as a component of its claim for severance damages, because Crystal had no existing right to develop the parking area.
In the wake of the trial court's ruling, the parties agreed to the entry of a stipulated judgment which provides that the County is to pay Crystal a total of $107,093 in "just compensation" for the taking. (Cal. Const., art. I, § 19.) As a component of the stipulated judgment, the parties agreed that Crystal would retain its right to seek appellate review of the trial court's order precluding Crystal from presenting evidence of potential future development plans. The stipulated judgment further provides that the court shall enter a final order of condemnation upon Crystal's exhaustion of its limited right of appeal.
In its appeal, Crystal claims that the trial court erred in granting the County's motion. We reverse the trial court's order and remand for further proceedings.
II.
FACTUAL AND PROCEDURAL BACKGROUND
In March 2005, the County filed a complaint in eminent domain seeking to acquire a perpetual easement on the Property for the construction of an underground flood drainage pipe. The County sought the right to "remove buildings, structures, trees, bushes, undergrowth, and any other obstruction interfering with the use of said easement. . . ." The County also sought to acquire two temporary construction easements running along the length of the permanent easement.
The Property contains several buildings that comprise a commercial shopping center, and some associated parking areas. The 20-foot wide, approximately 7,000 square foot, easement would pass through one of the parking areas on the Property. Although the County would construct the drainage pipe underground, it is undisputed that no buildings could be constructed on the County's perpetual easement.
In July 2006, the County filed a motion pursuant to Code of Civil Procedure section 1260.040, "seeking a legal determination by the Court that [Crystal] has no existing right to develop the parking area of its Shopping Center, and all testimony based on such a right should be excluded from the opinions of any witness in the trial to determine just compensation in this matter."
Unless otherwise specified all subsequent statutory references are to the Code of Civil Procedure.
Section 1260.040 provides in relevant part, "(a) If there is a dispute between plaintiff and defendant over an evidentiary or other legal issue affecting the determination of compensation, either party may move the court for a ruling on the issue. The motion shall be made not later than 60 days before commencement of trial on the issue of compensation. The motion shall be heard by the judge assigned for trial of the case."
In its motion, the County noted that a property owner is entitled to "just compensation" when the government acquires the owner's property. (Cal. Const., art. I, § 19.) The County acknowledged that just compensation includes both the fair market value of the property taken (§ 1263.310) as well compensation in the form of severance damages, for any diminution in the fair market value of the remainder of the property. (§ 1263.410.) The County contended that Crystal was claiming severance damages based on burdens placed on its ability to develop the parking area of the Property, caused by the taking. The County argued, "[T]his claim is fatally flawed, as Crystal did not have 'an existing right' to develop that part of its property." The County noted that the existing CC&R's, a lease, and local zoning law precluded development of the parking area impacted by the perpetual and temporary easements.
The County further claimed that the CC&R's restricted Crystal from using the impacted parking area for anything other than parking, and ingress and egress, until the year 2030. In addition, the County argued that a lease between Crystal and one of the tenants of the shopping center, Blockbuster Videos, Inc. (Blockbuster), precluded the use of the impacted parking area for anything other than parking.
The County states that the CC&R's expire in 2041. The County's assertion on appeal is correct. The CC&R's were recorded in 1986 and have an express term of 55 years. Crystal does not contend otherwise.
The County also maintained that parking regulations in the San Diego County Zoning Ordinance (Zoning Ordinance) required that there be a certain number of parking spaces to serve the shopping center. The County contended that because the shopping center already lacked sufficient parking spaces under the Zoning Ordinance, "[a]ny expansion of the uses at the Shopping Center would trigger the need for additional spaces that cannot be created." The County further claimed that an "expansion or alteration within the parking area itself would result in the loss of parking spaces where there is already a deficiency." The County argued that the Zoning Ordinance would thus also preclude Crystal's development of the parking area impacted by the easements.
The County supported its motion with the applicable portions of the Zoning Ordinance, a declaration regarding the parking space deficiency on the Property, a map of the proposed easement, Crystal's owner's deposition testimony, the CC&R's, and the Blockbuster lease.
In July 2006, Crystal filed an opposition to the County's motion. In its opposition, Crystal argued that the highest and best use of the Property was for the existing structures to be demolished and replaced with a new mixed commercial and residential development. The existing improvements would be kept as interim uses to generate income during the time it would take to process development plans. Crystal further argued that none of the restrictions on the Property that the County mentioned in its motion would preclude the redevelopment of the area of the Property impacted by the easements, for the reasons set forth in an accompanying declaration offered by certified real estate appraiser Robert E. James.
In his declaration, James stated that the current improvements on the property were 47 years old and that they were nearing the end of their economic life. James further noted that the current zoning of the Property allowed for mixed-use commercial/residential redevelopment. Through his research, James had located a similar property in San Diego that contained a 42-year-old shopping center. James had spoken to the project manager of the San Diego property, David Kiefer, and learned that the existing structures on the San Diego property were in the process of being demolished and replaced with mixed residential and commercial space. James opined that the Property was suitable for similar redevelopment.
With respect to the impediments to redevelopment enumerated in the County's motion, James stated:
"I have reviewed [County's] Motion re severance damages. None of the three issues raised would preclude the highest and best use described above. The lease referred to expires in 2010, in less than four years. In my experience, it often takes at least that long to formulate and obtain approval of development plans and a prospective purchaser would probably leave the existing leases in place in order to receive the income until he was ready to develop. If for some reason the developer wanted to proceed before the lease term expired, he would have to buy out the tenant. This would be considered a cost of development and is a routine pre-development activity.
"[] The CC&R's referred to in [County's] Motion would not preclude the highest and best use. Once the leases expire or are bought out, the property owner would record new CC&R's consistent with the new development."
James also stated that while the new development would have to comply with current parking regulations, "[t]he effect of parking requirements for the existing improvements would be irrelevant to the new development and would not inhibit the new development in any way."
In addition, James stated that he had learned from Kiefer that prospective purchasers of the Property would demand a discounted sales price to reflect the impact of the centrally located easement, in view of the constraints that the easement would pose in situating new structures on the Property. James concluded that total severance damages would amount to $330,000.
The County filed a reply to Crystal's opposition. In its reply, the County raised numerous objections to James's declaration, including that statements in the declaration that were attributed to Kiefer constituted inadmissible hearsay. On the merits, the County reiterated that Crystal had no "existing right" to develop the impacted area. The County argued that the existing CC&R's, the Blockbuster lease, and the parking regulations contained in the Zoning Ordinance established as "a matter of law" that Crystal was "legally barred" from making any claim for severance damages premised on the potential development of the impacted parking area.
The County presented evidence that Crystal had entered into a new lease with H&R Block during the pendency of the litigation that contained an option for renewal until 2015. The County argued that H&R Block was a beneficiary of the CC&R's, and implied that the H&R Block lease would preclude development in the impacted parking area until 2015.
The County claimed that "when an owner does not have an existing legal right on which to make his claim for damages, it is the province of the court to withhold that claim from the jury." The County contended that Crystal did not "have a legal, existing right to develop the property in the manner it is proposing." The County argued that the trial court should determine "this legal issue" and preclude the jury from considering "an illegal use in determining value."
On August 4, 2006, the trial court issued a tentative ruling granting the County's motion. At the outset of its tentative ruling, the court sustained the County's objections to certain portions of James's declaration. The court ruled "The content of Mr. Kiefer's opinion (Project Manager of another development) is not admissible." The court overruled the remainder of the County's objections to the declaration.
The trial court explained the basis for its decision to grant the County's motion, as follows:
"It is undisputed that the CC&R's currently preclude development on the parking area. [Crystal] admits that before new development can take place, the existing leases would have to either expire or be bought out, and new CC&R's would have to be recorded. [Citation.] [¶] The fact that the easement creates a strip of land that cannot be built upon appears to be a fact a prospective buyer would take into consideration. Similarly, a prospective buyer would consider the fact that the CC&R's and existing leases preclude development of the same area. Regardless, however, both preclude development of the parking area. [¶] THEREFORE, the Court determines that there is no existing right to develop the parking area. Evidence of potential future development shall not be included as part of the severance damages valuation."
The trial court held oral argument on the motion. Crystal's counsel argued, "one party is suggesting that a prospective purchaser would take one look at the fact that there were existing leases and conclude that you could never redevelop the parking lot. [¶] The other party is saying that that's not the way the market works. That they're prepared to present evidence that a prospective purchaser would think this property is available." In response, the County argued, "It's very clear that there are legal impediments to any future development of this property and they have done nothing to show this court that those legal impediments can be removed to make an existing right to develop." At the conclusion of oral argument, the court confirmed its tentative ruling.
In September 2006, the parties entered into a settlement agreement in which the County agreed to pay Crystal $107,093 as just compensation for the taking. Included in these damages was $87,500 for the perpetual easement, $3,063 for the temporary construction easement, and $16,530 for severance damages. The settlement agreement provides, "The agreement to accept that portion of the total sum that is for severance damages, is subject to [Crystal's] reservation of his right to appeal the Superior Court's August 4, 2006 ruling on the County's Motion for Legal Determination, and [Crystal] expressly reserves [its] right to appeal that ruling."
On November 29, 2006, the trial court entered a stipulated judgment that requires the County to pay Crystal a total of $107,093 for the taking. The judgment reserved Crystal's right to seek appellate review of the trial court's August 4 order.
Crystal timely appeals from the November 29 judgment, seeking review of the trial court's August 4 order.
III.
DISCUSSION
The trial court erred in barring Crystal from presenting evidence of potential future development of the impacted parking area
A. Governing law
1. "Just compensation"
In Metropolitan Water Dist. of Southern California v. Campus Crusade For Christ, Inc. (2007) 41 Cal.4th 954, 965 (Metropolitan Water Dist. of Southern California), the California Supreme Court outlined the meaning of "just compensation":
"[A]rticle I, section 19 of the California Constitution, which requires the owner whose property is taken or damaged for a public use be paid 'just compensation, ascertained by a jury unless waived.'
"The Legislature has defined the measure of just compensation as 'the fair market value of the property taken.' (Code Civ. Proc., § 1263.310.) [Fn. omitted.] '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.' (§ 1263.320, subd. (a).) 'As section 1263.320 indicates, the fair market value of property taken has not been limited to the value of the property as used at the time of the taking, but has long taken 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." ' [Citation.] This prospective use 'is to be considered, not necessarily as the measure of value, but to the full extent that the prospect of demand for such use affects the market value while the property is privately held.' [Citation.]"
2. Severance damages
"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. (§ 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. (§ 1263.410, subd. (b).) Such compensation is commonly called 'severance damages.'" (Metropolitan Water Dist. of Southern California, supra, 41 Cal.4th at p. 965.)
The Metropolitan Water Dist. of Southern California court described the manner by which severance damages are to be to determined, and noted that such damages can result from a variety of factors:
" ' "Where the property taken constitutes only a part of a larger parcel, the owner is entitled to recover, inter alia, the difference in the fair market value of his property in its 'before' condition and the fair market value of the remaining portion thereof after the construction of the improvement on the portion taken. Items such as view, access to beach property, freedom from noise, etc. are unquestionably matters which a willing buyer in the open market would consider in determining the price he would pay for any given piece of real property." [Citation.] Severance damages are not limited to special and direct damages, but can be based on any factor, resulting from the project, that causes a decline in the fair market value of the property.' [Citations.]" (Metropolitan Water Dist. of Southern California, supra, 41 Cal.4th at p. 970.)
California law is clear that severance damages may be based on a decrease in the development potential of a piece of property and the resulting drop in the property's fair market value caused by the taking.
In San Diego Metropolitan Transit Development Bd. v. Cushman (1997) 53 Cal.App.4th 918, 928, this court concluded that a property owner was entitled "to seek severance damages for his inability to fully expand the existing retail building on the remainder because of the number of parking spaces lost as a result of the taking." (See also San Diego Gas & Electric Co. v. Daley (1988) 205 Cal.App.3d 1334, 1345 disapproved on another ground by Los Angeles County Metropolitan Transportation Authority v. Continental Development Corp. (1997) 16 Cal.4th 694, 720 ["The condemnee is permitted only one opportunity to seek compensation for all foreseeable damage to his property resulting from the condemnation and construction of the project as well as any improvements that may be constructed"]; City of Pleasant Hill v. First Baptist Church (1969) 1 Cal.App.3d 384, 404 [evidence demonstrating "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"].)
In determining severance damages, the fact that at the time of the taking, a parcel of property is subject to land use restrictions that prohibit a particular development does not preclude the owner from demonstrating that there is a reasonable probability that such restrictions could be changed to allow the development. (Metropolitan Water Dist. of Southern California, supra, 41 Cal.4th at p. 967 ["'Where due to zoning restrictions the condemned property is not presently available for use to which it is otherwise geographically and economically adaptable, the condemnee is entitled to show a reasonable probability of a zoning change in the near future and thus to establish such use as the highest and best use of the property,'" quoting City of Los Angeles v. Decker (1977) 18 Cal.3d 860, 867.) "If . . . the trial court determines that there is sufficient evidence of a reasonable probability of rezoning to warrant submitting the issue to the jury, it is for the jury, in considering the weight to be given valuation testimony based upon a reasonable probability of rezoning, to determine whether there was a reasonable probability of rezoning and, if so, its effect on the market value of the property." (Metropolitan Water Dist. of Southern California, supra, 41 Cal.4th at p. 968.)
3. The role of the court and the jury in determining severance damages
In Metropolitan Water Dist. of Southern California, supra, 41 Cal.4th 954, the Supreme Court considered the respective roles of the court and the jury in determining a party's entitlement to severance damages. (Id. at pp. 970-973.) The Supreme Court held that a trial court"must make certain determinations that are a predicate to the award of severance damages." (Id. at p. 972.) For example, the court noted, "[W]hat constitutes the larger parcel (for purposes of determining severance damages) 'is essentially a question of law for the determination of the court' [citation]; whether separate parcels may be aggregated and considered as one larger parcel is 'an issue of law to be decided by the trial court' [citation]; and whether a taking has substantially impaired access to the remaining property is 'a matter of law' for the court [citation]. (Id. at p. 971.) In addition, it is for the trial court to "determine whether a party had a cognizable legal interest in the condemned property," sufficient to support a claim for severance damages. (Ibid.)
A trial court may resolve "legal issue[s] affecting the determination of compensation," by way of a ruling on a section 1260.040 motion. (§ 1260.040, subd. (a).)
After the trial court makes any predicate legal determinations necessary to support an award of severance damages, and the property owner produces sufficient evidence tending to show that "some . . . aspect of the taking 'naturally tends to and actually does decrease the market value' of the remaining property, it is for the jury to weigh its effect on the value of the property. (Metropolitan Water Dist. of Southern California, supra, 41 Cal.4th at p. 973.)
B. Application
1. Standard of review
In its motion in the trial court, the County sought a "legal determination" that Crystal be barred "as a matter of law" from claiming severance damages stemming from limitations on its ability to develop the Property. The County's motion thus presents a "question of law" regarding "a predicate to the award of severance damages." (Metropolitan Water Dist. of Southern California, supra, 41 Cal.4th at p. 971.) We review questions of law de novo. (E.g., People v. Butler (2003) 31 Cal.4th 1119, 1127.)
We reject the County's argument that this court should apply the abuse of discretion standard of review, which applies to the review of evidentiary rulings. As is made clear by both the language of the County's motion as well as the trial court's ruling, the trial court made a legal determination that Crystal lacked a sufficient "existing right" in the Property to pursue its theory of severance damages at trial.
Notwithstanding Crystal's statement in its reply brief that the trial court partially and improperly sustained the County's objections to James's declaration, Crystal does not raise this issue on appeal.
2. The trial court erred in concluding that Crystal could not, as a matter of law, establish severance damages based on limitations on its ability to develop the impacted area
At the outset, we outline the scope of the relevant restrictions on development of the Property. Crystal does not dispute that it has entered into a lease that, in combination with the CC&R's, restrict the development of the impacted parking area until 2015. Crystal also does not dispute that it may not develop the impacted parking area under the CC&R's as currently recorded. However, the County does not dispute that upon expiration or termination of the leases on the Property, Crystal could record new CC&R's that would allow development of the impacted area. Thus, even assuming for the sake of argument that Crystal would not be able to terminate the current leases on the Property in order to proceed with redevelopment, Crystal would still be free to redevelop the Property as early as 2015 upon the expiration of all of the existing leases on the Property.
In its August 4 order, the trial court did not address the County's argument that parking regulations in the Zoning Ordinance constituted a ground for precluding Crystal from presenting evidence of potential future development of the Property. The County does not argue on appeal that the trial court's ruling should be affirmed on this alternative ground. Accordingly, we express no opinion on the issue.
While there appear to be other tenants on the Property, only the Blockbuster and H&R Block leases are in the record.
Under Metropolitan Water Dist. of Southern California, supra, 41 Cal.4th at page 967, even where a property owner does not have an existing right to pursue a particular development on a parcel of property due to zoning regulations, the owner may nevertheless establish a reasonable probability of rezoning so as to allow the development. We see no reason why a different rule should apply if the existing restrictions on the Property stem from provisions in leases or CC&R's rather than from zoning regulations. Neither the trial court nor the County has cited any authority that suggests that a property owner who owns a parcel in fee may not, as a matter of law, establish an entitlement to severance damages premised on restrictions on the development of the property caused by the taking of a easement in perpetuity, because the property owner has entered into leases that limit, for a term of years, the development of that property.
James's declaration constitutes sufficient evidence of a reasonable probability that the existing restrictions on the Property would not preclude development of the parking area. James's declaration supports the conclusion that the leases on the Property would not render redevelopment impossible, and James expressly stated that new CC&R's could be recorded upon termination of the leases, allowing for the redevelopment of the Property. While the County claims that Crystal failed to present evidence that its proposed development would be "economically feasible," such evidence was not necessary to defeat the County's motion that Crystal not be permitted to present evidence of its theory of severance damages because Crystal lacks an existing right to develop the impacted parking area.
In July 2005, when James offered his declaration, Crystal had not yet entered into the H&R Block lease. Assuming for the sake of argument that Crystal's actions subsequent to the March 2005 filing of the County's complaint in eminent domain are relevant in determining severance damages, we conclude that the five-year difference between the 2010 expiration of the Blockbuster lease and the 2015 expiration of the H&R Block lease is immaterial in determining whether Crystal presented sufficient evidence of a reasonable probability that the restrictions on the development of the Property would not preclude development.
We therefore reject the County's argument that Crystal is raising "for the first time" on appeal its ability to change the CC&R's.
Rather than examining whether there is evidence from which a jury could find a reasonable probability that the existing restrictions on the development on the Property could be altered so as to allow Crystal's proposed development, the trial court improperly concluded that, as a matter of law, the mere existence of the restrictions precludes Crystal's theory of severance damages based on potential redevelopment. We conclude that the trial court erred in granting the County's motion.
The trial court did not have the benefit of the decision in Metropolitan Water Dist. of Southern California at the time it issued its ruling.
C. Crystal was not required to present sufficient evidence of its entitlement to severance damages in opposing the County's motion
Although we conclude that the trial court erred in precluding Crystal from presenting evidence of potential future development of the Property on the ground that Crystal did not have an existing right to conduct such development, we emphasize the narrowness of our holding in this case.
In our view, both parties have misstated the rationale for the trial court's ruling in this case, in an effort to apply the California Supreme Court's subsequent decision in Metropolitan Water Dist. of Southern California, supra, 41 Cal.4th 954. The County cites Metropolitan Water Dist. of Southern California and argues, "At the time [Crystal] opposed the motion, it had the burden of producing sufficient, non-speculative, evidence to show that it could make a prima facie case to support . . . severance damages" stemming from its inability to develop the property. The County argues that Crystal failed to "meet its evidentiary burden." Similarly, Crystal states in its brief, "Crystal met its initial burden of producing evidence . . . for its theory of severance damages."
Notwithstanding these characterizations of the proceedings below, the issue before the trial court was not whether Crystal had met its burden of producing evidence sufficient to establish its entitlement to severance damages. In its motion, the County argued that Crystal should not be allowed to present evidence pertaining to the potential future development of the Property's impacted parking area because Crystal had no existing right to develop that area. In its ruling, the trial court quoted from the County's motion in describing the relief the County was requesting: "This motion requests the Court make a legal determination that [Crystal] 'has no existing right to develop the parking area of its Shopping Center, and all testimony based on such a right be excluded from the opinions of any witnesses in the trial to determine just compensation.' [Citation.]"
As noted above, the Metropolitan Water Dist. of Southern California court stated that a trial court may be asked to determine whether a party has met all of the legally antecedent conditions for the recovery of severance damages (e.g., whether the party has a sufficient legal interest in the property to support an award). (Metropolitan Water Dist. of Southern California, supra, 41 Cal.4th at p. 972.) In addition, the trial court may be asked to determine whether the property owner has met its burden of producing sufficient evidence to support such an award. (Id. at p. 973.)
For the reasons stated in part III.B., ante, we have determined that the trial court erred in making the first of these determinations. The mere fact that existing leases and CC&R's on the Property restrict Crystal's ability to develop the Property does not mean that Crystal has not, as a matter of law, suffered any severance damages from the taking of an easement in perpetuity across the Property that will restrict future redevelopment. Whether Crystal has presented sufficient evidence that the taking has caused it to suffer the severance damages it claims is a different matter. The County's motion does not raise this question.
For this reason, we reject the County's argument that we may affirm the trial court's order on the ground that Crystal failed to carry its burden of producing sufficient evidence of severance damages under Metropolitan Water Dist. of Southern California. The County has not made a motion placing this question at issue, and Crystal has thus not yet been put to its proof. Therefore, on remand, were the County to make a motion claiming that Crystal has failed to meet its burden of producing sufficient evidence to support a severance damage award, Crystal must be afforded the opportunity to present additional evidence in support of such an award.
However, we also reject Crystal's request that we reverse the judgment with directions to "empanel a jury to fully evaluate Crystal's severance damages based on the bisection of the [Property] in perpetuity, which will prevent its highest and best use." While such directions might be appropriate if we had determined that the Crystal has satisfied its burden of production on this issue, we have made no such determination in this appeal. Therefore, we simply reverse the trial court's order and remand the matter for further proceedings consistent with this opinion.
IV.
DISPOSITION
The trial court's August 4, 2006 order is reversed and the matter is remanded for further proceedings consistent with this opinion. The County is to bear Crystal's costs on appeal.
WE CONCUR: McCONNELL, P. J., McINTYRE, J.