BORDER BUSINESS PARK, INC v. CITY OF SAN DIEGO

Filed 9/19/06

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

APPEAL from the Superior Court of San Diego County.^[1] Vincent P. DiFiglia and Raymond J. Ikola, Judges.^[2] Affirmed in part and reversed in part with directions.

McKenna Long & Aldridge, Niddrie, Fish & Buchanan, Michael H. Fish; Niddrie & Hegemier, David A. Niddrie; Thorsnes, Bartolotta & McGuire, Vincent J. Bartolotta, Jr.; Wasserman, Comden, Casselman & Pearson, David B. Casselman; and Geoffrey C. Hazard, Jr., for Plaintiff and Appellant.

Horvitz & Levy, Barry R. Levy, Lisa Perrochet, Curt Cutting; Latham & Watkins, Michael J. Weaver and Jared G. Flinn for Defendant and Appellant.

INTRODUCTION

The City of San Diego (the city) appeals a judgment for inverse condemnation awarding $65.3 million in damages to Border Business Park, Inc. (hereafter sometimes referred to as Border).

Border is a real estate development company which was developing a business park in Otay Mesa. Otay Mesa was then an unincorporated area in San Diego County adjacent to the Mexican border, and was later annexed by the city. Border asserted two causes of action for inverse condemnation. The first arose from the city’s actions in connection with its announcements of a plan to create an international airport in Otay Mesa. Border contended that these announcements substantially interfered with sales of property within the business park and diminished the value of the property. The second inverse condemnation cause of action arose from the city’s diversion of truck traffic, engendered by a newly opened crossing at the Mexican border, in a manner which allegedly interfered substantially with access to the business park.

The city asserts numerous grounds for reversal of the inverse condemnation judgment. Because we agree with the city’s contention that the evidence was insufficient as a matter of law to support a finding of inverse condemnation on both theories, we address only that issue.

Border cross-appeals from an order granting the city’s motion for a new trial on Border’s cause of action for breach of the development agreement it entered into with the city. It contends that the trial court erroneously found that damages which accrued before a certain date were time-barred. We affirm the order granting the city’s motion for new trial.

FACTUAL AND PROCEDURAL BACKGROUND

Border Business Park, Inc. is one of numerous business entities owned by the De La Fuente family. The family business was founded by Roque De La Fuente, Sr., and his wife, Bertha Guerra De La Fuente, but is now controlled by their son, Roque De La Fuente II.^[3] The trial court found that Mr. De La Fuente and the other De La Fuente family entities “are the alter ego of plaintiff Border Business Park, and of each other.”

In 1983, the De La Fuentes purchased 312 acres of land in Otay Mesa, an unincorporated area in San Diego County adjacent to the Mexican border. 260 acres of the parcel they purchased were usable for development. The purchase was made through Border Business Park, Inc. Bertha Guerra De La Fuente was the sole shareholder, director, president and CEO of the corporation. Mr. De La Fuente managed the company through a corporation he owned, American International Enterprises.

In the early 1980’s, the city became interested in annexing Otay Mesa. The area was then primarily raw land, but it included a small general aviation airport called Brown Field. In anticipation of annexation, the city created a community plan for Otay Mesa in 1981. The plan stated that a study by the San Diego Association of Governments (SANDAG), an association of local area governments, had identified Otay Mesa and Miramar Naval Air Station as “favored alternatives” for relocating San Diego’s international airport, Lindbergh Field. The report recommended Otay Mesa as the “most likely” site for the new airport. In 1985, the city annexed Otay Mesa.

In 1986, the city entered into a development agreement with Border. The agreement provided that Border would pay certain fees and would bear the cost of various public improvements incident to the development of the business park. In return, the city agreed not to apply later-enacted rules or regulations to Border if they conflicted with laws in effect on the date of the agreement. The city also agreed not to hold Border responsible for revisions in certain types of fees or development standards, except under specified conditions.^[4] To finance the development, the city provided Border with funds from municipal bonds, requiring Border to repay the bonds through periodic assessments over 20 years.

In 1988, SANDAG revisited the idea of locating an airport in Otay Mesa, which was still largely undeveloped. To preserve the status quo during the continued study, the city issued a one-year moratorium on certain types of development in Otay Mesa. The moratorium exempted portions of Otay Mesa for which the city had already issued development permits, including the property owned by Border. Subsequent moratoria were limited to residential development.

In 1989, SANDAG issued an updated report identifying Miramar and Otay Mesa as potential sites for a new airport. The city decided that Otay Mesa was a more viable site than Miramar. It also concluded that the Otay Mesa site would probably require the use of Mexican airspace. In 1991, the city passed a resolution stating that an international airport in Otay Mesa was the preferred option for a new airport. It designated it the “TwinPort” plan, referring to the creation of an international airport spanning the border, using the existing Brown Field in Otay Mesa and Rodriguez Field in Tijuana. However, the city did not inquire of the appropriate officials in Mexico to determine whether Mexico had an interest in such a plan, or whether Mexico would allow the use of its airspace for an airport built solely on the American side of the border. Two years later, the city was forced to abandon the Otay Mesa airport idea, upon belatedly discovering that Mexico was not interested in the plan and would not cooperate.

During the time that the city was pursuing the Otay Mesa airport plan, sales within Border Business Park fell off precipitously. Public announcements of the airport proposal, some of which showed possible configurations of the airport which would place runways directly through Border Business Park, caused potential buyers to look elsewhere. There was a nationwide recession at the time, but Border’s sales fell off more than would be expected as a result of the recession. As a result of the drop in sales, Border was unable to repay its bond obligations to the city. In 1993, the city brought a foreclosure action against 35 parcels within the business park. Border cross-complained for breach of the development agreement. Border was able to obtain financing and paid the delinquent assessments, although it remained obligated on outstanding penalties and other indebtedness. Border and the city agreed to a payment schedule. However, Border’s financial difficulties continued, resulting in a judgment of foreclosure on some of its properties in 1995.^[5]

Beginning in 1995, Border encountered further difficulties in selling properties within its business park as a result of the rerouting of truck traffic bound for the border crossing. In 1985, the federal government had opened a U.S.-Mexico border crossing in Otay Mesa. In 1993, the government closed the border crossing at San Ysidro to commercial truck traffic and routed all commercial truck traffic through the Otay Mesa border crossing instead. At the time, border-bound traffic was routed in such a way that it bypassed Border Business Park. In 1995, however, the city rerouted traffic in such a way that Border Business Park, which was located very near the truck crossing, was inundated with truck traffic. (Further details are discussed below.) Again, sales within the park suffered. In 1995, Border filed the present lawsuit, alleging breach of the development agreement. In 1996, Border filed for bankruptcy protection, and the breach of contract action was stayed. In 1998, the bankruptcy proceeding was dismissed, and proceedings resumed in the breach of contract suit. Border amended its complaint to add the two causes of action for inverse condemnation.

The issue of inverse condemnation was tried to the court.^[6] The court found that the city’s airport announcements, made without having first ascertained that the government of Mexico would cooperate, were unreasonable and amounted to a taking. It also found that the diversion of truck traffic caused a compensable impairment of Border’s access to its property. A jury awarded Border $25.5 million in damages resulting from the city’s airport planning activities, and $39.8 million for the interference caused by the city’s rerouting of truck traffic. The jury also found that the city breached the development agreement and awarded Border $29.2 million in damages. The trial court awarded Border $10.3 million in prejudgment interest for the airport planning claim and $16.1 million for the traffic routing claim.

The city filed a motion for judgment notwithstanding the verdict and a motion for new trial. The court denied the motion for judgment notwithstanding the verdict and granted the motion for new trial on the breach of contract claim only. The city filed a timely notice of appeal and Border filed a timely notice of cross-appeal.

DISCUSSION

THE AIRPORT INVERSE CONDEMNATION CLAIM

Border’s inverse condemnation claim was based on the theory that the city acted unreasonably during the period it was considering developing the airport in Otay Mesa, because it failed to ascertain that Mexico either had an interest in developing the so-called TwinPort airport, i.e., a jointly operated airport situated on both sides of the California-Mexico border, or would permit the use of its airspace if the city developed an international airport solely on the California side of the border. The source of Border’s theory of inverse condemnation is Klopping v. City of Whittier (1972) 8 Cal.3d 39 (Klopping).

Prior to Klopping, it was established that particularly oppressive acts by a public authority, involving a physical invasion or a direct legal restraint on the use of the property, could amount to a “de facto taking” of the property even without formal condemnation. (Klopping, supra, 8 Cal.3d at p. 46.) In Klopping, the court held that conduct falling short of a de facto taking can also result in liability. The court held that “when the condemner acts unreasonably in issuing precondemnation statements, either by excessively delaying eminent domain action or by other oppressive conduct, our constitutional concern over property rights requires that the owner be compensated. This requirement applies even though the activities which give rise to such damages may be significantly less than those which would constitute a de facto taking of the

property . . . .” (Id. at pp. 51-52.) In this case, the trial court found that the city’s announcements concerning the airport proposal were “reckless” and amounted to inverse condemnation pursuant to Klopping.

On appeal, the city contends that the evidence is insufficient to support the inverse condemnation judgment as a matter of law, because, in the absence of an announced intention to condemn a property, conduct which falls short of an “acquiring stage” of the condemnation process does not support a Klopping claim. The city also contends that the evidence does not support the necessary finding that Border suffered “distinct or unique injury” and that the evidence does not support a finding that its conduct was unreasonable. Border counters that substantial evidence supports the court’s finding that the city’s conduct was reckless, and contends that unreasonable conduct during the precondemnation period, as found by the trial court in this case, is a separate basis for liability under Klopping. It contends that it was not required to prove that the city moved beyond the planning phase into the acquisition phase in order to prevail on that theory.^[7]

The city cites numerous cases which have held that an announced intention to acquire property or conduct which denotes an intent to acquire the property is essential to a Klopping claim. (See, e.g., People ex rel. Dept. Pub. Wks. v. Peninsula Enterprises, Inc. (1979) 91 Cal.App.3d 332, 355-356; Toso v. City of Santa Barbara (1980) 101 Cal.App.3d 934, 965-957; Taper v. City of Long Beach (1982) 129 Cal.App.3d 590, 615; Tilem v. City of Los Angeles (1983) 142 Cal.App.3d 694, 708-709; Guinnane v. City and County of San Francisco (1987) 197 Cal.App.3d 862, 864-867.) We note, however, that the express language of Klopping‘s holding does not appear to require an announcement of an intent to condemn property, if liability is based on unreasonable conduct other than post-announcement delay. In Klopping, the court held that an action for inverse condemnation lies if the public agency acted improperly “either by unreasonably delaying eminent domain action following an announcement of intent to condemn or by other unreasonable conduct prior to condemnation.” (Klopping, supra, 8 Cal.3d at p. 52, italics added.) In Jones v. People ex rel. Dept. of Transportation (1978) 22 Cal.3d 144, the court declined to decide whether an announcement of an intent to condemn is essential to a Klopping claim because in that case a de facto taking occurred (Jones v. People ex rel. Dept. of Transportation, at p. 151), and the court has not yet resolved this question. We need not decide the issue in this case, however, nor do we need to decide whether the city’s conduct was unreasonable or oppressive within the meaning of Klopping, because Border failed to adduce any evidence that the city’s announcements concerning the proposed Otay Mesa airport subjected it to direct and special injury.^[8]

In order to prevail on a claim of inverse condemnation, “there must be an invasion or an appropriation of some valuable property right which the landowner possesses and the invasion or appropriation must directly and specially affect the landowner to his injury.” (Selby Realty Co. v. City of San Buenaventura (1973) 10 Cal.3d 110, 119-120.) The landowner’s property must be “singled out for singular and unique treatment” in contrast to other landowners who could be affected by the proposed public work. (Smith v. State of California (1975) 50 Cal.App.3d 529, 537.) “[T]he widespread impact resulting from mere general planning is noncompensable.” (People ex rel. Dept. Pub. Wks. v. Peninsula Enterprises, Inc., supra, 91 Cal.App.3d at p. 355.) If the plaintiff’s situation is “no different than that of any other landowner” in the area to be affected by the proposed plan, Klopping does not apply. (Selby Realty Co. v. City of San Buenaventura, supra, 10 Cal.3d at p. 120.)

Border produced no evidence that the airport proposal affected it in any unique manner. On the contrary, the undisputed evidence -- adduced by Border itself -- shows that the city’s proposal concerning the airport affected owners of other business and industrial parks in Otay Mesa as well as Border, and in the same ways. Patrick Kennedy, an economist retained by Border to assess the economic impact of the city’s alleged breaches of the development agreement, including the proposal to build the airport in Otay Mesa, testified that the SANDAG report, issued in May 1989, which described the proposal for the Otay Mesa airport, affected property values not just in Border Business Park but in other developments as well which were within the airport “footprint.” There were 4,000 to 6,000 acres of industrial property within the footprint which would be affected. Border owned only 312 acres. Based on 17 real estate appraisal reports prepared for different properties in Otay Mesa during that period, Kennedy opined that the SANDAG report placed a cloud over the entire area.

In its opening statement, Border emphasized that the proposal showed a runway running “right across” its property. The SANDAG report did show that under at least one proposed configuration of the airport, some of the runways ran directly through Border Business Park. However, it showed runways running through other properties as well. Kennedy testified that the SANDAG report had a substantial impact “on anybody who’s thinking about buying . . . in Border or other parks that are underneath the runways.” (Italics added.) Thus, Border was not subjected to any unique injury because of the proposed configuration of the runways.

Border contends that because neither party requested a statement of decision, we are limited to reviewing the judgment to determine whether there is substantial evidence to support the judgment on any theory, including its original claim, as alleged in the second amended complaint, that the city’s entire course of conduct with respect to the breaches of the development agreement constituted inverse condemnation. Under that theory, Border contends, there is substantial evidence that it suffered special and unique damages. Border contends that in the absence of a statement of decision, we cannot rely on the trial court’s oral pronouncement of its ruling on the issue of liability to determine the legal theory on which the court based its decision.

Our review of the record persuades us that Border did not actually rely at trial on the theory of inverse condemnation as alleged in the second amended complaint. Rather, in its closing argument to the trial court on the issue of liability, Border asserted the Klopping theory with respect to the airport announcement and the impairment of access theory with respect to the traffic diversion. It did not assert its overarching theory that the city effected a taking by means of the series of breaches of the development agreement.

However, even if we assume, for the sake of argument, that Border did rely on the theory as alleged in the second amended complaint, we disagree that the absence of a statement of decision affects our review on appeal. The general rule is that in the absence of a statement of decision in a court trial, the reviewing court must conclude that the trial court made all findings necessary to support the judgment under any theory which was before the court. (In re Marriage of Ditto (1988) 206 Cal.App.3d 643, 646-648; Gray v. Gray (1921) 185 Cal. 598, 599.) However, this rule is merely a corollary of the general rule that a judgment is presumed to be correct and must be upheld in the absence of an affirmative showing of error. This presumption applies only on a silent record. (Wilson v. Sunshine Meat & Liquor Co. (1983) 34 Cal.3d 554, 663; Denham v. Superior Court (1970) 2 Cal.3d 557, 564.) In contrast, “When the record clearly demonstrates what the trial court did, we will not presume it did something different.” (Lafayette Morehouse, Inc. v. Chronicle Publishing Co. (1995) 39 Cal.App.4th 1379, 1384.) Thus, even in the absence of a statement of decision, we are not compelled to resort to a presumption if the record adequately demonstrates the legal theory the court applied. For example, in In re Marriage of Powers (1990) 218 Cal.App.3d 626, the court held that because the reporter’s transcript adequately set forth the basis for the trial court’s ruling, the absence of a statement of decision was not fatal to the appeal. The court noted that in In re Marriage of Ditto, not only was there no statement of decision, the judgment did not explain the law the court applied or its reasoning, and there was no reporter’s transcript. (In re Marriage of Ditto, supra, 206 Cal.App.3d at p. 649, fn. 5.) Similarly, in In re Marriage of Seaman & Menjou (1991) 1 Cal.App.4th 1489, the court held that the absence of a statement of decision was not fatal to the appeal because the judgment itself set forth the legal basis for the trial court’s award of attorney fees. (Id. at p. 1494, fn. 3.)

Here, the reporter’s transcript shows that the court stated that it found the city liable for inverse condemnation based upon the city’s unreasonable conduct in announcing the airport proposal without having first determined whether the Mexican government would cooperate and upon the impairment of access resulting from the traffic diversion. The court then instructed the jury to determine Border’s damages, if any, based solely on those two theories. The court’s statements plus the jury instructions foreclose any possibility that the court’s finding of liability for inverse condemnation was based on any other legal theory. Moreover, the jury’s verdict awarding damages on the airport cause of action was unquestionably based solely on the Klopping theory; it was not instructed on any other theory. We cannot uphold the damage award on an alternative theory which was not submitted to the jury. (McLaughlin v. National Union Fire Ins. Co. (1994) 23 Cal.App.4th 1132, 1146.)

Because there was no evidence that the airport proposal directly and specially affected Border, as opposed to the entire section of Otay Mesa within the proposed airport site, the airport inverse condemnation claim fails as a matter of law.

THE TRUCK TRAFFIC INVERSE CONDEMNATION CLAIM

An action for inverse condemnation can be based on substantial impairment of the right of ingress and egress, also known as the easement of access. (Breidert v. Southern Pac. Co. (1964) 61 Cal.2d 659, 663.) In its second cause of action for inverse condemnation, Border alleged that the city substantially impaired access to Border Business Park by diverting truck traffic in such a way that the traffic backed up on the streets adjacent to the business park, making “ingress and egress to [its] property difficult or impossible” and “severely and substantially affect[ing] the marketability of the Business Park to prospective tenants.”

To be continue as Part II ……..

Publication Courtesy of California attorney referral.

Analysis and review provided by Vista Property line attorney.

^[1] This appeal has been transferred from Division One to Division Two of this court pursuant to rule 47.1(b)(1)(B) of the California Rules of Court.

^[2] Judge DiFiglia presided over the trial of this case but recused himself after the jury returned its verdict. Raymond J. Ikola, Judge of the Orange County Superior Court, was assigned by the Chief Justice, pursuant to article VI, section 6 of the California Constitution, to hear post-trial motions. On appeal, defendant City of San Diego challenges the sufficiency of the evidence to support the judgment. In its cross-appeal, plaintiff Border Business Park, Inc., challenges the partial grant of the city’s motion for new trial on a cause of action for breach of contract.

^[3] References to “Mr. De La Fuente” are to Roque De La Fuente II.

^[4] Because we affirm the order granting the city’s motion for new trial on Border’s cause of action for breach of the development agreement, we need not discuss the agreement or the alleged breaches.

^[5] Some of the properties were sold in foreclosure sales in 1997. However, most of them were repurchased by Mr. De La Fuente or by business entities owned by the De La Fuente family.

^[6] Whether inverse condemnation occurred is decided by court trial, while damages are tried to a jury. (Marshall v. Deptartment of Water & Power (1990) 219 Cal.App.3d 1124, 1140.)

^[7] In the alternative, Border contends that the evidence shows that the city did reach the acquisition stage. Because we conclude that Border failed to meet its burden of proof on another element of the Klopping claim, we need not address that contention.

^[8] Border contends that because the city waived statement of decision, we must presume that the trial court found every fact necessary to support the judgment. Assuming that the absence of a statement of decision has any effect in this case (see discussion below), it merely requires us to review the record to determine whether there is substantial evidence to support the trial court’s implied factual findings. (Michael U. v. Jamie B. (1985) 39 Cal.3d 787, 792-793.) Our review of the record demonstrates that there is no evidence to support the essential finding that Border suffered a unique injury from the airport announcements.