RED MOUNTAIN, LLC v. FALLBROOK PUBLIC UTILITY DISTRICT

Filed 9/25/06 (opn. on rehearing)

CERTIFIED FOR PUBLICATION

OPINION ON REHEARING

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

Story continue from Part I ...

We conclude that if the trial court had construed the access easement as limited to the Chaffins' personal ingress and egress, there is a reasonable probability that it would not have ruled that Fallbrook's refusal to grant the easement resulted in an inverse condemnation of Red Mountain's property. We further conclude that the trial court's failure to construe the access easement in Fallbrook's favor prejudicially affected the jury's verdict on Red Mountain's inverse condemnation/breach of contract claim. If the court had construed the access easement as limited to the Chaffins' personal ingress and egress and instructed the jury accordingly, it is reasonably probable that the jury would have found Fallbrook's refusal to grant the easement was not a breach of the 1978 agreement because the easement Red Mountain requested was much broader in scope than the personal easement Fallbrook had agreed to convey. Accordingly, the matter must be remanded for both a redetermination of Fallbrook's liability for inverse condemnation and a retrial to determine whether Fallbrook's refusal to grant the access easement constituted a breach of the 1978 agreement and, if so, the amount of damages Red Mountain suffered as a result.

If a jury on remand were to find that Fallbrook breached the agreement to grant the access easement, the issue regarding damages would be whether the easement would have enabled Red Mountain to develop the southerly portion of the Red Mountain Ranch property, even though the easement was limited in scope to personal ingress and egress. At trial, Red Mountain argued to the jury that it could be made whole for Fallbrook's refusal to grant the access easement either by an award of breach of contract/inverse condemnation damages with no severance damages in the direct condemnation case, or by an award of the same amount as severance damages and damages for Fallbrook's unreasonable precondemnation conduct in refusing to grant the access easement. However, Red Mountain's counsel did not ask the jury to award damages for diminution of the value of all of the property Red Mountain had sought to subdivide and develop; rather, he asked the jury to award breach of contract/inverse condemnation damages in the amount of $1,672,308, representing the precondemnation value of Red Mountain's southerly 207.38 acres as two ranch sites valued at $12,000 per acre, minus the post-taking value of that acreage as "mitigation land"[1] valued at $4,000 per acre, plus engineering expenses of $13,268.[2] The jury's award reflects that the jury accepted this formula, except that it found the precondemnation value of the southerly 207.38 acres to be $11,000 per acre rather than $12,000 per acre.[3]

If the court had properly instructed the jury that the access easement contemplated in the 1978 agreement was limited to the Chaffins' personal ingress-egress and the jury had evaluated Red Mountain's inverse condemnation/breach of contract damages based on Red Mountain's contractual right to that limited easement, there is a reasonable probability that the jury would have found Red Mountain's transfer of the easement to successor owners of two large ranch estates would materially overburden the easement and unreasonably interfere with Fallbrook's rights.[4] The owner of an easement cannot materially increase the burden of the easement on the servient estate or impose a new burden. (Wall v. Rudolph (1961) 198 Cal.App.2d 684, 686.) "Normal future uses [of an easement] are within the reasonable contemplation of the parties and therefore permissible, but uncontemplated abnormal uses, which greatly increase the burden, are not." (12 Witkin, Summary of Cal. Law (10th ed. 2005) Real Property, § 407, p. 478.) Whether a particular use of an easement by either the servient or dominant owner unreasonably interferes with the rights of the other owner is a question of fact. (Pacific Gas & Elec. Co. v. Hacienda Mobile Home Park (1975) 45 Cal.App.3d 519, 528; City of Los Angeles v. Howard, supra, 244 Cal.App.2d at p. 543.)[5] If the jury had found that a transfer of the access easement to successor owners of two large ranch estates would have materially overburdened the easement and, therefore, Red Mountain's southerly 207.38 acres could have been used only as mitigation land even if Fallbrook had granted Red Mountain the access easement, the likely result, assuming liability, would have been a lower award of damages for inverse condemnation/breach of contract.

Our reversal of the judgment as to the inverse condemnation/breach of contract claims requires that the issue of just compensation for Fallbrook's direct condemnation of Red Mountain's property also be retried. Under a correct interpretation of the scope of the access easement under section 1069, the trial court could conclude that Fallbrook's refusal to grant the easement did not result in an inverse condemnation of Red Mountain's property. In that case, there would be no award of damages for inverse condemnation/breach of contract. However, Red Mountain would be entitled to seek severance damages on the direct condemnation claim, as well as damages for Fallbrook's precondemnation conduct in refusing to grant the access easement and for the direct condemnation of Red Mountain's contractual right to the easement.

The award of $872,560 for direct condemnation reflects the jury's determination of fair market value of the condemned land as of February 1, 2004, as mitigation land with no access. If there was no inverse condemnation/breach of contract, Red Mountain would have had a contractual right to an access easement until Fallbrook directly condemned that right. Under that scenario, a jury on retrial could find that the value of the property that was directly condemned was higher than the value the jury awarded for direct condemnation in the first trial.

The trial court's erroneous interpretation of the access easement and its misdirection of the jury on that point prejudicially affected the outcome of the trial with respect to Red Mountain's claims for inverse condemnation and breach of contract. These errors, in turn, may have prejudicially affected the jury's determination of just compensation on Fallbrook's direct condemnation claim. Because resolution of the inverse condemnation/breach of contract claims could have affected the determination of just compensation for the direct condemnation, the judgment is not severable. (Gonzales v. R.J. Novick Constr. Co. (1978) 20 Cal.3d 798, 805-806.) Therefore, the entire judgment must be reversed.[6]

III. Relocation of the Access Easement

In the first phase of the trial, the court ruled that the parties had impliedly consented to relocate the access easement to the new Red Mountain Dam Road after the "existing road" referred to in the 1978 agreement was obliterated by the reservoir expansion.[7] Fallbrook contends the trial court's ruling was erroneous because the 1978 agreement explicitly referred to the "existing road" as the location of the easement.[8] Fallbrook argues that an intention to relocate an easement should be specified in the granting document so that a floating easement is established.

We conclude that the trial court's finding that the parties impliedly consented to relocate the easement was not erroneous. Parties may change the location of an easement by mutual consent, which may be implied from use and acquiescence. (Johnstone v. Bettencourt (1961) 195 Cal.App.2d 538, 541-542, Kosich v. Braz (1967) 247 Cal.App.2d 737, 739.) When the parties consent to relocation, their "rights are not affected by the change, but attach to the new location. [Citation.]" (Johnstone v. Bettencourt, supra, 195 Cal.App.2d at p. 542.) Whether parties have impliedly consented to relocate an easement is a question of fact. (Ibid.; see also Stanardsville Volunteer Fire Co., Inc. v. Berry (Va. 1985) 331 S.E.2d 466, 470.)

Here, the trial court's finding that the parties impliedly consented to relocate the access easement referenced in the 1978 agreement to Red Mountain Dam Road is amply supported by undisputed facts that the trial court cited in its statement of decision. The court noted: "Upon the completion of the reservoir expansion in approximately 1983, the agents of [Fallbrook] authorized the Chaffins to use the new roadway immediately to the west of the ODR after completion of the reservoir. Despite the fact that agents of [Fallbrook] had erected a fence and locked that roadway from general public use, the Chaffins were given keys to access the roadway and continued their use of this new roadway for many years, unobstructed, up and until and through the time of this particular lawsuit." These undisputed facts are sufficient to support the trial court's finding that the parties impliedly consented to relocate the access easement from the ODR to the newer road immediately to the west of the expanded reservoir.

IV. The Trial Court's Interpretation of the Sanitary Easement

Fallbrook contends that the trial court committed reversible error by failing to rule on Fallbrook's cause of action for declaratory relief, which Fallbrook characterizes as asking "the court to determine that Red Mountain's proposed subdivision violated the [s]anitary [e]asement." Fallbrook argues that the trial court erred by failing to interpret the sanitary easement, and strongly suggests that the only correct interpretation of the easement is that it entirely precluded Red Mountain's proposed subdivision.

We find no reversible error in the trial court's handling of Fallbrook's declaratory relief cause of action. Preliminarily, it is important to clarify exactly what relief Fallbrook sought in that cause of action. Fallbrook asked the court to enter a judgment declaring that the "127 acre sanitary easement" was valid and enforceable against Red Mountain and, as stated in Fallbrook's cross-complaint:

"d) That pursuant to the [easement], within the 127 ACRES, Fallbrook is entitled to prevent Red Mountain from excavating, grading, trenching, digging, drilling, or moving dirt or native soil for any purpose, including but not limited to septic systems, leach lines, septic tanks, pipelines, roads, footings for house pads, roads, etc.; and

"e) That pursuant to the [easement], within [the] 127 ACRES, Fallbrook is entitled to prevent Red Mountain from building or constructing any work of improvement, including but not limited to roads, septic systems, septic tanks, leach lines, pipelines, house footings, house pads, houses, barns, landscaping and irrigation systems, or other structures; and

"f) That pursuant to the [easement], within the 127 ACRES, Fallbrook is entitled to prevent Red Mountain from discharging any human or animal waste, insecticides, pesticides, herbicides or fertilizers of any type on to [sic], in, on top of, or under the soil; and

"g) That pursuant to the [easement], Fallbrook is entitled to prevent Red Mountain from keeping, maintaining, storing, using, applying, or discharging, any HAZARDOUS MATERIAL; and

"h) That within the 127 ACRES, Red Mountain is not entitled to perform or permit any other action or activity that violates the terms and conditions of the [easement]." (Italics added.)

In short, in its declaratory relief cause of action, Fallbrook asked the trial court to decide, as a matter of law, that the sanitary easement precluded any and all development in the easement area; it did not ask the court to decide whether the sanitary easement precluded Red Mountain from developing Red Mountain Ranch property outside of the sanitary easement area, or whether use of the access easement for a subdivision would overburden the sanitary easement. The trial court effectively decided the issue Fallbrook raised in its pleadings by ruling that it was premature to decide, in the court's words, "whether [Red Mountain's] proposed development might result in possible contamination of the [sanitary easement area] . . . ." This ruling implicitly rejects Fallbrook's claim that the sanitary easement precluded any and all development within the sanitary easement area as a matter of law, and effectively decided that whether particular development activities within that area would overburden the sanitary easement was a question of fact to be decided based on the specific development plan ultimately approved by the county. The trial court explained: "The final lot subdivision maps have neither been established nor approved. Until such time as plaintiffs' applications succeed in going through some kind of approval process . . . and a final lot map is approved, the Court is not in possession of sufficient facts to determine whether such lots would constitute an encroachment into the watershed and a risk to the water quality."

The trial court's approach is in accord with the rule that "[w]hether a particular use of the land by the servient owner, or by someone acting with his authorization, is an unreasonable interference is a question of fact . . . . [Citations.]" (City of Pasadena v. California-Michigan Land & Water Co. (1941) 17 Cal.2d 576, 579-580.) The trial court noted the creation of the sanitary easement in 1949 and ruled that Red Mountain was bound by its terms. However, the trial court could reasonably conclude that it was not in a position to rule, as a matter of law, that any development within the area of the sanitary easement would threaten the reservoir water and thus was precluded.

In any event, Fallbrook's bid for declaratory relief-- i.e., for a judicial determination that the sanitary easement precluded any development activity within its area as a matter of law -- was rendered moot by Fallbrook's direct condemnation of the land within the sanitary easement. Once Fallbrook took the sanitary easement acreage by eminent domain, it was unnecessary for the court to decide whether Red Mountain could develop that land. To the extent the court erred by not interpreting the sanitary easement for purposes of the jury's determination of just compensation to be paid by Fallbrook for the land within the sanitary easement, the error was harmless because the jury valued the land as undevelopable mitigation land.[9]

V. The Court's Determination of Inverse Condemnation

Fallbrook contends that the trial court committed reversible error in deciding that Fallbrook was liable for inverse condemnation. Specifically, Fallbrook contends that there can be no inverse condemnation because (1) it filed a direct condemnation action; (2) the access easement was not intended for subdivision use; (3) Fallbrook had a right not to grant a road easement for a subdivision; and (4) Red Mountain previously gave up the rights allegedly taken.

A. Effect of the eminent domain action on the inverse condemnation action

Fallbrook asserts that once a public entity files a direct condemnation action, an inverse condemnation claim is subsumed into the direct action and may no longer be pursued. As authority for that proposition, Fallbrook cites Klopping v. City of Whittier (1972) 8 Cal.3d 39 (Klopping) and Richmond Redevelopment Agency v. Western Title Guaranty Company (1975) 48 Cal.App.3d 343 (Richmond). Fallbrook contends that the trial court's error in allowing Red Mountain to pursue its inverse condemnation cause of action after Fallbrook filed its direct condemnation action was prejudicial because it allowed for a double recovery of damages -- for both inverse and direct condemnation.

Preliminarily, we conclude that there was not a double recovery of damages. Fallbrook's double recovery argument is based on the fact that the 207.38 acre parcel for which the jury awarded Red Mountain breach of contract/inverse condemnation damages of $1,464,928 includes the 134.24 acre parcel that Fallbrook directly condemned, for which the jury separately awarded Red Mountain $872,560 in the direct condemnation action. The trial court did not err in allowing these separate awards, as the two awards compensated Red Mountain for different losses that occurred at different times. The breach of contract/inverse condemnation award compensated Red Mountain for the diminution in value of the 207.38 southerly acres that resulted from Fallbrook's refusal in August 2000 to grant the access easement as promised in the 1978 agreement. This award reflects the jury's finding that without the access easement, the land could be used only as mitigation land. The jury's eminent domain award compensated Red Mountain for the 134.24 acres that Fallbrook later directly condemned. The eminent domain award reflects the jury's finding that on February 1, 2004, the agreed date of value in the direct condemnation action, the highest and best use of the directly condemned land was as mitigation land, which was consistent with its award of inverse condemnation/breach of contract damages. If Fallbrook breached its agreement to convey a personal ingress-egress easement, Red Mountain would be entitled to compensation for any diminution in the value of its land suffered in 2000 as a result of that breach, as well as just compensation for the direct taking of the land by eminent domain in 2004. (See Shealy v. Unified Government of Athens-Clarke County (Ga.App. 2000) 537 S.E.2d 105, 107-108 [inverse condemnation claim by landowners against counties based on contamination of their property by landfill was not rendered moot by counties' later direct condemnation of fee simple title, as damage alleged by landowners in form of diminution in value of their property caused by contamination occurred before the direct taking and, therefore, would not be recoverable in the eminent domain action]; City of Lake Station v. Rogers (Ind. 1986) 500 N.E.2d 235, 238-239 [landowner should not be denied compensation for partial taking by inverse condemnation simply because the city later chose to take the entire fee simple].)

Neither Klopping nor Richmond precluded Red Mountain from pursuing its breach of contract/inverse condemnation claims after Fallbrook filed its eminent domain action. Applying former eminent domain statutes, Richmond held that a property owner's inverse condemnation cross-complaint was properly struck because it sought the same type of damages the property owner was required to seek by answer to the direct condemnation complaint and would have obtained as part of the eminent domain award. However, Richmond was decided under obsolete eminent domain statutes that required the defendant property owner to allege the amount of damages claimed by reason of the taking in the answer to the eminent domain complaint. (See Richmond, supra, 48 Cal.App.3d at p. 351.) In any event, Richmond does not apply here because Red Mountain did not seek the same type of damages or compensation in its inverse condemnation cause of action that it could recover in Fallbrook's direct condemnation action. The inverse condemnation damages Red Mountain sought were for the diminution in the value of its land that occurred before Fallbrook decided to bring the direct condemnation action.

Klopping held that that as between a city's eminent domain action and an inverse condemnation action involving the same property, the case that proceeds to judgment first is res judicata as to issues common to both actions and bars recovery in the other action of any damages that were or could have been recovered in the action that proceeded to judgment first. (Klopping, supra, 8 Cal.3d at p. 58.) Klopping is inapposite because Fallbrook's eminent domain action and Red Mountain's inverse condemnation action were consolidated and proceeded to judgment together, and the two actions did not involve the exact same property, legal issues or damages. In any event, Klopping does not support the proposition that an inverse condemnation action cannot exist contemporaneously with an eminent domain action involving the same property. Klopping contemplates separate, unconsolidated actions pending simultaneously, with one of the actions proceeding to judgment first and precluding a later judgment in the other action on the same issues. The trial court did not err in allowing both Red Mountain's inverse condemnation action and Fallbrook's eminent domain action to proceed.

B. Nature of the access easement

Fallbrook's remaining three contentions as to why the trial court erred in finding inverse condemnation essentially amount to a single argument: that Fallbrook did not inversely condemn Red Mountain's land because Red Mountain had no right to an access easement for purposes of a subdivision.[10] We reject Fallbrook's implied premise that as a matter of law, Fallbrook's refusal to grant the access easement referenced in the 1978 agreement damaged Red Mountain only if the easement was intended for subdivision purposes. Fallbrook concedes that it agreed to grant an easement for the Chaffin's personal ingress to and egress from their property. Whether Fallbrook breached that agreement and, if so, whether Red Mountain suffered damages as a result, are questions of fact to be resolved on remand.[11]

VI. Evidence of Damages

Fallbrook contends that the trial court committed reversible error by admitting evidence of speculative inverse condemnation damages. Although we reverse the finding of inverse condemnation, we address this issue for the guidance of the trial court and the parties in the event of a retrial. (See People v. Neely (1993) 6 Cal.4th 877, 896; Code Civ. Proc., § 43.) Fallbrook specifically objects to testimony by Red Mountain's expert appraiser, Robert Backer, who presented four valuation analyses to the jury, two of which involved valuing the land that Fallbrook directly condemned and calculating severance damages to the remaining Red Mountain Ranch property. The fourth damage theory, entitled "Breach Analysis," valued only Red Mountain's southerly 207.38 acres both before and after Fallbrook's refusal to grant the access easement. As noted, the jury adopted this damage analysis.

Fallbrook contends that the trial court erred in allowing Backer to present his breach analysis, his condemnation analysis that was based on Red Mountain having an approved tentative subdivision map for 44 lots, and his condemnation analysis that was based on Red Mountain not having an approved map.[12] Citing Emeryville Redevelopment Agency v. Harcros Pigments, Inc. (2002) 101 Cal.App.4th 1083, 1105 (Emeryville), Fallbrook maintains that these analyses were inadmissible because they constitute speculative evidence of damages based on specific plans of development.

To be continue as Part III ...

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[1] Red Mountain's expert appraiser, Robert Backer, explained to the jury that "mitigation land" is undeveloped land that a governmental agency permitting a development requires the developer to purchase to mitigate the environmental impact of the development. The mitigation land, which can be located on the development site or elsewhere, is preserved in its undeveloped state.

[2] Acreage of 207.38 x $12,000 ($2,488,560) - 207.38 x $4,000 ($829,520) = $1,659,040; $1,659,040 + $13,268 = $1,672,308. Although Red Mountain's counsel noted that in November 2000 (the date of valuation for the breach of contract and inverse condemnation causes of action) the Chaffins were "trying to get a subdivision approved[,]" he went on to state: "But in my analysis as an appraiser [referring to expert witness Backer], . . . I don't look at what the Chaffins are doing. I make an impartial determination of what was the highest and best use of the property at that time.

And in my analysis, Mr. Backer said, the highest and best use after I studied the market and I studied comparable sales and I studied the adaptability of the property that -- the highest and best use was to use this property as two large, estate-type sites. Okay. Two separate homesites, large, estate types of sites.

And for that value, . . . the value is $12,000 per acre for 207 acres. And why is it 207 acres instead of 580 acres? It's because, as [Backer] testified, he determined that the 207 acres that were in the southernmost portion of the property -- in other words, the most easily served by the Red Mountain Dam road access -- should be viewed separately, because of their proximity to that access, as acreage that would be likely developed. And all the acreage to the north wouldn't be really counted in this evaluation because that acreage is too remote from the Red Mountain Dam access in order to make it palatable." (Italics added.)

[3] Acreage of 207.38 x $11,000 ($2,281,180) - 207.38 x $4,000 ($829,520) = $1,451,660; $1,451,660 + $13,268 (engineering fees) = $1,464,928, the amount of breach of contract/inverse condemnation damages the jury awarded. Having awarded breach of contract/inverse condemnation damages, the jury followed Red Mountain's counsel's directive and awarded no severance damages or damages for precondemnation conduct.

[4] This analysis assumes that proper construction of the access easement under section 1069 does not automatically preclude findings of inverse condemnation and breach of contract against Fallbrook.

[5] Fallbrook's position appears to be that any use of the access easement beyond its historical use for the Chaffins' personal ingress and egress would have unreasonably interfered with Fallbrook's rights as the servient owner of that easement, as well as with its rights as the dominant owner of the sanitary easement.

[6] Fallbrook's appeal and request for reversal is directed to "the judgment" generally, not just to the portion of the judgment involving Red Mountain's inverse condemnation/breach of contract claims. Even if Fallbrook had appealed only those portions of the judgment involving the inverse condemnation/breach of contract claims, we could not properly reverse only those portions of the judgment. " 'The test of whether a portion of a judgment appealed from is so interwoven with its other provisions as to preclude an independent examination of the part challenged by the appellant is whether the matters or issues embraced therein are the same as, or interdependent upon, the matters or issues which have not been attacked. [Citations.] "[I]n order to be severable, and therefore [separately] appealable, any determination of the issues so settled by the judgment . . . must not affect the determination of the remaining issues whether such judgment on appeal is reversed or affirmed. . . .Perhaps another way of saying it would be that the judgment is severable when the original determination of those issues by the trial court and reflected in the judgment or any determination which could be made as a result of an appeal cannot affect the determination of the remaining issues of the suit. . . ." [Citation.]' [Citation.]" (Gonzales, supra, 20 Cal.3d at pp. 805-806.) Here, as discussed above, the determination of the inverse condemnation/breach of contract claims could affect the determination of just compensation on the direct condemnation claim.

Because the judgment is not severable, Red Mountain was not required to pursue a cross-appeal from the judgment or to take other steps to ensure that the award of just compensation for the direct condemnation would be reversed if this court were to reverse the judgment as to the inverse condemnation/breach of contract claims. "[T]he failure to take an appeal demonstrates only satisfaction with the judgment as is, not as changed by a partial reversal. One may elect to stand upon a judgment which, he believes, although largely in his favor, does not give him all of the benefits to which he is entitled. To avoid the time and expense of further litigation, he may be persuaded to permit the unfavorable portions to stand in reliance upon the benefits received in the other parts. In such instance, to do justice a reversal of the portion from which the appeal was taken might require a reversal of other provisions." (American Enterprise, Inc. v. Van Winkle (1952) 39 Cal.2d 210, 221, fn. omitted.)

[7] The trial court in its statement of decision referred to the "existing road" referenced in the 1978 agreement as the "old dirt road" or "ODR."

[8] Fallbrook's main argument under this assignment of error is that the trial court erred in ruling that the scope of the relocated easement was for "any legitimate or legal purpose" and that it was not limited to the Chaffins' historic use of the ODR for their own personal ingress and egress. In light of our conclusion that the trial court was required to interpret the easement in Fallbrook's favor under section 1069, we limit our discussion in this section of the opinion to Fallbrook's contention that the court erred in relocating the access easement.

[9] Red Mountain presented evidence and argued that the 134.24 acres Fallbrook directly condemned was worth $10,000 per acre as mitigation land. The jury valued the land taken at $872,560 or $6,500 per acre ($872,560 divided by 134.24 acres = $6,500 per acre). The jury's valuation was presumably based on the testimony of Fallbrook's expert appraiser, James Brabant, that similar land sold from a nearby "mitigation bank" was selling for $6,500 per acre. Referring to sales "going back clear [until] November 2000[,]" Brabant testified that "the prices are almost all at $6,500 an acre. . . . [O]ne of the reasons why I didn't increase the value of the property when I updated it was . . . there had been no price increase. In this mitigation bank, they have stuck with the $6,500 per-acre figure going clear back to November of 2000 here. So there was no indication of price appreciation occurring here."

[10] Under separate argument headings, Fallbrook contends there was no inverse condemnation because (1) the access easement was not for subdivision use; (2) the sanitary easement gave Fallbrook the right to refuse a road easement for a subdivision; and (3) Red Mountain had no right to a subdivision easement because its predecessor agreed to the sanitary easement.

[11] Specifically, whether Red Mountain could have developed its southerly 207.38 acres if Fallbrook had granted the limited personal ingress/egress easement it agreed to grant is a question of fact.

[12] Fallbrook does not object to Backer's third damage analysis, which valued Red Mountain's southerly 207.38 acres as mitigation land both before and after Fallbrook directly condemned 134.24 acres of the land.