RED MOUNTAIN, LLC v. FALLBROOK PUBLIC UTILITY DISTRICT

Filed 8/18/06

CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment and postjudgment order of the Superior Court of San Diego County, Lisa Guy-Schall, Judge. Judgment affirmed in part and reversed and remanded in part with directions; postjudgment order reversed and remanded with directions.

Asaro, Keagy, Freeland & McKinley, Richard R. Freeland, Steven A. McKinley and Charles F. Campbell, Jr. for Plaintiff and Respondent.

Best, Best & Krieger, Bruce W. Beach, Shawn Hagerty, Sachse, James & Lopardo and Stephen V. Lopardo for Defendant and Appellant.

Red Mountain, LLC., (Red Mountain) owns undeveloped land adjacent to a drinking water reservoir (the reservoir) and surrounding property owned by Fallbrook Public Utilities District (Fallbrook). Red Mountain sued Fallbrook for breach of contract, specific performance, and inverse condemnation based on Fallbrook's refusal to perform a written agreement to convey to Red Mountain a 60-foot easement for ingress and egress (the access easement) across Fallbrook's property. Fallbrook filed a cross-complaint to quiet title and for declaratory and injunctive relief, in which it alleged that approximately 127 acres of Red Mountain's property was encumbered by a nonexclusive "sanitary easement" (the sanitary easement), which entitled Fallbrook "to patrol, control and maintain sanitary conditions" in the easement area in order to keep the reservoir water free from contamination. Fallbrook alleged that the easement precluded Red Mountain from developing the land within the easement area.

While this litigation was pending, Fallbrook filed an eminent domain complaint against Red Mountain condemning a 134.24 acre parcel of land that included all or most of the sanitary easement area.^[1] Fallbrook also condemned any and all rights Red Mountain might have had to the 60-foot access easement. The two actions were consolidated and, following a bifurcated trial, the trial court entered judgment pursuant to a jury verdict that awarded Red Mountain damages of $1,464,928 for breach of contract and inverse condemnation, and compensation of $872,560 for the direct taking in eminent domain. After it entered judgment, the trial court awarded Red Mountain attorney fees and other litigation expenses under Code of Civil Procedure sections 1036 and 1250.410.

Fallbrook appeals from the judgment, contending that the trial court committed reversible error by (1) failing to construe the access easement in a manner consistent with the undisputed evidence, and with Civil Code section 1069; (2) relocating the access easement and failing to limit the scope of the easement to Red Mountain's personal ingress and egress; (3) failing to interpret the scope of the sanitary easement pursuant to Fallbrook's declaratory relief cause of action; (4) determining that Fallbrook was liable for inverse condemnation; (5) admitting evidence of speculative damages; (6) incorrectly instructing the jury and refusing certain jury instructions that Fallbrook requested; (7) refusing Fallbrook's request to include questions regarding Fallbrook's contract defense of impossibility or impracticability of performance in the special verdict form, and failing to ensure that the verdict form protected against duplicative damages; and (8) awarding Red Mountain attorney fees and litigation expenses under Code of Civil Procedure section 1250.410. We reverse the portion of the judgment awarding damages for breach of contract and inverse condemnation and the order awarding litigation expenses.

FACTUAL AND PROCEDURAL BACKGROUND

In 1949, Frank and Lucille Capra sold 53 acres of land to Fallbrook to be used for the construction of a dam and reservoir. The contract between Fallbrook and the Capras (the 1949 agreement) included the following provision creating the sanitary easement:

"[The Capras] also grant to [Fallbrook] a non-exclusive easement over the area of the water-shed lying back of the dam to be constructed by [Fallbrook], which area consists of approximately 127 acres, for the purpose of enabling [Fallbrook] to patrol, control and maintain sanitary conditions thereon necessary and adequate to keep the water stored in [the] reservoir pure, wholesome, potable and free from contamination from [the] surrounding water-shed area and to enable [Fallbrook] at all times to comply with the Public Health Laws of the State of California and the rules and regulations of the State Board of Public Health; it being agreed that nothing herein contained shall be deemed to prevent [the Capras] having free and ready access to [the] 127 acres."

In 1977, the Capras sold approximately 710 acres of land adjacent to the reservoir to a group of buyers consisting of James Walter Chaffin and his wife Nola Belle Chaffin, John Roy Chaffin and his wife Mary Lee Chaffin, and Dr. Frederick E. Jackson and his wife Margaret J. Jackson (the Chaffin/Jackson group). The Chaffin/Jackson group immediately transferred approximately 109 of those acres to another group of buyers and planned to develop the remaining land (the Red Mountain Ranch property) into homesites.

In February 1978, Fallbrook notified James Chaffin by letter that it required approximately 18 acres of additional land north of the reservoir for future water storage and treatment. Fallbrook offered to purchase the land for $3,500 per acre "excluding reserved road easement areas[,]" and proposed that the "[o]wner may reserve a 50 foot easement on [the] east and west boundaries of the parcel." The Chaffin/Jackson group proposed certain conditions to its sale of the 18-acre parcel, one of which was that Fallbrook agree "to grant seller a 60-foot easement over the existing road on the west sides [sic] of the parcel being conveyed . . . ." Another was that the 60-foot easement "be sufficient in scope and magnitude to meet the subdivision requirements of San Diego County and will be granted to sellers or their successors in interest upon 90 days notice at any future time."

At a meeting of Fallbrook's board of directors on August 14, 1978, which James Chaffin, Dr. Jackson and their attorney attended, the board approved most of the conditions the Chaffin/Jackson group had proposed. However, the board voted to delete the condition that the access easement "be sufficient in scope and magnitude to meet the subdivision requirements of San Diego County." James Chaffin and Dr. Jackson agreed to the terms that the board approved.

On August 30, 1978, the parties signed escrow instructions setting forth the terms of their agreement (the 1978 agreement). With respect to the access easement, the escrow instructions stated: "[Fallbrook] [a]grees to grant at any future time the following easements to the sellers or their successors in interest upon provision to [Fallbrook] by the sellers, or their successors in interest, 90 days notice, legal descriptions and documentation required to accomplish said granting: a 60 foot easement over the existing road on the West sides [sic] of the parcel being conveyed and the present [Fallbrook] property described in [its 1949 grant deed] . . . ."^[2]

In October 1978, James Chaffin and Dr. Jackson died in an airplane crash. The Chaffin family later acquired the Jacksons' interest in the Red Mountain Ranch property. After James Chaffin's estate was settled, one-third interests in the property were held, respectively, by Nola Belle Chaffin, her six children, and John Roy and Mary Lee Chaffin (collectively the Chaffins). The Chaffins abandoned plans to develop the property sometime after James Chaffin's death, in part because San Diego County designated the Red Mountain Ranch property as a possible site for a landfill in the early 1980s.

In 1981, Fallbrook notified the Chaffins that it was planning to expand the reservoir, and that the expansion project would require it to excavate a portion of the Red Mountain Ranch property. Fallbrook proposed a boundary adjustment to accommodate the project, and offered to place excess fill material removed from the project into two canyons on the Red Mountain Ranch property "to enhance development of that portion of [the] property." The Chaffins ultimately agreed to sell 3.31 acres of land to Fallbrook to be used for the reservoir expansion project.

Construction on the reservoir expansion project began in mid-1983 and was completed in late 1985. The expanded reservoir obliterated approximately 1,000 feet of the road that had run along the west side of the reservoir, placing that portion of the road under a dam and up to 90 feet of water. Fallbrook built a paved road along the west side of the expanded reservoir (Red Mountain Dam Road) to replace the portion of the old road that had been destroyed. At its closest point to the reservoir, the new road is separated from the reservoir by a 6-inch berm. Vehicles traveling at that point on the road are 30 to 40 feet from the reservoir water, depending on the water level. Fallbrook installed a gate across the new road, but provided keys to the lock on the gate to the Chaffins so they could use the road to access the Red Mountain Ranch property.

In the late 1990s the Chaffins learned that the Red Mountain Ranch property was no longer being considered as a possible landfill site. In 1999, James Chaffin, Jr. (Chaffin), with the approval of the other property owners, decided to pursue a subdivision project on the property. The Chaffins formed Red Mountain for that purpose and transferred all of their interests in the property to Red Mountain.

Chaffin hired civil engineer Gary Piro to act as project engineer. Piro's initial subdivision design showed access to the subdivision from Mission Road along Red Mountain Dam Road. In early 2000, Fallbrook objected to the use of Red Mountain Dam Road for access to a subdivision. Fallbrook's chief engineer told Chaffin and Piro that use of the road for a subdivision would cause Fallbrook to have to cover the reservoir.

Because of Fallbrook's objection to Red Mountain's proposed use of Red Mountain Dam Road, Chaffin attempted to find a different way to access the subdivision. He negotiated with an owner of property that fronted Mission Road on the east side of the reservoir for an access easement that would serve all of the Red Mountain Ranch property north of Mission Road. However, those negotiations were ultimately unsuccessful.

In August 2000, Red Mountain notified Fallbrook that, pursuant to the 1978 agreement, it would provide the documents necessary for Fallbrook to grant Red Mountain a 60-foot easement over Red Mountain Dam Road. Fallbrook responded with a letter in which it stated that it would not grant the access easement. Fallbrook explained that "[t]he increased traffic would require [the reservoir] to be covered due to health constraints" at a cost of "several million dollars, which [Fallbrook] has not budgeted and for which [it] would not be inclined to raise rates." Fallbrook added: "As a practical matter, the 'existing roads' referred to in the [1978 agreement] no longer exist. Those roads were inundated by the enlargement of [the reservoir] in 1983. That project was legally noticed throughout the Fallbrook community and the District received no complaints or requests for reservation of any roadway. Further, [the subdivision development] proposed now was not anticipated for the Chaffin Ranch use in 1978."

In June 2001, Red Mountain filed a complaint against Fallbrook for breach of contract, specific performance and inverse condemnation, based on Fallbrook's refusal to grant the access easement. Fallbrook answered the complaint and in April 2002 filed a cross-complaint to quiet title and for declaratory and injunctive relief. In its cross-complaint, Fallbrook asked the trial court to rule that the sanitary easement was valid and that it precluded Red Mountain's proposed subdivision development. In September 2002, Fallbrook filed an eminent domain complaint against Red Mountain, condemning 134.24 acres that included the 127 acres of the sanitary easement. Fallbrook's complaint also condemned any and all rights Red Mountain had to the access easement.

On the parties' stipulation, the trial court consolidated the two actions for trial and Fallbrook moved to bifurcate the trial into liability and compensation phases. In opposition to the motion, Red Mountain argued that the proposed bifurcation would violate its right to a jury trial on its breach of contract claim. The court granted the motion, ruling that the court would try liability issues, and the jury would decide the amount of compensation. However, at oral argument on the motion, the trial court stated that if "surviving issues of fact will necessarily have to go to the jury [after the first phase of trial], I will . . . fashion . . . an order that provides for that."

After the liability phase of the trial was completed, the trial court issued a statement of decision in which it ruled that: (1) the access easement referenced in the 1978 agreement granted Red Mountain a 60-foot easement over Red Mountain Dam Road; (2) Red Mountain Dam Road was for Red Mountain's ingress to and egress from its "northern property . . . appurtenant to [Fallbrook's] reservoir property[;]" (3) Red Mountain was bound by the language in the 1949 agreement creating the sanitary easement; and (4) "issues addressing whether the proposed 'development' constitutes a new burden on [the sanitary] easement, whether inverse or pre-condemnation, eminent domain remedies, possible contamination of the sanitation easement, and the likelihood that the development will overburden this easement, are all premature." On November 13, 2003, the court filed an interlocutory judgment on bifurcated issues, in which it set forth its rulings in the statement of decision.

On December 1, 2003, Fallbrook made a "final offer" of $900,000 "to resolve all issues of compensation both as to the direct condemnation and claim of inverse condemnation . . . ." On the same day, Red Mountain made a "final demand" of $1,858,000, representing "compensation to be awarded in this proceeding for the taking, both by eminent domain and inverse condemnation, of all real property and interests in real property."

The compensation issues were tried to a jury in February and March of 2004. At the close of evidence, the court made a finding of inverse condemnation, stating, "It will be a jury determination as to whether there are damages."^[3] The jury returned a special verdict awarding Red Mountain damages of $1,464,928 on its inverse condemnation and breach of contract causes of action, and $872,560 as the fair market value on February 1, 2004 of the property Fallbrook directly condemned.

After the court entered its final judgment on April 14, 2004, Red Mountain filed a motion for an award of litigation expenses under Code of Civil Procedure section 1036 (applicable to inverse condemnation actions) "and/or" Code of Civil Procedure section 1250.410 (applicable to eminent domain actions). Red Mountain also filed a motion for an order requiring Fallbrook to deposit the full amount of the judgment with the court. On July 16, the court granted both motions and ordered Fallbrook "to make the required deposit in the full amount of the condemnation award . . . ."

On June 10, 2004, Fallbrook timely filed a notice of appeal from the judgment, and on August 13 filed a petition for writ of supersedeas asking this court to stay the order requiring it to deposit the full amount of the condemnation award. On August 25 Fallbrook filed an amended notice of appeal, stating that it was "amend[ing] its notice of appeal filed June 10, 2004, to include the court's ruling on litigation expenses of July 16, 2004 to be included as an issue on appeal." This court granted the petition for writ of supersedeas and issued an order stating: "To the extent that the trial court's . . . order directing deposit of the 'full amount of the compensation award' includes the $1,464,928 award issued for inverse condemnation or breach of contract in connection with the 60 foot easement, the order is stayed pending appeal."

DISCUSSION

I. Sufficiency of Fallbrook's Opening Brief and Notice of Appeal

from the Postjudgment Order Awarding Litigation Expenses

Red Mountain asks this court, on our own motion, to strike Fallbrook's opening brief and dismiss the appeal because the brief does not include a statement of appealability, as required by California Rules of Court,^[4] rule 14(a)(2)(B). We exercise our discretion under rule 14(e)(2)(C) to disregard Fallbrook's technical noncompliance with the requirement that its opening brief include a statement of appealability, because the judgment and postjudgment order Fallbrook challenges are both clearly appealable.

Red Mountain also contends that the amended notice of appeal Fallbrook filed on August 25, 2004 either relates back to the date of the original notice of appeal filed on April 14, 2004 and, therefore, is a nullity because it is premature as to the July 16, 2004 postjudgment order, or supersedes the original notice of appeal from the judgment and, therefore, is untimely as to the judgment. Red Mountain argues that this court should either dismiss the appeal from the postjudgment order, or dismiss the entire appeal on the ground that it is untimely.^[5] Red Mountain's argument implies that when an appeal is taken from a judgment, an "amended notice of appeal" filed after the time to appeal the judgment has expired is ineffective to appeal a postjudgment order, even if the amended notice of appeal identifies the postjudgment order and communicates the intent to appeal that order.

We reject Red Mountain's analysis, which places far too much significance on Fallbrook's use of the word "amended" in its second notice of appeal. A notice of appeal is to be liberally construed in favor of its sufficiency (rule 1(a)(2)), and it may be deemed sufficient if it has not misled or prejudiced the respondent. (ECC Const., Inc. v. Oak Park Calabasas Homeowners Ass'n. (2004) 122 Cal.App.4th 994, 1003, fn. 5.) As noted, Fallbrook's amended notice of appeal states: "[Fallbrook] hereby amends its notice of appeal filed June 10, 2004, to include the court's ruling on litigation expenses of July 16, 2004 to be included as an issue on appeal." Even conservatively construed, the amended notice of appeal sufficiently perfects Fallbrook's appeal from the July 16, 2004 postjudgment order awarding litigation expenses, as it expressly identifies that order as "an issue on appeal." Red Mountain does not, and cannot reasonably, contend that it was misled or prejudiced as to Fallbrook's intent to appeal that order. We deny Red Mountain's request to dismiss Fallbrook's appeal in whole or in part.

II. Construction of the Access Easement

Fallbrook contends that the trial court's interpretation of the access easement referenced in the 1978 agreement as being for subdivision use was erroneous because (1) uncontradicted parol evidence established that the parties intended the easement to be limited to the Chaffins' personal ingress and egress, and (2) the court was required to construe the easement in Fallbrook's favor under Civil Code section 1069 (hereinafter, section 1069). We agree with Fallbrook's second contention.

Section 1069 provides: "A grant is to be interpreted in favor of the grantee, except that a reservation in any grant, and every grant by a public officer or body, as such, to a private party, is to be interpreted in favor of the grantor." (Italics added.) Section 1069's directive that every grant by a public body is to be interpreted in favor of the grantor applies only if there is an ambiguity in a grant. (City of Los Angeles v. Howard (1966) 244 Cal.App.2d 538, 545.) Here, the parties agree that the 1978 agreement to grant the access easement is ambiguous as to the scope of the easement. Although the ambiguity is in an agreement by a public entity to grant an easement, and not in an actual grant, we conclude that it is appropriate to apply section 1069 in construing the agreement because the ambiguity concerns the nature and scope of the easement to be granted.^[6]

Fallbrook argues that because it is a public body, section 1069 mandates that the ambiguity in the 1978 agreement regarding the scope of the access easement be resolved in its favor – i.e., the easement provision must be construed as requiring Fallbrook to grant an easement for personal ingress and egress only. Red Mountain essentially argues that section 1069 does not require a court to automatically interpret an ambiguity in a grant by a public entity in the public entity's favor because, as a general rule, all of the rules of construction should be considered in interpreting a contract, and the true intent of the parties should govern the interpretation. (City of Manhattan Beach (1996) 13 Cal.4th 232, 238.)

We have found no citable California case that directly addresses whether section 1069 requires a court to interpret an ambiguous grant by a public body in favor of the grantor when other rules of construction or extrinsic evidence support an interpretation in favor of the grantee. However, cases that have addressed the role of section 1069 in the construction of ambiguous public grants have viewed the statute's public grant provision as a statutory mandate that takes precedence over other rules of construction.

The rule that ambiguous grants by the government are to be strictly construed in favor of the government is long standing and well settled. In 1832 the United States Supreme Court noted that "[p]ublic grants convey nothing by implication; they are construed strictly in favour of the king; [citations]." (United States v. Arredondo (1832) 31 U.S. 691, 738.) A key aspect of the rule, expressed in a number of later United States Supreme Court opinions, is that "nothing passes by the [governmental] grant but that which is necessarily and expressly embraced in its terms." (Kean v. Calumet Canal & Improvement Co. (1903) 190 U.S. 452, 498-499, dis. opn. of White, J., italics added; see additional cases cited in Home on the Range v. AT&T Corp. (S.D. Ind. 2005) 386 F.Supp.2d 999, 1021.)

More than 100 years ago, the California Supreme Court noted: "[O]ur own legislature has made it statute law that 'every grant by a public officer or body, as such, to a private party, is to be interpreted in favor of the grantor.' (§ 1069.) It is certain moreover, that the principle of construction sustained by the weight of recent authority is that . . . .' . . . the state is entitled to the benefit of certain well-settled canons of construction that pertain to grants by the state to private persons or corporations,as, for instance, that if there is any ambiguity or uncertainty in the act, that interpretation must be put upon it which is most favorable to the state . . . .' " (City of Oakland v. Oakland Water-Front Co. (1897) 118 Cal. 160, 175, quoting Illinois Cent. R. Co. v. State of Illinois (1892) 146 U.S. 387, 468, dis. opn. of Shiras, J., italics added.) The California Supreme Court later approved the following iteration of the rule: " ' "All grants of the Crown are to be strictly construed against the grantee, contrary to the usual policy of the law in the consideration of grants; and upon this just ground, that the prerogatives and rights and emoluments of the Crown being conferred upon it for great purposes, and for the public use, it shall not be intended that such prerogatives, rights and emoluments are diminished by any grant, beyond what such grant by necessary and unavoidable construction shall take away." ' " (Los Angeles v. San Pedro, etc. R. R. Co., (1920) 182 Cal. 652, 655-656, quoting Shively v. Bowlby (1894) 152 U.S. 1, 10, italics added.)

In Los Angeles County v. Southern Cal. Tel. Co. (1948) 32 Cal.2d 378, 384, the California Supreme Court noted that under section 1069, a statutory grant to telegraph and telephone companies of the privilege to construct telegraph or telephone lines along or on public roads "must be construed in favor of the state." (Italics added.) (See also, Southern California Gas Co. v. City of Los Angeles (1958) 50 Cal.2d 713, 719-720 [as a public grant, a franchise granted to a public utility for the use of streets is to be construed in favor of the public interest].)

Pariani v. State of California (1980) 105 Cal.App.3d 923 involved a dispute over whether a reservation of mineral rights in a land grant by the state reserved to the state the geothermal resources underlying the granted lands. Noting the federal rule that grants by the federal government are to be construed in the government's favor, the appellate court added that under section 1069, "any doubt concerning the scope of the State's reservation must be resolved in favor of the State." (Id. at p. 932, italics added.)

Story continue in Part II ……

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^[1] It is not clear from the record, including the eminent domain complaint, whether the 134.24 acres that Fallbrook directly condemned includes the entire 127-acre area of the sanitary easement. However, Fallbrook makes a representation to that effect in its opening brief.

^[2] The existing access easement road referenced in the 1978 agreement ran north from Mission Road along the west side of the reservoir into the Red Mountain Ranch property. Mission Road is the main road that runs east-west through the city of Fallbrook.

^[3] The trial did not specify the property it found to have been inversely condemned. However, based on its finding of inverse condemnation, the trial court later instructed the jury as follows: "The court has determined that [Fallbrook] is liable to the Chaffins for the taking of their contractual right to the conveyance of an easement. You are to determine the amount of compensation payable to the Chaffins for this taking. [¶] The amount of compensation is to include the diminution, if any, in the value of the Chaffins' property that would have been served by the easement, caused by the loss of the easement. . . . [¶] The amount of compensation also includes the amount of consulting fees and expenses, if any, that you find were proximately caused by the taking."

^[4] All further rule references are to the California Rules of Court.

^[5] Red Mountain concedes that the postjudgment order awarding litigation expenses is appealable under Code of Civil Procedure section 904.1, subdivision (a)(2).

^[6] In its statement of decision, the trial court noted the provisions in section 1069 that an ambiguity in a grant is interpreted in favor of the grantee and that an ambiguity in a reservation is interpreted in favor of the grantor. However, the court did not mention the provision in section 1069 that "every grant by a public officer or body, as such, to a private party, is to be interpreted in favor of the grantor." That provision is critical to the resolution of this case, as the 1978 agreement involved an anticipated grant by Fallbrook, a public entity.