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 II ...

The trial court has considerable discretion in determining the admissibility of valuation evidence in condemnation proceedings. (City of San Diego v. Sobke (1998) 65 Cal.App.4th 379, 396.) Accordingly, we review evidentiary rulings for an abuse of discretion. (City of Ripon v. Sweetin (2002) 100 Cal.App.4th 887, 900.) As a general rule, "a property owner may not value his property based upon its use for a projected special purpose or for a hypothetical business. [Citations.]" (County of San Diego v. Rancho Vista Del Mar, Inc. (1993) 16 Cal.App.4th 1046, 1059.) However, "[w]hile a property owner may not generally present evidence of the value of his property ' "in terms of money" ' that the property would bring for a special purpose [citation], evidence of a particular use may be relevant to establishing the highest and best use since such evidence may tend to establish the property's adaptability for that kind of use [citations]." (Id. at pp. 1059-1060.) Generally, evidence that condemned property is suitable for a particular purpose may properly be admitted when the highest and best use of the property is disputed or there is a dispute as to the feasibility of a particular use. (Emeryville, supra, 101 Cal.App.4th at pp. 1104-1105; People ex rel. Dept. of Transportation v. Tanczos (1996) 42 Cal.App.4th 1215, 1219.)

One of the main disputed issues at the trial in this case was the highest and best use of the subject property and, in particular, whether a subdivision development on the property was feasible. Consequently, the trial court did not abuse its discretion in allowing the jury to hear Backer's various valuations of the property based on Red Mountain's evidence that that land was suitable for a subdivision development. In any event, following the directive of Red Mountain's counsel in closing argument, the jury used Backer's breach analysis, which ignored the majority of Red Mountain's property and awarded damages based only on use of the southerly 207.38 acres as two ranch estates. Backer's testimony about this use of the 207.38 acres was admissible "highest and best use" testimony; it did not constitute testimony about a specific development plan, as it was not based on evidence of any specific plan for two ranch estates or any specific features of the hypothetical estates, such as location of the building pads or septic systems. Backer simply valued the land as being generally useable for two large ranch estates. The court did not abuse its discretion in allowing Backer's valuation testimony.[1]

VII. Jury Instructions

Fallbrook contends that the trial court incorrectly instructed the jury and erroneously refused to give certain instructions that Fallbrook requested.

"A party is entitled upon request to correct, nonargumentative instructions on every theory of the case advanced by him which is supported by substantial evidence." (Soule, supra, 8 Cal.4th at p. 572.) "A civil litigant must propose complete instructions in accordance with his or her theory of the litigation and a trial court is not 'obligated to seek out theories [a party] might have advanced, or to articulate for him that which he has left unspoken.' [Citations.]" (Mesecher v. County of San Diego (1992) 9 Cal.App.4th 1677, 1686.) Instructional error in a civil case is not ground for reversal unless it is probable the error prejudicially affected the verdict. (Soule, supra, 8 Cal.4th at p. 580.) In determining whether instructional error was prejudicial, a reviewing court must evaluate "(1) the state of the evidence, (2) the effect of other instructions, (3) the effect of counsel's arguments, and (4) any indications by the jury itself that it was misled." (Id. at pp. 580-581, fn. omitted.)

"Instructions should state rules of law in general terms and should not be calculated to amount to an argument to the jury in the guise of a statement of law. [Citations.] Moreover, it is error to give, and proper to refuse, instructions that unduly overemphasize issues, theories or defenses either by repetition or singling them out or making them unduly prominent although the instruction may be a legal proposition. [Citations.]" (Fibreboard Paper Products Corp. v. East Bay Union of Machinists (1964) 227 Cal.App.2d 675, 718.) Finally, "[e]rror cannot be predicated on the trial court's refusal to give a requested instruction if the subject matter is substantially covered by the instructions given. [Citations.]" (Id. at p. 719; Hyatt v. Sierra Boat Co. (1978) 79 Cal.App.3d 325, 335.)

A. Instructions given

Fallbrook first argues that the trial court erred in instructing the jury that it had to follow the court's rulings from the first phase of the trial. The trial court erred in instructing the jury to follow its legal rulings only to the extent those rulings were erroneous. Because we have addressed Fallbrook's challenges to the trial court's legal rulings above, we will not further address those rulings in the context of alleged instructional error.

Fallbrook next argues that the instructions the trial court gave regarding damages for breach of contract and inverse condemnation were erroneous because they did not instruct how those damages relate to just compensation in Fallbrook's direct condemnation action. Fallbrook complains that the direct condemnation action required the jury to value the same land at issue in the breach of contract/inverse condemnation action and, therefore, the trial court should have given an explicit instruction that the jury could not award duplicative damages, and that awarding damages twice for the same loss is duplicative as a matter of law.

Fallbrook's argument is not so much a claim of instructional error as a legal argument that Red Mountain may not recover compensation for the diminution in value of its 207.38 southerly acres as a result of any breach of contract by Fallbrook in August 2000, and also recover compensation for the portion of that land that Fallbrook later directly condemned. As we discussed above, we reject this argument because the breach of contract/inverse condemnation award and the eminent domain award did not compensate Red Mountain twice for the same loss; they compensated Red Mountain for different losses that occurred at different times.

B. Instructions refused

Fallbrook contends that the trial court erred by refusing to give the following instructions: (1) that a plaintiff may not recover the same damages for both a breach of contract claim and a tort claim that are based on the same facts (CACI No. 361); (2) that the owner of the dominant estate must use its easement in such a way as to impose as slight a burden as possible on the servient estate; (3) that a sanitary easement is similar to a conservation easement; (4) that Fallbrook was not obligated to grant the access easement if the jury found the requested easement would overburden Fallbrook's sanitary easement and reservoir; and (5) that the jury is not "permitted to value the property with reference to what it was worth to the defendant for speculatiion or merely for possible uses . . . ." (BAJI 11.75.)

1. Failure to instruct with CACI No. 361

CACI No. 361 instructs that when a plaintiff has brought claims in both contract and tort against a defendant and the jury finds that the plaintiff "has proved both claims, the same damages that resulted from both claims can be awarded only once." Fallbrook argues that the trial court's failure to give this instruction allowed the jury to improperly award duplicative damages for breach of contract/inverse condemnation and Fallbrook's direct condemnation.

Preliminarily, the record does not clearly show that Fallbrook requested that the trial court give CACI No. 361. The only indication in the record that the trial court considered giving this instruction is a letter from Fallbrook's counsel to the trial court expressing Fallbrook's opposition to a proposed final judgment. In that letter, Fallbrook's counsel states that after discussing the issue of duplicative damages "with both counsel, the court decided not to give CACI 361 . . . since the court would ensure there would be only one award for damages." In any event, Fallbrook was not prejudiced by the court's refusal to give a duplicative damages instruction because the judgment does not award duplicative damages. As discussed above, the compensation the jury awarded Red Mountain for the land Fallbrook directly condemned was not duplicative of the jury's award of breach of contract/inverse condemnation damages.

2. Failure to instruct that the owner of the dominant estate must use its easement in such a way as to impose as slight a burden as possible on the servient estate

Fallbrook contends that the trial court should have instructed the jury that the owner of the dominant estate must use its easement in such a way as to impose as slight a burden as possible on the servient estate, as stated in Locklin v. City of Lafayette (1994) 7 Cal.4th 327, 356. This proposed instruction presumably concerns the access easement, not the sanitary easement, since Fallbrook would have been the owner of the servient estate as to the access easement, if the easement had been granted.

Fallbrook does not explain in its opening brief why the trial court's rejection of this instruction was erroneous or how it prejudicially affected the verdict. The only argument on this point is in Fallbrook's reply brief, in which Fallbrook asserts that "[t]he jury was given no guidance as to what the fee owner could or could not do as compared to the rights of the easement holder." Fallbrook presumably requested this instruction in connection with its theory that it was excused from its contractual obligation to grant Red Mountain an access easement under the 1978 agreement because Red Mountain's intended use of the easement for a large subdivision would overburden Fallbrook's servient estate by threatening the reservoir.

The trial court properly refused to give this instruction, as it is argumentative and unduly emphasizes Fallbrook's overburdening theory. Further, the subject matter of the instruction and the legal point Fallbrook presumably intended it to convey regarding a dominant estate owner's duty not to overburden the servient estate was substantially covered by the following portion of a special instruction the trial court did give: "Overburdening an easement is defined as a use which unreasonably increases the burden on the servient estate and depends on the facts of each case. Every easement includes the right to do such things that are necessary for the full enjoyment of the easement itself. But this right must be exercised in such a reasonable manner as to not injuriously increase the burden on the servient estate." (Italics added.) Fallbrook has not shown that the trial court prejudicially erred by refusing to give Fallbrook's proposed special instruction based on Locklin.

3. Failure to give requested instruction regarding the sanitary easement

Fallbrook contends that the trial court erred in refusing to give the following instruction, which includes the definition of "conservation easement" in the exact language of Civil Code section 815.1: A sanitary easement is similar to a conservation easement and means "any limitation in a deed will or other instrument in the form of an easement, restriction, covenant, or condition, which is or has been executed by or on behalf of the owner of the land subject to such easement and is binding upon successive owners of such land, and the purpose of which is to retain land predominantly in its natural, scenic, historical, agricultural, forested or open-spaced condition."

The trial court properly rejected this instruction because the sanitary easement is not a conservation easement. The purpose of the sanitary easement is to enable Fallbrook "to patrol, control and maintain sanitary conditions [in the easement area] necessary and adequate to keep the water stored in [the] reservoir . . . free from contamination from [the] surrounding watershed area and to enable [Fallbrook] to comply with [public health laws and regulations] . . . ." Whether protecting the reservoir water and complying with public health laws require that Fallbrook maintain the easement area "predominantly in its natural, scenic, historical, agricultural, forested or open-spaced condition" was a disputed factual issue at trial.[2] Fallbrook's proposed "conservation easement" instruction would have effectively directed the jury to find, as a matter of law, that the sanitary easement imposed the same restrictions on Red Mountain's use of the easement area that a conservation easement would have imposed. The trial court properly refused the instruction, as it is both argumentative and legally incorrect.

4. Failure to instruct that Fallbrook was not obligated to grant a subdivision access easement if the jury found that such an easement would overburden Fallbrook's sanitary easement and reservoir

Fallbrook contends that the trial court erred in refusing to give its proposed special instruction that states, in relevant part: "The Chaffins have requested a road easement for a proposed development. [Fallbrook] has refused to grant the road easement. If you find the requested road easement would overburden Fallbrook's 1949 [s]anitary [e]asement and reservoir, then Fallbrook was not obligated to grant the easement to the Chaffins." Fallbrook argues that the trial court should have given this instruction because it is consistent with the sanitary easement and with Civil Code section 815.7.

Civil Code section 815.7 concerns enforcement of conservation easements, and thus is inapplicable to this case. In any event, the essential point of the refused instruction -- that Fallbrook was excused from granting the access easement if the easement would threaten the reservoir -- was substantially and less argumentatively covered by the following special instruction that the court did give regarding Fallbrook's

ability of performance: "Fallbrook . . . has the burden to show that performance of the contract was excused and the contract discharged because performance of the contract became impossible except at impractical, excessive, unreasonable expense or risk of injury not contemplated by the parties at the time the contract was made." This instruction, along with the above-noted instruction defining "overburdening an easement," adequately conveyed to the jury that Fallbrook was excused from performing its contractual obligation to grant the access easement agreement if the jury found that performance would overburden the sanitary easement and risk contamination of the reservoir. The court did not prejudicially err in refusing Fallbrook's special instruction.

5. Failure to give BAJI No. 11.75

Finally, Fallbrook contends that the trial court erred in refusing to give BAJI No. 11.75, which instructs the jury in an eminent domain case that it is "not permitted to value the property with reference to what it was worth to the defendant for speculation or merely for possible uses . . . ." Fallbrook contends that it was error to refuse to give this instruction because the trial court allowed speculative testimony and evidence about Red Mountain's uses of the property. We reject this contention in light of our conclusion that the evidence in question was not inadmissibly speculative; rather, it constituted admissible evidence of the property's highest and best use. Moreover, the subject matter of the portion of BAJI No. 11.85 in question was substantially covered by the following modified version of BAJI No. 11.86 (regarding severance damages), which the trial court gave: "In assessing the damages, if any, to the [eminent domain] defendant's remaining property, caused by the project, you are not permitted to consider any factors that are speculative or imaginary, or any purely personal elements that do not affect the property's fair market value. Severance damages can, however, be based on any factor, resulting from the project, that causes a decline in the fair market value.

Damages are not to be enhanced for frustration of a proposed development which is speculative and conjectural." (Italics added.) The trial court did not commit reversible instructional error in refusing to give BAJI No. 11.75.

VIII. Verdict Form

Fallbrook contends that the trial court prejudicially erred by refusing to include Fallbrook's contract defense of impossibility or impracticability of performance in the special verdict form and by failing to ensure that the verdict form protected against duplicative damages.

The use of special interrogatories in a verdict form lies within the sound discretion of the trial court, and the court's determination will not be disturbed on appeal absent a clear abuse of discretion. (Masonite Corp. v. Pacific Gas & Electric Co. (1976) 65 Cal.App.3d 1, 11-12.) The trial court's refusal to include specific questions about impossibility or impracticability of performance in the verdict form was not an abuse of discretion, nor was it prejudicial, because, as discussed above, the jury was instructed to find that Fallbrook's performance of the contract was excused and the contract discharged if Fallbrook met its burden of proving that its performance became "impossible except at impractical, excessive, unreasonable expense or risk of injury not contemplated by the parties at the time the contract was made." We presume that the jury followed the instructions it was given (Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 803), and that it would not have found that Fallbrook breached its agreement to grant the access easement if it had found that Fallbrook's performance was impossible or impracticable.[3]

To the extent the court erred by not ensuring that the verdict form protected against duplicative damages, the error was harmless because, as discussed above, there was no award of duplicative damages.

VIII. Award of Litigation Expenses

Red Mountain filed a motion to recover its litigation expenses, including expert and attorney fees, under Code of Civil Procedure sections 1036 "and/or" 1250.410. Red Mountain sought expert witness fees in the amount of $221,079 and attorney fees in the amount of $222,737, plus $4,000 for bringing the motion. The court granted Red Mountain's motion "in its entirety."

Code of Civil Procedure section 1036 provides: "In any inverse condemnation proceeding, the court rendering judgment for the plaintiff by awarding compensation . . . shall determine and award or allow to the plaintiff, as a part of that judgment . . . a sum that will, in the opinion of the court, reimburse the plaintiff's reasonable costs, disbursements, and expenses, including reasonable attorney, appraisal, and engineering fees, actually incurred because of that proceeding in the trial court or in any appellate proceeding in which the plaintiff prevails on any issue in that proceeding." In awarding litigation expenses under this section, the trial court generally should apportion between attorney fees incurred in litigating the inverse condemnation claim and fees incurred with respect to other claims for which attorney fees are not recoverable, and award only the former. (Greater Westchester Homeowners Assn. v. City of Los Angeles (1979) 26 Cal.3d 86, 103-104; Salton Bay Marina, Inc. v. Imperial Irrigation Dist., (1985) 172 Cal.App.3d 914, 958.) However, the trial court has discretion to award fees incurred with respect to a non-inverse condemnation cause of action that is relevant to the inverse condemnation claim. (Salton Bay Marina, Inc. v. Imperial Irrigation Dist, supra, 172 Cal.App.3d at p. 958.)

Code of Civil Procedure section 1250.410, subdivision (b) authorizes the trial court to award litigation expenses to the defendant in an eminent domain case "[i]f the court, on motion of the defendant made within 30 days after entry of judgment, finds that the offer of the plaintiff was unreasonable and that the demand of the defendant was reasonable viewed in the light of the evidence admitted and the compensation awarded in the proceeding . . . ." The "purpose [of Code of Civil Procedure section 1250.410] is to encourage settlement of condemnation actions by providing incentives to a party who submits a reasonable settlement offer or demand before trial. [Citation.] A property owner who files a reasonable demand, but is required nonetheless to litigate because of the public agency's unreasonable position, can be fully compensated for his litigation expenses." (Santa Clara Valley Water Dist. v. Gross (1988) 200 Cal.App.3d 1363, 1368.) "Several factors have emerged as general guidelines for determining the reasonableness or unreasonableness of offers [in eminent domain cases]. They are ' "(1) the amount of the difference between the offer and the compensation awarded, (2) the percentage of the difference between the offer and award . . . and (3) the good faith, care and accuracy in how the amount of offer and the amount of demand, respectively, were determined." ' [Citation.] Thus, the mathematical relation between the condemner's highest offer and the award is only one factor that should enter into the trial court's determination. [Citations.]" (Los Angeles County Metropolitan Transportation Authority v. Continental Development Corp. (1997) 16 Cal.4th 694, 720.)

Fallbrook contends that its final settlement offer of $900,000 was reasonable as a matter of law under Code of Civil Procedure section 1250.410 because it was greater than the jury's direct condemnation award of $872,560. Fallbrook maintains that the trial court should not have awarded Red Mountain all of its attorney and expert fees for the entire action without apportioning the award between the breach of contract claim, the inverse condemnation claim, and the direct condemnation action.[4] Red Mountain characterizes Fallbrook's argument as "disingenuous" because Fallbrook's final offer of $900,000 was a proposal to settle both the inverse and direct condemnation actions, and thus was less than half of the combined award of $2,337,488. Noting that an award of

litigation expenses is required in an inverse condemnation action regardless of any final offer and demand, Red Mountain cites Salton Bay Marina, Inc. v. Imperial Irrigation Dist., supra, 172 Cal.App.3d at p. 958, for the proposition that the trial court has discretion not to apportion fees and costs attributable to an inverse condemnation claim when that claim is tried in conjunction with another claim.

The trial court effectively awarded fees and expenses under both statutes. It ruled that "[Red Mountain's] Motion for Recovery of Litigation Expenses pursuant to [Code of Civil Procedure section] 1036 and [Code of Civil Procedure section] 1250.410 on the grounds that [Red Mountain] prevailed on its inverse condemnation cause of action and is entitled to fees and expenses as a matter of law, that Red Mountain's final demands and settlement offers to compromise were reasonable and that [Fallbrook's] final offer and failure to negotiate were unreasonable, and that [Fallbrook] did not act with good faith, care and accuracy in its negotiations in dealing with Red Mountain, and that the amount of Red Mountain's litigation expenses are reasonable, is granted in its entirety." (Italics added.) The trial court thus impliedly found that Fallbrook's final offer of $900,000 was unreasonable under Code of Civil Procedure section 1250.410 as to the direct condemnation case because that offer encompassed a proposed settlement of the inverse condemnation case as well.

The trial court could reasonably find that Fallbrook's final offer to settle the entire action was unreasonable as to the direct condemnation case given the substantial difference between the offer and the compensation awarded Red Mountain for the entire action. Accordingly, it was not an abuse of discretion for the trial court to award litigation expenses for both the direct and inverse condemnation actions under Code of Civil Procedure sections 1250.410 and 1036 respectively. However, retrial of the inverse condemnation and breach of contract claims could result in either a finding of no liability for inverse condemnation and thus no damages, or a substantially lower award of damages than the inverse condemnation/breach of contract award in the first trial, and retrial of direct condemnation case could result in a higher award of just compensation. Depending on the outcome, the trial court might reasonably conclude that Fallbrook's final offer of $900,000 was reasonable with respect to the direct condemnation case, and decline to award litigation expenses under Code of Civil Procedure section 1250.410. If Red Mountain recovers inverse condemnation damages and the court finds Fallbrook's final offer was reasonable with respect to the direct condemnation case, Red Mountain would be entitled to recover litigation expenses only under Code of Civil Procedure section 1036 with respect to its inverse condemnation claim, and the trial court would have to apportion fees to exclude time spent on the direct condemnation case, unless it found that the two matters were sufficiently related to justify an award of litigation expenses as to both. Accordingly, we reverse the award of litigation expenses and remand the matter to the trial court for redetermination based on the outcome of the retrial.

DISPOSITION

The judgment is reversed and the cause matter is remanded for retrial. The postjudgment order awarding Red Mountain litigation expenses under Code of Civil Procedure sections 1036 and 1250.410 is reversed and the matter is remanded for redetermination in light of the outcome of the retrial. The stay this court issued on September 8, 2004 is vacated. The parties shall bear their own costs on appeal.

CERTIFIED FOR PUBLICATION

AARON, J.

WE CONCUR:

HUFFMAN, Acting P. J.

McINTYRE, J.

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Analysis and review provided by Oceanside Property line attorney.

[1] In light of our conclusion that, under section 1069, the access easement referenced in the 1978 agreement was intended for personal ingress/egress and not for access to a subdivision development, if the diminution in the value of Red Mountain's land resulting from Fallbrook's refusal to grant an access easement becomes an issue on remand, the issue is likely to be limited to diminution in the value of Red Mountain's southerly 207.38 acres.

[2] Red Mountain presented expert testimony that proposed development within the sanitary easement area would not cause contamination of the reservoir.

[3] When Fallbrook's counsel asked the trial court to include the defense of impossibility or impracticability in the verdict form, the court noted that the defense was covered by a jury instruction and advised counsel that it was his job to argue the defense as a basis for answering "no" to the special verdict question of whether Fallbrook had breached the contract to grant the access easement. During closing argument, Fallbrook's counsel quoted the above-noted instruction regarding impossible or impractical performance and argued that the jury should find that Fallbrook had not breached the contract, stating: "Nobody contemplated in 1978 or back in 1949 that there was going to be a subdivision which was going to cause -- or potentially contaminate the reservoir. That's why Fallbrook did what it did."

[4] Fallbrook's position apparently is that the trial court should have awarded fees with respect to the inverse condemnation claim only.