An eminent domain action's impact on the future development of the remaining private property — which needs rezoning for development — may be considered by a jury that is determining the fair market value of the taking, the state Supreme Court has ruled.
In a unanimous opinion, the state high court mostly upheld a Fourth District Court of Appeal ruling that overturned a trial court judge who prohibited a jury from considering an eminent domain action on potential future development. In addition, the state Supreme Court held that a jury may consider the diminution in the market value of the remaining property as a result of the eminent domain.
The decision marks the latest twist in battle between the owner of the historic Arrowhead Springs resort and the Metropolitan Water District of Southern California (the Met), and in long-held plans for extensive development of the Arrowhead site.
Ten years ago, the Met filed an eminent domain action to acquire land and easements for a pipeline across the Arrowhead property in San Bernardino. The pipeline, which has since been completed, carries water from Devils Canyon to the new Diamond Valley Lake in western Riverside County. The Met sought to acquire 10.4 acres, plus 18.7 acres of permanent easement, 27.4 acres of temporary construction easement for seven years, and two permanent tunnel easements.
Meanwhile, the owner of the 1,800-acre property, Campus Crusade for Christ, has been working with American Development to refurbish the historic resort, build an additional hotel and golf course, and develop up to 1,350 homes and 1 million square feet of office and commercial space. The City of San Bernardino adopted a specific plan for the project but had to revise the plan when a judge in 2006 found the environmental impact report inadequate.
The Met initially set just compensation at $392,000. Campus Crusade argued that the project would harm the property's historic value — the Met removed a great deal of mature vegetation at the resort's entryway — and development potential because the pipeline was going under the most developable land. The Met increased its offer to $3.5 million, but Campus Crusade demanded $12.5 million.
San Bernardino County Superior Court Judge John Wade ruled that a jury could not consider many factors presented by Campus Crusade, which ended up waiving its right to a jury trial because of Wade's rulings. In June 2003, Wade fixed the just compensation owed by the Met at $479,000. The Fourth District found that Wade made several mistakes and ordered a new trial. The California Supreme Court then took up the Met's appeal of the Fourth District decision.
The development plan would require rezoning because most of the site was zoned for 40-acre minimum parcel sizes when the Met commenced its action. The Met argued that the landowner had to prove a reasonable probability of rezoning existed. The state Supreme Court, however, said a two-step process is involved. First, the property owner must produce evidence. Then, it is up to the "trier of fact" to determine whether such evidence is adequate to support a reasonable probability of rezoning, and what the effect on valuation would be, the court explained.
"[W]hen presented with a proffer that there is a highest and best use that is not permitted by the property's current zoning, the trial court should examine whether the proffer supplies sufficient evidence to permit the jury to find that there was a reasonable probability of rezoning to permit that use in the near future. The jury should then be instructed that it may consider the change in use, provided that it first finds a reasonable probability the property could be rezoned in the near future," Justice Marvin Baxter wrote for the court.
The other major issue for the court was "severance damage" — the impact on market value of the property not condemned by the Met. Campus Crusade argued that the negative aesthetic impacts on landscaping and the pipeline's limit on development potential, as well as the possibility of the pipeline rupturing (the pipeline crosses the San Andreas Fault here), should all be factors in the valuation. The court agreed those could be factors.
"As long as the effect of these factors on market value is not conjectural, speculative or remote, it is for the jury to decide the extent to which they may affect the value of the property," Baxter wrote.
Campus Crusade also sought compensation for the seven-year construction period, which the property owner argued impacted financing and marketing. The court held that Campus Crusade may be entitled to compensation during a new trial but "has not identified any specific loss attributable to the delay in construction."
The state Supreme Court sent the case back to the Fourth District for further proceedings.
Metropolitan Water District of Southern California v. Campus Crusade for Christ, Inc., No. S141148, 07 C.D.O.S. 8627, 2007 DJDAR 11124. Filed July 23, 2007.
For the Met: Kenneth Bley, Cox, Castle & Nicholson, (310) 284-2231.
For Campus Crusade: Scott Heil, Redwine & Sherill, (909) 684-2520.