Court Overturns Property Valuation Because of Trial Judge's Mistakes
When a public agency acquires a property via eminent domain, only a trial court judge -- and not a jury -- can decide whether a business should receive compensation for loss of goodwill, a state appellate court has ruled.
The ruling came in a case involving the Emeryville Redevelopment Agency. The First District Court of Appeal ruled that the trial court got a number of things wrong -- including allowing improper evidence -- but that the lower court was right to prevent the jury from hearing arguments about the loss of goodwill. In the end, the appellate court threw out a $12.5 million award to the landowner and sent the case back to the trial court.
"This is a significant victory for condemning agencies in that it will send a strong message to trial courts that they should not defer issues other than valuation to a jury," Emeryville attorney Tom Douvan, of McDonough, Holland & Allen, told the Los Angeles Daily Journal.
Even before this lawsuit was initiated, the 13-acre site in question had a long history. American Indians had created a huge mound of sea shells reaching at least 40 feet in height. During the late 1800s, the land was used for an amusement park known as Shellmound Park. During the 1920s, the mound was leveled and an industrial development was built. In 1987, the city included the site in a 270-acre redevelopment project.
In 1998, the redevelopment agency filed an eminent domain lawsuit against Harcros Pigments Inc. (later Elementis Pigments Inc.) to acquire the 13 acres. The city wanted the property to accommodate a mixed-use commercial development. The city offered $6 million, but a jury eventually ordered the city to pay $12.5 million, minus costs for cleaning up contaminated soil.
Both the city and Elementis filed appeals of different parts of the decision. Elementis argued that Alameda County Superior Court Judge Ronald Sabraw improperly withheld from the jury evidence concerning loss of goodwill. Elementis cited several cases in which the issue of entitlement to compensation for lost goodwill was submitted to the jury.
But the unanimous three-judge panel of the First District ruled that the cases Elementis cited were not the same as the current one. Citing Code of Civil Procedure section 1263.510 (a), the court held that when a dispute exists about compensation for lost goodwill, a judge must first rule on that dispute. If the court rules that there has been a loss of goodwill, only then can the issue of valuing that goodwill go to the jury, the First District ruled.
"[T]he general rule in eminent domain actions is that ‘the right to a jury trial … goes only to the amount of compensation,'" Justice Patricia Sepulveda wrote for the court, citing Redevelopment Agency v. Contra Costa Theatre, Inc., (1982) 135 Ca.App.3d, 73. "‘All other questions of fact, or mixed fact and law, are to be tried … without reference to a jury.'"
The city argued that Judge Sabraw allowed the jury to consider evidence not properly before the jury. The appellate panel agreed. It ruled that Judge Sabraw made several mistakes that prejudiced the jury too much for the jury's decision to stand. Sabraw wrongly allowed the jury to consider the amount the city has paid for other properties in the area, and Sabraw let the jury consider what project the city had proposed for the site.
In eminent domain cases such as this one, the appellate court ruled, Evidence Code section 822 excludes information regarding "acquisitions for public use." One case cited by Elementis, City and County of San Francisco v. Golden Gate Heights Investments, (1993) 14 Cal.App.4th, appears to allow the jury to consider the price paid by a public agency for other pieces of property. But the First District declined to follow the Golden Gate case and pointed to a recent amendment by the Legislature that said the Golden Gate court has "misconstrued" the evidence rule.
As for evidence regarding the city's proposed use of the site, such information must not be considered by the jury, the court ruled. "[E]vidence of specific project plans is inadmissible in the absence of specific facts or points of contention which demonstrably enhance the probative value of the evidence to a point where it outweighs the inherent potential for prejudice," Sepulveda wrote.
Emeryville Redevelopment Agency v. Harcros Pigments, Inc., Nos. A090932, A091716, A093126, 02 C.D.O.S. 8255, 2002 DJDAR 10329. Filed August 9, 2002. Ordered published September 6, 2002.
For Emeryville: Natalie West, McDonough, Holland & Allen, (510) 273-8780.
For Harcros: James Berg, Berg & Parker, (415) 397- 6000.