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Program Bulletin
Date: December 27, 2007 Program Bulletin #2007-44
To: CalHFA Approved Lenders
CLOSING REQUIREMENTS
FOR PROPERTIES NEEDING REPAIRS
California Housing Finance Agency (CalHFA) has recently seen an increase in the number of
Real Estate Owned (REO) properties being sold to first-time homebuyers who are requesting
financing through CalHFA. Many contracts for these types of homes state that the home is
being sold “as is” without repairs being completed by the seller or where the seller will credit the
buyer for some or all of the repair work that must be completed after closing.
CalHFA’s policy has been and remains that the properties being sold under any CalHFA
financing program must comply with all federal, state and local housing health, safety and
occupancy standards and requirements and no condition may exist that affects the livability,
soundness, or structural integrity of the property at the time of closing. CalHFA will not
purchase any loan where the property is in disrepair or damaged at the time the loan is
delivered to CalHFA for purchase.
Any property using CalHFA financing must be appraised subject to completion of any and all
alterations or repairs ("as-repaired"), and the lender must obtain a final completion report from
an appraiser verifying that all repairs have been completed before delivering the mortgage to
CalHFA for purchase. A copy of the final completion report will be required prior to purchase.
For questions about this bulletin, contact CalHFA Homeownership Programs by phone
916.324.8088; by fax 916.324.6589; by email at homeownership@calhfa.ca.gov and you can
always visit CalHFA’s web site at: www.calhfa.ca.gov
Unless otherwise directed, please send all loan files and documents to:
CalHFA Homeownership Programs
1121 L Street, 7th FloorSacramento, CA 95814
INTRODUCTION
http://www.dep.state.fl.us/lands/appraisal/pdfs/suppapp.pdf
These supplemental appraisal standards have been created to serve only as a
guideline in the appraisal and appraisal review procedures attendant to the land
acquisition process embodied in Sections 253.025, F.S., for non-conservation
properties and 259.041, F.S., lands acquired for conservation and recreation purposes.
The Uniform Standards of Professional Appraisal Practice (USPAP) shall serve as the
most appropriate guideline when preparing appraisals for state land acquisitions.
Supplemental appraisal standards, as noted herein, shall also be implemented to
accommodate other useful or statutorily required information.
It is recognized that appraising is a professional practice that involves judgement. To
this extent, nothing in USPAP or these supplemental appraisal standards is intended to
substitute for reasonable judgement with respect to the appraisal and/or the appraisal
review process. Notwithstanding the mandates of applicable statutes and
administrative rules, appraisers and review appraisers retained or employed by an
acquiring governmental agency or qualified non-profit organization may substitute
reasonably prudent procedures with appropriate reasoning and support, when
necessary, provided the public's interest is reasonably protected.
Appraisals performed for state land acquisitions under Chapters 253 and 259, F.S.,
should substantially comply with USPAP and these supplemental appraisal standards.
Strict compliance is not mandatory for all standards contained herein; however, an
appraiser's quality point rating with the Bureau of Appraisal may be lowered if a
standard is overlooked or ignored. Substantive standards (such as failure to include a
highest and best use analysis, the omission of an appropriate approach to value, etc.)
are those that if omitted, ignored or violated, are likely to result in a change in value.
Compliance with substantive standards is required. Non-substantive standards (failure
to include a picture of a comparable sale, failure to provide a sketch, etc.) are those that
if omitted, ignored or violated, are not likely to result in a change in value. Compliance
with non-substantive standards is not required; however, it is highly recommended.
Nothing in these supplemental appraisal standards is intended to substitute for the use
of common sense and good judgment. Therefore, while deviations from these
standards are not encouraged, they may be acceptable if they reflect common sense
and good judgment and do not violate the spirit or intent of applicable statute and/or
rule.
Filed 12/24/07
IN THE SUPREME COURT OF CALIFORNIA
FASHION VALLEY MALL, LLC, )
)
Petitioner, )
) S144753
v. )
) D.C. Cir.Ct.App. No. 04-1411
NATIONAL LABOR RELATIONS )
BOARD, )
)
Respondent; )
)
GRAPHIC COMMUNICATIONS )
INTERNATIONAL UNION, )
LOCAL 432-M, )
)
Real Party in Interest. )
___________________________________ )
We granted the request of the United States Court of Appeals for the
District of Columbia Circuit to decide whether, under California law, a shopping
mall may enforce a rule prohibiting persons from urging customers to boycott a
store in the mall. For the reasons that follow, we hold that the right to free speech
granted by article I, section 2 of the California Constitution includes the right to
urge customers in a shopping mall to boycott one of the stores in the mall.
http://caselaw.lp.findlaw.com/data2/californiastatecases/s144753.pdf
The Trouble With Valuating Green Kennedy Smith
Green builders are a dime a dozen here in Portland. But, even in a town so revered for its sustainable building
practices, those dozens have a hard time reaping the cash benefits of their efforts. For now, most builders will tell you they build green for social benefit. The cash benefits, they hope, will come soon. In the chain from
builder to buyer, the links get a little weak when investors, appraisers and lending institutions get involved.
That's because these groups have no hard data to prove that green building is more valuable than any other
development, experts say.
The green behind green "In general (lenders) don't care whether it's green, blue or white," said Dave Williams,
president of ShoreBank Pacific, a Washington-based commercial bank geared toward sustainable development.
"They're just looking at it as a project. They'll say they're interested in green, but they're not doing anything
special about the fact that it's green. "For appraisers, taking green features into account when valuating a building
is a gamble. Because they're hired by lenders, appraisers must be careful about the value they place on any
building - green or not, Williams said. "Appraisers are on the hook for the value they put on the property," he said.
"That's the reason they look to historical records to do their appraisals. They're sticking their neck out if they value
a building without the proper validation. "For example, if an appraiser values a building at $2 million based on
applied data and green attributes - to which there are currently no hard data - and the deal goes sour, Williams said,
the appraiser is on the hook with the lender."The lender goes to the appraiser and says, 'You owe me the difference,
'" Williams said. "It's not that appraisers are ignorant; it's just that the data isn't there. "The appraisal profession is
fairly conservative, and that has to do with the liability that appraisers incur, said Theddi Wright Chappell, managing
director for advisory services at Pacific Security Capital, a Beaverton-based real estate services company. "Of course
they're going to go with traditional methodology that they can support. There is going to be a need to incorporate
new information or data that is very specific to green building into the appraisal methodology."
Educating the appraisers. The solution, Williams said, is to "develop laundry lists of what's meant by green.
"Chappell is working with the U.S. Green Building Council and the national group Appraisal Institute on developing
hard data for appraisers to valuate green buildings."Appraisals are typically done using historical information,"
she said. "In actuality, you really need to look at what the present is and what the trends of the future are. The
challenge is that (green building) is gaining momentum at such a rapid pace that the amount of hard data or factual
information isn't sufficient to really demonstrate significant trends. " In other words, there simply haven't been
enough studies on green buildings. The U.S. Green Building Council's Leadership in Energy and Environmental
Design (LEED) rating system is less than a decade old, and Portland is one of only a few cities where green building
has become, for many, standard practice."There are any number of issues where underwriting gets all tangled up
with requirements that make this difficult for appraisers to deal with," said Chappell, who is also director of the
Green Building Finance Consortium, a group of industry professionals who have set out to create green measurables
for appraisers. "What that means is that the appraisal community is going to have to include more information
specifically for this type of product to explain both the cost and the benefits to lending institutions."
No financial benefits – yet Mark Edlen, a principal at Gerding Edlen Development Co., says he builds LEED-
certified structures because he feels "it's the right thing to do. " But he's still waiting for "people to turn that corner
to where they realize that there's a financial benefit to this. " Edlen scoffed at the idea that it's easier now to
convince financial institutions of the benefits of green building than it was a decade ago, when his company set out
to create Portland's Brewery Blocks, where many of the structures are LEED-rated."It's not easier (to get financing)
now," he said. "Green building doesn't even show up on the lenders' radar screens. The attitude is, 'You have to
have a great product, great location, great design and great track record - and, by the way, if it's sustainable that's
neat. '"In reality, Edlen said, the amount of money his company gets back for building green is only enough to
cover soft costs, like personnel time and application fees."In the past, we were probably the butt of most industry
jokes," Edlen said. "Now they're not laughing quite as hard. In the last year or two, sentiments are starting to sway;
the industry is more aware of environmental issues. "Dennis Wilde, a principal at Gerding Edlen, said the company
is just starting to see some movement in both the appraisal and insurance communities toward green valuation.
He said that about 30 percent of the investors and lenders with whom Gerding Edlen works are starting to ask
questions about sustainable building."Do we think that maybe we're starting to be on the cusp of solving a long-term
problem? We're not very far away from it," he said, "but we don't see it now."
Baby steps There are signs that the appraisers and lenders are starting to see the dollar signs attached to green
building. Portland State University's Nohad A. Toulan School of Urban Studies and Planning is developing a new
course on green building that covers these issues, according to Professor Gerard Mildner. Portland's Office of
Sustainable Development is working with the Cascadia Chapter of the U.S. Green Building Council to "address the links in the chain of Realtors in the residential market about green concepts and client demand," said Alisa
Kane of the bureau's green building program. And, the Regional Multiple Listing Service's board recently made the
decision to include green building as a category in its listings, Kane said. Fannie Mae, a nationwide home mortgage
provider, heads the Energy Efficient Mortgage program, which calculates the energy savings of a home so that
potential buyers may qualify for a better mortgage rate. For now, Edlen said, his company won't save money by
building green, "but the fact that the appraisal industry is going there, it's a matter of time before the lending community goes there too."
http://www.aia.org/SiteObjects/files/convention_ces/FR9207.pdf
Commercial statistics
Cap Rates are published annually near March 1
Commercial Statistics published in June after certification
//appraiser.jocogov.org/stats/commercial.htm
Part I
Section 61.--Gross Income Defined
26 CFR 1.61-6: Gains derived from dealings in property.
(Also §§ 82, 1001; 1.82-1, 1.6045-4)
Rev. Rul. 2005-74
ISSUE
Whether the transactions in the following situations are, for federal tax purposes,
a sale of a home by an employee to an employer through the employer’s agent, a
relocation management company, followed by a separate sale of that home by the
employer to a third party buyer, or one sale of the home from the employee to the third
party buyer facilitated by the employer through the relocation management company.
FACTS
Headnote:
Rev. Rul. 59-60, 1959-1 CB 237 -- IRC Sec. 2031 (Also Section 2512.) (Also Part II, Sections 811(k), 1005, Regulations 105, Section 81.10.)
Reference(s): Code Sec. 2031 Reg § 20.2031-2
In valuing the stock of closely held corporations, or the stock of corporations where market quotations are not available, all other available financial data, as well as all relevant factors affecting the fair market value must be considered for estate tax and gift tax purposes. No general formula may be given that is applicable to the many different valuation situations arising in the valuation of such stock. However, the general approach, methods, and factors which must be considered in valuing such securities are outlined.
Revenue Ruling 54-77, C.B. 1954-1, 187, superseded.
Full Text:
Section 1. Purpose.
The purpose of this Revenue Ruling is to outline and review in general the approach, methods and factors to be considered in valuing shares of the capital stock of closely held corporations for estate tax and gift tax purposes. The methods discussed herein will apply likewise to the valuation of corporate stocks on which market quotations are either unavailable or are of such scarcity that they do not reflect the fair market value.
Sec. 2. Background and Definitions.
.01 All valuations must be made in accordance with the applicable provisions of the Internal Revenue Code of 1954 and the Federal Estate Tax and Gift Tax Regulations. Sections 2031(a), 2032 and 2512(a) of the 1954 Code (sections 811 and 1005 of the 1939 Code) require that the property to be included in the gross estate, or made the subject of a gift, shall be taxed on the basis of the value of the property at the time of death of the decedent, the alternate date if so elected, or the date of gift.
.02 Section 20.2031-1(b) of the Estate Tax Regulations (section 81.10 of the Estate Tax Regulations 105) and section 25.2512-1 of the Gift Tax Regulations (section 86.19 of Gift Tax Regulations 108) define fair market value, in effect, as the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts. Court decisions frequently state in addition that the hypothetical buyer and seller are assumed to be able, as well as willing, to trade and to be well informed about the property and concerning the market for such property.
.03 Closely held corporations are those corporations the shares of which are owned by a relatively limited number of stockholders. Often the entire stock issue is held by one family. The result of this situation is that little, if any, trading in the shares takes place. There is, therefore, no established market for the stock and such sales as occur at irregular intervals seldom reflect all of the elements of a representative transaction as defined by the term “fair market value."
Sec. 3. Approach to Valuation.
.01 A determination of fair market value, being a question of fact, will depend upon the circumstances in each case. No formula can be devised that will be generally applicable to the multitude of different valuation issues arising in estate and gift tax cases. Often, an appraiser will find wide differences of opinion as to the fair market value of a particular stock. In resolving such differences, he should maintain a reasonable attitude in recognition of the fact that valuation is not an exact science. A sound valuation will be based upon all the relevant facts, but the elements of common sense, informed judgment and reasonableness must enter into the process of weighing those facts and determining their aggregate significance.
.02 The fair market value of specific shares of stock will vary as general economic conditions change from “normal” to “boom” or “depression,” that is, according to the degree of optimism or pessimism with which the investing public regards the future at the required date of appraisal. Uncertainty as to the stability or continuity of the future income from a property decreases its value by increasing the risk of loss of earnings and value in the future. The value of shares of stock of a company with very uncertain future prospects is highly speculative. The appraiser must exercise his judgment as to the degree of risk attaching to the business of the corporation which issued the stock, but that judgment must be related to all of the other factors affecting value.
.03 Valuation of securities is, in essence, a prophesy as to the future and must be based on facts available at the required date of appraisal. As a generalization, the prices of stocks which are traded in volume in a free and active market by informed persons best reflect the consensus of the investing public as to what the future holds for the corporations and industries represented. When a stock is closely held, is traded infrequently, or is traded in an erratic market, some other measure of value must be used. In many instances, the next best measure may be found in the prices at which the stocks of companies engaged in the same or a similar line of business are selling in a free and open market.
Sec. 4. Factors To Consider.
.01 It is advisable to emphasize that in the valuation of the stock of closely held corporations or the stock of corporations where market quotations are either lacking or too scarce to be recognized, all available financial data, as well as all relevant factors affecting the fair market value, should be considered. The following factors, although not all- inclusive are fundamental and require careful analysis in each case:
(a) The nature of the business and the history of the enterprise from its inception.
(b) The economic outlook in general and the condition and outlook of the specific industry in particular.
(c) The book value of the stock and the financial condition of the business.
(d) The earning capacity of the company.
(e) The dividend-paying capacity.
(f) Whether or not the enterprise has goodwill or other intangible value.
(g) Sales of the stock and the size of the block of stock to be valued.
(h) The market price of stocks of corporations engaged in the same or a similar line of business having their stocks actively traded in a free and open market, either on an exchange or over-the-counter.
.02 The following is a brief discussion of each of the foregoing factors:
(a) The history of a corporate enterprise will show its past stability or instability, its growth or lack of growth, the diversity or lack of diversity of its operations, and other facts needed to form an opinion of the degree of risk involved in the business. For an enterprise which changed its form of organization but carried on the same or closely similar operations of its predecessor, the history of the former enterprise should be considered. The detail to be considered should increase with approach to the required date of appraisal, since recent events are of greatest help in predicting the future; but a study of gross and net income, and of dividends covering a long prior period, is highly desirable. The history to be studied should include, but need not be limited to, the nature of the business, its products or services, its operating and investment assets, capital structure, plant facilities, sales records and management, all of which should be considered as of the date of the appraisal, with due regard for recent significant changes. Events of the past that are unlikely to recur in the future should be discounted, since value has a close relation to future expectancy.
(b) A sound appraisal of a closely held stock must consider current and prospective economic conditions as of the date of appraisal, both in the national economy and in the industry or industries with which the corporation is allied. It is important to know that the company is more or less successful than its competitors in the same industry, or that it is maintaining a stable position with respect to competitors. Equal or even greater significance may attach to the ability of the industry with which the company is allied to compete with other industries. Prospective competition which has not been a factor in prior years should be given careful attention. For example, high profits due to the novelty of its product and the lack of competition often lead to increasing competition. The public's appraisal of the future prospects of competitive industries or of competitors within an industry may be indicated by price trends in the markets for commodities and for securities. The loss of the manager of a so-called “one-man” business may have a depressing effect upon the value of the stock of such business, particularly if there is a lack of trained personnel capable of succeeding to the management of the enterprise. In valuing the stock of this type of business, therefore, the effect of the loss of the manager on the future expectancy of the business, and the absence of management-succession potentialities are pertinent factors to be taken into consideration. On the other hand, there may be factors which offset, in whole or in part, the loss of the manager's services. For instance, the nature of the business and of its assets may be such that they will not be impaired by the loss of the manager. Furthermore, the loss may be adequately covered by life insurance, or competent management might be employed on the basis of the consideration paid for the former manager's services. These, or other offsetting factors, if found to exist, should be carefully weighed against the loss of the manager's services in valuing the stock of the enterprise.
(c) Balance sheets should be obtained, preferably in the form of comparative annual statements for two or more years immediately preceding the date of appraisal, together with a balance sheet at the end of the month preceding that date, if corporate accounting will permit. Any balance sheet descriptions that are not self-explanatory, and balance sheet items comprehending diverse assets or liabilities, should be clarified in essential detail by supporting supplemental schedules. These statements usually will disclose to the appraiser (1) liquid position (ratio of current assets to current liabilities); (2) gross and net book value of principal classes of fixed assets; (3) working capital; (4) long-term indebtedness; (5) capital structure; and (6) net worth. Consideration also should be given to any assets not essential to the operation of the business, such as investments in securities, real estate, etc. In general, such nonoperating assets will command a lower rate of return than do the operating assets, although in exceptional cases the reverse may be true. In computing the book value per share of stock, assets of the investment type should be revalued on the basis of their market price and the book value adjusted accordingly. Comparison of the company's balance sheets over several years may reveal, among other facts, such developments as the acquisition of additional production facilities or subsidiary companies, improvement in financial position, and details as to recapitalizations and other changes in the capital structure of the corporation. If the corporation has more than one class of stock outstanding, the charter or certificate of incorporation should be examined to ascertain the explicit rights and privileges of the various stock issues including: (1) voting powers, (2) preference as to dividends, and (3) preference as to assets in the event of liquidation.
(d) Detailed profit-and-loss statements should be obtained and considered for a representative period immediately prior to the required date of appraisal, preferably five or more years. Such statements should show (1) gross income by principal items; (2) principal deductions from gross income including major prior items of operating expenses, interest and other expense on each item of long-term debt, depreciation and depletion if such deductions are made, officers' salaries, in total if they appear to be reasonable or in detail if they seem to be excessive, contributions (whether or not deductible for tax purposes) that the nature of its business and its community position require the corporation to make, and taxes by principal items, including income and excess profits taxes; (3) net income available for dividends; (4) rates and amounts of dividends paid on each class of stock; (5) remaining amount carried to surplus; and (6) adjustments to, and reconciliation with, surplus as stated on the balance sheet. With profit and loss statements of this character available, the appraiser should be able to separate recurrent from nonrecurrent items of income and expense, to distinguish between operating income and investment income, and to ascertain whether or not any line of business in which the company is engaged is operated consistently at a loss and might be abandoned with benefit to the company. The percentage of earnings retained for business expansion should be noted when dividend-paying capacity is considered. Potential future income is a major factor in many valuations of closely-held stocks, and all information concerning past income which will be helpful in predicting the future should be secured. Prior earnings records usually are the most reliable guide as to the future expectancy, but resort to arbitrary five-or-ten-year averages without regard to current trends or future prospects will not produce a realistic valuation. If, for instance, a record of progressively increasing or decreasing net income is found, then greater weight may be accorded the most recent years' profits in estimating earning power. It will be helpful, in judging risk and the extent to which a business is a marginal operator, to consider deductions from income and net income in terms of percentage of sales. Major categories of cost and expense to be so analyzed include the consumption of raw materials and supplies in the case of manufacturers, processors and fabricators; the cost of purchased merchandise in the case of merchants; utility services; insurance; taxes; depletion or depreciation; and interest.
(e) Primary consideration should be given to the dividend-paying capacity of the company rather than to dividends actually paid in the past. Recognition must be given to the necessity of retaining a reasonable portion of profits in a company to meet competition. Dividend-paying capacity is a factor that must be considered in an appraisal, but dividends actually paid in the past may not have any relation to dividend-paying capacity. Specifically, the dividends paid by a closely held family company may be measured by the income needs of the stockholders or by their desire to avoid taxes on dividend receipts, instead of by the ability of the company to pay dividends. Where an actual or effective controlling interest in a corporation is to be valued, the dividend factor is not a material element, since the payment of such dividends is discretionary with the controlling stockholders. The individual or group in control can substitute salaries and bonuses for dividends, thus reducing net income and understating the dividend-paying capacity of the company. It follows, therefore, that dividends are less reliable criteria of fair market value than other applicable factors.
(f) In the final analysis, goodwill is based upon earning capacity. The presence of goodwill and its value, therefore, rests upon the excess of net earnings over and above a fair return on the net tangible assets. While the element of goodwill may be based primarily on earnings, such factors as the prestige and renown of the business, the ownership of a trade or brand name, and a record of successful operation over a prolonged period in a particular locality, also may furnish support for the inclusion of intangible value. In some instances it may not be possible to make a separate appraisal of the tangible and intangible assets of the business. The enterprise has a value as an entity. Whatever intangible value there is, which is supportable by the facts, may be measured by the amount by which the appraised value of the tangible assets exceeds the net book value of such assets.
(g) Sales of stock of a closely held corporation should be carefully investigated to determine whether they represent transactions at arm's length. Forced or distress sales do not ordinarily reflect fair market value nor do isolated sales in small amounts necessarily control as the measure of value. This is especially true in the valuation of a controlling interest in a corporation. Since, in the case of closely held stocks, no prevailing market prices are available, there is no basis for making an adjustment for blockage. It follows, therefore, that such stocks should be valued upon a consideration of all the evidence affecting the fair market value. The size of the block of stock itself is a relevant factor to be considered. Although it is true that a minority interest in an unlisted corporation's stock is more difficult to sell than a similar block of listed stock, it is equally true that control of a corporation, either actual or in effect, representing as it does an added element of value, may justify a higher value for a specific block of stock.
(h) Section 2031(b) of the Code states, in effect, that in valuing unlisted securities the value of stock or securities of corporations engaged in the same or a similar line of business which are listed on an exchange should be taken into consideration along with all other factors. An important consideration is that the corporations to be used for comparisons have capital stocks which are actively traded by the public. In accordance with section 2031(b) of the Code, stocks listed on an exchange are to be considered first. However, if sufficient comparable companies whose stocks are listed on an exchange cannot be found, other comparable companies which have stocks actively traded in on the over-the- counter market also may be used. The essential factor is that whether the stocks are sold on an exchange or over-the-counter there is evidence of an active, free public market for the stock as of the valuation date. In selecting corporations for comparative purposes, care should be taken to use only comparable companies. Although the only restrictive requirement as to comparable corporations specified in the statute is that their lines of business be the same or similar, yet it is obvious that consideration must be given to other relevant factors in order that the most valid comparison possible will be obtained. For illustration, a corporation having one or more issues of preferred stock, bonds or debentures in addition to its common stock should not be considered to be directly comparable to one having only common stock outstanding. In like manner, a company with a declining business and decreasing markets is not comparable to one with a record of current progress and market expansion.
Sec. 5. Weight To Be Accorded Various Factors.
The valuation of closely held corporate stock entails the consideration of all relevant factors as stated in section 4. Depending upon the circumstances in each case, certain factors may carry more weight than others because of the nature of the company's business. To illustrate:
(a) Earnings may be the most important criterion of value in some cases whereas asset value will receive primary consideration in others. In general, the appraiser will accord primary consideration to earnings when valuing stocks of companies which sell products or services to the public; conversely, in the investment or holding type of company, the appraiser may accord the greatest weight to the assets underlying the security to be valued.
(b) The value of the stock of a closely held investment or real estate holding company, whether or not family owned, is closely related to the value of the assets underlying the stock. For companies of this type the appraiser should determine the fair market values of the assets of the company. Operating expenses of such a company and the cost of liquidating it, if any, merit consideration when appraising the relative values of the stock and the underlying assets. The market values of the underlying assets give due weight to potential earnings and dividends of the particular items of property underlying the stock, capitalized at rates deemed proper by the investing public at the date of appraisal. A current appraisal by the investing public should be superior to the retrospective opinion of an individual. For these reasons, adjusted net worth should be accorded greater weight in valuing the stock of a closely held investment or real estate holding company, whether or not family owned, than any of the other customary yardsticks of appraisal, such as earnings and dividend paying capacity.
Sec. 6. Capitalization Rates.
In the application of certain fundamental valuation factors, such as earnings and dividends, it is necessary to capitalize the average or current results at some appropriate rate. A determination of the proper capitalization rate presents one of the most difficult problems in valuation. That there is no ready or simple solution will become apparent by a cursory check of the rates of return and dividend yields in terms of the selling prices of corporate shares listed on the major exchanges of the country. Wide variations will be found even for companies in the same industry. Moreover, the ratio will fluctuate from year to year depending upon economic conditions. Thus, no standard tables of capitalization rates applicable to closely held corporations can be formulated. Among the more important factors to be taken into consideration in deciding upon a capitalization rate in a particular case are: (1) the nature of the business; (2) the risk involved; and (3) the stability or irregularity of earnings.
Sec. 7. Average of Factors.
Because valuations cannot be made on the basis of a prescribed formula, there is no means whereby the various applicable factors in a particular case can be assigned mathematical weights in deriving the fair market value. For this reason, no useful purpose is served by taking an average of several factors (for example, book value, capitalized earnings and capitalized dividends) and basing the valuation on the result. Such a process excludes active consideration of other pertinent factors, and the end result cannot be supported by a realistic application of the significant facts in the case except by mere chance.
Sec. 8. Restrictive Agreements.
Frequently, in the valuation of closely held stock for estate and gift tax purposes, it will be found that the stock is subject to an agreement restricting its sale or transfer. Where shares of stock were acquired by a decedent subject to an option reserved by the issuing corporation to repurchase at a certain price, the option price is usually accepted as the fair market value for estate tax purposes. See Rev. Rul. 54-76, C.B. 1954-1, 194. However, in such case the option price is not determinative of fair market value for gift tax purposes. Where the option, or buy and sell agreement, is the result of voluntary action by the stockholders and is binding during the life as well as at the death of the stockholders, such agreement may or may not, depending upon the circumstances of each case, fix the value for estate tax purposes. However, such agreement is a factor to be considered, with other relevant factors, in determining fair market value. Where the stockholder is free to dispose of his shares during life and the option is to become effective only upon his death, the fair market value is not limited to the option price. It is always necessary to consider the relationship of the parties, the relative number of shares held by the decedent, and other material facts, to determine whether the agreement represents a bonafide business arrangement or is a device to pass the decedent's shares to the natural objects of his bounty for less than an adequate and full consideration in money or money's worth. In this connection see Rev. Rul. 157 C.B. 1953-2, 255, and Rev. Rul. 189, C.B. 1953-2, 294.
Sec. 9. Effect on Other Documents.
Revenue Ruling 54-77, C.B. 1954-1, 187, is hereby superseded.
Best, Best & Krieger, Bruce W. Beach and Karen M. Freeman for Plaintiff and Appellant.
Myers, Widders, Gibson, Jones & Schneider and Katherine E. Stone for League of California Cities and California State Association of Counties, as Amici Curiae on behalf of Plaintiff and Appellant.
Luce, Forward, Hamilton & Scripps, Charles A. Bird; Gordon & Holmes, Frederic L. Gordon and Rhonda J. Holmes for Defendant and Respondent. {Slip Opn. Page 2}
OPINION
HUFFMAN, ACTING P. J.-
This is an eminent domain case involving partial condemnation of the defendant's land. In March 2005, we issued an opinion in which we decided, among other things, that the trial court properly changed the date of valuation of the condemned property from the date the plaintiff deposited probable compensation to the date of trial. The California Supreme Court granted review and transferred the case to us with directions to vacate our prior opinion and reconsider the cause in light of Mt. San Jacinto Community College District v. Superior Court (2007) 40 Cal.4th 648 (Mt. San Jacinto). Mt. San Jacinto is an eminent domain case in which the Supreme Court affirmed a Court of Appeal judgment directing the trial court to set the date of valuation as the date the plaintiff college district deposited probable compensation for the condemned property. Having reconsidered the matter, we conclude the decision in Mt. San Jacinto rests on facts that are distinguishable from those before us in this appeal. Based on the unique facts and circumstances of this case, we reaffirm our decision that the trial court did not err in setting the date of valuation as the date of trial.
Plaintiff San Diego Metropolitan Transit Development Board (MTDB) filed this appeal from a judgment in condemnation awarding defendant RV Communities (RV) compensation for property taken by eminent domain, additional property taken by inverse condemnation, a temporary construction easement, a drainage easement, and severance damage to its remaining property. In addition to contending the judgment should be reversed because the trial court erroneously changed the date of valuation from the date MTDB deposited probable compensation to the date of trial, MTDB contends the court committed reversible error by (1) allowing RV's inverse condemnation cross-action to {Slip Opn. Page 3} proceed after MTDB filed its direct condemnation action and ordering MTDB to take additional property not specified in the resolution of necessity; (2) admitting opinion evidence of severance damages that was not properly exchanged under Code of Civil Procedure fn. 1 section 1258.810 et seq.; (3) admitting evidence of a specific plan of development and damages tied to the specific plan; (4) admitting evidence of MTDB's value engineering decisions during the planning phase of the project; (5) not excluding the testimony of RV's appraiser on the ground he failed to use or consider the "zones of value" methodology in reaching his value opinion; and (6) refusing to instruct the jury on the zones of value methodology. fn. 2 We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
On September 13, 2001, MTDB adopted a resolution of necessity to acquire a portion of property owned by RV (the property) for construction of a trolley line known as the Mission Valley East Light Rail Transit Project (the project). RV was using the property as a recreational vehicle resort. MTDB determined it was necessary to acquire fee simple absolute title to 39,514 square feet of the property, a temporary construction {Slip Opn. Page 4} and grading easement of 50,254 square feet, and a drainage easement of 5,478 square feet.
On September 18, 2001, MTDB filed its complaint in eminent domain. On September 27, MTDB deposited $79,357 as the probable amount of just compensation for the taking of RV's property. The amount of the deposit was based on a declaration by MTDB's real estate appraiser, James Brabant, stating his opinion of the property's value. On the same day, MTDB obtained an order for possession authorizing it to take possession of the condemned property in 90 days.
RV filed an answer to the eminent domain complaint in November 2001 and in February 2002, withdrew the $79,357 deposited by MTDB. In April the court set trial for August 23, 2002. In June MTDB filed an ex parte application to continue the trial date to April 4, 2003 or later. MTDB asserted RV would be unable to prove its claim for construction damages if trial commenced in August because the impact of the project construction on RV's recreational vehicle park and its tenants would not be known until a majority of the construction was complete in April 2003. The court continued the trial date to January 10, 2003 and granted RV leave to file an amended answer and cross-complaint.
RV filed a first amended answer and a cross-complaint asserting causes of action for temporary severance damages, de facto temporary taking by inverse condemnation, de facto permanent taking by inverse condemnation, and pre and post condemnation delay. In both the amended answer and cross-complaint, RV alleged that MTDB's actions caused a permanent taking of the area of the temporary construction easement. {Slip Opn. Page 5}
MTDB filed a demurrer to the cross-complaint, asserting that each of RV's causes of action "must be asserted by way of a properly pleaded answer [to the eminent domain complaint], not through a separate cross-complaint." The court overruled the demurrer and MTDB filed an answer to the cross-complaint.
MTDB moved to bifurcate the cross-complaint issues of liability for precondemnation damages and de facto taking, which were to be tried by the court, from the jury issue of just compensation. Before the hearing date on the motion, MTDB filed an ex parte application to set the trial of precondemnation damages and defenses for January 10, 2003 and the jury trial on valuation at least two months later. At the ex parte hearing the court ordered the requested bifurcation and advanced the court trial date to December 13, 2002.
The parties exchanged lists of expert witnesses and statements of valuation data. On the December 13 trial date, RV dropped all of its causes of action against MTDB except the cause of action for inverse condemnation. The court deemed the first phase of the trial complete, but deferred the issue of whether the "temporary construction easement [plus] a remnant constitutes a taking" to the "phase II valuation" trial. The court scheduled the second phase of the trial to begin on February 28, 2003.
Shortly before the February 28 trial date, RV filed a motion to increase MTDB's deposit of probable compensation to $300,300 and to change the date of value from the date of deposit (September 27, 2001) to the date of trial (February 28, 2003). On February 18, before the motion was heard, MTDB voluntarily deposited an additional {Slip Opn. Page 6} $220,643 as probable compensation. On February 21, the court granted RV's motion as to both requests.
After a bench trial on RV's inverse condemnation claim, the court ruled that MTDB had inversely condemned a 20,100 square foot area of the property "representing the toe of the eastern slope" (referred to by RV as the "Eastern Slope Toe"). The inversely condemned area consisted of 12,400 square feet of land within MTDB's temporary construction easement and 7,700 square feet of land that was not within any of MTDB's take areas.
After the court issued its inverse condemnation ruling, the valuation issues were tried to a jury. The jury returned a special verdict finding the following fair market values for the interests taken by MTDB: $1,132,866 for the directly condemned land taken in fee simple absolute; $576,267 for the land taken in fee simple absolute by inverse condemnation; $139,944 for the temporary construction easement; and $78,527 for the drainage easement. The jury also found severance damages of $470,000 and no benefits to RV's remaining property. The court entered a judgment in condemnation consistent with the jury's verdict. MTDB filed its notice of appeal after unsuccessfully moving for a new trial. {Slip Opn. Page 7}
DISCUSSIONICHANGE OF THE DATE OF VALUATION FROM THE DATE OF DEPOSIT OF PROBABLE COMPENSATION TO THE DATE OF TRIAL
MTDB and amici curiae contend the court committed reversible error by changing the date of valuation of the condemned property from the date MTDB deposited probable compensation in the amount of $79,357 to the date of trial.
Under the California Constitution, "[w]hen the government exercises its power of eminent domain, and condemns or damages private property for public use, it must pay 'just compensation' to the owner. [Citation.] The just compensation is aimed at making the landowner whole for a governmental taking or damage to the owner's property. [Citations.] In other words, ' "the owner is entitled [to] the full and perfect equivalent of the property taken." ' [Citations.]" (Mt. San Jacinto, supra, 40 Cal.4th at p. 653, fn. omitted.) fn. 3
Mt. San Jacinto noted that under California's statutory eminent domain law (§ 1230.010 et seq.), "if the compensation issue 'is brought to trial within one year after commencement of the proceeding, the date of [property] valuation is the date of {Slip Opn. Page 8} commencement of the proceeding.' (§ 1263.120.) The condemner may, however, take early possession of the property before litigation is concluded 'upon deposit in court and prompt release to the owner of money determined by the court to be the probable amount of just compensation.' (Cal. Const., art. I, § 19; see § 1255.410.) The immediate possession procedure is also known as a 'quick-take' eminent domain action. [Citation.] Because compensation is immediately available to the property owner in a quick-take action, the date of valuation of the property is statutorily required to be no later than the date the condemner deposits 'probable compensation' for the owner. (§ 1263.110 et. seq.) The deposit earns statutory interest until it is withdrawn. (§ 1268.310.) The property owner can immediately withdraw the funds, but by doing so waives all rights to dispute the taking other than the right to challenge the amount of just compensation. (§ 1255.260.)" (Mt. San Jacinto, supra, 40 Cal.4th at p. 653.)
California's eminent domain law includes a number of "statutory procedural safeguards" that are designed to ensure that a quick-take deposit "closely approximates the amount that a jury would actually award [for the condemned property]" (Mt. San Jacinto, supra, 40 Cal.4th at p. 660.) One such safeguard is that at any time after a deposit is made, the plaintiff or any other party with an interest in the property can bring a motion requesting the court to "determine or redetermine whether the amount deposited is the probable amount of compensation that will be awarded in the proceeding." (§ 1255.030, subd. (a).) If the court determines the probable amount of compensation exceeds the amount deposited, the court can order the amount deposited to be increased. (§ 1255.030, subds. (b) and (c).) {Slip Opn. Page 9}
In Mt. San Jacinto, the plaintiff college district filed an eminent domain action against the defendant university, seeking to condemn 30 acres of vacant land. In December 2000, the plaintiff deposited $1.789 million into court as probable compensation for the condemned property and supported the deposit with an appraisal as required under section 1255.010. In February 2002, the defendant petitioned the trial court under section 1255.030 to increase the amount of the deposit, and the court found the amount deposited was sufficient. (Mt. San Jacinto, supra, 40 Cal.4th at pp. 654-655, 662.) However, in ruling on pretrial cross-motions in limine to determine the date of valuation, the trial court ruled that the property should be valued as of the date trial commenced in December 2004, almost four years after the date the plaintiff deposited probable compensation. (Id. at p. 655.)
The plaintiff challenged that ruling by petition for writ of mandate and the Court of Appeal granted the petition, finding that the property owner had received just compensation on the date of deposit. (Mt. San Jacinto, supra, 40 Cal.4th at p. 656.) The Supreme Court affirmed the Court of Appeal, concluding generally that "the statutory date of valuation at the time probable compensation is deposited is constitutional . . . ." (Id. at p. 654.) Considering the facts before it, the Supreme Court held: "Where, as here, a deposit of probable compensation is made, and the trial court determines that the {Slip Opn. Page 10} deposit equals or exceeds the probable amount of the owner's just compensation, the property must be valued on the date of the deposit. [Citation.]" (Id. at p. 666.) fn. 4
The question we must presently decide is whether under Mt. San Jacinto, the trial court here committed reversible error by changing the date of valuation from the date MTDB deposited probable compensation to the date trial commenced. Notwithstanding Mt. San Jacinto's analysis of the constitutionality of California's quick-take statutes and its application of those statutes to the facts before it, we conclude the trial court in this case did not err by changing the date of valuation. Mt. San Jacinto held that condemned property is properly valued on the date of deposit when "a deposit of probable compensation is made, and the trial court determines that the deposit equals or exceeds the probable amount of the owner's just compensation . . . ." (Mt. San Jacinto, supra, 40 Cal.4th at p. 666, italics added.) Mt. San Jacinto is distinguishable from the instant case because here it is undisputed that MTDB's deposit was substantially less than the probable amount of RV's just compensation for the condemned property.
MTDB deposited $79,357 as probable compensation in September 2001 and obtained an order for possession of the directly condemned property. The amount of the deposit was based on the declaration of real estate appraiser James Brabant stating that his "opinion of the value for the property as of the date of value is $79,357." The {Slip Opn. Page 11} appraisal summary accompanying Brabant's declaration specified April 26, 2001 as the date of value. Under section 1263.110, the date of value should have been September 27, 2001, the date of the probable compensation deposit. In November 2002, Brabant prepared a revised "Statement of Valuation Data" in which he stated the date of valuation was September 27, 2001 and fair market value of the acquired property was $300,300. In deposition, Brabant testified that the difference between his original appraisal and updated appraisal was partly due to the increase in property values between April and September of 2001, but was mainly due to substantial changes in the data he was provided as the basis for his appraisal.
In February 2003, RV filed a motion to increase the deposit of probable compensation to at least $300,300 under section 1255.030 and to set the date of valuation as the date of trial. Relying on Saratoga Fire Protection Dist. v. Hackett (2002) 97 Cal.App.4th 895 (Saratoga), RV argued the court had the authority to change the date of valuation where the original statutory date would not result in constitutionally required just compensation for condemned property. RV additionally argued that the date of valuation should not be the date of MTDB's "probable compensation" deposit because the amount MTDB deposited was not probable compensation. In its opposition to the motion, MTDB objected to changing the date of valuation but did not address RV's request to increase the deposit. A week after filing its opposition, MTDB voluntarily deposited an additional $220,643 as probable compensation. {Slip Opn. Page 12}
Citing Saratoga, supra, 97 Cal.App.4th 895, the court ruled that "the date of the trial is the proper date of valuation if the Constitutional requirements of just compensation are to be met." We conclude the court's ruling was correct.
In Saratoga, the statutory date of valuation for property condemned by the plaintiff fire district was the date the eminent domain complaint was filed because the action was brought to trial within one year of that date (§ 1263.120) and the plaintiff had not deposited probable compensation. The parties stipulated that the property was worth $2 million on that date, but the defendant property owner obtained appraisals stating that the property was worth over $3 million about a month before the trial date. (Saratoga, supra, 97 Cal.App.4th at p. 898.) At trial, the court granted the plaintiff's motion to exclude any evidence of the property's value other than the stipulated value at the time the eminent domain complaint was filed. (Ibid.) On appeal, the defendant successfully argued that the eminent domain statutes were unconstitutional as applied to him because they do not provide for just compensation when a condemned property's value substantially increases before trial. (Id. at p. 899.)
The Saratoga court noted that both the United States Supreme Court and California courts have recognized that strict adherence to the statutory valuation date in an eminent domain action is improper if the resulting compensation to the property owner falls substantially short of constitutionally required "just compensation." Saratoga quoted Kirby Forest Industries, Inc. v. United States (1984) 467 U.S. 1, 17, in which the United States Supreme Court stated that " '[h]owever reasonable it may be to designate the date of trial as the date of valuation, if the result of that approach is to provide the {Slip Opn. Page 13} owner substantially less than the fair market value of his property on the date the United States tenders payment, it violates the Fifth Amendment.' " (Saratoga, supra, 97 Cal.App.4th at p. 903.) Saratoga also quoted Redevelopment Agency v. Gilmore (1985) 38 Cal.3d 790, 799, footnote 9 (Gilmore) in which the California Supreme Court observed that the Kirby court " 'recognized that any substantial increase in fair market value between the dates of valuation and taking must be paid in order to provide 'just compensation.' Thus, the condemnee in a federal proceeding may move, after the taking, to amend the award in order to litigate the issue of interim increase in fair market value. [Citation.]' " (Saratoga, supra, 97 Cal.App.4th at p. 903.) Saratoga also quoted the following statement from Community Redevelopment Agency v. Force Electronics (1997) 55 Cal.App.4th 622, 633: " 'At least since Gilmore it has been the law in California that state statutory provisions must fail if they conflict with this constitutional requirement. "This element of 'just compensation' is constitutionally required and 'cannot be made to depend upon state statutory provisions.' " [Citation.]' " (Saratoga, supra, 97 Cal.App.4th at p. 903.)
Saratoga noted that in Citizens Utilities Co. v. Superior Court (1963) 59 Cal.2d 805, the California Supreme Court decided the trial court had the inherent power to change a valuation date from the date of summons to the date of trial, stating: " 'The provision of the Constitution compelling payment of just compensation for a public taking of property [citation] is self-executing. Since this is so it has consistently been held, in inverse condemnation cases, that inherent power is reposed in the trial court to provide for the assessment of just compensation in situations not within the purview of {Slip Opn. Page 14} existing statutory provisions.' " (Saratoga, supra, 97 Cal.App.4th at p. 904, quoting Citizens Utilities Co. v. Superior Court, supra, "59 Cal.2d at p. 812.)
Finally, Saratoga set forth the following language from People ex rel. Dept of Transportation v. Southern Cal. Edison Co. (2000) 22 Cal.4th 791, 798-799: " 'Ordinarily, the literal meaning of the words of a statute governs. [Citation.] We will not, however, apply the literal language of a statute "when to do so would evidently carry the operation of the enactment far beyond the legislative intent and thereby make its provisions apply to transactions never contemplated by the legislative body." [Citation.] "A code may strive for comprehensiveness, but exceptional situations will arise." [Citation.] As a result, we may decline to apply a statute in those rare cases where "it is obvious that the Legislature cannot have intended the statute to apply." [Citation.] [¶] These principles of statutory construction are especially germane in the eminent domain context because "the amount to be paid for property taken by the government is, under the Constitution, a matter for the courts rather than the Legislature . . . ." [Citation.] Thus, courts have eschewed a literal application of our eminent domain statutes if such an application "ignores" the purpose behind the statutes. [Citation.] Courts have also found one of these statutes inapplicable where the Legislature did not anticipate the particular facts of the case and undoubtedly did not intend for the statute to apply there. [Citation.] Finally, courts have refused to apply our eminent domain statutes where their application would give the condemnee a " 'windfall' " not intended by the Legislature. [Citations.]' " (Saratoga, supra, 97 Cal.App.4th at p. 905.) {Slip Opn. Page 15}
Saratoga concluded that the trial court should have allowed the defendant in that case to present evidence of "unusual circumstances which, if believed, . . . would make it unjust to apply section 1263.120 to defendant's award. . . . Just as the rules are not to be applied to give the condemnee a 'windfall,' [citation], they should not be applied to give the government a windfall. [Citation.] Thus, section 1263.120--'like "all condemnation law, procedure and practice[--]is but a means to the constitutional end of just compensation to the involuntary seller, the property owner." [Citation.]' [Citation.]" (Saratoga, supra, 97 Cal.App.4th at p. 906.)
MTDB and amici curiae argue that Saratoga, supra, 97 Cal.App.4th 895, is distinguishable because the condemning authority there did not deposit probable compensation as MTDB did here. Mt. San Jacinto similarly focused on the fact that Saratoga was not a quick-take case in distinguishing it from the case before it, stating: "[I]t is of critical importance that Saratoga was a straight condemnation proceeding where there was no deposit of probable compensation before trial. In order to provide just compensation, the court in Saratoga had to value the property closer to when payment would finally be made available to the owner. Section 1263.120 had to be disregarded to ensure the owner received just compensation at the time payment was tendered and the property was actually taken. [¶] In contrast to the condemnor in Saratoga, the [plaintiff] here deposited the probable amount of compensation well before the start of trial. . . . The deposit was supported by an appraisal as required under section 1255.010. Indeed, when the [defendant] made a motion under section 1255.030 to {Slip Opn. Page 16} increase the amount of the deposit, the trial court found that the amount deposited was sufficient." (Mt. San Jacinto, supra, 40 Cal.4th at pp. 661-662, italics added.)
Here, MTDB did not make a sufficient deposit of probable compensation; the amount of its initial deposit was less than one-third the correct amount of probable compensation. Thus, for purposes of determining the proper date of valuation, this case is more akin to Saratoga, supra, 97 Cal.App.4th 895, in which there was no deposit of probable compensation before trial, than to Mt. San Jacinto, supra, 40 Cal.4th 648, in which there was a sufficient deposit of probable compensation. fn. 5
Mt. San Jacinto reaffirmed the principle that "[t]he owner's constitutional right to receive just compensation for the property ' "cannot be made to depend upon state statutory provisions." ' [Citations.]" (Mt. San Jacinto, supra, 40 Cal.4th at p. 660.) "[S]tate and federal statutory provisions have been invalidated when necessary to ensure just compensation to the owner. [Citations.]" (Ibid.) " ' "[A]ll condemnation law, procedure and practice . . . is but a means to the constitutional end of just compensation to the involuntary seller, the property owner." ' [Citation.] Put another way, just {Slip Opn. Page 17} compensation is the 'overriding principle' that applies in eminent domain law. [Citation.]" (Escondido Union School Dist. v. Casa Sueños De Oro, Inc. (2005) 129 Cal.App.4th 944, 959.) Accordingly, if under the circumstances of a particular case, using the valuation date prescribed by law for condemned property will not satisfy the constitutional requirement of just compensation, the court has inherent authority to use a valuation date that will satisfy that constitutional requirement.
Under the unique circumstances of this case, the court's ruling changing the valuation date to the date of trial comported with the constitutional requirement of just compensation. Preliminarily, RV persuasively argues that the change in valuation date did not contravene the statutory scheme. According to Brabant, MTDB's own appraiser, the amount of probable compensation that should have been deposited in September 2001 was $300,300 rather than the $79,357 that MTDB deposited. Section 1263.110 provides that "if the plaintiff deposits the probable compensation . . . the date of valuation is the date on which the deposit is made." (Italics added.) Under the plain meaning of the statute, the amount MTDB deposited in September 2001 did not set the date of valuation because, according to MTDB's own updated valuation data, it fell short of "probable compensation." Consequently, the proper statutory date of valuation was the time of trial under section 1263.130, fn. 6 because the issue of compensation was not brought to trial {Slip Opn. Page 18} within one year of commencement of the eminent domain proceeding and the delay was not caused by RV.
In any event, under Saratoga, supra, 97 Cal.App.4th 895, and the case law on which it relied, the court properly changed the date of valuation to the date of trial to satisfy the constitutional requirement of just compensation. Because a landowner is permanently deprived of all rights in condemned property when the condemnor deposits probable compensation and obtains early possession of the property, a constitutional taking occurs at that time. (Gilmore, supra, 38 Cal.3d at p. 801.) "Accordingly, 'just' compensation is the 'full and perfect' monetary equivalent of the fair market value of the land paid at the time the taking occurred. [Citation.]" (Ibid., italics added.)
An obvious purpose of the simultaneous exchange of probable compensation for condemned property is to enable the condemnee to obtain similar or comparable replacement property of approximately equivalent value in the same market. Addressing the interest to be paid a condemnee when payment of an eminent domain award is delayed, Gilmore observed that " [w]hen the delay occurs during times of inflationary market interest rates which substantially exceed the statutory rate, application of the lower statutory limit denies the condemnee 'the full equivalent of the [property's] value . . . at the time of taking paid contemporaneously with the taking.' " (Gilmore, supra, 38 Cal.3d at p. 797, quoting Phelps v. United States (1927) 274 U.S. 341, 344.) Similarly, delay in the payment of the correct amount of probable compensation after the condemnor obtains possession of condemned property in a rapidly inflating real estate market denies the condemnee the full equivalent of the property's value paid {Slip Opn. Page 19} contemporaneously with the taking and, thus, the ability to invest the money paid in other property of equal value in the same market.
Mt. San Jacinto noted that over 50 years ago, the California Law Revision Commission, in a study recommending certain changes to California's eminent domain law, stated: " 'A person's property should not be taken from him unless he has the right to be paid concurrently for the property, for it is at the time of the taking that he must meet the expenses of locating and purchasing property to replace that taken and of moving to a new location.' [Citation.]" (Mt. San Jacinto, supra, 40 Cal.4th at p. 658, italics added.) MTDB's deposit of $79,357 was insufficient to enable RV to buy comparable property at the time of the deposit, and by the time MTDB raised the amount of the deposit, it was undisputed that property values had increased.
MTDB contends that under the statutory scheme -- section 1255.030 in particular -- and Mt. San Jacinto, supra, 40 Cal.4th 648, the initial date it deposited probable compensation is the proper date of valuation because it voluntarily increased the amount of its probable compensation deposit in response to RV's motion to increase the deposit. MTDB argues that under section 1263.110, subdivision (b), only if the probable compensation deposit is not increased in the time allowed by the trial court in granting a property owner's motion to increase the deposit under section 1255.030 can the date of valuation be set as if no deposit of probable compensation has been made.
As Mt. San Jacinto noted, one of the procedural safeguards that ensures a deposit of probable compensation will be constitutionally sufficient is the property owner's right to petition the court under section 1255.030, subdivision (a) to "determine or {Slip Opn. Page 20} redetermine" whether the amount of the deposit equals the probable compensation that will be awarded. (Mt. San Jacinto, supra, 40 Cal.4th at p. 660-661.) However, Mt. San Jacinto did not address whether the constitutional requirement of just compensation may require changing the date of valuation from the date of the deposit to the date trial commences when it is determined well after the deposit date (on a motion to increase the deposit under section 1255.030 or otherwise) that the amount of the deposit was far short of the probable compensation the defendant property owner would recover at trial, and was clearly insufficient to enable the property owner to use the deposit to purchase comparable property in the current market. This issue was not raised in Mt. San Jacinto because the trial court in that case found the amount of the deposit was sufficient.
"Whatever other rights he has or lacks, a landowner is constitutionally entitled to compensation reasonable under market conditions for any lost use of money arising from a delay between the taking of his property and full payment." (Gilmore, supra, 38 Cal.3d at p. 801.) RV effectively was denied use of a substantial portion of the probable compensation it should have received at the time MTDB took possession of the property and by the time MTDB voluntarily increased the probable compensation deposit, RV had lost the ability to exchange the deposit for similar property in the current market. fn. 7 We {Slip Opn. Page 21} conclude that changing the valuation date of the property to the time of trial was a proper remedy for the lost use of that money, as it allowed the jury to determine reasonable compensation in light of the market conditions that existed between the taking of the property and full payment for the taking. The court did not abuse its inherent power to change the statutory valuation date to satisfy the constitutional requirement of just compensation.
IIALLOWANCE OF RV'S INVERSE CONDEMNATION CROSS-ACTION AFTER MTDB FILED A DIRECT EMINENT DOMAIN ACTION
MTDB contends the trial court should not have allowed RV's inverse condemnation cross-action to proceed because it was based on the same property that was the subject of MTDB's direct condemnation action. As authority for that contention, MTDB cites Richmond Redevelopment Agency v. Western Title Guaranty Company (1975) 48 Cal.App.3d 343, 351 (Richmond), in which the Court of Appeal, applying former eminent domain statutes, 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.
Richmond was decided under now obsolete eminent domain statutes that required the defendant property owner to allege the amount of damages claimed by reason of the {Slip Opn. Page 22} taking in the answer to the eminent domain complaint. fn. 8 Richmond concluded the inverse condemnation cross-complaint was properly struck because " '[t]he clear implication from the provisions which enable [the defendant to present any claims for damages caused by the taking] by answer is that no cross-complaint is to be filed for the same purpose.' [Citation.]" (Richmond, supra, 48 Cal.App.3d at p. 351, quoting People v. Buelton Development Co., supra, "58 Cal.App.2d at pp. 183-184, italics added by Richmond.) Under the current statutory scheme, the only requirement that damages be specifically claimed by answer to an eminent domain complaint is that when the defendant seeks compensation for loss of goodwill, the answer must specifically state that the defendant claims compensation under section 1263.510 (the statute governing compensation for loss of goodwill), but the amount of such damage does not have to be alleged. (§ 1250.320.) Because the current eminent domain statutes do not require defendants to allege the amount claimed as damages by reason of the taking in the answer, Richmond is dubious authority for MTDB's position that RV's inverse condemnation cross-complaint is procedurally barred. {Slip Opn. Page 23}
MTDB argues that RV's inverse condemnation cross-complaint is barred by section 1245.260, subdivision (c), which provides:
"A public entity may commence an eminent domain proceeding or rescind a resolution of necessity as a matter of right at any time before the property owner commences an [inverse condemnation] action under this section. If the public entity commences an eminent domain proceeding or rescinds the resolution of necessity before the property owner commences an [inverse condemnation] action under this section, the property owner may not thereafter bring an [inverse condemnation] action under this section."
This provision does not bar RV's inverse condemnation cross-complaint because RV's cross-action was not an inverse condemnation action brought under section 1245.260. When a public entity initiates the eminent domain process by adopting a resolution of necessity to condemn property but does not commence an eminent domain proceeding to acquire the property within six months after adopting the resolution, or commences an eminent domain proceeding but does not diligently attempt to serve the summons and complaint on the property owner within six months of commencing the action, section 1245.260, subdivision (a) allows the property owner to bring an inverse condemnation action to require the public entity to take and pay compensation for the property and/or to pay damages for any interference with the owner's possession and use of the property resulting from adoption of the resolution. Under section 1245.260, subdivision (c), the property owner loses the right to bring an inverse condemnation action "under this section" -- i.e., under section 1245.260, subdivision (a) -- if the public entity first commences an eminent domain proceeding or rescinds the resolution of necessity. In short, subdivision (c) allows the public entity to avoid an inverse {Slip Opn. Page 24} condemnation action under subdivision (a). Section 1245.260, subdivision (c) does not apply here because RV's inverse condemnation action was not brought under section 1245.260, subdivision (a); it was brought to recover compensation for alleged property takings not covered by MTDB's resolution of necessity and direct action. Nothing in section 1245.260 precludes a defendant property owner in an eminent domain action from filing and prosecuting an inverse condemnation cross-complaint seeking compensation for alleged takings that are not addressed by the eminent domain complaint.
The following statement by the California Law Revision Commission reflects the Legislature's intent to limit section 1245.260, subdivision (c)'s preclusion of inverse condemnation actions to those brought under section 1245.260, subdivision (a): "Subdivision (c) makes clear that the public entity can commence an eminent domain proceeding or rescind the resolution of necessity at any time prior to the commencement of the [inverse condemnation] action and thereby avoid liability under subdivision (a). This provision does not, however, affect the owner's right to bring an inverse condemnation action based on Article I, Section 19, of the California Constitution." (Cal. Law Revision Com. com., 19 West's Ann. Code Civ. Proc. (2007 ed.) foll. § 1245.260, p. 440, italics added.) In other words, the public entity's commencement of an eminent domain proceeding does not preclude the property owner from bringing an inverse condemnation action based on the general constitutional requirement of just compensation for governmental taking of private property; it precludes only inverse condemnation actions brought under section 1245.260, subdivision (a) to remedy {Slip Opn. Page 25} governmental delay in proceeding with eminent domain proceedings after adopting a resolution of necessity.
Amici curiae argue the inverse condemnation cross-complaint should not have been allowed because the damages it sought were severance damages that could have been recovered in the direct action. Amici curiae rely, in part, on Taper v. City of Long Beach (1982) 129 Cal.App.3d 590, in which the appellate court decided that since it was reversing judgments in both an eminent domain action and inverse condemnation action and, therefore, the direct action would proceed, the property owner's damages for diminution in the property's value attributable to the City's unreasonable delay and other oppressive precondemnation conduct had to be recovered in the direct action. (Id. at pp. 610-611.) The court supported this conclusion with a "see" citation to four cases, including Richmond, supra, 48 Cal.App.3d 343 which is distinguished above. The other three are Klopping v. City of Whittier (1972) 8 Cal.3d 39 (Klopping); People ex rel. Dept. Pub. Wks. v. Peninsula Enterprises, Inc. (1979) 91 Cal.App.3d 332 (Peninsula Enterprises); and People ex rel. Dept. Pub. Wks. v. Southern Pac. Trans. Co. (1973) 33 Cal.App.3d 960 (Southern Pac. Trans. Co.).
Klopping held 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 observed: "Had the city abandoned its condemnation action for a significant period of time so that {Slip Opn. Page 26} the inverse condemnation action proceeded to judgment first, any recovery there would bar a duplicate award for the same damage when eminent domain proceedings were subsequently reinstituted." (Ibid.) Klopping does not support the proposition that an inverse condemnation action cannot coexist with an eminent domain action involving the same property, as its holding contemplates both actions pending simultaneously and either one going to judgment first.
Peninsula Enterprises cited Richmond, supra, 48 Cal.App.3d 343 for the rule that "that when an eminent domain action has been commenced by a public entity, the proper method for the condemnee to seek damages for the entity's unreasonable precondemnation delay is by way of answer and not by way of cross-complaint[ because] in such circumstances the precondemnation damages constitute part of the eminent domain award." (Peninsula Enterprises, supra, 91 Cal.App.3d at p. 353.) However, as discussed above, Richmond applied former eminent domain statutes that required a property owner to specifically allege the damages claimed by reason of a direct taking in the answer to the eminent domain complaint. In any event, Peninsula Enterprises is inapposite because RV did not seek damages for unreasonable precondemnation delay in its inverse condemnation cause of action.
Southern Pac. Trans. Co. involved "an improper zoning restriction imposed by the City of Los Angeles for the purpose of depressing value with a view to future condemnation, and actual condemnation by a different governmental agency, the State of California." (Southern Pac. Trans. Co., supra, 33 Cal.App.3d at p. 966.) The Court of Appeal noted that such an improper zoning restriction "creates a cause of action in {Slip Opn. Page 27} inverse condemnation against the governmental unit enacting the zoning ordinance. [Citations.]" (Ibid.) The court further observed that when the governmental entity that enacts such an invalid zoning ordinance is also the condemnor, "[i]t is practical and logical to require that such invalid zoning be disregarded . . . ." (Ibid.) The court reasoned: "Permitting recovery in eminent domain disregarding the zoning restriction combines in one action the right to recover compensation for both the inverse condemnation resulting from the disguised taking in the form of zoning and for the actual taking of the property. The process avoids separating the matter into two causes involving the same subject matter and the same parties. Moreover, the condemning authority is also the zoning government so that much of the vice of a collateral attack on zoning in the usual eminent domain proceeding is not present." (Ibid.)
Southern Pac. Trans. Co., supra, 33 Cal.App.3d 960 does not support a general rule prohibiting an inverse condemnation cross-complaint in a direct eminent domain action. Its single-action analysis, which is limited to the specific invalid zoning issue before it, simply supports the principle that separating a matter into two causes involving the same subject matter and the same parties should be avoided if possible. The instant case does not involve an invalid zoning ordinance and the entire "matter" (complaint and cross-complaint) was adjudicated in a single proceeding.
The amici curiae and MTDB argue that the court cannot determine what property the public entity should take by eminent domain or compel the public entity to take more than is necessary for the public project. However, in adjudicating RV's inverse condemnation cross-action, the court did not determine what property MTDB was {Slip Opn. Page 28} required to take by eminent domain for the project; it simply decided what additional property MTDB inversely condemned. We are aware of no California case applying the current eminent domain statutes that expressly precludes RV's inverse condemnation cross-complaint. We conclude the court properly allowed RV's cross-action to proceed.
We note that in the "Factual and Procedural Background" section of MTDB's argument regarding the propriety of RV's inverse condemnation cross-complaint, MTDB asserts that "[t]he evidence introduced in favor of RV's inverse condemnation claim does not support the trial court's ruling." This statement and much of MTDB's ensuing discussion suggests the argument that the court's inverse condemnation finding is not supported by substantial evidence. We deem that argument waived because it is not stated under a separate heading or subheading or supported by citation to legal authority as required by California Rules of Court, rule 8.204(a)(1)(B). (Opdyk v. California Horse Racing Bd. (1995) 34 Cal.App.4th 1826, 1830-1831, fn. 4; Heavenly Valley Ski Resort v. El Dorado County Bd. of Equalization (2000) 84 Cal.App.4th 1323, 1345, fn. 17, 1346.)
In any event, the argument is without merit because the inverse condemnation finding is sufficiently supported by the testimony of RV's civil engineering expert Eric Armstrong that it was not physically feasible to construct within the area of the property the court found to be inversely condemned. MTDB poses various challenges to Armstrong's testimony that are largely based on MTDB's counsel's cross-examination of Armstrong and its own expert's criticism of Armstrong's opinions. However, these challenges go to the weight rather than admissibility of Armstrong's opinion testimony. {Slip Opn. Page 29} The court, who visited the site at the beginning of the inverse condemnation phase of trial, could reasonably accept Armstrong's conclusion that RV would be unable to develop the 20,100 square foot area the court found to be inversely condemned.
A. RV's Withdrawal of Funds on Deposit in February 2003
MTDB contends that RV waived the right to challenge the scope of MTDB's take or assert a cross-complaint for inverse condemnation by withdrawing, in February 2003, the $79,357 deposited by MTDB as probable compensation for the directly condemned property. MTDB bases this contention on section 1255.260, which provides that the withdrawal of any portion of the probable compensation deposit "shall constitute a waiver by operation of law of all claims and defenses in favor of the persons receiving such payment except a claim for greater compensation." MTDB argues this provision barred RV as a matter of law from challenging the scope of MTDB's take, and the only claim RV could pursue after withdrawal of the deposit was one for "greater compensation" for such things as the property's fair market value, severance damages, and loss of goodwill. RV's response essentially is that under section 1255.260, withdrawal of the probable compensation deposit only waives challenges to the public entity's right to take and claims of lack of a public purpose.
We conclude the waiver provision of section 1255.260 does not bar RV's cross-action because RV's inverse condemnation claim is fundamentally a claim for greater compensation. MTDB asserts that "[g]reater compensation does not include a request that MTDB be ordered to expand its take, change the nature of a designated take, or be ordered to take extra property." However, as noted above, the court's adjudication of {Slip Opn. Page 30} RV's inverse condemnation cross-complaint was not improper judicial interference with MTDB's direct condemnation decisions, but rather a determination of what additional property MTDB inversely condemned and what "greater compensation" it should pay RV for that taking. Under section 1255.260, "a condemnee's withdrawal of deposited funds waives any challenge to the right to take [citation], and any claim as to lack of a public purpose [citation]." (Clayton v. Superior Court (1998) 67 Cal.App.4th 28, 33.) The statute "operates to relinquish claims and defenses otherwise available to contest allegations in a condemnor's complaint. It is a statutory waiver provision which serves to reduce the right-to-condemn issues to be litigated between the parties . . . ." (Ibid., italics added.) RV's withdrawal of deposited funds in February 2003 was not a waiver of the right to seek greater compensation through an inverse condemnation cross-complaint.
IIIEVIDENTIARY ISSUES
MTDB contends that a number of the court's evidentiary rulings constituted reversible error. " '[A]n appellate court reviews any ruling by a trial court as to the admissibility of evidence for abuse of discretion.' [Citation.]" (Dart Industries, Inc. v. Commercial Union Ins. Co. (2002) 28 Cal.4th 1059, 1078.) A judgment will not be reversed for erroneous admission of evidence unless the reviewing court concludes it is reasonably probable that a result more favorable to the appealing party would have been reached in the absence of the error. (Evid. Code, § 353, subd. (b); Huffman v. Interstate Brands Companies (2004) 121 Cal.App.4th 679, 692; O'Hearn v. Hillcrest Gym and Fitness Center, Inc. (2004) 115 Cal.App.4th 491, 500.) {Slip Opn. Page 31}
A. RV's Evidence of Severance Damages
MTDB contends the court committed reversible error by admitting RV's evidence regarding severance damages despite RV's failure to properly exchange severance damage opinions under section 1258.250. Under section 1258.250, subdivision (b), a party must exchange a statement of valuation data for any witness the party intends to call to give opinion testimony regarding "[t]he amount of the damage, if any, to the remainder of the larger parcel from which [condemned] property is taken." Here, the parties exchanged valuation data in December 2002. The statement prepared by RV's appraiser Robert M. Lea did not disclose the amount of severance damages claimed by RV, but rather stated that "Damage to the Remainder" was "[t]o be determined."
At trial, MTDB filed a motion in limine to exclude evidence of severance damages not exchanged by RV. MTDB argued that RV's expert testimony regarding severance damages should be excluded under section 1258.280, subdivision (c), which provides: "No witness called by a party required to serve statements of valuation data on the objecting party may testify on direct examination during the case in chief of the party who called him to any opinion or data required to be listed in the statement of valuation data for such witness unless such opinion or data is listed in the statement served except that testimony that is merely an explanation or elaboration of data so listed is not inadmissible under this subdivision." MTDB acknowledged that under section 1258.290, the court may permit a witness to testify to an opinion that was not properly exchanged if the court finds the party has made a good faith effort to comply with the exchange {Slip Opn. Page 32} requirements and the objecting party will not be prejudiced. fn. 9 MTDB argued, however, that RV had not made a good faith effort to comply with the exchange requirements as to severance damages and that MTDB would be prejudiced by the admission of evidence of severance damages that was not disclosed in RV's statement of valuation.
In opposition to the in limine motion, RV argued Lea's severance damage testimony was admissible under section 1258.280, subdivision (c), as testimony that was "merely an explanation or elaboration of data " listed on the earlier statement of valuation data. RV also argued the motion should be denied under section 1258.290 because RV was diligent in providing MTDB with Lea's updated appraisal report addressing severance damages by February 5, 2003, the date scheduled for Lea's deposition, and MTDB was not prejudiced because it had the opportunity to fully depose Lea regarding his valuation conclusions. The court denied MTDB's motion in limine, but did not articulate the basis for its ruling. In his deposition and at trial, Lea testified to over $2.1 {Slip Opn. Page 33} million in severance damages. At trial, MTDB presented evidence of severance damages of $163,000. The jury awarded severance damages of $470,000.
"As to matters on which the record is silent, all intendments and presumptions are indulged on appeal in favor of the correctness of the trial court's actions. [Citation.]" (Cote v. Henderson (1990) 218 Cal.App.3d 796, 801.) Accordingly, we presume the court denied MTDB's motion in limine to exclude RV's evidence regarding severance damages under section 1258.290 because it found RV made a good faith effort to comply with the exchange requirements with respect to severance damages and MTDB was not prejudiced by allowing RV to present its evidence on the issue.
We find no abuse of discretion in the court's allowance of RV's severance damage evidence. Section 1258.290 gives the court discretion to allow a witness to testify to an opinion or data that was required to be but was not included in a statement of valuation data "upon such terms as may be just" if the court finds the failure to list such opinion or data was due to "mistake, inadvertence, surprise or excusable neglect." Although subdivision (b) of section 1258.290 requires the court to take any prejudice to the objecting party into account, the Law Revision Commission Comment to section 1258.290 states that "[t]he consideration listed in subdivision (b) is important but is not necessarily the only consideration to be taken into account in making determinations under this section." (Cal. Law Revision Com. com., 19 West's Ann. Code Civ. Proc. (2007 ed.) foll. § 1258.290, p. 615, italics added.) Implicit in this comment is the principle that any prejudice to the objecting party must be measured against the {Slip Opn. Page 34} constitutional requirement of just compensation for condemned property -- the foremost consideration in eminent domain proceedings.
Here, MTDB was provided with written notice of Lea's severance damage opinion and a full opportunity to depose Lea on the issue over five weeks before the valuation phase of trial commenced. Lea testified at his deposition that his figure for severance damages was inadvertently lumped together with damages for value of property taken in his original statement of valuation. In RV's opposition to MTDB's motion in limine to exclude severance damage evidence, RV argued that MTDB had asked the court to continue the original trial date from August 23, 2002 to April 2003 because MTDB needed more time to assess RV's severance damages, and that MTDB had taken the position that severance damages would be "unquantifiable" until construction was completed or at least 2003. During oral argument on the court's tentative rulings on in limine motions, MTDB's counsel stated, regarding the denial of MTDB's motion to exclude RV's evidence of severance damages (Motion In Limine No. 3 of 9): "On 3 I have nothing to say." Given these circumstances, the court could reasonably conclude that RV had substantially complied with the requirements of section 1258.290 for allowance of testimony regarding inadvertently omitted valuation data, fn. 10 and that RV {Slip Opn. Page 35} would not be unduly prejudiced by the admission of such evidence. The court did not abuse its discretion in allowing Lea's severance damage testimony.
B. Specific Use Evidence
MTDB contends the court committed reversible error by admitting evidence of a specific plan of development and damages expressly tied to the specific plan.
Just compensation for property taken by eminent domain "is valued based on the highest and best use for which it is geographically and economically adaptable. [Citation.] A determination of the property's highest and best use is not necessarily limited to the current zoning or land use restrictions imposed on the property; the property owner 'is entitled to show a reasonable probability of a zoning [or other change] in the near future and thus to establish such use as the highest and best use of the property. [Citations.]' [Citations.] The property owner has the burden of showing a reasonable probability of a change in the restrictions on the property. [Citation.]" (County of San Diego v. Rancho Vista Del Mar, Inc. (1993) 16 Cal.App.4th 1046, 1058.)
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., supra, 16 Cal.App.4th at p. 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 {Slip Opn. Page 36} such evidence may tend to establish the property's adaptability for that kind of use [citations]." (Id. at pp. 1059-1060.)
Thus, if construction plans are "introduced to show a specific land use they are inadmissible because fair market value is based on all reasonable available uses. [Citation.] Conversely, they are admissible when offered merely as an illustration of one of the uses to which the property is adapted and the evidence is expressly limited by the court to such object. [Citations.]" (People ex rel. Dept. of Transportation v. Tanczos (1996) 42 Cal.App.4th 1215, 1218-1219 (Tanczos).) 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 Redevelopment Agency v. Harcros Pigments, Inc. (2002) 101 Cal.App.4th 1083, 1104-1105; Tanczos, supra, 42 Cal.App.4th 1215, 1219.)
The evidence in question here included conceptual drawings showing a multiple residential development that could be built on the property and testimony by several of RV's expert witnesses concerning such use of the property. MTDB filed a motion in limine to exclude evidence of a specific development plan. The court denied the motion without prejudice to object to specific evidence as it was introduced.
During the testimony of RV's civil engineering expert Armstrong, whose specialty was analyzing the physical feasibility of building contemplated projects on particular pieces of land, RV sought to show the jury conceptual drawings (exhibit 540) of a multiple-family residential development on the subject property and have Armstrong {Slip Opn. Page 37} testify about the feasibility of building such a project. RV's counsel asked Armstrong: "How would you describe [the drawings] in terms of their detail? Are they a specific plan or are they conceptual?" Armstrong answered, "They're a conceptual level of plans."
MTDB's counsel objected to the drawings on the ground they showed a specific plan of development, arguing such "feasibility studies" were inadmissible beca