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December 31, 2007

The Harris Company, Real Estate Appraisers and Consultants

Commercial Real Estate Appraiser - Appraisal Blog
A Public Service of The Harris Company Real Estate Appraisers & Consultants For appraisal or other consulting services we can be reached at 310.337.1973, curtis_harris@harriscompanyrec.com, http://www.harriscompanyrec.com, http://www.google.com/coop/cse?cx=000747579154309164948%3Annakvu69iqy

 

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December 30, 2007

Homeownership

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 Floor

Sacramento, CA 95814

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A. SUPPLEMENTAL APPRAISAL STANDARDS FOR BOARD OF

A. SUPPLEMENTAL APPRAISAL STANDARDS FOR BOARD OF
TRUSTEES LAND ACQUISITIONS

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.

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ATTORNEY'S FEES, CONTRACTS, LANDLORD TENANT LAW

ATTORNEY'S FEES, CONTRACTS, LANDLORD TENANT LAW
Mitchell Land & Improvement Co. v. Risorante Ferantelli, Inc., No. G037944
In unlawful detainer action that was subsequently voluntarily dismissed by plaintiff, order awarding defendant its attorney's fees is modified to strike the attorney's fee award as Civil Code section 1717(b)(2) prohibits an award of attorney's fees when an action on a contract has been voluntarily dismissed. Read more...   PDF version
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ADMINISTRATIVE LAW, ENVIRONMENTAL LAW, GOVERNMENT LAW, PROPERTY LAW & REAL ESTATE

ADMINISTRATIVE LAW, ENVIRONMENTAL LAW, GOVERNMENT LAW, PROPERTY LAW & REAL ESTATE
Save Round Valley Alliance v. County of Inyo, No. E041364
In case involving plan to subdivide land in Inyo County for development of single family residences, denial of petition for writ of mandate challenging certification of an environmental impact report and approval of the developer's tentative tract map is reversed where the EIR failed to adequately analyze a possible land exchange with the federal Bureau of Land Management as an alternative to the project. Read more...   PDF version
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IN THE SUPREME COURT OF CALIFORNIA

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

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December 29, 2007

The Trouble With Valuating Green Kennedy Smith

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

 

 

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December 28, 2007

Johnson County Kansas, Appraisal Office

Commercial statistics

  • Cap Rates are published annually near March 1

  • Commercial Statistics published in June after certification

 

//appraiser.jocogov.org/stats/commercial.htm

 

 

 

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December 27, 2007

Part I

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

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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.)

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.

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December 26, 2007

SAN DIEGO METROPOLITAN TRANSIT DEVELOPMENT BOARD, Plaintiff and Appellant, v. RV COMMUNITIES, Defendant and Respondent.

San Diego Metropolitan Transit Development Bd. v. RV Communities (2007) , Cal.App.4th
[No. D042545. Fourth Dist., Div. One. Dec. 21, 2007.]
SAN DIEGO METROPOLITAN TRANSIT DEVELOPMENT BOARD, Plaintiff and Appellant, v. RV COMMUNITIES, Defendant and Respondent.
(Superior Court of San Diego County, No. GIC774602-1, Thomas O. Lavoy, Judge.)
(Opinion by Huffman, Acting P. J., with McDonald, J., and McIntyre, J., concurring.)
COUNSEL

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 because the highest and best use of the property was not at issue. fn. 11 RV's counsel disagreed, arguing there was a dispute over the property's highest and best use and that the drawings were not a specific plan but rather "vague conceptual drawings."

The court allowed the jury to see the drawings but did not admit them into evidence. The court admonished the jury as follows: "Okay, we have kind of a slightly evidentiary issue. [Exhibit] 540 is going to be a drawing that the law is pretty clear that in these types of cases, you can't make any decisions based on a particular plan, a specific plan, because what happened was people . . . would be in this situation, and they would hire somebody to go up and design the Empire State Building and then bring it in here and say, okay, you know, this is a $150 million project that we had going. And the courts have said that's pretty speculative between a drawing on some ground that . . . doesn't {Slip Opn. Page 38} have anything on it versus the Empire State Building. [¶] But . . . I'm going to allow you to see a conceptual, generic type project . . . that is the result of Mr. Armstrong's thoughts generally about the type of project that can be on [the property], but I'm not going to admit it into evidence because I'm afraid . . . you'll take it back and start relying on it as a real thing, when it's actually -- it came up after this lawsuit was initiated, so I'm going to allow you to see it as a demonstrative concept of the type of projects Mr. Armstrong is talking about, okay? But that's really about all the use you're going to be able to legally get out of it, but I think it's fair for you to see it."

After Armstrong testified about exhibit 540, RV introduced exhibit 539, showing how residential units would have to be constructed with the trolley line in place. On MTDB's objection, the court excluded exhibit 539. MTDB does not address Armstrong's testimony in this appeal.

After RV's economist, Alan Nevin, testified that the highest and best use of the property would be "condominiums," RV introduced exhibit 752, which is not part of the record on appeal but apparently set forth comparisons of the construction costs and market demand for different types of projects that could be built on the property to show that the most profitable use was residential. MTDB's counsel objected that the exhibit and Nevin's related testimony were inadmissible as "developer's approach" fn. 12 and specific {Slip Opn. Page 39} plan evidence, renewing his argument that there was no dispute as to the property's highest and best use.

The court allowed Nevin to use exhibit 752 to explain his market analysis, but decided the specific numbers on the exhibit would be left out. The court again admonished the jury: "So you know a little bit what's going on, the law doesn't [allow ] somebody . . . to tell the jury you have a specific plan and this is what the plan would cost and we're going to build the Empire State Building on it, but there has to be a basis for determining what is the best use, the most profitable use. And so we're talking over now how specific we can get, because a plan is simply that. [¶] And so the law says that is inadmissible because plans don't always work out the way you see it, so Mr. Nevin is going to talk about generally the process without utilization of specific numbers because the court -- the law finds that they're too speculative to be using numbers for any particular project . . . ." The court added: "[Exhibit] 752 has some work-up, some numbers, and I think that's inappropriate and so [RV's counsel] has told me she never intended to use the numbers themselves, but generally just to inquire from the witness the process of determining highest feasibility and how that works, so we'll keep it on a hypothetical basis, if we could please, Mr. Nevin."

On appeal, MTDB objects to Nevin's testimony that (1) the specific density of the property was 30 condominium units per acre; (2) the property could be used for {Slip Opn. Page 40} affordable housing; (3) because of the trolley line and its 30-foot retaining wall, a condominium project built on the property would have to be an "interior looking project" and, as a result, units would sell for 10 to 20 percent less than they would if there were no trolley and they could be built to face open space that the trolley wall would block; and (4) that all of the units in a development called "Park Lofts" that "face openness" had sold, but none of the units that do not face openness had sold.

MTDB also objects on appeal to testimony by RV's appraiser, Lea, that (1) the highest and best use of the property was multiple residential use rather than commercial; (2) the hillside at the rear of the property is not usable for commercial use without grading and constructing a retaining wall, but a developer could put residential units with a view on the hillside; (3) in the C zone, a development must have some commercial use; (4) his valuation of the property was based on a density of 30 units per acre;(5) all of the comparison sales he used to value the subject property were of properties intended only for multiple residential use; (6) his value opinion was based on a price per unit of $60,000 and a price per square foot of $41; (7) he subtracted $1 million from the value of the property's value as the cost of making the site ready for multiple residential development; (8) he had never used a zones of value approach to appraising land and considered it to be a discredited approach; (9) the price RV paid for the property in 1998 was not useful to his analysis because of the distance in time from the date of valuation and the change in the nature of the property, and he gave it no weight; (10) the trolley project would reduce the overall value of the remaining property just under $1 million due to retaining walls, noise, vandalism, dust, headlight glare, fuels, vibration, and a {Slip Opn. Page 41} resulting loss of value to some of the potential units; and (11) all of his comparison sales except one were properties that were ready for development. fn. 13

We find no abuse of discretion in the court's admission of RV's evidence that the highest and best use of the subject property was a multiple residential development. Notwithstanding MTDB's position that the highest and best use of the property was not at issue, the court was faced with a genuine dispute as to whether the highest and best use was commercial or multiple residential. The property's commercial manufacturing or "CM" zoning allowed commercial development only, but RV's highest and best use claim was based on a mixed commercial and residential development that would be allowed if the zoning were changed to "C." Lea's testimony provided substantial evidence that a zoning change from CM to C was reasonably probable because, among other reasons, the change could be effected without having to amend the city's general plan.

Because the highest and best use of the property was disputed, the court did not abuse its discretion in allowing RV to show the jury conceptual plans for the type of multiple residential development it claimed to be the property's highest and best use. (County of San Diego v. Rancho Vista Del Mar, Inc., supra, 16 Cal.App.4th at pp. 1059-1060.) As noted, such conceptual plans "are admissible when offered merely as an illustration of one of the uses to which the property is adapted and the evidence is {Slip Opn. Page 42} expressly limited by the court to such object. [Citations.]" (Tanczos, supra, 42 Cal.App.4th 1215, 1218-1219.) Here, the court twice admonished the jury that it was not allowed to consider a specific plan of development and must view the conceptual plans for a multiple residential development on the property only as a "demonstrative concept" or, in Nevin's case, as an illustration of his "process of determining highest feasibility and how that works . . . ." Lea testified that 30 units per acre could be built on the property, but he was not saying this was a specific plan for the property, as the number could be lower or higher. As noted, Armstrong also testified that the exhibit 540 drawings were not a specific plan but rather "a conceptual level of plans."

In People ex rel. Dept. of Pub. Wks. v. Silveira (1965) 236 Cal.App.2d 604, 627, the appellate court approved the trial court's allowance of "economic approach" evidence for the limited purpose of determining the subject property's highest and best use, but also approved the trial court's exclusion of evidence of a specific dollar value of the property derived from that evidence. Like the trial court in Silveira, the trial court here acted within its discretion in allowing the jury to consider exhibit 752 and Nevin's testimony about the exhibit's comparison of development costs and market demand for different types of projects to show that the highest and best use of the property use was residential, but not allowing the jury to consider the specific numbers on exhibit 752 in determining the value of the property.

MTDB asserts that severance damages for loss of view from hypothetical multiple residential units are contrary to law. MTDB cites to testimony by Lea regarding loss of value or "price discounting" of the remaining property as a result of having to build {Slip Opn. Page 43} certain units on the property to face away from the trolley retaining wall on the south boundary of the property, instead of building them to face what would be a view of open hillside to the south but for the retaining wall. MTDB argues there is no legal right to a view in California and RV's "loss of view" damages are "based solely upon a specific plan of development and speculation."

As discussed above, the court did not admit improper evidence of a specific plan of development, as RV's evidence regarding a potential multiple residential or condominium development was admissible to show that such a development was the property's highest and best use. Having properly introduced that evidence of highest and best use, RV was entitled to show how the trolley project would impact the value of its remaining property for that use. RV's evidence of the reduction of the remaining property's value as a result of having to build inward-facing units did not contravene the rule that there is no right to a view under California law; it was admissible evidence of the effect of the trolley project on the market value of RV's remaining property in light of its highest and best use as a multiple residential development.

In any event, the jury's verdict indicates it did not fully embrace Lea's valuation opinions. Lea concluded the value of the property taken by MTDB was $2,777,000 and RV's severance damages were $2,150,000. The jury found substantially lower amounts in both categories, awarding $1,927,604 for the value of the property taken and $470,000 in severance damages. Thus, to the extent the court erred in admitting RV's evidence regarding use of the property for a multiple residential development, MTDB has not shown it was prejudiced by the error. The court's admission of evidence concerning the {Slip Opn. Page 44} potential use of the property as a multiple residential development is not a basis to disturb the judgment.

C. Value Engineering Evidence

MTDB contends the court committed reversible error by admitting evidence of MTDB's value engineering decisions during the planning phase of the project. By "value engineering" MTDB means cost-saving changes in the original plans for the trolley line through RV's property. MTDB argues the value engineering evidence should have been excluded under Evidence Code section 813, subdivision (b), which provides that "evidence of the character of the improvement proposed to be constructed by the plaintiff in an eminent domain proceeding" is not subject to impeachment and rebuttal. fn. 14

MTDB sought to exclude value engineering evidence through a motion in limine "to exclude evidence, testimony or opinions about the project other than as planned." In opposition to the motion, RV argued that evidence of value engineering decisions and project design changes was relevant because MTDB intended to introduce evidence of the price RV paid for the property in 1998. RV reasoned that evidence of the purchase {Slip Opn. Page 45} price would be prejudicial to RV unless it was able to introduce evidence of the condition of the property at the time of purchase, including the state of the trolley project, which was then in the design stage. Contending the 1998 design was more aesthetically pleasing and functional than the ultimate design, RV argued that the information it had about the design in 1998 was significant to its decision to buy the property. RV also argued that evidence the project design was in a "state of constant flux" was relevant to the issue of why RV had not developed the property to its highest and best use at the time of trial. RV argued that if the court allowed MTDB to introduce evidence of the 1998 purchase price and RV's failure to develop the property to its highest and best use, RV should be allowed to counter with evidence of the 1998 design plans for the project and the effect of later design changes on RV's development schedule for the property.

The court decided it would grant MTDB's motion to exclude evidence and opinions of the project other than as planned if MTDB intended not to present evidence of the price RV paid for the property. However, if MTDB intended to present evidence of RV's purchase price, the court would deny the motion and admit evidence of the design plans relied on by RV when it purchased the property. MTDB's counsel responded: "Although, I don't think that the two are intertwined, my preference would be to put on the value of the property [at the time of RV purchased it]. If that requires that we hear about value engineering, so be it."

The court did not abuse its discretion in admitting RV's value engineering evidence. MTDB does not cite, and we are unable to find, any case authority specifically addressing the admissibility of such evidence, let alone supporting its exclusion. {Slip Opn. Page 46} Evidence Code section 813 does not prohibit admission of evidence of project changes, it merely provides that evidence of the character of the project is not subject to impeachment or rebuttal. MTDB does not explain how the project change or value engineering evidence in question impeached or rebutted any evidence of the ultimate design or character of the trolley project. Because MTDB was unwilling to forgo introducing evidence of the price RV paid for the property, the court reasonably allowed RV to introduce value engineering evidence for the purposes RV articulated in its opposition to MTDB's in limine motion.

In any event, MTDB does not convincingly argue that admission of the value engineering evidence prejudicially affected the jury's verdict. MTDB contends it affected the severance damage award, but provides no solid basis for that contention. The effect of the ultimately constructed project on RV's remaining property is what it is, regardless of whether a rejected design would have resulted in lower severance damages. It is pure speculation to surmise that the jury somehow translated the costs savings MTDB realized by redesigning the trolley line through the condemned property to severance damages to RV's remaining property, or that the severance damages the jury awarded were based on the view that MTDB unreasonably rejected a less damaging design. Because the evidence of MTDB's design changes is irrelevant to the value of the property taken and the effect of the ultimately constructed project on the value of RV's remaining property, there is no basis beyond mere speculation to conclude its admission prejudicially affected the jury's verdict. {Slip Opn. Page 47}

D. Lea's Rejection of Zones of Value Approach

MTDB contends the admission of Lea's entire valuation opinion testimony was reversible error because Lea failed to use or consider the zones of value methodology in reaching his opinion. MTDB filed a motion in limine "to exclude opinions of value not utilizing zones of value methodology." The court denied the motion and explained its reluctance in eminent domain cases to entirely exclude the testimony of a party's valuation expert on the ground the expert's valuation determination is contrary to law. Essentially, the court concluded Lea's rejection of a zones of value approach went to the weight of his valuation opinion rather than its admissibility. fn. 15

"A trial court enjoys broad discretion in ruling on foundational matters on which expert testimony is to be based. [Citations.]" (Korsak v. Atlas Hotels, Inc. (1992) 2 Cal.App.4th 1516, 1523.) "It is prejudicial error to exclude relevant and material expert evidence where a proper foundation for it has been laid, and the proffered testimony is within the proper scope of expert opinion. [Citation.]" (Ibid.) "The abuse of discretion standard . . . measures whether, given the established evidence, the act of the lower tribunal falls within the permissible range of options set by the legal criteria." (Department of Parks & Recreation v. State Personnel Bd. (1991) 233 Cal.App.3d 813, 831.) {Slip Opn. Page 48}

We conclude the court did not abuse its discretion in allowing Lea to testify. Lea laid a proper foundation for his methodology of valuing the property as a whole for multiple residential use by taking into consideration the physical characteristics of dissimilar parts of the property but not assigning different values to the different parts. When asked if different parts of the property should be priced differently, he responded: "Well, each market is somewhat different. For multiple residential use, . . . the value [of the property] would not be cut up and allocated to different pieces of the property. It would be looked at as whole, accommodating multiple residential use." When later asked whether the creek and hillside portions of the property should be valued higher than the rest of the property as "positive amenity features," Lea stated: "There's no developer that I know of has or would venture an estimate as how to do that and they use the overall [pro] rata value."

MTDB has cited no case authority that clearly mandates use of a zones of value approach in this case. MTDB cites Los Angeles County Flood Control Dist. v. McNulty (1963) 59 Cal.2d 333 (McNulty) and other cases for the proposition that "it is not proper to attribute a per-square-foot value to [a condemnee's] entire property and then apply the value to the parcel condemned unless each square foot of [the condemnee's] land has the same value and that, if the parcel condemned is different in quality from the rest of the land, it should be assigned a different value." (Id. at p. 336.) McNulty concluded a jury instruction to that effect was proper where the plaintiff had condemned a 2.62 acre portion of the defendants' property to construct a flood control channel and there was {Slip Opn. Page 49} expert testimony that 2.55 acres of the condemned portion would have to be used as a drainage ditch to develop the property to its highest and best use. (Id. at pp. 335-336.)

McNulty cited three cases in support of its conclusion that "the instruction correctly states the applicable principles of law." (McNulty, supra, "59 Cal.2d at p. 337.) The first was People ex rel. Dept of Public Works v. Neider (1961) 195 Cal.App.2d 582, in which the Court of Appeal upheld the trial court's refusal to instruct the jury that if it found the portions of the condemnee's property taken by the state were worth more " 'considered as strips of commercially zoned land along the highway than they would be considered merely as average parts of the entire area . . . then it would be your duty to value them at their higher or greater value.' " (Id. at p. 590, fn. 5.) The Court of Appeal decided the condemnee's rejected instructions invaded "the fact-finding province of the jury [and] it was up to the jury to evaluate the testimony of the experts, and to accept or reject their theories depending on whether the jury found them to be correct." (Id. at p. 590.) The Court of Appeal concluded the trial court had correctly instructed the jury that it "was not bound to value on a square foot basis, and that [it] need not assume that the frontage portion of the land is of exactly the average value per square foot of the whole parcel. [The trial court correctly] advised the jury that with respect to both the front foot method and the per square foot method, it must consider the testimony of all the witnesses and the method employed by them, either front foot or square foot, and [be] the 'sole judges of that testimony and of that portion thereof which you wish to accept.' " (Ibid.) {Slip Opn. Page 50}

McNulty, supra, 59 Cal.2d 333 also cited Hayward Union High School Dist. v. Lemos (1960) 187 Cal.App.2d 348, 353, in which the Court of Appeal decided the trial court properly refused to strike the testimony of an appraiser who valued condemned property by adding together different values for the rear and front portions of the property. The Court of Appeal stated: "Taking [the appraiser's] testimony as a whole, it is clear that he was giving his opinion as to the fair market value of the property as a whole. There is no reason why an appraiser, in determining the value of a piece of property, may not in arriving at its market value as a whole determine that certain portions of it are worth less than other portions. Frequently an appraiser will place a front foot value on the front of it and a square foot value on the less valuable rear portions as against other portions. There was no violation of the general rule that 'the market value is to be determined by considering the property as a whole . . . ' [Citation.]" (Ibid.)

Finally, McNulty, supra, 59 Cal.2d 333 cited People v. Loop (1954) 127 Cal.App.2d 786, 796-800, in which the Court of Appeal discussed when it is appropriate, in a partial taking eminent domain case, to value condemned property by assigning a single value to every square foot of the entire property, as opposed to assigning different values to the part taken and the remaining property. The Court of Appeal stated: "Whether the opinion of a witness that each and every square foot of a parcel of property does not have the same value as each and every other square foot is sound, does not present a question of law[, but rather] a question of fact for the jury. [Citation.] The weight to be given to the opinion of a witness is a question of fact for the jury. The jury are the exclusive judges of the credibility of witnesses [citation]; the rule applies to expert {Slip Opn. Page 51} witnesses. [Citations.] [The jury] are the judges of the effect or value of opinion evidence. [Citations.]" (Id. at pp. 799-800.)

These cases support the principle that although under certain circumstances it may be appropriate to assign different values to different portions of the subject property in an eminent domain case, whether a zones of value methodology is appropriately applied in a particular case is ordinarily a question of fact for the jury to decide. There is no general rule under California case law mandating use of a zones of value methodology in every eminent domain case in which different portions of the subject property would have different per-square-foot values as free standing parcels. We agree with the trial court that Lea's rejection of the zones of value methodology urged by MTDB went to the weight rather than the admissibility of his valuation testimony.

Moreover, the specific zones of value methodology used by Brabant has been disapproved by California case law. In San Bernardino County Flood Control Dist. v. Sweet (1967) 255 Cal.App.2d 889, 900 (Sweet), the appellate court noted that "the adaptability of part of a single parcel to a highest and best use differing from that to which other portions may be adaptable by reason of its distinctive character may be considered by a valuation witness on the theory that it is a factor which a knowing buyer would consider in determining the price he would pay for the whole. [Citation.]" However, Sweet observed, it is not proper to "separately [appraise] in terms of money different parts of a single undivided parcel and [take] the total as the fair market value of the whole. [Citations.]" (Ibid.) Sweet noted that although the eminent domain plaintiff in that case waived the issue by failing to object at trial, the defendant's valuation expert {Slip Opn. Page 52} had improperly "valued in terms of money each separate area [of the condemned property] and treated the total as the market value of the whole." (Id. at p. 901, fn. omitted.) fn. 16

In San Diego County Water Authority v. Mireiter (1993) 18 Cal.App.4th 1808, 1818 (Mireiter), this court stated that Sweet, supra, 255 Cal.App.2d 889 "stands for the relatively unremarkable proposition that where different parts of a single parcel are adaptable to different uses, they may contribute differently to the total value of the parcel. Nonetheless, it is the entire parcel which must be valued. Thus, it is generally inappropriate to treat the single parcel as merely the aggregate of a number of separate pieces because each has an impact on the others which may either increase or decrease the value. Sweet appropriately concludes that the interrelationship among the pieces must be considered in any appraisal of the entire parcel." (Italics added.) Accordingly, Mireiter held "that to the extent any appraiser utilizes a 'zone of value' approach, the interrelationship among the zones must be considered in determining a single value for the single piece of condemned property." (Mireiter, supra, at p. 1818, fn. omitted.)

The zones of value methodology used by MTDB's valuation expert Brabant at trial was essentially the approach that Sweet, supra, 255 Cal.App.2d 889 and Mireiter, supra, 18 Cal.App.4th 1808 disapproved. Without objection, Brabant valued the "level usable {Slip Opn. Page 53} land" at $17.84 per square foot, the "sloping usable land" at $9.74 per square foot, and the "creek area" at $.80 per square foot. He then multiplied the value per square foot for each area times the number of square feet in that area, and added those totals together to calculate the value of the entire property. Brabant similarly valued the property taken by separating it into different zones of value (i.e., level usable land, sloping usable land, creek area, and drainage easement), multiplying the per-square-foot value for each particular zone times the square footage of the zone, and adding the totals for each zone together. In short he inappropriately treated "the single parcel as merely the aggregate of a number of separate pieces" without considering "the interrelationship among the pieces . . . ." (Mireiter, supra, 18 Cal.App.4th at p. 1818.) fn. 17

Lea's testimony, on the other hand, reflects that he considered the interrelationship among the different parts of the property and factored in the physical characteristics of each area in determining a single amount per square foot for the entire property. Lea testified that although the creek area was a detriment to commercial use, for residential use developers would view the creek and hillside as "positive amenity features." On cross-examination Lea explained that in determining the value amount per square foot that he applied to the entire property, he determined the pro rata contribution of the different areas to the whole. For example, he lowered the pro rata value of the property {Slip Opn. Page 54} to reflect the cost of having to relocate the sewer and valued the creek area, as an amenity, at 90 percent of fee value. Brabant's methodology was more suspect under Mireiter and Sweet than Lea's.

MTDB has not shown that as a matter of law, Brabant's zones of value methodology was the only methodology the jury could consider in making its valuation determinations. Because Lea laid an adequate foundation for his valuation opinions and his opinion testimony fell within the "permissible range of options set by the legal criteria," (Department of Parks & Recreation v. State Personnel Bd., supra, 233 Cal.App.3d at p. 831), the court did not abuse discretion in admitting the testimony and allowing the jury to determine the weight it should be accorded.

IVREJECTION OF ZONES OF VALUE INSTRUCTIONS

MTDB contends the court should have given the following two special jury instructions it requested: (1) "It is not proper to attribute the same per-square foot value to the entire property unless each square foot has the same value." (2) "Not all parts of the property may be of the same worth. The part taken may be of distinctly different quality from the part not taken and the fair market value of the part taken may also be worth more or less than the part not taken. You are to value the part not taken accordingly."

"Instructions should state rules of law in general terms and should not be calculated to amount to an argument to the jury in the guise of a statement of law. [Citations.] Moreover, it is error to give, and proper to refuse, instructions that unduly {Slip Opn. Page 55} overemphasize issues, theories or defenses either by repetition or singling them out or making them unduly prominent although the instruction may be a legal proposition. [Citations.]" (Fibreboard Paper Products Corp. v. East Bay Union of Machinists (1964) 227 Cal.App.2d 675, 718.) Error cannot be predicated on the trial court's refusal to give a requested instruction if the subject matter is substantially covered by the instructions given. [Citations.]" (Id. at p. 719; Hyatt v. Sierra Boat Co. (1978) 79 Cal.App.3d 325, 335.)

MTDB's proffered zones of value instructions amount to improper argument to the jury in the guise of a statement of law, as they unduly emphasize MTDB's zones of value theory of valuation. Had the court given them, it would have effectively instructed the jury to accept MTDB's valuation methodology and reject RV's methodology.

Moreover, the subject of valuation was substantially and adequately covered by the instructions given. The jury was instructed to determine the fair market value of the property solely from the opinions of the witnesses who testified, and that evidence of the witnesses' "reasons for their opinions of value, and all other evidence concerning the subject property including your view of it, is to be considered only for the limited purpose of enabling you to understand and weigh the opinions of the witnesses regarding market value and severance damages and benefits, if any." (BAJI No. 11.80.) The jury was further instructed to "[r]esolve any conflict in the testimony of witnesses by weighing each opinion against the others, the reasons given for each opinion, the facts relied upon and the credibility and qualifications of each witness." (Ibid.) The court also gave BAJI Nos. 11.81 and 11.82, which provide detailed explanations of the matters {Slip Opn. Page 56} relied on by valuation witnesses and how the jury should consider those matters in weighing the witnesses' valuation opinions. The instructions given provided the jury sufficient guidance to make its valuation findings and enabled them to accept MTDB's zones of value analysis if it found it credible. The court did not err in refusing MTDB's zones of value instructions.

DISPOSITION

The judgment is affirmed. Costs are awarded to Respondent.

McDonald, J., and McIntyre, J., concurred.

­FN 1. All further statutory references are to the Code of Civil Procedure unless otherwise noted.

­FN 2. The League of California Cities and California State Association of Counties filed an amicus curiae brief in support of MTDB, arguing that the trial court should not have allowed RV's inverse condemnation cross-action to proceed and that the proper date of valuation was the date MTDB deposited probable compensation rather than the date of trial.

­FN 3. Article I, section 19, of the California Constitution sets forth the constitutional requirement of just compensation for private property taken by the government for public use, stating: "Private property may be taken or damaged for public use only when just compensation, ascertained by a jury unless waived, has first been paid to, or into court for, the owner. The Legislature may provide for possession by the condemnor following commencement of eminent domain proceedings upon deposit in court and prompt release to the owner of money determined by the court to be the probable amount of just compensation."

­FN 4. Deciding an issue that is not pertinent to this appeal, Mt. San Jacinto also held that "imposition of a waiver [under section 2155.260] of the right to challenge the validity of the taking if the owner elects to withdraw the deposit does not undermine the constitutionality of the statutory scheme nor the legislature's chosen method of valuation." (Mt. San Jacinto, supra, 40 Cal.4th at p. 666.)

­FN 5. The present case is similarly distinguishable from Redevelopment Agency of the City of San Diego v. Mesdaq (2007) 154 Cal.App.4th 1111 (Mesdaq), an eminent domain case in which this court decided that the date the condemnor deposited probable compensation was the proper date of valuation under Mt. San Jacinto and sections 1255.010 and 1263.110. (Mesdaq, supra, at pp. 1123-1126.) Mesdaq fell "squarely within the holding of Mt. San Jacinto" because even though the property owner had not sought to increase the probable compensation deposit under section 1255.030, the trial court nevertheless considered and rejected his informal challenges to the adequacy of the deposit. (Mesdaq, supra, at p. 1125.) Thus, like Mt. San Jacinto and unlike the present case, there was a judicial determination in Mesdaq that the deposit of probable compensation was sufficient.

­FN 6. Section 1263.130 provides: "Subject to Section 1263.110, if the issue of compensation is not brought to trial within one year after commencement of the proceeding, the date of valuation is the date of the commencement of the trial unless the delay is caused by the defendant, in which case the date of valuation is the date of commencement of the proceeding."

­FN 7. We recognize that in City of Santa Clarita v. NTS Technical Systems (2006) 137 Cal.App.4th 264, 270-273, the Court of Appeal held that a condemnor's voluntary increase of its probable compensation deposit three years after its initial deposit did not change the date of valuation from the date of the initial deposit to the date of the additional deposit. However, Santa Clarita's decision on that issue was largely based on the fact that the property owner did not challenge the initial deposit by invoking the procedure under section 1255.030 to increase the deposit, as RV did in the present case.

­FN 8. Richmond set forth the following discussion from People v. Buelton Development Co. (1943) 58 Cal.App.2d 178, 183-184 regarding the former eminent domain statutes: "[S]ection 1246 of the Code of Civil Procedure, still in effect at the time of this suit, ' . . . provides that each defendant must, by answer, set forth his estate or interest in the property sought to be condemned and the amount he claims as damages by reason of its taking; section 1248 declares what items of damages are recoverable, so as to include the value of the land to be taken and the damages to the remainder of any larger parcel of which it is a part. Section 1247 empowers the court to pass on conflicting claims to the property to be condemned, and section 1246.1 entitles the plaintiff to have the whole award determined as between the plaintiff and all defendants claiming any interest in the property sought to be condemned[.]' " (Richmond, supra, 48 Cal.App.3d at p. 351.)

­FN 9. Section 1258.290 provides: "(a) The court may, upon such terms as may be just (including but not limited to continuing the trial for a reasonable period of time and awarding costs and litigation expenses), permit a party to call a witness, or permit a witness called by a party to testify to an opinion or data on direct examination, during the party's case in chief where such witness, opinion, or data is required to be, but is not, included in such party's list of expert witnesses or statements of valuation data if the court finds that such party has made a good faith effort to comply with Sections 1258.210 to 1258.260, inclusive, that he has complied with Section 1258.270, and that by the date of exchange he: [¶] (1) Would not in the exercise of reasonable diligence have determined to call such witness or discovered or listed such opinion or data; or [¶] (2) Failed to determine to call such witness or to discover or list such opinion or data through mistake, inadvertence, surprise, or excusable neglect. [¶] (b) In making a determination under this section, the court shall take into account the extent to which the opposing party has relied upon the list of expert witnesses and statements of valuation data and will be prejudiced if the witness is called or the testimony concerning such opinion or data is given."

­FN 10. In its reply brief, MTDB contends that RV failed to comply with section 1258.270, subdivision (a) (as required by § 1258.290, subd. (a)), because it did not provide MTDB an amended exchange of valuation data. Section 1258.270, subdivision (a) required RV to "diligently give notice to the parties upon whom [its] list and statements were served" of the opinion and data that was required to be but was not listed in its prior exchange. Section 1258.270, subdivision (b) requires that such notice be in writing and "include the information specified in Sections 1258.240 and 1258.260." Lea's updated appraisal dated February 4, 2003 and received by MTDB around the time of Lea's deposition satisfies these requirements of section 1258.270.

­FN 11. The property was zoned "CM" which allows for commercial use only. RV's highest and best use claim was based on a mixed commercial and residential development that would not be allowed under the property's CM zoning, but would be allowed if the zoning was changed to "C." MTDB's counsel argued: "As far as I'm concerned, commercial is commercial and you don't get to show feasibility studies unless the highest and best use is at issue. And if it's commercial - C.M. or 'C,' it's not at issue."

­FN 12. The "developer's approach," also referred to as the "economic," "economic analysis," or "residual land value" approach, is a valuation method whereby undeveloped lots are appraised by using estimated values of developed lots in the same subdivision and "deducting from the gross value of the 'ultimate development' the pertinent expenses of development." (1 Matteoni & Veit, Condemnation Practice in California (Cont.Ed.Bar 3d ed. 2005) § 4.53, p. 163 (rev. 9/2007); see also Contra Costa Water Dist. v. Bar-C Properties (1992) 5 Cal.App.4th 652, 657-658.)

­FN 13. MTDB does not present separate argument on the admissibility of each item of Nevin's and Lea's testimony specified in this section of its opening brief. MTDB argues generally that the referenced testimony by Nevin and Lea is inadmissible as developer's approach evidence or evidence of a specific plan of development.

­FN 14. Subdivision (a) of Evidence Code section 813 sets forth the categories of persons who may provide opinion evidence regarding the value of property. Subdivision (b) of Evidence Code section 813 provides, in its entirety: "Nothing in this section prohibits a view of the property being valued or the admission of any other admissible evidence (including but not limited to evidence as to the nature and condition of the property and, in an eminent domain proceeding, the character of the improvement proposed to be constructed by the plaintiff) for the limited purpose of enabling the court, jury, or referee to understand and weigh the testimony given under subdivision (a); and such evidence, except evidence of the character of the improvement proposed to be constructed by the plaintiff in an eminent domain proceeding, is subject to impeachment and rebuttal."

­FN 15. The court advised counsel: "[T]he [expert] witnesses generally will be allowed to testify using their valuations. And if they have valuations that are not credible, the jury, in my experience, will disregard them."

­FN 16. Sweet stated: "On proper objection such testimony should have been excluded. Although the apparent impropriety of the method employed should have been immediately perceived, plaintiff interposed no objection . . . ." (Sweet, supra, "255 Cal.App.2d at p. 901.)

­FN 17. On cross-examination, Brabant acknowledged that rule 1.4 of the Uniform Standards of Professional Appraisal Practice provides that " 'When appraising property, the appraiser is to analyze the effect on value of the assemblage of the various estates or parts of a property and refrain from valuing the whole solely by adding together the individual values of the various estates or component parts[.]' "

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Richeson v. Helal (2007) , Cal.App.4th

Richeson v. Helal (2007) , Cal.App.4th [No. B187273. Second Dist., Div. Eight. Nov. 29, 2007.]
[As modified Dec. 21, 2007.]
JUANITA RICHESON et al., Plaintiffs and Respondents, v. HAQUE HELAL et al., Defendants and Appellants.
(Superior Court of Los Angeles County, No. SC 082584, John L. Segal, Judge.)
(Opinion by Flier, J., with Cooper, P. J., and Rubin, J., concurring.)
COUNSEL
[No. B187273. Second Dist., Div. Eight. Nov. 29, 2007.]

Harding Larmore Mullen Jakle Kutcher & Kozal, Christopher M. Harding and Kenneth L. Kutcher for Defendants and Appellants.

Marsha Jones Moutrie, City Attorney, and Barry Rosenbaum, Deputy City Attorney, for City of Santa Monica as Amicus Curiae on behalf of Defendants and Appellants.

Dawson Tilem & Gole, Mitchell J. Dawson and Gary M. Gole for Plaintiffs and Respondents.

OPINION

FLIER, J.-

In this action, respondents Juanita Richeson and Eugene Kallman seek to compel the closure of Fair Market, a neighborhood market in Santa Monica, California built in the 1920's and presently owned and operated by appellants Haque and Bakul Helal. Since the {Slip Opn. Page 2} 1970's the market has operated in a store building located at the front portion of the property in question pursuant to a series of conditional use permits. Each of the permits was of a specified duration, subject to extension by the City of Santa Monica (City) after a lengthy public review process. In 2003, the City extended the use permit without a durational limitation, allowing the market to operate indefinitely subject to certain conditions.

Respondents supported the last permit extension before both the planning commission and City council. However, after learning the permit was of indefinite extension, respondents brought suit to compel closure of the market based on two written instruments drafted, executed and recorded at the City's behest in the late 1980's, when it approved two onsite condominiums, one now owned by appellants (unit one), the other by respondents (unit two). fn. 1 The first document is a regulatory agreement entitled "Agreement Imposing Restrictions on Real Property" (AIR) entered between the City and the then property owner. The other document is entitled "Declaration of Covenants, Conditions, Restrictions and Reservation of Easements" (CC&R's).

The trial court issued a permanent injunction based on its interpretation of these documents. Appellants claim this was error on four grounds, any one of which requires a reversal, namely: (1) the trial court erroneously construed the AIR and CC&R's as compelling Fair Market's closure regardless of intervening changes in City zoning and permits for the market; (2) the trial court's interpretation of the AIR and CC&R's violates the constitutional rule that cities may not contract away their police powers to enact future changes in their land use regulations; (3) respondents' suit is barred by the applicable statute of limitations; and (4) the trial court erred in issuing a mandatory injunction compelling Fair Market's closure because injunctive relief is not available when contrary to public policy. {Slip Opn. Page 3}

We reverse the judgment and hold the trial court erroneously construed the AIR and CC&R's as compelling the Fair Market's closure regardless of intervening changes in City zoning and permits for the market and, were it otherwise, the AIR and CC&R's would constitute an invalid attempt by the City to surrender its police power. In light of that holding, we do not reach appellants' other contentions. Because the judgment is reversed, the award of attorney fees and costs must also be reversed.

FACTS

Both appellants and respondents acquired their interest in the property relatively recently. Respondents purchased their condominium in 1994. Appellants leased the market in 1995 and purchased their condominium, which included the market, in March 2003.

The relevant background of the present dispute is as follows. The market was built in 1928, a year before the property was first zoned. At that time, the City zoned the land "Class B-Income." After World War II, the City experienced a building boom, and in 1946 the property was rezoned to "R2," making operation of the market a nonconforming use. Two years later, the City council adopted an ordinance requiring all commercial uses to be removed from residential zones within 25 years. However, in this case, when the 25-year time period expired in 1973, the City issued a conditional use permit allowing Fair Market to continue in operation for an additional three years. In 1976 and 1979, the City extended the permit for three years and five years, and it extended the permit again in 1984.

In 1985, the City approved "CUP 381," which allowed Fair Market to be located in what was then an "R3" zone. The permit was effective through October 23, 2000, a date chosen "to coincide with the Planning horizon of the current Land Use Element." The date at that time was the maximum the City zoning ordinance allowed conditional use permits to be extended for nonconforming markets in residential districts.

In 1987, the property owner sought to build two condominiums at the rear of the property behind Fair Market. Under the land use regulations then in effect, the condominiums could not be built without tearing down the market. However, on April 28, 1987, the City council approved "Parcel Map 18025" and "CUP 435," which allowed the market to remain and the rear portion of the property to be developed with the two {Slip Opn. Page 4} condominiums. Special condition 1 of CUP 435 required the existing market building to be made part of the common area and provided for CC&R's allowing ownership of the market to be tied to one of the condominium units and, at such time as the market is removed or destroyed, the store area to be landscaped as part of the unrestricted common area. The approvals stated the market use was subject to the time limits and conditions set forth in CUP 381 and required the recording of the CC&R's.

The AIR was entered into between the City and the property owner, a predecessor in interest to the parties in this action. The AIR recites that the owner wished to construct the condominiums on the property, which "currently contains an existing, one story, non-conforming grocery store," and that "[t]he grocery store, which has a Conditional Use Permit for a retail use in an R-3 zone district (valid until October 23, 2000), would remain and is proposed for incorporation into the ownership of the front residential unit . . . ." The document further recites that the City was approving the parcel map and permit "subject to conditions which are imposed for the public and surrounding landowners and without which no permit would be issued." (Italics added.)

The AIR goes on to state that the existing retail store is subject to CUP 381 and, "[a]s a nonconforming building and use, the retail store is subject to Sections 9136A and 9136B of the Santa Monica Municipal Code, which establishes significant controls and restrictions on nonconforming buildings and uses including the potential removal of such buildings and uses." fn. 2 (Italics added.) The AIR provides, "The store building shall be removed and the underlying area shall be landscaped or redeveloped in a manner consistent with legal requirements then in effect at such time as the retail use is discontinued for a continuous {Slip Opn. Page 5} period of one year, the Conditional Use Permit expires (on October 23, 2000), or the Conditional Use Permit is revoked, whichever occurs first." Further provisions require the AIR and CC&R's to be recorded and that the CC&R's include a reference to the applicable duties and obligations set forth in the AIR and be approved as to form by the city attorney prior to recordation.

The CC&R's approved by the city attorney generally track the language of the AIR but differ in certain respects. Article VI, section 1, paragraph F of the CC&R's provides: "The store and its exclusive parking area shall be part of and appurtenant to unit one of the project. The owner of unit one may conduct any lawful business in the store allowed by the present or future conditional use permits issued by the City of Santa Monica. The owners of unit two and the Homeowners Association shall not have the right to limit the use or to affect the conduct of the owners or managers of the store other than through the civil or criminal authority of the State of California and not through these Covenants, Conditions, and Restrictions." (Italics added.) Article XIV, section 2 of the CC&R's provides: "The existing retail store is a nonconforming building and use, subject to the time limits and conditions set forth in conditional use permit 381." (Italics added.) Article XIV, section 3 further provides: "The store building shall be removed and the underlying area shall be landscaped or redeveloped in a manner consistent with legal requirements then in effect at such time as the retail use is discontinued for a continuous period of one year or the Conditional Use Permit expires, whichever occurs first." (Italics added.) This provision differs from the corresponding provision in the AIR in that article XIV, section 3 of the CC&R's does not specifically refer to the date of October 23, 2000, as the expiration of CUP 381, nor does it include revocation of the conditional use permit as an event that requires removal of the store building.

Pursuant to the parcel map and conditional use permit, the AIR was recorded on September 9, 1987, and the CC&R's were recorded on July 31, 1990. Respondents admittedly had constructive notice of the AIR and CC&R's prior to their purchase of their condominium and Fair Market. {Slip Opn. Page 6}

In April 2000, an application was filed with the City to authorize the continued operation of Fair Market beyond its October 23, 2000 closure date. Respondents supported this request. More specifically, in 2000, they signed a petition requesting the planning commission to preserve the market. While the application was pending, appellants bought the interest in their condominium and in Fair Market. In 2003, respondent Kallman appeared before the City on three separate occasions to testify in support of the issuance of a new permit to allow the market to remain in operation. The planning commission granted the request by approving "CUP 00-009" on April 23, 2003. fn. 3 In granting this approval, the planning commission found that the market was a neighborhood serving use, that it had been located at the site for more than 50 years without any adverse impact to the neighborhood's residential character, and that its close proximity to many residential units reduced the number of vehicle trips by area residents needing routine grocery items. The trial court found that respondent Kallman had been "enthusiastic" in supporting the continuation of Fair Market and that he had essentially pleaded with the planning commission and the City council to allow the market to remain in front of his property, for the good of the community and for the benefit of his property. The extension of the permit also had the overwhelming support of the neighborhood.

The City council concurred with the planning commission's view of the importance of neighborhood markets with the adoption of ordinance No. 2090 (CCS) on July 22, 2003. The ordinance allowed the planning commission or the City council on appeal to modify the permit standards for existing nonconforming neighborhood markets. In adopting the ordinance, the City council expressly found it would allow "for the continuation of nonconforming neighborhood markets which have served surrounding neighborhoods for a long period of time, which are located in the areas of the City that have an insufficient {Slip Opn. Page 7} number of grocery markets and which thereby reduce the need for residents to drive to less convenient commercial locations."

CUP 00-009 was approved and became effective September 23, 2003, when the City council amended Parcel Map 18025 and CUP 435 to allow the continued operation of Fair Market consistent with ordinance No. 2090 (CCS). fn. 4

The planning commission subsequently approved "CUP 00-010," which altered the market's operation hours to allow the market to operate from 7:00 a.m. to 11:00 p.m. CUP 00-010 superseded CUP 00-009 and remains presently in effect.

PROCEDURAL HISTORY

In August 2004, respondents filed this action to enforce deed restrictions against appellants. The complaint sought declaratory and injunctive relief and damages for a nuisance, unjust enrichment and misrepresentation.

After a three-day trial, the trial court rendered a judgment for respondents in September 2005. The court declared that appellants may not conduct a market business on the property, the store building must be removed and the underlying area must be landscaped or developed in a manner consistent with the CC&R's. The court also issued a mandatory injunction ordering appellants to "cease operating the market known as the Fair Market . . . ." The court denied respondents any damages, finding they had not been harmed nor sustained any damages from the continued operation of Fair Market.

Appellants timely appealed from the judgment and from a postjudgment order awarding attorney fees and denying their motion to tax costs.

STANDARD OF REVIEW

The interpretation of a restrictive covenant is governed by contract principles, "under which courts try 'to effectuate the legitimate desires of the covenanting parties.' [Citation.]" {Slip Opn. Page 8} (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 380-381.) That is a question of law unless the interpretation turns upon the credibility of extrinsic evidence. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866.) When, as here, the trial court's interpretation of a writing does not turn upon the credibility of extrinsic evidence, we make our own independent interpretation of the meaning of the writing. (Ibid.)

When a dispute arises over the meaning of language in an instrument, the first question to be decided is whether the language is "reasonably susceptible" to the interpretation urged by the party. (Oceanside 84, Ltd. v. Fidelity Federal Bank (1997) 56 Cal.App.4th 1441, 1448.) If the language is not, the case is over. (Ibid.) If the language is reasonably susceptible to the interpretation urged, we move to the second question: what did the parties intend the language to mean? (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.)

Whether the instrument is reasonably susceptible to a party's interpretation can be determined either from the language of the instrument itself or from extrinsic evidence of the parties' intent. (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 798.) If an instrument is capable of two different reasonable interpretations, the instrument is ambiguous. (Ibid.) In that case, we must provide an interpretation that will make the instrument lawful, operative, definite, reasonable, and capable of being carried into effect, and must avoid an interpretation that would make it harsh, unjust or inequitable. (Civ. Code, § 1643; National City Police Officers' Assn. v. City of National City (2001) 87 Cal.App.4th 1274, 1279; City of El Cajon v. El Cajon Police Officers' Assn. (1996) 49 Cal.App.4th 64, 71.)

Applying such standards to this case, we conclude the AIR and CC&R's did not properly lend themselves to an interpretation that would prohibit the City from changing the permitted use or zoning and, were they so construed, the AIR and CC&R's would be invalid as an attempt by the City to surrender its future right to exercise its police power respecting the property. {Slip Opn. Page 9}

DISCUSSION

The state Constitution gives California cities broad and flexible power to promote the public welfare. (Cal. Const., art. XI, § 7.) The police power is an exercise of the sovereign right of the government to protect the lives, health, morals, comfort, and general welfare of the people. A city's police power under this constitutional provision is as broad as that of the state Legislature itself. (Candid Enterprises, Inc. v. Grossmont Union High School Dist. (1985) 39 Cal.3d 878, 885; see Big Creek Lumber Co. v. County of Santa Cruz (2006) 38 Cal.4th 1139, 1152.)

A city's police power "is not a circumscribed prerogative, but is elastic and, in keeping with the growth of knowledge and the belief in the popular mind of the need for its application, capable of expansion to meet existing conditions of modern life, and thereby keep pace with the social, economic, moral, and intellectual evolution of the human race." (Miller v. Board of Public Works (1925) 195 Cal. 477, 485.) Therefore, "[a]s the congestion of our cities increases, likewise do the problems of traffic control and police, fire, and health protection. Comprehensive and systematic zoning aids [in] the successful solution of these problems and obviously tends thereby to affirmatively promote the public welfare." (Id. at p. 489.) Moreover, "a comprehensive zoning plan should contemplate and provide for the planning from time to time of the execution of further details, extensions, and such modifications of existing features as unforeseen changes, occurring in the civic conditions, make necessary to the perfection and perpetuation of the plan." (Id. at p. 496.)

In the present case, the AIR is a regulatory agreement between the City and the former property owner memorializing for the public's benefit fn. 5 a conditional use that has since been superseded by two new use permits. Respondents contend the "clear and {Slip Opn. Page 10} explicit" language of the AIR and CC&R's means that Fair Market may not continue to operate after October 23, 2000, even if the City has now extended the nonconforming use indefinitely. We disagree.

The documents, read together (see Civ. Code, § 1642), raise an ambiguity whether the AIR and CC&R's prohibit the City from extending the nonconforming use past October 23, 2000. Respondents point to language in the AIR providing that the store building "shall be removed and the underlying area shall be landscaped or redeveloped in a manner consistent with legal requirements then in effect at such time as the retail use is discontinued for a continuous period of one year, the Conditional Use Permit expires (on October 23, 2000), or the Conditional Use Permit is revoked, whichever occurs first." (Italics added.) The only other mention of a termination date in the AIR is in the recitals, which includes a statement that "[t]he grocery store, which has a Conditional Use Permit for a retail use in an R-3 zone district (valid until October 23, 2000), would remain and is proposed for incorporation into the ownership of the front residential unit . . . ." (Italics added.) The termination date of retail use is mentioned in the AIR only in context of the date of termination of the existing permit (CUP 381). Nowhere in the AIR does the City agree not to extend the termination date, nor does the AIR prohibit the City from enacting future permits extending the nonconforming use. The CC&R's do not contain a termination date at all for the market and, as set forth below, expressly contemplate that the City may issue future permits for the market.

We find, moreover, that the language of the documents is reasonably susceptible to the interpretation that the AIR and CC&R's do not prohibit the City from exercising its police power to enact legislation concerning future use of the property and conclude that such interpretation is the one that is "lawful, operative, definite, reasonable, and capable of being carried into effect." (Civ. Code, § 1643.) We thus agree with the interpretation urged by amicus curiae the City, the only original party to the documents weighing in on the issue.

Specifically, the AIR refers, in paragraph 1.b., to the potential removal of the retail store. If the parties intended, as respondents claim, that the store must cease operation and be demolished by October 23, 2000, the parties would have provided for the certain removal {Slip Opn. Page 11} of the structure rather than referring solely to a "potential" removal. "Potential" means only "existing in possibility : capable of development into actuality." (Merriam-Webster's Collegiate Dictionary (10th ed. 1995) p. 912; see Civ. Code, § 1644 [words of contract to be understood in their "ordinary and popular" sense].) That the store could only "potentially" need to cease operation and be removed is reinforced by the AIR's provision in the next paragraph that the store building shall be removed and the underlying area shall be landscaped or redeveloped . . . at such time as the Conditional Use Permit expires (on October 23, 2000) . . . ." (Italics added.) If "such time as" was intended to mean October 23, 2000, the parties could have chosen to say so. The reference to an expiration date only parenthetically is consistent with an interpretation that the date of expiration of the conditional use permit could change in the future.

Moreover, the language of the CC&R's and absence of any mention of the October 23, 2000, end date in the CC&R's buttress the City's interpretation of these provisions. fn. 6 Article VI, section 1F provides that "[t]he owner of the unit one may conduct any lawful business in the store allowed by the present or future conditional use permits issued by the City . . . ." (Italics added.) It further provides that "[t]he owners of unit two and the Homeowners Association shall not have the right to limit the use or to affect the conduct of the owners or managers of the store other than through the civil or criminal authority of the State of California and not through these Covenants, Conditions, and Restrictions." (Italics added.) Article XIV, section 2 of the CC&R's echoes the AIR in stating the store is a nonconforming use subject to CUP 381 and in referring to a "potential" removal of such building and use. But it departs from the AIR in omitting the October 23, {Slip Opn. Page 12} 2000, claimed termination date. If that date was certain and immutable, surely the parties would have taken care to set it forth in the recorded CC&R's.

The City's zoning regulations expressly provide for modifications to both the City's zoning (see part 9.04.20.16 of the zoning ordinance authorizing zoning text amendments) and conditional use permits (see part 9.04.20.12 of the zoning ordinance authorizing modifications to conditional use permits). Moreover, the absence of any express freeze provision in the AIR and CC&R's is consistent with an implied reservation of the City's police powers under existing authorities. "Reservation of the police power is implicit in all government contracts and private parties take their rights subject to that reservation. [Citations.]" (108 Holdings, Ltd. v. City of Rohnert Park (2006) 136 Cal.App.4th 186, 196.) Thus, courts " 'will not read into the contract[] an abrogation of the potential future exercise of the sovereign policy power.' [Citation.]" (Ibid.) The AIR and CC&R's do not expressly restrict the City's power to legislate in the future. The AIR, and corresponding CC&R's, therefore must be read as containing an implied provision reserving the City's police power to modify its zoning regulations and conditional use permit for the property. If there were any doubt about the correctness of our interpretation, it was dispelled by the conduct of respondents when they supported the issuance of a new conditional use permit in 2000 and, in 2003, when respondent Kallman testified in support of the new conditional use permit. Only later did respondents take the position that the October 23, 2000 date was immutable as between the parties. "The law is well settled that the construction of a contract as shown by the acts and conduct of the parties prior to the controversy as to its meaning, is entitled to great weight. (See Riverside Water Co. v. Jurupa Ditch Co. [(1960)] 187 Cal.App.2d [538,] 543.)" (Automobile Salesmen's Union v. Eastbay Motor Car Dealers, Inc. (1970) 10 Cal.App.3d 419, 424.) Before the current dispute arose, respondents argued enthusiastically that the agreement reflected in the CC&R's would be furthered by extending the life of the conditional use permit. Respondents' sudden change of heart is attributable not to a new found understanding of the "real" meaning of the documents but to changing economic interests, a factor irrelevant to our interpretation.

The trial court erred in stating in its revised statement of decision that the City could not alter the expiration date set in the AIR even if the City were to amend, which it did, the market permit to change the termination provision. The City could not contract away its police power in such fashion, and it retained a right to exercise that power to authorize extensions of the life of the market. " 'The police power being in its nature a continuous one, must be reposed somewhere, and cannot be barred or suspended by contract or irrepealable law. It cannot be bartered away even by express contract.' [Citations.] It is to be presumed that parties contract in contemplation of the inherent right of the state to exercise unhampered the police power that the sovereign always reserves to itself for the protection of peace, safety, health and morals. Its effect cannot be nullified in advance by making contracts inconsistent with its enforcement." (Mott v. Cline (1927) 200 Cal. 434, 446.) Land use regulations involve the exercise of the police power and the right to exercise the police power cannot be contracted away in the future. (See Avco Community Developers, Inc. v. South Coast Regional Com. (1976) 17 Cal.3d 785, 800; 108 Holdings, {Slip Opn. Page 13} Ltd. v. City of Rohnert Park, supra, 136 Cal.App.4th at p. 196; City of Glendale v. Superior Court (1993) 18 Cal.App.4th 1768, 1778-1779; Delucchi v. County of Santa Cruz (1986) 179 Cal.App.3d 814, 823; Carty v. City of Ojai (1978) 77 Cal.App.3d 329, 342-343.) Thus, in Delucchi, for example, the court construed the contract in question to allow for future zoning changes. Were it otherwise, the contract would be unconstitutional as "contracting away" the City's sovereign police power. (Delucchi, supra, at pp. 823-824.)

Nor could the AIR and CC&R's provide respondents with any vested right in the termination of the market use. Just as a landowner has no vested right in existing or anticipated zoning (Avco Community Developers, Inc. v. South Coast Regional Com., supra, 17 Cal.3d at p. 796), the owner of unit two had no vested right in the existing conditional use permit. The cases respondents cite involve private covenants voluntarily drafted by sellers for private purposes, not regulatory restrictions imposed by governmental agencies as in this case. (Citizens for Covenant Compliance v. Anderson (1995) 12 Cal.4th 345, 349-350; Fig Garden Park etc. Assn. v. Assemi Corp. (1991) 233 Cal.App.3d 1704, 1706-1707; Greater Middleton Assn. v. Holmes Lumber Co. (1990) 222 Cal.App.3d 980, 984-987; Wilkman v. Banks (1954) 124 Cal.App.2d 451, 455.)

Respondents argue, for the first time on appeal, that the City did not contract away its police powers but entered into a "development agreement" that benefited the then current owners and their successors and the City. However, the AIR does not purport to be a development agreement and does not meet the substantive requirements for such an agreement. As we recently discussed in Trancas Property Owners Assn. v. City of Malibu (2006) 138 Cal.App.4th 172, "numerous procedural and substantive limitations attend the making and performance of . . . a 'development agreement.' " (Id. at p. 182; see Gov. Code, § 65864 et seq.) The AIR fails to satisfy the indicia of a development agreement: " 'Particulars of the statute include requirements that a development agreement may be approved only after a public hearing [citation] and must be consistent with the general plan and any specific plan [citation], a provision permitting annual review by the governmental entity and termination for noncompliance [citation], and a statement that the agreement is subject to referendum [citation]. The statute also specifies certain provisions which may or {Slip Opn. Page 14} must be included in a development agreement. [Citation.]'" (Trancas, supra, at p. 182, fn. 5, quoting Santa Margarita Area Residents Together v. San Luis Obispo County Bd. of Supervisors (2000) 84 Cal.App.4th 221, 227.) There is no showing, for example, that the AIR is subject to periodic review, termination or referendum.

DISPOSITION

The judgment is reversed with directions to the trial court to vacate the injunction and order granting respondents attorney fees and costs, to enter judgment for appellants and to proceed in conformance with this opinion in all other respects. Appellants are to recover their costs on appeal.

Cooper, P. J., and Rubin, J., concurred.

­FN 1. Since approval of the two condominiums in the late 1980's, the City has reconsidered its land use policy and regulations for neighborhood markets. Rather than requiring that they eventually be closed, City zoning now preserves and protects these local markets as positive neighborhood amenities consistent with contemporary planning principles.

­FN 2. Former Santa Monica Municipal Code section 9136A6 provided: "every non-conforming building which is designed or arranged for use permitted only in the commercial or manufacturing districts, within 25 years from November 5, 1948, shall be removed completely or altered and converted to a building conforming to all regulations of the District in which such building is located." Former Section 9136B1 recited that, except as provided in Section 9136A6, "the non-conforming use of a building, existing at the effective date of this chapter, may be continued."

­FN 3. It is not clear from the record the reason for the City's three-year delay in acting on the extension request. It is not disputed that the application for the extension was submitted to the City well before October 23, 2000, i.e., before the "expiration" of CUP 381.

­FN 4. Bruce Leach, the associate planner for the City who processed two conditional use permits for the property between 2002 and 2004, testified at trial in response to the court's question, "What does the City want now?," that "the City wants the store to stay as long as it is a neighborhood serving . . . market, but if that use is ever terminated, that that building be removed and it comply with the original agreement on the property."

­FN 5. We reject any argument of respondents that the AIR and CC&R's originated for the benefit of the owner of unit two. The AIR recites that the City was issuing the approval for the proposed development "for the public and surrounding landowners." Since the former property owner held title to the entire property at the time, the property owner was not a "surrounding landowner" for whose benefit the City was entering into the AIR and requiring the declaration of CC&R's.

­FN 6. In its amicus brief, the City states "[t]he AIR and the CC&Rs were not intended to have independent force and effect divorced from the underlying CUPs which controlled the operation of the market and which established the termination date. These two documents placed future owners of this site on notice as to the then current state of the law and the nonconforming status of these properties, but did not suggest that this law would be unchanging. Indeed, the CC&Rs explicitly reflect the understanding that the City might exercise its police power in the future by authorizing the continued operation of the market through future conditional use permits."

 

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December 25, 2007

Save Round Valley Alliance v. County of Inyo (Walters) (2007) , Cal.App.4th

Save Round Valley Alliance v. County of Inyo (Walters) (2007) , Cal.App.4th [No. E041364. Fourth Dist., Div. Two. Dec. 17, 2007.]
SAVE ROUND VALLEY ALLIANCE, Plaintiff and Appellant, v. COUNTY OF INYO et al., Defendants and Respondents; JIM WALTERS, Real Party in Interest and Respondent.
(Superior Court of Inyo County, No. CVPT 05-39748, Harry Brauer, Judge. fn. * )
(Opinion by King, J., with McKinster, Acting P.J., and Miller, J., concurring.)
COUNSEL
[No. E041364. Fourth Dist., Div. Two. Dec. 17, 2007.]

Shute, Mihaly & Weinberger, Tamara S. Galanter and Gabriel M.B. Ross for Plaintiff and Appellant.

Liebersbach, Mohun, Carney & Reed, James S. Reed; Office of the Inyo County Counsel, Paul N. Bruce, Randy H. Keller; Schilt and Heinrich and E. Nathan Schilt for Defendants, Respondents and Real Party in Interest. {Slip Opn. Page 2}

OPINION

KING, J.-

I. INTRODUCTION

This case concerns a plan to subdivide approximately 74 acres in Inyo County, near the base of Mt. Whitney, into twenty-seven 2.5-acre parcels for the development of single family residences. The Board of Supervisors of the County of Inyo (Board) certified an environmental impact report (EIR) concerning the project and approved the developer's tentative tract map. Plaintiff Save Round Valley Alliance (SRVA) petitioned the superior court for a writ of mandate to vacate and set aside the Board's actions. The trial court denied the petition, and SRVA appealed.

SRVA contends that the EIR is inadequate because it describes the project as a 27-lot subdivision for single family residences even though future owners of the lots might obtain permits to build second, smaller dwellings on the lots. As a result of this alleged misdescription, SRVA argues, the EIR persistently understates the project's environmental impacts. SRVA further contends that the EIR fails to adequately analyze a possible land exchange with the federal Bureau of Land Management as an alternative to the project. Finally, SRVA contends that the EIR fails to adequately analyze the project's impacts to special status species and visual impacts. We agree with SRVA that the analysis of the land exchange alternative is legally insufficient and reverse on that ground. We reject SRVA's other contentions. {Slip Opn. Page 3}

II. FACTUAL AND PROCEDURAL BACKGROUND

A. Overview of the Project

Real party in interest, Jim Walters, sought approval of a tentative tract map to subdivide approximately 74 acres in Inyo County into twenty-seven 2.5-acre parcels for the development of single family residences. The property is located approximately four miles west of the community of Lone Pine, near the foothills of the Sierra Nevada mountain range. It is adjacent to Whitney Portal Road, which connects Lone Pine to the trailhead for Mt. Whitney, the highest mountain in the contiguous 48 states.

To the east, south, and west, the property adjoins "undeveloped open space" owned by government entities. To the north, across Whitney Portal Road, there are privately owned parcels ranging from 2.5 acres to 20 acres. Some of these parcels are improved with single family homes. The nearest residential subdivision is located approximately three miles to the southeast.

Nine of the lots would be accessed directly from Whitney Portal Road. The remaining lots would be accessed from either of two roads connecting Whitney Portal Road with one internal road. Three gullies cross the site carrying water intermittently after heavy spring snowmelts and intense thunderstorms. The lots would be serviced by individual water wells and septic systems.

The property is designated in the Inyo County General Plan as Rural Residential Medium Density, and zoned Rural Residential, with a 2.5 acre minimum. Both the General Plan designation and the zoning classification restrict the use of the property to a {Slip Opn. Page 4} maximum of one dwelling unit per 2.5 acres. (Inyo County Code §§ 18.21.020A., 18.21.050B., 18.78.055.) fn. 1 The project is consistent with the General Plan and Inyo County's zoning ordinances.

The subdivision would be governed by extensive covenants, conditions, and restrictions (CC&R's), administered and enforced by a homeowners association. Under the CC&R's, lots may not be used for any purpose "other than a single-family home," and "[a]ll development shall be in compliance with single-family residential development standards of the County . . . ." Houses must be at least 1,600 square feet. The developable area of each lot, or building envelopes, are restricted to 27 percent of lot area for "non-equestrian lots" and 40 percent of lot area for "equestrian lots." Height restrictions range from 22 feet for lots adjacent to Whitney Portal Road to 30 feet for other lots. Roofs must be made of clay-fired flat tile, slate, nonreflective metal, or composition. Light fixtures must comply with a "dark skies" policy mandating that lights be fully shielded and attached to structures, and restricted in number, intensity of wattage, and duration of use. No lights will be allowed on the eastern and western edges of the subdivision. The CC&R's also address landscaping, setback requirements, a drainage and habitat preservation area, building materials, the construction of a park, septic and water systems, and underground utility lines. According to the CC&R's, a violation of its provisions constitutes a nuisance. {Slip Opn. Page 5}

B. The EIR

The County of Inyo (County) determined that an EIR was required for the project in accordance with the California Environmental Quality Act (CEQA). The Inyo County Planning Commission (Planning Commission) was designated the lead agency with authority to certify the EIR. In November 2004, the County published a draft environmental impact report (DEIR) for the project.

The DEIR includes a description of the project generally as set out above. The stated objective of the project is "to develop the property in full compliance with the existing Inyo County General Plan designation for the property . . . with 1 dwelling unit per 2.5 acres allowed . . . ."

In the DEIR, the County concluded that, with one exception, significant impacts associated with the project can be mitigated to a level that makes them less than significant. The one exception is the impact on aesthetics; that is, the visual impact of the project on the surrounding landscape. The portion of the DEIR addressing aesthetic impacts of the project states: "The proposed project would locate a subdivision within an area currently existing as undeveloped land that provides sweeping, unbroken vistas across wide expanses of the valley to the Sierras. In addition, the proposed project would locate development adjacent to the only road leading to the Mt. Whitney trailhead and recreation area, a famous and exceptional environmental area and landscape feature. Thus, a high volume of tourist traffic . . . traveling to the Mt. Whitney recreation area would experience development along a major route which before existed as a natural {Slip Opn. Page 6} landscape notable for its expansive view sheds and scenic beauty. The proposed subdivision thus would have a substantial adverse effect on scenic vistas, substantially degrade the existing visual character of the site."

According to the DEIR, restrictions in the CC&R's on structure heights, lighting, and other aspects of the development are "very good mitigation measures against impacts to the visual resources of the project area. However, development - however managed and buffered - cannot mitigate for the fact of constructing a subdivision where previously there was natural open landscape, with exceptional views, in a [renowned] environmental area. As a result, visual impacts to the environment from the proposed project remain at a significant and unavoidable level."

Where relevant, other environmental impacts identified in the DEIR, and the analysis of alternatives to the project, will be addressed below.

The DEIR was made available for public review and comment. The written comments and the County's responses thereto are included in the Final Environmental Impact Report (FEIR). The FEIR also includes appendices containing additional studies, reports, and other supplemental materials. We refer to the DEIR and the FEIR collectively as the EIR.

Following a public hearing, the Planning Commission adopted the EIR, certified that the requirements of CEQA had been satisfied, and approved the tentative tract map for the project. {Slip Opn. Page 7}

SRVA appealed the Planning Commission's decision to the Board. Following a public hearing, the Board issued Resolution No. 2005-36, by which it denied the appeal, certified the EIR, and approved the project. The resolution included a statement of overriding considerations, which expressed the Board's conclusion that the beneficial economic activity and the addition of residential development outweighs the unavoidable environmental impacts of the project.

SRVA petitioned the superior court for a writ of mandate to vacate Resolution No. 2005-36 and prohibit any action to implement the project. Following a hearing, the court denied the petition. SRVA appealed to this court.

III. ANALYSIS

A. Standard of Review

"The foremost principle under CEQA is that the Legislature intended the act 'to be interpreted in such manner as to afford the fullest possible protection to the environment within the reasonable scope of the statutory language.' [Citation.]" (Laurel Heights Improvement Assn. v. Regents of University of California (1988) 47 Cal.3d 376, 390 (Laurel Heights).) "The EIR is the primary means of achieving the Legislature's considered declaration that it is the policy of this state to 'take all action necessary to protect, rehabilitate, and enhance the environmental quality of the state.' [Citation.] The EIR is therefore 'the heart of CEQA.' [Citations.] An EIR is an 'environmental "alarm bell" whose purpose it is to alert the public and its responsible officials to environmental changes before they have reached ecological points of no return.' [Citation.] The EIR is {Slip Opn. Page 8} also intended 'to demonstrate to an apprehensive citizenry that the agency has, in fact, analyzed and considered the ecological implications of its action.' [Citations.] Because the EIR must be certified or rejected by public officials, it is a document of accountability. If CEQA is scrupulously followed, the public will know the basis on which its responsible officials either approve or reject environmentally significant action, and the public, being duly informed, can respond accordingly to action with which it disagrees. [Citations.] The EIR process protects not only the environment but also informed self-government." (Id. at p. 392.)

In a case challenging an agency's compliance with CEQA, we review the agency's action, not the trial court's decision. (Vineyard Area Citizens for Responsible Growth, Inc. v. City of Rancho Cordova (2007) 40 Cal.4th 412, 426-427.) In doing so, our "inquiry shall extend only to whether there was a prejudicial abuse of discretion. Abuse of discretion is established if the agency has not proceeded in a manner required by law or if the determination or decision is not supported by substantial evidence." (Pub. Resources Code, § 21168.5; see also Vineyard Area Citizens for Responsible Growth, Inc., supra, at pp. 426-427.) Substantial evidence in this context means "enough relevant information and reasonable inferences from this information that a fair argument can be made to support a conclusion, even though other conclusions might also be reached." (Guidelines, § 15384, subd. (a).) fn. 2 {Slip Opn. Page 9}

We do not review the correctness of the EIR's environmental conclusions, but only its sufficiency as an informative document. (Citizens of Goleta Valley v. Board of Supervisors (1990) 52 Cal.3d 553, 564 (Goleta Valley).) "We may not set aside an agency's approval of an EIR on the ground that an opposite conclusion would have been equally or more reasonable. 'Our limited function is consistent with the principle that "The purpose of CEQA is not to generate paper, but to compel government at all levels to make decisions with environmental consequences in mind. CEQA does not, indeed cannot, guarantee that these decisions will always be those which favor environmental considerations."' [Citation.] We may not, in sum, substitute our judgment for that of the people and their local representatives. We can and must, however, scrupulously enforce all legislatively mandated CEQA requirements." (Ibid.)

B. Adequacy of the Project Description

As is relevant to this discussion, the project is described as the subdivision of a 74-acre parcel of land into twenty-seven 2.5-acre lots on which future lot owners can build one single family residence in accordance with the County's General Plan, the applicable Rural Residential zoning classification, and the governing CC&R's. However, under the County's zoning ordinances, the owner of land designated Rural Residential can apply for a conditional use permit to build, among other structures, a social hall, a lodge, a community club, a country club, a swimming pool, a golf course, a residential care facility, a rest home, a sanitarium, a nursery school, a day care center, a kennel, or a second dwelling unit. (Inyo County Code, § 18.21.040.) If each of the 27 future lot {Slip Opn. Page 10} owners apply for and obtain a permit to build, and do build, a second dwelling unit, then the subdivision would hold 54 dwelling units. This possibility is not mentioned in the project description portion of the DEIR.

In its comments on the DEIR, SRVA asserted that the document mischaracterizes the project as a 27-lot, single family residence development when the potential number of dwelling units is 54. In response to SRVA's comments, the County stated: "The project proposal is for a 27-lot subdivision. However, it is extremely unlikely that all homeowners would elect to add a second dwelling unit to their homes and there is no proposal to do so. A buildout of 54 units is at best a remote possibility and does not merit substantial evaluation."

On appeal, SRVA repeats its contention that "the EIR should have treated the Project as a 54-unit development" because future lot owners might build second dwelling units on their lots. fn. 3 The failure to include this possibility in the project description, SRVA contends, leads the EIR to underestimate the project's visual impacts and impacts related to storm water runoff, traffic, air quality, and public services. fn. 4 For the reasons {Slip Opn. Page 11} that follow, we conclude that the decision to describe the project without reference to the possibility of second dwelling units was not an abuse of discretion.

An EIR must include an accurate description of the project. (County of Inyo v. City of Los Angeles (1977) 71 Cal.App.3d 185, 199.) "Only through an accurate view of the project may affected outsiders and public decision-makers balance the proposal's benefit against its environmental cost, consider mitigation measures, assess the advantage of terminating the proposal (i.e., the 'no project' alternative) and weigh other alternatives in the balance. An accurate, stable and finite project description is the sine qua non of an informative and legally sufficient EIR." (Id. at pp. 192-193.) The description should not, however, "supply extensive detail beyond that needed for evaluation and review of the environment impact." (Guidelines, § 15124.) fn. 5

CEQA defines a "project" to include, among other requirements, "an activity which may cause either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment." (Pub. Resources Code, § 21065; see also Guidelines, § 15378, subd. (a).) When an initial project may involve {Slip Opn. Page 12} future expansion, the EIR for the project must analyze such expansion if it will likely change the scope or nature of the initial project or its environmental effect and the expansion "is a reasonably foreseeable consequence of the initial project." (Laurel Heights, supra, 47 Cal.3d at p. 396, italics added; see also Sierra Club v. West Side Irrigation Dist. (2005) 128 Cal.App.4th 690, 698.) Conversely, when future development is unspecified and uncertain, the EIR is not required to include speculation about future environmental consequences of such development. (Laurel Heights, supra, at p. 395; National Parks & Conservation Assn. v. County of Riverside (1996) 42 Cal.App.4th 1505, 1515; Lake County Energy Council v. County of Lake (1977) 70 Cal.App.3d 851, 854-855; see also Guidelines, § 15064, subd. (d)(3) ["A change which is speculative or unlikely to occur is not reasonably foreseeable"].)

SRVA asserts that future lot owners will have a right to build a second dwelling on the lots as a matter of state law, and refers us to Government Code section 65852.2. This section was enacted to prevent arbitrary, excessive, or burdensome restrictions on the ability of homeowners to build second units on their property. (Gov. Code, § 65852.150.) The statute gives local agencies, such as counties, three options with respect to regulating the construction of second dwelling units. The county may: (1) adopt an ordinance under Government Code section 65852.2, subdivision (a) that allows for the creation of second dwelling units subject to criteria and conditions set by the county; (2) ban all such units if it makes certain findings that the units would have specific adverse impacts on public health, safety, and welfare; or (3) pass no ordinance {Slip Opn. Page 13} regarding second dwelling units. (See Desmond v. County of Contra Costa (1993) 21 Cal.App.4th 330, 339-340; Harris v. City of Costa Mesa (1994) 25 Cal.App.4th 963, 967-968.) SRVA argues that the County selected the no ordinance option and that subdivision (b) of Government Code section 65852.2 governs in this case. However, the County has enacted an ordinance providing for the creation of second dwelling units; thus subdivision (a) of Government Code section 65852.2, not subdivision (b), controls. (See Inyo County Code, § 18.78.340.) fn. 6

The Inyo County ordinance provides the Planning Commission with discretionary decision-making authority regarding any application for a second dwelling unit. (Inyo County Code, § 18.78.340D.) SRVA contends, however, that such discretionary authority has been superseded by conflicting provisions of Government Code section 65852.2, which provide that applications for second dwelling units must be considered ministerially without discretionary review. (See Gov. Code, § 65852.2, subds. (a)(3), (b)(1).) We need not decide this issue, however, because regardless of whether the {Slip Opn. Page 14} Planning Commission retains discretionary authority concerning second dwelling unit applications, the possibility that future lot owners will or will not build a second unit is extremely uncertain, and any impacts of such second units is highly speculative.

Whether a conditional use permit to build a second unit will ever be sought depends initially upon the desires of future lot owners, who are unknown. Although a conditional use permit can be sought for a second unit, there is no factual basis for believing that a future lot owner is likely to do so. Any conclusions about their intentions to build second units would therefore be pure speculation. There is simply nothing in the record (other than SRVA's speculative comment) to remotely suggest that any future lot owner would ever desire to build a second unit. Nor does the proposed tentative tract map or the CC&R's suggest the possibility of building second units. Indeed, regardless of the possibility of obtaining a conditional use permit, a lot owner would likely be discouraged, if not precluded, from building a second dwelling unit by the limitation in the CC&R's to building only "a single family home." Finally, even if the building of some second units might be foreseeable, it is impossible to predict how many units will be built, the size of such units, on which lots they might be built, their location within a lot, the visibility of a second unit from outside the subdivision, or how such units might impact the environment. (Cf. Friends of the Sierra Railroad v. Tuolumne Park & Recreation Dist. (2007) 147 Cal.App.4th 643, 651, 657 [even though prediction of some future development was not speculative, EIR was not required when there were "no specific plans on the table"].) In light of such uncertainty and unpredictability, we {Slip Opn. Page 15} conclude the County acted well within its discretion in describing the project without reference to the possibility that future owners will build second dwelling units on the lots.

SRVA asserts that the decision to omit any reference in the project description of the possibility that future owners will build second units must be supported by substantial evidence in the record; that is, the Board must point to evidence to establish that the possibility of building second units, however speculative, is not foreseeable. In this context, however, the proper test is whether there is "credible and substantial evidence" that the possible expansion of the project asserted by SRVA "is a reasonably foreseeable consequence of the initial project." (Kings County Farm Bureau v. City of Hanford (1990) 221 Cal.App.3d 692, 738 & fn. 15 (Kings County).) The record discloses no such evidence. Indeed, an appropriate response to a suggestion that the project description include possible future uses based entirely upon speculation is to simply reject such speculation as such; no reports, studies, or expert opinions are required to reject baseless assertions. (See Chaparral Greens v. City of Chula Vista (1996) 50 Cal.App.4th 1134, 1145 ["Agencies are not required to engage in 'sheer speculation' as to future environmental consequences of the project"].) This is, in substance and effect, what the County did when it concluded that SRVA's 54-unit supposition was "at best a remote possibility [that] does not merit substantial evaluation." fn. 7 {Slip Opn. Page 16}

SRVA asserts that "[c]ase after case holds that CEQA requires that this EIR analyze the impacts of a 54-unit development." The cases relied on by SRVA, however, are distinguishable or inapposite. SRVA refers to Bozung v. Local Agency Formation Com. (1975) 13 Cal.3d 263, for the proposition that "an EIR must examine a project's potential to impact the environment, even if the development may not ultimately materialize." This does not mean, however, that a potential impact, no matter how speculative, must be considered in an EIR. Bozung concerned the annexation of 677 acres of land by the City of Camarillo. (Id. at p. 268.) The court concluded that an EIR was required. The court explained: "Vital to our disposition of this case is that [the real party in interest's] application stated that the land was presently used for agriculture and would be used 'for residential, commercial and recreational uses,' and that such development was 'anticipated . . . in the near future.'" (Id. at pp. 269-270, italics added.) By contrast, there is no basis other than pure speculation for anticipating that any future owners of the lots created by the subdivision in this case will seek or obtain permits to build second units.

SRVA also relies upon San Franciscans for Reasonable Growth v. City and County of San Francisco (1984) 151 Cal.App.3d 61 (San Franciscans for Reasonable Growth). In that case, the court addressed the adequacy of an EIR that failed to consider the cumulative impacts of the projects (the construction of certain office buildings in San {Slip Opn. Page 17} Francisco) and "closely related projects . . . currently under environmental review" (other office buildings). (Id. at p. 74 & fn. 13.) As the court noted, an adequate cumulative analysis requires a list of "'closely related past, present, and reasonabl[y] foreseeable probable future projects.'" (Id. at p. 73, quoting Guidelines, § 15023.5, subd. (b).) In holding that the EIRs were inadequate, the Court of Appeal explained: "experience and common sense indicate that projects which are under review are 'reasonabl[y] foreseeable probable future projects.' A significant investment of time, money and technical planning in the construction of a high-rise office building has necessarily occurred before a project is even submitted to the [city's office of environmental review] for initial review. . . . Ordinarily an office building project that is awaiting environmental approval has reached a stage of development where the developer, financial institutions, and contractors almost certainly view its construction to be a very real probability, and not without reason." (San Franciscans for Reasonable Growth, supra, at p. 75.) The speculative possibility that owners of the subdivided lots will seek to build second dwelling units in the present case cannot reasonably be analogized to the proposed office buildings omitted in the EIRs in San Franciscans for Reasonable Growth. Here, there is not even an owner of the proposed subdivided lots, let alone any investment of time, money, or planning by an owner to build a second unit on a lot.

SRVA cites to City of Carmel-By-The-Sea v. Board of Supervisors (1986) 183 Cal.App.3d 229 (Carmel-By-The-Sea), for the proposition that the scope of the project {Slip Opn. Page 18} encompasses any potential for expanded use of the property even if there are no current plans to fulfill that potential. In that case, property owned by a hotel was rezoned to allow for the expansion of the hotel. The hotel argued that an EIR was not required because its rezoning application "'made no new or expanded commitment to the use of the property.'" (Id. at p. 243.) The Court of Appeal found this argument "disingenuous in light of the fact that during the course of the hearings it became evident that development was planned on the [hotel's] property, for which the rezoning was the first step." (Ibid., fn. omitted.) The court noted that despite publicly asserting that no development was in the offing, the hotel submitted a use permit application proposing a development of 61 units a little over one week after the property was rezoned. (Id. at pp. 243-244, fn. 7.) Indeed, the rezoning resolution included a reference to the hotel's proposed development. (Id. at p. 244.) The rezoning application was thus not merely an effort to bring the existing hotel into compliance with zoning laws, "but was a necessary first step to approval of a specific development project." (Ibid.) A fair reading of the case does not support the broad proposition SRVA attributes to it. Moreover, it is easily distinguishable from the present case: there is nothing in the record before us to suggest that the approval of the tentative tract map was sought as a necessary first step to the approval of second units by future owners.

In Christward Ministry v. Superior Court (1986) 184 Cal.App.3d 180 (Christward Ministry), relied upon by SRVA, the Court of Appeal held that an EIR was required for a proposed general plan amendment that would authorize potential new uses for a solid {Slip Opn. Page 19} waste management facility. (Id. at p. 190.) The court acknowledged the rule "that where future development is unspecified and uncertain, no purpose can be served by requiring an EIR to engage in sheer speculation as to future environmental consequences." (Id. at p. 193.) However, the court explained that in the case before it, "it can hardly be said future projects were 'unknown' or merely speculative. Our review of the administrative record leads us to the conclusion the general plan amendment here was adopted not merely to comply with state law in the abstract but as a necessary first step to approval of these 'unknown,' uncertain-to-occur future projects. This conclusion is based on the numerous comments addressed to the City council expressing concern about approval of a trash-to-energy plan. The representative of the company desiring to build this plant was one of the speakers at the hearing and has filed an amicus brief on appeal. The planning director noted an EIR for the proposed trash to energy plan had been in progress since August 1983, and stated the amendment would allow the City 'to appropriately review and assess any future projects such as the trash to energy project or a proposed methane extraction project . . . .' Both of these allegedly 'speculative' future projects were, in fact, approved within seven months of the general plan amendment." (Id. at p. 195.) Christward Ministry is thus distinguishable for the same reason that Carmel-By-The-Sea is distinguishable. Unlike the record in Christward Ministry, the record in the present case does not suggest the challenged approval was a necessary first step to the building of second units by future owners. To the contrary, the record is clear that the objective of the project is to create lots for single family residences only. {Slip Opn. Page 20}

City of Redlands v. County of San Bernardino (2002) 96 Cal.App.4th 398 (City of Redlands), is also cited by SRVA for the assertion that an EIR must take into account future development permitted by the challenged action. City of Redlands, like Christward Ministry, involved the amendment of the county's general plan following the adoption of a negative declaration. Quoting Christward Ministry, this court stated that "'an evaluation of a "first phase-general plan amendment" must necessarily include a consideration of the larger project, i.e., the future development permitted by the amendment.'" (City of Redlands, supra, at p. 409.) The court then goes on to state that the "record indicates that the County has failed to consider . . . reasonably anticipated future development." (Ibid., italics added.) Moreover, the record "clearly indicates the existence of not only potential future development, but at least one existing project undergoing separate environmental review." (Ibid.) City of Redlands does not, as SRVA suggests, support the proposition that any potential development, no matter how remote or speculative, must be addressed in an EIR.

Finally, SRVA cites San Joaquin Raptor Rescue Center v. County of Merced (2007) 149 Cal.App.4th 645 (San Joaquin Raptor Rescue Center), for the proposition that a project description "must include all of the activity allowed under the permit" that is the subject of the EIR. In that case, the owner of a mine sought a conditional use permit to expand the size of the mine's operations. (Id. at p. 650.) According to the DEIR, the expansion would not substantially increase production at the mine--raising the average annual production from 240,000 tons to 260,000 tons. (Id. at pp. 650-651, 655.) {Slip Opn. Page 21} However, the desired permit would actually allow for production of up to 550,000 tons of material per year. (Id. at p. 655.) Moreover, this maximum was not merely a speculative possibility; rather the DEIR indicated "that there will be 500,000-ton production years." (Id. at p. 656, fn. 4, italics added.) The project description was thus "fundamentally inadequate and misleading." (Id. at p. 656.) Unlike the maximum mining production in that case, there is no suggestion in the DEIR in this case that future lot owners will build second dwelling units.

We therefore reject SRVA's argument and conclude that the County acted within its discretion in omitting from the project description the possibility that future lot owners might build second dwelling units.

C. The Adequacy of the Discussion of Project Alternatives

SRVA contends that the County failed to adequately consider alternatives that would have avoided the project's visual impacts. In particular, SRVA argues that the EIR failed to adequately analyze a possible land exchange with the federal Bureau of Land Management (BLM). We agree.

1. The County's Discussion of Project Alternatives in the EIR

The DEIR includes a discussion of alternatives to the project, including a "no project" alternative (i.e., denying approval for the project and allowing the land to remain vacant), developing different property acquired through a land exchange with a government entity, increasing the lot size from 2.5 acres to 5 acres, creating a {Slip Opn. Page 22} community-based water and sewage system, and "clustered" housing with some units priced for low to moderate income levels.

The DEIR states that the "no project" alternative is "the environmentally superior alternative. However, this alternative is not practical in that it would preclude achieving any of the project objectives." A land exchange is identified as the next superior alternative. However, the DEIR concludes that "this alternative is impractical because the potential exchanges discussed are not equitable, either to the project applicant or to the public agency involved." With respect to a possible land exchange with the BLM, the DEIR states that representatives of the BLM "judged that the project site land contained no particularly unusual or superior environmental habitat or characteristics which would make it a candidate for a land exchange with" the BLM.

In response to the DEIR, Bill Dunkelberger, a BLM Field Manager, submitted a letter in which he addressed the notion that the BLM was not interested in an exchange for Walters's property. Dunkelberger explained, among other points, that Walters "indicated that the BLM did not have any properties that he was interested in and he was not interested in a land exchange. BLM deals with willing sellers only." Dunkelberger further explained that because of the "impending development proposal, there appeared to be a high probability that the appraised value for the private property either could not be justified by the BLM for exchange, or the property owner would not accept the BLM appraised value for basis of exchange." Dunkelberger concluded, "It is difficult for BLM to discuss potential land exchanges with a proponent after a development proposal has {Slip Opn. Page 23} already been processed by the county. The ideal time for discussion of a potential land exchange with any landowner is prior to any development application and significant planning or expenditure of funds. However, had Mr. Walters expressed interest in a potential land exchange at any time, BLM certainly would have entertained it."

The County included in the FEIR a map showing the location of the BLM parcel. The map is not topographical or drawn to scale, and does not indicate any physical characteristics of the property. It merely shows its juxtaposition to certain roads and its proximity to another subdivision. The only description of the BLM parcel is that it is approximately 100 acres, "near the Alabama Hills subdivision, approximately 3-1/2 miles outside Lone Pine, located north of Lubken Canyon Road between Horseshoe Meadows Road and Tuttle Creek Road."

The FEIR also includes a two-page report apparently written by Walters. In this report, Walters stated that a BLM representative informed him that a land exchange "is a long, involved process that takes years." He further stated that the BLM parcel is not acceptable to him because it "does not come close to possessing the amenities enjoyed by my 74 acres--e.g., view, proximity to running water, appropriate zoning." He concludes: "The upshot is that I have pursued any possible lead for an exchange of my 74 acres for comparable BLM property, and have found nothing that is feasible."

In response to Dunkelberger's comments, the County stated: "Land exchange consultations took place in the spring and summer of 2004, before the scoping meeting or DEIR preparation and before the project application was deemed complete by the {Slip Opn. Page 24} County. Both the applicant and BLM concluded that no lands were available that were comparable in both quality and price to that of the project site."

SRVA, in its comments to the DEIR, criticized the analysis of project alternatives. Among other points, SRVA stated that the analysis was inadequate because it failed "to provide sufficient information to allow for meaningful evaluation and comparison with the proposed project."

In response to SRVA's comments, the County stated that none of the alternative parcels had a comparable view or a location near a watercourse--features that Walters identified as "integral to his project." Regarding a land exchange with the BLM, the County stated that the alternative parcel was "inferior to the applicant's parcel due to aesthetic/view issues. In addition, the property was designated as State and Federal Lands and not for residential development. Compared with the proposed Whitney Portal parcel, the applicant could not expect to achieve the same project or economic objectives with this offered parcel." For these conclusions, the County relied upon Dunkelberger's comments to the DEIR, the map of the BLM parcel, and Walters's determination "that the proposed land exchange options presented were inferior to the project site either in terms of size, location, or visual quality."

2. Analysis

"A major function of an EIR 'is to ensure that all reasonable alternatives to proposed projects are thoroughly assessed by the responsible official.' [Citation.]" (San Joaquin Raptor/Wildlife Rescue Center v. County of Stanislaus (1994) 27 Cal.App.4th 713, 735; {Slip Opn. Page 25} see Pub. Resources Code, § 21002.1, subd. (a) [purpose of EIR includes identifying alternatives to the project].) The Guidelines explain that the EIR "shall describe a range of reasonable alternatives to the project, or to the location of the project, which would feasibly attain most of the basic objectives of the project but would avoid or substantially lessen any of the significant effects of the project, and evaluate the comparative merits of the alternatives. An EIR need not consider every conceivable alternative to a project. Rather it must consider a reasonable range of potentially feasible alternatives that will foster informed decisionmaking and public participation. An EIR is not required to consider alternatives which are infeasible." (Guidelines, § 15126.6, subd. (a), italics added.) "A potential alternative should not be excluded from consideration merely because it 'would impede to some degree the attainment of the project objectives, or would be more costly.'" (Preservation Action Council v. City of San Jose (2006) 141 Cal.App.4th 1336, 1354, quoting Guidelines, § 15126.6, subd. (b).)

"In determining the nature and scope of alternatives to be examined in an EIR, . . . local agencies shall be guided by the doctrine of 'feasibility.'" (Goleta Valley, supra, 52 Cal.3d at p. 565.) "Feasible," in this context, means "capable of being accomplished in a successful manner within a reasonable period of time, taking into account economic, environmental, social, and technological factors." (Pub. Resources Code, § 21061.1; see Goleta Valley, supra, at p. 565.) According to the Guidelines, appropriate factors for determining "the feasibility of alternatives are site suitability, economic viability, availability of infrastructure, general plan consistency, other plans or regulatory {Slip Opn. Page 26} limitations, jurisdictional boundaries (projects with a regionally significant impact should consider the regional context), and whether the proponent can reasonably acquire, control or otherwise have access to the alternative site . . . ." (Guidelines, § 15126.6, subd. (f)(1).) Even when the project proponent does not own a potential alternative site, the development of the project on the alternative site may nevertheless be feasible when the alternative site can be acquired through a land exchange with a public entity. (See Goleta Valley, supra, at p. 575; San Bernardino Valley Audubon Society, Inc. v. County of San Bernardino (1984) 155 Cal.App.3d 738, 745.) Federal law generally permits such exchanges involving federally owned land when "the public interest will be well served by making that exchange." (43 U.S.C. § 1716(a).) fn. 8

A local agency must make an initial determination as to which alternatives are feasible and which are not. (Goleta Valley, supra, 52 Cal.3d at p. 569.) If an alternative is identified as at least potentially feasible, an in-depth discussion is required. (Sierra Club v. County of Napa (2004) 121 Cal.App.4th 1490, 1504-1505, fn. 5.) On the other {Slip Opn. Page 27} hand, when the infeasibility of an alternative is readily apparent, it "need not be extensively considered." (Goleta Valley, supra, at p. 574.)

Even as to alternatives that are rejected, however, the "EIR must explain why each suggested alternative either does not satisfy the goals of the proposed project, does not offer substantial environmental advantages[,] or cannot be accomplished." (San Joaquin Raptor/Wildlife Rescue Center v. County of Stanislaus, supra, 27 Cal.App.4th at p. 737; see Guidelines, § 15091, subd. (c) [when an agency finds that alternatives are infeasible, it must "describe the specific reasons for rejecting" the alternatives].) The explanation must be sufficient to enable meaningful public participation and criticism. (Stand Tall on Principles v. Shasta Union High Sch. Dist. (1991) 235 Cal.App.3d 772, 786.)

Although the level of detail will vary depending upon an alternative's potential for feasibility, in every case, the EIR must disclose "the 'analytic route the . . . agency traveled from evidence to action.' [Citation.]" (Laurel Heights, supra, 47 Cal.3d at p. 404.) And the lead agency itself must travel that analytic route: It "must independently participate, review, analyze and discuss the alternative in good faith." (Kings County, supra, 221 Cal.App.3d at p. 736.) The agency may not simply accept at face value the project proponent's assertion's regarding feasibility. (Sierra Club v. County of Napa, supra, 121 Cal.App.4th at p. 1504; see also Laurel Heights, supra, at p. 404 [courts will not "countenance a result that would require blind trust by the public"].) The "applicant's feeling about an alternative cannot substitute for the required facts and {Slip Opn. Page 28} independent reasoning." (Preservation Action Council v. City of San Jose, supra, 141 Cal.App.4th at p. 1356.)

Here, the analytical route initially taken by the County with respect to the BLM alternative is straightforward: The BLM was not interested in the Whitney Portal land because it "contained no particularly unusual or superior environmental habitat or characteristics which would make it a candidate for a land exchange"; therefore, an exchange was "impractical." If, in fact, the BLM was unwilling to consider exchanging its land for Walters's Whitney Portal parcel, the alternative is necessarily infeasible, and nothing more needs to be said. (See Goleta Valley, supra, 52 Cal.3d at p. 574 [when the infeasibility of an alternative is readily apparent, it "need not be extensively considered"]; Save Our Residential Environment v. City of West Hollywood (1992) 9 Cal.App.4th 1745, 1754 [some conclusions "are so simple they are almost self-explanatory"].)

The defect in the DEIR's discussion is clear from the comments and responses included in the final EIR: the County's premise--that the BLM did not want the Whitney Portal property--is effectively contradicted by the BLM in Dunkelberger's comments. According to Dunkelberger, it was Walters, not the BLM, that was unwilling to participate in a land exchange. Dunkelberger's comments are consistent with the notes in the administrative record of a pre-DEIR scoping meeting, which state that Walters was not a "willing seller" and "does not want to swap his land for other lands." fn. 9 Indeed, {Slip Opn. Page 29} Dunkelberger states that the BLM "certainly would have entertained" an exchange if Walters expressed any interest. Moreover, Walters admits in his report submitted for the FEIR that the BLM parcel may have been made available to him if he had found it acceptable. The analysis in the DEIR is thus unsupported by substantial evidence.

But the DEIR is, of course, a draft document subject to public comment and further analysis. Relative to this issue, the FEIR supplemented the DEIR with: Dunkelberger's written comments; Walters's report in which he states that the BLM parcel was unacceptable to him because it did not have the "amenities enjoyed by" his property, such as the view and proximity to running water; the map showing the BLM parcel's rectangular shape and its relation to certain roads; and the County's responses to SRVA's and Dunkelberger's comments. In the FEIR, the County no longer asserted that the BLM was not interested in the Whitney Portal parcel. Instead, three reasons for the inadequacy of the alternative are discernable: (1) the BLM parcel was designated in the general plan as state and federal lands and not for residential development; (2) the "quality" of the proposed BLM parcel was inferior to the Whitney Portal parcel "due to aesthetic/view issues"; and (3) Walters could not expect to achieve the same economic objectives with the BLM parcel that he could with the Whitney Portal parcel. {Slip Opn. Page 30}

The County's responses to public comments regarding the land exchange alternative in the FEIR, we conclude, falls short of the meaningful discussion that CEQA requires.

We first address the County's explanation that the BLM parcel was designated in the general plan as state and federal lands and not for residential development. Although the inconsistency of a land use designation is a relevant consideration in evaluating an alternative, the mere fact that an alternative would require an amendment to the general plan or a change in zoning designation is an insufficient basis for rejecting an alternative. (Goleta Valley, supra, 52 Cal.3d at p. 573.) According to SRVA, the current land use designation of the BLM parcel is merely a reflection of the fact that the property is owned by the federal government and therefore beyond the control of the local government. If a land exchange occurs, the ownership of the parcel will necessarily change, and, SRVA contends, "only a minor General Plan amendment" would be necessary to allow residential development of the parcel. Whether the required change in the general plan or zoning designation is as simple as SRVA claims or is not so easily accomplished cannot be determined from the EIR. We agree with SRVA, however, that the EIR provides no reasoning or evidence explaining why such changes in the land use designation should preclude a more in-depth consideration of the BLM parcel. The statement that the alternative site is not currently designated for residential development, without addressing the issues raised by such designation or relating that fact to feasibility, does not enable informed public participation and decisionmaking. {Slip Opn. Page 31}

There are numerous problems with the County's second rationale--that the BLM parcel is "inferior . . . due to aesthetic/view issues" and not comparable in quality. First, the references to aesthetics, views, and quality are, without more, simply too vague and conclusory to enable "meaningful participation and criticism by the public." (Laurel Heights, supra, 47 Cal.3d at p. 405.) At best, the comments are suggestive of a legitimate factor for evaluating feasibility--site suitability. (See Guidelines, § 15126.6, subd. (f)(1).) However, the EIR includes no meaningful information regarding any physical features, hydrological characteristics, views from the property, access to trails, or other attributes relevant to the suitability of the property for the project. The public and decision makers are told virtually nothing meaningful about the BLM parcel other than its location and its 100-acre size, neither of which necessarily preclude the parcel's suitability for the contemplated residential development. If the BLM parcel is indeed an unsuitable site for the project due to whatever the County referred to as "aesthetic/view issues," much more must be said to adequately inform the public and decision makers.

Second, the County's statements appear to be based entirely upon the report of Walters, who expressed his opinion that the BLM parcel was not acceptable or feasible because it does not have the view and proximity to running water that adorn the Whitney Portal parcel. As stated above, however, the agency preparing the EIR may not simply accept the project proponent's assertions about an alternative; rather, the agency "must independently participate, review, analyze and discuss the alternatives in good faith." {Slip Opn. Page 32} (Kings County, supra, 221 Cal.App.3d at p. 736.) Merely restating Walters's perceptions concerning the quality of the BLM parcel does not satisfy this standard. fn. 10

Next, even if "aesthetics," "views," and "quality" are meaningful in this context, the EIR does not explain how such matters impact the feasibility of achieving the basic objectives of the project on the BLM site. Indeed, although there is a detailed description of the "project objectives" in the section of the EIR addressing alternatives, there is no reference to the views from the proposed site. fn. 11 Nor is there any reference to a water course in the statement of project objectives. The statement does refer to "aesthetic {Slip Opn. Page 33} issues such as structure setbacks, building envelope area, structure materials and colors, lighting, and landscaping." If this is what the County was referring to when it stated that the BLM parcel was inferior due to "aesthetic" issues, there is nothing in the EIR to indicate that the necessary setbacks and other aesthetic points cannot be incorporated into the development of the BLM parcel.

The third reason for rejecting the BLM parcel alternative--that Walters could not expect to achieve the same economic objectives--is also unsupported. fn. 12 First, the statement reflects a misunderstanding regarding the economic feasibility of an alternative. Although the "economic viability" of an alternative is a relevant consideration in evaluating the feasibility of the alternative (see Guidelines, § 15126.6, subd. (f)(1)), the fact that Walters cannot achieve the same economic objective from developing the BLM property is not determinative. The issue is not whether the alternative is less profitable than the project as proposed, but whether the reduced profitability of the alternative is "'sufficiently severe as to render it impractical to proceed with the project.' [Citation.]" (Preservation Action Council v. City of San Jose, supra, 141 Cal.App.4th at p. 1357; see also Maintain Our Desert Environment v. Town of Apple Valley (2004) 124 Cal.App.4th 430, 449; Kings County, supra, 221 Cal.App.3d at p. 736.) {Slip Opn. Page 34} The bare conclusion that Walters would not achieve the same economic objectives under a land exchange with the BLM does not address this issue.

Second, even if the County's statement could be construed as a finding of economic infeasibility under the proper test, there is no evidence or analysis whatsoever of the comparative costs or profitability of developing the two parcels. (See, e.g., Uphold Our Heritage v. Town of Woodside, supra, 147 Cal.App.4th at pp. 598-599.) Although the County responded to Dunkelberger's comments by stating that the BLM did not have available land that was "comparable in . . . price," there is nothing in the EIR that informs the public or decision makers of the "price" or comparative value of the BLM parcel. To the extent that the County's statements regarding Walters's economic objectives and price of alternative parcels are based on Walters's own statements, we again remind the parties that it is the lead agency's responsibility to independently review and analyze the alternatives. fn. 13

In the context of economic feasibility, we address Dunkelberger's comments to the effect that a land exchange with the BLM has been made more difficult by the "impending development" on the Whitney Portal parcel. Dunkelberger further states that {Slip Opn. Page 35} it is difficult for the BLM to discuss an exchange "after a development proposal has already been processed by the county." Dunkelberger appears to assume that the tentative tract map will be approved and that development on that parcel is likely to proceed, thus raising the value of the Whitney Portal parcel relative to the BLM parcel. However, any increase in value of the Whitney Portal parcel attributable to the approval of the tentative tract map is, of course, entirely dependent upon such approval; and the tentative tract map cannot be approved until an EIR that adequately addresses alternatives has been completed. If an alternate site is both environmentally superior and feasible, the Planning Commission or the Board could deny approval of the project on the Whitney Portal parcel. Economic feasibility of an alternative, therefore, must be determined without regard to the possibility that the project will be approved as proposed (i.e., on the Whitney Portal parcel). (See Kings County, supra, 221 Cal.App.3d at p. 737 [in analyzing alternatives, progress on the project pending environmental review "cannot render an alternative infeasible"].)

At oral argument, the County asserted for the first time that the BLM parcel cannot be exchanged because Congress, in 1931, withdrew the BLM parcel from "disposal." Counsel referred us to chapter 517 of the Statutes at Large of the 71st Congress, which provides that the public lands described in that chapter are "withdrawn from settlement, location, filing, entry or disposal under the land law of the United States . . . ." (Pub.L. No. 71-864 (Mar. 4, 1931) 46 Stat. 1530 (1931 Act.)) According to County's counsel, the property referred to in the 1931 Act cannot be disposed of without {Slip Opn. Page 36} a further act of Congress. There are four problems with this argument. First, by waiting until oral argument to inform us of the 1931 Act and assert this issue, the County has forfeited the argument. (See Boehm & Associates v. Workers' Comp. Appeals Bd. (2003) 108 Cal.App.4th 137, 148.) Although we could reach the issue despite such forfeiture (see, e.g., Tan v. California Fed. Sav. & Loan Assn. (1983) 140 Cal.App.3d 800, 811), we decline to do so here because the argument raises issues concerning the interpretation of federal law that SRVA has not had an opportunity to brief. In particular, it is not clear from the applicable federal law that the 1931 Act has survived the more recent enactment of the Federal Land Policy and Management Act of 1976 (FLPMA), which expressly authorizes exchanges of public land. This law provides that a "tract of public land or interests therein may be disposed of by exchange by the Secretary [of the Interior] under this Act and a tract of land or interests therein with the National Forest System may be disposed of by exchange by the Secretary of Agriculture under applicable law where the Secretary concerned determines that the public interest will be well served by making that exchange[.] . . ." (43 U.S.C.A. §§ 1702(g), 1716(a).) The phrase, "public lands," is defined as "any land and interest in land owned by the United States within the several States and administered by the Secretary of the Interior through the Bureau of Land Management, without regard to how the United States acquired ownership, except-- [¶] (1) lands located on the Outer Continental Shelf; and [¶] (2) lands held for the benefit of Indians, Aleuts, and Eskimos." (Id., § 1702(e).) No exception is made for land owned by the United States and previously withdrawn from {Slip Opn. Page 37} disposal. Thus, according to the plain language of the statute, the subject BLM parcel is "public land" that "may be disposed of by exchange" by the Secretary of the Interior. Such language appears to conflict with the 1931 Act and arguably effects an implied repeal of the earlier law. (See Branch v. Smith (2003) 538 U.S. 254, 273 [123 S.Ct. 1429, 155 L.Ed.2d 407]; Burlington Northern & Santa Fe Ry. Co. v. Public Utilities Commission (2003) 112 Cal.App.4th 881, 891.) Without the opportunity for SRVA to brief this and other issues raised by the County's argument, we decline to address it.

Second, the alleged withdrawal of the land from disposal was not mentioned in the EIR. Indeed, Walters's statement that the land "may have been made available for exchange" if he found it acceptable suggests that the land could be the subject of an exchange. Moreover, if the land was not available for exchange, we would expect that Dunkelberger, a BLM representative, would have informed the County of this fact during the EIR process. Yet, Dunkelbeger not only failed to mention this in his comments to the DEIR, but he indicated that an exchange would have been possible if Walters was amenable to it. There is, in short, nothing in the EIR itself that indicates that the BLM parcel had been withdrawn from lands available for exchange. If, in fact, the parcel has been withdrawn, the failure to mention such withdrawal in the EIR effectively deprived the public of the opportunity to respond and comment on that fact and its effect on the feasibility of an exchange.

Third, the record does reveal that the BLM parcel is necessarily included in the 1931 Act. The only reference in the record to a legal description of the BLM parcel is {Slip Opn. Page 38} Walters's statement that it consists of 100 acres out of 640 acres in "section 18, township 16S, 36E." The nearest match to this description in the 1931 Act is the following: "the south half northeast quarter, the northwest quarter northeast quarter, lot 1, lot 2, northwest quarter, lot 2, lot 1, southwest quarter, and the southeast quarter section 18; . . . all in township 16 south, range 36 east, Mount Diablo meridian." (Pub.L. No. 71-864 (Mar. 4, 1931) 46 Stat. 1530, 1537-1538.) The 1931 Act thus encompasses some, but not all, of section 18, township 16 south, range 36 east. Walters does not state in what part of such section 18 the 100 acre BLM parcel is located. Thus, whether the BLM parcel is within the area described in the 1931 Act simply cannot be determined from our record.

Finally, even if, as Walters asserted before the Board, an act of Congress is required to effect an exchange for the BLM parcel, this does not necessarily render the alternative infeasible. As the County's counsel pointed out, Congress has previously acted to revoke the withdrawal of 15.69 acres of property described in the 1931 Act to allow the property to be conveyed to a particular individual. (See Private L. No. 101-4 (Oct. 17, 1990) 104 Stat. 5141.) fn. 14 Although the phrase, "it would take an act of {Slip Opn. Page 39} Congress," is idiomatic of something difficult to accomplish or unlikely to occur, we have no basis for concluding that Congress would not permit the BLM to exchange a 100-acre parcel for Walters's land if the BLM determines that "the public interest [would] be well served by making that exchange." fn. 15 (43. U.S.C. § 1716(a).) Thus, even if Congress is required to act to effect an exchange, such requirement, without more, is insufficient to establish infeasibility.

In holding that the EIR is inadequate with respect to the analysis of alternatives, we emphasize that we express no opinion as to whether the BLM parcel is or is not a feasible alternative to the project as proposed. An adequate analysis of the BLM parcel alternative may well reveal that developing the project on that parcel is not feasible for one or more reasons. Although Dunkelberger has indicated that the BLM might "entertain" discussions about a land exchange, the BLM may ultimately decide not to make its land available for exchange. There may be physical, hydrological, or other features of the BLM parcel, as well as environmental and economic considerations, that would render development on that land infeasible. However, this EIR includes only the barest of facts regarding the BLM parcel, vague and unsupported conclusions about aesthetics, views, and economic objectives, and no independent analysis whatsoever of {Slip Opn. Page 40} relevant considerations. In this respect, the County failed to proceed in the manner required by law. (See Pub. Resources Code, § 21168.5.) The failure is prejudicial, and requires reversal, because it effectively "'preclude[d] informed decisionmaking and informed public participation, thereby thwarting the statutory goals of the EIR process.' [Citations.]" (Association of Irritated Residents v. County of Madera (2003) 107 Cal.App.4th 1383, 1391.)

D. EIR's Analysis of the Project's Impacts on Special Status Species

SRVA contends that the EIR fails to adequately analyze the project's impact on three species--the Brewer's Sparrow, the Northern Sagebrush Lizard, and the San Emigdio blue butterfly. We hold that the analysis of this area is sufficient.

1. Discussion of Biological Resources in the EIR

As is relevant here, the DEIR states that two "special status species" were found on the project site, "but otherwise no species that were proposed for listing as rare, threatened, endangered or of special concern were identified." fn. 16 The two special status species are Brewer's Sparrow and Northern Sagebrush Lizard. The DEIR concludes that "neither of these two species will be significantly impacted by the proposed project due to the fact that they are both common throughout Inyo County."

The DEIR's conclusions are supported primarily by a report prepared by Mark Bagley and Denise LaBerteaux (the Bagley-LaBerteaux report) and a letter from {Slip Opn. Page 41} LaBerteaux, which are included in the DEIR. The Bagley-LaBerteaux report is based upon a physical survey of the project site, interviews with local agency personnel and wildlife experts, information from the California Natural Diversity Data Base, and local records. The authors identified 27 special status wildlife species that have some potential of occurring on the project site and an additional 28 special status species occurring in the general region of the site. The report includes a brief description of each of the special status species that have some potential of occurring on the site and an estimate of how common the species is on the site. A table setting forth the basis for excluding the additional 28 species from consideration is provided. An additional report concerning a raptor species and the Western Burrowing Owl was also prepared and included in the DEIR.

According to the Bagley-LaBerteaux report, the Northern Sagebrush Lizard is a "Federal Species of Concern and a BLM sensitive species." fn. 17 These lizards "are expected to be common year-round residents on the project site." LaBerteaux concluded that the "lizards are very common in the general area and throughout Inyo County. They are not expected to be significantly impacted by the proposed project." {Slip Opn. Page 42}

The Bagley-LaBerteaux report states that the Brewer's Sparrow is listed on the "Audubon Watch List and on the U.S. Bird Conservation Watch List." LaBerteaux observed a single sparrow on the site during her survey, which she determined was probably migrating through the area. She noted that the bird is a "common summer resident in Inyo County and may breed on the Walters property." She concluded that, "because Brewer's Sparrows are common breeders throughout Inyo County, the proposed project is not expected to significantly impact this species."

The DEIR does not mention the San Emigdio blue butterfly. According to the Bagley-LaBerteaux report, this butterfly is a "Federal Species of Concern." The butterfly lays its eggs on the leaves of the four-winged saltbush, which "occurs very infrequent[l]y in the project site." The low density of these plants on the site "suggests that the density of San Emigdio blues in the project site is likely to be very low."

In its response to the DEIR, SRVA asserted that the County's conclusion regarding the impact on biological resources was unsupported by analysis or evidence. SRVA supported this criticism with a letter from Diane Renshaw, a consulting ecologist, who disagrees with the methods and conclusions of the Bagley-LaBerteaux report. Renshaw's letter is included in the FEIR. The Planning Commission responded to the principle points made in Renshaw's letter, generally referring to the conclusions in the Bagley-LaBerteaux report and LaBerteaux's letter.

Dunkelberger also criticized the DEIR's analysis of biological impacts. In response, the Planning Commission stated: "While the project may have some localized {Slip Opn. Page 43} impact to the animal populations on the site and immediately adjacent to it, the vast area of similar habitat surrounding the effected areas provides plentiful support for all species that appear on site and ensure that any effect on these animal populations are less than significant overall." Both Dunkelberger's comments and the Planning Commission's response are included in the FEIR.

2. Analysis

The extent of an evaluation and analysis of environmental impacts in an EIR is guided by a "rule of reason": "An EIR should be prepared with a sufficient degree of analysis to provide decisionmakers with information which enables them to make a decision which intelligently takes account of environmental consequences. An evaluation of the environmental effects of a proposed project need not be exhaustive, but the sufficiency of an EIR is to be reviewed in the light of what is reasonably feasible. Disagreement among experts does not make an EIR inadequate, but the EIR should summarize the main points of disagreement among the experts. The courts have looked not for perfection but for adequacy, completeness, and a good faith effort at full disclosure." (Guidelines, § 15151.)

Here, the analysis and conclusions in the EIR concerning impacts on wildlife are supported by the Bagley-LaBerteaux report and LaBerteaux's letter. The drafters of an EIR may, of course, rely upon the credible opinions of experts concerning environmental impacts. (See Laurel Heights, supra, 47 Cal.3d at pp. 408-409.) SRVA has the burden on appeal of demonstrating that these sources are so "clearly inadequate or unsupported" {Slip Opn. Page 44} as to be "entitled to no judicial deference." (Id. at p. 409, fn. 12.) It has not satisfied this burden. There is no attempt to challenge the expert qualifications of the authors of the Bagley-LaBerteaux report. Although the methods and conclusions of the report are criticized by SRVA and SRVA's expert, a disagreement among experts does not make an EIR inadequate. (Id. at p. 409.) The FEIR included the comments critical of the DEIR's analysis, including the opinion of SRVA's expert, and the Planning Commission's responses, thereby alerting public decision makers to the differing opinions.

SRVA argues that the EIR must include a "quantitative analysis"; that is, in order to determine the effect on the population of affected species as a whole, the agency would have to "know the size of the population and . . . quantify the potential effects of the project." However, "the issue is not whether the studies are irrefutable or whether they could have been better. The relevant issue is only whether the studies are sufficiently credible to be considered as part of the total evidence that supports the" agency's decision. (Laurel Heights, supra, 47 Cal.3d at p. 409; see also National Parks & Conservation Assn. v. County of Riverside (1999) 71 Cal.App.4th 1341, 1362 ["an expert can make a judgment on existing evidence, without further study, that a particular condition will have no significant impact"].) The sources of information supporting the EIR's analysis, we conclude, satisfies this test. Thus, even if the DEIR's analysis on this point "could have been better," it is adequate, sufficiently complete, and a good faith effort at full disclosure. (See Guidelines, § 15151.) {Slip Opn. Page 45}

SRVA relies heavily upon Sierra Club v. Martin (11th Cir. 1999) 168 F.3d 1 (Martin). Martin involved the United States Forest Service's alleged noncompliance with a Land and Resource Management Plan for the Chattahoochee National Forest (Forest Plan) and Forest Service regulations. (Id. at p. 3.) The Forest Plan required the Forest Service to collect population inventory data for certain categories of species before implementing a decision affecting the forest. (Ibid.) Although the circumstances requiring such an inventory were present, the Forest Service did not collect the population data. Therefore, the Eleventh Circuit held that the Forest Service's approval of timber sales without such data was arbitrary and capricious. (Id. at p. 5.)

Martin is easily distinguished. That case turned on the application of specific requirements of the applicable Forest Plan to conduct a population inventory of relevant categories of species. That Forest Plan is not applicable to Walters's property and we have not been provided with any authority holding that CEQA requires a similar collection of data. Martin has no application to this case.

E. EIR's Analysis of the Project's Visual Impacts

SRVA argues that the analysis of the project's visual impacts improperly fails to consider the fact that, in addition to the residences to be built on the subdivided lots, the project calls for the building of a fire station, a 3,800-gallon above ground water tank on each lot, and a 20,000-gallon tank at the fire station.

CEQA, as mentioned above, does not "mandate perfection, nor does it require an analysis to be exhaustive." (Dry Creek Citizens Coalition v. County of Tulare (1999) 70 Cal.App.4th 20, 26.) {Slip Opn. Page 46} The courts look for adequacy, completeness, and a good faith effort at full disclosure. (Guidelines, § 15151.) Moreover, even if the failure to address the fire station and water tanks are deemed to be noncompliant with CEQA, we will not reverse unless prejudice is shown. (San Joaquin Raptor Rescue Center, supra, 149 Cal.App.4th at p. 653.) "A prejudicial abuse of discretion occurs if the failure to include relevant information precludes informed decisionmaking and informed public participation, thereby thwarting the statutory goals of the EIR process." (Kings County, supra, 221 Cal.App.3d at p. 712.)

No such prejudice is shown here. The proposed fire station is described in the CC&R's and must not exceed 18 feet in height, which is less than the lowest height restriction on the residences. The water tanks are also disclosed in the CC&R's. Although the County did not specifically analyze the visual impacts of these structures, the public and the decision makers were informed of their existence and could readily understand that they might be visible from outside the project. Moreover, even without explicitly taking these structures into account, the EIR provides that the project will have a significant, irreversible adverse impact on the existing scenic views of the area. It is unlikely that a different conclusion would have been reached if the additional structures were specifically addressed. Reviewing the EIR and the decisionmaking process as it is revealed in the record, we conclude that the failure to include a discussion of the fire station and water tanks in the visual impacts analysis did not preclude informed decisionmaking or informed public participation. {Slip Opn. Page 47}

IV. DISPOSITION

The judgment is reversed with directions to the trial court to issue a peremptory writ, consistent with the views expressed in this opinion, directing the respondents to: (1) vacate their certification of the EIR and their approval of the project; and (2) not take any further action to approve the project without the preparation, circulation, and certification under CEQA of a legally adequate EIR with respect to the analysis of the feasibility of the alternative of a land exchange with the BLM. fn. 18 SRVA shall recover its costs on appeal.

McKinster, Acting P.J., and Miller, J., concurred.

­FN *. (Retired Associate Justice of the Court of Appeal, Second Appellate District, assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.)

­FN 1. We take judicial notice of the applicable Inyo County Code sections. (Evid. Code, §§ 452, subds. (b) & (h), 459, subd. (a).)

­FN 2. California Code of Regulations, title 14, section 15000 et seq. (Guidelines).

­FN 3. SRVA does not contend that the EIR must consider the possibility that a property owner will build a "social hall," or any of the other structures for which a conditional use permit can be sought. (See Inyo County Code, § 18.21.040.)

­FN 4. Although the possibility that lot owners might obtain approval for, and build, a second dwelling unit is not mentioned in the project description in the DEIR, it is considered in the analysis of various environmental impacts. With respect to hydrology and water quality impacts, for example, water usage for the subdivision was based upon the assumption that the project could result in 54 homes on the 27 lots. The section addressing transportation and traffic impacts states the subdivision would generate 258 daily vehicle trips along Whitney Portal Road and was based upon an assumption of "twenty-seven residential units, or one for each proposed lot." The document goes on to note that this "daily trip generation figure is likely to increase" if second units are built on the lots. In a section of the DEIR addressing "growth-inducing impacts," the DEIR describes the project as "a 27 lot residential subdivision, with potential for 54 dwelling units if full build-out is realized . . . ."

­FN 5. "[C]ourts should afford great weight to the Guidelines except when a provision is clearly unauthorized or erroneous under CEQA." (Laurel Heights, supra, 47 Cal.3d at p. 391, fn. 2.)

­FN 6. The Inyo County ordinance provides that if a conditional use permit for a second dwelling unit is granted, it shall be subject to certain conditions, including: (1) the second unit cannot be offered for sale (although it may be rented); (2) if the unit is attached to the existing residence, the increase in floor space may not exceed 30 percent of the floor space of the existing residence; (3) a detached unit may not exceed 1,200 square feet; (4) the second unit must conform to applicable height, setback, lot coverage, architectural review, site plan review, and other zoning applicable requirements; (5) the unit must comply with applicable building code requirements; (6) at least two on-site, off-street parking spaces are provided; and (7) any other conditions or requirements that the Planning Commission deems necessary to ensure that the second unit will neither adversely affect the health or safety of persons living or working in the vicinity nor be materially detrimental to public welfare. (Inyo County Code, § 18.78.340C.)

­FN 7. Even if the building of second dwelling units on the lots was foreseeable and the project should have been described as a 54-unit development, SRVA's argument concerning the adequacy of the EIR with respect to storm water runoff is without merit. The EIR's analysis of storm water runoff was based upon the size and location of the building envelopes, not the number of structures on the lots. Even if second units are built on the lots, they must be built within the building envelopes. Thus, the number of units on the lot would have no effect on the storm water runoff analysis.

­FN 8. With respect to land exchanges involving land owned by the federal government, Congress has declared: "(1) land exchanges are a very important tool for Federal and State land managers and private landowners to consolidate Federal, State, and private holdings of land or interests in land for purposes of more efficient management and to secure important objectives including the protection of fish and wildlife habitat and aesthetic values; the enhancement of recreation opportunities; the consolidation of mineral and timber holdings for more logical and efficient development; the expansion of communities; the promotion of multiple-use values; and fulfillment of public needs; [¶] (2) needs for land ownership adjustments and consolidation consistently outpace available funding for land purchases by the Federal Government and thereby make land exchanges an increasingly important method of land acquisition and consolidation for both Federal and State land managers and private landowners; . . ." (Pub.L. No. 100-409 (Aug. 20, 1988) § 2, 102 Stat. 1086.)

­FN 9. Notes of this scoping meeting state: "BLM enters into land exchanges only when two things occur: [¶] 1.) When there is a 'willing seller.' Mr. Walters does not qualify as a willing seller in that he does not want to swap his land for other lands, because his land is so desirable/valuable. [¶] 2.) When such a swap is 'warranted.' This usually means that a developer/owner's land is 'undevelopable' in some sense and they want to swap for land that can be developed. Again, this is not the case with Mr. Walters, as his property is designated for residential development under the Inyo County General Plan and Zoning Ordinance."

­FN 10. That the BLM parcel was "not acceptable" to Walters suggests that he would not agree to a land exchange in any event. However, the willingness or unwillingness of a project proponent to accept an otherwise feasible alternative is not a relevant consideration. (Uphold Our Heritage v. Town of Woodside (2007) 147 Cal.App.4th 587, 602.) If development of the project on the alternative parcel will satisfy the basic objectives of the project and mitigate the environmental impacts of the project as proposed, the Planning Commission could deny the permit for the project. That is, although the Planning Commission and the Board cannot compel Walters to accept a land exchange, they can withhold their approval of the proposed subdivision if he does not agree to the exchange.

­FN 11. The "Project Objectives" section in the portion of the DEIR discussing alternatives states, in relevant part: "The primary objective of the project is to develop a 74-acre parcel for residential use. The project site is the Alabama Hills area to the west of the town of Lone Pine, near the base of the Sierras, and adjacent to Whitney Portal Road. The project would consist of 27 rural residential lots, 2.5-acre in size. Thirteen of the lots would exist as equestrian lots, with access to adjacent BLM land containing trails and roads. Lots will have individual water wells and septic systems. A Homeowner's Association for the subdivision will be governed by Conditions, Covenants, and Restrictions (CC&R's) which require extensive attention to aesthetic issues such as structure setbacks, building envelope area, structure materials and colors, lighting, and landscaping. The proposed project is in compliance with the Inyo County General Plan designation for the property, which is Residential Rural Medium Density (RRM) development of 1 dwelling unit per 2.5 acre."

­FN 12. The phrase "economic objectives" is also vague. We assume it refers to the goal of maximizing Walters's profit in developing the property (or at least minimizing any financial loss). To the extent some other meaning is intended, our incorrect assumption simply highlights the phrase's ineffectiveness in informing the public.

­FN 13. We do not suggest that an economic analysis is necessarily required in order to address the feasibility of the land exchange alternative. (See Sierra Club v. County of Napa, supra, 121 Cal.App.4th at pp. 1505-1506 [CEQA does not require analysis of economic feasibility].) If, for example, the County concludes that the basic objectives of the project cannot be achieved regardless of economic feasibility, an analysis of economic viability may not be necessary. If, however, the County relies upon economic viability as a basis for finding the alternative infeasible, it must support its conclusion by applying the correct standard to the applicable facts.

­FN 14. This law provides: "Notwithstanding the Act of March 4, 1931 (46 Stat. 1530), or Executive Order 5843 or any land classification based thereon, the Secretary of the Interior (hereinafter referred to as the 'Secretary') is authorized and directed to convey to Richard Saunders (hereinafter referred to as the 'beneficiary'), . . . approximately 15.69 acres of land in township 6 south, range 32 east, Mount Diablo Meridian, section 21, northeast 1/4 , northeast 1/4 , in Inyo County, California, as depicted on a map entitled 'BLM Land Conveyance to Richard Saunders/Inyo County, California' and dated April, 1990." (Pvt.L. No. 101-4, § 1 (Oct. 17, 1990) 104 Stat. 5141.) The County's counsel referred us to this law to show how rarely Congress acts to revoke a prior withdrawal. However, he provided no evidence or argument that any person other than Mr. Saunders had ever sought and failed to obtain a congressional revocation of the withdrawal of land under the 1931 Act.

­FN 15. The County's counsel asserted during oral argument that the Los Angeles Department of Water and Power would likely oppose any bill to permit the exchange. The assertion is conjecture and without support in the record.

­FN 16. A "special status species" includes species that are either "declining at a rate that could result in listing or historically occurred in low numbers, and known threats to their persistence currently exist."

­FN 17. According to the Bagley-LaBerteaux report, BLM "sensitive species" are "species that are 1) under status review by the [U.S. Fish and Wildlife Service]; or 2) whose numbers are declining so rapidly that federal listing may become necessary; or 3) with typically small and widely dispersed populations; or 4) those inhabiting ecological refugia or other specialized or unique habitats." The report does not define a "Federal Species of Concern."

­FN 18. In its petition for writ of mandate, SRVA sought the recovery of attorney fees pursuant to Code of Civil Procedure section 1021.5. We offer no opinion regarding the entitlement to such fees. On remand, the trial court shall determine any issues raised by that request.

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Bill Signs Trucking, LLC v. Signs Family Limited Partnership (2007) , Cal.App.4th

Bill Signs Trucking, LLC v. Signs Family Limited Partnership (2007) , Cal.App.4th [No. D047861. Fourth Dist., Div. One. Dec. 18, 2007.]
BILL SIGNS TRUCKING, LLC, et al., Plaintiffs and Appellants, v. SIGNS FAMILY LIMITED PARTNERSHIP, et al., Defendants and Respondents.
(Superior Court of San Diego County, No. GIE020016, Richard S. Whitney, Judge.)
(Opinion by McConnell, P. J., with McIntyre, J., and Irion, J., concurring.)
COUNSEL
[No. D047861. Fourth Dist., Div. One. Dec. 18, 2007.]

Lewis Brisbois Bisgaard & Smith, LLP, Roy G. Weatherup, Jeffry A. Miller; Eischen & Associates, James J. Eischen, Jr., and Robert P. Robinson for Plaintiffs and Appellants.

Law Offices of Jerry L. Carmody, Jerry L. Carmody; Fischbeck & Oberndorfer, A.P.C., and William L. Fischbeck for Defendants and Respondents The Signs Family Limited Partnership, Lori Signs, and L.A. Signs Investments, LLC.

Foster Walsh, LLP, George A. Foster and Jon Boyce Jr., for Defendants and Respondents Tammy Duncan, T&B Signs27 LLC, Bill Signs Children's Trust, and Trishaydan, LLC. {Slip Opn. Page 2}

OPINION

MCCONNELL, P. J.-

We hold in this case that a tenant's preemptive purchase rights under a commercial lease are not triggered by the conveyance of an interest in the property between copartners in a family limited partnership that owns the property and is the landlord. We affirm the judgment for the defendants.

FACTUAL AND PROCEDURAL BACKGROUND

William Signs, Jr., owned Bill Signs Trucking, Inc., later called Bill Signs Trucking, LLC (BST). Robert Neal began managing the business in 1985, with the understanding he would eventually obtain an ownership interest in it. Signs and Neal became close friends. Signs married Lori Signs in 1994. fn. 1 His only child, Tammy Duncan, is from a former marriage. Lori was not on friendly grounds with Duncan or Neal.

In 1988 Signs purchased several parcels of land totaling approximately 45 acres on Channel Road in Lakeside, California. Signs and Neal began developing the parcels and BST moved its operation to approximately six acres of the property. Other portions of the property were used for other purposes.

In December 1992 Signs created the Signs Family Limited Partnership (SFLP) and transferred ownership of the Channel Road property to it, along with other real and {Slip Opn. Page 3} personal property. Signs was the sole general partner in SFLP and he was originally the sole limited partner. His general interest was valued at four percent of the total value of the partnership and his limited interest was valued at 96 percent.

Also in December 1992 Signs created the William B. Signs, Jr. Children's Trust (Children's Trust) to benefit Duncan and her children. Signs conveyed 62 percent of his limited interest in SFLP to Duncan as trustee of the Children's Trust.

Shortly before their April 1994 marriage, Signs and Lori entered into a prenuptial agreement. It provided that on Signs's death, Lori was to receive 20 percent of his limited interest in SFLP and other assets.

In September 1994 Signs executed the William Boyd Signs, Jr. Trust (Signs Revocable Trust) and transferred his assets to it. Duncan and her children were beneficiaries on his death, and Lori was eligible to become a beneficiary under the prenuptial agreement. Further, Signs's four percent general interest in SFLP and 51 percent of his interest in BST were to be distributed to Neal, and Neal was named first successor trustee.

In February 1999 Signs gave Neal a 20 percent interest in BST and they entered into an operating agreement for the business. Additionally, Signs and Lori amended their prenuptial agreement to give her 100 percent of his limited interest in SFLP on his death. Further, the agreement required Lori to cooperate to enable Neal to purchase the remainder of BST on Signs's death. {Slip Opn. Page 4}

On April 26, 1999, SFLP and BST entered into a lease agreement (Lease) of the portion of the Channel Road property on which the business operates. The Lease contains preemptive purchase rights that are the subject of this appeal.

Section 1.03(a) of the Lease provides: "Landlord [SFLP] . . . agrees that it will not sell the Premises to any person until Landlord has given to Tenant [BST] notice in writing of its intent to sell, specifying the price and terms of the contemplated sale." Under section 1.03(a), BST had an option to purchase the property at the same price and on the same terms and conditions set forth in the notice of intent to sell.

Section 1.03(b) of the Lease provides: "If at any time during the term of this Lease Landlord receives from any third party a bona fide offer to purchase the Premises at a price and on terms acceptable to Landlord, Landlord shall give written notice of the offer to Tenant. Within thirty . . . days after Landlord gives Tenant written notice of the third-party offer, Tenant shall have the right to purchase the Premises at the same price and on the same terms and conditions set forth in the third-party offer."

Also on April 26, Signs amended the Signs Revocable Trust to remove Neal as first successor trustee and to designate Lori and Duncan as cotrustees, and to delete the bequests to Neal. Duncan was upset about sharing trustee duties with Lori, but Signs explained he wanted them to learn to get along, and "it would all work out" and "flow smoothly."

In November 1999 Signs amended SFLP in recognition of Neal's efforts to develop approximately 19.5 acres of additional land Signs purchased for a sand mining venture. This land is referred to separately as the East Willow property, but it is also {Slip Opn. Page 5} included within the definition of the Channel Road property. The amendment stated SFLP "agrees to specially allocate and distribute 20% of net profits from such property [East Willow property] to . . . Neal. Net profits shall be defined as gross income from rents, royalties, licenses, environmental land bank credits[,] sale or other income producing uses of the property, net of expenses incurred in generating the gross income."

Signs died in January 2001, at which time he held general and limited interests in SFLP of four percent and 34 percent, respectively. Neal exercised an option to purchase Signs's interest in BST.

Lori and Duncan became embroiled in disputes and litigation regarding the management of SFLP and Duncan wanted out of the partnership.

Among the disagreements was the division of Signs's four percent general interest in SFLP. In October 2003, after mediation, Lori and Duncan approved the Signs Family Limited Partnership Distribution Agreement (SFLP Distribution Agreement), under which partnership assets are to be divided and it is to be dissolved. Duncan, for herself and the Children's Trust, is to receive two and two-thirds percent of the general interest (increasing her total interest to 64 2/3 percent), and Lori is to receive 1 1/3 percent of it (increasing her total interest to 35 1/3 percent). Additionally, Lori is to buy out Duncan's interest in the Channel Road property for $5 million.

SFLP sent Neal a letter notifying him of the SFLP Distribution Agreement and stating it believed the agreement did not trigger BST's preemptive purchase rights as to the portion of the property on which BST conducts business. Neal disagreed and he and BST sued SFLP, Lori, Duncan and the Children's Trust for specific performance and {Slip Opn. Page 6} related counts. fn. 2 Pending resolution of this litigation, the SFLP Distribution Agreement has not gone into effect.

The parties agreed to a bifurcated procedure, in which the trial court would first determine whether the proposed transfer triggered BST's preemptive purchase rights in the Lease and the special profit-sharing amendment to SFLP. The court found the Lease ambiguous and allowed parol evidence on Signs's intent. The court determined Signs did not intend that a transfer between family members would trigger Neal's preemptive purchase rights, and the proposed transaction was not a bona fide sale to a third party. The court denied Neal's claim for specific performance of the Lease, and also found the special profit-sharing amendment to SFLP was not triggered.

DISCUSSIONILease Interpretation/Standard of Review

A lease agreement is subject to the general rules governing the interpretation of contracts. (ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1269 (ASP).) "A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and {Slip Opn. Page 7} lawful." (Civ. Code, § 1636.) When possible, the parties' mutual intention is to be determined solely from the language of the lease. "The 'clear and explicit' meaning of these provisions, interpreted in their 'ordinary and popular sense,' . . . controls judicial interpretation." (ASP, at p. 1269.) " 'Interpretation of a contract 'must be fair and reasonable, not leading to absurd conclusions. [Citation.]' " (Ibid.)

If a lease is ambiguous on its face, parol evidence is admissible to interpret it. (Severns v. Union Pacific Railroad Co. (2002) 101 Cal.App.4th 1209, 1214.) Further, a lease is latently ambiguous if it appears clear on its face, but parol evidence shows it is reasonably susceptible to two or more interpretations. (ASP, supra, 133 Cal.App.4th at p. 1267.) In that instance, the " 'decision whether to admit parol [or extrinsic] evidence involves a two-step process. First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine "ambiguity," i.e., whether the language is "reasonably susceptible" to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is "reasonably susceptible" to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step -- interpreting the contract.' " (Ibid.) "The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible." (Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37.) {Slip Opn. Page 8}

The trial court's threshold finding of ambiguity is a question of law subject to our independent review. The court's ultimate construction of ambiguous language is subject to our independent review if the extrinsic evidence is not in conflict, even when the parties draw different inferences from the evidence. If the extrinsic evidence conflicts, we uphold any reasonable construction supported by substantial evidence. (ASP, supra, 133 Cal.App.4th at pp. 1267-1268 & fn. 4.)

IIAdmission of Parol EvidenceA

BST's principal contention is that the court erred by adopting the defendants' argument the Lease is ambiguous based on section 1.03(d), which provides the "transfer of Landlord's title to the Premises by will or intestancy shall not be deemed to be a sale under the provisions of this section." The court explained the Channel Road property was "transferred to Lori . . . and . . . Duncan pursuant to . . . Signs'[s] will and trust," and thus a transfer between them may not constitute a sale that would trigger BST's preemptive purchase rights. BST argued the term "any person" in section 1.03(a) is necessarily confined to parties other than third parties, because if it means third parties section 1.03(b), which expressly refers to third party offers, would be redundant. The court found both parties' interpretations plausible and admitted parol evidence as to Signs's intent.

BST contends section 1.03(d) of the Lease is inapplicable because the SFLP Distribution Agreement was drafted more than two years after Signs's death and the {Slip Opn. Page 9} proposed transfer of property between Lori and Duncan is not a transfer by will. BST points out that "a decedent's property passes on the decedent's death to the person to whom it is devised in the decedent's last will." (Prob. Code, § 7000.)

We agree that section 1.03(d) of the Lease is inapplicable. fn. 3 That does not mean, however, that reversal is warranted. " 'No rule o[r] decision is better or more firmly established by authority, nor one resting upon a sounder basis of reason and propriety, than that a ruling or decision, itself correct in law, will not be disturbed on appeal merely because given for a wrong reason. If right upon any theory of the law applicable to the case, it must be sustained regardless of the considerations which may have moved the trial court to its conclusion.' " (ASP, supra, 133 Cal.App.4th at p. 1268.)

B

A preemptive purchase right is a grant from a landowner that gives the grantee the first opportunity to purchase the property if the landowner decides to sell. (Greenwald & Asimow, Cal. Practice Guide: Real Property (The Rutter Group 2007) ¶ 8:200, p. 8-40 (hereafter Greenwald & Asimow).) A preemptive purchase right takes one of two forms, a "right of first refusal" or a "right of first offer." (Id., ¶ 8:204, p. 8-40.)

"Under a 'right of first refusal,' the landowner seller first procures an offer to purchase from a third party on terms and conditions acceptable to the seller. The seller must then present the third party offer to the grantee of the right of first refusal who, in {Slip Opn. Page 10} turn, has a limited period . . . to either match the offer or reject it." (Greenwald & Asimow, supra, ¶ 8:206, p. 8-41.) A right of first refusal "does not become an option to purchase until the owner of the property voluntarily decides to sell the property and receives a bona fide offer to purchase it from a third party." (Campbell v. Alger (1999) 71 Cal.App.4th 200, 206-207.)

"Because rights of first refusal can adversely affect an owner's ability to market its property . . . , a preemptive purchase right often takes the form of a 'right of first offer.' Here, the seller, upon deciding to market its property, must first make an offer to the grantee of the right of first offer. If the grantee does not accept that offer, the seller is then free to sell to anyone else on the terms rejected by the grantee or on terms which are better -- but not worse -- for the seller; in other words, no other buyer can get a better deal than that which was presented to the grantee." (Greenwald & Asimow, supra, ¶ 8:208, p. 8-42.)

It appears that a lease would ordinarily not contain both a right of first offer and a right of first refusal. "The advantage of using a right of first offer rather than a right of first refusal is that once the grantee has rejected the seller's offer, the seller is free to proceed with a sale to another buyer without having to go back to the grantee (provided the sale is on terms no better than those offered to the grantee). Also, once the grantee elects not to accept the seller's offer, brokers are more willing to undertake a listing of the property. [¶] On the other hand, the seller will (at least theoretically) have to present to {Slip Opn. Page 11} the grantee its 'rock-bottom' price (and best terms), since the seller will not be able to accept any price lower than that offered to the grantee." (Greenwald & Asimow, supra, at ¶ 8:209, pp. 8-42 to 8-42.1, italics added.)

Here, however, the Lease contains both a right of first offer (section 1.03(a)) and a right of first refusal (section 1.03(b)). Contrary to BST's position, the provisions are not merely alternative ways of stating a right of first refusal. The two sections have different purposes and criteria, and section 1.03(a) may be interpreted to apply only to offers from the landlord to third parties, without rendering redundant section 1.03(b), which applies to offers from third parties to the landlord. Contrary to BST's view, interpreting section 1.03(a) to refer to third parties does not render section 1.03(b) surplusage.

Additionally, BST concentrates on the "any persons" language in section 1.03(a) and virtually ignores that it is the landlord who agrees not to sell to "any persons" without first offering the property to BST on like terms. The term "any persons" logically refers to parties other than the landlord. Under BST's interpretation, section 1.03(a) would essentially read: "Landlord [SFLP] . . . agrees that it will not sell the Premises to any person [SFLP] until Landlord [SFLP] has given to Tenant [BST] notice in writing of its intent to sell, specifying the price and terms of the contemplated sale."

Although perhaps the Lease could be interpreted as a matter of law, albeit against BST, we cannot fault the court for allowing parol evidence to explain the "any persons" language in section 1.03(a). The court gave BST the benefit of the doubt by finding section 1.03(a) was reasonably susceptible to its interpretation. The section is also {Slip Opn. Page 12} reasonably susceptible to the interpretation that "any persons" refers exclusively to third parties, and not to co-owners of SFLP.

BST also asserts that since the Lease contains an integration clause, parol evidence was inadmissible. Section 10.07 of the Lease provides: "This instrument constitutes the sole and only agreement between Landlord and Tenant respecting the Premises, the leasing of the Premises to Tenant, and the Lease terms contained in this Lease, and correctly sets forth the obligations of Landlord and Tenant to each other as of its date. Any agreements or representations respecting the Premises or their leasing by Landlord to Tenant not expressly set forth in this instrument are null and void."

BST cites Code of Civil Procedure section 1856, subdivision (a), under which "[t]erms set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement." The statute is inapplicable as the parol evidence here was introduced to explain the language of section 1.03(a) of the Lease, and not to add to or vary the terms of the Lease.

IIISection 1.03(a) of the Lease/Signs's Intent

BST agrees the parol evidence is not in conflict and thus presents a question of law for our independent review.

Lawrence Faas, a certified public accountant, began doing estate planning and tax work for Signs in the mid-1980's. Faas testified that Signs told him he wanted the Channel Road property to remain in the family, and for Lori and Duncan "to benefit from {Slip Opn. Page 13} the income from that real estate." Further, Faas testified the property "was always intended to be a long-term hold, whether . . . Signs held it or whether the family held it, it was expected that it would take a long period . . . before it was sold."

Dale Mills, an attorney, represented Signs for more than 20 years. Mills prepared the Lease. When asked about Signs's input on the Lease, Mills testified that "Signs was concerned about the continuation of business operations for his trucking company. He was very proud of his trucking company. That was one of the legacies of his life. . . . He wanted to make sure that . . . Neal would be able to continue operating the trucking company at that physical location, without having fear of a new landlord coming into the picture that might oust him or cause him problems in the operation of the trucking business. So the part regarding the first refusal rights was something that . . . Signs was quite concerned with."

BST did not offer any evidence to dispute Faas's or Mills's testimony, and it adequately establishes that while Signs valued his professional and personal relationships with Neal, he intended that ownership of the Channel Road property remain in the family as long as possible.

Further, Signs's estate planning documents confirm this intent. They show that several years before Signs executed the Lease, he conveyed 62 percent of his limited interest in SFLP to Duncan. Under BST's interpretation of section 1.03(a), even during Signs's lifetime SFLP could not have offered to purchase Duncan's interest in the Channel Road property without triggering BST's right of first offer. Surely Signs, who made frequent changes to his estate planning documents, did not intend that possibility. {Slip Opn. Page 14}

Additionally, when Signs executed the Lease he knew his wife and daughter did not get along, and a reasonable inference arises that he realized that after his death they may choose to dissolve their partnership. He wished for cooperation between them, but we believe he would not have wanted Duncan's decision to get out of the family business to give BST a superior right to purchase her interest in the property. Accordingly, we interpret the term "any persons" in section 1.03(a) to mean third parties.

IVThird Party Sale

In ruling that the proposed transfer here did not trigger BST's preemptive purchase rights, the court relied on Pellandini v. Valadao (2003) 113 Cal.App.4th 1315 (Pellandini). In Pellandini, a grandfather devised three parcels of land to his grandson, James Pellandini, and one-half of a fourth parcel to Pellandini and the remainder of it to Pellandini's cousins, Suzanne Wooldridge and Cathryn Valadao. The parties were involved in a series of court actions and they agreed to the creation by partition of "a new parcel equivalent to the interests of Wooldridge and Valadao in the fourth parcel," which they would own as tenants in common. (Id. at p. 1317.) For paying the costs of partition, Pellindini was allowed to farm parcel four during the current crop season. The agreement provided he " 'will waive his right of first refusal on the property owned by [Wooldridge] and [Valadao] as granted in the trust . . . . [¶] [Wooldridge] and [Valadao] will, however, give . . . Pellandini a right of first refusal to meet any bona fide offer for purchase of the property.' " {Slip Opn. Page 15}

After recordation of the deed to the new parcel, Wooldridge conveyed her interest in it to herself and her husband as community property. Additionally, she and her husband signed a promissory note in favor of Valadao for $163,000, which was secured by a deed of trust on their interest in the new parcel. After Wooldridge and her husband defaulted on monthly payments, they gave Valadao a deed in lieu of foreclosure. When Pellandini learned of it, he demanded the opportunity to purchase Woolridge's interest in the new parcel for the same consideration as Valadao paid, but she refused. (Pellandini, supra, 113 Cal.App.4th at pp. 1317-1318.)

Pellandini sued for specific enforcement of the right of first refusal contained in the settlement agreement. The trial court granted Pellandini's motion for summary adjudication on the ground "Wooldridge's decision to sign a deed in lieu of foreclosure was a voluntary act triggering Pellandini's right of first refusal. The court's decision was also based on the view that any party could easily nullify a right of first refusal by orchestrating a sham loan, default, and deed in lieu of foreclosure transaction." (Pellandini, supra, 113 Cal.App.4th at p. 1319.)

The Court of Appeal reversed the summary adjudication, holding as a matter of first impression in California that the sale of property between co-owners did not trigger a first right of refusal because there was no bona fide sale to a third party. (Pellandini, supra, 113 Cal.App.4th at p. 1319.) The court relied on several cases from other jurisdictions (Prince v. Elm Investment Co., Inc. (Utah 1982) 649 P.2d 820; Baker v. McCarthy (N.H. 1982) 443 A.2d 138; Koella v. McHargue (Tenn.Ct.App. 1998) 976 S.W.2d 658; Byron Material, Inc. v. Ashelford (Ill. App.Ct. 1975) 339 N.E.2d 26; Wilson {Slip Opn. Page 16} v. Grey (Ky. 1978) 560 S.W.2d 561; Rogers v. Neiman (Neb. 1971) 193 N.W.2d 266), and concluded "[t]wo separate rationales emerge from [them]. A bona fide sale occurs when the entire interest in the property is sold. A bona fide sale occurs when an interest in the property is sold to a third party." (Pellandini, supra, 113 Cal.App.4th at p. 1322.) The court also noted "Pellandini loses nothing by a transfer between Wooldridge and Valadao. Such a transfer does no harm to Pellandini's interest, and his right of first refusal remains intact." (Ibid.)

BST attempts to distinguish Pellandini on the ground that here, section 1.03(a) of the Lease does not require a bona fide sale to a third party. As discussed, however, we have concluded section 1.03(a) applies only to offers of sale made to third parties.

BST also asserts Pellandini is inapplicable because the right of first refusal there was given by co-owners of the property, and here neither Lori nor Duncan was a party to the Lease when the right of first refusal was created. When they approved the SFLP Distribution Agreement, however, they were partners in SFLP, and thus co-owners of SFLP and co-landlords under the Lease. In Prince v. Elm Investment Co., supra, 649 P.2d at page 823, the court explained that "for purposes of a right of first refusal, a 'sale' occurs upon the transfer (a) for value (b) of a significant interest in the subject property (c) to a stranger to the lease, (d) who thereby gains substantial control over the leased property." Lori is not a stranger to the Lease, but rather already has control over it through SFLP.

Wilson v. Grey, supra, 560 S.W.2d 561, is also instructive. The lease there provided: " 'Should lessor ever desire to sell the leased premises lessees are given the {Slip Opn. Page 17} right to purchase the same at the price which lessor has been offered for the premises.' " (Ibid.) The lessor died and left the property to her two sons Paul and Philip, and former daughter-in-law Iness. When Philip sold his interest to Paul, the lessee sued for specific performance of the right of first refusal. The court concluded the transfer did not trigger the right, explaining: "When the lease was executed there was but one 'lessor.' Obviously a 'sale' could have been made only to a person or persons other than that lessor. When she died[,] Paul, Philip and Iness became the collective 'lessor,' and the sale of Philip's share to Paul was not a sale to a person other than the lessor. The transfer did not place any of the landlord's reversionary interest outside the ownership of the existing 'lessor.' " (Id. at p. 562.) The court held "that in the absence of introducing a new party as one of the lessors there was no sale by the 'lessor' under the terms of this lease." (Ibid.)

Here, there is also one lessor, SFLP, and the term "Landlord" in sections 1.03(a) and 1.03(b) of the Lease logically includes all partners in SFLP. BST neither loses nor gains through the proposed transfer, and its preemptive purchase rights continue in the event of an actual third party offer. For instance, if the contemplated transaction between Lori and Duncan goes through, and Lori ultimately sells the property to a third party, BST's rights of first offer and first refusal would be triggered. The co-owner analysis of Pellandini and cases cited therein applies with equal force here.

Additionally, BST contends the proposed transaction here is a bona fide sale to a third party, as Lori and Duncan "negotiated a series of arms-length transactions, agreed to a price for the sale of the real property, and intended a full transfer of . . . Duncan's real {Slip Opn. Page 18} property rights in the Channel Road Properties to . . . Lori." BST also cites Duncan's testimony that for tax purposes she intended to exchange the sale proceeds for like kind property under section 1031 of the Internal Revenue Code. We must, however, "look beyond the formalities and accounting entries to the true nature of the conveyance." (Creque v. Texaco Antilles Ltd. (3d Cir. 2005) 409 F.3d 150, 154, citing Isaacson v. First Sec. Bank (Idaho 1973) 511 P.2d 269.) "Only when the conveyance is marked by arms' length dealing and a change in control of the property may that right be exercised." (Creque, supra, at p. 155, italics added.) Here, the proposed transfer adjusts the interests of co-owners, but does not introduce any new party with control over the Lease. (See Prince v. Elm Investment Co., Inc., supra, 649 P.2d at pp. 822-823.)

We conclude that Lori's proposed purchase of Duncan's interest in the portion of the Channel Road property subject to the Lease does not trigger either section 1.03(a) or 1.03(b) of the Lease. The Lease intends a sale to a third party by all partners of SFLP, and does not intend to make BST a co-owner of the property with one of the partners. (See Baker v. McCarthy, supra, 443 A.2d at p. 141.) Accordingly, the court properly denied BST's claim for specific performance. fn. 4 {Slip Opn. Page 19}

VSpecial Profit Interest in East Willow Property

BST additionally contends the court erred by finding the proposed transaction between Lori and Duncan did not trigger Neal's special profit interest in the East Willow property, as set forth in the November 1999 amendment to SFLP. BST's only theory, however, is that if we reverse the judgment on the preemptive purchase rights issue, we must also reverse the judgment on the special profit interest issue. Accordingly, we affirm the judgment on all grounds.

DISPOSITION

The judgment is affirmed. The defendants are entitled to costs on appeal from the plaintiffs.

McIntyre, J., and Irion, J., concurred.

­FN 1. To avoid confusion we use Lori's first name.

­FN 2. BST also sued T&B Signs27, LLC, which Duncan owns; Trishaydan, LLC, which Duncan's children own; and LA Signs Investments, LLC, which Lori owns. Those limited liability corporations were formed in 2002, and under the SFLP Distribution Agreement, SFLP was to convey the Channel Road property to them, immediately after which Lori's corporation would buy out the interest of Duncan's corporations. For simplicity, when we discuss the proposed property transaction we do not refer to the corporations and instead refer to Lori and Duncan.

­FN 3. We note the court's ultimate construction of the Lease was not based on section 1.03(d).

­FN 4. Given our holding, we are not required to reach the parties' contentions regarding whether the term "Premises" in sections 1.03(a) and 1.03(b) of the Lease includes a partial interest in the property.

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Stellar v. State Farm General Ins. Co.

Stellar v. State Farm General Ins. Co. (2007) , Cal.App.4th [No. B195728. Second Dist., Div. Two. Nov. 27, 2007.]
RICHARD STELLAR et al., Plaintiffs and Appellants, v. STATE FARM GENERAL INSURANCE COMPANY, Defendant and Respondent.
(Superior Court of Los Angeles County, No. LC074358, Michael B. Harwin, Judge.)
(Opinion by Doi Todd, Acting P. J., with Ashmann-Gerst, J., and Chavez, J., concurring.)
COUNSEL
[No. B195728. Second Dist., Div. Two. Nov. 27, 2007.]

Law Offices of Richard D. Farkas and Richard D. Farkas for Plaintiffs and Appellants.

Crandall, Wade & Lowe and William R. Lowe for Defendant and Respondent.

OPINION

DOI TODD, ACTING P. J.-

Plaintiffs and appellants Richard and Miles Stellar appeal from a grant of summary judgment entered in favor of defendant and respondent State Farm General {Slip Opn. Page 2} Insurance Company (State Farm). The trial court ruled that no triable issue of fact existed and that State Farm was entitled to judgment as a matter of law. We affirm. The undisputed evidence established that State Farm owed no duty to defend appellants in a defamation action brought against them.

FACTUAL AND PROCEDURAL BACKGROUND

State Farm issued a homeowners insurance policy (policy) to Richard and Nuala Stellar as named insureds, effective from June 2004 to June 2005. Relevant here, Section II of the policy provided: "If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence, we will: [¶] 1. pay up to our limit of liability for the damages for which the insured is legally liable; and [¶] 2. provide a defense at our expense by counsel of our choice. We may make any investigation and settle any claim or suit that we decide is appropriate. Our obligation to defend any claim or suit ends when the amount we pay for damages, to effect settlement or satisfy a judgment resulting from the occurrence, equals our limit of liability." According to the policy, "'occurrence,' when used in Section II of this policy, means an accident, including exposure to conditions, which results in: [¶] a. bodily injury; or [¶] b. property damages; [¶] during the policy period." In turn, the policy defined "bodily injury" as "physical injury, sickness, or disease to a person" and further provided that "[b]odily injury does not include: [¶] . . . [¶] emotional distress, mental anguish, humiliation, mental distress, mental injury, or any similar injury unless it arises out of actual physical injury to some person."

In December 2004, Richard and Nuala filed a complaint against Philip Stellar, Richard's brother, fn. 1 alleging causes of action for defamation, intentional infliction of emotional distress and intentional interference with contract. The complaint alleged that, {Slip Opn. Page 3} following the sale of Richard's and Philip's mother's home, Philip made false written and verbal statements designed to injure Richard and Nuala.

In January 2005, Philip answered and filed a cross-complaint against appellants Richard and Miles Stellar, father and son, alleging causes of action for slander per se, libel and intentional infliction of emotional distress (the underlying action). Philip alleged five separate incidents to support his causes of action: (1) Richard verbally stated to an employee of the Los Angeles County Adult Protective Services division that Philip had sexually molested his eight-year-old son; (2) Richard made the same statement to two additional individuals at a later time; (3) Richard sent an e-mail to a third party stating "Philip is on drugs, or an old gambling problem has struck him again"; (4) Miles published an Internet posting that referred to Philip as a pedophile who sexually molested his son; and (5) Richard undertook efforts to prevent Philip's son from calling, visiting or having a relationship with his grandmother.

With respect to each of the first four actions, Philip alleged that appellants "acted willfully with the wrongful intention of injuring" Philip and "from an improper and evil motive amounting to malice in that [they] . . . wanted to harm, humiliate and injure" Philip. He further alleged that as a result of appellants' conduct he "suffered severe general damages to his reputation, extreme shame and mortification, and significant injury to his emotional state, well-being and feelings . . . ." As to appellants' preventing communications between Philip's son and his grandmother, Philip further alleged that appellants' conduct was "intentional and malicious" and that he suffered "extreme emotional and physical injury and damage . . . , including severe emotional distress, and including but not limited to sleep disruption, worry, upset stomach episodes, inability to concentrate on his professional and personal matters, nervousness, extra concern for the conditions of his beloved mother and young son, and undue stress." He sought general, special and punitive damages.

Appellants tendered the defense of the underlying action to State Farm in March 2005. In a March 31, 2005 letter to appellants, State Farm declined to assume the defense on the grounds that the underlying action failed to allege either an "occurrence" {Slip Opn. Page 4} defined by the policy as an accident or unforeseen event, or any claim for "bodily injury" defined by the policy as physical injury. In September 2005, appellants' attorney challenged the denial of the defense. State Farm responded, reiterating its earlier position that the underlying action alleged neither an occurrence nor any claim of bodily injury.

In April 2006, appellants filed a complaint against State Farm alleging causes of action for breach of contract, bad faith insurance practices and declaratory relief. State Farm answered and thereafter moved for summary judgment on the ground that it owed no duty to defend appellants in the underlying action. Appellants opposed the motion, asserting that triable issues of fact existed as to whether the underlying action asserted claims that were potentially covered by their policy and whether State Farm conducted an adequate investigation. While the motion was pending, appellants prevailed in the underlying action, which they defended at their own expense.

By order dated November 29, 2006, the trial court granted the motion without a hearing, ruling that "the court finds that there is no triable issue of material fact and that defendant State Farm General Insurance Company is entitled to judgment as a matter of law." The trial court entered judgment in favor of State Farm on the same day. This appeal followed.

DISCUSSION

I. Standard of Review.

A trial court properly grants summary judgment where no triable issue of material fact exists and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) "'We apply a de novo standard of review to an order granting summary judgment when, on undisputed facts, the order is based on the interpretation or application of the terms of an insurance policy.' [Citations.] [¶] In reviewing de novo a superior court's summary [judgment] order in a dispute over the interpretation of the provisions of a policy of insurance, the reviewing court applies settled rules governing the interpretation of insurance contracts." (Powerine Oil Co., Inc. v. Superior Court (2005) 37 Cal.4th 377, 390.) The ordinary rules of contract interpretation apply to insurance contracts. (Ibid.) To protect the interests of the insured, coverage provisions are interpreted broadly, and exclusions are interpreted narrowly. (MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 648.) {Slip Opn. Page 5}

We conclude that the trial court properly ruled there was no triable issue of material fact and State Farm was entitled to judgment as a matter of law.

II. The Duty to Defend.

In Medill v. Westport Ins. Corp. (2006) 143 Cal.App.4th 819, 828, we recently summarized the legal principles governing an insurer's duty to defend: "It is well established that an insurer must defend its insured against a suit 'which potentially seeks damages within the coverage of the policy.' [Citation.] This obligation can only be excused when the third party complaint '"can by no conceivable theory raise a single issue which could bring it within the policy coverage."' [Citation.] 'In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot.' [Citation.] Any doubt as to whether the facts give rise to a duty to defend is resolved in the insured's favor. [Citation.] [¶] 'However, while the duty to defend is broad, it is not unlimited. It is entirely dependent upon a showing by the insured that the third party claim for which it seeks a defense is one for damages which potentially fall within the policy coverage. It is the nature and kind of risk covered by the policy which both defines and limits the duty to defend.' [Citations.] [¶] '[T]he determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy. Facts extrinsic to the complaint give rise to a duty to defend when they reveal a possibility that the claim may be covered by the policy.' [Citation.] 'If, at the time of tender, the allegations of the complaint together with extrinsic facts available to the insurer demonstrate no potential for coverage, the carrier may properly deny a defense.' [Citation.]" (Accord, Kazi v. State Farm Fire & Casualty Co. (2001) 24 Cal.4th 871, 879--880; Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 19.)

III. State Farm Owed No Duty to Defend Appellants in the Underlying Action.

State Farm brought its summary judgment motion on the grounds that the underlying action failed to allege either an "occurrence" or bodily injury" as those terms are defined in the policy. Appellants challenge both grounds. They contend that State Farm was not entitled to summary judgment because defamation can arise from a negligent--rather than an intentional--act, and because the underlying action alleged and Philip's discovery responses showed that Philip had suffered not only emotional but also physical injury. We conclude that appellants have failed to show the existence of a material fact precluding summary judgment.

A. The Underlying Action Did Not Allege An "Occurrence." {Slip Opn. Page 6} "" {Slip Opn. Page 6}

The policy provided a defense and coverage for specified claims caused by an "occurrence," which the policy further defined as an "accident." In Ray v. Valley Forge Ins. Co. (1999) 77 Cal.App.4th 1039, the court affirmed a summary judgment, holding that an insurer owed no duty to defend a claim against an insured consultant who rendered bad advice because the complaint failed to allege an occurrence under the policy. There, the policy similarly defined an occurrence as an accident, yet provided no further definition for the term "accident." The court reasoned: "Although the term 'accident' is not defined in the policy, courts have consistently defined the term to require unintentional acts or conduct. [Citations.] The plain meaning of the word 'accident' is an event occurring unexpectedly or by chance. [Citation.]" (Id. at pp. 1045--1046.) Elaborating on the meaning of the term "accident," the court further explained: "'An accident . . . is never present when the insured performs a deliberate act . . . . [W]here the insured intended all of the acts that resulted in the victim's injury, the event may not be deemed an "accident" merely because the insured did not intend to cause injury.' [Citations.]" (Id. at p. 1046; accord Geddes & Smith, Inc. v. St. Paul-Mercury Indemnity Co. (1959) 51 Cal.2d 558, 563--564 [defining the term "accident" in an insurance policy as "'an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause'"]; Shell Oil Co. v. Winterthur Swiss Ins. Co. (1993) 12 Cal.App.4th 715, 755 ["California law also equates 'accident' with unexpected and unintended events"].) In short, "where damage is the direct and immediate result of an intended or expected event, there is no accident." (Id. at p. 751.)

Relying on the definition of "accident" as construed by the California courts, the court in Allstate Ins. Co. v. LaPore (N.D. Cal. 1988) 762 F.Supp. 268 held that an insurer owed no duty to defend its insured in a defamation action because the insured's allegedly defamatory statements were not accidental. The court explained: "Defamation, which includes libel and slander, is an intentional tort which requires proof that the defendant intended to publish the defamatory statement. [Citation.] The very nature of defamation precludes the conclusion that it can occur 'accidentally.'" (Id. at p. 271; see also Tradewinds Escrow, Inc v. Truck Ins. Exchange (2002) 97 Cal.App.4th 704, 714 [citing Allstate Ins. Co. v. LaPore, supra, 762 F.Supp. 268 with approval in ruling that a defamation claim would be excluded from coverage because such a tort cannot occur accidentally].)

On the basis of this authority, the trial court properly ruled that State Farm owed no duty to defend appellants. In the underlying action, Philip alleged that appellants "willfully" made false statements, sent a false e-mail and published a false Internet posting, and intentionally prevented his son and grandmother from having a relationship. There are no allegations in the {Slip Opn. Page 7} underlying action that suggest these statements and actions were unintended or unexpected. Though appellants contend that an insurer owes a duty to defend when extrinsic facts outside the pleadings indicate the possibility of coverage (e.g., Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 296), appellants submitted nothing either to State Farm or in opposition to the summary judgment motion that tended to show their actions were accidental.

Appellants also rely on an isolated statement in Ulrich v. State Farm Fire & Casualty Co. (2003) 109 Cal.App.4th 598, 610, that "an insured could be liable for defamation for negligently publishing a defamatory statement" in arguing that a defamation claim does not necessarily involve intentional conduct. But that statement was merely part of a larger discussion concerning the effect of pleading on an insurer's coverage and defense obligations. As the court explained, "claims do not exist in the ether, they consist of pleaded allegations coupled with extrinsic facts. That is what defines the insurer's coverage duties, not the label chosen by the pleader. [Citation.]" (Id. at p. 611.) There, the court concluded that, notwithstanding an allegation of negligent conduct, the insurer was entitled to summary judgment because extrinsic evidence demonstrated that the insured's conduct was intentional and malicious--and hence not accidental. (Id. at pp. 611--614.) Here, on the other hand, the underlying action specifically alleged that appellants' conduct was willful and intentional, and arose from an evil and improper motive. Appellants offered no extrinsic evidence to support their characterization of their conduct as negligent. Accordingly, the trial court properly granted summary judgment in State Farm's favor on the ground that the underlying action did not involve a covered "occurrence" triggering State Farm's duty to defend.

B. State Farm Owed No Duty to Defend Claims for Emotional and Physical Distress Arising From An Uncovered Loss.

Appellants further contend that summary judgment was improperly granted because the underlying action alleged and Philip's discovery responses established that he was seeking damages for "bodily injury" within the meaning of the policy. Specifically, Philip alleged that he suffered "physical injury and damage . . . . , including . . . upset stomach episodes . . . ." In his interrogatory responses, Philip further averred that "the wrongdoings by cross-defendants have caused injuries to Philip Stellar, such as severe emotional distress, sleep disruption, headache, worry, upset stomach, inability to concentrate fully, general nervousness, exacerbated scalp condition (seborrheic dermatitis), extra worry and concern for his mother and son, and overall stress." Appellants assert that Philip's physical manifestations of his emotional distress constituted claims for bodily injury that triggered State Farm's duty to defend. (See, e.g., {Slip Opn. Page 8} Aim Insurance Co. v. Culcasi (1991) 229 Cal.App.3d 209, 226 ["absent physical injury, emotional distress is not 'bodily injury'"].)

But regardless of whether there were allegations or evidence of physical injury sufficient to constitute "bodily injury" under the policy, the undisputed evidence established that such injury stemmed from an underlying claim that was not covered by the policy. Under analogous circumstances, where the insureds sought a defense against claims that their intentional conduct creating economic loss allegedly resulted in severe emotional and physical distress, the court in Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal.4th 1, held that the insurer owed no duty to defend because there was no allegation that an occurrence caused the alleged injuries. (Id. at pp. 26--27; accord, Modern Development Co. v. Navigators Ins. Co. (2003) 111 Cal.App.4th 932, 943 [insurer owed no duty to defend claims for emotional and physical injuries resulting from insured's failure to comply with antidiscrimination laws, because such failure was not an "accident" or "occurrence" covered by the insurance policy]; Miller v. Western General Agency, Inc. (1996) 41 Cal.App.4th 1144, 1151--1152 [insurer owed no duty to defend on the basis of law "clearly settled in California that occurrence-based liability policies were never intended to cover emotional distress damages that flow from an uncovered occurrence"].) In short, "[w]hen damages that the liability policy covers flow from damages that the policy does not cover, no duty to defend exists." (Kazi v. State Farm Fire & Casualty Co., supra, 24 Cal.4th at p. 880.) Thus, any allegations or evidence suggesting that Philip suffered physical injury as a result of appellants' conduct failed to create a triable issue of material fact precluding summary judgment.

DISPOSITION

The judgment is affirmed. State Farm is entitled to recover its costs on appeal.

Ashmann-Gerst, J., and Chavez, J., concurred.

­FN 1. For clarity and convenience, we refer to several individuals by first name only.

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December 21, 2007

December 19, 2007Commercial Real Estate Remains Strong

Daily Real Estate News  |  December 19, 2007Commercial Real Estate Remains Strong
The fundamentals in commercial real estate remain healthy with only slight increases in vacancy rates expected for the office and industrial sectors during 2008. However, credit restrictions have recently slowed overall investment activity, according to the latest "Commercial Real Estate Outlook"of the NATIONAL ASSOCIATION OF REALTORS®.

“Although vacancy rates remain relatively low for all sectors, they are expected to rise slightly in the office and industrial markets during the coming year because much of the space being absorbed is in high-quality buildings or is built-to-suit,” says NAR Chief Economist Lawrence Yun. “As a result, there is a fair amount of older space on the market, particularly in the industrial sector where obsolescence is a factor, although industrial rents are showing healthy gains. Vacancy rates in the retail and multifamily sectors are projected to tighten in 2008 with rents rising in all sectors.”

Yun says the credit crunch has been impacting the market over the last few months, but 2007 is already a record for commercial real estate investment.

“Tighter credit conditions will limit individual commercial real estate investment deals moving forward,” he says. “Because capitalization rates are already very low, it is likely that commercial property prices will ease. The era of rapid commercial property price increases has ended.”

Record Investment

A record $325 billion was invested in commercial real estate in the first 10 months of 2007, up from $306.8 billion for all of 2006; that total does not include transactions valued at less than $5 million or investments in the hospitality sector, based on an analysis of data from Real Capital Analytics.

Patricia Nooney of Saint Louis, chair of the REALTORS® Commercial Alliance, says commercial real estate investment is expected to stay historically strong.

“Even with the credit crunch there’s been no significant impact on institutional investors, and it’s unrealistic to set new records every year in a cyclical business,” she says “There’s been a shift in investment activity to foreign buyers, who are taking advantage of the dollar’s decline relative to other currencies. With many areas showing favorable fundamentals, commercial property in the U.S. has become very attractive to foreign investors.”

The NAR forecast in four major commercial sectors analyzes quarterly data for various tracked metro areas. The sectors are the office, industrial, retail and multifamily markets. Historic metro data were provided by Torto Wheaton Research and Real Capital Analytics.

Office Market

With jobs still being created, the demand for office space remains positive and is helping to absorb the more than 30 million square feet of new space becoming available in the current quarter. Investment grade office properties with solid income streams will be the most in demand by institutional investors, equity funds and foreign investors.

Since not all of the vacated space is being back-filled or leased, office vacancies are forecast to rise to 13.2 percent by the fourth quarter of 2008 from an estimated 12.9 percent in the current quarter; it was 12.6 percent at the end of 2006. Annual rent growth in the office sector should be 8.0 percent this year and 2.0 percent in 2008, after rising 5.2 percent in 2006.

Other projections for the office market:
  • Markets with lowest office vacancies for fourth quarter: New York City; Honolulu; Tucson, Ariz.; Long Island, N.Y.; Los Angeles; and Riverside, Calif., all with vacancy rates of 10 percent or less.
  • Net absorption of office space: (in 57 markets tracked, which includes the leasing of new space coming on the market as well as space in existing properties) is likely to total 55.4 million square feet in 2007 and 43 million next year, but below the 81.2 million in 2006.
  • Office building transaction volume: (in the first 10 months of this year) totaled a record $173.5 billion, compared with $133.5 billion for all of 2006. So far this year foreign investors purchased $12.5 billion worth of office properties, with buyers from the Middle East and Germany accounting for half of that volume.

Industrial Market

The weaker dollar is fueling an increase in exports, but leasing activity has declined in port distribution hubs, and vacancy rates in those markets are edging up; some users are building or renting in secondary markets.

With abundant land and relatively low concerns regarding site remediation, secondary and tertiary markets are experiencing greater interest. So far this year, nearly 16 percent of industrial investment has taken place outside of the 58 primary markets tracked.

Vacancy rates in the industrial sector are projected to average 9.4 percent in the fourth quarter and 9.5 percent by the end of 2008; vacancies averaged 9.4 percent in the fourth quarter of 2006. Annual rent growth will more than double to 3.3 percent by the end of 2007 and is seen at 1.3 percent a year from now, compared with a 1.4 percent annual gain at the end of 2006.

Other projections for the industrial market:
  • Markets with lowest industrial vacancies: Los Angeles; San Francisco; Tucson; Orange County, Calif.; Portland, Ore.; and Las Vegas, all with vacancy rates of 6.1 percent or less.
  • Net absorption of industrial space: (in 58 markets tracked) is expected total 127.4 million square feet in 2007 and 144 million next year, down from 205.4 million in 2006.
  • Industrial transaction volume: in the first 10 months of 2007 was $35.8 billion, compared with $38.9 billion for all of 2006.

Retail Market

Even with a decline in consumer confidence, retail vacancy rates remain fairly stable. Declining production of new space will help improve fundamentals in this sector during 2008.

Vacancy rates in the retail sector will probably rise to 8.9 percent in the current quarter from 8.0 percent at the end of last year, and then ease to 8.6 percent by the fourth quarter of 2008. Average retail rent should grow by 2.2 percent this year and 1.9 percent in 2008, after rising 3.9 percent in 2006.

Other projections for the retail market include:
  • Retail markets with the lowest vacancies: San Francisco; Orange County, Calif.; San Jose, Calif.; Ventura County, Calif.; Washington, D.C.; and San Diego, all with vacancy rates of 5.5 percent or less.
  • Net absorption of retail space: (in 53 tracked markets) is forecast at 18.6 million square feet for 2007 and 24.7 million next year, up from 10.5 million in 2006.
  • Retail transaction volume: in the first 10 months of this year totaled $52.9 billion, exceeding the $46.9 billion for all of 2006. The Southeast is the most sought-out region this year.

Multifamily Market

The apartment rental market — multifamily housing — is experiencing increased demand from the slowdown in home sales. With a rising population and a growing number of households, vacancies are tightening and rents are rising.

Multifamily vacancy rates are projected to average 5.4 percent in the current quarter, down from 5.9 percent in the fourth quarter of last year, and then continue to decline to 5.1 percent by the end of 2008. Average rent is likely to rise 3.1 percent for 2007 and 3.8 percent next year, following a 4.1 percent increase in 2006.

Multifamily net absorption is expected to total 234,400 units in 59 tracked metro areas in 2007, below the 229,500 last year, but should rise to 245,800 in 2008.

Other projections for the multifamily market include:

Markets with lowest apartment vacancies include Northern New Jersey, Salt Lake City, San Jose, San Diego, Nashville and Philadelphia, all with vacancy rates of 3.3 percent or less.

Multifamily transactions in the first 10 months of this year totaled $62.3 billion, compared with $87.4 billion for all of 2006. The sale of buildings originally constructed as condos are being sold to multifamily investors in markets like Washington, D.C., and South Florida.

Many markets have seen condo “for sale” signs change to “apartment for lease” signs almost overnight. Some condominium complexes are being converted into office buildings, and others are becoming mixed-use projects.

— REALTOR® Magazine Online

For more economic news and research reports, visit NAR's Research division at REALTOR.org.
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The Mortgage Forgiveness Debt Relief Act of 2007

Fact Sheet: The Mortgage Forgiveness Debt Relief Act of 2007
President Bush Signs Legislation Protecting American Families From Higher Taxes When They Refinance Their Homes

     Fact sheet In Focus: Homeownership
     Fact sheet President Bush Signs H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007

"When your home is losing value and your family is under financial stress, the last thing you need is to be hit with higher taxes.  So I'm working with members of both parties to pass a bill that will protect homeowners from having to pay taxes on cancelled mortgage debt."

President George W. Bush, 9/1/07

Today, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which will help Americans avoid foreclosure by protecting families from higher taxes when they refinance their home mortgages.  This Act will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive.  Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed. 

  • This Act will increase the incentive for borrowers and lenders to work together to refinance loans and allow American families to secure lower mortgage payments without facing higher taxes.    

This Act Is A Good Step To Address The Housing Market, But Congress Has More Work To Do

Congress needs to complete work on responsible legislation modernizing the Federal Housing Administration (FHA).  This bill will give FHA the necessary flexibility to help hundreds of thousands of additional families qualify for prime-rate financing. 

Congress needs to pass legislation permitting State and local governments to help troubled borrowers by issuing tax-exempt bonds for refinancing existing home loans.  Under current law, cities and States can issue tax-exempt bonds to finance new mortgages for first-time homebuyers. 

Congress needs to pass legislation to reform Government Sponsored Enterprises (GSEs) like Freddie Mac and Fannie Mae.  GSEs provide liquidity to the mortgage market that benefits millions of homeowners, and it is vital that they operate safely and soundly. The President has called on Congress to pass legislation that strengthens independent regulation of the GSEs and ensures they focus on their important housing mission. 

The Administration Has Moved Forward On Targeted Actions To Assist Homeowners That The President Announced In August

The President and his Administration have launched a new initiative at the Federal Housing Administration (FHA) called FHASecure.  FHASecure expands the FHA's ability to offer refinancing by giving it the flexibility to work with homeowners who have good credit histories but cannot afford their current payments.  By the end of 2008, the FHA expects this program to help more than 300,000 families refinance their homes.

Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson have assembled the private-sector HOPE NOW alliance.  HOPE NOW recently mailed hundreds of thousands of letters to borrowers falling behind on their payments and is supporting a toll-free mortgage counseling hotline, 1-888-995-HOPE.

  • HOPE NOW has developed a plan under which up to 1.2 million homeowners could be eligible for assistance.  The HOPE NOW plan will help subprime borrowers who can afford the current, starter rate on a subprime loan, but would not be able to make the higher payments once the interest rate goes up. 
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December 19, 2007

Questions and Answers on Home Foreclosure and Debt Cancellation

Questions and Answers on Home Foreclosure and Debt Cancellation

 

1. What is Cancellation of Debt?

If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.

 

2. Is Cancellation of Debt income always taxable?

Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

  • Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
  • Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
  • Certain farm debts:If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
  • Non-recourse loans:A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.However, it may result in other tax consequences, as discussed in Question 3 below.

 

3. I lost my home through foreclosure.  Are there tax consequences?  

There are two possible consequences you must consider: 

  • Taxable cancellation of debt income.(Note: As stated above, cancellation of debt income is not taxable in the case of non-recourse loans.)
  • A reportable gain from the disposition of the home (because foreclosures are treated like sales for tax purposes).(Note: Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income.)

Use the following steps to compute the income to be reported from a foreclosure:

Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section.  You have no income from cancellation of debt.)

1. Enter the total amount of the debt immediately prior to the foreclosure.___________
2. Enter the fair market value of the property from Form 1099-C, box 7. ___________
3. Subtract line 2 from line 1.If less than zero, enter zero.___________

 

The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C.  This amount is taxable unless you meet one of the exceptions in question 2.  Enter it on line 21, Other Income, of your Form 1040.

Step 2 – Figuring Gain from Foreclosure

4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure ________
5.    Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.)                                    ____________
6. Subtract line 5 from line 4.  If less than zero, enter zero.   

The amount on line 6 is your gain from the foreclosure of your home.  If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income.  If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.


4. I lost money on the foreclosure of my home.  Can I claim a loss on my tax return? 
 

No.  Losses from the sale or foreclosure of personal property are not deductible.  


5.  Can you provide examples?

A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000.

The borrower figures income from the foreclosure as follows:

Use the following steps to compute the income to be reported from a foreclosure:

Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section.  You have no income from cancellation of debt.)

1. Enter the total amount of the debt immediately prior to the foreclosure.___$220,000__
2. Enter the fair market value of the property from Form 1099-C, box 7. ___$200,000__
3. Subtract line 2 from line 1.If less than zero, enter zero.___$20,000__

The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C.  This amount is taxable unless you meet one of the exceptions in question 2.  Enter it on line 21, Other Income, of your Form 1040.

Step 2 – Figuring Gain from Foreclosure

4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure. __$200,000__
5.  Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.)                                        ___$170,000__
6. Subtract line 5 from line 4.If less than zero, enter zero.___$30,000__

 

The amount on line 6 is your gain from the foreclosure of your home.  If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income.  If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.

In this situation, the borrower has a tax-free home-sale gain of $30,000 ($200,000 minus $170,000), because they owned and lived in their home as a principal residence for at least two years. Ordinarily, the borrower would also have taxable debt-forgiveness income of $20,000 ($220,000 minus $200,000). But since the borrower’s liabilities exceed assets by $20,000 ($250,000 minus $230,000) there is no tax on the canceled debt.

Other examples can be found in IRS Publication 544, Sales and Other Dispositions of Assets, under the section “Foreclosures and Repossessions”.

 

6.  I don’t agree with the information on the Form 1099-C.  What should I do?

Contact the lender.  The lender should issue a corrected form if the information is determined to be incorrect.  Retain all records related to the purchase of your home and all related debt.

 

7.  I received a notice from the IRS on this. What should I do?

The IRS urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.


8. Where else can I go to get tax help?

If you are having difficulty resolving a tax problem (such as one involving an IRS bill, letter or notice) through normal IRS channels, the Taxpayer Advocate Service may be able to help. For more information, you can also call the TAS toll-free case intake line at 1-877-777-4778, TTY/TDD 1-800-829-4059. 

In some cases, you may qualify for free or low-cost assistance from a Low Income Taxpayer Clinic (LITC).  LITCs are independent organizations that represent low income taxpayers in tax disputes with the IRS. Find information on an LITCs in your area.

 

Related Items:

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APPEALS COORDINATED ISSUE

 
APPEALS COORDINATED ISSUE
SETTLEMENT GUIDELINES
ISSUE: Discounts for Family Limited Partnerships
COORDINATOR: Mary Lou Edelstein
TELEPHONE: (305) 982-5276
UIL NO: 2031.01-00
FACTUAL/LEGAL ISSUE: Legal and Factual
APPROVED:
/s/ Cynthia A. Vassilowitch October 18, 2006 _________________________________ _______________
Director, Technical Guidance DATE
/s/ Diane S. Ryan October 20, 2006
_________________________________ _______________
Director, Technical Services DATE
EFFECTIVE DATE: October 20, 2006
1 Any line marked with a # is for Official Use Only
APPEALS SETTLEMENT GUIDELINES
FAMILY LIMITED PARTNERSHIPS AND FAMILY LIMITED LIABILITY CORPORATIONS
UIL 2031.01-00
Issues
1. Whether the fair market value of transfers of family limited partnership or corporation interests, by death or gift, is properly discounted from the pro rata value of the underlying assets.
2. Whether the fair market value at date of death of I.R.C. §§ 2036 or 2038 transfers should be included in the gross estate.
3. Whether there is an indirect gift of the underlying assets, rather than the family limited partnership interests, where the transfers of assets to the family limited partnership (funding) occurred either before, at the same time, or after the gifts of the limited partnership interests were made to family members.
4. Whether an accuracy-related penalty under I.R.C. § 6662 is applicable to any portion of the deficiency.
Background
Family limited partnerships and family corporations have long been used in the conduct of active businesses, primarily to provide a vehicle for family involvement in the enterprise and for succession planning. In the early 1990’s, however, estate planners began using family limited partnerships and family limited liability corporations to hold and transfer passive assets such as stock portfolios, mutual funds, bond portfolios, cash, and similar passive assets that are easily liquidated. The alleged "business" purpose for forming family partnerships or corporations with passive assets was to engage a younger generation in investment decision making.
The IRS initially focused on the question of whether the family limited partnership was valid for tax purposes. Substance over form, step-transaction analysis, and lack of business purpose theories were used by the IRS to essentially set aside the transaction for estate and gift tax purposes and include the full value of the assets in determining estate or gift tax liabilities. These arguments are not always successful in litigation. As a result of some well-articulated court decisions, there is now a set of recognized criteria that estate planners can use in establishing family limited partnerships and family limited liability corporations that head off such challenges. The IRS still raises the issue of legitimacy, however, when these criteria have not been followed.

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December 18, 2007

From: HUD USER News

From: HUD USER News
 
To explore the public's knowledge and perceptions of
various choices in housing types, HUD's Office of Policy
Development and Research has funded research to examine
consumer familiarity, attitudes, and experiences with
stick-built, modular, manufactured, and panelized homes.
The results of this inquiry are reported in Factory-
Built Construction and the American Homebuyer:
Perceptions and Opportunities, a recently released
publication that can be downloaded free of charge at
 www.huduser.org/publications/destech/perception.html.
The report includes a literature review, the
questionnaires used for conducting web-based and
telephone surveys, and detailed results. 
 
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Residential Rehabilitation Inspection Guide

NOTE: Adobe Reader is required to download, view, and/or print PDF files. If your computer does not have this software, you must first download Adobe Reader, and follow the installation instructions before accessing PDF files from PATH's Web site.

FULL TEXT:  Adobe Acrobat (*.pdf, 4.8 MB)

SECTIONS:
 Chapter 1 (*.pdf, 1 MB)
 Chapter 2-4 (*.pdf, 1.6 MB)
 Chapter 5-7 (*.pdf, 1.8 MB)
 Appendix (*.pdf, 615 KB)

February 2000, 162 pages

An important factor in making the best use of our nation's housing stock is accurately assessing the condition, safety, usefulness, and rehabilitation potential of older residential buildings. The Residential Rehabilitation Inspection Guide provides step-by-step technical information for evaluating a residential building's site, exterior, interior, and structural, electrical, plumbing, and HVAC systems.

First published by the U.S. Department of Housing and Urban Development in 1984 as the Guideline on Residential Building Systems Inspection, the guideline has found widespread use and acceptance among architects, engineers, builders, realtors, and preservationists.

Now the guideline has been updated and expanded to include current assessment techniques and standards, information about additional building materials, and a broader coverage of hazardous substances and the effects of earthquakes, wind, and floods. HUD is pleased to reissue this important and time-tested publication, knowing that it will prove a valuable resource for preserving and reusing our nation's building stock.

Content updated on 3/24/2006

http://www.pathnet.org/sp.asp?id=9094

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December 17, 2007

Ortiz v. Lyon Mgmt. Group, Inc., No. G037225

CLASS ACTIONS, CONSTITUTIONAL LAW, CONSUMER PROTECTION LAW, LANDLORD TENANT LAW
Ortiz v. Lyon Mgmt. Group, Inc., No. G037225
In class action alleging violations of the Investigative Consumer Reporting Agencies Act and the Consumer Credit Reporting Agencies Act regarding tenant screening reports used to assess rental applicants, summary judgment for defendant is affirmed as the ICRAA is unconstitutionally vague as applied to tenant screening reports containing unlawful detainer information. Moreover, defendant could not obtain class certification after the court decided the merits of plaintiff's individual claim. Read more...   PDF version

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CSX TRANSPORTATION, INC. v. GEORGIA STATE BOARD OF EQUALIZATION et al.

Jump to: [Opinion]

CSX TRANSPORTATION, INC. v. GEORGIA STATE BOARD OF EQUALIZATION et al.

certiorari to the united states court of appeals for the eleventh circuit

No. 06-1287. Argued November 5, 2007--Decided December 4, 2007

Under Georgia law, most commercial and industrial property is valued locally by county boards for tax purposes, but public utilities such as petitioner railroad (CSX) are initially valued by the State. In 2002, respondent Georgia state board used a different combination of methodologies than it had in 2001 to determine that the market value of CSX's in-state real property had increased 47 percent, resulting in a significantly higher ad valorem tax levy. CSX filed suit under the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act or Act), which bars States from, inter alia, "[a]ssess[ing] rail transportation property at a value that has a higher ratio to the [property's] true market value ... than the ratio" between the assessed and true market values of other commercial and industrial property in the same taxing jurisdiction, 49 U. S. C. §11501(b)(1), and authorizes the federal district court to enjoin the tax if the railroad ratio exceeds the ratio for other property by at least five percent, §11501(c). CSX alleged that Georgia had grossly overestimated the market value of its in-state rail property while accurately valuing other commercial and industrial property in the State, so that CSX's property was taxed at a ratio of assessed-to-market value considerably more than 5 percent greater than the same ratio for the other in-state property. Ruling that Georgia had not discriminated against CSX in violation of the 4-R Act because the State had used widely accepted valuation methods to arrive at its 2002 estimate of true market value, the District Court declared that the Act does not allow a railroad to challenge a State's chosen methodology if it is rational and not motivated by discriminatory intent. The Eleventh Circuit panel affirmed, reasoning that the Act does not clearly state that railroads may challenge valuation methodologies, and that such a clear statement was required in light of the intrusion on state taxing prerogatives.

Held: The 4-R Act allows a railroad to attempt to show that state methods for determining the value of railroad property result in a discriminatory determination of true market value. Pp. 5-12.

     (a) The Act's language is clear. States may not tax railroad property at a ratio of assessed-to-true-market value higher than the ratio for other commercial and industrial property in the same jurisdiction. To apply the Act, district courts must calculate the true market value of in-state railroad property. A court cannot undertake the comparison of ratios the statute requires without that figure at hand, see Burlington Northern R. Co. v. Oklahoma Tax Comm'n, 481 U. S. 454, 461, and the determination of true market value may be affected by the State's choice of valuation methods. Georgia's argument that valuation methodologies must be distinguished from their application, and that the Act allows courts to question only the latter, is rejected. There is no distinction between method and application in the Act's language and no passage limiting district court factfinding as the State proposes. Georgia's position is untenable given the way market value is calculated. Valuation is not a matter of mathematics, but an applied science, even a craft. Most appraisers estimate market value by employing not one methodology but a combination because no one approach is entirely accurate, at least in the absence of an established market for the type of property at issue. The individual methods yield sometimes more, sometimes less reliable results depending on the peculiar features of the property evaluated. Given the extent to which the chosen methods can affect the determination of value, preventing courts from scrutinizing state valuation methodologies would render §11501 a largely empty command, forcing district courts to accept as "true" the market value estimate of the State, one of the parties to the litigation. States, in turn, would be free to employ appraisal techniques that routinely overestimate the market worth of railroad assets. By then levying taxes based on those overestimates, States could implement the very discriminatory taxation Congress sought to eradicate. Courts would be powerless to stop them, and the Act would ultimately guarantee railroads nothing more than mathematically accurate discriminatory taxation.

     The State's warning that allowing railroads to introduce their own valuation estimates based on different methodologies will inevitably lead to a futile clash of experts, which courts will have no reasonable way to settle, is not compelling, given that Congress was not similarly troubled. Rather, Congress directed courts to find true market value, however elusive, making that value the objective benchmark for courts' evaluation. Property valuation, though admittedly complex, is at bottom just "an issue of fact about possible market prices," Suitum v. Tahoe Regional Planning Agency, 520 U. S. 725, 741, an issue district courts are used to addressing. In light of the statute's directive making true market value a factual question to be determined by the district court, what Georgia really seeks is to limit the types of evidence courts may consider as part of their factual inquiry. Had Congress intended to impose such a limit, it could easily have included language insulating the State's chosen methodologies from judicial scrutiny. It did not. Pp. 5-9.

     (b) The State argues that any interpretation of the Act allowing courts to question state valuation methods ignores the background principles of federalism against which the statute was enacted. Even if important state policy questions are intertwined with the selection of a valuation methodology, however, Congress clearly permitted courts to question such methodologies when it banned discriminatory assessment ratios and made true market value a question to be litigated in federal court. Department of Revenue of Ore. v. ACF Industries, Inc., 510 U. S. 332, 343-344, distinguished. The Court also disagrees with Georgia's claim that the Court's interpretation will destroy the States' discretion to choose their own valuation methodologies. A State may use whatever method it likes, so long as the result is not discriminatory in violation of the Act. Pp. 9-12.

472 F. 3d 1281, reversed.

     Roberts, C. J., delivered the opinion for a unanimous Court.

 


CSX TRANSPORTATION, INC., PETITIONER v.
GEORGIA STATE BOARD OF
EQUALIZATION et al.

on writ of certiorari to the united states court of
appeals for the eleventh circuit

[December 4, 2007]

 


     Chief Justice Roberts delivered the opinion of the Court.

     The Railroad Revitalization and Regulatory Reform Act prohibits States from discriminating against railroads by taxing railroad property more heavily than other commercial property in the State. Two decades ago, we held that this statute permits an aggrieved railroad to challenge a State's valuation of its property for tax purposes. Burlington Northern R. Co. v. Oklahoma Tax Comm'n, 481 U. S. 454, 462 (1987). Because the railroad in that case challenged only the State's application of its valuation methods, we expressly reserved the question whether a railroad may challenge the State's methods themselves. We answer that question today, and hold that railroads may challenge state methods for determining the value of railroad property, as well as how those methods are applied. The statute provides for nothing less.

I

     Congress enacted the Railroad Revitalization and Regulatory Reform Act in 1976. 90 Stat. 31.1 Called the "4-R Act" for brevity, the law aimed to halt the economic decline of the rail industry by, among other means, barring "discriminatory state taxation of railroad property." Burlington Northern, supra, at 457; see also Department of Revenue of Ore. v. ACF Industries, Inc., 510 U. S. 332, 336 (1994). The 4-R Act prohibits four separate forms of discriminatory state taxation of railroads.2 Only the first is at issue here: States, the Act provides, may not "[a]ssess rail transportation property at a value that has a higher ratio to the [property's] true market value . . . than the ratio" between the assessed and true market values of other commercial and industrial property in the same taxing jurisdiction. 49 U. S. C. §11501(b)(1). If the railroad ratio exceeds the ratio for other property by at least five percent, the district court may enjoin the tax. §11501(c).3

     Petitioner CSX Transportation, Inc., is a freight rail carrier with multiple routes across the State of Georgia. As a consequence, it is subject to Georgia's ad valorem tax on real property. Under Georgia law, most commercial and industrial property is valued locally by county boards. Public utilities such as railroads, however, are initially valued by the State, which then certifies the proposed valuations to the county boards for adoption or alteration. In 2001, Georgia's State Board of Equalization, a respondent here, put CSX's ad valorem tax liability at $4.6 million. A year later, the State's appraiser used a different combination of methodologies to determine the market value of CSX's in-state property.4 The result was a significantly higher tax levy. The State estimated the railroad's 2002 market value at approximately $7.8 billion, 472 F. 3d 1281, 1285 (CA11 2006), a 47 percent increase over the previous year. That brought the assessed value of CSX's Georgia property to $514.9 million, for a final property tax bill of $6.5 million. Brief for Petitioner 15.

     CSX filed suit in the United States District Court for the Northern District of Georgia, contending that the State's 2002 tax assessment violated the 4-R Act. The railroad alleged that Georgia had grossly overestimated the market value of its in-state property while accurately valuing other commercial and industrial property in the State. The result, according to CSX, was that its rail property was taxed at a ratio of assessed-to-market value considerably more than 5 percent greater than the same ratio for the other property in the State.

     To make its case, CSX submitted the testimony of its own expert appraiser, who relied on a combination of valuation methods different from those used by the appraiser for Georgia. The CSX appraiser calculated the 2002 market value of the railroad's property to be $6 billion, not the $7.8 billion figure used by the State. 472 F. 3d, at 1285-1286. CSX maintained that the state appraiser's valuation methodologies were flawed, and urged the District Court to accept the market value estimated by its expert as more accurate.

     The District Court refused to do so. Following a bench trial, the court ruled Georgia had not discriminated against CSX in violation of the 4-R Act because the State had used widely accepted valuation methods to arrive at its estimate of true market value. 448 F. Supp. 2d 1330, 1341 (ND Ga. 2005). In the judgment of the District Court, the Act "does not generally allow a railroad to challenge the state's chosen methodology," as long as the State's methods are rational and not motivated by discriminatory intent. Ibid.

     A divided panel of the Court of Appeals for the Eleventh Circuit affirmed. 472 F. 3d 1281 (2006). The majority reasoned that the "text of the Act does not clearly state that railroads may challenge valuation methodologies," and that such a clear statement was required in light of the intrusion on state taxing prerogatives. Id., at 1289. Judge Fay dissented. Id., at 1292. Recognizing the division on this question among the Circuits, compare Consolidated Rail Corp. v. Hyde Park, 47 F. 3d 473, 481-482 (CA2 1995) (a railroad may challenge a State's valuation methodology), and Burlington Northern R. Co. v. Department of Revenue of Wash., 23 F. 3d 239, 240-241 (CA9 1994) (same), with Chesapeake Western Ry. v. Forst, 938 F. 2d 528, 531 (CA4 1991) (a railroad may not challenge a State's valuation methodology), and 472 F. 3d, at 1289 (decision below), we granted certiorari, 550 U. S. ___ (2007), and now reverse.

II

     "[T]he language of §1150[1] plainly declares the congressional purpose." Burlington Northern, 481 U. S., at 461. States may not tax railroad property at a ratio of assessed-to-true-market value higher than the ratio for other commercial and industrial property in the same jurisdiction. In order to apply the Act, district courts must calculate the true market value of in-state railroad property. A court cannot undertake the comparison of ratios the statute requires without that figure at hand. We said as much in Burlington Northern: "It is clear from [the Act's] language that in order to compare the actual assessment ratios, it is necessary to determine what the 'true market values' are." Ibid.

     We do not see how a court can go about determining true market value if it may not look behind the State's choice of valuation methods. Georgia insists there is a clear and important distinction between valuation methodologies and their application. As the State would have it, the statute allows courts to question only the latter. We find no distinction between method and application in the language of the Act, and see no passage limiting district court factfinding in the manner the State proposes. The total lack of textual support for Georgia's position is not surprising. The dichotomy the State presses would eviscerate the statute by forcing courts to defer to the valuation estimate of the State, when discriminatory taxation by States was the very evil the Act aimed to ban.

     Georgia's position is untenable given the way market value is calculated. Valuation is not a matter of mathematics, as if the district court could prevent discriminatory taxation simply by doublechecking the State's assessment equations. Rather, the calculation of true market value is an applied science, even a craft. Most appraisers estimate market value by employing not one methodology but a combination. These various methods generate a range of possible market values which the appraiser uses to derive what he considers to be an accurate estimate of market value, based on careful scrutiny of all the data available. Appraisal Institute, The Appraisal of Real Estate 49 (12th ed. 2001).

     Georgia's appraiser in the instant case, for example, used three different valuation techniques--the discounted cashflow approach, a market multiple approach, and a stock and debt approach. He derived five values from these three methods, ranging from $8.126 billion to $12.346 billion. After selecting a number at the low end of the range and then subtracting another $400 million to account for intangible property not subject to ad valorem taxation, he settled on $7.8 billion as his final estimate of the true market value. 472 F. 3d, at 1284-1285.

     Appraisers typically employ a combination of methods because no one approach is entirely accurate, at least in the absence of an established market for the type of property at issue. The individual methods yield sometimes more, sometimes less reliable results depending on the peculiar features of the property evaluated. As the variation in the state appraiser's market-value range reveals, different methods can produce substantially different estimates. W. Kinnard, Income Property Valuation: Principles and Techniques of Appraising Income-Producing Real Estate 52 (1971).

     Given the extent to which the chosen methods can affect the determination of value, preventing courts from scrutinizing state valuation methodologies would render §11501 a largely empty command. It would force district courts to accept as "true" the market value estimated by the State, one of the parties to the litigation. States, in turn, would be free to employ appraisal techniques that routinely overestimate the market worth of railroad assets. By then levying taxes based on those overestimates, States could implement the very discriminatory taxation Congress sought to eradicate. On Georgia's reading of the statute, courts would be powerless to stop them, and the Act would ultimately guarantee railroads nothing more than mathematically accurate discriminatory taxation. We do not find this interpretation compelling. Instead, we agree with Judge Fay in dissent below: "Since the objective of any methodology is a determination of true market value, a railroad should be allowed to challenge the method[s] used [by the State] in an attempt to prove that the result ... was not the true market value of its property." 472 F. 3d, at 1294.

     The State agrees that it may not be possible to fix true market value with any precision. But it draws a different conclusion from this premise. Because any number of estimates are plausible, Georgia argues, the court is as likely to get an accurate result by verifying the application of the State's methods--so long as they are broadly reasonable--as it is by employing another method altogether. The State warns that allowing railroads to introduce their own valuation estimates based on different methodologies will inevitably lead to a futile clash of experts, which courts will have no reasonable way to settle. At least one of the Courts of Appeals shares this concern. See Chesapeake Western, 938 F. 2d, at 532 ("There is no absolute way to test the assertions of competing valuations . . ." (internal quotation marks and brackets omitted)).

     Congress was not similarly troubled. It directed courts to find true market value, however elusive. It made that value the objective benchmark for courts' evaluation of state taxes on railroad property. True market value may well not be a single, precise number, but Congress obviously believed it was susceptible to judicial inquiry and that some approximations were better than others.

     Georgia's grim prophecies notwithstanding, the inquiry the statute mandates is not unfamiliar to courts. Valuation of property, though admittedly complex, is at bottom just "an issue of fact about possible market prices," Suitum v. Tahoe Regional Planning Agency, 520 U. S. 725, 741 (1997), an issue district courts are used to addressing. Railroad property is not frequently sold, but "determinations of market value are routinely made in judicial proceedings without the benefit of a market transaction." Id., at 742. The District Court in this case made clear that it knew how to find true market value: "In a more typical case, the court would look at both [the railroad expert's] appraisal and [the State's] appraisal to determine the true market value of [the railroad]." 448 F. Supp. 2d, at 1338, n. 8. It refused to do so not because true market value is inherently elusive, but because it believed the Act did not allow it to question the State's methods.

     In light of the statute's directive making true market value a factual question to be determined by the district court, what Georgia is really asking for is a limitation on the types of evidence courts may consider as part of their factual inquiry. If Congress had wanted to impose such a limit by reserving to States the prerogative of selecting which valuation methods may be used, it surely could have done so. Out of deference to the States, for example, §11501(c) provides that "[t]he burden of proof in determining . . . true market value [shall be] governed by State law." Congress could easily have included similar language insulating the State's chosen methodologies from judicial scrutiny. It did not. Like Oklahoma's argument in Burlington Northern, Georgia's position in this case ultimately "depends upon the addition of words to a statutory provision which is complete as it stands." 481 U. S., at 463. We decline to find distinctions in the statute where they do not exist, especially where, as here, those distinctions would thwart the law's operation.

III

     Considering the clarity of the statute, we are tempted to leave the discussion at that. "When we find the terms of a statue unambiguous, judicial inquiry is complete . . . ." Rubin v. United States, 449 U. S. 424, 430 (1981). Georgia, however, lodges two objections to our interpretation, each of which merits a reply. First, the State argues that any interpretation of the Act allowing courts to question state valuation methods ignores the background principles of federalism against which the statute was enacted. The majority below expressed a similar concern. "The selection of a valuation methodology," it ruled, "is part of th[e] fundamental power of a state [to tax]," 472 F. 3d, at 1288, and should not be limited absent a clear statement from Congress. We have long held that the means States adopt to collect their taxes "should be interfered with as little as possible." Dows v. Chicago, 11 Wall. 108, 110 (1871). But we are persuaded that allowing railroads to challenge a State's valuation methodologies has been clearly authorized by the terms of the 4-R Act.

     As an initial matter, we question Georgia's contention that its selection of valuation methodologies is an important state policy choice intimately connected to its tax power. Georgia does not prescribe any particular methodology as a matter of state law. Its appraisers use different methodologies in different combinations, as they see fit. See 472 F. 3d, at 1284-1285 (explaining that the state appraiser employed multiple methods and selected a value according to his best judgment). This suit, in fact, is the result of an individual appraiser's decision to employ a different combination of assessment techniques than that used by his immediate predecessors. The methods he selected were his choice, not the dictate of any state statute or regulation. Ibid.

     But even if important questions of state policy are, as the Eleventh Circuit believed, "intertwined with the selection of a valuation methodology," id., at 1288, judicial scrutiny of those methodologies is authorized by the 4-R Act's clear command to find true market value. As we explained above, the power to calculate true market value necessarily includes the power to look behind a State's valuation methods. That the statute should vest this authority in the Nation's courts is hardly surprising, given Congress's conclusion that the States were assessing railroad property unfairly.

     Our decision in Department of Revenue of Ore. v. ACF Industries, Inc., 510 U. S. 332 (1994), is not to the contrary. That case concerned a different provision of the 4-R Act--namely, the command in §11501(b)(4) preventing a State from "[i]mpos[ing] another tax that discriminates against a rail carrier providing transportation" in the taxing jurisdiction. This bar on facially discriminatory taxes, we held, did not prevent a State from exempting certain nonrailroad property from otherwise generally applicable ad valorem taxes. ACF Industries, 510 U. S., at 343. At the time the 4-R Act was adopted, a majority of States exempted one or more classes of business property from ad valorem taxation, "including business inventories, raw materials used in textile manufacturing, . . . and mechanics tools," to name just a few. Id., at 344. The States had provided such property tax exemptions for years. In the face of this widespread and historical practice, we declined to read the 4-R Act to prohibit a type of tax exemption the text did not expressly mention. Ibid.

     By contrast, we pointedly noted that the Act "prohibit[s] discriminatory tax rates and assessment ratios in no uncertain terms . . . and set[s] forth precise standards for judicial scrutiny of challenged rate and assessment practices." Id., at 343. Georgia's claim that court review of state valuation methodologies is not authorized by a clear statement in the Act ignores the statute's explicit prohibition of discriminatory assessment ratios. A district court cannot accurately calculate or compare those ratios without determining true market value. Congress clearly permitted courts to question state valuation methodologies when it banned discriminatory assessment ratios and made true market value a question to be litigated in federal court.

     Georgia also protests that our interpretation will destroy the States' discretion to choose their own valuation methodologies. We disagree. A State may use whatever method or methods it likes, so long as the result is not discriminatory. The Act does not prohibit the use of any valuation methodology. It prohibits discrimination. Far from requiring States to follow a particular method, we hold only that nothing in the statute prevents a railroad from attempting to show that the methods chosen by the State result in a discriminatory determination of true market value.

     The judgment of the Court of Appeals for the Eleventh Circuit is reversed.

It is so ordered.

 



FOOTNOTES


Footnote 1

 The portion of the Act that concerns us here, Section 306, was originally codified at 49 U. S. C. §26c (1976 ed.). In 1978, Congress recodified it at 49 U. S. C. §11503 (1976 ed., Supp. II). Congress recodified it again in 1995, without substantive change, this time as §11501. For convenience, all references to the statute are to the text of §11501.


Footnote 2

 Section 11501 reads, in relevant part:

     "(b) The following acts unreasonably burden and discriminate against interstate commerce, and a State, subdivision of a State, or authority acting for a State or subdivision of a State may not do any of them:

     "(1) Assess rail transportation property at a value that has a higher ratio to the true market value of the rail transportation property than the ratio that the assessed value of other commercial and industrial property in the same assessment jurisdiction has to the true market value of the other commercial and industrial property.

     "(2) Levy or collect a tax on an assessment that may not be made under paragraph (1) of this subsection.

     "(3) Levy or collect an ad valorem property tax on rail transportation property at a tax rate that exceeds the tax rate applicable to commercial and industrial property in the same assessment jurisdiction.

     "(4) Impose another tax that discriminates against a rail carrier providing transportation subject to the jurisdiction of the Board under this part."


Footnote 3

 Section 11501(c) provides:

     "Notwithstanding section 1341 of title 28 and without regard to the amount in controversy or citizenship of the parties, a district court of the United States has jurisdiction, concurrent with other jurisdiction of courts of the United States and the States, to prevent a violation of subsection (b) of this section. Relief may be granted under this subsection only if the ratio of assessed value to true market value of rail transportation property exceeds by at least 5 percent the ratio of assessed value to true market value of other commercial and industrial property in the same assessment jurisdiction. The burden of proof in determining assessed value and true market value is governed by State law. If the ratio of the assessed value of other commercial and industrial property in the assessment jurisdiction to the true market value of all other commercial and industrial property cannot be determined to the satisfaction of the district court through the random-sampling method known as a sales assessment ratio study (to be carried out under statistical principles applicable to such a study), the court shall find, as a violation of this section--

     "(1) an assessment of the rail transportation property at a value that has a higher ratio to the true market value of the rail transportation property than the assessed value of all other property subject to a property tax levy in the assessment jurisdiction has to the true market value of all other commercial and industrial property; and

     "(2) the collection of an ad valorem property tax on the rail transportation property at a tax rate that exceeds the tax ratio rate applicable to taxable property in the taxing district."


Footnote 4

 Georgia assesses public utilities using the "unit rule." Under this rule, "an appraiser first determines the value of all assets of an entity, regardless of location," then multiplies "by the percentage of the entity located within [the State] to determine what portion of the value of the company should be allocated to the state." 472 F. 3d 1281, 1283 (CA11 2006). The parties agree the unit rule is the appropriate rule for valuing CSX's property. There are, however, numerous methods available to value property under the unit rule, and many of these methods themselves have multiple variations. See id., at 1284.

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Washington Mut. Bank v. Blechman, No. B191125

CIVIL PROCEDURE, PROBATE, TRUSTS & ESTATES, PROPERTY LAW & REAL ESTATE
Washington Mut. Bank v. Blechman, No. B191125
In case arising from property sold through foreclosure to trustee of a trust, declaratory judgment for plaintiffs finding that plaintiffs were indispensable parties to prior action to set aside sale, and that trustee's sale was valid and that trustee had good title is affirmed where seller and trustee are indispensable parties to a lawsuit which seeks to set aside a trustee's sale in foreclosure. Read more...   PDF version
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PROBATE, TRUSTS & ESTATES, PROPERTY LAW & REAL ESTATE, SECURITIES LAW

PROBATE, TRUSTS & ESTATES, PROPERTY LAW & REAL ESTATE, SECURITIES LAW
Brown v. Labow, No. B195803
In case involving loss of a specific gift of stock to a beneficiary of a revocable trust after the trustor was declared incompetent, dismissal of petition seeking determination that the liquidation and dissolution of company did not cause an ademption of the specific gifts of its stock is reversed where there was no substantial evidence the creator of a trust intended to adeem a stock gift by expressing an intent to sell the business prior to the competency proceedings. Defendant had no authority or power to unilaterally dispose of property which belonged to the conservatorship estate. Read more...   PDF version

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Porterville Citizens for Responsible Hillside Dev. v. City of Porterville, No. F051953

ADMINISTRATIVE LAW, CONSTRUCTION, ENVIRONMENTAL LAW, GOVERNMENT LAW, PROPERTY LAW & REAL ESTATE
Porterville Citizens for Responsible Hillside Dev. v. City of Porterville, No. F051953
Peremptory writ of mandamus setting aside defendant city's resolution approving housing project's tentative subdivision map is reversed primarily where the record before the city council does not contain substantial evidence supporting a fair argument that the housing project, as mitigated, may have adverse environmental impacts. Moreover, plaintiff forfeited a Subdivision Map Act claim and failed to exhaust its administrative remedies with respect to its prima facie CEQA violation claim, its General Plan consistency claim and its General Plan adequacy claims. Read more...   PDF version

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U.S. 9th Circuit Court of Appeals, December 03, 2007

U.S. 9th Circuit Court of Appeals, December 03, 2007
Goodstein v. Continental Cas. Co., No. 05-35805
In an insurance coverage dispute involving two properties which were identified as contaminated by the State of Washington, that were sold in their polluted state rather than remediated, summary judgment for the insurer is affirmed in part and reversed in part where: 1) the district court correctly held that a claim for the diminution in the sale value of the properties due to pollution was not covered under defendant's policy; but 2) insurer failed to establish that it was prejudiced as a matter of law by plaintiff's late notice of a claim, for purposes of summary judgment on a duty to defend claim. Read more...
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California Appellate Districts

California Appellate Districts

CONTRACTS, DISPUTE RESOLUTION & ARBITRATION, PROPERTY LAW & REAL ESTATE
Nguyen v. Tran, No. G037945
In case involving real estate transaction, order denying petition to compel buyers and listing brokers to arbitrate plaintiff-buyers' claims is reversed as to buyers as: 1) defendants-cooperating brokers, as agents of one of the parties to the agreement containing the arbitration clause, may compel their principal to arbitrate; but 2) they may not compel arbitration against listing brokers, who did not sign the agreement and had no preexisting confidential or contractual relationship with cooperating brokers. Read more...   PDF version

INJURY AND TORT LAW, LANDLORD TENANT LAW, PROPERTY LAW & REAL ESTATE
Raven H. v. Gamette, No. B196403
In action based on alleged negligence of landowner in maintenance of residential property where plaintiff was sexually assaulted by a man who broke into other unit, summary judgment for defendant is reversed as there is a triable issue as to whether the condition of the apartment complex on the night plaintiff was attacked was a substantial factor in causing her injuries. (Opinion on rehearing). Read more...   PDF version

GOVERNMENT LAW, PROPERTY LAW & REAL ESTATE
Neighbors in Support of Appropriate Land Use v. County of Toulumne, No. F051690
Defendant-county's decision to grant a parcel an ad hoc exception allowing a commercial use in an agricultural zoning district, an exception which was unavailable to other parcels in the same district, violated the uniformity requirement of Government Code section 65852. Read more...   PDF version

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December 14, 2007

Actions of Agency Not Appraiser Key to Attorney Fees Award in Eminent Domain

Actions of Agency Not Appraiser Key to Attorney Fees Award in Eminent Domain
by F. Gale Connor

A recent court decision, Redevelopment Agency of the City of Long Beach v. Louis D. Morales (opinion filed November 28, 2007), illustrates the importance of a final offer.  The Court of Appeal held that the good faith displayed by a public agency in formulating its final offer may compensate for a defective appraisal and a verdict in the amount of the final demand.

The prospect of an award of attorney's fees under C.C.P. §1250.410 is a powerful incentive for settlement in any eminent domain action.  An unreasonable offer by a plaintiff, when met with a reasonable demand by a defendant, may result in an award of litigation expenses, including attorney's fees.  In awarding such expenses, courts no longer rely primarily upon the mathematical relation between the plaintiff's highest offer and the amount awarded. Increasingly, a greater emphasis is placed upon the good faith, care and accuracy displayed by the plaintiff in formulating its offer. 

The recent decision represents a further development in this trend.  The Morales court held that in determining the reasonableness of a final offer, a trial court must evaluate the good faith and accuracy of the condemnor itself, not the conduct of its appraiser. 


[FULL STORY] 
 
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December 03, 2007

Annual Housing Forum

IN WASHINGTON
Annual Housing Forum 
Treasury Secretary Henry Paulson will make remarks at the Second Annual Housing Forum, sponsored by the Office of Thrift Super-
vision. The forum will address the outlook for housing markets nationwide, the challenges and risks in the home mortgage market, key consumer protection issues and other topics.

http://www.c-span.org/watch/cs_cspan_wm.asp?Cat=TV&Code=CS



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December 02, 2007

Santa Clarita Org. for Planning the Env't v. County of L.A. , No. B189116

California Appellate Districts, November 26, 2007
Santa Clarita Org. for Planning the Env't v. County of L.A. , No. B189116
In case involving water service portion of an environmental impact report, denial of petition for writ of mandate challenging defendant's revision and recertification of the EIR is affirmed as the EIR satisfies all four principles governing analysis of the water services portion of an EIR under Vineyard Area Citizens for Responsible Growth, Inc. v. City of Rancho Cordova (2007) 40 Cal.4th 412. (Opinion on rehearing). Read more...

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December 01, 2007

U.S. 3rd Circuit Court of Appeals, November 28, 2007
Alcoa, Inc. v. US, No. 06-1635
Taxpayer-Alcoa's expenses for environmental clean-up of its industrial sites, mandated by changes in environmental law, do not qualify for the beneficial tax treatment afforded by section 1341 of the Internal Revenue Code because the clean-up expenses do not qualify as restored moneys under section 1341. Read more...

U.S. 9th Circuit Court of Appeals, November 28, 2007
California Dep't of Toxic Substances Control v. Alco Pac., Inc., No. 05-55962
In a state agency's cost recovery action under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), seeking cleanup costs arising from the release of hazardous substances at a former lead processing facility, summary judgment for defendants, alleged "arrangers" who sold lead content materials to the facility's operators, is reversed where defendants were not entitled to summary judgment under the useful product doctrine because a reasonable finder of fact could infer from the evidence that the transactions at issue involved arrangements for disposal or treatment of a hazardous waste. Read more...

California Appellate Districts, November 26, 2007
Santa Clarita Org. for Planning the Env't v. County of L.A. , No. B189116
In case involving water service portion of an environmental impact report, denial of petition for writ of mandate challenging defendant's revision and recertification of the EIR is affirmed as the EIR satisfies all four principles governing analysis of the water services portion of an EIR under Vineyard Area Citizens for Responsible Growth, Inc. v. City of Rancho Cordova (2007) 40 Cal.4th 412. (Opinion on rehearing). Read more...

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