In Metropolitan Water District of Southern California v. Campus Crusade for Christ, Inc., (— Cal.Rptr.3d —, 2007 WL 2079776, Cal., July 23, 2007), the California Supreme Court considered whether a trial court conducting a compensation trial in an eminent domain action erred in refusing to allow a property owner to offer evidence of diminished market value due to the possibility of future rezoning and damage to the portion of the owner’s property that was not taken in the condemnation action.
The Supreme Court held that the trial court used an “unduly rigorous standard” in determining whether the owner should be allowed to offer evidence regarding the probability of rezoning the property and required the trial court to reexamine its ruling. The Supreme Court’s decision will make it easier for a landowner to present evidence related to valuation issues to a jury. It will also be less likely that a judge would rule prior to trial that such evidence was inadmissible. (Code of Civ. Proc. sec. 1260.040.). This could decrease the likelihood of early evidentiary rulings leading to a potential resolution, and could increase the risks a condemning agency could face in proceeding to an eminent domain trial.
In 1997, the Metropolitan Water District of Southern California (“District”) brought an eminent domain action to condemn a portion of land owned by Campus Crusade for Christ, Inc. (“Campus”) to construct a section of the District’s 43-mile pipeline. Prior to the condemnation proceedings, Campus had planned to restore the historic hotel on the property and to also develop part of the land for residential use. Prior to trial, the District asked the trial court to exclude evidence relating to the property’s potential use as a residential development and resort area and evidence relating to severance damages to the fair market value of the rest of the Campus’s property caused during and after the construction of the pipeline. The trial court excluded the evidence as requested by the District. A Court of Appeal reversed the evidentiary rulings of the trial court. The District appealed the decision to the California Supreme Court.
When property is taken or damaged for public use, the property owner is entitled to just compensation which is measured by the fair market value of the property taken. Fair market value includes the “highest and most profitable use to which the property might be put in the reasonably near future, to the extent that the probability of such a prospective use affects the market value.” Also, if part of a parcel of land is taken, the owner must be compensated not just for the part taken “but also for the injury, if any, to the remainder caused by the taking.” In eminent domain actions, all issues, except the issue of compensation, are to be tried by the court. A jury may decide the issue of compensation. At trial, the property owner must present evidence on the issue of compensation. However, under California law “neither the plaintiff nor the defendant has the burden of proof on the issue of compensation.” (Code Civ. Proc. § 1260.210, subdivision (b).)
Here, it was undisputed that the current zoning of the property did not authorize the residential and resort development that Campus envisioned. The trial court decided that whether or not there was a reasonable probability that the property would be rezoned to allow such development was a question for the court to decide and refused to allow evidence on the issue to be presented to a jury. The Supreme Court concluded that when the trial court decided this issue, it usurped the role of the jury in valuing the property.
If current zoning restrictions do not allow a certain use, “the condemnee is entitled to show a reasonable probability of a zoning change in the near future and thus to establish such use as the highest and best use of the property.” The court must first determine if there is sufficient evidence on which a jury could conclude that there is a reasonable probability of rezoning. If no jury could find such a probability, the court should exclude all evidence of a use other than the use authorized under existing zoning laws. If sufficient evidence exists, the trial court must submit the issue to the jury to decide whether there is a reasonable probability of rezoning, and what affect, if any, it would have on the market value of the property at issue.
A “property owner has the burden to produce the evidence to support a finding that rezoning is reasonably probable.” Once the property owner meets this burden, Code of Civil Procedure § 1260.210, subdivision (b), makes it clear that neither party bears a burden of persuading a jury or trial judge that a reasonable probability of rezoning exists, or what effect, if any, it would have on the property’s valuation. Here, the trial court examined the rezoning evidence “under an unduly rigorous standard” and decided before trial that there was not a reasonable probability of rezoning. The Supreme Court directed the Court of Appeal to remand the case back to the trial court to reanalyze the issue under the proper standard.
The Campus also sought severance damages. Severance damages can be based on any factor arising from a taking of property that causes a decline in the fair market value of the owner’s property and should be measured by comparing the fair market value of the remainder of the property not taken before and after the taking. Fair market value is a question of fact to be determined by a jury. As long as the effect of the “factors on market value is not conjectural, speculative, or remote, it is for the jury to decide the extent to which they may affect the value of the property.” Once a property owner presents evidence tending to show that some aspect of the taking may affect the market value of the remaining property, it is for the jury to weigh the effect on the value of the property. The property owner bears the burden of producing evidence that tends to show that the market value of the property has been diminished. After this burden has been met, “the jury then decides what affect (if any) the evidence, taken ‘as a whole,’ may have on the value of the property.” Again, neither party bears the burden of persuasion.
Here, the Campus failed for the most part to properly challenge on appeal the trial court’s rulings regarding severance damages. Therefore, the Supreme Court could not take up the issue of whether the trial court overstepped its bounds in excluding evidence of severance damages, with the exception of its claim of severance damages for the time it took the District to construct the pipeline. The Court found that the Campus would have to support its claim for severance damages related to construction before the trial court on remand.