PEOPLE DEPARTMENT OF TRANSPORTATION v. JENKINS

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Court of Appeal, Fourth District, Division 2, California.

PEOPLE ex rel. DEPARTMENT OF TRANSPORTATION, Plaintiff and Appellant, v. James JENKINS, et al., Defendants and Respondents.

No. E014545.

Decided: April 08, 1996

William M. McMillan, Chief Counsel, Anthony J. Ruffolo, Deputy Chief Counsel, Robert W. Vidor, Larry R. Danielson, Linda Cohen Harrel and Lars H. Bergdahl, Los Angeles, for Plaintiff and Appellant. McIntire Law Corporation, Michael V. McIntire and Christopher D. McIntire, Big Bear Lake, for Defendants and Respondents.

OPINION

In an eminent domain action, the trial judge found the condemner to be liable for lost rents and other loss-of-use damages suffered by the landowners both before and after the date the action was filed.   Thereafter, the jury determined, not only the amount of just compensation due to the landowners for the value of the property taken, but also the amount of loss-of-use damages which the landowners had sustained.   We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Mr. and Mrs. Jenkins owned a parcel of commercial property abutting Highway 18 in the City of Big Bear Lake. It was improved with a 3,220–square–foot warehouse in which they had operated a business known as Big Bear Moving and Storage since 1974.

In May of 1983, the Jenkinses sold their business to Jose Vasquez and leased the premises to him for a five-year term.   Pursuant to the lease, Vasquez was to pay rent of $1,000 per month, and Vasquez was granted an option to buy the property at any time during the five-year term for $165,000.

On October 23, 1986, the California Department of Transportation (“Caltrans”) conducted a public hearing to discuss its proposal to widen Highway 18.   The following day, Mr. Jenkins obtained a copy of the environmental assessment which had been prepared for the project.   It stated that the Big Bear Moving and Storage Company would be displaced.

Vasquez had intended to exercise his option to buy the Jenkinses' property.   However, because of Caltrans' pending acquisition of all or part of the property, Vasquez refused to either exercise the option or extend the lease.   Instead, he vacated the premises when the initial term expired on May 15, 1988.

In March of 1989, after negotiations between Caltrans and the Jenkinses had failed to arrive at a mutually agreeable price, the California Transportation Commission adopted a resolution of necessity (Code Civ. Proc., § 1245.220 1 ), authorizing Caltrans to acquire by eminent domain the front 20 feet of the Jenkinses' property, plus the warehouse located on the remainder of the property, plus a temporary easement over the remainder to demolish the warehouse.

Caltrans' complaint in eminent domain was filed on August 16, 1989.   In their answer to the complaint, the Jenkinses sought “precondemnation damages for loss of rental income resulting from unreasonable delay or other unreasonable conduct in commencing the present complaint in eminent domain after prior announcements and actions made by plaintiff which made clear plaintiff's intention to acquire” the Jenkinses' property.

On December 27, 1989, Caltrans deposited $64,500, which its appraiser had determined to be the probable amount of compensation due to the Jenkinses. (§ 1255.010, subd. (a).)  An order for possession was entered in February of 1990. (§ 1255.460, subd. (a).)  Based on the date it was served, the order authorized Caltrans to take possession of the property on September 11, 1990. (§ 1255.460, subd. (b)(3).)   Nevertheless, Caltrans did not take actual possession of the property until April 1, 1991.   Possession of the remainder of the Jenkinses' parcel was not restored to them until November 19, 1992, after Caltrans had finally demolished the warehouse and removed the debris.

The case was tried in February of 1994.   The issue of Caltrans' liability for loss-of-use damages was tried to the court.   The court found that Caltrans was liable.   Thereafter, the issues of the amount of just compensation for the property taken and for the loss-of-use damages suffered were tried to a jury.

In accordance with section 1263.110, subdivision (a), the trial court instructed the jury that the property taken was to be valued as of December 27, 1989, the date Caltrans deposited the probable amount of compensation.   The jury found the value of the land taken to be $18,525 and of the warehouse to be $95,731, for a total valuation of $114,256.

On the subject of damages, the trial court informed the jury that the court had previously “found that plaintiff had engaged in unreasonable conduct, and that, by such conduct, (1) Plaintiff deprived defendants of the ability to sell, lease or economically use the subject property from May 15, 1988 to October 1, 1989;  (2) Plaintiff caused defendants to lose the rent and economic use of the rear 2,620 square feet of the building on the subject property from October 1, 1989 to April 1, 1991, when plaintiff finally took possession of the subject property;  and (3) Plaintiff deprived defendants of all reasonable use of their remainder property, from April 1, 1991 to November 19, 1992.”

The court instructed the jury that the Jenkinses were entitled to compensation for the damages they suffered during those periods.   For the periods from May 1988 to April of 1991, the jury was told that those damages were to be measured by the lost rents which they otherwise could have reasonably received.   For the occupation of the remainder parcel from April 1991 to November 1992, they were entitled to a reasonable return on the value of the remainder.   The jury set the damages for May 1988 to October 1989 at $18,615, for October 1989 to April 1991 at $38,584, and for April 1991 to November 1992 at $21,680.

Judgment was entered for $193,135 (fair market value of $114,256 plus damages of $18,615 and $38,584 and $21,680), less the $64,500 which had previously been deposited by Caltrans and withdrawn by the Jenkinses, for a net recovery of $128,635.   In addition, the trial court awarded interest at the statutory rate (§ 1268.350, subd. (a)(1) 2 ) on the sum of $193,135 from December 27, 1989, through April 1, 1991;  on the sum of $18,615 from October 1, 1989, until paid;  on $38,584 from April 1, 1991 until paid;  and on $21,680 from November 1, 1992, until paid.

CONTENTIONS

It appears that the judgment in this case suffers from a number of defects, as the result of which the compensation awarded to the Jenkinses is probably excessive.3  However, Caltrans does not challenge the trial court's findings that Caltrans caused damage to the Jenkinses during particular time periods, its determination of the proper measures of damages applicable to loss-of-use damages, the sufficiency of the evidence to support the jury's verdict on the amount of those damages, or the interest awarded by the trial court.   Instead, Caltrans' sole contention is that the trial judge erred in determining that Caltrans was liable for those types of damages in any amount.   We restrict our review accordingly.

DISCUSSION

A. WHEN A CONDEMNER UNREASONABLY DELAYS BETWEEN THE ANNOUNCEMENT OF AN INTENT TO CONDEMN A PARCEL OF PROPERTY AND THE INITIATION OF THE CONDEMNATION ACTION, CAUSING AN OWNER TO SUFFER A LOSS OF RENTS, THE OWNER IS ENTITLED TO COMPENSATION FOR THAT LOSS.

 Because of the public planning process in which any public agency must engage before launching a new public project, “the general population (and especially property owners) in the area of the planned project gain knowledge of it before the agency begins condemnation proceedings.”  (1 Condemnation Practice in Cal. (Cont.Ed.Bar 2d ed.1995) § 4.3, p. 78.)   If that advance knowledge has an adverse effect on the value of property in the project area, that diminution in value is frequently referred to as project or condemnation blight.4  (Id., § 4.7, p. 84.)

“The most frequent cause of blight is the long delay between announcement of a public project and acquisition of lands necessary to construct the project.”   (Ibid.) That delay, and the uncertainty which necessarily accompanies it, “can lessen sales or rental activity, curtail maintenance of land and buildings, and forestall new development in the area.”  (Ibid.) Because “rent is an appropriate criterion for measuring fair market value” (Klopping v. City of Whittier, supra, 8 Cal.3d at p. 53, 104 Cal.Rptr. 1, 500 P.2d 1345), the detriment to the owner of a parcel of income property which is subject to the blight and which is to be taken by the public agency can be two-fold:  a loss of rental income and the resulting diminution of the market value of the property (4 Nichols' The Law of Eminent Domain (rev.3d. ed.   1990) § 12B.17 [6], p. 12B–247).

The effect of blight on the market value of the property to be taken is cured by section 1263.330, which provides that any decrease in value attributable either to the project, to the pendency of the condemnation proceedings, or to the conduct of the agency relating to the taking of the property, shall be disregarded when determining compensable market value.   Instead, the property should generally be valued as if the project had never been announced.   (Klopping v. City of Whittier, supra, pp. 50–51, 104 Cal.Rptr. 1, 500 P.2d 1345.)5

However, because the harmful effects of blight can manifest themselves in two ways, section 1263.330 may not entirely remedy the harm caused to a condemnee.   For example, if blight causes a condemnee's tenants to vacate a year before the valuation date, the condemnee is not made whole unless he or she is compensated, not only for the value the property would have had in the absence of the blight, but also for the rents those tenants would have paid during that year.   The right to collect that rent is a property interest which is protected by the constitutional guaranty that no one will be deprived of property without just compensation.  (Cal. Const., art. 1, § 7;  Klopping v. City of Whittier, supra, p. 54, 104 Cal.Rptr. 1, 500 P.2d 1345.)

Accordingly, it is settled that if a condemner unreasonably delays the filing of an eminent domain action after announcing its intent to condemn a particular parcel of property, or otherwise engages in unreasonable conduct prior to condemnation, the property owner is entitled to recover, not only the fair market value of the property taken, but also any loss of rents suffered as a result of the condemner's precondemnation conduct.  (Klopping v. City of Whittier, supra, pp. 53–54, & 58, 104 Cal.Rptr. 1, 500 P.2d 1345;  City of Fresno v. Shewmake (1982) 129 Cal.App.3d 907, 911–912, 181 Cal.Rptr. 451;  Stone v. City of Los Angeles (1975) 51 Cal.App.3d 987, 993–994, 124 Cal.Rptr. 822.)

B. SUBSTANTIAL EVIDENCE SUPPORTS THE TRIAL COURT'S FINDING THAT CALTRANS HAD PREMATURELY ANNOUNCED AN INTENT TO CONDEMN THE JENKINSES' PROPERTY.**

C. THE TRIAL COURT DID NOT ERR BY FINDING CALTRANS LIABLE FOR DAMAGES SUFFERED AFTER THE COMMENCEMENT OF THE CONDEMNATION ACTION.

 The damages for which the trial court found Caltrans liable were of two types:  rents lost from the building prior to the date Caltrans took possession, and damages for the loss of use of the remainder parcel caused by Caltrans' delay in demolishing the building.   The losses of rent were suffered both before and after the date the condemnation action was filed, while the latter damages began only after the action was commenced.

Caltrans contends that, even if there is evidence to support the finding of liability for damages occurring prior to the filing of the condemnation action, there is no evidence of unreasonable conduct thereafter, and thus no evidence to support a finding of liability for damages which arose after the commencement of the action.   As to the damages for the loss of use of the remainder, it also argues that the damage award should be reduced to some unspecified extent to take into account the 120–day easement which Caltrans had to demolish the building.   Both arguments are incorrect.

1. Liability for Rents Lost as the Result of Unreasonable Delay Is Not Limited to Losses Occurring Prior to the Filing of the Condemnation Action.

Relying on People ex rel. Dept. Pub. Wks. v. Peninsula Enterprises, Inc. (1979) 91 Cal.App.3d 332, 153 Cal.Rptr. 895, Caltrans contends that the filing of a condemnation action terminates its liability for any damages which were caused by its precondemnation conduct but which did not materialize until after the action was filed.   It is mistaken.

In Peninsula Enterprises, the trial court had ruled that the condemner had been guilty of unreasonable delay and thus was liable for loss-of-use damages 7 for a period beginning 13 months prior to the filing of the action and ending with the entry of judgment.  (Id., 91 Cal.App.3d at pp. 339–340, 153 Cal.Rptr. 895.)   On appeal, the portion of the judgment imposing damages for the period after the filing of the condemnation action was reversed, not because liability necessarily terminated when the action was filed, but because the evidence did not indicate that the condemner's unreasonable delay continued after that date.  (Id., p. 359, 153 Cal.Rptr. 895.)   The court explained that if, after filing the action, the condemner “purposely and in bad faith pursued an unconscionably dilatory course of action in its conduct of the litigation,” liability would continue.  (Ibid.) On the other hand, if the condemner moved expeditiously toward final judgment after filing the action, liability ceased on that date, even if the action had been preceded by unreasonable delay.  (Id., p. 358, 153 Cal.Rptr. 895.)

Peninsula Enterprises cites as an example Stone v. City of Los Angeles, supra.   In Stone, the jury found, and presumably the evidence established, that the condemner had unreasonably delayed in filing its condemnation action (51 Cal.App.3d at p. 993, 124 Cal.Rptr. 822), but there no was evidence that the condemner had delayed in prosecuting that action after it had served the landowner (p. 991, 124 Cal.Rptr. 822).   Accordingly, the trial court awarded loss-of-use damages only up to the date of service, which was over six months after the action had been filed.  (Pp. 990–991, 124 Cal.Rptr. 822.)

Peninsula Enterprises merely stands for the proposition that when a condemner's precondemnation conduct has rendered it liable for loss-of-use damages, that liability does not automatically continue to accumulate until judgment is entered.   To the contrary, if the reason for the liability disappears, no further liability is imposed on the condemner.   In that event, the condemner does not become liable for damages caused by its subsequent conduct.

Caltrans would expand the holding of Peninsula Enterprises into a rule that, once liability for future conduct ceases to accrue, liability for the future consequences of past conduct also ends.   We decline to do so.   If, prior to filing its condemnation action, a condemner engages in unreasonable conduct which causes the property owner to suffer a loss of rents, the condemner is liable for those damages.   That is true whether the rents lost were payable before the filing of the condemnation action or afterward.   Nor does it make any difference that the condemner may not have continued to engage in unreasonable conduct after filing its action.   There is no reason why the condemner should not be held liable for all the harmful consequences of its unreasonable conduct just because some of them did not occur until after that unreasonable conduct had ended.8  The crucial consideration is how the losses were caused, not when the losses manifested themselves.

Here, the Jenkinses suffered two different degrees of rental losses.   From May 15, 1988, through the filing of the complaint on August 16, 1989, until October 1, 1989, they could not collect any rent.   From October 1, 1989, until April 1, 1991, they could collect rent on only a portion of their warehouse.   The immediate cause of the first loss was the refusal of their tenant, Vasquez, to renew his lease.   As a further consequence of the resulting vacancy, the Jenkinses lost their right to continue to use the entire warehouse as a nonconforming use under the city's parking ordinance.   Thereafter, only 1,000 square feet of the 3,220–square–foot warehouse could legally be occupied.   Thus, Vasquez' refusal to renew his lease was the cause in fact of both periods of lost rent.   The trial court found that Vasquez' refusal was, in turn, caused by Caltrans' unreasonable conduct.   Caltrans does not contest the sufficiency of the evidence to support that finding.

In short, it is undisputed that the losses of rent which were suffered by the Jenkinses after the date the condemnation action was filed were caused by Caltrans prior to that date.   Thus, even assuming that Caltrans was not guilty of unreasonable delay or other unreasonable conduct after it filed its action, it is still liable for any lost rents which were suffered thereafter as a consequence of its prior unreasonable conduct.9

2. Caltrans Is Not Entitled to a Reduction in the Compensation Owed for its Temporary Possession of the Remainder.***

DISPOSITION

The judgment is affirmed.

FOOTNOTES

FN1. Unless otherwise specified, all further section references are to the Code of Civil Procedure..  FN1. Unless otherwise specified, all further section references are to the Code of Civil Procedure.

2.   Section 1268.350 defines a floating rate of interest, applicable only to condemnation cases, which closely approximates the actual current market rate of interest.  (People ex rel.Dept. of Transportation v. Diversified Properties Co. III (1993) 14 Cal.App.4th 429, 451, 17 Cal.Rptr.2d 676.)

3.   For instance, since the sum of $18,615 is included within the sum of $193,150, the award of interest on $18,615 from October 1, 1989, partially duplicates the award of interest on $193,135 from December 27, 1989, to April 1, 1991.   Similarly, the sum of $21,680 is included in $193,135, which latter sum earns interest prior to April 1, 1991, even though the damages for which the $21,680 award is compensation did not begin to accrue until April 1, 1991.More generally, the award of interest on the value of the property taken is duplicative of the award for rents lost from that property.  (County of Los Angeles v. Smith (1976) 55 Cal.App.3d 749, 756, 127 Cal.Rptr. 666;  and see People ex rel. Dept. of Transportation v. Diversified Properties Co. III, supra, 14 Cal.App.4th at pp. 445–446, 17 Cal.Rptr.2d 676;  County of Monterey v. W.W. Leasing Unlimited (1980) 109 Cal.App.3d 636, 646–647, 167 Cal.Rptr. 12.)   Any rents which were received after the effective date of the order for possession, and any damages to compensate for the loss of rents which would have been received during that period, should have been offset against the interest. (§§ 1268.330 & 1268.310, subd. (c).)  The same would appear to be true with respect to interest and damages accruing after the date of valuation but before the effective date of the order for possession.On the other hand, the Jenkinses were entitled to receive interest on the fair market value of the property taken from the effective date of the order for possession until payment. (§ 1268.310, subd. (c);  Redevelopment Agency v. Gilmore (1985) 38 Cal.3d 790, 794, 214 Cal.Rptr. 904, 700 P.2d 794.)   Here, the trial court prematurely terminated the accrual of interest at April 1, 1991, the date Caltrans took actual possession.   However, the Jenkinses have not appealed from that or any other aspect of the judgment.

4.   In Klopping v. City of Whittier (1972) 8 Cal.3d 39, 45, 104 Cal.Rptr. 1, 500 P.2d 1345, the court defined “blight” narrowly to refer to an adverse effect on land values in an area where a project is intended to be located but for which no specific parcels have been designated for acquisition.   It distinguished that variety of blight from the situation in which the precondemnation announcement is directed at specific parcels.   For our purposes, the distinction is unimportant.

5.   Klopping had provided that decreases in market value caused by precondemnation announcements would be disregarded only when the agency had acted unreasonably.  (Pp. 51–52, 104 Cal.Rptr. 1, 500 P.2d 1345.)   When the rule was superseded by the subsequent enactment of section 1263.330, that limitation was discarded.   In any event, that aspect of Klopping is not at issue here, since Caltrans does not challenge the jury's determination of the fair market value of the property taken.

FOOTNOTE.   See footnote*, ante.

7.   These damages—i.e., compensation for lost rents caused by a condemner's unreasonable conduct prior to filing a condemnation action—are frequently referred to as “precondemnation damages.”  (See, e.g., Peninsula Enterprises, supra, 91 Cal.App.3d at pp. 339–340, and fn. 2, 153 Cal.Rptr. 895; 1 Condemnation Practice in Cal., supra, § 4.8, pp. 87–93.)   We avoid that term because it wrongly implies that the recoverable damages are limited to losses which are suffered prior to the filing of the condemnation action, as opposed to all losses caused by unreasonable conduct committed prior to the action being filed.

8.   Arguably, since the value of a piece of property, including that property's potential for producing future income, is reduced to a monetary equivalent as of the date of valuation, a condemner's liability for lost rents suffered after the valuation date should be limited to an amount equal to the value of the use of that money (i.e., interest) between the valuation date and the date of judgment, which might be less than the value of the use of the property itself (i.e., rent) during that same period.   However, because Caltrans did not contest the measure of damages employed by the trial court, we need not resolve that issue.

9.   Having determined that liability for post-condemnation losses of rent can be affirmed as having been caused by precondemnation unreasonable delay, we need not decide whether such liability might also be supportable as having been proximately caused by other unreasonable conduct either before or after the filing of the action.

FOOTNOTE.   See footnote*, ante.

McKINSTER, Associate Justice.

RAMIREZ, P.J., and HOLLENHORST, J., concur.