Court of Appeal Clarifies The Expert Valuation Evidence A Jury Should Be Able To Consider In An Eminent Domain Action

January 14, 2013 | Bulletin No. 1018493.2

A trial court granted a county’s motion in limine to exclude the valuation testimony of an expert witness regarding comparable sales in an eminent domain action.  The court of appeal held that the evidence regarding comparable sales should not have been excluded, and the jury should have been able to consider it in determining the property’s value.  (County of Glenn v. Foley (--- Cal.Rptr.3d ----, Cal.App. 3 Dist., November 26, 2012).

Facts

Starting in 1971, the County of Glenn (“County”) rented nearly 200 acres of property from Patrick Foley (“Foley”) for use as a landfill.  The Board of Supervisors determined in 2008 that County should acquire a fee interest in the 200 acres as well as additional acreage around it.  County filed an eminent domain action in February 2009 to acquire approximately 439 acres.

Foley’s expert, Gregory House (“House”), described the property as “located in a rural agriculturally productive area that is ‘well-suited to a variety of crops, including fruit and nut orchards’ if ‘sufficient irrigation is available and soil quality is not a limitation.’”  The area around the property is generally used for agriculture purposes such as growing rice and row crops, olives and almond orchards, and livestock grazing.  The soil ratings for the property indicate that it is suitable for agriculture.  There is well water sufficient to sustain 400 acres of olives at a cost of $245,000.  House concluded the highest and best use of the subject property is for orchard land. 

House identified seven comparable sales between 2006 and 2008 and set out his methodology for adjusting the value of quantitative and qualitative variances between the orchards sold during the period and the subject property.  For five of the properties, he assigned a quantitative value to the improvements on the properties—including personal property, buildings, or existing orchards—if there was sufficient data on such improvements.  House then deducted the cost of the improvements from the sale price of the comparable sales.  Also, he applied qualitative factors such as soil quality and topography to adjust the prices.  House calculated the resulting price per acre of the subject property and deducted the cost of developing an irrigation supply.  Based on these factors, House believed the reasonable value of the Foley property to be approximately $1.7 million dollars.

County’s expert believed that grazing land was the best and highest use of the property.  To support his conclusion, the expert noted that the subject property’s soil types generally lent themselves to pasture use.  However, he did not discuss whether orchards could be located on the property.  The expert set the reasonable value of the property at approximately $637,000.

County filed a motion in limine to exclude House’s testimony.  The trial court concluded that all of the properties used by House in his valuation were not comparable and excluded them pursuant to Evidence Code section 816.  After the trial court granted County’s motion in limine, the parties stipulated to a valuation of the real property set by County’s appraiser.  After the trial court entered judgment in accordance with the stipulation, Foley appealed.

Decision

The court of appeal held that the substantive basis for the trial court’s ruling on the motion in limine was incorrect and reversed the judgment of the trial court.  Evidence Code section 822 provides in part that in an eminent domain proceeding, “[a]n opinion as to the value of any property or property interest other than that being valued” is not admissible and cannot be taken into account as a basis of an opinion as to the value of property that is the subject of the eminent domain proceeding.  The limited purpose of this provision of section 822 is “to exclude a party who produces an expert appraiser from using his opinion of the value of property X as a whole as a prop in proving the value of the subject property . . .  as opposed to an opinion regarding one of the combination of underlying factors that influence the comparable nature of an objective sales price.” 

Here, the values of the comparable properties identified by House are tied to an objective measure, which is their sales price.  County did not challenge House’s adjustment to the sales prices on the basis of his methodology in accounting for material differences.  Instead, County asserted that his adjustment opinions were inadmissible opinions pursuant to section 822. 

House’s adjustments were not just based on his best guess.  For example, the adjustments for the value of existing orchards were based on university cost studies.  County failed to establish that House’s valuations were based on pure opinion.  The court concluded that County “cannot establish that it was entitled to the drastic remedy of excluding Foley’s appraisal evidence in its entirety.”   Therefore, section 822 is not a proper basis for the trial court to exclude House’s appraisal.

Section 816 provides that the “essence of comparability is recent and local sales ‘sufficiently alike in respect to character, size, situation, usability and improvements’ so that the price ‘may fairly be considered as shedding light’ on the value of the condemned property.”  The court concluded that “[t]he comparable sales included in the House appraisal that involved orchard properties, while differing as expected in certain circumstances, cannot be said to be incapable of shedding light (in the form of a rational inference) on the value of the Foley land if converted to orchard use.” 

The comparable sales offered by House “did not present the risk of comparing apples with oranges.”  The comparable sales illustrated a comparison of a feasible use of Foley’s property with recent sales of properties that were used for that same purpose “with the differential for the costs of improvements either documented in university studies (the cost of establishing the orchards) or not impossible to determine (the other improvements).”  Therefore, the court concluded that the properties used by House for comparable “sales had some tendency in logic to prove the value of the subject property sufficient to make it a jury question, and consequently they are not subject to exclusion under section 816.”

Questions

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