UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA
December 8, 2009
UNITED STATES OF AMERICA, PLAINTIFF,
12.94 ACRES OF LAND IN THE COUNTY OF SOLANO, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge
MEMORANDUM AND ORDER
This condemnation action is before the court on plaintiff United States of America's ("plaintiff") motion for summary judgment on the ground defendants*fn1 lack admissible evidence sufficient to establish a triable issue of material fact regarding the valuation of the subject property (12.94 acres of land in the County of Solano). In brief, plaintiff argues defendants' appraiser, John Nicolaou ("Nicolaou"), is unqualified to opine on the value of federally condemned property, did not properly analyze accepted methodologies and made critical calculation errors and failed to use appropriate or reliable data, thereby rendering his opinions inadmissible. Plaintiff further contends that Bill Maher ("Maher"), an owner of the property, cannot create a triable issue because his testimony during deposition and declaration submitted on the motion do not offer any valuation opinions.
Contrary to defendants' experts, plaintiff maintains that its experts, appraiser Steve Roach ("Roach") and engineer Kelly Birkes ("Birkes"), have correctly determined just compensation for the property is $295,000.00. Because defendants did not offer any rebuttal expert reports to Roach's and Birkes' reports and because their own experts fail to offer admissible evidence, plaintiff argues it is entitled to judgment in its favor in the amount of $295,000.00.
Defendants oppose the motion, arguing Nicolaou's and Maher's testimony, setting the amount of just compensation at $2,319,000.00, is admissible and sufficient for defendants to withstand summary judgment. Ultimately, defendants contend plaintiff's arguments go to the weight of Nicolaou's and Maher's testimony not its admissibility.
The court heard oral argument on the motion on November 25, 2009. By this order, it now renders its decision, granting plaintiff's motion.
1. Subject Property
The 12.94 acres of condemned land (sometimes referred to herein as the "take parcel") was part of a larger 306.76 acre parcel ("larger parcel") in Solano County, owned by defendant Maher Trust and located next to Travis Air Force Base. (UF #1.) The government is taking the parcel to relocate, redesign and expand the south gate entrance to the base. The new gate area will be constructed and operated on the take parcel and will include multiple lanes for the queuing and inspection of large trucks making deliveries to Travis. (Id.)
The larger parcel has historically been used for agriculture and/or cattle grazing, and the 293.82 remainder parcel is still used for that purpose today. (UF #61.) The property is zoned A-160 Exclusive Agriculture, which requires 160 acres per home lot size. (UF #62.) A 1,344 square foot manufactured home was condemned as part of the take parcel, and the prior tenants were relocated. (Pl.'s Request for Judicial Notice ("RJN"), filed Oct. 13, 2009, #s 1, 7.) The remainder parcel has an old long-abandoned home, two barns and corrals. (RJN #13.)
Numerous private and public restrictions and easements limit the property's legal uses. (UF #63.) Thirty feet of accessible frontage along the property's western boundary exists for the remainder parcel. (UF #2.) To restore access to the barns and the interior of the remainder parcel, a roadway will have to be constructed from the 30 foot access along Peterson Road to the barns. (RDF ¶ 13.) Defendants contend, however, that this new road will be inadequate and unsafe, considering the remainder property is used for ranching activities where large trucks are used to transport cattle, feed, hay and equipment to and from the barns. (RDF ¶s 12, 54.) Defendants assert it will be difficult if not impossible for these large trucks to make the sharp turn necessary to enter and exit the 30 foot driveway. (RDF ¶ 55.)
2. Plaintiff's Efforts to Acquire the Property
After Congress authorized security and force improvements at Travis Air Force Base, the government began a multi-year effort to acquire the 12.94 acres from the Maher Trust. (UF #3.)
Maher, as trustee, was not opposed to the government's acquisition of the 12.94 acres but the parties could not agree on a sales price. (UF #4.) While those negotiations were ongoing, in April 2005, Maher contracted to sell the entire 306.76 acre parcel to Bancor Properties for $2.4 million. (UF #5.) Bancor wanted to subdivide the property, but no zoning change was sought, and Bancor did not complete the purchase. (UF #6.) Maher subsequently entered, on October 6, 2006, another $2.4 million sales contract with his broker, defendant Aksnes, and defendant SGA but escrow has not closed even though the contract was entered three years ago. (UF #s 7, 8.)
3. Procedural History
On October 12, 2007, plaintiff filed a Complaint in Condemnation for the 12.94 acres and deposited the estimated just compensation. (UF #9.) On December 11, 2007, plaintiff was granted immediate possession and title to the 12.94 acres. (UF #11.) Most defendants disclaimed interest in the property. (RJN #7.) The remaining defendants, the Maher Trust, Aksnes, and SGA, answered but did not assert any affirmative defenses or demand a jury. (UF #10.)
On July 31, 2009, the parties exchanged expert reports. (UF #12.) Plaintiff disclosed Roach and Birkes who determined just compensation for the property is $295,000.00. (UF #s 12, 103-120.) Defendants disclosed Nicolaou and Dan Norton, a biologist.*fn3 (UF #s 12, 13.) Defendants did not offer any rebuttal reports to Roach's or Birkes' reports. (UF #s 15, 115.)
A bench trial is scheduled for March 23, 2010. (RJN #s 8, 9.)
The Federal Rules of Civil Procedure provide for summary judgment where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see California v. Campbell, 138 F.3d 772, 780 (9th Cir. 1998). The evidence must be viewed in the light most favorable to the nonmoving party. See Lopez v. Smith, 203 F.3d 1122, 1131 (9th Cir. 2000) (en banc).
The moving party bears the initial burden of demonstrating the absence of a genuine issue of fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If the moving party fails to meet this burden, "the nonmoving party has no obligation to produce anything, even if the nonmoving party would have the ultimate burden of persuasion at trial." Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102-03 (9th Cir. 2000). However, if the nonmoving party has the burden of proof at trial, the moving party only needs to show "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp., 477 U.S. at 325.
Once the moving party has met its burden of proof, the nonmoving party must produce evidence on which a reasonable trier of fact could find in its favor viewing the record as a whole in light of the evidentiary burden the law places on that party. See Triton Energy Corp. v. Square D Co., 68 F.3d 1216, 1221 (9th Cir. 1995). The nonmoving party cannot simply rest on its allegations without any significant probative evidence tending to support the complaint. See Nissan Fire & Marine, 210 F.3d at 1107. Instead, through admissible evidence the nonmoving party "must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e).*fn4
The United States can condemn property but it must pay just compensation for the value of what is taken. U.S. Const., Amend. V. In condemnation proceedings, the government announces what land it needs and the landowners present, in their answers, any objections or defenses to the taking and then just compensation is determined. Fed. R. Civ. P. 71.1. Here, defendants did not interpose any objections to condemnation. (UF #s 4, 10, 11.) The sole issue is the amount of just compensation.
The property owner bears the burden of proving just compensation on the condemnation date. United States ex rel. TVA v. Powelson, 319 U.S. 266, 273 (1943). When a whole parcel is taken, just compensation is the fair market value of the property at the time of the taking. Olson v. United States, 292 U.S. 246, 255 (1934). When only a portion of property is condemned, just compensation is the difference between the fair market value of the whole parcel immediately before the taking and the remainder after the taking. See e.g. United States v. Miller, 317 U.S. 369, 376 (1943). The part taken is not valued as a separate parcel since just compensation is determined by the owner's loss and not the taker's gain. Nichols on Eminent Domain, 3d Ed., § 12.03; Powelson, 319 U.S. at 281. A property owner "must be made whole but is not entitled to more." Olson, 292 U.S. at 255.*fn5
Market value is the price a reasonable seller would demand, and the price a reasonable buyer would pay, for the property. Fair market value must be based on the property's "highest and best use," which is the most profitable, legal use for which the property is adaptable and needed or likely to be needed in the reasonably near future. Olson, 292 U.S. at 255. An award of just compensation may not be predicated on speculative or conjectural potential. Id.
Here, plaintiff moves for summary judgment on the ground defendants lack admissible evidence sufficient to establish a triable issue of material fact regarding the valuation of the subject property. More specifically, with respect to defendants' expert Nicolaou, plaintiff contends he is unqualified to opine on the value of federally condemned property, did not properly analyze accepted methodologies and made critical calculation errors and failed to use appropriate or reliable data, thereby rendering his opinions inadmissible.*fn6
The proponent of an expert has the burden of proving admissibility. Lust v. Merrell Dow Pharm., Inc., 89 F.3d 594, 598 (9th Cir. 1998). The Federal Rules of Civil Procedure set the minimum standards for expert opinions:
If scientific, technical or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case. Fed. R. Evid. 702. District courts are charged with the gate-keeping function of determining whether the proffered expert testimony is both reliable and relevant. Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589-90 (1993). Daubert's screening applies to all expert testimony, not just "scientific" testimony. Id. Nothing requires the district court to admit opinion evidence that "is connected to existing data only by the ipse dixit of the expert." Gen. Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997). It is error to admit evidence that fails to satisfy Rule 702's*fn7 reliability requirement. United States v. 99.66 Acres of Land, 970 F.2d 651, 654 (9th Cir. 1992). Specifically in condemnation actions, the Ninth Circuit has recognized that expert opinions are admissible only if the expert is qualified and the opinion is factually supported. United States v. 429 Acres of Land, 612 F.2d 459, 462 (9th Cir. 1980); United States v. 33.5 Acres of Land, 789 F.2d 1396, 1398 (9th Cir. 1986).
Plaintiff first argues that Nicolaou's valuation opinions must be excluded because he lacks the requisite knowledge, skill, experience, training or education to value federally-condemned property. (UF #70-78.) Plaintiff bases its argument on the following facts which are not in dispute: Nicolaou has never valued property condemned by the United States. (UF #70.) He did not investigate the requirements for valuing federally-condemned property before rendering an expert opinion in this case. (UF #71.) He did not evaluate the differences between state and federal condemnation requirements. (UF #72.) He did not seek review or input from an appraiser with relevant federal condemnation experience. (UF #73.) He also did not read, reference, or rely on the rules or regulations for valuing federally-condemned property. (UF #74.) He testified that he had "heard of" the Uniform Appraisal Standards for Federal Land Acquisitions ("UASFLA") but admitted he did not review or rely on them when rendering opinions in this case. (UF #75.) Instead, Nicolaou testified he based his calculations on a "jury instruction" provided to him by defendants' counsel, but he never produced the jury instruction at his deposition nor did he attach it to his expert report. (UF #s 76, 77.) Finally, he has never been qualified as an expert in a federal condemnation case. (UF #98.)
Defendants have no admissible evidence to dispute these facts. Moreover, while Nicolaou may be a qualified appraiser, as urged by defendants, his experience and apparent qualifications are in state condemnation proceedings, not federal which are governed by entirely different rules and regulations. It is undisputed that Nicolaou failed to research appropriate valuation methodologies (consideration of a claimed jury instruction is not sufficient), failed to consult experienced federal appraisers, and otherwise failed to obtain the requisite knowledge, in the area of federal condemnations, before rendering his opinions in this case. This alone provides a sufficient basis to reject Nicolaou's testimony. Fed. R. Evid. 702; 429 Acres of Land, 612 F.2d at 462; 33.5 Acres, 789 F.2d at 1398. Brunette However, there are additional bases for rejecting Nicolaou's opinions. Nicolaou's valuation opinions are also flawed. He did not perform the proper before-and-after analysis, which is the accepted methodology for determining just compensation in a federal partial takings case. Miller, 317 U.S. at 376. Under the before-and-after rule, the value of the entire tract is found prior to the taking, the value of the remainder is evaluated after the taking, and the difference equals the amount to which the owner is entitled.
Here, instead of calculating the difference between the fair market value of the larger parcel immediately before the take, and the value of the remainder parcel after the take, Nicolaou valued the 12.94 acres as though it was a separate parcel or this was a complete taking. (RJN #14.) Nicolaou valued the 12.94 acres at $400,000.00; he then subtracted that amount from the value of the whole (which he determined was $2,440,000) to arrive at the value of the remainder after the taking as $2,040,000.00. This is not a proper application of the before and after rule which does not permit separate valuation of the part taken.
Nicolaou's failure to use the correct before-and-after analysis of the larger and remainder parcels produced absurd valuation results. Specifically, Nicolaou ultimately opined that the 306.76 acre larger parcel was worth $2,440,000 and that just compensation for the 12.94 acres was $2,319,000. (RJN #14.)
With this valuation, the 293.82 acre remainder parcel is only worth $121,000 total, or $411.81 per acre. This amount is in stark contrast to the sales contract that Nicolaou relied on for the larger parcel, which valued the land at $7,954.10 per acre. (RJN #14.) Nicolaou never reconciles these conflicting values.
Moreover, to the extent Nicolaou attempted to perform the correct before-and-after analysis, indicating in one aspect of his report that the value of the remainder parcel after the taking was $1,028,000.00, he wholly fails to explain how this value was determined. He does not use comparable data to support the figure or otherwise indicate how the value was ascertained. Nicolaou's opinion is not factually supported, and thus, it is inadmissible. 429 Acres of Land, 612 F.2d at 462; 33.5 Acres of Land, 789 F.2d at 1398.
Additionally, Nicolaou failed to use accepted methodologies to determine just compensation because he added the costs to cure access to the remainder of the property (a claimed $907,000.00) in performing his before-and-after analysis. This is an incorrect application of the test as it results in double counting. These costs should already be considered when determining the value of the remainder parcel in the after condition. Nichols on Eminent Domain, 3d Ed., § 14.02(1) at 14-15.
Defendants do not proffer any authority to the contrary and indeed acknowledge in their opposition the controlling rule that in the "before and after calculation, severance damages are not separately calculated but are automatically factored into the calculation of the value of the remainder after the taking." (Opp'n, filed Nov. 9, 2009, at 12.) Thus, defendants concede that double counting of costs violates the before-and-after rule.
Not only did Nicolaou fail to properly apply accepted methodologies for ascertaining the property's value in this case, his opinions must also be rejected because they are not based on reliable data. Daubert, 509 U.S. at 589-90 (recognizing that an expert's opinion is inadmissible, as a matter of law, if it is not based on accepted methodologies and reliable data); Decoud, 456 F.3d at 1012 (accord). Here, Nicolaou failed to analyze appropriate comparables. Other sales are only useful if the properties evaluated are actually comparable. US v. 10.082 Acres of Land, No. 05-363, 2007 WL 962846 (D. Ariz. Mar. 27, 2007). Comparability is a function of multiple variables including property rights conveyed, financing terms, conditions of sale, market conditions, locations, physical characteristics, economic characteristics, use and zoning, and non-realty components of value included in the sale property. (UASFLA at 47, Appx. 6 to Pl.'s Mtn., filed Oct. 13, 2009 [Docket #90].)
Plaintiff contends Nicolaou improperly used $2.4 million as the value of the larger parcel because it was based on a prior sales contract for that amount that was not completed, it was more than twice as much as Nicolaou's next highest comparable and escrow had not closed on a sales contract for the property entered three years prior. (RJN #14.) Plaintiff is correct that governing appraisal standards, as well as case law, recognize that completed transactions are considered the most reliable value indicator. (Appraisal of Real Estates Rules at 302, Appx. 7 to Pl.'s Mtn.); see United States v. 55.22 Acres, 411 F.2d 432, 434 (9th Cir. 1969). However, an expert may properly consider non-consummated sales as some evidence supporting his valuation opinions, provided the sales are for comparable property. See United States v. 428.02 Acres of Land, 687 F.2d 266, 271 (8th Cir. 1982); United States v. Smith, 355 F.2d 807, 812 (5th Cir. 1966). In this case, Nicolaou's consideration of the prior sales contracts was not proper comparability analysis because the negotiated price was conditioned on the ability of the property to be used for unapproved uses. (UF #s 5-7.) The Bancor contract was conditioned on approval to subdivide and develop residential homes on the property, and SGA intended to buy the property for use as a mitigation bank and/or solar farm. (Id.) Neither of these prior unconsummated conditional sales reflected use of the property for Nicoloau's claimed highest and best use of "residential rural agricultural."
Alternatively, plaintiff emphasizes that Nicolaou's expert report did not analyze, whatsoever, his seven other comparables, as required by the Federal Rules of Civil Procedure. For example, Nicolaou did not discuss the significance, if any, of the comparable properties' different zoning and usage, different geographic locations and non-similar lot sizes and shapes. (UF #79.) Nicolaou's failure to render this analysis violates Rule 26(a)(2)(B)'s disclosure obligations.*fn8 Pursuant to Rule 37(c)(1), said evidence must be excluded. Yetti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001) (holding that Rule 37(c)(1) is intended to be a self-executing, automatic sanction to provide a strong inducement for disclosure of material as required by Rule 26; the automatic exclusion rule is applied not only at trial but also with respect to any motion, such as a motion for summary judgment). Thus, Nicolaou's report violates the prescriptions of Rule 26 in failing to consider adequately all of the proffered comparables, and thus, his opinions are properly excluded on this alternative basis.
Finally, even if Nicolaou's opinions on the costs to cure were relevant to the inquiry, his opinions would nonetheless be inadmissible since they are based on unreliable data. Nicolaou bases his costs to cure analysis on a bid by Hess Construction for $273,420.00. However, at his deposition, Nicolaou questioned the reliability of that bid, and he conceded the amount provided was not calculated on the correct valuation date (the date of condemnation). Nicolaou also conceded that he knew further information was needed to form an accurate opinion as to the costs to cure. (UF #90.)
Defendants assert that Nicolaou simply questioned the Hess Construction bid's reliability, not its accuracy. Defendants' argument is a distinction without a difference. Nicoloau's opinions must be based on reliable and accurate data. He concedes Hess' estimate was not such data. He thus had no reasonable basis to rely on it.
Thus, for all of the above reasons, Nicolaou's valuation testimony must be excluded. He lacks sufficient qualifications to provide such testimony in this federal condemnation action, and even if he had adequate qualifications, his analysis is flawed as it improperly applies the accepted methodologies and is based on unreliable data.
Beside Nicolaou's testimony, defendants rely on only Maher to establish the amount of just compensation in this case. Plaintiff contends that Maher cannot create a triable issue of fact because his testimony during deposition and declaration submitted on the motion do not offer any valuation opinions. While case law generally recognizes that the owner of land is qualified to express his opinion as to its value merely by virtue of his ownership,*fn9 here, Maher does not offer any opinions as to valuation. (UF #s 92-102.) At his deposition, Maher testified:
(1) he could not identify or estimate the date of condemnation and he stated he believed that value and just compensation change over time (UF #s 94-95); (2) while he testified that 20 acres may be worth $40,000 per acre if used as mini-storage, he admitted the subject property was not approved for that use, rezoning was never requested and the Williamson Act contract for the property precludes it (UF #s 96-100); (3) he admitted he had no valuation of the 286 acres, the majority of which was encumbered by aviation easements and had limited use (UF #100); and (4) he admitted he had not yet formed any valuation opinions at the time of his deposition and he would "probably" rely on Nicolaou's opinion (UF #101).
Moreover, Maher's declaration on the motion simply authenticates various photographs of the property; it does not provide any valuation opinions. (Maher Decl., filed Nov. 9, 2009 [Docket #96].) Thus, Maher has not presented any admissible valuation opinions, and his testimony does not create a triable issue of fact as to the property's valuation.
While the court acknowledges that summary judgment in a condemnation case is rare,*fn10 in this case, the court must grant plaintiff's motion since defendants lack any admissible evidence on the issue of valuation. See e.g. Hardy Storage Co. v. Property Interests, No. 07CV5, 2009 WL 689054 (N.D.W. Va. Mar. 9, 2009) (granting summary judgment to the government where the defendant property owner failed to proffer any appraisal evidence). Defendants' proffered expert Nicolaou lacks the necessary qualifications to provide expert testimony in this case, and even were the court to find him qualified, his testimony would be inadmissible because Nicolaou improperly applies the accepted methodologies and bases his opinions on unreliable data. Additionally, defendants cannot rely on Maher since he wholly failed to offer any valuation opinions. Lastly, defendants failed to obtain rebuttal expert reports to refute plaintiff's experts' opinions. As a result, the only admissible evidence before the court of valuation of the taken parcel is plaintiff's evidence, establishing just compensation at $295,000.00. It is not for the court to set the amount of just compensation. Rather, the court is bound by the admissible evidence in the case, and where plaintiff has demonstrated no issue of material fact as to the property's value, the court must grant plaintiff's motion for summary judgment.
For the foregoing reasons, plaintiff's motion for summary judgment is GRANTED. Defendants do not have any admissible valuation opinions and offer no rebuttal experts to plaintiff's experts. Judgment is therefore entered in plaintiff's favor in the amount of $295,000.00, representing the amount of just compensation for the partial taking of the 12.94 acres of land in Solano County.
The March 23, 2010 bench trial is HEREBY VACATED. The Clerk of the Court is directed to close this file.
IT IS SO ORDERED.