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Tracy Joint Unified School District v. Pombo

October 29, 2010

TRACY JOINT UNIFIED SCHOOL DISTRICT, PLAINTIFF AND RESPONDENT,
v.
ERNEST J. POMBO, JR., ET AL., DEFENDANTS AND APPELLANTS.



APPEAL from a judgment of the Superior Court of San Joaquin County, Elizabeth Humphreys, Judge. Reversed with directions. (Super. Ct. No. CV032726).

The opinion of the court was delivered by: Butz, J.

CERTIFIED FOR PUBLICATION

Having decided to build a new high school, plaintiff Tracy Joint Unified School District (the District) filed this eminent domain action to acquire 61.6 acres in the middle of a 231-acre parcel of raw development land owned by defendant Ernest J. Pombo, Jr., and others.

The trial resulted in a battle of real estate appraisers. The District's expert valued the taking at about $3 million, with no severance damages. Defendants' expert fixed total compensation at around $12.4 million, including almost $3.1 million in severance damages.

The jury split the difference. It awarded defendants $7,085,150, plus severance damages of $900,000, for a total compensation award of $7,985,150. The verdict virtually matched defendants' pretrial settlement demand of $7,995,000, but was a far cry from the District's final offer of $3,181,500.

Defendants moved to recover their litigation expenses under Code of Civil Procedure section 1250.410,*fn1 contending that the District's offer was unreasonable and that their demand was reasonable. The trial court denied the motion, determining that the offer was reasonable under the circumstances.

On this appeal, we shall conclude that the District's stubborn adherence to a pretrial settlement offer that barely exceeded its own expert's appraisal was unreasonable as a matter of law. We shall reverse the order with directions.

FACTUAL AND PROCEDURAL BACKGROUND

Defendants are the owners of a 231.26-acre parcel of undeveloped land (subject property) lying just to the east of the Tracy city limits.*fn2 The subject property consists of three contiguous parcels under a single ownership.

In May 2007, the District adopted a resolution of necessity authorizing the initiation of condemnation proceedings to acquire 61.6 acres in the middle of the subject property, for the purpose of constructing a high school.

On June 7, 2007 (the operative date of the taking), the District filed two complaints in eminent domain to acquire two tracts of land within the subject property for the high school project. The District deposited probable compensation totaling $3,080,000 with the State Treasurer. The figure was based on estimates from the District's appraiser, Jesse Smyers.

Before trial, the parties exchanged a list of valuation data prepared by their appraisers. Smyers's written appraisal valued the acquisition at $3,081,500, and did not include severance damages. Defendants' appraiser, Chris Carneghi, valued the taking at $12,406,000, which included $3,081,000 in severance damages.

Prior to trial, the parties exchanged their final offer and demand for settlement. The District offered to settle the case for $3,181,500. Defendants submitted a final demand of $7,995,000.

The case was tried to a jury, with the Honorable Elizabeth Humphreys presiding. Each party's appraiser, Carneghi on behalf of defendants and Smyers on behalf of the District, testified in support of his valuation of the property and explained the basis for his opinion. The details of their testimony will be set forth as they become relevant.

The jury returned with a verdict that awarded defendants $7,985,150, consisting of $7,085,150 in compensation for the fair market value of the property and $900,000 in severance damages. Judgment was entered in conformance with the jury verdict. Neither party has appealed the judgment and it is now final.

Defendants then moved to recover their litigation expenses under section 1250.410, seeking approximately $574,000 in expert fees, attorney fees and "non-statutory costs and expenses." Defendants contended that, based on the offer, demand and the evidence at trial, their final settlement demand was reasonable and the District's offer unreasonable.

Judge Humphreys denied the motion. She found that both experts "had significant problems in their evaluations"; that, given the rapidly changing real estate market in the area, "valuation of the subject property [was] particularly difficult"; and that, although the jury chose to give more credence to the testimony of Carneghi than Smyers, it would have been difficult to predict which expert would be more credible before the trial began. While acknowledging that defendants' demand was reasonable and that the percentage difference between the demand and the jury's award was extremely small, the judge found that "these factors are outweighed by the good faith, care and accuracy exhibited by [the District] in its overall evaluation of the value of the subject property." The court concluded that "[i]n light of the facts known prior to the expert witnesses' trial testimony, [the District's] offer was reasonable."

Defendants appeal from the order denying fees.

DISCUSSION

I. Applicable ...


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