Real Estate & Property Law

Cal Ct App: Condemnor's Offer Of 40% Of Compensation Ultimately Awarded Is Per Se Unreasonable

By Robert Thomas (inversecondemnation.com)

Professor Gideon Kanner has a recurring feature on his eminent domain law blog Gideon's Trumpet called "Lowball Watch" in which he points out cases in which the condemnor's offer is below -- way below-- the eventual compensation awarded to a property owner.

Thus, we're looking forward to his thoughts on the latest case from the California Court of Appeal (3d District) which held that for purposes of California's statute awarding attorneys fees to property owners when the condemnor's offer is "unreasonable," an offer which is 38.8% of the eventual compensation fixed by the jury is unreasonable as a matter of law. Tracy Joint Unified School Dist. v. Pombo, No. C061239 (Oct. 29, 2010).

California's eminent domain statutes provide that a property owner is entitled to litigation expenses in defending an eminent domain action if the condemnor's final pretrial offer of compensation is "unreasonable." Cal. Code of Civ. Proc. § 1250.410. The statute also requires the property owner's pretrial demand be "reasonable." The pretrial offer and demand are viewed by the court "in the light of the evidence admitted and the compensation awarded in the proceeding."

The school district's pretrial offer was $3,181,500 as compensation for land totalling 61.6 acres adjacent to Tracy, California to construct a high school. The property owners pretrial demand was $7,995,000. At trial, the district's expert valued the taking at about $3 million, with no severance damages, while the property owner's appraiser fixed total compensation at around $12.4 million, including almost $3.1 million in severance damages.

The jury, according to the court, "split the difference" by awarding the owners $7,085,150, plus severance damages of $900,000, for a total compensation award of $7,985,150. The court noted '[t]he 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." Slip op. at 2.

The trial court denied the property owner's request for litigation expenses, ruling that the district's pretrial offer was reasonable under the circumstances.

The court of appeals didn't just reverse, it remanded the case with instructions to enter an order in favor of the property owner granting the request for litigation expenses. The court concluded the district's pretrial offer was unreasonable as a matter of law based on three factors:

• The nearly $5 million difference between the district's offer and the jury's verdict. "The difference looms especially large considering that the District offered only a token amount above the appraisal figure of its expert." Slip op. at 8.

• The district's offer was only 40% of the jury's award. "Viewed from another perspective, the jury's award was more than two and one-half times the size of the District's offer, while bearing a virtual one-to-one ratio to the property owners' demand." Slip op. at 9.

• The opinion spent the most time on the third factor, the "good faith, care and accuracy" in how the pretrial offer was calculated. The court distinguished other cases which denied litigation expenses, holding that unlike those case, here "[t]here was no tricky legal issue or unusual circumstance that made the offer difficult to formulate. The jury was confronted with a straightforward conflict between two appraisers who advocated vastly different approaches to the appraisal process." Slip op. at 12. 

While the court detailed each party's appraiser's methodology and concluded that "both experts had serious problems with their appraisals and those weaknesses were apparent before the trial began," it concluded it did not need to pick which was more persuasive. The property owner was willing to compromise, and its pretrial demand was below its appraiser's valuation. The district's pretrial offer, by contrast, "barely exceeded" its appraiser's valuation, and it's offer "audaciously assumed" the jury would believe its appriaser over the property owner's. "This type of conduct was not indicative of 'good faith, care and accuracy.' On the contrary, it evinced an arrogant and unyielding approach to settlement negotiations." Slip op. at 16-17. 

The court concluded that a "good faith" settlement offer means something more than a party's bottom line:

A good faith settlement offer carries with it the implicit recognition that proceeding to trial always carries an element of risk. In a case such as this, which came down to a credibility contest between two respected experts, an eight million dollar difference between the two appraisals should have prompted a reasonable condemner to submit an offer that, at a minimum, took into account the cost of litigation as well as the risk that the jury will not accept its own expert?s testimony as gospel.The District's take-it-or-leave-it offer did neither.

Slip op. at 19 (emphasis original).

The entire opinion is worth reading for anyone interested in condemnation law.

Full post as published by inversecondemnation on November 01, 2010 (boomark / email).