Filed 7/21/14 Modified 8/14/14; Certified for Publication 8/13/14 (orders attached)

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE
STATE OF CALIFORNIA


SAN DIEGO GAS & ELECTRIC
COMPANY,
Plaintiff and Appellant,
v.
ARNOLD J. SCHMIDT, as Cotrustee, etc.,
et al.,
Defendants and Appellants;
VALERIE SCHMIDT, as Cotrustee, etc.,
Defendant and Respondent.
D062671

(Super. Ct. No.
37-2010-00094931-CU-EI-CTL)
SAN DIEGO GAS & ELECTRIC
COMPANY,

Plaintiff and Appellant,
v.
ARNOLD J. SCHMIDT et al.,
Defendants and Appellants.

(Super. Ct. No.
37-2010-00094934-CU-EI-CTL)



APPEAL and cross-appeal from a judgment and orders of the Superior Court of
San Diego County, Timothy B. Taylor, Judge. Affirmed in part and reversed in part.
San Diego Gas & Electric Company and C. Larry Davis; Horvitz & Levy, John A.
Taylor, Jr., Daniel J. Gonzalez; Bartz Law Firm and Linda D. Bartz for Plaintiff and
Appellant.
Rutan & Tucker, David B. Cosgrove, Alan B. Fenstermacher; Niddrie Fish &
Adams and David A. Niddrie for Defendants and Appellants and for Defendant and
Respondent.
2


Plaintiff San Diego Gas & Electric Company (SDG&E) initiated this eminent
domain proceeding to condemn an easement for electric transmission lines across the
property of defendants Arnold and Valerie Schmidt and Luis Naranjo (collectively
defendants) after the parties could not agree on an appropriate valuation for the property.
Agreeing with defendants' experts that an open-pit mining operation was the "highest and
best use" for the land, the jury valued the property at about $8 million. SDG&E appeals,
contending the judgment and order denying its motion for judgment notwithstanding the
verdict (JNOV) must be reversed. SDG&E argues that the evidence was legally
insufficient to support the jury's verdict. SDG&E also contends it is entitled to a new
trial because the trial court abused its discretion in (1) limiting the cross-examination of
defendants' appraisal expert and (2) allowing the appraiser to testify in violation of
Evidence Code section 819. Defendants cross-appeal, asserting the trial court erred in
denying their request for litigation expenses under Code of Civil Procedure section
1250.410. (Undesignated statutory references are to the Code of Civil Procedure.) We
reject SDG&E's arguments and affirm the judgment and order denying JNOV. We
reverse the order denying defendants' motion for litigation expenses.
GENERAL FACTUAL AND PROCEDURAL BACKGROUND
SDG&E filed two complaints for condemnation, one for each of two contiguous
parcels of vacant land owned by defendants, and over which it required easements for its
Sunrise Powerlink Transmission Project. Defendants' property totals 115 acres and is
located near Highway 67 in the Lakeside area of San Diego County (the County). The
3

easements included 300-foot wide corridors on which SDG&E erected transmission
towers, power transmission lines and transmission supply access pads. On June 25, 2010,
SDG&E deposited the probable compensation for the property, establishing this date as
the "date of valuation" for a final determination of just compensation. ( 1263.110, subd.
(a).)
Because the parties could not agree on the amount of just compensation to which
defendants were entitled, the case proceeded to trial on this issue. Before trial, the court
denied SDG&E's in limine motions to exclude the testimony of defendants' experts. At
trial, the jury heard evidence from SDG&E's real estate appraiser that residential
development or habitat mitigation was the highest and best use for defendants' land.
SDG&E concluded that $712,200 constituted just compensation for the property.
SDG&E's appraiser assumed it was physically possible to mine the property and that such
use would be legally permissible upon the issuance of a major use permit (MUP), but did
not assess the probability of defendants obtaining a MUP to mine the property and had no
opinion on the likelihood of defendants' obtaining such a permit.
Defendants believed that the highest and best use for their land before SDG&E's
taking was a granite mining operation. Briefly, defendants' mining expert, Warren
Coalson, opined that a "very competitive aggregate environment" existed in San Diego
and "there would be takers" if the property were offered for mining as existing sites
would be depleted in the next few years. The property was zoned for mining and
defendants presented evidence that it was sandwiched on both the north and south by
properties owned by a mining operator, Hanson Aggregates (Hanson), that held about
4

950 acres in that area. Hanson had previously approached defendants about leasing the
property for mining, but these discussions ended as a result of SDG&E's taking of the
property. Vincent Scheidt, defendants' biological expert, performed a biological survey
of defendants' property. Scheidt stated an issue existed regarding the removal of coastal
sage scrub from the property for the mining operation, but this issue would arise for any
type of development and could be addressed through the purchase of mitigation credits.
Defendants also presented Orell Anderson, a real estate appraiser experienced in
appraising property for mining. For appraisal purposes, Anderson stated that defendants'
parcels had a unity of use such that they should be viewed together in determining their
highest and best use. He testified that appraisers use four tests to determine the highest
and best use for a property; namely, whether a use is physically possible, legally
permissible, economically feasible and maximally productive. After applying all four
tests to the property in its before condition and consulting with other experts, including
Coalson and Scheidt, Anderson concluded that the highest and best use of the property
would be to lease it for aggregate mining.
Anderson testified that a MUP was required to mine the property and that the
property did not have such a permit, but it was legally permissible to obtain such a
permit. Using a discounted cash flow method, Anderson determined the value of the
property based on the present value of the property's projected rental income stream from
mineral royalties. Using this method, Anderson opined the "before condition" value of
the subject property was $10,359,000, the value of the "part taken" was $1,877,000, and
the severance damages were $6,622,000. The total just compensation was $8,499,000.
5

The jury returned a verdict close to Anderson's figures. The jury agreed with
Anderson regarding the value of the land in the before condition and the value of the part
taken, but lowered the severance damages to $6,157,000, resulting in total compensation
to defendants of $8,034,000.
SDG&E moved for new trial and JNOV, arguing that substantial evidence did not
support the verdict. It also argued that the trial court improperly limited the testimony of
its appraiser and cross-examination of defendants' appraiser. In a lengthy ruling, the trial
court denied both motions. The trial court found Coalson credibly testified that the
County was running out of aggregate mines, the location minimized likely opposition and
permit processing time on other mines has been shorter than what SDG&E predicted for
this theoretical mine. The court concluded that the evidence supported the verdict,
specifically noting that Coalson's opinions "were unchallenged by SDG&E due to its fatal
strategic error in not naming a mining expert of its own."
SDG&E timely appealed from the judgment and the denial of JNOV. Defendants
timely appealed from the order denying their motion for litigation expenses.
DISCUSSION
I. SDG&E's Appeal
A. Legally Sufficient Evidence Supported the Jury's Verdict
1. General Legal Principles
Owners of private property taken for public use are entitled to just compensation
for the full monetary equivalent of the property as of the date of the taking. (Almota
Farmers Elevator & Warehouse Co. v. United States (1973) 409 U.S. 470, 473.) If
6

possible, owners should be placed in the same monetary position they would have been
without the taking. (United States v. Reynolds (1970) 397 U.S. 14, 16.) The measure of
just compensation to be awarded for the property taken is the fair market value of that
property ( 1263.310), meaning "the highest price on the date of valuation that would be
agreed to by a seller, being willing to sell but under no particular or urgent necessity for
so doing, nor obliged to sell, and a buyer, being ready, willing, and able to buy but under
no particular necessity for so doing, each dealing with the other with full knowledge of
all the uses and purposes for which the property is reasonably adaptable and available."
( 1263.320, subd. (a).)
The jury determines the fair market value of the property based on the highest and
best use for which the property is geographically and economically adaptable. (San
Diego Metropolitan Transit Development Bd. v. Cushman (1997) 53 Cal.App.4th 918,
925 (Cushman); CACI No. 3502.) Section 501 of the State Board of Equalization
Assessors' Handbook (Handbook) states that "[h]ighest and best use is perhaps the most
fundamental concept in real estate appraisal." (Handbook, 501 at p. 48.) The highest
and best use is defined as "that use, among the possible alternative uses, that is physically
practical, legally permissible, market supportable, and most economically feasible . . . .
The appraiser must make a determination of highest and best use as part of the appraisal
process." (Ibid.; see 11 Miller & Starr, Cal. Real Est. (3d ed. 2011) 30A:25, pp. 55-56
(Miller & Starr).) Courts may rely upon assessor handbooks in the interpretation of
valuation questions. (Prudential Ins. Co. v. City and County of San Francisco (1987) 191
Cal.App.3d 1142, 1155.)
7

The highest and best use for which the property is adaptable may not be its current
use. (See City of Los Angeles v. Decker (1977) 18 Cal.3d 860, 863, 869 [evidence that
residential property could be used in the future as airport parking properly admitted];
People ex rel. Dept. of Water Resources v. Andresen (1987) 193 Cal.App.3d 1144, 1159-
1160 (Andresen) [condemnee properly tendered evidence that property was suitable as a
proposed rock quarry].) "The highest and most profitable use for which the property is
adaptable and needed or likely to be needed in the reasonably near future is to be
considered, not necessarily as the measure of value, but to the full extent that the prospect
of demand for such use affects the market value while the property is privately held."
(Olson v. United States (1934) 292 U.S. 246, 255.) After the highest and best use of the
property has been determined, the Evidence Code sets forth various methodologies
sanctioned for use by valuation experts for determining the market value of property.
(Cushman, supra, 53 Cal.App.4th at p. 926.) The Evidence Code codifies three basic
methods of appraising real property, including income capitalization (Evid. Code, 819),
reproduction costs (Evid. Code, 820) and comparative sale data (Evid. Code, 816,
818).
"The right to future exploitation of undeveloped natural resources has a present
and ascertainable value for purposes of eminent domain." (City of Stockton v. Albert
Brocchini Farms, Inc. (2001) 92 Cal.App.4th 193, 199 (Brocchini Farms).) Accordingly,
" '[i]n determining just compensation in eminent domain proceedings, the existence of
valuable mineral deposits in the land taken constitutes an element which may be
considered insofar as it influences the market value of the land.' [Citations.]" (Ventura
8

County Flood Control Dist. v. Campbell (1999) 71 Cal.App.4th 211, 219 (Ventura); see
also 4 Nichols on Eminent Domain (3d ed. 1997) 13.14 [existence of mineral deposits
are an element in valuing land]; 1 Matteoni & Veit, Condemnation Practice in Cal.
(Cont.Ed.Bar 3d ed. 2005) 4.87, p. 141 ["A right to future exploitation of undeveloped
natural resources has a present and ascertainable value."]; 29A C.J.S. Eminent Domain
179, p. 341 ["Mineral rights in lands have ascertainable market value, to be considered in
fixing the compensation for the taking of lands in condemnation proceedings, even
though there is an element of speculation in such rights."]; 27 Am. Jur. 2d Eminent
Domain 586, pp. 211-212 ["[E]vidence of the value of mineral deposits on a
condemned property is relevant, not to establish the separate value of the deposits, but to
establish the value of overall property as enhanced by the deposits."].) "Although it is
generally not proper to reach an award by separately evaluating the land and the deposits,
'it is possible to capitalize potential royalties, by multiplying the reasonably probable
royalty rate by the estimated tonnage of mineral in place and reducing the result to
present value.' " (Ventura, supra, at pp. 219-220.) "Such evidence is proper where there
is proof of an active market for the minerals in question, that such transactions commonly
take the form of royalty payments and that the estimate for recoverable deposits is not too
speculative. [Citation.] 'This method results in an accurate assessment of the capitalized
net profit which the condemnee could expect to realize, if the condemnee remained in
possession and performed the work, and it is that interest which the condemnee would be
able to market to a willing buyer desiring to perform the extraction and realize those
profits for itself.' " (Id. at p. 220.)
9

It is important to note that while lost business profits are not compensable as an
element of damage in an eminent domain proceeding, "evidence of economic feasibility
of a claimed highest and best use of the property bears upon market value and is,
therefore, admissible." (Orange County Flood Control Dist. v. Sunny Crest Dairy, Inc.
(1978) 77 Cal.App.3d 742, 759.) Stated differently, "a defendant may not present
evidence of income from a business that is conducted on the condemned property, but
may offer proof of rental income from the property itself and any improvements presently
in existence." (Brocchini Farms, supra, 92 Cal.App.4th at pp. 198-199.)
As one commentator explained, the "[v]aluation of mineral properties is difficult
and to a degree speculative, but this does not preclude their having ascertainable market
value." (Montano, Valuation of Lands with Mineral Deposits (Jan. 7, 1993) C791 ALI-
ABA 269, 272 (Montano).) First, evidence must be presented showing that development
of minerals is compatible with the highest and best use of the property. (Ibid.) After it is
established that development of minerals is a proper use, the next step in the process is to
determine the proper approach to value the property. (Id. at pp. 272-273.) While the
comparable sales approach is the most reliable and easiest, other approaches may be used
if it is established there is a lack of comparable sales. (Id. at p. 273.) In this situation,
"use of income generated from the land, as opposed to income generated from a business
conducted on the land, may be used to determine the value of mineral bearing lands."
(Id. at p. 274.)
The income approach to value requires expert testimony regarding (1) the
existence of the deposit, (2) the quantity and quality of the deposit, (3) whether a market
10

exists for the deposit, and (4) the net income projected over the life of the deposit.
(Montano, supra, at pp. 276-277.) "The net income is then capitalized using appropriate
capitalization rate and in the process discounted to determine the present worth of the
projected future income." (Id. at p. 277.) The "present value for minerals may be
determined by estimating future income over a period of time, and capitalizing that
income to determine its present value." (Ibid.) Finally, a real estate appraiser testifies as
to the overall market value of the land, including the overall influence of the mineral
deposits. (Id. at p. 278.)
Real estate developers have also created their own internal method of valuing
land, called the "developer's approach" or "residual land value" approach. (Miller &
Starr, supra, 30A:26, p. 66.) This valuation method "starts with the presumed value of
the finished product, such as a housing tract, apartment complex or commercial building.
The developer then subtracts costs of marketing the product, building the improvements
and obtaining development entitlements to end with the portion of the finished product
value attributable to the land. This residual land value guides the amount a real estate
developer will offer to purchase land. [Citations.] The courts have rejected the use of
this residual land value or 'developer's approach' in eminent domain cases. [Citations.]
Such an approach is speculative and subject to vagaries and contingencies of the market
and the costs of development in the future. [Citations.]" (Id. at pp. 66-67.)
Where, as here, property acquired by eminent domain is part of a larger parcel,
compensation must be awarded not only for the part taken, but also for the injury, if any,
to the remainder. ( 1263.410, subd. (a).) This compensation, called severance damages,
11

is computed by subtracting the fair market value of the remainder after the project is
completed from its fair market value before the project. (See CACI No. 3511.)
2. Standard of Review
SDG&E appeals from the final judgment and from the order denying its JNOV
motion. Our review of the judgment and the order denying a JNOV motion is the same
where, as here, the JNOV motion does not raise a pure question of law or an issue based
on undisputed facts. (Sweatman v. Department of Veterans Affairs (2001) 25 Cal.4th 62,
68; Trujillo v. North County Transit Dist. (1998) 63 Cal.App.4th 280, 284.)
When an appellant claims a factual finding is not supported by substantial
evidence, our power " 'begins and ends with the determination as to whether there is any
substantial evidence contradicted or uncontradicted which will support' " the finding.
(Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881.) We presume that the
record contains evidence sufficient to support the judgment; it is the appellant's burden to
demonstrate otherwise. (Ibid.) We do not reweigh evidence or assess the credibility of
witnesses on review for substantial evidence. (Howard v. Owens Corning (1999) 72
Cal.App.4th 621, 630.) Evidence is substantial if it is of "ponderable legal significance . .
. reasonable, credible and of solid value." (Roddenberry v. Roddenberry (1996) 44
Cal.App.4th 634, 651.) An expert's opinion is substantial evidence if it has evidentiary
support and is accompanied by a reasoned explanation connecting the factual predicates
to the ultimate conclusion. (Jennings v. Palomar Pomerado Health Systems, Inc. (2003)
114 Cal.App.4th 1108, 1117.) While inferences may support a judgment, "the inference
must be a reasonable conclusion from the evidence and cannot be based upon suspicion,
12

imagination, speculation, surmise, conjecture or guesswork." (Beck Development Co. v.
Southern Pacific Transportation Co. (1996) 44 Cal.App.4th 1160, 1204.)
3. Analysis
As a preliminary matter, SDG&E does not challenge the admissibility of Coalson's
and Anderson's expert testimony; rather, it asserts defendants' evidence was legally
insufficient to support the verdict. Although somewhat unclear, SDG&E appears to
argue that the evidence was insufficient to show that a mining operation was the highest
and best use of the property and, even assuming a mining operation was the highest and
best use, the valuation method used by defendants was improper.
We first address SDG&E's argument that the evidence was insufficient to show a
mining operation was the highest and best use of the property because the evidence failed
to show a mining operation was reasonably probable. This argument contains several
subparts. SDG&E first asserts that the developer's rule or approach precluded defendants'
theory that a mining operation was the highest and best use for the property. We
disagree.
The developer's approach begins with the presumed value of the finished product
and then subtracts the costs of marketing the product, building the improvements and
obtaining development entitlements to produce a number reflecting the portion of the
finished product value attributable to the land. (Miller & Starr, supra, 30A:26, pp. 66-
67.) Comparing this description of the developer's approach with Coalson's and
Anderson's testimony, as summarized below, shows defendants did not use the
developer's approach to determine the highest and best use of the property. Rather,
13

defendants used the income approach, as outlined above (ante, Part I.A.1), to determine
the highest and best use of the property and then to appraise it.
SDG&E also argues that the developer's rule precluded defendants' experts from
testifying that the highest and best use of the property was a mining operation because
such an operation did not currently exist on the property. We reject this assertion as a
condemnee may present evidence that the property is suitable for a particular purpose
even if the property has not yet been developed to that particular highest and best use.
(Andresen, supra, 193 Cal.App.3d at pp. 1159-1160.) Moreover, ample authority
supported the income approach used by defendants where, as here, the property at issue
contains undeveloped natural resources. (Ante, Part I.A.1.)
Defendants presented undisputed evidence showing the quantity and quality of the
deposit and that a market existed for the deposit. Testing of core samples taken from the
property revealed "very hard, very durable" material suitable for use as construction
aggregate "by a wide margin." Coalson estimated that the property could yield about 2.4
tons per cubic yard of aggregate. Coalson was familiar with the supply and demand of
construction aggregates in and around the County and had completed a market study for
construction aggregates. Coalson explained that there is a shortage of permitted
construction aggregate sites in the County and unless new sites were opened, the County
would completely exhaust its available construction aggregate by 2020 if the demand was
high or 2030 if the demand was low. After looking at existing quarries, Coalson
concluded that the County's long-term demand for construction aggregate could not be
met by simply expanding currently permitted mines.
14

Coalson explained that property is generally made available for mining through a
royalty agreement where a mine operator pays the property owner for the value of the
minerals exported from the site. The royalty is expressed as a percentage of the average
sales price of all the commodities produced on the property. Although royalty rates could
vary greatly, Coalson opined that an appropriate royalty rate for defendants' property
would be 15 percent based on the growing demand and diminishing supply for
construction aggregate. Coalson testified that he expected a buyer and seller in the
marketplace on the date of value to rely on a discounted cash flow analysis regarding the
value of defendants' property.
Anderson testified that mining the property was the highest and best use after
concluding that mining was physically possible, legally permissible and financially
feasible. Anderson concluded that a mining operation was the highest and best use of
defendants' property and that the proper appraisal method for mining extraction was the
income approach, which included direct income capitalization and a discounted cash flow
type of analysis. Although Anderson also applied a sales comparison approach to value
the property, he did not find a lot of vacant properties for sale with construction aggregate
reserves. He found three properties, but eliminated two of the properties as not
comparable. This left him with one piece of property. He concluded that this was not
enough information to conduct a sales comparison approach evaluation analysis.
Anderson explained that the discounted cash flow analysis "takes a series of cash
flow payments out into the future and mathematically brings it back to a net present value
of those cash flows as discounted by an appropriate rate." He considered the discounted
15

cash flow method as the only appropriate method for valuing the property on the date of
valuation because taking granite out of the ground takes years. Anderson explained that
he was valuing the property and its resources and not a business on the property.
The discounted cash flow method examines a number of variables over time and
then discounts future income back to present value. These variables include the total tons
of material that could be extracted from the ground on a yearly basis to determine the
amount of time it would take to remove all of the material (127 million tons) at 2 million
tons per year. To determine the price of the material, Anderson referred to a Region
Aggregate Supply Study prepared in 2011 for the San Diego Association of Governments
(SANDAG) that was funded mostly by CALTRANS (the SANDAG Study). Coalson
was a very active member of the technical review panel for the SANDAG Study.
Based on the SANDAG Study, Anderson determined an average price per ton of
$15 for this type of aggregate in the County. However, after reviewing all of the
information, Anderson concluded that $11 per ton was appropriate as it took into account
the risk of getting a MUP and provided an additional incentive for a prospective buyer.
After consulting a number of sources, Anderson agreed with Coalson that a royalty rate
of 15 percent was appropriate. He explained that the royalty rate represented the rent
someone would pay a property owner for the right to mine the resources on the property.
Anderson then determined the average or stabilized income stream that would
flow to the landowner leasing the property for mining at $3.3 million per year. This
figure was based on a 15 percent royalty for 2 million tons per year at $11 per ton. He
also looked at the discount rate, meaning the method of bringing the future value of
16

money back to a present number. After discussing the discount rate with a number of
individuals, Anderson concluded that a discount rate of 8.5 percent was appropriate.
Anderson also applied a 50 percent surcharge to the discount rate to reflect the risk
involved with the property not being permitted on the date of valuation. After taking into
account all of these factors, Anderson concluded that the property was worth $10,359,000
in its before condition.
Anderson determined the amount of severance damages at $8.482 million, which
represented the portion of the property left after SDG&E had taken its part but while
considering the value of the property taken when it was part of an integrated whole.
After considering the rights that were taken by SDG&E, Anderson reanalyzed the
remainder's highest and best use in the after condition. Anderson explained that
SDG&E's easement ran down the middle of the property, taking up about 22 acres and
essentially splitting the property in half. Anderson concluded that the property after
SDG&E's taking was no longer feasible for mining. He thus concluded that the highest
and best use for the remainder in the after condition was agricultural and low density
residential using a sales comparison approach because a discounted cash flow analysis
was no longer applicable. Using this method, Anderson concluded that the value of the
property in its after condition was $20,000 per acre, resulting in a value of $1.86 million
for the property and representing severance damages of $6,622,000. Thus, the total just
compensation for the taking and the impacts to the property was $8,499,000. In
summary, this testimony shows defendants used the income approach to value the
property, not the developer's approach.
17

SDG&E next complains that defendants presented no evidence showing mining
the property would be profitable and that it was reasonably probable anyone would have
invested in the property had defendants offered it for lease. Stated differently, SDG&E
claims defendants failed to present any evidence showing mining the property was
economically feasible. We disagree.
Anderson concluded that mining the property was financially feasible.
Specifically, Anderson testified that based on the low supply of aggregate in the area and
the high demand for aggregate, that defendants' property would be appealing to a mining
investor because it presented an opportunity "to make a lot of money." Based on this
testimony, the jury could infer it was reasonably probable an investor would have leased
the property had defendants offered it for lease. Significantly, SDG&E presented no
evidence disputing Anderson's testimony.
SDG&E asserts no rational trier of fact could have found a reasonable probability
the County would have granted a MUP for the proposed mining operation, noting that
defendants' experts never expressly testified that obtaining a MUP was reasonably
probable and other evidence in the record suggested important reasons existed for the
County to deny a MUP. SDG&E attacks (1) Coalson's opinion that the County would
have acted on a MUP within three to five years as pure conjecture and (2) Anderson's
testimony that a 71.4 percent (or any other) probability existed that the County would
have granted a MUP.
First, as defendants correctly note, valuating property in any condemnation action
is inherently speculative as it involves a hypothetical buyer and seller in a fictionalized
18

transaction. ( 1263.320, subd. (a).) This case is made more difficult and complex
because it involves mineral deposits. Juries, however, are instructed on the limitations of
expert testimony and are "able time after time to render verdicts in eminent domain trials
that are not disturbed on appeal." (City of Livermore v. Baca (2012) 205 Cal.App.4th
1460, 1470.)
Here, the trial court instructed the jury on deciding the believability of a witness's
testimony (CACI No. 107), evaluating expert testimony (CACI No. 219) and evaluating
hypothetical questions (CACI No. 220). The trial court also instructed the jury that
neither party had the burden to prove the amount of just compensation (CACI No. 3514),
explained the concept of highest and best use (CACI No. 3502) and how to evaluate
witness testimony regarding the value of the property (CACI No. 3515). Finally, the trial
court specially instructed the jury that mineral resources may be valued using a
discounted cash flow method and it could reject evidence it found speculative or
conjectural in deciding severance damages and the highest and best use of the property.
SDG&E does not assert that the jury instructions were incorrect or insufficient.
While SDG&E is correct that defendants' experts never expressly testified that
obtaining a MUP was "reasonably probable," there was sufficient evidence in the record
from which the jury could so infer. Coalson explained that unless new construction
aggregate sites were permitted and opened, the County would completely exhaust its
available construction aggregate by 2020 or 2030. He concluded that the County's long-
term demand for construction aggregate could not be met by simply expanding currently
19

permitted mines and explained that trucking construction aggregate into the County is
expensive and affects the air quality.
The SANDAG Study and the "County of San Diego Guidelines for Determining
Significance and Report Format and Content Requirements Mineral Requirements"
both concluded a need existed for locally produced aggregate. A stated goal of the
County General Plan as adopted by the County Board of Supervisors was to "streamline
the permitting of new mining facilities consistent with the goal to establish permitted
aggregate resources that are sufficient to satisfy 50 years of County demand." Coalson
testified that the County policy as stated in the General Plan implies that it should be
easier to get a mining permit. Anderson similarly testified that permitting proposed
mines would be streamlined based on the shortage of aggregate supplies for the next 50
years. Anderson also testified regarding a document adopted by the County relating to
the California Environmental Quality Act (CEQA) and the process of getting a mining
operation permitted. This document concluded that permitted mining needed to be
increased in order to meet long-term goals.
Coalson explained that leasing property for potential mining use is risky, but
sophisticated parties understand the inherent risks and these risks do not stop market
participants from engaging in their business. He believed that the risks of permitting
would decrease based on the critical shortage of aggregates. Coalson stated that he
assisted many mining operators in the Lakeside area to secure mining permits and had a
100 percent success rate. From this evidence, the jury could rationally infer that
obtaining a MUP was reasonably probable.
20

SDG&E attacks Coalson's opinion that the County would have acted on a MUP
within three to five years as pure conjecture. We disagree. Based on his knowledge,
Coalson believed it would take three to five years to complete the permitting process for
defendants' property. All of his other successful mining applications have taken less
time, but he afforded more time for this project as it would be a new operation. He
explained that it took about six months to put together a good mining permit application,
18 months for the County to review the application and one year to get the application to
the Board of Supervisors. This estimate included CEQA processing.
Anderson testified that he investigated the County's history of issuing MUPs to
mining operations starting in 1980 when this type of permit was first required as this is
important in trying to forecast and understand a situation. Anderson considered this type
of information as being "very important" to a market participant in determining the odds
of obtaining a MUP and stated that an overall statistical review was more reliable than
anecdotal examples because it looked at all of the data.
Anderson focused on "greenfield properties" or properties that did not have
existing mining operations. He eliminated properties that had endangered species or
native-American type issues. This left him with 22 applications, out of which 14 were
approved amounting to a 71.4 percent statistical probability of obtaining a MUP. Thus,
Anderson concluded that defendants' property had a 71.4 percent or "very good" chance
of obtaining a MUP. He then specifically looked at MUP applications in the Lakeside
area, found that one application had been withdrawn and of the remaining four
applications, all had been approved. From this, Anderson concluded a 100 percent
21

likelihood of success in obtaining a MUP. Looking at this same data, Anderson
determined statistically that a MUP application took less than three years. Accordingly,
the totality of the evidence before the jury shows that Coalson's and Anderson's three- to
five-year timeframe was based on logic and reason and not purely conjectural. SDG&E
was free to cast doubt on the reasoning used by defendants' experts via cross-examination
or rebuttal by its own expert.
SDG&E attacks Anderson's testimony on numerous grounds, arguing Anderson
was not a statistician, incorrectly calculated the numbers, used a flawed analysis
equivalent to watching a coin flip and did not choose a representative sample. Based on
these defects, SDG&E argues Anderson's conclusion that a 71.4 percent probability
existed for obtaining a MUP was "meaningless." Taken to their essence, SDG&E's
arguments amount to an assertion that the jury should not have believed Anderson. We
reject this contention as we do not reweigh evidence or assess the credibility of witnesses
on review for substantial evidence. (Howard v. Owens Corning, supra, 72 Cal.App.4th at
p. 630; see Rufo v. Simpson (2001) 86 Cal.App.4th 573, 622 [whether expert's evaluation
of defendant's future income potential was credible was an issue of fact].) Again,
SDG&E was free to challenge or impeach Anderson during cross-examination and could
have called its own experts to rebut Anderson's testimony.
Next, SDG&E argues that other evidence in the record suggests important reasons
existed for the County to deny a MUP. Briefly, SDG&E cites evidence presented at trial
supporting its contention that a mining operation on the property would impact neighbors
and the scenic environment, impact local traffic and require the importation of water.
22

These facts go to the weight of the evidence and were matters for the jury to decide.
Moreover, Coalson testified that the need for storm water and air pollution control
permits did not pose an obstacle. He opined there were no biological hurdles to prevent
defendants' property from being approved for mining because it was not within the
preapproved mitigation area, "there [was] really nothing significant about the habitat on
the site" and mitigation credits could be purchased off-site. Coalson explained that
roadway widening and encroachment permits from CALTRANS were typical and he
never had a mining permit application unapproved for this reason.
Coalson also addressed possible impediments to a mining operation on defendants'
property, including neighborhood opposition and water supply. Although Coalson noted
there would be opposition, he stated that the area had a reduced population that has
accepted that mining is prevalent in the area and "there hasn't been any major opposition"
to previous mining projects he had worked on. Coalson conceded there was inadequate
water on the site to serve the operation, but stated water could be trucked in and several
mining operations in the County imported water. It was for the jury to weigh all the
evidence and decide whether obtaining a MUP for the property was reasonably probable.
Having concluded that the evidence supported the conclusion that a mining
operation was the highest and best use of the property, we turn to the valuation method
used by defendants. SDG&E asserts a new trial is required because Anderson's
discounted cash flow analysis violated Evidence Code section 819 and the developer's
rule precluded defendants' expert from valuing the property using the discounted cash
flow methodology because there was no existing mining operation on the property.
23

SDG&E also contends it was pure speculation for Anderson to assume the County would
have granted a permit for the operation as Coalson conceived it, with no conditions or
restrictions affecting its output and the income stream to defendants.
First, the trial court specially instructed the jury that mineral resources could be
valued using a discounted cash flow method and it could reject evidence it found
speculative or conjectural in deciding severance damages and the highest and best use of
the property. SDG&E does not argue that it challenged this special instruction and our
review of the court's discussion with counsel regarding jury instructions shows the parties
did not address this instruction. Accordingly, SDG&E forfeited any alleged error to
valuing the property using a discounted cash flow method.
Even assuming the issue had not been forfeited, we would reject SDG&E's
arguments on their merits. The courts in Ventura and Anderson approved the discounted
cash flow methodology for the valuation of mineral deposits. (Ventura, supra, 71
Cal.App.4th at pp. 219-220; Andresen, supra, 193 Cal.App.3d at pp. 1160-1161.)
Additionally, our independent research shows a number of courts in different
jurisdictions have accepted the method for the valuation of mineral deposits. (See e.g.,
Maricopa County v. Barkley (1990) 168 Ariz. 234, 241-242; United States v. 22.80 Acres
of Land (9th Cir. 1988) 839 F.2d 1362, 1364-1365; United States v. 103.38 Acres of Land
(6th Cir. 1981) 660 F.2d 208, 212-215.)
We reject SDG&E's assertion that the discounted cash flow method violated
Evidence Code section 819, which states, "When relevant to the determination of the
value of property, a witness may take into account as a basis for his opinion the
24

capitalized value of the reasonable net rental value attributable to the land and existing
improvements thereon (as distinguished from the capitalized value of the income or
profits attributable to the business conducted thereon)." (Italics added.) SDG&E appears
to focus on the language regarding "existing improvements" to argue the statute does not
apply here because there were no existing improvements. This argument ignores that
Evidence Code section 819 allows "the capitalized value of the reasonable net rental
value attributable to the land."
SDG&E's reliance on Cushman to support its position is misplaced. In Cushman,
the condemned property contained a retail building. (Cushman, supra, 53 Cal.App.4th at
p. 924.) The property owner's appraiser testified that the highest and best use of the
property would be to expand the existing building. (Ibid.) The appraiser then presented
evidence on fair market value of the property based on capitalization of income derived
from "a nonexisting improvement." (Id. at p. 929.) The appellate court concluded that
the evidence was improperly admitted because Evidence Code section 819 did not
sanction capitalization of the reasonable rental value attributable to planned or future
improvements not in existence as of the date of value. (Id. at p. 930.) We have no
quarrel with the result in Cushman as we agree it is improper to capitalize income for a
nonexisting improvement. Here, Anderson did not capitalize income for a nonexisting
improvement; rather, he capitalized rental income attributable to the land itselfwhich
Evidence Code section 819 expressly allows. (See Brocchini Farms, supra, 92
Cal.App.4th at pp. 198-199.) As such, SDG&E's continued citation to the developer's
rule is inapt.
25

Finally, SDG&E asserts a new trial is required because Anderson used an arbitrary
discount rate of his own making that lacked evidentiary support. Not so.
The discount rate is the method of bringing the future value of money back to a
present number. Anderson discussed the discount rate with a number of individuals and
concluded that a discount rate of 8.5 percent was appropriate. Anderson then applied a 50
percent surcharge to the discount rate to reflect the risk involved with the property not
being permitted on the date of valuation. This doubled the discount rate to 17 percent to
reflect the uncertainties in the market. This testimony shows that Anderson's discount
rate was not pulled out of "thin air" but was based on reason and logic. Whether the
information Anderson relied on was sufficient to support his opinion was a circumstance
that went to the weight the jury should give the evidence, but did not affect its
admissibility. (See People v. Fulcher (2006) 136 Cal.App.4th 41, 54 [any erroneous
factual assumptions by expert could be addressed through cross-examination by showing
there was no evidence to support the conclusion, therefore the objection goes to the
weight not the admissibility of the expert's opinion].)
B. The Trial Court's Evidentiary Rulings
SDG&E asserts it is entitled to a new trial because the trial court committed
reversible error by (1) sustaining defendants' hearsay objections and preventing it from
cross-examining Anderson about the factual basis for his opinion, and (2) refusing to
allow Anderson to testify that Coalson said it was a "crapshoot" whether the County
would have issued a MUP. We examine each contention in turn.
26

1. General Legal Principles
Matter that is ordinarily inadmissible "can form the proper basis for an expert's
opinion testimony." (People v. Gardeley (1996) 14 Cal.4th 605, 618; Evid. Code, 801,
subd. (b) [an expert's opinion may be based on matters known to the expert "whether or
not admissible"].) On direct examination, expert witnesses giving opinion testimony may
testify to the reasons for their opinion and the matter upon which it is based, unless they
are precluded by law from using such reasons or matter. (Evid. Code, 802.) During
cross-examination, expert witnesses may be questioned regarding their qualifications, the
subject to which their expertise relates, and the basis of their opinion. (Evid. Code,
721, subd. (a).)
Generally, parties are given wide latitude when cross-examining an expert witness
to test the credibility of the expert. (People v. Coleman (1985) 38 Cal.3d 69, 90.)
Accordingly, "a broader range of evidence may be properly used on cross-examination to
test and diminish the weight to be given the expert opinion than is admissible on direct
examination to fortify the opinion." (Id. at p. 92.) For example, "a party seeking to
attack the credibility of the expert may bring to the attention of the jury material relevant
to the issue on which the expert has offered an opinion of which the expert was unaware
or which he did not consider. The purpose and permissible scope of impeachment of an
expert is to call into question the truthfulness of the witness's testimony." (People v. Bell
(1989) 49 Cal.3d 502, 532.)
We review the trial court's ruling on the admissibility of evidence for abuse of
discretion. (Saxena v. Goffney (2008) 159 Cal.App.4th 316, 332.) The erroneous
27

exclusion of evidence does not require reversal except where the error caused a
miscarriage of justice. (Ibid.; Evid. Code, 354; Cal. Const., art. VI, 13.) " '[A]
"miscarriage of justice" should be declared only when the court, "after an examination of
the entire cause, including the evidence," is of the "opinion" that it is reasonably probable
that a result more favorable to the appealing party would have been reached in the
absence of the error.' " (People v. Richardson (2008) 43 Cal.4th 959, 1001.)
2. Cross-Examination of Anderson Regarding MUP
a. Facts
During cross-examination, Anderson testified that his assistant contacted Jim
Bennett, the County's planner or geologist to, among other things, ask about the
likelihood of obtaining a MUP for the property. Referring to an exchange of emails
between the assistant and Bennett, SDG&E asked, "Isn't it a fact that [Bennett] said he
could not provide a likelihood of any given mine proposal success in the county?" The
trial court, however, sustained defendants' hearsay objection.
SDG&E then established that Anderson's assistant had contacted Bennett at
Anderson's request "to provide [Anderson] with [Bennett's] opinion about whether or not
there was a probability that [defendants'] property could obtain a major use permit."
After Anderson acknowledged receiving a copy of the emails between his assistant and
Bennett, SDG&E asked whether it was true "that . . . Bennett was unwilling to provide a
success rate for mining [defendants'] property." Defendants again objected on the ground
of hearsay, and the court sustained the objection, citing People v. Dean (2009) 174
Cal.App.4th 186, explaining, "Experts can properly and credibly place before the jury
28

matters that they relied upon and the nature of those matters without testifying as to the
specific details of the hearsay. Sustained on that basis." Anderson then testified that
MUP applications are considered on a case-by-case basis and disagreed with counsel's
statement that considering past MUP applications was not a reliable indicator of what
could happen on other mining properties.
b. Analysis
SDG&E first asserts it is entitled to a new trial because the court committed
reversible error by refusing to allow it to elicit cross-examination testimony from
Anderson that Bennett told him there was no way to predict the outcome on a MUP
application. The record shows that several times during trial, SDG&E asked Anderson
what Bennett had told him. The trial court sustained defendants' hearsay objections.
" 'Hearsay evidence' is evidence of a statement that was made other than by a witness
while testifying at the hearing and that is offered to prove the truth of the matter stated.
[] . . . Except as provided by law, hearsay evidence is inadmissible." (Evid. Code,
1200, subds. (a), (b).) Nonetheless, hearsay evidence may be admissible under an
exception enumerated in the evidence code, other statutes or decisional law. (People v.
Otto (2001) 26 Cal.4th 200, 207.)
Here, well-established decisional law gives parties wide latitude when cross-
examining an expert witness to test the credibility of the expert. (People v. Coleman,
supra, 38 Cal.3d at p. 90.) Additionally, expert witnesses may be questioned during
cross-examination regarding the basis of their opinion. (Evid. Code, 721, subd. (a).)
Thus, the trial court erred by sustaining defendants' hearsay objections. We conclude,
29

however, that any error in excluding the evidence did not result in a miscarriage of
justice.
Anderson's assistant asked Bennett about the likelihood of defendants' property
obtaining a MUP for mining. Bennett responded, essentially stating he could not answer
the question because (1) he did not have a proposal and there were unknown technical
aspects and (2) it would not be "prudent" for him to make a prediction as he was not the
decision maker. Because Bennett did not answer the question, it is unlikely the response
played any part in forming the basis of Anderson's opinion. (Evid. Code, 721, subd.
(a).) Additionally, we fail to see how Bennett's "non-opinion" impeached Anderson's
testimony. Anderson relied on Coalson's concept plan for the property, explored the
feasibility of mining defendants' property and testified regarding the likelihood of
obtaining a MUP. Additionally, as defendants point out, SDG&E could have designated
Bennett as an expert. ( 1258.210.)
3. Cross-Examination of Anderson Regarding "Crapshoot" Comment
a. Facts
During cross-examination, SDG&E asked Anderson about a written note relating
to a conversation his assistant Steve Valdez had with Coalson. After Anderson recalled
seeing multiple notes, SDG&E asked, "[D]id you identify that . . . Coalson had indicated
that getting a MUP for [defendants'] property was a crapshoot?" Defendants objected on
hearsay grounds with the court asking SDG&E if an exception applied and SDG&E
responding that the business record exception applied. The trial court suggested that
30

SDG&E show the business record to Anderson, but SDG&E withdrew its line of
questioning.
SDG&E later asked Anderson, "[I]sn't it true that during your dealings with
valuing the property between you and Steve Valdez and . . . Coalson, that . . . Coalson
indicated . . . it was a crap shoot whether or not they could get a[] MUP?" Defendants
objected to SDG&E's question "on foundation and hearsay," and the trial court sustained
the objection. When SDG&E offered to lay a foundation, the court said, "I don't know
that you'll be able to get around the hearsay rule."
b. Analysis
SDG&E asserts it is entitled to a new trial because the trial court committed
reversible error by sustaining defendants' hearsay objection and refusing to allow
Anderson to testify that Coalson said it was a "crapshoot" whether the County would
have issued a MUP. We disagree.
If evidence contains multiple hearsay, an exception for each level of hearsay must
be found in order for the evidence to be admissible. (Evid. Code, 1201; Alvarez v.
Jacmar Pacific Pizza Corp. (2002) 100 Cal.App.4th 1190, 1205.) Here, SDG&E's
question contained two layers of hearsay: (1) the conversation Valdez had with Coalson
and (2) the note written by Valdez about the conversation. The second layer of hearsay
falls within the business records exception to the hearsay rule. (Evid. Code, 1271.)
SDG&E, however, has not explained how the conversation Valdez had with Coalson fell
within an exception to the hearsay rule. Moreover, SDG&E had Valdez under subpoena
31

and could have called him as a witness. Alternatively, it could have asked Coalson
directly about his comment to Valdez.
II. Defendants' Cross-Appeal regarding Litigation Expenses
A. Additional Facts
The parties exchanged their final offer and demand for settlement with SDG&E
offering $829,000 and defendants demanding $5.5 million. By the eve of trial, SDG&E
increased its offer to $954,000 and defendants lowered their demand to $4.5 million. The
jury determined that SDG&E owed defendants just compensation of $8,034,000.
Defendants moved to recover their litigation expenses under section 1250.410, seeking
about $656,839 in expert fees and attorney fees and about $19,504 in costs. The trial
court found defendants' demand was reasonable, but denied the motion as it could not say
SDG&E's final offer was unreasonable. The court stated the following:
"[G]iven the complexity of mining and obtaining permission to
mine, it remains possible that even without its own expert SDG&E
felt that it could undermine Coalson's opinions sufficiently that the
jury would reject them. The fact that SDG&E failed to do so via
cross examination or otherwise is really "Monday morning
quarterbacking." Thus, as in San Diego Metropolitan Transit
Development Board v. Cushman[] (1997) 53 Cal.App.4th 918, it was
not unreasonable for SDG&E to 'stick[] fast to its legal theory' that
the [highest and best use] of the subject property was its current
[highest and best use] and that [defendants'] proposed new mining
use was speculative and conjectural. This was a reasonable position,
albeit one which ultimately failed in execution."

B. General Legal Principles and Standard of Review
Section 1250.410 provides for the pretrial exchange of a final offer of
compensation by the plaintiff in an eminent domain action and a final demand for
32

compensation by the defendant. "These offers and demands shall be the only offers and
demands considered by the court in determining the entitlement, if any, to litigation
expenses." ( 1250.410, subd. (a).) If the court finds plaintiff's offer unreasonable and
defendant's demand reasonable when "viewed in the light of the evidence admitted and
the compensation awarded in the proceeding," the costs allowed shall include the
defendant's litigation expenses. ( 1250.410, subd. (b).)
The purpose of section 1250.410 is to encourage settlement of condemnation
actions "using a carrot-and-stick approach: the party whose offer is reasonable can be
awarded costs and attorney fees from the party whose offer was unreasonable." (Filbin v.
Fitzgerald (2012) 211 Cal.App.4th 154, 168; People ex rel. Dept. of Transportation v.
Yuki (1995) 31 Cal.App.4th 1754, 1763 (Yuki).) Before the trial court can award
litigation expenses to the property owner, it must find both that the property owner's
demand was reasonable and that the agency's offer was unreasonable. (Inglewood
Redevelopment Agency v. Aklilu (2007) 153 Cal.App.4th 1095, 1117.)
Several guidelines exist to help determine the reasonableness of an offer or
demand, namely (1) the amount of the difference between the demand or offer and the
compensation awarded, (2) the percentage of difference between the demand or offer and
the award, and (3) the good faith, care and accuracy with which the demand or offer was
calculated. (Los Angeles County Metropolitan Transportation Authority v. Continental
Development Corp. (1997) 16 Cal.4th 694, 720.) The mathematical relation between the
highest offer and the ultimate award is only one factor entering into the trial court's
determination; accordingly, our high court has disapproved any pronouncement
33

purporting to find unreasonableness as a matter of law based purely on mathematical
disparity. (Id. at pp. 720-721.)
"The trial court's determination of [reasonableness] will not be disturbed on appeal
if supported by substantial evidence." (Redevelopment Agency v. Gilmore (1985) 38
Cal.3d 790, 808.) We do not reweigh the evidence presented, but consider the validity of
the trial court's decision in light of the evidence presented on the relevant factors. (Yuki,
supra, 31 Cal.App.4th at p. 1763.) " 'The measure of reasonableness is in the first
instance a factual matter for the trial court,' unless 'the uncontradicted evidence permits
only one conclusion . . . .' [Citation.]" (Id. at p. 1765; Tracy Joint Unified School Dist. v.
Pombo (2010) 189 Cal.App.4th 889, 895 (Pombo) [same]; People ex rel. Dept. of
Transportation v. Acosta (2009) 178 Cal.App.4th 762, 775 [same].) After reviewing the
case law, the Pombo court noted that "where relief was denied though numerical
comparisons favored an award of expenses, the third factor pointed forcefully in the
opposite direction." (Pombo, supra, at pp. 897-898.)
C. Analysis
The trial court found defendants' final $5.5 million settlement demand was
reasonable and SDG&E does not challenge this finding. We agree that defendants' final
demand and their later pretrial demand of $4.5 million were reasonable in the light of the
evidence admitted at trial and the compensation ultimately awarded by the jury. Thus,
we focus our analysis on whether SDG&E's final $829,000 settlement offer (later
increased to $954,000) was reasonable in light of the evidence admitted at trial and the
compensation awarded. SDG&E's final offers were about $7.1 million less than the
34

verdict and amounted to about 11 percent of the verdict. Additionally, SDG&E's final
offers were mere token increases from its ultimate valuation of $712,200. Based on pure
mathematics, SDG&E's final offers were seemingly unreasonable.
We turn to the good faith, care and accuracy in how SDG&E determined the
amount of its final offer. On this issue, defendants argue that SDG&E's appraiser never
investigated mining as a highest and best use or seriously analyzed the mining use issue.
Instead it chose to adhere to its appraisal of the property as a residential development.
SDG&E asserts it acted in good faith because a fundamental disagreement existed
between the parties over what was to be valued and, as the trial court found, it did not act
unreasonably when it stuck to its legal theory regarding the highest and best use of the
property. We cannot uphold the trial court's determination that SDG&E's offer was
reasonable as the undisputed facts show only one conclusion was possible.
Defendants' evidence revealed that their property is located in a mining area and
contained a large amount of very high quality material that could be mined for
construction aggregate. They also presented evidence that the County's supply of
construction aggregate was low and that the future demand for this material and new
mining locations would be high. SDG&E presented absolutely no contrary evidence.
Dating back to 1890, our high court recognized that a prospective mining claim has a
market value and that witnesses should be permitted to testify as to their opinion and
judgment of its value. (Montana Railway Co. v. Warren (1890) 137 U.S. 348, 352.)
Stated differently, it is well established that the existence of mineral resources on
condemned property impacts the market value of land and is properly considered in
35

fixing the compensation for the taking of property in condemnation proceedings. (Ante,
Part, I.A.1.) Moreover, the propriety of using the income approach, including the
capitalization of royalties and discounting them to determine the present worth of
projected future income as a method of valuing undeveloped natural resources, while
complex and necessarily speculative, is far from an issue of first impression. (Ante, Part,
I.A.3.) Finally, as our earlier discussion shows, SDG&E's challenges to defendants'
appraisal method went to the weight of the evidence, not its admissibility. (Ante, Part,
I.B.2 & 3.)
SDG&E's appraiser valued defendants' property by reviewing comparable sales,
but there is no evidence that these "comparable" properties contained an undeveloped
granite resource similar to that found on defendants' property. Rather, SDG&E's
appraiser testified he had no knowledge whether the comparable properties had over 100
acres of granite. He was not aware whether any of the comparable properties bordered
mining property, were the subject of discussion for a potential mine lease or had core
samples drilled. In contrast, Anderson testified he could not use the comparable sales
approach to value defendants' land as he found only one comparable property with
construction aggregate reserves and this was insufficient to conduct a sales comparison
approach evaluation analysis.
Counsel for SDG&E stated that the $125,000 difference in the final offer and later
pretrial offer reflected that "an investor might 'pay a little more' for the property" based
on the speculative mining use. It is unclear how SDG&E came up with this number as its
appraiser never considered the mining potential of the property. SDG&E's last minute
36

addition of $125,000 to its final offer appears completely arbitrary, meaning it lacked
care and accuracy, as it ignored Anderson's appraisal of the property. This increase is not
evidence of SDG&E's good faith willingness to compromise on the question of value;
rather, it reflected a take-it-or-leave-it attitude contrary to the spirit of compromise
implicit in the statutory scheme.
We disagree with the trial court's assessment that similar to the condemning
agency in Cushman, SDG&E merely stuck to a reasonable legal theory that it failed to
execute. In Cushman, the parties' numerical valuations differed because they disagreed
on the "the purely legal issue of whether any severance damages [were] owed."
(Cushman, supra, 53 Cal.App.4th at p. 933.) As such, the appellate court concluded the
trial court justifiably gave the good faith factor greater importance as "a condemning
agency [need not] compromise its legal position just to avoid litigation." (Ibid.)
Here, the dispute centered on the highest and best use of the property, a factual
issue. (Cushman, supra, 53 Cal.App.4th at p. 925.) Accordingly, SDG&E was not called
upon to compromise a "legal position" to avoid litigation. Instead, SDG&E was required
to exercise good faith, care and accuracy regarding a factual matter. On this point, the
evidence presented at trial does not favor SDG&E as its shows SDG&E failed to give
defendants' contrary appraisal any serious consideration. SDG&E presented the
declaration of another appraiser in opposition to defendants' motion for litigation
expenses who concluded mining the property was unlikely due to numerous hurdles
defendants would need to overcome such as environmental restraints, regulatory issues,
lack of adequate water, traffic and access concerns and public opposition. The statute,
37

however, requires a court to evaluate the reasonableness of an offer in "light of the
evidence admitted" at trial. ( 1250.410, subd. (b).) SDG&E did not present this
evidence at trial. In any event, even if we were to consider the declaration of this second
appraiser, the appraiser advised SDG&E regarding the "credibility and defensibility [of
the opinions of defendants' experts]." These are factual matters that SDG&E could have
(and should have) presented evidence on at trial. This declaration does not support
SDG&E's implied suggestion that it carefully researched defendants' claimed highest and
best use or the propriety of defendants' valuation method.
In summary, we conclude that the undisputed facts show SDG&E's final offer of
compensation was unreasonable when viewed in the light of the evidence admitted and
the compensation awarded in the proceeding. Accordingly, the trial court erred in
denying defendants' motion for litigation expenses.
38

DISPOSITION
The judgment is affirmed. The court's order denying appellant's JNOV motion is
affirmed. The order denying respondents' request for litigation expenses is reversed and
the matter is remanded to the trial court to grant the motion and award defendants their
reasonable litigation expenses under section 1250.410. Respondents are awarded their
costs on appeal.


MCINTYRE, J.

WE CONCUR:

HUFFMAN, Acting P. J.

IRION, J.

Filed 8/14/14
CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA



SAN DIEGO GAS & ELECTRIC
COMPANY,

Plaintiff and Appellant,

v.

ARNOLD J. SCHMIDT, as Cotrustee, etc.,
et al.,

Defendants and Appellants;

VALERIE SCHMIDT, as Cotrustee, etc.,

Defendant and Respondent.

D062671


(Super. Ct. No.
37-2010-00094931-CU-EI-CTL)

SAN DIEGO GAS & ELECTRIC
COMPANY,

Plaintiff and Appellant,

v.

ARNOLD J. SCHMIDT et al.,

Defendants and Appellants.




(Super. Ct. No.
37-2010-00094934-CU-EI-CTL)

ORDER MODIFYING OPINION

NO CHANGE IN JUDGMENT

THE COURT:
It is ordered that the opinion filed herein on July 21, 2014, and certified for
publication on August 13, 2014, be modified as follows:
2

1. On page 2, the first full paragraph, beginning "Plaintiff San Diego Gas" is
deleted and the following paragraph is inserted in its place:

Plaintiff San Diego Gas & Electric Company (SDG&E) initiated this
eminent domain proceeding to condemn an easement for electric
transmission lines across the property of defendants Arnold and
Valerie Schmidt and Luis Naranjo after the parties could not agree
on an appropriate valuation for the property. Agreeing with the
property owner's experts that an open-pit mining operation was the
"highest and best use" for the land, the jury valued the property at
about $8 million. SDG&E appeals, contending the judgment and
order denying its motion for judgment notwithstanding the verdict
(JNOV) must be reversed. SDG&E argues that the evidence was
legally insufficient to support the jury's verdict. SDG&E also
contends it is entitled to a new trial because the trial court abused its
discretion in (1) limiting the cross-examination of an appraisal
expert and (2) allowing the appraiser to testify in violation of
Evidence Code section 819. Arnold Schmidt and Luis Naranjo
(together defendants) cross-appeal, asserting the trial court erred in
denying their request for litigation expenses under Code of Civil
Procedure section 1250.410. (Undesignated statutory references are
to the Code of Civil Procedure.) We reject SDG&E's arguments and
affirm the judgment and order denying JNOV. We reverse the order
denying defendants' motion for litigation expenses.

2. On page 39, the full paragraph entitled "Disposition" is deleted and the
following paragraph is inserted in its place:

The judgment is affirmed. The court's order denying SDG&E's
JNOV motion is affirmed. The order denying defendants' request
for litigation expenses is reversed and the matter is remanded to the
trial court to grant the motion and award defendants their reasonable
litigation expenses under section 1250.410. Defendants are awarded
their costs on appeal.

There is no change in the judgment.


MCINTYRE, Acting P. J.

Copies to: All parties


Filed 8/13/14
COURT OF APPEAL - STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION ONE



SAN DIEGO GAS & ELECTRIC COMPANY,
Plaintiff and Appellant,
v.
ARNOLD J. SCHMIDT, Individually and as Trustee, etc. et al.,
Defendants and Appellants;
VALERIE SCHMIDT, as Trustee, etc.,
Defendant and Respondent.
D062671
San Diego County No. 37-2010-00094931-CU-EI-CTL
San Diego County No. 37-2010-00094934-CU-EI-CTL



THE COURT:

The opinion filed July 21, 2014, is ordered certified for publication.


MCINTYRE, Acting P. J.


cc: All Parties