Filed 4/24/15

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FOUR

THE PEOPLE ex rel. CALIFORNIA DEPARMENT OF TRANSPORTATION,
Plaintiff and Respondent,
v.
HANSEN’S TRUCK STOP, INC., et al.,
Defendants and Appellants. / A133252
(Humboldt County
Super. Ct. No. DR 070923)

In eminent domain actions, the law directs the parties to exchange formal settlement proposals prior to trial. (Code of Civ. Proc., § 1250.410, subd.(a).)[1] If, after trial, the property owner’s statutory demand for compensation is found to be reasonable and the condemning agency’s statutory offer unreasonable, then the property owner is entitled to recover litigation expenses. (§ 1250.410, subd.(b).) When determining entitlement to litigation expenses, the law instructs the judge to consider only the final offer and demand that were made “[a]t least 20 days prior to the date of the trial on issues relating to compensation.” (§1250.410, subd.(a).)

In this eminent domain action, the proceedings were bifurcated. A statutory offer and demand ($784,000 and $5 million, respectively) were made prior to the first trial. In that trial the court was asked to decide whether the property owners could pursue damage claims for impairment of access and loss of goodwill as a result of the condemnation. The property owners prevailed.

Prior to the second trial the property owners made an amended, much lower demand, but the condemning agency made no new offer. In the second trial the jury determined the amount of compensation due. It returned a verdict in excess of $2.5 million, which was about 85 percent of the property owners’ amended demand of $2.99 million and more than three times the agency’s original offer of $784,000.

The property owners made a motion to recover their litigation expenses. Looking only at the offer and demand made before the first trial date, the trial court denied the motion for litigation expenses because the property owners’ demand of $5 million was unreasonable. The property owners appealed the order.

The appeal poses two questions of statutory interpretation. First, when directing the court to consider only the offers and demands made “prior to the date of the trial” to determine entitlement to litigation expenses, does the statute mean the court must consider only offers and demands made prior to the first date set for trial? If it does not, then the second question is, in a bifurcated proceeding, does the statutory phrase “prior to the date of the trial on issues relating to compensation” refer to (a) the trial in which the right to damages is adjudicated, or (b) the trial in which the amount of compensation is adjudicated?

We conclude the statute does not restrict the court to considering only the offer and demand made prior to the first date set for trial. We further hold that, in a bifurcated proceeding, “the trial on issues relating to compensation” means the trial in which the amount of compensation is determined. We will therefore vacate the order denying litigation expenses and remand for further proceedings.

I. FACTUAL AND PROCEDURAL BACKGROUND

In December 2007, the State of California (the State), through its Department of Transportation, filed a complaint in eminent domain, seeking to condemn a portion of a larger parcel owned by the Hansens,[2] for the purpose of building a highway interchange. The Hansens operated a truck stop on the larger parcel. The Hansens filed answers that included claims for additional compensation due to the impairment of highway access and the loss of goodwill in their business resulting from the condemnation and the construction project. Trial was set for March 2009.

Two months prior to the trial date the State filed a motion to bifurcate the proceedings, seeking separate adjudication of the Hansens’ alleged entitlement to seek damages for impairment of access and loss of goodwill. The court granted the bifurcation request, and ordered that “[t]he jury phase of the trial, to determine the amount of just compensation ... shall immediately follow the court phase of the trial.”

Prior to the March 2009 trial date, the State filed its “Final Offer of Compensation” pursuant to Section1250.410, offering a total of $784,000, excluding interest and costs. The Hansens simultaneously filed their “Final Demand for Compensation” in the sum of $5 million comprised of $600,000 for the property being taken (“the take”), $1.9 million as “severance damages” (including impairment of access) and $2.5 million for loss of goodwill.

After several continuances, the court trial on the bifurcated issues was scheduled for September 2, 2009, and the jury trial on compensation was set for an estimated start date of September 17. The bench trial went forward in September, but the court did not issue its decision until October. It ruled that the Hansens “ha[d] proven entitlement to the benefits of the goodwill statute for not only substantial impairment of access and loss of visibility and exposure, but also for impairment of the internal use of [their] property.”

The jury trial on compensation was set for February 22, 2010, but was continued by agreement of the parties to April 19, 2010. Twenty days before the continued trial date, the Hansens filed a second “Final Demand for Compensation.” The new demand was for $2.99 million, comprised of $570,000 for the take, $200,000 for goodwill, $340,000 for loss of tangible property and $1.88 million for severance damages. The State did not file a new offer, but did file an acceptance of only the goodwill portion of the new demand, in the amount of $200,000.

The Hansens opposed the acceptance, stating they had no intention of separately settling the component parts of their demand. The State moved for an order overruling the Hansens’ objection, arguing that it had served “a valid and operable acceptance of defendants’ March 30, 2010, revised statutory demand for goodwill compensation,” and that elimination of the goodwill issue will significantly shorten the trial and thus “fulfill the intent and purpose of eminent domain settlement offer/demand procedures (Code Civ. Proc. §1250.410).” The court denied the State’s motion.

After two more continuances, the jury trial finally commenced on January 18, 2011. On February 9, 2011, the jury issued a special verdict, which awarded compensation to the Hansens in the sums of $525,122 for the land and improvements, $300,000 for loss of goodwill, $8,000 for vegetation easement, and approximately $1.7 million in damages to the remainder of the property. The total judgment, exclusive of interest, was $2,533,122.

The Hansens filed a motion to recover $345,306 in litigation expenses. The Hansens argued that their final demand of $2.99 million was reasonable and the State’s final offer of $784,000 was unreasonable, in light of the jury’s award in excess of $2.5 million.

The State opposed the motion, arguing that only the Hansens’ first demand, in the amount of $5 million, could be considered in determining whether the court should award litigation expenses because the second demand (for $2.99 million) was filed after the trial had commenced, and was therefore untimely.

The Hansens contended that the second demand was timely and argued, further, that the State had waived its objections to the timeliness of the demand by its partial acceptance of the goodwill component of the demand and by its admission that the demand was “in compliance with Section 1250.410.”

The trial judge rejected the waiver argument as unsupported by authority, and agreed with the State’s position. The court concluded that case law “required” it to use the Hansens’ first demand when evaluating the reasonableness of the parties’ offer and demand, although it believed the “better result” would be that any final offers or demands made 20 days prior to a trial on issues of compensation should be considered. The court found the Hansens’ first demand of $5 million to be unreasonable, and therefore denied the Hansens’ motion to recover litigation expenses. The Hansens appealed from the order denying the motion.

II. THE STATUTORY FRAMEWORK

A. The Current Statute

Section 1250.410 governs the service and filing of settlement offers and demands in condemnation proceedings, and the circumstances under which the condemnee is entitled to an award of litigation expenses. It provides, as pertinent here: “(a) At least 20 days prior to the date of the trial on issues relating to compensation, the plaintiff shall file with the court and serve on the defendant its final offer of compensation in the proceeding and the defendant shall file and serve on the plaintiff its final demand for compensation in the proceeding. The offer and the demand shall include all compensation required pursuant to this title, including compensation for loss of goodwill, if any, and shall state whether interest and costs are included. These offers and demands shall be the only offers and demands considered by the court in determining the entitlement, if any, to litigation expenses.... [¶] (b) If the court, on motion of the defendant made within 30 days after entry of judgment, finds that the offer of the plaintiff was unreasonable and that the demand of the defendant was reasonable viewed in the light of the evidence admitted and the compensation awarded in the proceeding, the costs allowed pursuant to Section 1268.710 shall include the defendant’s litigation expenses. [¶] (c) In determining the amount of litigation expenses allowed under this section, the court shall consider the offer required to be made by the plaintiff pursuant to Section 7267.2 of the Government Code,[[3]] any deposit made by the plaintiff pursuant to Chapter 6 ... and any other written offers and demands filed and served before or during the trial.” (Emphasis added.)

The purpose of section 1250.410 is “to encourage settlement of condemnation actions by providing incentives to a party who submits a reasonable settlement offer or demand before trial. [Citation.] A property owner who files a reasonable demand, but is required nonetheless to litigate because of the public agency’s unreasonable position, can be fully compensated for ... litigation expenses. Conversely, a condemnor who makes a timely reasonable offer may avoid having to pay the property owner’s expenses except for taxable costs.” (Santa Clara Valley Water Dist. v. Gross (1988) 200 Cal.App.3d 1363, 1368 (Gross).)

B. Historical Changes to the Statute

The statute was originally enacted in 1974, as former section 1249.3. (Stats. 1974, ch.1469, §1, p.3208.) A year later it was re-enacted with minor changes, and provided as follows: “At least 30 days prior to the date of trial, the plaintiff shall file with the court and serve on defendant its final offer of compensation in the proceeding and the defendant shall file and serve on the plaintiff his final demand for compensation in the proceeding.” (Stats. 1975, ch.1275, §2, p.3432, emphasis added.) In 1982 that language was changed to require that the offer and demand be made “[a]t least 30 days prior to the date of the trial on issues relating to compensation....” (Stats. 1982, ch.1059, §2, p.3833, emphasis added.) The origin and significance of this amendment will be discussed in other portions of this opinion.

Finally, we note that the 1999 amendment to the statute changed the deadline for filing the final offer and demand from 30 days to 20 days prior to trial. (Stats. 1999, ch.102, §1, pp.1704–1705.)

III. THE STANDARD OF REVIEW

The parties agree the issues presented are questions of law pertaining to the interpretation and application of Section 1250.410. Accordingly, our review is de novo. (Carver v. Chevron USA, Inc. (2002) 97 Cal.App.4th 132, 142.)

IV. ARGUMENTS ON APPEAL

As we have described, section 1250.410, subdivision (a), provides that the offer and demand made “at least 20 days prior to trial on issues relating to compensation” shall be “the only offers and demands considered by the court in determining the entitlement, if any, to litigation expenses.” According to the State, this language means that the offer and demand filed prior to the first date set for trial are the only offer and demand that can be considered in determining entitlement to litigation expenses. For this proposition they cite City of San Leandro v. Highsmith (1981) 123 Cal.App.3d 146 (Highsmith) and People ex rel. Dept. of Transportation v. Gardella Square (1988) 200 Cal.App.3d 559 (Gardella Square).

In Highsmith, the condemnor (the City) filed an offer of $250,000 under section 1250.410, prior to the date set for trial. The property owners did not make a formal demand under the statute. Rather, less than 30 days prior to the date set for trial they communicated to the City their opinion of value in the amount of $550,000 at a deposition, and repeated this valuation in the pretrial and settlement conference statements. (Highsmith, supra, 123 Cal.App.3d at pp.151, 153.) The trial date was continued, however, and 14 days before trial the property owners filed a “Final Demand for Compensation” in the amount of $450,000. The jury found the property was worth $410,000, but the trial court denied the property owners’ motion for litigation expenses. (Id. at p.152.)

On appeal, the property owners conceded that their demand for $450,000 filed 14 days before trial was untimely, but argued that the $550,000 demand in their pretrial and settlement conference statements “‘substantially complied’” with the statutory requirements. (Id. at p.153.) Although these earlier demands were not made at least 30 days prior to the first scheduled trial date, they were nonetheless timely, the property owners claimed, because they were made more than 30 days before the actual trial date. (Id. at p.154.)