Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_02-cv-00238/USCOURTS-caed-2_02-cv-00238-10/pdf.json

Nature of Suit Code: 210
Nature of Suit: Land Condemnation
Cause of Action: 28:1331 Fed. Question

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

SOUTH TAHOE PUBLIC UTILITY 

DISTRICT, a public utility

entity, NO. 2:02-cv-0238-MCE-JFM

Plaintiff,

v. ORDER

1442.92 ACRES OR LAND IN

ALPINE COUNTY, CALIFORNIA; 

F. HEISE LAND & LIVESTOCK

COMPANY, INC., a Nevada

corporation, WILLIAM WEAVER;

EDDIE R. SNYDER; CROCKETT

ENTERPRISES, INC., a Nevada

corporation,

Defendants.

----oo0oo----

Through the present motion, Defendant Integrated Farms, LLC

(“Integrated Farms”) seeks an award of litigation expenses

against Plaintiff South Tahoe Public Utility District (“the

District”) pursuant to the provisions of California Code of Civil

Procedure § 1250.410. Integrated Farms has also filed its Bill

of Costs following the jury’s verdict in its favor. 

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Even Plaintiff does not dispute the reasonableness of 1

Integrated Farms’ demand given its relatively close proximity to

the jury’s award. See Pl.’s Opp. 3:11-12. Consequently, as set

forth below, the reasonableness of the District’s final offer

becomes the crux of this Motion.

2

As set forth below, Integrated Farms’ Motion for Litigation

Expense is denied and its request for costs will be taxed, in

part.

On April 27, 2006, the jury rendered a verdict in this

eminent domain action for Integrated Farms in the amount of

$12,659.439.00. That verdict represented the just compensation

due Integrated Farms for the District’s acquisition of its socalled Heise Ranch. The only issue before the jury was the

amount of just compensation. In now arguing its entitlement to

an addition $2,288,853.00 in attorney’s fees and litigation

expenses, Integrated Farms points to the disparity between the

District’s offer and the ultimate jury award as evincing

unreasonableness on the District’s part and due care with respect

to its own pre-trial position in resolving the case, which was

far closer to the jury verdict than the District’s final offer.1

Both sides agree that Integrated’s entitlement to litigation

expenses, if any, is governed by California law and controlled by

application of California Code of Civil Procedure § 1250.410.

Section 1250.410(a) requires the Plaintiff, at least twenty

days before trial on issues relating to just compensation, to

file and serve its final compensation offer. Similarly, within

the same time frame, the defendant must likewise indicate its

final demand. 

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The case was thereafter continued three times before trial 2

actually commenced in April of 2006.

3

In subdivision (b), the statute goes on to provide that

litigation expenses may be awarded to the defendant if the Court

finds the plaintiff’s offer to be unreasonable:

(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.

The statute admonishes that “[t]hese offers and demands

shall be the only offers and demand considered by the court in

determining the entitlement, if any, to litigation expenses.” 

Cal. Code Civ. Proc. § 1250.410(a). Other written offers and

demands filed and served before or during the trial may be

considered only with respect to assessing the amount of

litigation expenses after a defendant’s entitlement to same has

been established. Id. at § 1250.410(c).

On September 22, 2004, twenty days before this trial was

initially scheduled to commence on October 12, 2004, the 2

District filed its Section 1250.410 offer to settle for $7.0

million. Integrated Farms, in turn, filed its final demand to

resolve the issue of just compensation for $12.1 million. 

Integrated Farms now claims it is entitled to its litigation

expenses because the jury’s ultimate award, at almost $12.66

million, exceeded its demand by more than $500,000.00, and

exceeded the District’s statutory offer by some $5.66 million, or

55 percent.

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At $1,015,793.00, the jury’s award was more than 3

$800,000.00 in excess of MTA’s final statutory offer of

$200,000.00. That offer was less than eighteen percent of the

ultimate damages award, and more than double what Continental had

offered to take to resolve the litigation (its final statutory

demand was $500,000.00).

4

In L.A. County Metro. Transp. Auth. v. Continental Dev.

Corp., 16 Cal. 4th 694 (1994) (“MTA”), the California Supreme

Court considered Continental’s motion for litigation expenses

after the jury’s award of severance damages substantially

exceeded the MTA’s final statutory offer. In establishing a 3

framework for determining whether MTA’s offer was nonetheless

reasonable, the MTA court identified the following criteria:

“Several factors have emerged as general guidelines for

determining the reasonableness or unreasonableness of

offers. They are “(1) the amount of the difference between

the offer and the compensation awarded, (2) the percentage

of the difference between the offer and award... and (3) the

good faith, care and accuracy in how the amount of offer and

the amount of demand, respectively, were determined.” 

(citation omitted).”

Id. at 720.

Despite the fact that two of the three factors it identified 

pertained specifically to the numeric discrepancy between the

offer and award, the MTA court nonetheless cautioned that “the

mathematical relation between the condemner’s highest offer and

the award is only one factor that should enter into the trial

court’s determination” as to reasonableness. Id., emphasis

added. 

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5

Moreover, the court cited approvingly to its prior decision in

Redevelopment Agency v. Gilmore, 38 Cal. 3d 790, 808 (1985) as

standing for the proposition that the “evidence adduced at trial”

must be evaluated by the court in determining the reasonableness

of the plaintiff’s offer in addition to the simple amount of the

ultimate award. Id.

Factually, MTA involved complicated damage assessments

hinging on building redesign, noise mitigation, and visual impact

in the wake of MTA’s condemnation proceedings. Id. at 701. The

trial court noted that it was primarily the noise and visual

impact issues that separated the parties’ valuation positions,

and found that the difference between the final offer and demand

of the parties was attributable to “the different manner in which

their respective experts valued [those issues].” Id. at 721. 

The trial court went on to explain that it would be unfair to

determine that the plaintiff acted unreasonably by relying on its

own expert:

“[E]ach [expert] made highly technical presentations which

the court found equally plausible in so far as it was able

to understand the opinions. The court believes it would be

unfair to determine that the plaintiff acted unreasonably by

relying on its own noise expert in light of the exceedingly

technical nature of the evidence presented.” 

Id.

While the California Court of Appeal reversed the trial

court’s denial of Continental’s motion for litigation expenses,

the California Supreme Court disagreed, stating that “MTA cannot

be said to have made its offer unreasonably or in bad faith.” 

Id. at 722. 

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6

The California Supreme Court therefore did not find that the

trial court had abused its discretion in denying the motion.

In Escondido Union School Dist. v. Casa Suenos de Oro, Inc.,

129 Cal. App. 4th 944, (2005), a post-MTA case, the California

Fourth District Court of Appeal was faced with a final statutory

offer by the plaintiff of $180,000.00 in juxtaposition with a

$370,000.00 total demand from defendant and a jury award of

$495,850.00. In denying defendant’s motion for litigation

expenses, the trial court, relying on the MTA criteria set forth

above, found that the plaintiff had nonetheless exercised good

faith, care and accuracy in determining the amount of its offer. 

The trial court noted that the central issue presented by the

case - whether or not manufactured homes were “improvements

pertaining to realty”- was a complex one as to which defendant

was not required to abandon its position before trial. The Court

of Appeal affirmed, deciding that the trial court’s finding of

reasonableness was supported by substantial evidence. The Court

of Appeal agreed with the trial court in finding that the key

issue was a novel one, with the argument advanced by the

plaintiff “by no means frivolous.” Id. at 986. The court noted

that “[a] condemning agency need not “compromise its legal

position just to avoid litigation.” Id., citing San Diego Metro.

Transit Dev. Bd. v. Cushman, 53 Cal. App. 4th 918, 933 (1997).

Applying the principles gleaned from MTA and Escondido to

the present case, two primary issues emerge. 

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The “unit rule” embodies the notion that just compensation 4

for condemned property cannot be determined by separately

valuing, then adding, the separate components of land value. See

U.S. v. 6.45 Acres of Land, 409 F.3d 139, 146 (3rd Cir. 2005; 

City of Stockton v. Albert Brocchini Farms, Inc., 92 Cal. App.

4th 193, 200 (2001).

7

First, the question of whether excess water rights could

enhance the overall value the Heise Ranch, despite the strictures

of the so-called “unit rule”, was hotly contested by the parties 4

through the expert testimony they offered. Whether or not a

ready market was available, as well as whether excess water

rights could be transferred even if such a market did exist, was

disputed. 

Second, the parties’ positions diverged dramatically with

respect to what the “highest and best use” of the Heise Ranch was

for purposes of valuing the land. Integrated Farms argued that

the Ranch should be valued on the assumption that a planned 268

unit development community could be constructed on the site,

whereas the District claimed that only development with far less

density (continued agricultural operations with the potential for

more limited residential development) was feasible.

The respective positions of both Integrated Farms and the

District were reasonable as to both of these issues. The

District’s position that the “unit rule” still applied, and that

the jury should reject any enhanced value to the land based on

excess water rights, was not patently unreasonable. On the other

hand, given the property’s abundant water, it was similarly not

unreasonable for Integrated Farms to claim that this factor

augmented property value despite application of the “unit rule”. 

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This distinguishes the present matter from Redev. Agency v. 5

Krause, 162 Cal. App. 3d 860 (1984), a case cited approvingly by

Integrated, since in Krause the government refused to offer

anything above its appraised value of the property in question. 

Id. at 866.

8

Further, the same mutually defensible position exists with

respect to development density bearing on the “highest and best

use” of the Heise Ranch. Depending on how the jury viewed these

arguments, the value of the property could easily have shifted

dramatically. As in MTA, resolution of these issues hinged on

technical testimony from experts for both sides. It was not

unreasonable for the District to refrain from abandoning its

position in that regard, and in accord with Cushman, the

District’s position was “by no means frivolous.”

While Integrated Farms argues that the District assigned no

value whatsoever to the property’s excess water rights, and

further did not budge from its own concept of feasible

development in determining highest use, that position is

misplaced. First, the District’s appraiser, Stephen R. Johnson,

did testify to using comparable sales prices in reaching his

valuation that included the inferiority or superiority of the

associated water rights. The District also presented expert

testimony contraverting the feasibility of Integrated’s proposed

development. Second, the District’s deposit of probable

compensation totaled $5.2 million based on its Johnson appraisal. 

Nonetheless, the District final statutory offer more than $1.8

million higher than that figure, at $7.0 million. The 5

Declaration of Gary Kvistad explains how the District’s final

offer took into account a higher per-acre value in the event its

density/use projections were not accepted by the jury. 

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Integrated Farms’ reliance on Ventura County Flood Control 6

Dist. v. Campbell, 71 Cal. App. 4th 211 (1999), is consequently

misplaced since in that the case the plaintiff assigned no

enhanced value whatsoever to aggregate deposits on the land,

whereas here the District did factor excess water rights into its

final offer as discussed below.

According to Kvistad, the District’s $7.0 million final 7

offer was ultimately calculated after considering litigation

costs and after applying a ten percent discount to account for

the overall risk of litigation. Kvistad Decl., 16:16-26. 

9

The District’s offer added $1.2 million to account for that

risk, and another $1.1 million was added in recognition of the 6

parties’ divergent position vis-a-vis water rights. See Decl. of

Gary Kvistad, pp. 11-16.7

Based on the above, the Court declines to analyze the

reasonableness of the District’s final offer based entirely on

the mathematic discrepancy between it and the jury’s verdict. 

Both MTA and Cushman stand for the proposition that a numeric

comparison is only one factor to be considered. Under the

circumstances, the District’s final offer was reasonable. The

District was not required to assume, as Integrated Farms would

appear to allege, that the jury would ultimately “split the

difference” between the District’s $5.2 million appraisal and

Arthur Gimmy’s appraisal on behalf of Integrated Farms for $19.0

million. Instead, the District was entitled to rely on its own

legitimate position, and the fact it declined to depart from that

position on a wholesale basis does not mean it acted

unreasonably.

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As indicated above, California Code of Civil Procedure § 8

1250.410(b) requires a showing that plaintiff’s offer is

unreasonable, and a showing that the defendants final demand was

unreasonable in order to justify imposition of litigation

expenses against the plaintiff. See also Santa Clara Water Dist.

v. Gross, 200 Cal. App. 3d 1363, 1368 (1988).

Given the Court’s determination that no entitlement to 9

litigation expenses has been demonstrated, evidence pertaining to

prior efforts to settle the case is not relevant, since only the

final statutory offer and demand are pertinent in showing

entitlement as stated above. See Cal. Code of Civ. Proc. §

1250.410(a). The propriety of other offers and demands (and,

arguably, settlement negotiations) goes only to the amount of

expenses awarded, which the Court need not reach. Consequently,

in ruling on this motion, the Court did not consider the

Declarations of John Huston, John V. Diepenbrock and G. David

Robertson. Therefore it declines to rule on the Objections and

Motion to Strike filed by the District in response to those

declarations. To the extent that the Declaration of Gary Kvistad

explains how the District’s final $7.0 million offer was

formulated, however, that Declaration was directly relevant to

the issues posed by this Motion, and the District’s objections to

those portions of the Kvistad Declaration are overruled.

10

Because the Court finds that the District’s final offer was

formulated with care and was not unreasonable, it denies 8

Integrated Farm’s Motion to Recover Litigation Expenses. As the 9

prevailing party in this litigation, however, Integrated Farms is

entitled to its costs pursuant to Local Rule 54-292(f) and 28

U.S.C. § 1920 as follows: court fees in the amount of $589.19;

fee for service of process totaling $619.00; court reporter fees

of $16,052.35; and necessary fees for exemplification and copying

totaling $53,298.76. 

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Costs are therefore taxed in the total sum of $70,559.30. 

The remainder of Integrated Farms’ Bill of Costs is denied.

IT IS SO ORDERED.

DATED: August 30, 2006

_____________________________

MORRISON C. ENGLAND, JR

UNITED STATES DISTRICT JUDGE

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