Filed 5/27/14 Encinitas Country Day School v. County of S an Diego CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). Th is opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE
STATE OF CALIFORNIA

ENCINI TAS COUNTRY DAY SCHOOL, INC., et al. , Plaintiff s and Appellant s ,

v. COUNTY OF SAN DIEGO, Defendant and Respondent. D063098

(Super. Ct. No. 37

- 2009

- 00050112

- CU

- JR

- NC)

APPEAL from a judgment of the Superior Court of San Diego County, Jacqueline M. Stern, Judge. Affirmed.

Rowe Allen Mullen, LLP, Martin J . Mullen and James S. Brasher, for Plaintiffs and Appellants. Thomas E. Montgomery, County Counsel, and Walter J. de Lorrell III, Deputy County Counsel, for Defendants and Respondents

. Encinitas Country Day School, Inc. (ECDS) agreed to lease real prop erty from M&M Development, LLC (M&M). After ECDS recorded the lease in 2004, t he San2

Diego County Assessor (Assessor) determined a change in ownership of the property had occurred and reassessed the property ' s value. ECDS and M&M sought review of that de termination by the Assessment Appeals Board (Board) , arguing the change in ownership actually occurred in 1997 when they signed a letter of intent to enter a lease

. The Board disagreed, finding the change in ownership occurred when the actual lease

was ex ecuted. ECDS and M&M unsuccessfully appealed the Board ' s ruling to the San Diego County Superior Court , which entered judgment in favor of the Board. We affirm that judgment

. FACTUAL AND PROCEDURAL BACKGROUD
On January 5, 1997, the owners of the propert y at issue, located at 361 6 Manchester Avenue in Encinitas, entered into a letter of intent (LOI) with ECDS to develop the property for a new school site. The LOI , signed by Kathleen M. Porterfield for ECDS and Geoffrey O. Mavis " for the owners, " 1 stated that " [a]fter looking at numerous properties, we have decided to work toward developing the Manchester property as the only viable option. " The LOI provided " [ i ] n our agreement to develop the property, you (K. Porterfield), will work [to] develop the conc ept and acquire the necessary permits; I (G. Mavis), will provide for the hard costs of the project (architectural, engineering, permit fees, administrative and legal consulting, environmental review, construction and all costs related to the development). "

1 The LOI stated "[t]he property is currently owne d by four owners and will be placed in an LLC shortly." The property was later transferred to M&M.3

According to the LOI, Mavis would " enter into [a] formal lease agreement " with
ECDS once the project had been approved and development had begun. U nder th e proposed lease agreement , as set forth in the LOI, the school would be entitled to occupy the prem ises for the maximum legal term allowed by law of 99 years , with the option to renew in perpetuity ; the school would pay rent based on a percentage of its tuition income yearly, to be determined after M&M ' s investment in the property wa s fixed ; and the owners would be " responsible for all funding, insurance and property taxes connected with the property

. " The LOI concluded : " T he above notwithstanding this is to be construed as a letter of intent and the details will be spelled out in the lease. " Aft er the LOI was executed, ECDS began the process of obtaining the necessary permits for the development of the school. In November 1998, the City of Encinitas approved a major use permit, design review permit and coastal development permit. Th e city ' s app roval was appealed to the California Coastal Commission (Commission) , which denied the coastal development permit. ECDS and M&M challenged the Commission ' s denial of the permit by a petition for writ of mandate in San Diego County Superior
Court. The cou rt granted the petition, finding the Commission lacked appeal jurisdiction over the property. Thereafter , ECDS and M&M brought an inverse condemnation and regulatory takings claim in s uperior c ourt based on the delay to the school ' s development caused by the Commission ' s improper denial

. At the trial on the takings claim, the Commission argued ECDS and M&M lacked standing to pursue the claim because they did not have a recognizable property interest in the school

. In its trial brief, the Commission sta ted: " [ECDS] and M&M have not yet4

entered into a lease agreement for the operation of a school on the subject property

. . . . [The LOI] contains no description of the property which will be subject to any lease or a mechanism for determining how much of the property will be included in the lease. Likewise, it does not contain a specific rental amount to be paid for leasing the property or a complete mechanism for determining what the rental amount will be. These omissions in this letter of intent make i t unenforceable under California law. " T he Commission contended an unenforceable agreement , or one that was contingent in
nature, could not form the basis for t he constitutional relief requested. After trial, the court issued its statement of decision c oncluding ECDS and M&M had not establish ed a regulatory taking. The court did, however, find ECDS and M&M collectively had standing to pursue the claim. The court ' s order stated " [p] laintiffs have the necessary property interest to establish standing reg arding the inverse condemnation/regulatory takings cause of action. " Th e plaintiffs appealed and this court affirmed

. ( Encinitas Country Day School, Inc. v. California Coastal Com. (2003) 108 Cal.App.4th 575.) After the litigation with the Commission co ncluded , ECDS and M&M continued to pursue the development of the school

. On June 28, 2004 , ECDS and M&M entered into a written lease agreement. The LOI was referenced in the lease and attached as an
exhibit. The term of the lease was for 99 years to com mence on September 1, 2005, or earlier if the property was occupied by ECDS with M&M ' s permission. On July 2, 2004,

" t o provide constructive notice of [ECDS] ' s rights under the Lease to all third parties, "5

the parties recorded a notarized m emorandum of l e ase with the San Diego County
R ecorder ' s o ffice. After the m emorandum of l ease was recorded, the Assessor recognized the property as undergoing a change in ownership on March 1, 2005 , and reassessed the property on that date

. The Assessor selected Marc h 1, 2005 , because it was the day ECDS took occupancy of the property and began paying r ent. On November 15 , 2006, ECDS filed an application for changed assessment with the Board. In the application , ECDS stated that no change in ownership or other asses sable event occurred on March 1, 2005 , and sought a re fund of taxes paid by M&M. The Board heard ECDS ' s application on January 31, 2008 . Both ECDS and the Assessor presented documents, testimony and argument. ECDS argued a change in ownership had occur red on the dat e the LOI was executed, January 5, 1997. It also asserted the statement of decision in its case against the Commission collaterally estopped the Board from finding a change in ownership occurred after the date the LOI was executed. The Asse ssor contended a change in ownership did not occur until March 1, 2005, after ECDS took possession of the property in accordance with the terms of the written lease agreement that was executed on June 28, 2004. The Assessor argued the LOI did not consti tute a change in ownership because according to the LOI ' s terms, M&M ' s obligation to enter into the lease agreement and tender possession of the property to ECDS did not arise until ECDS acquired the necessary permits and the school project was approved fo r development. According to the Assessor, the LOI at most gave ECDS " an interest akin to an option to lease the6

premises, " which does not create a change in ownership until the option is exercised. The Assessor refuted ECDS ' s claim the Board was collater ally estopped by the earlier case on the ground s that the issues were not identical and it was not in privity with the Commission

. The Board issued its order in July 2008 , finding a change in ownership occurred on the date the written lease was executed, June 28, 2004, not the date the LOI was executed, January 5, 1997

. It concluded the LOI was not a lease and did not give ECDS a possessory interest sufficient to constitute a change in ownership. The Board rejected
ECDS ' s collateral estoppel argument, a greeing with the Assessor that the earlier decision did " not address the issue of the date on which [ECDS] obtained a possessory interest in the property for purposes of a property tax assessment proceeding

. " Thereafter, the Assessor reassessed the proper ty in accordance with the Board ' s order.
On January 8 , 2009 , ECDS and M&M challenged the Board ' s order by filing a complaint in Superior Court against the County seeking a property tax refund

. The parties stipulated to a briefing schedule and submitted a portion of the administrative record to the trial court

. ECDS and M&M ' s briefing repeated their earlier arguments, contending the LOI constituted a change in ownership for purposes of property tax assessment and th at th e Board erred by not applying the doctrine of collateral estoppel

. The court conducted an evidentiary hearing on July 13, 2012. After the hearing, the court adopted its tentative ruling denying the claim for a tax refund. Like the Board, the court concluded the LOI did not create a leas ehold interest that triggered a reassessment of property tax and found the doctrine of collateral estoppel did not apply.7 DISCUSSION On appeal, ECDS and M&M contend the trial court erred by failing to apply the doctrine of collateral estoppel to find a c hange in ownership occurred at the time the LOI
was executed. 2 The issue of whether collateral estoppel applies is " a question of law, which question we review de novo. " ( Jenkins v. County of Riverside (2006) 138 Cal.App.4th 593, 618; see Murphy v. Murph y (2008) 164 Cal.App.4th 376, 399.)
I

" Co llateral estoppel, or issue preclusion ' precludes relitigation of issues argued and decided in prior proceedings. ' " ( Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896 .) Collateral estoppel may be applied if five threshold requirements are met: " First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must ha ve been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former pro ceeding. " ( Lucido v. Superior Court (1990) 51 Cal.3d 335, 341 ( Lucido ) .) " The party asserting collateral estoppel bears the burden of establishing these requirements. " ( Ibid. )

2 Conceding there was sufficient evidence, ECDS and M&M do not directly challenge the trial court's finding that a change in ownership occurred when it en tered into the written lease on June 28, 2004.8

T he doctrine of collateral estoppel exists to promote " judicial economy by minimizing repetitive litigation, preventing inconsistent judgments that undermine the integrity of the judicial system, and providing repose by preventing a person from being harassed by vexatious litigation. " ( People v. Lawley (2002) 27 Cal.4th 102, 16 3 .) However, " ev en where the minimal prerequisites for invocation of the doctrine are present, collateral estoppel ' " is not an inflexible, universally applicable principle; policy considerations may limit its use where the

. . . underpinnings of the doct rine are outweighed by other factors. " ' " ( Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 829.)
II ECDS and M&M argue the Assessor was collaterally estopped from determining a change in ownership occurred after the LOI was executed

. Specifically, t hey contend

" the exact issue of whether the January 5, 1997 Agreement created a leasehold property interest " was already " litigated and decided by the San Die go Superior Court. " (Boldface omitted.) Further, ECDS and M&M assert there is privity between the Commission and
the Assessor. 3

" [T]he issue a party seeks to preclude mu st have been identical to and

' " necessarily dec ided in the former proceeding. " ' " ( Kemp Bros. Const ruction , Inc. v. Titan Elec tric Corp. (2007) 146 Cal.App.4th 1474, 1483.) The identical issue requirement applies only when " ' " an issue of ultimate fact " ' " has been previously

3 There is no dispute concerning the finality of the order in the prior proceeding.9

decided. ( People v. Santamaria (1994) 8 Cal.4th 903, 912 .) An ultimate fact involves the application of law to fact, such as an essential element of a claim or defense. ( Metis Development LLC v. Bohacek (2011) 200 Cal.App.4th 679, 689; Rest.2d Judgments, § 27, com. c; Blac k ' s Law Dict. (9th ed. 2009) p. 671, col. 1.) ECDS and M&M have not
met the identit y of issues requirement

. T he issue, or ultimate fact, here was whether the execution of the LOI constituted a change in ownership for purposes of property tax assessment. The Assessor ' s obligation to reassess property requires the occurrence of a statutorily defined event constituting a " change in owne rship. " (R ev. & Tax

. Code, § 60.) 4 Under the code, the assessing officer of the county must annually assess all taxable property at its full value and reappraise property when a change in ownership occurs. ( Blackwell Homes v. County of Santa Clara (1991 ) 226 Cal.App.3d 1009, 1013; § 75.10, subd. (a).) A change in ownership is defined as " a transfer of a present interest in real property, including the beneficial use thereof, the value of which is substantially equal to the value of the fee interest. " ( § 60.) Such a change includes " [t]he creation of a leasehold interest in taxable real property for a term of 35 year s or more (including renewal options). " (§ 61, subd. (c)(1)(A).)
T he issue in the prior proceeding , in contrast, was whether the plaintif fs could establish standing for inverse condemnation purposes by showing they had some compensable property interest. Unlike the creation of a long

- term lease required to

4 All statutory references are to the Revenue and Taxation Code.10

establish a change in ownership in this proceeding , t he right to compensation for a regulatory taking claim " does not turn on strict categories of estates in real property or contractual rights. " ( D & M Financial Corp. v. City of Long Beach (2006) 136 Cal.App.4th 165, 176 ( D & M Financial ) .) Standing is " ' determined by whether the cond emnation has deprived the claimant of a valuable right rather than by whether his right can technically be called an " estate " or " interest " in the land. ' " ( County of San Diego v. Miller ( 1975) 13 Cal.3d 684, 691 ( Miller ) .) Plaintiffs with sufficient c ompensable interests to establish standing to pursue an inverse condemnation claim include holders of " easements, rights

- of

- way, and building restrictions [citation], a holder of an unexercised option to purchase property [citation], a mortgagor whose inte rest has been foreclosed, the executor of a property owner ' s estate in which the decedent held an interest with a spouse, and an insurer

- subrogee seeking recovery in the name of the insurer or of its insured. " ( D & M Financial , supra , 136 Cal.App.4 th at p

. 176.) A future right to lease the property, akin to an option, is also sufficient. (See Miller , supra , 13 Cal.3d at p. 693 [ " the owner of an unexercised option to purchase land po ssesses a property right which

— if taken by government

— is compensable " ]

. ) 5 Unlike here, to establish standing, ECDS did not need to show the LOI created " a leasehold interest .

. . for a term of 35 years or more

. " (§ 61, subd. (c)(1)(A).)

5 At oral argument, citing Miller , counsel suggested the court in the inverse condemnation proceeding necessarily concluded the LOI created a leasehold interest because that was the only compensable property interest that could be found based on the evidence. However, Miller does not set forth a static list of compensable property interests. What may be considered a compensable property interest for purposes of a11

ECDS and M&M also argue the court ' s finding in the prior litigation that they had

st anding to pursue an inverse condemnation claim " was founded upon the [c]ourt ' s determination that the [LOI] established a leasehold interest in favor of ECDS. " It was this finding, according to ECDS and M&M, which provided ECDS with a sufficient property interest to pursue the inverse condemnation claim. They c ontend " by finding ECDS had standing through the [LOI], [the court] necessarily found that the [LOI] created a leasehold interest. " We disagree. An issue is necessarily decided so long as it is not " ' entirely
unnecessary ' to the judgment in the initial proceeding. " ( Lucido , supra , 51 Cal.3d at
p. 342.) The issue that was litigated in the inverse condemnation proceeding was whether the LOI provided ECDS and M&M with a sufficient compensable pr operty interest in the development of the school such that they could pursue the inverse condemnation claim. The court found that it did. To reach this conclusion, the court did not need to reach the issue of whether the LOI created " a leasehold interest in taxable real property for a term of 35 years or more. " (§ 61, subd. (c)(1)(A).) Such a finding was " entirely unnecessary " to the standing determination. 6 ( First N.B.S. Corp. v. Gabrielsen (19 8 6) 179 Cal.App.3d

takings claim is broadly defined and could include an option for a long

- term lease. ( Agins v. Tiburon (1979) 24 Cal.3d 266, 273; see San Diego Me tropolitan Transit Development Bd. v. Handlery Hotel, Inc. (1999) 73 Cal.App.4th 517, 531 [noting " a contractual option to renew an existing lease " is a compensable property interest].)
6 Because this finding was not necessary to the determination of the "principal controverted issue[]" of whether ECDS and M&M had a sufficient compensable property interest to pursue their claim for inverse condemnation, the statement of decision was not required to address it. (Code of Civ. Proc., § 632; see ibid . [state ment of decision12

1189, 1196.) As discussed, all that wa s required in the prior proceeding was a finding ECDS and M&M were deprived of some valuable property right. ( D & M Financial , supra , 136 Cal.App.4th at p. 176.) To this end, the statement of decision in the inverse condemnation proceeding does not find that the LOI created a leasehold interest . It states simply ECDS and M&M collectively had " the necessary property interest to establish standing regarding the inverse condemnation/regulatory takings cause of action. " 7 For these reasons, we conclude c olla teral estoppel did not bar the court ' s finding that a change in ownership occurred in 2004

. 8

explains "the factual and legal basis for [the] decision as to each of the principal controverted issues" of the case]; Central Valley General Hosp ital v. Smith (2008) 162 Cal.App.4th 501, 513 ["[A] statement of decision is adequate if it fairly discloses the determinations as to the ultimate facts and material issues in the case."].)
7 We reject ECDS and M&M 's claim that the court necessarily found the LOI created a lease within the meaning of section 61, subdivision (c)(1)(A) because th e parties briefed that issue in their underlying papers. If a finding that the LOI created a leasehold interest for more than 35 years was material to the court's inverse condemnation decision, it was incumbent on ECDS and M&M to bring that deficiency in the statement of decision to the trial court's attention. (Code of Civ. Proc., § 634; see In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133

- 1134 ["if a party does not bring [deficiencies in the statement of decision] to the trial court's attention, that party waives the right to claim on appeal that the statement was deficient in these regards"].) They did not do so.
8 Because the other prerequisites for establishing collateral estoppel were not met, it is unnecessary to address ECDS and M&M's cla im of privity between the Commission and the Assessor. ( Pacific Lumber Co. v. State Water Resources Control Bd. (2006) 37 Cal.4th 921, 945, fn. 14.)13 DISPOSITION The judgment is affirmed.

IRION, J.
WE CONCUR:

HALLER, Acting P. J.

AARON, J.