Filed 5/27/14 Encinitas Country Day School v. County of San Diego CA4/1

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COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

ENCINITAS COUNTRY DAY SCHOOL, 

INC., et al.,

Plaintiffs and Appellants,

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 property from 

M&M Development, LLC (M&M). After ECDS recorded the lease in 2004, the San 
2

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 

determination 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 executed. 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 property at issue, located at 3616 

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 concept 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 owned 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. Under the

proposed lease agreement, as set forth in the LOI, the school would be entitled to occupy 

the premises 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 was fixed; and 

the owners would be "responsible for all funding, insurance and property taxes connected 

with the property." The LOI concluded: "The above notwithstanding this is to be 

construed as a letter of intent and the details will be spelled out in the lease."

After 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. The 

city's approval 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 court 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 superior court 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 stated: "[ECDS] and M&M have not yet 
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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 it unenforceable under California law." The 

Commission contended an unenforceable agreement, or one that was contingent in 

nature, could not form the basis for the constitutional relief requested. 

After trial, the court issued its statement of decision concluding ECDS and M&M 

had not established 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 regarding the inverse 

condemnation/regulatory takings cause of action." The 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 concluded, 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 commence on September 1, 2005, or 

earlier if the property was occupied by ECDS with M&M's permission. On July 2, 2004, 

"to provide constructive notice of [ECDS]'s rights under the Lease to all third parties,"
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the parties recorded a notarized memorandum of lease with the San Diego County 

Recorder's office. 

After the memorandum of lease 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 March 1, 2005, because it was the day 

ECDS took occupancy of the property and began paying rent. 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 assessable event occurred on March 1, 

2005, and sought a refund 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 occurred on the date 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 Assessor 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 constitute 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 for development. According to 

the Assessor, the LOI at most gave ECDS "an interest akin to an option to lease the 
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premises," which does not create a change in ownership until the option is exercised. The 

Assessor refuted ECDS's claim the Board was collaterally estopped by the earlier case on 

the grounds 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, agreeing 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 property 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 that the 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 leasehold interest that triggered a reassessment of 

property tax and found the doctrine of collateral estoppel did not apply. 
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DISCUSSION

On appeal, ECDS and M&M contend the trial court erred by failing to apply the 

doctrine of collateral estoppel to find a change 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. Murphy (2008) 164 Cal.App.4th 376, 399.)

I

"Collateral 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 have 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 proceeding." (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 entered 

into the written lease on June 28, 2004. 
8

The 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, 163.) 

However, "even 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 doctrine 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, they contend 

"the exact issue of whether the January 5, 1997 Agreement created a leasehold property 

interest" was already "litigated and decided by the San Diego 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 must have been identical to and 

' "necessarily decided in the former proceeding." ' " (Kemp Bros. Construction, Inc. v. 

Titan Electric 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; Black's Law Dict. (9th ed. 2009) p. 671, col. 1.) ECDS and M&M have not 

met the identity of issues requirement.

The 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 ownership." (Rev. & 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 years or more (including renewal options)." (§ 61, 

subd. (c)(1)(A).)

The issue in the prior proceeding, in contrast, was whether the plaintiffs 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, the 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 

condemnation 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 compensable 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 interest 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.4th 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 possesses 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 a 
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ECDS and M&M also argue the court's finding in the prior litigation that they had 

standing 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 contend "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 property 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 (1986) 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 Metropolitan 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. [statement of decision 
12

1189, 1196.) As discussed, all that was 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 collateral 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 Hospital 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 the 

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 claim 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.