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 ALIABA 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 longterm 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 itself—which 

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 crossexamining 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