Court Opinion

ID: 2718210
Source: CourtListenerOpinion
Date Created: 2014-08-14 23:01:39.346037+00
Date Added: 2024-06-11T12:19:08.211992
License: Public Domain

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                                       D062671
COMPANY,
        Plaintiff and Appellant,
                                                               (Super. Ct. No.
        v.
                                                               37-2010-00094931-CU-EI-CTL)
ARNOLD J. SCHMIDT, as Cotrustee, etc.,
et al.,
        Defendants and Appellants;
VALERIE SCHMIDT, as Cotrustee, etc.,
        Defendant and Respondent.

SAN DIEGO GAS & ELECTRIC
COMPANY,                                                       (Super. Ct. No.
                                                               37-2010-00094934-CU-EI-CTL)
        Plaintiff and Appellant,
        v.
ARNOLD J. SCHMIDT et al.,
        Defendants and Appellants.

        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.
       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

                                              2
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

                                              3
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.

                                             4
       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

                                             5
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.)

                                              6
        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

                                             7
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.)

                                              8
       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 ALI-

ABA 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

                                               9
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,

                                             10
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,

                                             11
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,

                                            12
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.

                                             13
       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

                                             14
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

                                            15
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.

                                             16
       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

                                             17
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 long-

term demand for construction aggregate could not be met by simply expanding currently

                                             18
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.

                                              19
       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

                                            20
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.

                                            21
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.

                                            22
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

                                             23
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.

                                             24
       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.

                                             25
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

                                             26
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

                                             27
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 cross-

examining 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,

                                              28
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

                                             29
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

                                             30
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

                                           31
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

                                             32
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

                                              33
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

                                             34
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

                                              35
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,

                                              36
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.

                                             37
                                     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.

                                            38
Filed 8/14/14
                            CERTIFIED FOR PUBLICATION

                COURT OF APPEAL, FOURTH APPELLATE DISTRICT
                               DIVISION ONE
                           STATE OF CALIFORNIA

SAN DIEGO GAS & ELECTRIC                            D062671
COMPANY,

        Plaintiff and Appellant,                    (Super. Ct. No.
                                                    37-2010-00094931-CU-EI-CTL)
        v.

ARNOLD J. SCHMIDT, as Cotrustee, etc.,
et al.,

        Defendants and Appellants;

VALERIE SCHMIDT, as Cotrustee, etc.,

        Defendant and Respondent.

SAN DIEGO GAS & ELECTRIC
COMPANY,
                                                    (Super. Ct. No.
        Plaintiff and Appellant,                    37-2010-00094934-CU-EI-CTL)

        v.                                          ORDER MODIFYING OPINION

ARNOLD J. SCHMIDT et al.,                           NO CHANGE IN JUDGMENT

        Defendants and Appellants.

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:
      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

                                             2
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