Filed 7/13/26 City of Morgan Hill v. Garcia CA6
Opinion following transfer from Supreme Court
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
CITY OF MORGAN HILL, H052498
(Santa Clara County
Plaintiff and Respondent, Super. Ct. No. 21CV385524)
v.
W. ROCKE GARCIA et al.,
Defendants and Appellants.
This case involves the City of Morgan Hill’s (City) condemnation action
over an undeveloped, 4.088-acre parcel of land (the property) owned by W.
Rocke Garcia and Glenda Garcia (together, defendants1). The City filed the
action to acquire the property for purposes of a regional road extension.
At issue is the amount of just compensation owed to defendants for the
property. The parties’ expert appraisals diverged significantly. The City’s
valuation of $3.74 million assumed a fair market value based on comparable
undeveloped and unentitled land. Defendants’ valuation of $8.01 million
assumed that, but for the road extension project, there was a reasonable
1 For ease of reference, we refer to W. Rocke Garcia and Glenda Garcia
together as “defendants.” We use “Garcia” to refer to W. Rocke Garcia
individually.
probability that defendants would have obtained entitlements to develop the
property as of the date of valuation. Defendants thus assumed a fair market
value based on comparable land with land use entitlements.
Prior to trial, the trial court granted the City’s Code of Civil Procedure2
section 1260.040 motion to resolve legal issues affecting the determination of
compensation. In its ruling, the court cited the “relatively unique facts” of
the case, namely that defendants acquired the property with knowledge of
the road extension plan. The court ruled that defendants were precluded
from introducing at trial evidence to support their theory of valuation and
resulting appraisal analysis. Faced with the inability to introduce evidence
to support their theory of just compensation, defendants stipulated to
judgment using the City’s valuation based on unentitled land value and
reserved the right to appeal.
On appeal, defendants contend the trial court erred as a matter of law
by adopting a valuation method that conflicts with key principles governing
the determination of just compensation in eminent domain proceedings. The
City disputes the de novo standard of review proposed by defendants and
maintains the court did not abuse its discretion in barring the introduction of
evidence to support the defendants’ valuation methodology.
For the reasons explained herein, we decide the trial court did not
abuse its discretion in granting the City’s motion and affirm the judgment.
I. FACTS AND PROCEDURAL BACKGROUND
A. The Property
The property is a narrow, curved parcel of approximately four acres of
undeveloped land in a residential neighborhood near downtown Morgan Hill.
In 1976, Garcia, an experienced developer and home builder, acquired the
2 All further unspecified references are to the Code of Civil Procedure.
2
property and adjacent land (referred to as “Spring Hill”) with the intention of
developing it for housing. Garcia learned prior to completing the purchase
that the property was the location of a planned road extension of Santa
Teresa Boulevard and Hale Avenue (the road extension), which had been
identified as a planned arterial in the City’s general plan since 1969. The
city manager at the time informed Garcia that the property should be held
for later purchase by the City. Based on this information, Garcia did not
expect to build homes on the property portion of the land acquired.
In 1979, after Garcia had subdivided and developed the land to the
north and south of the property, the City approved the 30-lot subdivision map
for “Spring Hill Estates 3.” Spring Hill Estates 3 included 28 lots for single
family homes, reserved one lot (Lot 30) for future development, and
designated the area comprising the property as “Lot 29.”
The property appeared on the subdivision map as “Lot 29” – “ ‘Future
Santa Teresa’ ” in the narrow and curved shape of the road extension. The
shape of Lot 29 was dictated by the shape of the road extension. Had the
City not required the property to be set aside for the road extension, Garcia
asserts that he would have integrated the development of Lot 29 with that of
Lots 1 through 28 in Spring Hill Estates 3.
B. City Planning Measures
In 1977 (the year after defendants purchased the property), the City’s
voters adopted by initiative the first in a series of residential development
control system (RDCS) ordinances designed to limit population growth and
provide a method for evaluating proposed residential developments. Measure
C, codified as section 18.78.020 of the City’s municipal code, is the relevant
version of the City’s RDCS. Measure C restricted residential development in
the City to a system of development allotments and established a competition
3
for allocating the limited number of allotments each year. The City awarded
development allotments to the projects that received the highest scores in the
competition. A property owner could not file a tentative subdivision map
unless the owner had first applied for and been awarded a development
allotment by the City.
Measure C further required the City’s planning officer to review each
application for development allotment for conformity with the City’s general
plan.3 If the planning officer determined the proposed development did not
conform to the general plan, the application would be rejected. At least since
1980, the circulation element of the City’s general plan has depicted a
planned road extension across the property.
In 1996, while developing Lot 30 of Spring Hills Estates 3, Garcia
discovered that a condition for offer of dedication had been imposed on the
1979 subdivision map. The condition apparently required defendants to offer
to dedicate Lot 29 when Lot 30 was developed. In October 1997, the city
council rescinded by resolution the dedication requirement.4 In 1998, the
3 California law requires that each city adopt a general plan that is a
long-range, comprehensive policy statement of a community’s physical
development. (Gov. Code, § 65300.) A general plan must include land use,
circulation, housing, conservation, open space, noise, safety, and
environmental justice elements. (Id., § 65302.) The circulation element of
the general plan must show the “location and extent of existing and proposed
major thoroughfares” and other public utilities, correlated with the land use
element of the plan. (Id., subd. (b).)
4 Resolution No. 5126, adopted by the City on October 15, 1997, states,
inter alia, that the city council “has declined to purchase Lot 29, as future
Santa Teresa right-of-way,” “desires to rescind the . . . condition as listed” on
the subdivision map, and “in order to facilitate development of Lot 29, the
[c]ity [c]ouncil hereby authorizes and directs the [c]ity [m]anager to execute a
quitclaim deed” that “will convey any and all rights that the City may have in
Lot 29 to its present owner.”
4
City recorded a quitclaim deed releasing any City rights to the property. The
record does not show any action or steps taken by defendants between 1998
and 2013 toward developing the property.
C. Implementation of the Road Extension and Measure C Application
In 2007, the City took steps toward implementing the road extension.
City staff included the road extension in the capital improvement program
budget from 2007 through 2012. In 2008, the City purchased for $1,141,359
two acres immediately north of the property for the road extension. However,
in 2012, City funding for the road extension project was eliminated due to the
dissolution of the state’s redevelopment agencies. Nevertheless, the
circulation element continued to depict a planned roadway across the
property.
In December 2013, the city council directed City staff to develop a plan
to move forward with the road extension, and in 2014 City staff
recommended authorizing funding for plan line design work for the road
extension. Among other purposes, the plan line design was intended to
“[c]larify intentions to construct a roadway for public purposes” and
“[e]stablish right of way” widths and alignments.
In October 2013, during the period in which City funding for the road
extension had been eliminated and before funding was reimplemented in
2014, Garcia sought to develop the property. On October 1, 2013, Garcia
submitted a Measure C application for 25 residential allotments to build
homes on a portion of the property and an adjacent property (2013
application). Civil engineer William McClintock, Garcia’s designated expert
to discuss the RDCS process and Garcia’s 2013 application for building
allotments, testified that at the time Garcia submitted the 2013 application,
Garcia knew the proposed development was inconsistent with the circulation
5
element of the City’s general plan. McClintock agreed it was “questionable”
whether the City would accept the application because of the inconsistency
with the circulation element.
In a letter dated October 14, 2013, City staff informed Garcia that the
2013 application had to be rejected because the proposed development was
inconsistent with the circulation element of the City’s general plan showing
the planned segments of the road extension on the property. The City’s letter
stated that Garcia “may choose to apply for an amendment to the [g]eneral
[p]lan that could facilitate your proposed development in the future.” Garcia
appealed the decision to the city council. On November 20, 2013, based on
the analysis provided by City staff, the city council rejected the appeal,
upheld the decision to reject Garcia’s 2013 application, and directed Garcia to
file an application to amend the general plan and to allow a consistency
determination, should he wish to have the proposed development application
move forward for processing and consideration.
As noted ante, in December 2013, following the city council’s rejection
of Garcia’s 2013 application appeal, the city council directed staff to develop a
plan to move forward with the road extension. In January 2014, City staff
recommended the City authorize funding for plan line design work on the
road extension in the 2014/2015 capital improvement budget. The city
manager informed Garcia that the City was working to adopt the plan line
design for the road extension and begin negotiations with Garcia to acquire
the property.
In August 2017, City staff presented for city council approval the final
environmental impact report for the road extension. The City and Garcia
thereafter entered into a possession and use agreement dated October 3,
2018. The agreement required the City to deposit $3,563,200 into escrow as
6
the amount of probable compensation for acquisition of the property and
allowed the City to take possession of the property as of November 19, 2018,5
establishing it as the date for determining the value of the property.
D. Eminent Domain Action
In July 2021, the City filed its complaint in eminent domain. In
February and March 2024, the parties exchanged expert witness disclosures
and statements of valuation data pursuant to section 1258.210, et seq.,
including the City’s supplemental list of expert witnesses and an amendment
to defendants’ expert witness disclosure and statement of value.
The City’s appraisal expert, Terry Larson, valued the property as of
November 21, 2018, in its existing condition as raw, unentitled land at
$3,740,000. Defendants’ appraisal expert, Norman Hulberg, valued the
property as of November 21, 2018, at $8,010,000. Hulberg based his
valuation on an assumption of reasonable probability that, but for the road
extension project, defendants would have obtained residential land use
entitlements through the RDCS process. Hulberg applied the “hypothetical
condition” (capitalization & boldface omitted) that the “site is entitled for
development with 22 attached and detached single-family homes.” Hulberg
therefore valued the property as if entitled for residential development.
5 The judgment in condemnation with reservation of right to appeal
states that the City acquired the legal right of possession of the property on
November 19, 2018. The parties and expert witness declarations, however,
refer to November 21, 2018, as the date of value. The record does not explain
this apparent discrepancy, which in any event is inconsequential to our
review.
7
E. Order on Motion for Determination of Legal Issues
In late March 2024, the City filed a motion for determination of legal
issues pursuant to section 1260.040 (motion)6 and supporting declarations
and exhibits. Defendants filed their opposition to the motion, together with
supporting declarations and exhibits, and the City filed its reply brief and
objections.
The motion sought to exclude evidence at trial related to (1) defendants’
2013 application for residential building allotments on the property, (2) the
claim that if the project did not exist, it was reasonably probable the property
would have received building allocations and a tentative map by the date of
value, and (3) value comparisons based on sales of entitled land. The City
argued that defendants’ valuation using entitled land value violates the
principle of “fair market value” and misapplies the “project effect rule”7
(codified at section 1263.330) in an attempt to base compensation on land use
entitlements the property does not have.
Defendants countered by citing case authority they asserted made it
“clear that in an eminent domain action the reasonable probability of land
use approvals is an issue affecting value and is a question of fact addressed to
6 Applicable to eminent domain actions, section 1260.040, subdivision
(a) provides, “If there is a dispute between plaintiff and defendant over an
evidentiary or other legal issue affecting the determination of compensation,
either party may move the court for a ruling on the issue. The motion shall
be made not later than 60 days before commencement of trial on the issue of
compensation. The motion shall be heard by the judge assigned for trial of
the case.” The provision was enacted “to promote earlier resolution of issues
affecting the determination of compensation, thereby preventing these issues
from improperly going to the jury and increasing the likelihood of pretrial
settlement.” (Weiss v. People ex rel. Dept. of Transportation (2020) 9 Cal.5th
840, 855–856.)
7 The parties also use the phrase “project influence rule” to refer to the
same legal doctrine.
8
the jury.” Defendants argued that the project effect rule requires the trial
court to ignore the road extension designation in the circulation element and
allow the jury to hear evidence regarding the highest and best use of the
property. They contended that, in determining fair market value, the jury
should be entitled to consider the evidence that, absent the road extension,
there was a reasonable probability that defendants would have obtained
approximately 22 building allocations through the RDCS process and
obtained approval of a tentative subdivision map for those allocations.
The trial court heard oral argument and took the matter under
submission. On May 23, 2024, the trial court issued its ruling from the
bench, granting the City’s motion. The court recited the bases for its
decision, noting there was little disagreement between the parties about the
applicable law and the “real question in this case is how to apply the law to
the relatively unique facts.” The court noted that the fact pattern of this case
differed from typical eminent domain cases because the plan for the road
extension was already in place when defendants acquired the property as
unentitled land in 1976. It reasoned that at no time during defendants’
ownership of the property did Garcia have an expectation—apart from the
approximately two-year period between 2012 and 2014 (when the City
terminated the project for lack of funding and then reinitiated the project by
funding the plan line design)—that the property could gain entitlements and
be developed. The trial court found that “[t]he exact shape of the property
was dictated by the city in 1979 when the defendant developed the land
around the proposed road with the housing that exists there today.”
Based on these facts, the trial court concluded “it is fair . . . to consider
the value of this land as unentitled land.” The court ruled that defendants
would be precluded from introducing evidence of the 2013 application for
9
building allotments, or any specific plan for development on the property, and
that any appraisals using a comparison methodology would be compared to
“unentitled property of a similar nature and not entitled property.” As later
set forth in the written order granting the motion (order): “[Defendants] [are]
hereby barred from presenting any evidence, testimony, or argument at trial
regarding: (a) [defendants]’ 2013 Measure C [a]pplication; (b) whether it was
‘reasonably probable’ that the real property the City seeks to acquire from
[defendants] in this eminent domain action (the ‘Property’) would have
received land-use entitlements but for the Hale Avenue Extension Project; (c)
any specific plan for the development of the Property; and (d) sales of
allegedly comparable land that sold with land-use entitlements.”
After the trial court granted the motion, defendants filed an offer of
proof on June 18, 2024. Defendants’ counsel described the filing as “a formal
offer of proof” with the evidence defendants had sought to present in support
of their excluded valuation approach. The trial court acknowledged
defendants could place the information into the record for purposes of later
review but emphasized that to the extent there was “anything new in that
filing” that had not been presented with the motion and opposition, the trial
court had not considered it in its decision and would not be using it to
reconsider the order. The City filed written objections to the offer of proof,
and defendants filed a response to the written objections supported by the
declaration of counsel. The trial court did not rule on the City’s objections or
alter its ruling on the section 1260.040 motion.
F. Entry of Judgment
On August 5, 2024, the parties filed a stipulation for entry of judgment
reserving right of appeal. The stipulation recited facts related to the City’s
acquisition of the property, each side’s expert witness appraisal and
10
valuation, the City’s motion and trial court’s order, and set forth the basis for
defendants’ decision to enter into a stipulation in lieu of proceeding to trial
without the excluded evidence. Defendants stipulated to the judgment
“solely to facilitate an appeal in light of the adverse determination” in the
order. Pursuant to the stipulation, the trial court entered judgment in
condemnation with reservation of right of appeal (judgment) on August 16,
2024, requiring compensation of $3,740,000, plus specified statutory and
other costs. Defendants timely appealed.
G. Petition for Rehearing
This court issued its opinion on October 21, 2025. Defendants filed in
this court a petition for rehearing, which this court denied after making a
minor modification to the opinion. Defendants filed a petition for review in
the California Supreme Court. Defendants asserted rehearing was required
pursuant to Government Code section 68081 and argued this court’s decision
improperly rendered inapplicable key principles governing the determination
of just compensation.
On January 28, 2026, our high court granted the petition for review
and transferred the matter to this court with directions to grant the petition
and afford the parties the opportunity for supplemental briefing pursuant to
Government Code section 68081 and California Rules of Court, rule 8.528(d).
The Supreme Court did not address the merits of this court’s opinion in its
order. Pursuant to the Supreme Court’s order, this court granted defendants’
petition for rehearing and ordered supplemental briefing. This court afforded
the parties supplemental oral argument, pursuant to their request
II. DISCUSSION
Defendants contend that the trial court’s order failed to apply the
project effect rule and erroneously excluded admissible evidence supporting
11
defendants’ fair market value claim. The City counters that defendants’
proposed application of the project effect rule and reasonable probability
principles is fundamentally incompatible with fair market value, and the
trial court reasonably exercised its discretion to exclude the inadmissible
evidence.
A. Governing Principles
The takings clauses of the state and federal constitutions prohibit the
taking of private property for public use without just compensation. (U.S.
Const., 5th Amend.; Cal. Const., art. 1, § 19; see City of Perris v. Stamper
(2016) 1 Cal.5th 576, 591 (City of Perris); Los Angeles County Metropolitan
Transportation Authority v. Continental Development Corp. (1997) 16 Cal.4th
694, 698 (Continental).)
The concept of just compensation “is primarily aimed at making a
landowner whole for any governmental taking or damage to his or her
property.” (Continental, supra, 16 Cal.4th at p. 715.) Just compensation “ ‘is
to be measured by the loss caused to’ ” the property owner (ibid.), who “ ‘is
entitled to receive the value of what he has been deprived of, and no more.
To award him less would be unjust to him; to award him more would be
unjust to the public.’ ” (Ibid.) Stated differently, just compensation “must
put the owner ‘in as good position pecuniarily as [the owner] would have
occupied if [the] property had not been taken.’ ” (City of San Diego v. Barratt
American Inc. (2005) 128 Cal.App.4th 917, 933 (Barratt); accord, Escondido
Union School Dist. v. Casa Suenos De Oro, Inc. (2005) 129 Cal.App.4th 944,
959 (Escondido).)
“In California, eminent domain proceedings are governed by a
comprehensive statutory scheme, known as the Eminent Domain Law.
(§ 1230.010 et seq.)” (Escondido, supra, 129 Cal.App.4th at p. 959.) Under
12
the eminent domain law, “the measure of compensation in a condemnation
case ‘is the fair market value of the property taken.’ ” (City of Perris, supra, 1
Cal.5th at p. 598, quoting § 1263.310.)
Section 1263.320, subdivision (a) defines fair market value of the taken
property as “the highest price on the date of valuation that would be agreed
to by” a seller and a buyer under defined circumstances.8 The analysis of fair
market value under this rubric “begins with a determination ‘of the highest
and best use to which the property being condemned can be put.’ ” (Barratt,
supra, 128 Cal.App.4th at p. 933.) This determination “ ‘is not necessarily
limited to the current zoning or land use restrictions imposed on the
property; the property owner “is entitled to show a reasonable probability of a
zoning [or other change] in the near future and thus to establish such use as
the highest and best use of the property.” ’ ” (Id. at pp. 933–934.)
Consequently, “ ‘the fair market value of property taken has not been
limited to the value of the property as used at the time of the taking, but has
long taken into account the “highest and most profitable use to which the
property might be put in the reasonably near future, to the extent that the
probability of such a prospective use affects the market value.” ’ ”
(Metropolitan Water Dist. of So. California v. Campus Crusade for Christ, Inc.
(2007) 41 Cal.4th 954, 965 (Campus Crusade); City of Los Angeles v. Decker
(1977) 18 Cal.3d 860, 868 (Decker).)
8 Section 1263.320, subdivision (a), states in full: “The fair market
value of the property taken is 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.”
13
The project effect rule, codified at section 1263.330, excludes from fair
market value “ ‘any increase or decrease in the value of the property’ ”
attributable to the project for which the property is being taken. (City of
Perris, supra, 1 Cal.5th at p. 600.) Under the statute, “The fair market value
of the property taken shall not include any increase or decrease in the value
of the property that is attributable to any of the following: [¶] (a) The
project for which the property is taken. [¶] (b) The eminent domain
proceeding in which the property is taken. [¶] (c) Any preliminary actions of
the plaintiff relating to the taking of the property.” (§ 1263.330.)
The project effect rule “serves to prevent the amount of compensation
owed for a taking from being altered by the project served by the taking or by
any government action that affects the value of an intended taking.” (City of
Perris, supra, 1 Cal.5th at p. 600.) For example, “if the government is
condemning property to build a reservoir, it need not pay lakefront prices for
the property. And if the government is condemning property to build a
sewage plant, it does not get a discount because its project renders the
property less desirable.” (Id. at p. 601.)
B. Standard of Review
The parties dispute the applicable standard of review. Garcia contends
our review of the trial court’s order is de novo because the effect of the court’s
exclusionary ruling is tantamount to a nonsuit on the issue of just
compensation. (See, e.g., City of Livermore v. Baca (2012) 205 Cal.App.4th
1460, 1465 (Baca); Garner v. BNSF Railway Co. (2024) 98 Cal.App.5th 660,
673–674 (Garner); Kelly v. New West Federal Savings (1996) 49 Cal.App.4th
659, 677 (Kelly).) The City, on the other hand, maintains that courts review
for abuse of discretion the admission or exclusion of evidence concerning
value and valuation methods in eminent domain cases. (See, e.g., Barratt,
14
supra, 128 Cal.App.4th at p. 936; City of San Diego v. Rancho Penasquitos
Partnership (2003) 105 Cal.App.4th 1013, 1027 (RPP).)
We agree with the City on the applicable standard of review. In
essence, the trial court’s decision excluded evidence defendants sought to
admit in support of their experts’ valuation testimony. Such a decision is
reviewed for abuse of discretion. (See RPP, supra, 105 Cal.App.4th at
p. 1027.)
In Barratt, for example, the owners of real property condemned for
freeway construction moved in limine to preclude the city’s appraisers from
employing a method of valuation referred to as the “abandoned [p]roject
construct.” (Barratt, supra, 128 Cal.App.4th at p. 923.) The city asserted
that its method properly disregarded the influence of the highway project on
the value of the property by assuming the project was abandoned on the
valuation date. (Id. at pp. 923, 928.) The owners proposed an alternative
method for disregarding the project impact founded on the fiction that the
highway project had never been conceived or planned (“the no [p]roject
construct”). (Id. at p. 928.) The trial court granted the owners’ motion
barring the city’s experts from valuing the property using the abandoned
project construct. (Id. at p. 929.)
On appeal, the appellate court reviewed the trial court’s in limine
ruling on valuation methods for abuse of discretion. (Barratt, supra, 128
Cal.App.4th at p. 936.) It explained, “ ‘ “ ‘ “In condemnation proceedings, the
trial court is vested with considerable judicial discretion in admitting or
rejecting evidence of value.” ’ ” ’ [Citation.] Where, as here, ‘an expert in a
condemnation action employs a methodology not sanctioned by California
law, his opinion may be excluded.’ ” (Ibid.)
15
In reviewing the trial court’s ruling for abuse of discretion, Barratt
accords with other appellate decisions reviewing trial court orders related to
the evidence underlying measures of valuation. (See, e.g., RPP, supra, 105
Cal.App.4th at p. 1027; County Sanitation Dist. v. Watson Land Co. (1993) 17
Cal.App.4th 1268, 1277 (Watson).) This approach is also consistent with
Merced Irrigation Dist. v. Woolstenhulme (1971) 4 Cal.3d 478
(Woolstenhulme), in which our Supreme Court examined whether increased
land values attributable to speculation about a proposed project comprise an
element of the just compensation to a landowner whose land is taken for the
project. (Id. at pp. 483–484.) In Woolstenhulme, the court described “ ‘[t]he
admissibility of testimony relating to comparable sales’ ” (id. at p. 503) as
“ ‘largely in the discretion of the trial court’ ” and subject to review for abuse
of discretion. (Ibid.)
We reject defendants’ reliance on Baca to argue the trial court’s ruling
effectively granted a motion for nonsuit. (Baca, supra, 205 Cal.App.4th 1460.)
There, a landowner sought permanent and temporary severance damages in
response to the plaintiff city’s takings action affecting portions of the
landowner’s commercial property. (Id. at p. 1464.) After evidentiary
hearings, the trial court found that the evidence proffered in support of
severance damages was insufficient and granted the city’s in limine motion to
exclude all evidence of temporary and permanent severance damages. (Ibid.)
On appeal from the stipulated judgment to review the evidentiary ruling, the
Court of Appeal reviewed the exclusionary ruling de novo. It explained,
“When, as in the present case, the court’s order excludes all evidence on a
particular claim and, as a result, operates as a motion for nonsuit, we review
the court’s order de novo, examining the record in the light most favorable to
the party offering the evidence.” (Id. at p. 1465.)
16
This case is not analogous to Baca. The exclusion of evidence
pertaining to defendants’ probability of having obtained entitlements for the
property and ability to use comparison values based on entitled land does not
preclude defendants from submitting evidence to support their claim for
compensation. Nor does it deprive defendants “of essential evidence” on an
element, like causation or damages, resulting in a dismissal before trial.
(Garner, supra, 98 Cal.App.5th at p. 674.)
Here, as in Barratt, the trial court considered what theory of fair
market value, supporting evidence, and expert testimony may be
appropriately presented to the jury. That the ruling deprived defendants of
the ability to introduce evidence supporting their valuation claim based on a
significantly higher measure of compensation (i.e., entitled versus unentitled
land) does not transform the ruling into a nonsuit with the effect of
preventing defendants from offering any evidence to support the claim for
just compensation. (Cf. Kelly, supra, 49 Cal.App.4th at p. 677.) The
admissibility of this evidence is a determination subject to the trial court’s
“ ‘ “ ‘ “considerable judicial discretion in admitting or rejecting evidence of
value.” ’ ” ’ ” (Barratt, supra, 128 Cal.App.4th at p. 936.)
Even so, “[t]he abuse of discretion standard is not a unified standard;
the deference it calls for varies according to the aspect of a trial court’s ruling
under review. The trial court’s findings of fact are reviewed for substantial
evidence, its conclusions of law are reviewed de novo, and its application of
the law to the facts is reversible only if arbitrary and capricious.” (Haraguchi
v. Superior Court (2008) 43 Cal.4th 706, 711–712, fns. omitted.)
Even in matters left to the sound discretion of the trial court, its
discretion is bounded. “ ‘The discretion of a trial judge is not a whimsical,
uncontrolled power, but a legal discretion, which is subject to the limitations
17
of legal principles governing the subject of its action, and to reversal on
appeal where no reasonable basis for the action is shown.’ . . . To determine
if a court abused its discretion, we must thus consider ‘the legal principles
and policies that should have guided the court’s actions.’ ” (Sargon
Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747,
773 (Sargon).) In the context of a condemnation action, a court acts within
its discretion to exclude a valuation method that fails to comply with the
applicable principles of law governing the determination of just
compensation. (Barratt, supra, 128 Cal.App.4th at p. 936; Watson, supra, 17
Cal.App.4th at p. 1277.)
We turn to whether the trial court in this matter exceeded “the confines
of the applicable legal principles” (Sargon, supra, 55 Cal.4th at p. 773) by
barring evidence to support defendants’ theory for valuing the property as
entitled land. In making this determination, we review the “ ‘the ruling of
the trial court, not its rationale, and may affirm a trial court ruling on any
proper basis presented by the record, whether or not relied upon by the trial
court.’ ” (Ross v. Superior Court (2022) 77 Cal.App.5th 667, 681.)
C. Analysis
Defendants’ argument attacking the trial court’s order proceeds in two
steps. Defendants first assert the trial court misapplied the project effect
rule, which (in their view) should have barred any consideration of the road
extension’s existence or effect on value and requires the court to treat the
road extension as though it never existed. Second, they contend the court
erred in barring evidence related to Garcia’s earlier application to develop the
property. They maintain that, absent the road extension project, it was
reasonably probable that Garcia would have obtained land use entitlements
18
through the RDCS competition, enhancing the fair market value of the
property.
We first consider the trial court’s ruling on the project effect rule.9
The project effect rule is codified in section 1263.330. Subdivision (a) of
section 1263.300—the provision most relevant here—in turn incorporates the
rule announced by the California Supreme Court in Woolstenhulme, supra, 4
Cal.3d 478. (See City of Perris, supra, 1 Cal.5th at p. 600.) The Supreme
Court in Woolstenhulme decided that “a property owner can be compensated
for increases in valuation that result from a property’s proximity to a
proposed project, up to the point that it becomes probable the property will be
included in the project.” (Id. at p. 601, italics added.) As this language
suggests, “the date of probable inclusion in a project is important in applying
subdivision (a) of section 1236.330.” (Id. at p. 602.)
In Woolstenhulme, the California Supreme Court considered the fair
market value of land where “a plan to increase and stabilize the size of a lake
and to develop recreational facilities led to a rise in the value of land near the
lake. By 1963, the public became aware of the plan, and land values began to
rise. In 1965, it became probable that the defendant’s property would be
taken for the lake improvement. In 1967, the irrigation district sought to
condemn the defendant’s land.” (City of Perris, supra, 1 Cal.5th at p. 601.)
Our Supreme Court affirmed that the defendant should not be
compensated for any enhancement of value attributable to public knowledge
of the project after January 1, 1965. (Woolstenhulme, supra, 4 Cal.3d at
9 Defendants do not argue that the jury, rather than the court, should
have determined the application of the project effect rule. By contrast,
defendants contend that the second step of their argument (involving the
reasonable probability of a change in land use restrictions) is an issue of fact
for the jury.
19
p. 499.) The court reasoned that once a property “has been designated for
condemnation” (id. at p. 491), any increase in value “is clearly not a
legitimate element of just compensation and . . . such increases in value
cannot properly be taken into consideration in determining the fair market
value contemplated by our constitutional just compensation requirement.”
(Id. at p. 492.) Similarly, the fair market value should not reflect any
increase in value “ ‘[i]f it is known from the very beginning exactly where the
improvement will be located if it is constructed at all.’ ” (Id. at p. 496.)
The court in Woolstenhulme acknowledged “a variety of linguistic tests
in describing the requisite ‘certainty of inclusion’ that is required before
‘project enhanced value’ should be excluded.” (Woolstenhulme, supra, 4
Cal.3d at p. 497, fn. 10.) It decided that “the ‘probability of inclusion’
standard” (ibid.) “is the appropriate one to be utilized in future cases.” (Ibid.)
We disagree with defendants’ contention in supplemental briefing that
Woolstenhulme’s logic applies only to project enhancement cases, because the
California Supreme Court has said otherwise. “Although Woolstenhulme
concerned a limitation on an owner’s right to have the value of its property
enhanced by probable condemnation, its logic applies equally to limit the
condemner’s right to capitalize on the diminution of property value after
probable condemnation.” (City of Perris, supra, 1 Cal.5th at p. 601.)
The flaw in defendants’ application of the project effect rule on these
facts is that it is undisputed that the property at issue has been identified as
the site of the road extension—and thus subject to probable condemnation—
since before they purchased it. As the trial court observed in its ruling, the
facts do not reflect “the usual fact pattern of an eminent domain case” (i.e.,
where the owner acquires a property with the expectation of being able to
develop it consistent with any legal use, only later to be informed of the
20
government’s intent to condemn the property for government use). It is
undisputed that defendants purchased the property here knowing of the
government’s intent to condemn. This fact pattern falls outside the
traditional application of the project effect rule. Furthermore, there is no
suggestion that the City took subsequent action designed to suppress (or that
had the effect of suppressing) the value of the property in question, as
relevant to the application of the project effect rule pursuant to section
1263.330, subdivision (c).
On these facts, we decide the trial court did not abuse its discretion in
excluding a theory of valuation premised on the nonexistence of the project.
Since defendants purchased the property with the understanding that they
would not develop that portion of the property due to the anticipated project,
the project was—in effect—already contemplated in the fair market value.10
Using the example at issue in Woolstenhulme, it is as if the property owner
knew her land, prior to its purchase, would be condemned to expand the lake
and would never be lakefront property. (See Woolstenhulme, supra, 4 Cal.3d
at p. 496.) While this case is not entirely analogous, defendants knew since
the time of purchase of the planned arterial in the City’s general plan, and
the court reasonably concluded that any fair market value should not reflect
the value of the desired entitlements because defendants knew “ ‘exactly
10 Garcia testified at deposition that he learned of the location for the
planned road extension during the escrow period for his purchase of the
property and adjoining lands. He did not expect to be able to build on that
portion of the land (what later became Lot 29) and did not seek to renegotiate
the purchase price, which he believed was “a fair price.” Garcia agreed that
the purchase price reflected his assumption that he would not be able to build
on that portion of the property.
21
where’ ” the roadway would be located if it were constructed (ibid.) and never
anticipated building homes on it.11
Although the trial court did not make an explicit ruling on this basis,
its oral explanation of its decision implicitly rested on a finding based on
defendants’ knowledge of the City’s intentions toward the property. As the
court stated, “when the property was acquired by the defendant in 1976,
there was already a plan in place to install the road on the property at issue
. . .. The road extension had been part of the city’s planning documents since
1969. . . . [¶] . . . [¶] So except for a period from 2012 to 2014, there has
never been a time that the defendant has owned this property where there
has been an expectation that it would be able to be entitled and developed.”
Further, the court found that the “exact shape” of the property was dictated
by the planned road extension.
We do not conclude the project effect rule has no impact here, nor that
Woolstenhulme directly governs the outcome. Rather, the project effect rule
dictates that defendants’ property should be valued in its existing state—i.e.,
unentitled, residentially zoned land—rather than its future use as a roadway.
But the value of the property should not be assessed using a more valuable,
alternate use, based on the asserted, reasonable probability that it could have
11 As defendants did not seek to develop the property between 1998 and
2007 (a period where there was considerably more uncertainty about the
probability of the road project (see ante, pt. I.B.)), we need not consider
whether a different result would have been obtained in that timeframe.
Furthermore, while defendants may dispute the legal significance of the City
having included the road extension in the general plan since as early as 1969,
defendants have not, as a factual matter, challenged Garcia’s statement that
he was advised of the road extension at the time of purchasing the property
and did not expect to build on that portion of the property.
22
obtained entitlements to residential development, after its probable inclusion
in the project sometime prior to defendants’ purchase of the property in 1976.
The trial court’s finding that the property’s probable inclusion in the
road project predated defendants’ purchase of the property, and that
defendants purchased it with no expectation of being able to develop the
portion identified for the future road extension, is supported by substantial
evidence. The evidence that defendants understood, upon acquiring the
property and surrounding parcels, that the City intended to acquire the
property for public use, considered together with evidence of the City’s efforts
at several junctures to initiate the road extension project, all support the trial
court’s conclusion. While defendants take issue in supplemental briefing
with the court’s implied finding on this issue, “ ‘the power of an appellate
court begins and ends with the determination as to whether, on the entire
record, there is substantial evidence, contradicted or uncontradicted, which
will support the determination.’ ” (Shaw v. County of Santa Cruz (2008) 170
Cal.App.4th 229, 278.)
Furthermore, while defendants in supplemental briefing request that
this court remand the matter to the trial court for explicit factfinding on the
date of probable inclusion, they offer no alternative account for the relevance
of the trial court’s finding that “there has never been a time that the
defendant has owned this property where there has been an expectation that
it would be able to be entitled and developed.”
Moreover, the court’s determination that the measure of fair
compensation under the circumstances makes it appropriate to consider
defendants’ reasonable expectation for the property comes within the court’s
“ ‘ “ ‘ “considerable judicial discretion in admitting or rejecting evidence of
23
value.” ’ ” ’ ” (Barratt, supra, 128 Cal.App.4th at p. 936.) We therefore reject
the first step in defendants’ attack on the trial court’s ruling.
We also are not persuaded—even assuming the trial court erred in its
application of the project effect rule—that the court erred in excluding
evidence of reasonable probability of obtaining development entitlements
because there is an independent ground for that determination Defendants’
theory of value is that but for the road extension, it is reasonably probable
they would have obtained entitlements in the form of building allocations and
subsequent approval of a tentative subdivision map for the property as of the
date of value. Defendants acknowledge that their position (based on events
prior to the date of value) does not find direct support in any published cases
and is contrary to the relevant pattern jury instruction. (See California Civil
Jury Instruction (CACI) No. 3503.) CACI No. 3503 states, “A determination
of the property’s highest and best use is not necessarily limited by current
zoning or land use restrictions. If you decide that as of [insert date of
valuation] there was a reasonable probability of a change in zoning or other
use restrictions in the near future, then you must determine the highest and
best use of the property based on that change.” (Ibid., italics added.)
The California Supreme Court’s articulation of reasonable probability
in the context of fair market value is also forward looking. In Campus
Crusade, the court reaffirmed that “ ‘[w]here due to zoning restrictions the
condemned property is not presently available for use to which it is otherwise
geographically and economically adaptable, the condemnee is entitled to
show a reasonable probability of a zoning change in the near future and thus
to establish such use as the highest and best use of the property.’ ” (Campus
Crusade, supra, 41 Cal.4th at p. 967; see also San Diego Gas & Electric Co. v.
Schmidt (2014) 228 Cal.App.4th 1280, 1289 (Schmidt) [defining “highest and
24
best use” of the condemned property “as ‘that use, among the possible
alternative uses, that is physically practical, legally permissible, market
supportable, and most economically feasible’ ”].)
Campus Crusade clarified the trial court’s gatekeeping role when a
property owner seeks to establish a reasonable probability of rezoning (or
other change in land use restriction) as the highest and best use: “Before
such evidence may be presented to the jury, . . . the trial court must first
determine whether there is sufficient evidence that would permit a jury to
conclude there is a reasonable probability of rezoning in the near future.
Evidence of a reasonable probability of a zoning change in the near future
‘ “must at least be in accordance with the usual minimum evidentiary
requirements, and that which is purely speculative, wholly guess work and
conjectural, is inadmissible.” ’ [Citation.] The evidence, if credited, must also
be sufficient to establish that rezoning is reasonably probable. [Citation.] If
the trial court determines that no fact finder could find a reasonable
probability of rezoning on the record presented, it may exclude all evidence
and opinions of value based on a use other than that authorized by the
existing zoning. [Citations.] If, on the other hand, the trial court determines
that there is sufficient evidence of a reasonable probability of rezoning to
warrant submitting the issue to the jury, it is for the jury, in considering the
weight to be given valuation testimony based upon a reasonable probability
of rezoning, to determine whether there was a reasonable probability of
rezoning and, if so, its effect on the market value of the property.” (Campus
Crusade, supra, 41 Cal.4th at p. 968.)
Defendants maintain that the model jury instruction and language in
case law referring to “reasonable probability of rezoning in the near future”
(Campus Crusade, supra, 41 Cal.4th at p. 968) merely reflect the factual
25
circumstances of those published cases. These cases have typically involved
owners’ attempts to show that in the absence of the taking, they could have
obtained the desired zoning or land use approvals in the near future. (See,
e.g., People ex rel Dept. of Public Works v. Graziadio (1964) 231 Cal.App.2d
525, 530 [showing that but for the project and public agency’s request to city
council to retain residential zoning, property would have been rezoned for
commercial use along with neighboring properties]; Barratt, supra, 128
Cal.App.4th at p. 928 [showing that absent the highway project, development
pressures and the city’s land use priorities would have caused the city to
remove the agricultural zoning density to permit higher density development
and address increased traffic needs].) Defendants assert that while none of
the cases addresses a scenario in which the owner sought the desired
approvals or zoning change before the condemnation action but was denied
because the request was inconsistent with the project for which the
condemnation action was later filed, neither does the law preclude
application of the reasonable probability principle to that fact pattern.
We disagree with defendants that the inquiry into highest and best use
of the condemned property may include a showing of fair market value based
on a retrospective view of reasonable probability. Highest and best use is an
inquiry into which “ ‘among the possible alternative uses, . . . is physically
practical, legally permissible, market supportable, and most economically
feasible’ ” (Schmidt, supra, 228 Cal.App.4th at p. 1289) as of the date of
valuation. In appropriate circumstances, that inquiry may extend to
evidence that there is a reasonable probability the condemned property may
be rezoned or secure a valuable change in land use restrictions in the near
26
future (Barratt, supra, 128 Cal.App.4th at pp. 933–93412; Campus Crusade,
supra, 41 Cal.4th at p. 965; Decker, supra,18 Cal.3d at p. 868), because the
probability of obtaining such a change is relevant to “the market value of the
property.” (Campus Crusade, at p. 968.)
We decline to extend the reasonable probability doctrine to the novel,
retrospective inquiry advocated by defendants. Evidence of a hypothetical,
past possibility that without the project, the property could have been
upzoned, or might have received an entitlement for development, is not
persuasive to establish fair market value as of a later date of valuation. The
statutory definition of fair market value reinforces this understanding of the
law by providing that the seller and buyer in the hypothetical transaction are
each possessed “with full knowledge of all the uses and purposes for which
the property is reasonably adaptable and available.” (§ 1263.320, subd. (a).)
This inquiry is necessarily forward looking. “ ‘A jury should consider all
those factors, including lawful legislative and administrative restrictions on
property, which a buyer would take into consideration in arriving at the fair
market value.’ ” (City of Perris, supra, 1 Cal.5th at p. 599, italics added.)
12 At oral argument, defendants’ counsel contended that the valuation
method permitted in Barratt, like that proposed by defendants here, turned
on showing a reasonable probability that “the taken property would have
been upzoned prior to the valuation date.” (Barratt, supra, 128 Cal.App.4th
at p. 923.) But whether the higher density zoning at issue in Barratt would
have occurred (absent the highway project) by or shortly after the valuation
date does not alter our conclusion. Unlike in Barratt, the valuation method
proposed by defendants does not turn on the reasonable probability of a
zoning or use change supported by land use policies and developments that
were occurring during the relevant time frame but on the speculation that
defendants would have prevailed in the 2013 competition under Measure C to
obtain the specific development entitlements they sought for the property
that year.
27
We decide that the trial court’s decision to exclude this evidence at trial
was within the reasonable scope of its discretion based on the applicable legal
principles (see Sargon, supra, 55 Cal.4th at p. 773) and, in the trial court’s
words, the “unique facts” of this case.
III. DISPOSITION
The judgment is affirmed. Respondent City of Morgan Hill is entitled
to its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)
28
______________________________________
Danner, Acting P. J.
WE CONCUR:
____________________________________
Lie, J.
____________________________________
Bromberg, J.
H052498
City of Morgan Hill v. Garcia et al.