People of the State of California v. Metropolitan Properties Trust, et al, San Diego Superior Court Case no. GIC 862021 – $8.5M

Condemnation & Eminent Domain

Case Summary:

A condemnation case against CalTrans involving just compensation and damages to property that diminished its fair market value. Lead attorney Vincent J. Bartolotta, Jr with senior associate Karen R. Frostrom.

Plaintiff’s Technical Expert Witnesses:
Gilbert F. Kunkel, MAI, Anderson & Brabant, Inc., 353 W. Ninth Avenue, Escondido, CA 92025
Anthony G. Ambrose, A.I.C.P., Burkett & Wong, 3434 Fourth Avenue, San Diego, CA 92103
William Templeton, RCE, Burkett & Wong, 3434 Fourth Avenue, San Diego, CA 92103

Defendant’s Technical Expert Witnesses:
Albert A. Schlarmann, Appraisal Research Company, 257 North First Street, Suite 7, San Jose, CA 95113
Jonathan Segal, FAIA, 1165 19th Street, San Diego, CA 92101
Patrick Kennedy, LECG, 655 West Broadway, Suite 1300, San Diego, CA 92101
Michael Pallamary, Pallamary & Associates, 7755 Fay Avenue, La Jolla, CA 92037

Defendant Insurance: Not aware of any

Facts and Background:

The Metropolitan Properties Shareholders Trust is a group of individuals (over one hundred) who have been investing in San Diego real estate since the 1950s. Previously, they held title to property throughout the County. As the group has aged, however, they have divested most of their assets and have attempted to completely liquidate those assets. The subject parcel — in Otay Mesa, was the last parcel they owned. It is very close to the Otay Mesa border crossing and is very level and usable. However, this threatened condemnation prevented them from selling the land at issue – and also from putting it to profitable use – for the past 20 years. The owners listed the parcel for sale unsuccessfully over the years and even sold all of the surrounding land in irregular parcels, at a discount, because no one wished to purchase the section within the potential right of way. Paul Nation is the trustee of the trust.

The Caltrans project to develop the 905 across Otay Mesa has been “in the works” in this area for about 20 years. During that time, the City of San Diego has openly declined to grant permits for any development in the right of way. The Trust diligently tried to sell the property at issue but simply could not do so given the blight that the inability to develop visited on this property. In the early 1990s, the Trust managed to get this property into escrow. The buyer, however, failed to follow through on the purchase and the Trust was left with no choice but to foreclose and take the property back. No other buyers have come forward since that time. The Trust also engaged in discussions with the City and Caltrans about developing the property but Caltrans told the Trust that it could never get development permits — a promise that became the reality. Given the property’s location and proximity to the border, it could easily and inexpensively been converted into a truck parking lot. The City’s deal with Caltrans, however, prevented that development and caused the Trust to lose a significant amount of rental income during those 20 years. The Trust claimed damages related to its inability to use its property, which damages are recoverable under Klopping v. City of Whittier, 8 Cal.3d 49 (1972).

Caltrans finally filed this condemnation action in March 2006. In so doing, it took immediate possession and deposited an estimate of just compensation in the amount of $4.586 million. The parcel taken is about 26 acres in size. The Trust’s expert appraiser, Al Schlarmann, testified that the highest and best use is “urban village.” Caltrans used a highest and best use of industrial. While Caltrans’ appraisal considers the current zoning, it fails to consider the most likely future zoning of urban village. The City is currently revising its general plan and recently released the final draft of the plan. Therein, the plan focuses on the “City of Villages.” The concept involves many small enclaves where residential, commercial, and industrial are clustered into small communities to prevent long commutes. While this planning is happening at the City level, the Otay Mesa area is also currently revising its specific plan. That specific plan incorporates the urban village concepts of the general plan. There are currently three potential specific plans under consideration. Two of the three envision the area in which this parcel is located as an “urban village” zoning. Mr. Schlarmann therefore concluded that the most likely zoning for this property would be “urban village,” which roughly equates to mixed use under the current zoning scheme. Using that zoning, he opined that the property should be valued at $9.3 million.

The Caltrans appraiser initially valued the property at $4.568 million. Recently, however, the parties exchanged statements of valuation. In that valuation, the newly retained appraiser valued the property at $7 million. At mediation, the parties agreed to a settlement of $8.5 million.

Plaintiff’s Contentions, Allegations:
Plaintiff contended a right to condemn the property for a freeway right of way. It also contended that Defendant was not entitled to pre-condemnation damages because, if anyone, it was the City as opposed to Caltrans who prevented development.

Injuries and/or Damages:
The property owners claimed a loss of $9.3 million plus pre-condemnation lost revenues. Caltrans claims a value of $4.586 million.

The property owner defendants contended that Caltrans’s valuation was too low and that it also failed to account for pre-condemnation damages.

Settlement Amounts: Settled for $8.5 million

Verdict or Award: Settlement

Length of Trial: Four hour mediation.

Attorney for Client:
Bruce A. Behrens, Chief Counsel
Jeffrey R. Benowitz, Assistant Chief Counsel
Julie A. Jordan, Deputy Attorney (CBN 156982)
State of California, Department of Transportation, 4050 Taylor Street, MS 130, San Diego, CA 92110, 619-688-2531

Attorney for Defendant: Vincent J. Bartolotta, Jr and Karen Frostrom

Individual Defendants: Metropolitan Properties Trust, Paul Nation, Trustee

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