The value of property being taken by eminent domain cannot be based on the property's zoning if the same entity that is taking the property also imposed the zoning, the Fourth District Court of Appeal has ruled. The court held that San Diego County Superior Court Judge Sheridan Reed was correct to prevent the jury from considering restrictive zoning on property that the City of San Diego took for a freeway. Instead, the jury based its decision on testimony from the property owners' experts, who presented values based on the property being rezoned like similar, nearby land. "[T]he city ignores established law that a condemned property is to be valued as if the project for which the land is taken did not exist," Justice Gilbert Nares wrote for the unanimous three-judge panel. "[T]he city cannot enact restrictions on property it seeks to condemn for the express purpose of preventing development and thereby freeze or depress property values, and then attempt to show that that same zoning restriction prevents a highest and best use inconsistent with its terms. Such a position is contrary to eminent domain law." The case stemmed from the construction of Highway 56, an east-west route connecting Interstate 5 and I-15 in northern San Diego. The freeway has been under consideration since 1959 and has been part of the city's circulation element since 1965. The freeway was proposed to run through the 12,000-acre "North City Future Urbanizing Area," which the city had zoned for agriculture, permitting only one dwelling unit per 10 acres to prevent leapfrog growth. In 1992, the city adopted a framework plan for the future development of the area, and, in 1996, voters supported the city's decision to rezone a portion of the area to allow development of up to 10 units per acre once the exact route of Highway 56 was selected. In the meantime, the city maintained the 10-acre zoning to prevent development that might conflict with the final freeway alignment. In June 1998, the city approved the final alignment; Caltrans did the same the following year. In September 1999, the city filed an eminent domain lawsuit against Rancho Penasquitos Partnership. The city sought to take 11 acres of the partnership's 108-acre parcel. The city offered $1.3 million, based on the property's agricultural, 10-acre zoning. The landowner set the value at $3.8 million based on a higher development potential and requested $4.6 million to offset damages to the remaining property. During the trial, the city and the landowner differed over what evidence the jury should consider. Judge Reed sided with the landowner, and the jury awarded the property owner $3.9 million — $2.9 million for the 11 acres, and $1 million for damage to the remaining property. The city appealed on a number of grounds, but the main argument was about what evidence the judge should have allowed. Essentially, the city contended that the agricultural zoning had to be considered, while the landowner said other properties' recent upzonings to permit residential development should be the basis for the valuation. The Fourth District ruled that the landowner — and the trial judge — were right. The court relied heavily on People ex rel. Dept. Pub. Wks. v. Southern Pac Trans. Co., (1973) 33 Cal.App.3d 960, which analyzed a situation where the condemning authority and the entity responsible for zoning were the same. The San Diego zoning, the court ruled, "falls squarely under the rule set forth in Southern Pacific that evidence of a zoning restriction is inadmissible to show a lower value to the condemned property where (1) the restriction is imposed to freeze or depress the value of land that a government agency seeks to condemn, and (2) the same entity is both the condemner and the authority responsible for that restriction." The city argued that it had acted in good faith, and that its zoning was a valid exercise of the police power, was "good planning," and was the proper designation of land for future acquisition. But none of that was a good enough defense for the court. "[T]he terms of the [zoning] restrictions state clearly that they were designed to prevent development on land that might later be condemned," Justice Nares wrote. "City was attempting to prevent development on properties it intended to condemn in order to freeze or depress values. Indeed, the city offers no other explanation for the zoning restriction." The court also pointed to Code of Civil Procedure §1263.330, which prevents the use of "preliminary actions of the plaintiff relating to the taking of the property" in determining fair market value. The city contended the zoning was not a preliminary action because the zoning was in place years before the final alignment was decided. But the court did not buy the argument. All of the city's actions were leading to the freeway project. The Case: City of San Diego v. Rancho Penasquitos Partnership, No. D038316, 03 C.D.O.S. 942. Filed January 30, 2003. The Lawyers: For the city: David Skinner, Meyers, Nave, Riback, Silver & Wilson, (510) 351-4300. For Rancho Penasquitos Partnership: Jeffrey Oderman, Rutan & Tucker, (714) 641-5100.