SUPERIOR COURT OF CALIFORNIA, COUNTY OF SACRAMENTO GORDON D SCHABER COURTHOUSE MINUTE ORDER

SUPERIOR COURT OF CALIFORNIA, COUNTY OF SACRAMENTO GORDON D SCHABER COURTHOUSE MINUTE ORDER DATE: 03/20/2014 TIME: 10:25:00 AM JUDICIAL OFFICER PRESIDING: Raymond Cadei CLERK: D. Ahee REPORTER/ERM: BAILIFF/COURT ATTENDANT: CASE INIT.DATE: 01/09/2014 CASE TITLE: City of Sacramento vs. State of California CASE CATEGORY: Civil - Unlimited APPEARANCES Nature of Proceeding: Ruling on Submitted Matter (Motion for Order for Prejudgment Possession) taken under submission 3/19/2014 TENTATIVE RULING Plaintiff City of Sacramento's ("City") Motion for Order for Prejudgment Possession and for Certification of Taxes is GRANTED on condition the proof of service of the summons is filed prior to or at the hearing. Specially appearing Defendant U.S. Bank National Association, as Trustee, successor-in-interest to Bank of America National Association, as Trustee, successor by merger to LaSalle Bank National Association, as Trustee, for the Certificate Holders of Bear Stearns Commercial Mortgage Securities, Inc. Commercial Mortgage Pass-Through Certificates, Series 2002-TOP8's ("Trustee") opposes the motion. Although Defendant C-III Asset Management LLC also filed an opposition, the City has dismissed it from the complaint. The Court considered the Trustee's surreply and the City's response to the surreply. This is an eminent domain action. The City seeks an order allowing it to obtain prejudgment possession of the 600 K Street property ("Property") for a sports and events arena at which the Sacramento Kings will play ("Project"). (CCP 1255.410.) According to the City, time is of the essence. Pursuant to a non-binding term sheet with Sacramento Basketball Holdings ("SBH"), project completion is preliminarily set for September 2016. (See Declaration of John Dangberg, ("Dangberg Decl.") 9.) In order to meet this preliminary project completion date, the City asserts that it must commence demolition in May/June 2014. (Id.) Thus, it must obtain immediate possession of the Property by April 2014. (Id. 13.) The City argues that failure to obtain the Property by April 2014 will put the Project at significant risk, including allowing the NBA to acquire the Sacramento Kings and relocate the team to another City. (Id.) On January 7, 2014, the City Council adopted the Resolution of Necessity. The Trustee appeared at the hearing and objected to the Resolution of Necessity. The State of California Public Employee's Retirement System ("CalPERS") is the owner in fee of the Property, with the exception of the building, structures, and other improvements. The Trustee owns the building and is the successor lessee on a long term ground lease. The building is currently unoccupied. Pursuant to CCP 1255.410(d)(2), if the motion is opposed by a defendant or occupant within 30 days of service, the court may make an order for possession of the property upon consideration of the relevant facts and any opposition, and upon completion of a hearing on the motion, if the court finds Page 1

each of the following: (a) the plaintiff is entitled to take the property by eminent domain; (b) the plaintiff has deposited probable compensation with the state treasury; (c) there is an overriding need for the plaintiff to possess the property prior to the issuance of final judgment in the case, and the plaintiff will suffer a substantial hardship if the application for possession is denied or limited; and (d) the hardship that the plaintiff will suffer if possession is denied or limited outweighs any hardship on the defendant or occupant that would be caused by the granting of the order of possession. Entitlement to Eminent Domain The Trustee argues that the City is not entitled to eminent domain because the City has purportedly failed to comply with the statutory pre-condemnation requirements. Specifically, the Trustee argues that: (1) the City failed to make its Section 7267.2 Offer to the Trustee and any purported offer was improper and insufficient, (2) the City's Resolution of Necessity was flawed, and (3) the City failed to serve the summons on the Trustee and failed to provide 60-days' notice of the instant motion. 1. Gov't Code Section 7267.2 Offer Gov't Code 7267.2 ("Section 7267.2") provides "prior to adopting a resolution of necessity pursuant to Section 1245.230 of the Code of Civil Procedure and initiating negotiations for the acquisition of real property, the public entity shall establish an amount that it believes to be just compensation therefor, and shall make an offer to the owner or owners of record to acquire the property for the full amount so established, unless the owner cannot be located with reasonable diligence." (Gov. Code 7267.2 (emphasis added).) The Trustee first argues the City failed to make it an offer. On September 5, 2013, the City sent an offer ("Offer") to "U.S. Bank National Association, Michael Walker, Northern California President." The Trustee's counsel explains that "he is informed and believes that Mr. Walker has no connection to the Trust." (Declaration of George B. Speir ("Speir Decl."), 2.)He further states that "to my knowledge, the Trust received no direct notice from the City regarding the City's intent to adopt a Resolution of Necessity in connection with its efforts to acquire my property at 600 K Street." (Id.) Thus, according to the Trustee because the Offer was to U.S. Bank National Association, and not to U.S. Bank National Association, as Trustee, the offer was never served on the Trustee. The Court is not convinced that the City did not make a Section 7267.2 Offer to the Trustee. The Trustee's counsel's declaration does not support the fact that no offer was made. The Offer was mailed to the Trustee's counsel's at Miller Starr Regalia and the Trustee appeared at the hearing on the Resolution of Necessity objecting to the Offer on the same grounds. (Speir Decl., Ex. A; Trustee's Opp'n, at 12:28-3.) The Trustee next argues that the Offer of $4.35 million was "improper" because the City "improperly combined" the offer for the Trustee's property with an offer for CalPERS's separate property. (Trustee's Opp'n at 9-10.) The Trustee argues that the City's offer of $4.35 million was for "all interests" in the properties and therefore ran afoul of Section 7267.2. The Trustee argues that Section 7267.2 requires an offer to be made to the owner of each parcel to be condemned, and because "the Trust does not share ownership of its property with CalPERS or anyone else," the City should have made a separate offer to the Trustee. (Id.) The Trustee argues that the City had "an obligation to make an offer to each 'owner'," and that the City's offer failed to make an offer to the Trustee "for the property that it owns, by itself, in fee simple." (Surreply at 4-5.) The Trustee argues that the City's "combined offer to the Trustee and CalPERS, for their separate ownership interests, cannot be accepted by either party, and therefore Page 2

does not comply with Government Code section 7267.2." (Id. at 5.) In arguing that the City's lump-sum offer rendered the City's offer "improper" (Trustee's Opp'n at 9-10), the Trustee cites to two cases, City of San Jose v. Great Oaks Water Co. (1987) 192 Cal.App.3d 1005, 1011 and People By And Through Dept. of Public Works v. Lynbar, Inc. (1967) 253 Cal.App.2d 870, 875. While these authorities confirm that each owner is entitled to "just compensation," they do not state that an "offer" made pursuant to Government Code 7267.2 is rendered "improper" if it offers one lump-sum amount for an entire property to several different owners. The Trustee also cites Code of Civil Procedure 1260.220(a), which governs "Procedures Relating to Determination of Compensation" and provides that the value of each property interest must be "separately assessed and compensation awarded therefore." (Trustee's Opp'n at 9-10.) Like the cases of City of San Jose and Lynbar, however, Code of Civil Procedure 1260.220(a) requires each property interest to be separately valued in determining the amounts of compensation to ultimately be paid to each owner of taken property; it does not address whether or when an offer will be proper under Section 7267.2. Here, the Offer complied with the plain text of Section 7267.2. It included "an offer" to the "owners of record" for what the City believed to be the "full amount" of "just compensation" for the "real property" to be acquired. (Gov. Code 7267.2(a)(1).) While the City's lump-sum offer expressly did not separately value each distinct interest in the property, the Trustee has not shown that this renders the offer "improper" under Section 7267.2. Likewise, while the Offer described the lump-sum offer as being "based upon the 'undivided fee rule,'" the Trustee has not shown that the City's reference to this "rule" renders the offer improper under Section 7267.2, or that such reference means that the property owners' "just compensation" will ultimately be calculated pursuant to such a rule. The Offer also included a written summary of how the City calculated its lump sum offer (i.e., by valuing each of the various property interests at issue) in compliance with Section 7267.2(b), and invited the owners to continue the "negotiation process" regarding the purchase of the property. The Trustee has not shown that the City's "offer fails to comply with Section 7267.2." Lastly, to the extent the Trustee objects to the Offer and valuation, because the matter will proceed to trial, the issue of just compensation may be adjudicated at that time. 2. Resolution of Necessity CCP 1245.230 provides that a Resolution of Necessity must contain the following: (a) A general statement of the public use for which the property is to be taken and a reference to the statute that authorizes the public entity to acquire the property by eminent domain. (b) A description of the general location and extent of the property to be taken, with sufficient detail for reasonable identification. (c) A declaration that the governing body of the public entity has found and determined each of the following: (1) The public interest and necessity require the proposed project. (2) The proposed project is planned or located in the manner that will be most compatible with the greatest public good and the least private injury. (3) The property described in the resolution is necessary for the proposed project. Page 3

(4) That either the offer required by Section 7267.2 of the Government Code has been made to the owner or owners of record, or the offer has not been made because the owner cannot be located with reasonable diligence. (CCP 1245.230 [emphasis added].) "Except as otherwise provided by statute, a resolution of necessity adopted by the governing body of the public entity pursuant to this article conclusively establishes the matters referred to in Section 1240.030." ( 1245.250, subd. (a), italics added.) But "[a] resolution of necessity does not have the effect prescribed in Section 1245.250 to the extent that its adoption or contents were influenced or affected by gross abuse of discretion by the governing body." ( 1245.255, subd.(b).)" (Council of San Benito County Governments v. Hollister Inn, Inc. (2012) 209 Cal. App. 4th 473, 485 [emphasis added.]) "A gross abuse of discretion may be established by showing that adoption of a resolution of necessity by the governing board of a public entity was arbitrary, capricious, or entirely lacking in evidentiary support, the governing body failed to follow the mandated procedure, or the governing body was irrevocably committed to taking the property regardless of the evidence presented at the resolution of necessity hearing." (Id.) The property owner asserting objections to the agency's right to take has the burden of establishing, by substantial evidence, that the resolution of necessity was adopted in an invalid manner, and because of a gross abuse of discretion is not entitled to its ordinary conclusive effect; if it does so, then the burden of proving the elements for a particular taking must rest on the agency to do so by the preponderance of the evidence. (Redevelopment Agency v. Norm's Slauson (1985) 173 Cal. App. 3rd 1121, 1127-28.) The Trustee first argues that the Resolution of Necessity ("RON") was flawed because the City did not make a Section 7267.2 Offer to the Trustee. The Court disagrees. As noted above, the Court is not convinced that the City did not make a Section 7267.2 Offer on the Trustee. The Trustee further argues that the RON was flawed because it did not identify or seek to take the building or any property of the Trustee's because it only identifies CalPERS as the owner. Moreover, although the RON authorizes the City to take "the real property more particularly described in Exhibit A" and Exhibit B to the RON, the legal description specifically excludes "the building, structures, and other improvements located thereon." The Complaint also incorporates the same Exhibit A and Exhibit B. Thus, according to the Trustee, the City is only seeking to take CalPERS' interest in the land. The Court disagrees with the Trustee. CCP 1245.230 does not require that the RON identify all the owners of the property. Rather, it requires a declaration by the City Council that is has found and determined "that either the offer required by Section 7267.2 of the Government Code has been made to the owner or owners of record, or the offer has not been made because the owner cannot be located with reasonable diligence." (CCP 1245.230(c)(4).) Here, the RON includes such a finding. (Speir Decl. Ex. A.) Additionally, the RON states that the City seeks to acquire "fee simple title in the property located at 600 K. Street, Sacramento, California, as more particularly described in Exhibit 'A' and Exhibit 'B'." (Id.) This is sufficient to satisfy the requirements of CCP 1245.230(b). The Court also disagrees with the Trustee that the City is only seeking to take CalPERS' interest in the land, and not the Trustee's building or structures. Here, the Staff Report accompanying the RON states that "the property interests to be acquired include fee simple title in and to the subject property at 600 K Street Sacramento, California.... the City's proposed acquisition of the property will include fee title in and to the property, including any and all leases, improvements or other encumbrances on the property." The Complaint also states that "the real property or interests in real property which CITY is authorized to Page 4

acquire are identified as fee interests in and to property located at 600 K Street in the city of Sacramento and County of Sacramento, State of California, together with all improvements situated thereon and together with all rights appurtenant thereto." The Trustee is also fully aware of and has fought the City's attempt to take the building and structures. Moreover, such technical issues may be grounds for a demurrer or to challenge the valuation of the Property, but do not affect the standard for a Resolution of Necessity. Given the above, the Trustee has failed to satisfy its burden of establishing, by substantial evidence, that the City Council's adoption of the RON "was arbitrary, capricious, or entirely lacking in evidentiary support, the governing body failed to follow the mandated procedure, or the governing body was irrevocably committed to taking the property regardless of the evidence presented at the resolution of necessity hearing." (Council of San Benito County Governments, supra, 209 Cal. App. 4th at 485.) 3. Summons and Notice of Motion The Court has directed the City to re-serve the Trustee with a code-compliant summons. Moreover, given that the Trustee has opposed the instant motion on the merits, the Trustee has waived any defects or irregularities in the notice of motion. "This rule applies even when no notice was given at all." (Reedy v. Bussell (2007) 148 Cal.App.4th 1272, 1288 [internal citations and quotations omitted].) Additionally, the Trustee has not identified any prejudice based on improper notice. (Id.) Neither will failure to give notice deprive the Trustee of its rights to procedural due process because the Trustee has an opportunity to be heard, and is opposing, the City's motion. (See Israniv. Superior Court (2001) 88 Cal.App.4th 621, 633.) Given all of the above, the Court finds that the City is entitled to take the property by eminent domain. Deposit of Probable Compensation The City has deposited $4,350,000, the amount determined by the appraiser as the fair market value of the Property with the State Treasury Condemnation Deposits Fund. Overriding Need for Pre-Judgment Possession There is an overriding need for the City to possess the property prior to the issuance of final judgment in the case, and the City will suffer a substantial hardship if the application for possession is denied or limited. The Trustee does not dispute the City's overriding need. Nor is it disputed that, if the construction deadlines are not met, the Project will be placed in significant risk, including allowing the NBA to acquire the Sacramento Kings and relocate the team to another City. Balancing of the Harms The hardship that the City will suffer if possession is denied or limited outweighs any hardship on the Trustee would be caused by the granting of the order of possession. The Property is currently unoccupied. Therefore, there is no substantial hardship to the condemnee. Additionally, the Trustee's opposition fails to specify any hardship that it will suffer. Certification of Taxes The request for order for certification of taxes (CCP 1260.250) is GRANTED. The Court will sign the orders submitted. Page 5

COURT RULING The matter was argued and submitted. The matter was taken under submission. SUBMITTED MATTER RULING The matter was argued and submitted. additional comments. The Court AFFIRMS the tentative ruling with the following At oral argument, the Trustee argued that the RON specifically excluded the building, structure, and improvements. The Trustee conceded, however, that the RON included its leasehold interest. The Trustee argued that the City has not approved the taking of the building, structure and improvements. The Trustee argued that the RON is to be strictly construed and the Staff Report accompanying the RON is not relevant. The Trustee, however, did not support its argument with legal authority. "The resolution of necessity is a legislative act." (Santa Cruz County Redevelopment Agency v. Izant (1995) 37 Cal. App. 4th 141, 150.) "The interpretation of local ordinances and resolutions is subject to ordinary rules of statutory construction." (County of Humboldt v. Robert v. McKee (2008) 165 Cal.App.4 th 1476, 1489.) The Court first begins by examining the language, giving the words their usual and ordinary meaning. (Id. at 1490.) If the words are ambiguous, the Court may look to extrinsic sources. (Id.) In such cases, the Court "selects the construction that comports most closely with the apparent intent of the Legislature, with a view to promoting rather than defeating the general purpose of the statute, and avoid an interpretation that would lead to absurd consequences." (Id.) Here, the RON authorizes the City to take "the real property more particularly described in Exhibit A" and "Exhibit B" to the RON, the legal description in Exhibit A specifically excludes "the building, structures, and other improvements located thereon." The RON also provides that the City seeks to acquire "fee simple title in the property located at 600 K. Street, Sacramento, California..." "A conveyance of fee simple includes all appurtenances, including water rights, the right to extract oil and gas and minerals, the airspace over the land, standing timber, unharvested and unsevered crops, fixtures and appurtenant easements." (3 Miller & Starr, Cal. Real Estate (3d ed. 2011), 9:3.) Given that Exhibit A excludes the building, structures and improvements, but the acquisition of the Property in "fee simple" includes all appurtenances and fixtures, the Court finds that the RON is ambiguous as to whether it excludes or includes the Trustee's building, structures and improvements. Thus, the Court may look to extrinsic evidence, such as the Staff Report accompanying the RON. The Staff Report accompanying the RON states that "the property interests to be acquired include fee simple title in and to the subject property at 600 K Street Sacramento, California.... the City's proposed acquisition of the property will include fee title in and to the property, including any and all leases, improvements or other encumbrances on the property." Moreover, the purpose of the RON is to acquire the Property to build an entertainment and sports arena. Inclusion of the building and improvements in the RON "comports most closely" with the intent of the RON and promotes the general purpose of the RON. (County of Humboldt, supra, 165 Cal.App.4th at 1490.) Taking the Staff Report into consideration, the Court concludes that the RON intended to include the Trustee's building, structures and improvements. Page 6

Moreover, as noted above, the Trustee conceded that the RON includes its leasehold interest, thus, the City authorized the taking of the leasehold interest. "A lease grants the exclusive possession and use of the property to the tenant against the world, including the owner, for a consideration, for a term that endures for a definite and ascertained period... with a reversion to the owner at the end of the term." (7 Miller & Starr, Cal. Real Estate (3d ed. 2004), 19.1.) The Trustee failed to explain how it would continue to have a right to occupy property with a structure despite the loss of its leasehold interest which vitiated its right to be on the land owned by CalPERS. Regardless, based on the above analysis, the Court has concluded that the building, structures and improvements were encompassed by the RON. Lastly, at oral argument, the Trustee proffered two cases which it had not previously cited to in its briefs: Marblehead Land Company v. Superior Court (1923) 61 Cal.App.777 and Weiler v. Superior Court (1922) 188 Cal.729. These cases are not dispositive on the issues before the Court. The Court finds that the City has demonstrated that it is entitled to eminent domain. (SB 743; Gov't Code 37501). The purported flaws with the Offer and RON do not affect the City's entitlement to eminent domain. Indeed, in order to invalidate the RON, the objecting party must show that the adoption was influenced or affected by gross abuse of discretion by the governing body." ( 1245.255, subd.(b).)" (Council of San Benito County Governments v. Hollister Inn, Inc. (2012) 209 Cal. App. 4th 473, 485]) The Court did not consider the City's post-hearing brief as it was not permitted by the Court. Given the ambiguity referenced above in relation to "Exhibit A", the City is directed to submit a modified Order for Prejudgment Possession pursuant to CRC Rule 3.1312. The modified order shall specifically states that it is also taking the building, improvements and structures on the property. The City is also directed to re-submit the Order for Certification of Taxes pursuant to CRC Rule 3.1312. Page 7