Estate of Witlin (1978)

Estate of BERNARD J. WITLIN, Deceased. ELSIE E. WITLIN, as Executrix, etc., Plaintiff and Appellant, v. RIO HONDO ASSOCIATES et al., Defendants and Appellants.

(Opinion by Cobey, J., with Allport, J., and Potter, Acting P,J., concurring.)

COUNSEL

Hillel Chodos for Plaintiff and Appellant.

Ervin, Cohen & Jessup, Allan Browne, Allan B. Cooper and Allan Gabriel for Defendants and Appellants.

OPINION

COBEY, J.

Defendants, Rio Hondo Associates, an approximately 45-member partnership composed largely of doctors, which owns a successful hospital in Downey, California, and generally those doctors, appeal from a judgment against them entered upon a jury verdict of compensatory damages in the principal sum of $208,869.14 and from an order denying their motion for judgment notwithstanding the verdict. Plaintiff, Elsie E. Witlin, as executrix of the estate of her late husband, Dr. Bernard J. Witlin, cross-appeals from the same judgment insofar as it fails to award her any punitive damages.

The basic issue presented by the appeal is whether appellants, in purchasing Dr. Witlin's interest in the partnership for $65,288.40, violated their fiduciary duty to plaintiff of full disclosure. Under the partnership agreement defendants were obligated to pay to plaintiff the fair market value of Dr. Witlin's partnership interest as determined in good faith by the partnership's management committee. This committee fixed the buy-out price of Dr. Witlin's interest on the basis of a certain executory [83 Cal. App. 3d 171] agreement between the partnership and three doctors entered into in the spring of 1971. This price of $24,600 per percentage point was substantially below the $83,905.62 per percentage point that the partnership realized in June 1972, when it sold its assets to Hospital Corporation of America. The jury's challenged award of $208,869.14 in compensatory damages to plaintiff reflects exactly the June 1972 selling price.

This case was improperly tried. The trial court never seemed to realize that the basic issue to be resolved was the state of mind of the management committee regarding the fair market value of the partnership during the period they were engaged in purchasing Dr. Witlin's partnership interest--that is, from September 21, 1971, to February 8, 1972. Stated otherwise, did the $65,288.40 they offered Mrs. Witlin represent in truth and fact their good faith determination of the fair market value of Dr. Witlin's partnership interest. To resolve this good faith issue properly, the jury should have been informed regarding the exact basis of the valuation offered Mrs. Witlin--namely, the $65,288.40--and of any representations made by the management committee regarding the fair market value of the partnership to at least two of the three conglomerates to which it attempted to sell the partnership between 1969 and June of 1972.

Facts

On July 4, 1971, Dr. Bernard J. Witlin died. At the time of his death he was a partner in a partnership known as Rio Hondo Associates. The principal asset of this partnership was the Rio Hondo Hospital in Downey. fn. 1

By letter dated September 21, 1971, the management committee of the partnership timely notified plaintiff, as executrix of her late husband's estate, that the partnership was exercising its option under article 16 of the partnership agreement to purchase Dr. Witlin's 2.654 percent partnership interest for $65,288.40 ($24,600 per percentage point) and noted that this price was in excess of the article 16 price of $42,565.30 that the partnership was purportedly obligated to pay. The letter further informed plaintiff that the offered price per percentage point was that established in an executory agreement between certain doctors and the partnership for the sale to them of a minor interest in the partnership in [83 Cal. App. 3d 172] the spring of 1971. Enclosed with this letter were an evaluation of the partnership and a statement of the various partnership interests, including that of Dr. Witlin, all as of August 31, 1971.

Upon receipt of this letter and its enclosures plaintiff went to see her probate attorney, Bill Gene King, for advice as to whether she should accept the offer. King commenced at once an investigation of the offer's propriety. He ascertained that under article 16 of the partnership agreement the management committee of the partnership was required to make a good faith determination of the fair market value of the equity of all of the partners in the partnership as of the last day of the partnership's fiscal year (this was the calendar year), and then to apportion to each partner his proportionate share of that equity. The overall equity figure was, however, to be adjusted for profits and losses and capital changes occurring after the end of the fiscal year through the last month preceding the month of the offer.

By letter dated September 30, 1971, King informed the management committee that Dr. Witlin had valued his partnership interest at $86,000 shortly before his death and inquired as to the method the committee had used in valuing that interest. King also requested recent appraisals of the physical assets, the most recent balance sheets and the latest county property tax bills.

The general counsel of the partnership replied to this letter of inquiry on or about October 25, 1971. He reiterated that the determination of the value of the partnership had been made in accordance with article 16 but that the partnership had decided to use the higher figure resulting from a bona fide arms-length negotiation between the partnership and several doctors seeking to acquire an interest in the partnership "for its good faith determination" of the value of Dr. Witlin's partnership interest. He enclosed balance sheets of the partnership and the hospital, dated respectively August 31, 1971 and July 31, 1971, and the most recent county tax bills.

From this data King determined a straight book value of the partnership of approximately $1 million and added thereto an estimated appreciation in physical assets of another $1 million as reflected in the county tax bills. He thereupon recommended to his client, Mrs. Witlin, acceptance of the partnership offer of $24,600 per percentage point since his corresponding figure was roughly $20,000 per percentage point.

No one from, or representing, the partnership ever mentioned to King the possibility that the partnership might sell its hospital and related [83 Cal. App. 3d 173] assets. Mrs. Witlin, on the recommendation of her attorney, thereupon accepted the management committee's offer. The mechanics, though, of obtaining the necessary authorizations from the probate court and the commissioner of corporations took several months and it was not until February 8, 1972, that this sale of the partnership was consummated through an exchange of a cashier's check and an executed assignment and receipt.

Meanwhile, some two months earlier on December 10, 1971, the management committee commenced negotiations with Hospital Corporation of America for the sale of all of the partnership's assets to that corporation. These negotiations continued unabated until June 21, 1972, when the parties to them executed an agreement of sale. Under this agreement Hospital Corporation of America paid in cash, through an escrow of its shares, to the partners of the partnership, $8,390,562, or roughly $83,906 per percentage point of partnership interest.

Discussion

1. The Evidence of the Fair Market Value of the Partnership Adjusted to August 31, 1971

[1] Appellants contend that the only evidence in the record before us of the fair market value of the partnership adjusted to August 31, 1971, was the $16,038 per percentage point referred to in the option-exercise letter of September 21, 1971, the $24,600 corresponding figure actually offered by the partnership and accepted by Mrs. Witlin, and the about $32,403.92 value per percentage point estimated by Dr. Witlin himself. They dismissed the $83,906 per percentage point derived from the June 21, 1972 sale of the partnership as being too remote in time.

This contention of appellants involves several errors. First, it confuses the issue before us. This issue, as previously noted, is whether the $24,600 figure offered by the management committee to Mrs. Witlin actually represents their good faith determination of the fair market value of the partnership adjusted to August 31, 1971. Since the committee at this time chose not to offer Mrs. Witlin the $16,038 figure, its validity in the respect just mentioned is not directly before us. fn. 2 [83 Cal. App. 3d 174]

Secondly, the sale figure of June 21, 1972, is not too remote in time to constitute solid evidence of the fair market value of the partnership about 10 months previously. Dr. Kaplan, a member of the management committee from 1966 through 1971, testified in effect that there was no change of any significance in the fair market value of the partnership between the time of Dr. Witlin's death and the date of the sale of the partnership to Hospital Corporation of America in June 1972.

Under these circumstances the jury quite properly considered this sale price in determining the fair market value of the partnership adjusted to August 31, 1971. fn. 3 A sale of the partnership made within a reasonable time after the requisite date of valuation (Aug. 31, 1971) is a proper comparable sale. (Cf. Evid. Code, § 815; see County of Los Angeles v. Hoe (1955) 138 Cal. App. 2d 74, 79-80 [291 P.2d 98], overruled on other grounds; Merced Irrigation Dist. v. Woolstenhulme (1971) 4 Cal. 3d 478, 495 [93 Cal. Rptr. 833, 483 P.2d 1]; 1 Orgel, Valuation Under the Law of Eminent Domain (2d ed. 1953) § 139, pp. 590-591; 5 Nichols on Eminent Domain (3d ed. 1975) § 21.31[2], pp. 21-72, 21-73.)

The jury was also correct in rejecting the $16,038 figure. It is true that the management committee had used this adjusted book value approach to fair market value previously in the partnership's purchases from two widows of their deceased husbands' partnership interests, and that the committee did develop for the partnership a formula for uniform valuation of the partnership and the partners respective interests therein from 1966 through August 31, 1971. This formula included retained earnings and accumulated depreciation.

[2] But a determination of the fair market value of the partnership, made in accordance with such a formula, cannot be regarded as a good faith determination of such value because, being purely a book valuation, it does not include anything for goodwill or the going business value of a successful business. As said many years ago by Judge Swan of the Second Circuit "[a] going business has a value over and above the aggregate value of the tangible property employed in it." (Italics added.) (Haberle Crystal Springs Brewing Co. v. Clarke (2d Cir. 1929) 30 F.2d 219, 221, revd. on other grounds 280 U.S. 384 [74 L. Ed. 498, 50 S. Ct. 155]; see Note, Good Will (1953) 53 Colum.L.Rev. 661, 677.) The goodwill of a successful established business represents the expectation of continued patronage of it by the public. (See Bus. & Prof. Code, § 14100.) Such goodwill is an indispensable element of the fair market value of such a business. [83 Cal. App. 3d 175]

[4] The jury had to decide between two proffered fair market values--$24,600 and $83,906 per percentage point. The trial court improperly refused to allow evidentiary inquiry into the exact bases for these prices so that the jury could properly determine whether either or both were truly market prices--that is, the products solely of market considerations. fn. 4 Since appellants were the ones, however, who by their objections blocked this inquiry, the trial court's errors in this respect were invited by them and they may not profit therefrom. (Watenpaugh v. State Teachers' Retirement (1959) 51 Cal. 2d 675, 680 [336 P.2d 165].)

2. [5] Appellants Breached Their Fiduciary Duty to Plaintiff by Failing to Make to Her a Full and Fair Disclosure of All Matters Substantially Affecting the Fair Market Value of the Partnership Then Known to Them

Appellants owed such a duty to plaintiff as the widow and executrix of their deceased partner in purchasing from her their deceased partner's interest in the partnership. (See Corp. Code, § 15020.) Throughout the transaction they were bound to act toward her "in the highest good faith" and they were forbidden to obtain any advantage over her in the matter by, among other things, the slightest concealment. fn. 5 (See Civ. Code, § 2228; Vai v. Bank of America (1961) 56 Cal. 2d 329, 349-350 [15 Cal. Rptr. 71, 364 P.2d 247].) Yet the management committee never revealed to plaintiff or her representative, King, that the basic value in their formula for determining the fair market value of the partnership was book value alone. fn. 6 Likewise, as already noted, the management committee did not mention to King the possibility that the hospital might be shortly sold. fn. 7 [83 Cal. App. 3d 176]

This possibility of sale was quite real. It appears from plaintiff's improperly rejected offers of proof that the management committee reached in 1969 a tentative agreement with General Health Services to sell the partnership's assets to it for approximately $60,000 a percentage point, that between April and September 28, 1971, the management committee and the American Cyanamid Corporation were discussing a sale of the partnership to it for at least $93,000 a percentage point, and, as already noted from the evidence itself, that the partnership's assets were finally sold in June 1972 to Hospital Corporation of America for about $84,000 a percentage point.

The management committee knew all of this, but they apparently never breathed a word of it to either plaintiff or her attorney. It seems that in discussing the fair market value of the partnership they talked out of both sides of their mouths. They talked to plaintiff and her attorney in terms of $16,000 and $24,600 per percentage point while they were more or less simultaneously talking to conglomerates interested in purchasing the hospital and the other assets of the partnership in terms of selling prices ranging from $60,000 to $93,500 per percentage point. Given this situation, how could their offer of $24,600 per percentage point to plaintiff have been a good faith determination on their part of the fair market value of the partnership? Obviously the jury's verdict was correct and solidly supported in this respect.

3. There Was No Instructional Error

[6] Appellants contend that the trial court committed reversible error in refusing to give to the jury their requested instruction defining a presumption and indicating its tentative effect. fn. 8 They assert that the giving of this instruction was necessitated by the fact that the jury was instructed at some length on the presumptions of insufficient consideration and undue influence arising from the fiduciary relationship of the parties. fn. 9 In this connection they call our attention to the fact that the last-mentioned instruction was the only instruction that the jury requested be reread to them. [83 Cal. App. 3d 177]

We do not think that the giving of this last-mentioned instruction, as modified, necessitated the giving of appellants' requested instruction. We think it clear that in the modified instruction the jury was correctly informed that the presumptions of insufficient consideration and undue influence were not conclusive. Furthermore, before the challenged instruction was given, appellants specifically accepted the proposed instruction after it had been modified at their request.

4. The Cross-appeal

[7] Under the circumstances of this case plaintiff is not entitled to punitive damages. With her acquiescence, the jury was given a modification of BAJI No. 14.71 which directed the jury to award punitive damages "if and only if you find by a preponderance of the evidence that the defendants have been guilty of actual fraud." The jury's general verdict awarded zero punitive damages to plaintiff. From this verdict we must conclude that the jury impliedly found appellants guilty of only constructive fraud and not of actual fraud. (See Civ. Code, §§ 1572, 1573; Southern Pac. Co. v. Unarco Industries, Inc. (1974) 42 Cal. App. 3d 142, 152 [116 Cal. Rptr. 847].) Needless to say, this is our view of the case as well.

Disposition

The judgment under appeal is affirmed. Costs on appeal are awarded to plaintiff, respondent and cross-appellant.

Allport, J., and Potter, Acting P. J., concurred.

FN 1. Dr. Witlin's professional association with the hospital terminated about 1959 when, after two heart attacks, he went to Switzerland to study psychiatry. Upon his return to the United States, about 1962, he began the practice of psychiatry in West Los Angeles and Beverly Hills, and his association with the partnership thereafter was purely as an investor.

FN 2. For this reason we need not consider appellants' claim that this formula price represented an executed oral modification of the partnership agreement or their further claim that the trial court should have permitted inquiry by appellants over plaintiff's objection as to whether Dr. Witlin knew during his lifetime of this formula and its use.

FN 3. Both plaintiff and appellants concede that the jury based its award of compensatory damages solely upon this sale figure.

FN 4. The $24,600 price was a price apparently negotiated between April and December 1971 between three members of the hospital staff who generally had other professional associations with the partners and the partnership. These three doctors each purchased a 1 percent partnership interest. On appellants' objection on the ground of irrelevancy, the trial court refused to permit plaintiff to ascertain whether this price was a true market price.

We note that since this sale was only of an unallocated fractional interest, it could be regarded as noncomparable.

FN 5. This fiduciary duty lasted from the management committee's offer of September 21, 1971, until the consummation of the buy-out on February 8, 1972. (See Arnold v. Arnold (1902) 137 Cal. 291, 296 [70 P. 23]; Laux v. Freed (1960) 53 Cal. 2d 512, 522 [2 Cal. Rptr. 265, 348 P.2d 873]; 60 Am.Jur.2d, Partnership, § 125, p. 50.)

FN 6. It is arguable that this fact should have become apparent to King on the basis of his own investigation. In any event, the computation of this base for the formula was never revealed either to plaintiff or to King.

FN 7. In fact, the trial court on appellants' objection refused to permit inquiry by plaintiff as to whether the management committee discussed in negotiations with third parties what the fair market value of the partnership was.

FN 8. This requested instruction reads: "A presumption is an assumption of fact that the law requires to be made from another fact or group of facts found or otherwise established in the action. A presumption is not evidence. Each of the presumptions involved in this case is known as a rebuttable presumption, which means that it may be overcome by a sufficient showing. When I instruct you on a presumption, I will so instruct you on the showing necessary to overcome it."

FN 9. This instruction, requested by plaintiff, but given as modified at the request of appellants, reads: "The relationship between a deceased partner's widow and executrix on the one hand, and the surviving partners on the other, is known in the law as fiduciary relationship, in which the surviving partners are in the position of trustees, and the plaintiff is in the position of a beneficiary of the trust. What this means is that the surviving partners must act in the highest good faith toward the widow and executrix of the deceased partner; that they are obliged to make full disclosure to her of all material facts affecting their exercise of the option; and they must not use their position to gain any advantage over her, or to make any special profit. All transactions between a trustee and his beneficiary during the existence of the trust, or while the influence acquired by the trustee remains, by which the trustee obtains any advantage from the beneficiary, are presumed to be entered into by the beneficiary without sufficient consideration, and under undue influence. However, it is not presumed that the trustee has acted fraudulently or in bad faith, the burden of proving fraud and bad faith remains on the plaintiff."

Orme v. State of California ex rel. Dept. Water Resources [83 Cal. App. 3d 178]

[Civ. No. 16581. Third Dist. July 26, 1978.]

JOHN K. ORME et al., Plaintiffs and Appellants, v. THE STATE OF CALIFORNIA ex rel. DEPARTMENT OF WATER RESOURCES, Defendant and Respondent.

(Opinion by Evans, J., with Puglia P.J., and Reynoso, J., concurring.) [83 Cal. App. 3d 179]

COUNSEL

Kronick, Moskovitz, Tiedemann & Girard and Frederick G. Girard for Plaintiffs and Appellants. [83 Cal. App. 3d 180]

Evelle J. Younger, Attorney General, Robert L. Bergman, Assistant Attorney General, and John M. Morrison, Deputy Attorney General, for Defendant and Respondent.

OPINION

EVANS, J.

Plaintiffs, John K. Orme and Edith B. Orme, appeal from that portion of an inverse condemnation judgment which awarded them approximately $67,700 damages and denied interest on the entire award from the date the first damage occurred, and from the order granting the motion of the state, taxing engineering costs and attorney fees.

Statement of Facts

The plaintiffs appeal only from post trial decisions of the court rendered after a jury returned a verdict in plaintiffs' favor. The following factual summary is not disputed and has been gleaned from the recitation of facts contained in the parties' briefs.

This is an inverse condemnation action brought by plaintiffs as a result of water damages to their rice-producing property. The real property consists of 147 acres of land located near the west side of the Thermalito Afterbay in Butte County. The Thermalito Afterbay is part of the State of California's water project at Oroville Dam and is used as a reservoir to ensure that despite fluctuations in water flow caused when excess electricity is used to pump water back into the dam, a constant supply of water returns to the Feather River. In support of their claim, plaintiffs present evidence that in 1972, the Thermalito Afterbay, through groundwater percolation, leaked water which saturated the top two feet of soil on their land and caused the loss of a portion of the rice crop growing on the land at that time and resulted in physical damage to the land that required restoration work, which precluded plaintiffs from growing rice in 1973 and 1974 on their land which is the land's highest and best use.

Upon learning of the seepage, the State of California took remedial measures consisting of the application of an impervious blanket on the floor of the afterbay and the installation of a series of wells along its westerly perimeter. The wells were designed to pump water seeping from the afterbay back into the reservoir.

The use of the wells accomplished a reduction in the groundwater level below plaintiffs' property. [83 Cal. App. 3d 181]

Plaintiffs utilized an expert who testified that the rise in hydrostatic pressure of water under plaintiffs' property during 1972 was caused by a malfunction and/or improper operation of well No. 3, which was one of two wells having a significant effect on plaintiffs' property.

The evidence presented by the State of California in defense of the action was that the 1972 saturation causing damage to plaintiffs' property was primarily the result of heavy rainfall, and not because of the functioning of the Thermalito Afterbay or any of its components.

A crucial factual issue at trial was whether water leaking from the Thermalito Afterbay was able to move up through the "hardpan" or "tight" soils and saturate the top two feet of plaintiffs' land.

Plaintiffs' expert (Mr. Gomez) testified that it did; the state's experts (Messrs. King and Begg) testified to the contrary. Plaintiffs' expert testified that when the capacity of well No. 3 was increased after correction of its malfunction, the hydrostatic pressure under plaintiffs' property was reduced to substantially preproject levels.

Plaintiffs produced evidence that as a result of the saturation, rutting of the land occurred during the rice harvest in 1972. The evidence indicated that the rise in hydrostatic pressure in October 1972, coupled with rainfall occurring before and during the harvest, caused the upper two feet of the soil to become nearly saturated which prevented the harvesting of a portion of plaintiffs' 1972 rice crop. As the upper two feet of the soil became saturated, the heavy rice harvesting equipment tended to bog down, causing deep ruts in the soil.

Plaintiffs' inability to plant a rice crop in 1973 and 1974 apparently was not related to the piezometric level or hydrostatic pressure under the property in those years but was rather a consequence of the serious rutting damage which occurred in 1972.

Plaintiffs produced evidence that the loss of the use of the land for rice in 1973 was because the weather conditions in early 1973 did not permit the land restoration and preparation required, as a result of the 1972 rutting, early enough to plant a rice crop in 1973.

As a result plaintiffs were limited to planting a crop of oats and wheat in October of 1973. It was then too late to plant the rice crop. The oats and wheat crop was not ready for harvesting until May or June of 1974 [83 Cal. App. 3d 182] which again precluded planting a rice crop for 1974 and resulted in plaintiffs' claim of loss of use for 1974.

The total damages, including loss of use, sought by plaintiffs was the sum of $71,676.89. fn. 1

The jury decided in plaintiffs' favor and awarded them $67,730.25 in damages. Judgment was entered accordingly.

(The dollar difference between the amount sought by plaintiffs and the amount of the jury verdict (all but $40) may be the result of the jury's acceptance of evidence that the average county yield was 56 sacks of rice per acre in 1972 rather than a yield of 60 sacks per acre as estimated by plaintiffs.)

Following entry of the judgment, plaintiffs filed a memorandum of costs and disbursements which included the sums of $28,993.57 for attorney fees and $12,157.67 for engineering fees. The State of California then filed a motion to tax costs contending that such fees are not recoverable in instances where a plaintiff secures a judgment for a "damaging" of an interest in real property as distinguished from a "taking."

The trial court accepted that contention and struck the attorney fees and engineering costs from plaintiffs' cost bill.

The judgment, when entered on November 17, 1976, did not provide for prejudgment interest. Subsequently, plaintiffs filed a "Motion to Correct or Amend Judgment in Regard to Prejudgment Interest." Plaintiffs contend that the $67,730.25 should draw interest (at 7 percent per annum) from October 25, 1972 (the earliest date of damage to the first crop). The trial court amended the judgment to provide that the sum of $25,849.42 would draw interest at 7 percent per annum commencing October 20, 1973, the sum of $28,671.48 would draw interest at 7 percent per annum commencing October 20, 1974, and the sum of $13,209.35 would draw interest at 7 percent per annum commencing October 20, 1975. [83 Cal. App. 3d 183]

I

Plaintiffs first contend that the trial court erroneously granted defendant's motion to tax the costs of attorney fees and engineering costs. This contention has merit.

The trial court reasoned that such costs were not recoverable inasmuch as the land had merely been damaged and not taken within the contemplation of former Code of Civil Procedure section 1246.3. (Now Code Civ. Proc., § 1036.) Former section 1246.3 (present § 1036) provided that engineering costs and attorney fees are recoverable when there has been a "taking of any interest in real property." fn. 2

[1] As it is clear that an interest in real property is involved, n3 our basic determination is whether there has been a taking within the contemplation of the statute. fn. 3

In order for there to be a taking "'... there must be an invasion or an appropriation of some valuable property right which the landowner has to the legal and proper use of his property.'" (Hilltop Properties v. State of California (1965) 233 Cal. App. 2d 349, 355-356 [43 Cal. Rptr. 605, 37 A.L.R.3d 109].) A taking of property within the constitutional guarantee means more than a physical change of possession; it entails the owner's permanent or temporary deprivation of use. (Pacific Telephone etc. Co. v. Eshleman (1913) 166 Cal. 640, 664 [137 P. 1119].)

The question arises because the federal Constitution mentions only a taking and not a damaging, thus giving rise to the belief that only the taking or acquisition of an interest in real property may be compensated; however, with the growth of public governmental actions affecting private use of land, the meaning of taking has been extended and broadened to [83 Cal. App. 3d 184] include damage and destruction of land. (Kratovil & Harrison, Eminent Domain--Policy and Concept (1954) 42 Cal.L.Rev. 596, 599; see also Note (1953) 66 Harv.L.Rev. 1134; Holtz v. San Francisco Bay Area Rapid Transit Dist. (1976) 17 Cal. 3d 648, 654, fn. 4 [131 Cal. Rptr. 646, 552 P.2d 430].)

Evidently to ensure that the harsh federal standard would not prevail in California, the phrase "or damaged" was added to the California Constitution. (See Cal. Const., art. I, § 19.) Defendant argues that since section 1246.3 (present § 1036) does not contain the phrase "or damaged," mere damage does not give rise to the right to recover attorney fees and engineering costs. However, as noted by one commentator, "It is evident that where a court is willing to take a liberal view of 'taking' of 'property,' an 'or damaged' ... provision is unnecessary." (Kratovil & Harrison, supra, 42 Cal.L.Rev. at p. 601.) The apparent limit and harsh federal constitutional provision has been tempered by the decision in United States v. Kansas City Ins. Co. (1949) 339 U.S. 799 [94 L. Ed. 1277, 70 S. Ct. 885]. The United States Supreme Court there held that a "taking" within the contemplation of the federal Constitution occurred under circumstances similar to those here presented.

In United States v. Kansas City Ins. Co., apparently for navigational purposes, the Corps of Engineers maintained the Mississippi River at a high flood level. (Id, at p. 800 [94 L.Ed. at p. 1280].) The groundwater table level was raised because of the increased pressure and water percolated from the river to respondent's land preventing the land from draining which resulted in destruction of its value as farmland. (Id, at p. 802 [94 L.Ed. at p. 1281].) The Supreme Court held that a compensable taking had occurred. (Id, at p. 809 [94 L.Ed. at p. 1285].)

The defendant's argument that plaintiffs may not recover for a taking because the state's water pumps have lowered the groundwater table level to levels comparable to those before construction of the afterbay, reducing the damage to a temporary status, is meritless. "There is no justification for a holding that the test of 'taking' is whether the lands thereafter may be restored to their original condition." People v. Peninsula Title Guar. Co. (1956) 47 Cal. 2d 29, 34 [301 P.2d 1] City of Long Beach v. Aistrup (1958) 164 Cal. App. 2d 41, 48 [330 P.2d 282].)

Plaintiffs lost a significant portion of the 1972 rice crop and were unable to plant rice for two years due to the wetness or saturation of the ground and the resulting inability to rehabilitate the land and rid of ruts which resulted from the attempt to salvage some of the crop during the first wet year. [83 Cal. App. 3d 185]

Finally, as stated in a recent California Supreme Court inverse condemnation case, Holtz v. San Francisco Bay Area Rapid Transit Dist., supra, 17 Cal.3d at page 653 (where plaintiff sought to recover for land subsidence caused by an excavation by defendant), "... the legislative history of section 1246.3 supports the conclusion that it was designed to expand the right to recover litigation costs beyond situations in which tangible real property has literally been removed from possession of its owner ... It is apparent ... that the Legislature intended to include not only the taking of physical possession or title to real property, but also encroachments upon lesser property interests." The court also refused to be limited by decisions that distinguished between taking and damaging on the ground the distinction was blurred (17 Cal. 3d 655, fn. 5); and a distinction between these terms is not necessary for recovery. (Ibid)

Stone v. City of Los Angeles (1975) 51 Cal. App. 3d 987 [124 Cal. Rptr. 822], cited by the People as purportedly supporting their contention that notwithstanding Holtz, there is still no recovery for mere damage is not controlling. The recovery of costs was there denied because there was no legally recognized interest in real property. In Stone, plaintiff recovered damages for diminished value to his property caused by an unreasonable delay in the initiation of previously announced condemnation proceedings. (Id, at p. 990.) The loss in the value of land under such circumstances does not appear to be an interest in real property but rather a property right; the distinction here asserted by defendant between "taking" and "damaging" was not involved. (See Klopping v. City of Whittier (1972) 8 Cal. 3d 39, 51-53 [104 Cal. Rptr. 1, 500 P.2d 1345].)

Plaintiffs lost a substantial interest in their property during the crop years of 1973, 1974, and 1975. Plaintiffs sustained permanent damage in the loss of profit on the crops which had been planted and for those which would have been planted had the saturation not occurred. The fact that the state's pumps returned the water table to its preproject level, allowing plaintiffs the full use of the land now, does not bring back the profits on three years of lost crops. Accordingly, we conclude that when a public agency causes injury to property by subterranean or surface flooding, even though the flooding is temporary in nature only, a taking of property within the meaning of Code of Civil Procedure section 1246.3 (now § 1036) occurs and litigation costs are recoverable. fn. 4 [83 Cal. App. 3d 186]

II

Plaintiffs contend that the trial court's award of interest was in error because the trial court awarded interest on each award to commence on the date each year's damage occurred. We disagree. fn. 5

The jury awarded plaintiffs the total sum of $67,730.25 for damages sustained as a result of the groundwater seepage. The original award was amended to provide for interest on the damages making up the total award as follows: on $25,849.42 from October 20, 1973; on $28,671.48 from October 20, 1974, and on $13,209.35 from October 20, 1975.

[2] The purpose of an award of interest is to provide just compensation for a person deprived of property by the state. Holtz, supra, 17 Cal.3d at p. 657 and authorities cited therein; see also Comments, Interest as Damages in California (1958) 5 UCLA L.Rev. 262, 263.)

[3] "The right to prejudgment interest in inverse condemnation accrues as of the date the compensable taking or injury occurred without regard to the nature or scope of the compensable event." Holtz, supra, 17 Cal.3d at p. 657; see Heimann v. City of Los Angeles (1947) 30 Cal. 2d 746, 758-759 [185 P.2d 597].

In this case, the earliest date damage for a particular crop loss could have occurred was the date plaintiffs could have sold their rice and received payment but did not because a crop had not been planted, or as in the first year, because a portion of the crop was lost due to water percolation from the afterbay. The evidence indisputably established that plaintiffs did not receive payment for a particular crop until approximately one year after its planting. Generally, payment was received the following October.

If plaintiffs were to be awarded interest on the lump sum, as plaintiffs contend they should, they would be unjustly enriched by an award of interest on an award for damages incurred after the date interest is ordered to run. The trial court's award was correct. [83 Cal. App. 3d 187]

The order taxing engineering costs and attorney fees is reversed; in all other respects the judgment is affirmed.

Puglia, P.J., and Reynoso, J., concurred.

FN 1. Plaintiffs sought recovery for damage to growing crops, damage to real property, and permanent diminution in the value of real property in an amount totaling $146,520. At trial they dropped their claim of permanent diminution to the value of real property and limited their evidence showing (1) a partial loss of rice crop in the year 1972; (2) a loss of rental value in the year 1973; (3) the cost of restoration of real property; and (4) the loss of rental value in the year 1974, less the profit received from wheat and oat crops planted in the fall of the year 1973 and harvested in mid-1974.

FN 2. This section provided: "In any inverse condemnation proceeding brought for the taking of any interest in real property, the court rendering judgment for the plaintiff by awarding compensation for such taking, ... shall determine and award or allow to such plaintiff, as a part of such judgment ... such sum as will, in the opinion of the court ... reimburse such plaintiff for his reasonable costs, disbursements, and expenses, including reasonable attorney, appraisal, and engineering fees, actually incurred because of such proceeding."

FN 3. The People do not dispute the fact that the right to grow crops on land is an interest in real property. Prior to the entry of a contract for the sale and severance of growing crops, the interest in the crops is an interest in real property. (See Carey v. Glenco Citrus Products (1965) 235 Cal. App. 2d 572, 578 [45 Cal. Rptr. 365] Mosekian v. Davis Canning Co. (1964) 229 Cal. App. 2d 118, 121-122 [40 Cal. Rptr. 157] List v. Sandell (1941) 42 Cal. App. 2d 505, 507 [109 P.2d 376].) At common law the right to growing crops, recognized as an interest in real property, was known as "emblements." (Smith & Boyer, Survey of the Law of Property (1971) pp. 244-249.)

FN 4. Past inverse condemnation cases have distinguished between damage caused as a result of negligent activities and damage occasioned when the public project was functioning as intended. In the former case, no compensable taking was found to have occurred; in the latter, a compensable taking was found to have occurred. (See e.g., Youngblood v. Los Angeles County Flood Control Dist. (1961) 56 Cal. 2d 603, 607 [15 Cal. Rptr. 904, 364 P.2d 840].) This distinction is not involved in the present case since the afterbay was storing water as intended by the state.

FN 5. The state, relying on Pierpont Inn, Inc. v. State of California (1969) 70 Cal. 2d 282, 299 [74 Cal. Rptr. 521, 449 P.2d 737], contends that except for the sum representing the cost of restoring plaintiffs' property ($4,335), the remainder of the judgment represents the actual value of loss of use of plaintiffs' land for which plaintiffs are not entitled to prejudgment interest. The state has not appealed.