California Landmark Cases on Eminent Domain Law
"The Fifth Amendment to the United States Constitution provides that 'just compensation' must be paid to a property owner whose property is taken through the government's power of eminent domain.
The California Constitution provides a similar right. (Cal. Const., art. I, 19.)" (Regents of University of California v. Sheily (2004) 122 Cal.App.4th 824, 830.)
However, the constitutional right to just compensation has been construed not to include the loss of goodwill to a business whose property is taken by the power of eminent domain. (Ibid.; Community Redevelopment Agency v. Abrams (1975) 15 Cal.3d 813, 831.)
The Legislature thus responded to this constitutional limitation by enacting Code of Civil Procedure section 1263.510, which recognizes a right to compensation for loss of goodwill under some conditions. In pertinent part, section 1263.510 provides:
"(a) The owner of a business conducted on the property taken, or on the remainder if the property is part of a larger parcel, shall be compensated for loss of goodwill if the owner proves all of the following:
"(1) The loss is caused by the taking of the property or the injury to the remainder.
"(2) The loss cannot reasonably be prevented by a relocation of the business or by taking steps and adopting procedures that a reasonably prudent person would take and adopt in preserving the goodwill.
"(3) Compensation for the loss will not be included in payments under Section 7262 of the Government Code.
"(4) Compensation for the loss will not be duplicated in the compensation otherwise awarded to the owner.
"(b) Within the meaning of this article, 'goodwill' consists of the benefits that accrue to a business as a result of its location, reputation for dependability, skill or quality, and any other circumstances resulting in probable retention of old or acquisition of new patronage."
In recommending the enactment of Code of Civil Procedure section 1263.510, the Law Revision Commission explained:
"Eminent domain frequently works a severe hardship on owners of businesses affected by public projects. As a rule, business losses have not been compensated. This rule of noncompensability has been widely criticized, and the Commission believes that some step should be taken to compensate the owner of a business taken or damaged in an eminent domain proceeding for losses he suffers. But, in order to assure that losses are certain and measurable for the purposes of compensation, recovery should be allowed only for the loss of goodwill proved by the property owner and only to the extent that such loss is caused by the acquisition of the property or the injury to the remainder and cannot reasonably be prevented by a relocation of the business and by taking those steps and adopting those procedures that a reasonably prudent person would take and adopt in preserving the goodwill." (Recommendation Proposing the Eminent Domain Law (Dec. 1974) 12 Cal. Law Revision Com. Rep. (1974) pp. 1652-1653, quoted in Los Angeles Unified School Dist. v. Pulgarin (2009) 175 Cal.App.4th 101, 106-107 (Pulgarin).)
" 'Because section 1263.510 adopts without change the recommendations of the California Law Revision Commission, the commission's report is entitled to great weight in construing the statute and the Legislature's intent.' (Redevelopment Agency v. Arvey Corp. (1992) 3 Cal.App.4th 1357 at p. 1363, fn. 6 ....)" (Pulgarin, at p. 107.)
" 'An owner is entitled to just compensation for property taken for public use. ' The principle behind the concept of just compensation is to put the owner in as good a position pecuniarily as he would have occupied if his property had not been taken. But it is the duty of the state to see that compensation is just not merely to the individual whose property is taken, but to the public that is to pay for it. 'The just compensation required by the constitution to be made to the property owner is to be measured by the loss caused to him by the appropriation. He 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.' " (City of Carlsbad v. Rudvalis (2003) 109 Cal.App.4th 667, 678.)
"Where all the property subject to a lease is acquired for public use, the lease terminates." (Code Civ. Proc., 1265.110.) "When condemnation terminates a tenancy, the lessee is ordinarily entitled to share in the condemnation award to compensate for the value of his or her leasehold interest. (Code Civ. Proc., 1265.150; City of Vista v. Fielder (1996) 13 Cal.4th 612, 616 54 Cal.Rptr.2d 861, 919 P.2d 151.)" (Redevelopment Agency of San Diego v. Attisha (2005) 128 Cal.App.4th 357, 366 (Attisha).)
As the California Supreme Court explained, "for purposes of the Eminent Domain Law, a leasehold interest may carry what is called 'bonus value'--which may be defined as 'the present value of the difference between economic rent, i.e., the value of market rental, and the contract rent through the remaining lease term.' " (City of Vista v. Fielder, at p. 617, fn. 1, quoting New Haven Unified School Dist. v. Taco Bell Corp. (1994) 24 Cal.App.4th 1473, 1478-1479.)
"The bonus value usually assumes importance only in long-term commercial leases." (New Haven Unified School Dist., at p. 1479.) "In short-term leases, the lessee will have at best a small claim against the condemning authority." (Ibid.)
"The Eminent Domain Law recognizes that, generally, a lessee is entitled to 'compensation for the value of his leasehold interest taken, if any, and any of his property taken' therewith, including 'goodwill.' " (City of Vista v. Fielder, supra, 13 Cal.4th at pp. 616-617.)
In contrast to the bonus value of a lessee's leasehold interest as a lessee, "a lessee may possess goodwill as owner of a business." (Id. at p. 617, fn. 1.)
"Goodwill can exist apart from a leasehold, and a leasehold can exist apart from goodwill." (Id. at p. 620, fn. 6.)
In this context, "goodwill" is defined as "the benefits that accrue to a business as a result of its location, reputation for dependability, skill or quality, and any other circumstances resulting in probable retention of old or acquisition of new patronage." (Code Civ. Proc., 1263.510, subd. (b).)
" 'Goodwill value is a transferable property right which is generally defined as the amount a willing buyer would pay for a going concern above the book value of the assets.' " (Attisha, supra, 128 Cal.App.4th at p. 367.) There is no single acceptable method for valuing loss of goodwill. (Id. at p. 368; City of San Diego v. Sobke (1998) 65 Cal.App.4th 379, 389.)
Rather, valuation of goodwill lost in a particular case must be determined on its own facts and circumstances. (Attisha, at p. 368; Sobke, at p. 389; In re Marriage of Foster (1974) 42 Cal.App.3d 577, 583.)
"The business owner has the initial burden of showing entitlement to compensation for lost goodwill. This entails proof the condemnation caused the loss, the loss cannot reasonably be prevented by relocating the business or otherwise mitigating damages, and compensation for the loss will not be included in relocation benefits allowed under Government Code section 7262 or otherwise duplicated in the condemnation award. (Code Civ. Proc., 1263.510, subd. (a).)" (Attisha, supra, 128 Cal.App.4th at p. 367.)
"Whether the qualifying conditions for such compensation have been met is a matter for the trial court to resolve. Only if the court finds these conditions exist i.e., that the owner is entitled to compensation for lost goodwill does the remaining issue of the value of the goodwill loss, if any, go to the jury. " (City of Santa Clarita v. NTS Technical Systems (2006) 137 Cal.App.4th 264, 270.)
The trier of fact determines the amount of the loss of goodwill based on the evidence admitted at trial. (Attisha, supra, at p. 367; People ex rel. Dept. of Transportation v. Salami (1991) 2 Cal.App.4th 37, 45.) Neither party bears the burden of proof to show the amount of the goodwill loss, if any. (Code Civ. Proc., 1260.210, subd. (b).)