BILL ANALYSIS Ó
AB 374
Page 1
Date of Hearing: April 9, 2013
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 374 (Wagner) - As Amended: April 1, 2013
SUBJECT : Eminent Domain: Compensation: Loss of Goodwill
KEY ISSUE : Should a Business owner who seeks compensation for
loss of goodwill as a result of an eminent domain action be
required to Provide sufficient evidence that goodwill existed
prior to the taking of the property?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
Under existing eminent domain law, the owner of a business that
is situated on property that is taken by eminent domain may seek
compensation for the loss of goodwill, provided that the owner
proves that the taking caused the loss of goodwill, that the
loss cannot reasonably be prevented by relocation of the
business, and that compensation is not already provided by some
other provision of law. This bill would additionally require
the owner to show by sufficient evidence that the goodwill in
fact existed prior to the taking. Although the author suggests
that the appellate courts have been inconsistent on this issue
and have failed to provide clear standards as to how a trier of
fact would determine if goodwill existed, there are, as the
analysis discusses, cases that have clearly suggested, and
sometimes held, that the requirement of a pre-existing goodwill
is implicit in the statute. This bill would make that implicit
requirement explicit. There is no known opposition to this
bill.
SUMMARY : Requires the owner of a business conducted on property
taken by eminent domain, and who claims compensation for loss of
goodwill, to adduce sufficient evidence to permit a jury to find
that goodwill existed before the taking of the property.
EXISTING LAW :
1)Prohibits the government from taking or damaging private
property for a public use without the payment of just
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compensation, as ascertained by a jury unless waived.
(California Constitution Article 1 Section 19.)
2)Provides that the owner of a business conducted on the
property taken by eminent domain, 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;
a) The loss is caused by the taking of the property or the
injury of the remainder.
b) The loss cannot reasonably be prevented by relocation of
the business or by taking steps and adopting procedures
that a reasonably prudent person would take and adopt in
preserving the goodwill.
c) Compensation for the loss will not be included in
relocation payments, as specified.
d) Compensation will not be duplicated in the compensation
otherwise awarded to the owner. (Code of Civil Procedure
Section 1263.510 (a).)
3)Defines "goodwill," for purposes of the above, to include the
benefits that accrue to a business as a result of its
location, reputation for dependability, skill or quality, or
any other circumstances resulting in probable retention of old
or acquisition of new patronage. (Code of Civil Procedure
Section 1263.510 (b).)
4)Specifies that if the public entity and the owner enter into a
leaseback agreement, as defined, the following shall apply:
a) No additional goodwill shall accrue during the lease.
b) The entering of the leaseback agreement shall not be a
factor in determining goodwill. Any liability for goodwill
shall be established and paid at the time of the
acquisition of the property by eminent domain or subsequent
notice that the property may be taken by eminent domain.
(Code of Civil Procedure Section 1263.510 (c).)
COMMENTS : This bill is based on a seemingly non-controversial
axiom: one cannot lose what one does not have. Sponsored by the
Conference of California Bar Associations, this bill would
require the owner of a business that is situated on property
that is taken by eminent domain - if the owner seeks
compensation for "loss of goodwill" - to provide sufficient
evidence to permit a jury to find that goodwill existed prior to
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the taking. Although existing law requires the owner seeking
such compensation to prove that the loss cannot be reasonably
avoided by some other means - such as relocating the business -
and that the loss is not otherwise compensated, the law does not
expressly require the owner to prove that goodwill existed in
the first place. The author contends that the appellate courts
have failed to establish consistent standards; he states that
this bill will provide that standard.
Compensation for Loss of Goodwill: Whenever the state takes
property for a public use through its power of eminent domain,
the U.S. and California constitutions give the owner of the
subject property a right to "just compensation." Typically,
"just compensation" means the market value of the property at
the time of the taking. The constitutional right to "just
compensation" does not, however, include compensation for any
loss of goodwill that a business losses as a result of the
taking. Rather, the right to be compensated for loss of
goodwill is provided not by the constitution, but by statute.
Code of Civil Procedure Section 1263.510 provides that the owner
of a business that is conducted on the condemned property, or on
the remainder if the property is part of a larger parcel, shall
be compensated for loss of goodwill if the owner proves (1) that
the loss is caused by the taking of the property; (2) that the
loss cannot reasonably be prevented by a relocation of the
business or other reasonable means; and (3) that the owner is
not already compensated under another provision of law - that
this, so that there will be no double damages. It is important
to note that, not only does compensation for goodwill come from
statute rather than the constitution, the compensation is not
restricted to the owner of the condemned property. It is also
available to the owner of any business that is conducted on that
condemned property and that is forced to move because of the
taking.
Traditionally, business "goodwill" has consisted of things like
a reputation for dependability and quality, or other
circumstances that help a business draw and maintain customers.
Most relevant to receiving compensation for the loss of goodwill
due to an eminent domain taking, the statutory definition of
goodwill includes "the benefits that accrue to a business as a
result of its location." Clearly, if a business is forced to
relocate, it may possibly lose established customers.
While existing law does not expressly state that the owner must
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provide evidence that goodwill existed prior to the taking - as
this bill would do - a number of courts have suggested, and in
some cases held, that this requirement is necessarily implied.
Most recently, the California Court of Appeal for the Second
District held that "a business owner is entitled to a jury trial
on the amount of goodwill lost by taking only if he or she first
establishes, as a threshold matter, that the business had
goodwill to lose." (People ex rel. Department of Transportation
v. Dry Canyon Enterprises (2012) 211 Cal. App. 4th 486, 491.)
The court reasoned that this was "all but compelled" by the
language of the statute. (Id.) The statute, after all,
requires the owner to prove that the loss of goodwill was caused
by the taking, and presumably the owner could only prove
causation if there was goodwill to lose in the first place.
(See also Emeryville Redevelopment Agency v. Harcros Pigments,
Inc. (2002) 101 Cal.App.4th 1083, 1118, fn. 13, holding that if
a business had no goodwill to lose it "would preclude a finding
of the . . . statutory preconditions to recovery.") This bill
would effectively codify this seemingly sound reasoning by
requiring the owner, as a threshold matter, to produce
sufficient evidence that goodwill existed prior to the taking.
ARGUMENTS IN SUPPORT : According to the author,
Under current law, the governing body of a public entity
to adopt a resolution of necessity, as specified, and
send related notices before commencing an eminent domain
proceeding. The owner of a business taken pursuant to
the government's eminent domain power is entitled to
recover the loss of the business's "goodwill." The
amount of that loss is determined by the jury. However,
the jury only gets to answer the question of the amount
of goodwill if the trial court judge first determines
that the business in fact had goodwill to lose.
The problem here, and the reason for the statutory
amendment, is that the law fails to state the standard
by which the judge makes that determination, and the
appellate courts have established different,
inconsistent, standards.
This bill would further require the owner of a business
to prove that there is sufficient evidence to permit the
trier of fact to find that goodwill existed prior to the
taking of the property.
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REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334