BILL ANALYSIS Ó
AB 374
Page 1
ASSEMBLY THIRD READING
AB 374 (Wagner)
As Amended April 1, 2013
Majority vote
JUDICIARY 10-0
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|Ayes:|Wieckowski, Wagner, | | |
| |Alejo, Chau, Dickinson, | | |
| |Garcia, Gorell, | | |
| |Maienschein, Muratsuchi, | | |
| |Stone | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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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
compensation, as ascertained by a jury unless waived.
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
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otherwise awarded to the owner.
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.
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.
FISCAL EFFECT : None
COMMENTS : This bill is based on a 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 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.
Whenever the state takes property for a public use through its power
of eminent domain, the United States 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
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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
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. 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.
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334
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