BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 374|
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THIRD READING
Bill No: AB 374
Author: Wagner (R)
Amended: 4/1/13 in Assembly
Vote: 21
SENATE JUDICIARY COMMITTEE : 5-0, 6/4/13
AYES: Evans, Anderson, Corbett, Leno, Monning
NO VOTE RECORDED: Walters, Jackson
ASSEMBLY FLOOR : 75-0, 4/11/13 - See last page for vote
SUBJECT : Eminent domain: compensation: loss of goodwill
SOURCE : Author
DIGEST : This bill specifies that an owner of a business must
adduce sufficient evidence to permit a jury to find that
goodwill existed prior to the taking before the owner is
entitled to receive any compensation for the loss of goodwill,
in the instance that the owner's business is taken by eminent
domain.
ANALYSIS : Existing federal law, the United States
Constitution, provides that "private property [shall not] be
taken for public use, without just compensation." (U.S.
Constitution 5th Amendment)
Existing state law:
1. Provides, under the California Constitution, that private
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property "may be taken or damaged for public use only when
just compensation, ascertained by a jury unless waived, has
first been paid to, or into court for, the owner."
(California Constitution Article I, Section 19)
2. States that just compensation for a property taken by eminent
domain is equal to the property's fair market value, which
may include compensation for the loss of goodwill.
"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.
(Code Civil Procedure (CCP) Sections 1263.310, 1263.510)
3. Provides that 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:
A. The loss is caused by the taking of the property or
the injury to the remainder.
B. 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.
C. Compensation for the loss will not be included in
payments under Government Code Section 7262.
D. Compensation for the loss will not be duplicated in
the compensation otherwise awarded to the owner. (CCP
Section 1263.510(a))
Existing case law provides that a business owner has the right
to a jury determination on the amount or value of goodwill lost.
(People ex rel. Department of Transportation v. Dry Canyon
Enterprises (2012) 211 Cal.App.4th 486, 491.)
This bill adds as a statutory precondition to recovering
compensation for any loss of goodwill that the owner of a
business adduce sufficient evidence to permit a jury to find
that goodwill existed prior to the taking.
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Background
Both the U.S. Constitution and the California Constitution
condition the state's power to take property by eminent domain
on the payment of "just compensation" to an aggrieved property
owner. (U.S. Constitution 5th Amendment; California
Constitution Article I, Section 19.) "Just compensation" is
defined in California law as "the fair market value of the
property taken." (CCP Section 1263.310.) Fair market value, in
turn, means "the highest price on the date of valuation that
would be agreed to by a seller . . . and a buyer . . . each
dealing with the other with full knowledge of all the uses and
purposes for which the property is reasonably adaptable and
available." (CCP Section 1263.320)
Unlike federal law, California law guarantees the owner of a
property taken by eminent domain compensation for any "loss of
goodwill" that results from the condemnation. In 1975, the
Legislature enacted the Eminent Domain Law as part of a
comprehensive revision of eminent domain law in the state,
adopting in substance certain provisions of the Uniform Eminent
Domain Code. (See 13 Cal. Law Revision Com. Rep. (1975) pgs.
1218-1219.) Codified in part at CCP Section 1263.510, the
Eminent Domain Law states that an owner of property taken by
eminent domain is entitled to just compensation that includes
compensation relating to the loss of a business's "goodwill."
Goodwill in this context means "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." (CCP Section 1263.510(b).) The California Supreme
Court has observed that Section 1263.510 "was enacted in
response to widespread criticism of the injustice wrought by the
Legislature's historic refusal to compensate condemnees whose
ongoing businesses were diminished in value by a forced
relocation," and its purpose "was unquestionably to provide
monetary compensation for the kind of losses which typically
occur when an ongoing small business is forced to move and give
up the benefits of its former location." (People ex rel. Dept.
of Transportation v. Muller (1984)
36 Cal.3d 263, 270.)
Loss of goodwill can occur either through the direct taking of
property or by injury to a business resulting from the taking of
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property, such as when a non-owner tenant business's leasehold
interest is adversely affected by an eminent domain action.
(See CCP Section 1263.510 (a)(1); City of Vista v. Fielder
(1996) 13 Cal.4th 612, 617 n.1.) In either case, only an owner
of a business conducted on the property taken may claim
compensation for loss of goodwill. Existing law does not
identify a single acceptable method of valuing goodwill, and
courts have found that "valuation methods will differ with the
nature of the business or practice and with the purpose for
which the evaluation is conducted." (Muller, 36 Cal.3d 263, 271
n.7 [citations omitted].) However, the Eminent Domain Law
specifically excludes from compensation for goodwill any cost
that could have reasonably been prevented by a relocation of the
business or by the adoption of procedures that a reasonably
prudent person would take to preserve goodwill, or any other
costs that would be duplicative of compensation otherwise
awarded an owner. (See CCP Sections 1263.510(a)(2), (4))
Existing law sets out a number of qualifying conditions that
must be met in order to receive an award of compensation for the
loss of goodwill resulting from an exercise of eminent domain.
(See generally CCP Section 1263.510(a).) A California appellate
court recently described these qualifying conditions as follows:
The owner must prove that the goodwill loss "is caused by the
taking of the property" (causation); "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" (unavoidability);
and will not be duplicated by relocation payments under
Government Code Section 7262 or "in the compensation otherwise
awarded to the owner" (no double recovery). (See People ex
rel. Department of Transportation v. Dry Canyon Enterprises
(2012) 211 Cal.App.4th 486, 491 [emphasis in original].)
Existing law does not explicitly state that a business owner
must show proof of preexisting goodwill as a threshold condition
to recovering for loss of goodwill, but many courts have found
this requirement implicit in the Eminent Domain Law. Indeed, a
number of courts have viewed compensation for loss of goodwill
as "a two-step process." (City of Santa Clarita v. NTS
Technical Systems (2006) 137 Cal.App.4th 264, 269.) Under this
two-step process, "a business owner is entitled to a jury trial
on the amount of goodwill lost by a taking only if he/she first
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establishes . . . that the business had goodwill to lose." (Dry
Canyon Enterprises, 211 Cal.App.4th 486, 491; see also
Emeryville Redevelopment Agency v. Harcros Pigments, Inc. (2002)
101 Cal.App.4th 1083, 1118 n.13 [a threshold finding that the
business had no goodwill to lose would preclude a jury award for
loss of goodwill].) "Whether the qualifying conditions for such
compensation . . . have been met is a matter for the trial court
to resolve," and "[o]nly if the court finds these conditions
exist does the remaining issue of the value of the goodwill
loss, if any, go to the jury." (NTS Technical Systems, 137
Cal.App.4th 264, 270.) The business owner seeking compensation
is thus vested with the initial burden of showing entitlement to
compensation for lost goodwill.
Appellate courts have articulated different evidentiary
standards for this threshold burden. Some require an owner to
adduce enough evidence to enable a jury to find that goodwill
existed prior to the taking. (See Redevelopment Agency of San
Diego v. Attisha (2005) 128 Cal.App.4th 357.) Others have
required a showing of preexisting goodwill sufficient to prove
its existence to the court's satisfaction. (See Emeryville
Redevelopment Agency v. Harcros Pigments, Inc. (2002) 101
Cal.App.4th 1083.) This bill effectively codifies the standard
adopted in Attisha by adding as a statutory precondition to
recovery that the owner of a business adduce sufficient evidence
to permit a jury to find that goodwill existed prior to a taking
before the owner can be compensated for any loss of goodwill.
Prior Legislation
SB 1650 (Kehoe, Chapter 602, Statutes of 2006) instituted
certain protections against potential misuses of eminent domain
powers, including prohibiting a public entity from using a
property for any use other than the "public use" stated in its
resolution of necessity, unless the entity first adopts a new
resolution that finds the public interest and necessity of using
the property for a new stated public use. The bill also
requires a public entity to offer a one-year leaseback agreement
to a property owner whose property was acquired under threat of
eminent domain, unless the public entity states in writing that
development or redevelopment of the property is scheduled to
begin within two years of its acquisition.
SB 1210 (Torlakson, Chapter 594, Statutes of 2006) requires a
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noticed hearing process prior to issuance of an order of
possession in an eminent domain case, and requires a public
entity to pay for an independent appraisal ordered by a property
owner when requested in an eminent domain action.
AB 237 (Papan, Chapter 428, Statutes of 2001) amended eminent
domain law to facilitate resolution of condemnation cases
without trial. Specifically, it allows parties to submit any
dispute in an eminent domain proceeding for mediation or
arbitration, requires appraisal summaries and offers of
compensation to contain detail sufficient to indicate the basis
for the appraisal or offer, and requires final offers and
demands to include all elements of required compensation,
including loss of goodwill.
AB 11 (McAlister, Chapter 1275, Statutes of 1975) amended
eminent domain law to require compensation for business losses
substantially in line with the Uniform Eminent Domain Code. The
bill provides compensation for loss of goodwill in both whole
and partial takings cases, but only to the extent such loss
could not reasonably be prevented by relocation or other efforts
by the owner to mitigate the loss.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 6/4/13)
Association of California Water Agencies
ARGUMENTS IN SUPPORT : According to the author:
Under current law, the governing body of a public entity
[must] 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.
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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. The addition of the following sentence could
resolve this issue: "the owner of the business establishes the
right to seek 'goodwill' pursuant to this section by adducing
enough evidence to permit the trier of fact to find that
goodwill existed prior to the taking."
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 of goodwill, and the appellate courts
have established different, inconsistent, standards.
ASSEMBLY FLOOR : 75-0, 4/11/13
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,
Cooley, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell,
Gray, Grove, Hagman, Hall, Roger Hernández, Holden, Jones,
Jones-Sawyer, Levine, Linder, Logue, Maienschein, Mansoor,
Medina, Melendez, Mitchell, Morrell, Mullin, Muratsuchi,
Nazarian, Nestande, Olsen, Pan, Perea, V. Manuel Pérez, Quirk,
Quirk-Silva, Salas, Skinner, Stone, Ting, Torres, Wagner,
Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A.
Pérez
NO VOTE RECORDED: Harkey, Lowenthal, Patterson, Rendon, Vacancy
AL:k 6/4/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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