BILL ANALYSIS �
AB 374
Page 1
GOVERNOR'S VETO
AB 374 (Wagner)
As Amended April 1, 2013
2/3 vote
JUDICIARY 10-0
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| |Wieckowski, Wagner, | | |
| |Alejo, Chau, Dickinson, | | |
| |Garcia, Gorell, | | |
| |Maienschein, Muratsuchi, | | |
|Ayes:|Stone | | |
| | | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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ASSEMBLY: 75-0 (April 11, 2013) SENATE:
36-0(September 3, 2013)
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:
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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.
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
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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 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.
AB 374
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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.
GOVERNOR'S VETO MESSAGE :
"This measure would reverse several appellate court decisions
allowing judges, in eminent domain claims for loss in business
goodwill, to decide facts before a jury decides on compensation.
In this case, I think the appellate courts got it right.
Judges are in the best position to decide whether businesses had
goodwill to lose before proceeding to costly jury trials."
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334
FN: 0002878