BILL ANALYSIS �
AB 2023
Page 1
ASSEMBLY THIRD READING
AB 2023 (Wagner)
As Amended April 21, 2014
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 a business owner, when his or her business
property is subject to an eminent domain proceeding, to
establish, as a threshold matter, that goodwill existed before
the taking of the property, and overrules a specified appellate
court decision to the extent that the decision requires an owner
to establish preexisting goodwill by more than a preponderance
of the evidence.
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 of the
property if it 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.
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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)Holds that a business owner is entitled to a jury trial on the
amount of goodwill lost by a taking only if he or she first
establishes, as a threshold issue, that the business had
goodwill to lose. (People v. Dry Canyon Enterprises, LLC
(2012) 211 Cal. App. 4th 486.)
FISCAL EFFECT : None
COMMENTS : Whenever the state takes property for a public use
through its power of eminent domain, the United States and
California Constitution give the owner of the subject property a
right to "just compensation." In addition to the constitutional
requirement for just compensation for the property taken, Code
of Civil Procedure Section 1263.510 provides that the owner of a
business that is conducted on the condemned property 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 (so that
there will be no double damages). "Goodwill" is generally
defined to include such things as a reputation for dependability
and quality, a favorable location, or other circumstances that
help a business keep and draw customers.
This bill would require the owner of a business situated on
property that is taken by eminent domain to provide "credible
evidence" that goodwill existed before the taking of the
property, if the owner seeks compensation for the loss of
goodwill. Although existing law requires the owner seeking such
compensation to prove that the loss of goodwill cannot be
reasonably avoided by some other means and that the loss is not
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otherwise compensated, the law does not expressly require the
owner to prove that goodwill existed in the first place. This
bill would codify this seemingly sound reasoning by expressly
stating that the owner shall be compensated for goodwill if he
or she proves with credible evidence that goodwill existed
before the taking.
In addition, this bill would overturn a 2012 appellate court
ruling, at least to the extent that the decision implied that an
owner would need to establish preexisting goodwill by something
greater than a preponderance of the evidence. According to the
author, People v. Dry Canyon Enterprises (2012) 211 Cal. App.
4th 486 could be read to suggest that an owner must establish
goodwill by the higher standard of "clear and convincing
evidence" rather than the usual civil standard of "preponderance
of evidence." The Committee does not necessarily agree with
this reading of the case. The court in Dry Canyon only held
that an owner could not rely upon the "cost-to-create"
methodology of calculating loss of goodwill unless there was
"clear proof of preexisting goodwill." Whether or not "clear
proof" has the same meaning as "clear and convincing evidence"
is unclear, but it is important to stress that the court did not
hold, as a general rule, that an owner must prove goodwill with
"clear proof." Rather, the court's more narrow holding was that
there must be "clear proof" only if the owner relied upon a
particular methodology - "cost-to-create" - to calculate the
value of the lost goodwill. Indeed, the court expressly stated
that it was not considering the broader question of required
proof: "We leave for another day precisely what burden [of
proof] the business owner bears... the question is not presented
because the trial court here found that [the defendant] did not
present any competent evidence of preexisting goodwill."
Nonetheless, the Assembly Judiciary Committee concurs with the
author that there is no harm in clarifying the standard, so that
the Dry Canyon case is not read to imply, as a general rule,
that an owner must prove pre-existing goodwill by "clear and
convincing" evidence before the issue can be presented to the
trier of fact. This bill would only require "credible evidence"
of preexisting goodwill before the question of compensation for
loss of goodwill, along with the other required statutory
elements, would be submitted to the trier of fact.
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334
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