California Court of Appeal Explains Hurdle for Recovering Goodwill in Eminent Domain Cases
A recent decision by the California Court of Appeal for the Second Appellate District held, for the first time, that the trial judge is the gatekeeper for landowners seeking goodwill in eminent domain actions. People ex rel. Dep’t of Transportation v. Dry Canyon Enterprises, LLC., 2d Civil No. B234198, filed November 28, 2012.
THE DECISION IN DRY CANYON ENTERPRISES
When a public entity exercises its power of eminent domain over a parcel of land occupied by a business, that public entity has a constitutional duty to pay just compensation (i.e., fair market value) to the business owner for the property acquired. The business owner, in turn, has a right to a jury trial on the question of the fair market value of the property that has been taken, which fair market value includes a determination of the amount of any “business goodwill” lost due to the taking.
In People ex rel. Dep’t of Transportation v. Dry Canyon Enterprises, LLC, the parties had a jury trial on the issue of how much the State’s taking diminished the value of Dry Canyon’s business goodwill. Dry Canyon makes wine on land it owns in Paso Robles, California, where the State initiated eminent domain proceedings against a strip of Dry Canyon’s property abutting a highway. At trial, the State’s expert recounted that Dry Canyon was not profitable, and concluded as a result of its lack of profitability that Dry Canyon never had any goodwill prior to the taking. Dry Canyon’s expert, on the other hand, calculated the value of Dry Canyon’s goodwill at more than the value of the land and vines actually taken.
After the parties rested, the State moved for judgment on its behalf on the ground that Dry Canyon had not proved it had any business goodwill to lose. The trial court, after rejecting the theories of Dry Canyon’s expert, granted the motion and entered judgment in favor of the State. In affirming the trial court’s decision to take the case out of the hands of the jury, the Court of Appeal noted that each of the statutory preconditions to a jury’s determination of the value of goodwill refers to a “loss of goodwill.” It held that because a finding that the business had no goodwill to lose would preclude a finding of the statutory preconditions to recovery, the existence of goodwill itself will be a judicially added precondition to recovery. The Court of Appeal specifically declined to explain what burden a business owner bears in meeting the new precondition, noting that the question had not been presented as Dry Canyon had failed to present any competent evidence of preexisting goodwill.
SIGNIFICANCE OF DECISION
In light of the Court of Appeal’s decision, businesses defending eminent domain proceedings must be cautious of the burden they will bear in convincing not only the jury, but now the trial court as well, that a public entity’s taking has resulted in a loss of business goodwill. One of the key factors on which courts will focus is the question of whether the business was profitable prior to the taking, and thus had any goodwill to lose.
If you have any questions concerning this Litigation Bulletin, please feel free to call any of the following members of our Litigation Group:
Jeffrey N. Brown, Esq.
James L. Goldman, Esq.
I. Bruce Speiser, Esq.
Paul M. Torres, Esq.
Pircher, Nichols & Meeks
1925 Century Park East
Los Angeles, California 90067
The PN&M Litigation Bulletin is published as a service to our clients and friends. It is intended to provide general information and should not be acted upon without first obtaining professional advice appropriately tailored to your individual needs.