California Eminent Domain Report : a blog following condemnation, inverse condemnation, and regulatory takings written by attorneys with Nossaman LLP.

I wanted to provide a quick update on some things about which we've reported over the past few months:

1.  Los Angeles Unified School District v. Casasola (2010) 187 Cal.App.4th 189

In Court Blurs Line Between Goodwill and Relocation Benefits, we reported on the Casasola decision, which expanded upon the earlier decision in Redevelopment Agency of the City of Emeryville v. Arvery Corporation (1992) 3 Cal.App.4th 1357 to hold that business owners cannot recover as lost business goodwill anything that falls within the scope of the Relocation Act, whether or not the losses are actually recoverable under the Relocation Act.  The opinion generated a lot of interest across California as practitioners waited to see what, if anything, the California Supreme Court would do (I heard many predictions that the Court would, at the very least, order the opnion depublished). 

Last month, the California Supreme Court denied both review of the Casasola case and the many requests to depublish the Court of Appeal's opinion.  Casasola remains the law.  Business owners facing relocation caused by eminent domain would be well advised to take note of the Casasola opinion.

2.  The Julia Morgan Building in Pasadena

In Pasadena May Use Eminent Domain for Historical Building, we reported on the City of Pasadena's efforts to acquire the former YWCA building designed by Julia Morgan.  A December 4 story in the Whittier Daily News, Pasadena takes control of former YWCA to preserve historic building, reports that the city has now taken possession of the building under an order for prejudgment possession.  The eminent domain action continues. 
 

3.  Petaluma Eminent Domain

In Highway 101 Interchange May Require Eminent Domain, we reported on potential eminent domain in the City of Petaluma to facilitate an interchange on Highway 101.  According to a Petaluma 360.com article, Petaluma OKs eminent domain for East Washington land, the City Council subsequently voted unanimously to proceed with the condemnations if negotiated solutions cannot be reached.   
 

4.  Glendale Sides With Developer

In Developer of Americana at Brand Shopping Center Requests Use of Eminent Domain for Expansion, we reported that developer Rick Caruso had asked the City of Glendale to consider using its power of eminent domain to acquire properties necessary to expand his Americana at Brand shopping center if he cannot acquire the properties on his own. 
 

According to a December 1 story in the Glendale News-Press, Council sides with Caruso, the City (actually, its redevelopment agency) agreed with Mr. Caruso, telling the owners they have 45 days to negotiate a price, come up with their own redevelopment plan, or face possible eminent domain. 
 

5.  And, Finally . . . More Space-Based Eminent Domain Games?

In Eminent Domain in Space?, we reported on a new card game titled Eminent Domain (the links between the game and eminent domain itself remained somewhat in question).  Just to show it isn't the first of its kind, a December 6 post by Martyn Daniel Pax Imperia 2 Eminent Domain Trailer by Vega reports on a 1997 computer game -- apparently, a "real time computer strategy game." 

And hey, nothing says fun like playing a computer game that follows an eminent domain case in real time (I think I may be missing something). 
 

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In Los Angeles Unified School District v. Casasola (Aug. 5, 2010), the Court of Appeal examined the interrelationship between recovery of lost business goodwill pursuant to Code of Civil Procedure section 1263.510 and recovery of relocation expenses pursuant to Government Code section 7267 et seq. 

My colleague, Gale Conner, prepared a good summary of the Casasola case detailing the facts and the Court's reasoning.  The bottom line is that the Court held that items that might be recoverable under the Relocation Act cannot be included in a claim for loss of business goodwill. 

At first glance, this does not seem surprising.  Section 1263.510 contains an express limitation that a goodwill award not be duplicative of relocation benefits.  And nearly 20 years ago, the court in Redevelopment Agency of the City of Emerville v. Arvery Corporation (1992) 3 Cal.App.4th 1357 held that expenses that could be recovered under the Relocation Act must be excluded from an award of business goodwill. 

But the Casasola opinion expands these concepts, holding that even if the expenses cannot be recovered under the Relocation Act, they are nonetheless precluded under the goodwill statute if they are the types of things that might have been recoverable under the Relocation Act. 

In Casasola, for example, the business owner spent over $1 million on business reestablishment costs to prepare the relocation site.  Since the Relocation Act caps such costs at $10,000, the court held that anything above that amount was not compensable -- under either the Relocation Act or as business goodwill.

The Casasola court concluded that it could not second guess the Legislature's decision to place a $10,000 cap on reestablishment costs by allowing the claim to come in under the guise of the goodwill statute. 

In my mind, this conclusion misses the mark.  Yes, the Relocation Act and section 1263.410 both deal, very generally, with the same subject matter.  But the policies behind the two statutory schemes are quite different, and the court's failure to understand this difference led it down the wrong path. 

Relocation benefits are available to every displaced business, whether that business is profitable or not.  The policy is that a government taking should not force someone out of business, even if the business is not economically viable.  However, the Legislature understandably wanted to draw some lines in this respect, and it capped some of what may be recovered as a relocation expenses (including the $10,000 cap on reestablishment costs). 

Loss of business goodwill is a whole different animal.  Not every business possesses goodwill, and not every displacement causes a business to lose goodwill.  But where a business does possess goodwill, and where the owner can prove that a displacement causes a loss of that goodwill, section 1263.510 makes that loss recoverable.  

The Legislature also placed limits on goodwill recovery, including an express requirement that the business owner take reasonable steps to mitigate the loss of goodwill.   And the goodwill statute contains no $10,000 cap on what the owner must spend in an effort to preserve goodwill.   

All one needs to do is flip the numbers from Casasola to see the problem with the Court's conclusion.  Instead of spending $1,300,000 to preserve $126,000 (as happened there), imagine a business that must spend $126,000 in order to preserve $1,300,000 in goodwill.  If the only viable relocation site for this $1,300,000 business requires $126,000 in reestablishment costs, the business must either (1) shut its doors, or (2) spend the $126,000.  Under section 1263.510, the owner clearly cannot opt to close the doors, claiming a total loss of goodwill; the owner would have failed to take reasonable steps to mitigate.

Thus, the owner must spend the money or its goodwill claim will be barred.  But the Relocation Act makes any such reestablishment costs over $10,000 non-compensable as relocation expenses.  And the Casasola opinion now also makes those costs non-compensable as lost business goodwill. 

Yet, the owner had to incur those costs, and they unquestionably lower the business' value.  (A hypothetical buyer facing $126,000 in relocation costs would clearly pay less than a hypothetical buyer not facing such costs.) 

Moreover, such relocations often do not proceed with such bright lines.  If the owner spends $126,000 out of pocket to render the site suitable, it is presumably an ineligible "reestablishment cost" (now barred under Casasola).  But if the landlord pays those costs as a tenant improvement allowance, subsuming the costs within the tenant's new rent, any increased rental expense qualifies as a classic example of something that impacts goodwill.  (Indeed, the obligation to pay higher rent at the replacement site was a fundamental issue in the first California Supreme Court opinion to address business goodwill claims under section 1263.510, People v. Muller.)  

Should recoverability really come down to whether the tenant pays the costs up front or gets them included within its rent?

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