California Court of Appeal Once Again Addresses Business Goodwill
Posted in Court Decisions

Business goodwill appears to be a hot topic for the California Court of Appeal, as it was the primary issue in the recent LAUSD v. Casasola opinion, and is again the focus of an unpublished decision that came down last week, People Ex Rel. Department of Transportation v. Ahn.

In Ahn, Caltrans condemned a shopping center where Ahn owned and operated a framing store and art gallery.  After Caltrans took possession, the owner transferred to a relocation site.  At trial, Caltrans' goodwill expert determined the business had $26,000 of goodwill in the "before condition," and no goodwill in the "after condition."  The owner's goodwill appraiser calculated the figures at $83,000 and $0; however, he also concluded the owner was entitled to $323,000 in additional compensation for mitigation expenses, consisting of loss of income, loss of inventory, labor, relocation expenses, cost of capital, and lease payments. 

The trial court concluded such expenses were not recoverable apart from lost goodwill, and therefore the $83,000 "before condition" value placed a cap on the maximum recovery.  The Court of Appeal agreed, holding that there was no requirement to calculate two distinct losses (loss of goodwill and the mitigation expense).  The Court also relied on the Casasola opinion and concluded that the owner's mitigation expenses may be "relocation expenses," and by not demonstrating that such mitigation expenses were moving or relocation expenses, they were properly excluded.  This suggests two cautionary principles:

  1. A business owner should take great care before expending money on mitigation efforts, ensuring that the expenses do not exceed the amount of goodwill the business possesses, as expenses that exceed the initial goodwill value may not qualify as reasonable.  Of course, from a business owner's perspective, this "cap" may be impossible to ascertain at the time the mitigation is necessary, especially when the efforts take place early in the litigation and prior to having a full appraisal completed.
  2. A business owner should take care to establish that items for which they seek to recover as lost goodwill do not fall within the scope of the Relocation Act.  Under Casasola, it is crucial for owners to take steps to ensure that any mitigation claim can be explained as something that does not fall within the Relocation Act.  This is especially problematic for costs to render a site suitable for a business, expenses which qualify as "reestablishment" costs, but which the Relocation Act caps at only $10,000.

The bottom line for any business being displaced by condemnation is that it should hire a qualified eminent domain lawyer early in the process -- and certainly before spending any significant money on a relocation. 

California Eminent Domain Report is a one-stop resource for everything new and noteworthy in eminent domain. We cover all aspects of eminent domain, including condemnation, inverse condemnation and regulatory takings. We also keep track of current cases, project announcements, budget issues, legislative reform efforts and report on all major eminent domain conferences and seminars in the Western United States.

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