Court Decision on Loss of Goodwill Results in Sour Grapes for Business Owners

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California is one of only a few states in which a business may recover for loss of goodwill when property is taken by eminent domain, but even here there are limitations on a business' right to recover for such damages. Before a business can submit its goodwill claim to a jury, there are a number of procedural obstacles that must first be satisfied. These include demonstrating that the loss (i) is caused by the taking, (ii) cannot be prevented by relocation or other reasonable mitigation efforts, and (iii) will not be covered through another form of compensation, such as relocation benefits. A recent California Court of Appeal decision has added one additional procedural hurdle for businesses, and has provided guidance on the judge's role as gatekeeper to determine what evidence, if any, a business can present to a jury to support a claim of lost business goodwill.

In People ex rel. Department of Transportation v. Dry Canyon Enterprises (Nov. 28, 2012, Case No. B234198), the Court held that before a jury can determine the amount of a business' goodwill loss, in addition to satisfying the three express statutory conditions described above, the business must also prove to the judge that it had goodwill before the taking. While the existence of pre-taking goodwill has always been an implied essential condition to recovery (as there can be no loss if there is no goodwill in the first place), adding such a finding to the list of court-determined preconditions is a new requirement.

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