L. A. Cnty. Metro. Transp. Auth. v. Yum Yum Donut Shops, Inc.

32 Cal.App.5th 662

244 Cal.Rptr.3d 201

LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY, Plaintiff and Respondent,

v.YUM YUM DONUT SHOPS, INC., Defendant and Appellant.

B276280

Court of Appeal, Second District, Division 1, California.

Filed February 26, 2019

As Modified on Denial of Rehearing March 26, 2019

Murphy & Evertz, Douglas J. Evertz and Emily L. Madueno, Costa Mesa, for Defendant and Appellant.

Nossaman, David Graeler and Jennifer L. Meeker, Los Angeles, for Plaintiff and Respondent.

BENDIX, J.

Plaintiff Los Angeles County Metropolitan Transportation Authority (MTA) sued defendant Yum Yum Donut Shops, Inc. (Yum Yum) in eminent domain to take¹ one of Yum Yum’s donut shops that was in the path of a proposed rail line. Yum Yum sought compensation for the loss of goodwill resulting from that taking under Code of Civil Procedure section 1263.510 ( section 1263.510 ).² Under that statute, a condemnee must establish in a court trial entitlement to goodwill, including whether the loss of goodwill cannot be prevented by relocating or making other reasonable mitigation efforts. It is that condition to entitlement that is the subject of this appeal. If the condemnee meets the entitlement threshold in section 1263.510, section 1263.510 further provides for a jury trial to determine the value of the loss of goodwill.

The trial court concluded Yum Yum was not entitled to compensation for goodwill because Yum Yum unreasonably refused to relocate the shop to one of three sites MTA proposed at the entitlement trial. The undisputed expert testimony elicited at trial, however, established Yum Yum would lose some of the donut shop’s goodwill even if Yum Yum relocated the shop to one of those sites.

Accordingly, the question here is whether a condemnee is entitled to compensation for lost goodwill if any portion of that loss is unavoidable. We answer that question in the affirmative based on the statute’s legislative history, accompanying Law Review Commission Comments, case law, and the general principles governing mitigation of damages. Under these authorities, a condemnee need only prove some or any unavoidable loss of goodwill to satisfy the condemnee’s burden to demonstrate entitlement to compensation for goodwill under section 1263.510.

We conclude the trial court erred in finding that Yum Yum’s failure to mitigate some of its loss of goodwill precluded compensation for any loss of goodwill, reverse, and remand for a jury trial on the value of Yum Yum’s lost goodwill.

FACTUAL AND PROCEDURAL BACKGROUND

Yum Yum operates a chain of donut shops, including one located at 3642 Crenshaw Boulevard in Los Angeles, which facility Yum Yum leased and identified as Store 58. Yum Yum operated Store 58 for over 30 years until December 4, 2013, and had a "longterm lease." Yum Yum believed Store 58 benefitted from its location³ according to Yum Yum’s criteria for selecting shop locations.

Those criteria were: "(a) Located on the morning traffic side of the street. [¶] (b) Located on a heavily trafficked street leading to a freeway. [¶] (c) Easy access for ingress, parking, and egress. [¶] (d) Visible shop with visible convenient front end parking located near the shop’s entrance. [¶] (e) Free-standing building or, at minimum, a visible endcap space fronting directly on the street so as not to be blocked by other center tenants. [¶] (f) Located at or near a signalized intersection. [¶] (g) Suitable, visible pole sign available. [¶] (h) Enjoys a one-mile trade radius. [¶] (i) Building signs available with visibility from multiple directions. [¶] (j) Located in a densely populated area. [¶] (k) Located in a neighborhood with favorable demographics: a lower to middle income community. [¶] (l) Occupying a 1,200-square-foot to 1,700-square-foot space."

MTA sought to condemn Store 58 because it was in or appurtenant to the proposed path of a dual-track light rail line—the Crenshaw/LAX Transit Corridor Project—that MTA was planning to construct. MTA commenced eminent domain proceedings against Yum Yum in the trial court, and obtained an order for prejudgment possession of Store 58. Yum Yum then evaluated three potential sites to relocate Store 58, which sites MTA had proposed, and concluded those locations each failed to satisfy some of the aforementioned criteria.⁴

Subsequently, the parties appeared at a bench trial on whether Yum Yum was entitled to compensation for the loss of goodwill resulting from MTA’s taking of Store 58.

MTA’s expert on goodwill, Aaron Amster, a business appraiser, testified that the value of Store 58’s goodwill was $620,000. Amster further testified that if Yum Yum relocated to one of MTA’s three proposed sites, Yum Yum would recapture $202,000, $138,000, or $340,000 in goodwill, respectively. Amster opined, "some goodwill could have been preserved at all three of these potential relocation sites." On cross-examination, Amster stated his opinion’s corollary: "There would have been a loss of goodwill" if Yum Yum "had relocated [the shop] to one of these three locations." Further, Amster answered in the affirmative when Yum Yum’s counsel asked him, "there still would have been a loss of goodwill had [the shop] relocated according to your opinion?" In closing, Yum Yum argued it was entitled to compensation for the value of lost goodwill under section 1263.510 because Amster conceded Yum Yum would lose some goodwill even if it relocated the shop to one of the three potential relocation sites. Yum Yum further argued it was entitled to a jury trial under section 1263.510 to determine that value.

MTA argued that Yum Yum applied overly strict location selection criteria and unreasonably rejected the three potential relocation sites, thus precluding Yum Yum from seeking compensation for any lost goodwill under section 1263.510, subdivision (a)(2).

In its statement of decision, the trial court interpreted section 1263.510 as follows: "Where the condemnee cannot establish the facts showing it took reasonable steps to preserve its goodwill, it will not be entitled to any compensation for alleged loss of goodwill" and, if a business can retain some goodwill by relocating, it must do so. (Italics added.) The trial court cited section 1263.510, subdivision (b), 11 Miller & Starr, California Real Estate (3d ed. 2011) section 30A:45, pages 108-112 and 1 Matteoni & Veit, Condemnation Practice in California (Cont.Ed.Bar 3d ed. 2011) section 4:71, page 117 as authority for these propositions.

The trial court found Yum Yum acted unreasonably in applying overly strict location selection criteria and rejecting the three potential relocation sites based on Amster’s testimony.⁵

Thus, the trial court found Yum Yum was not entitled to a jury trial on the value of the compensation for any lost goodwill resulting from the taking of the shop because Yum Yum unreasonably failed to preserve some of the shop’s goodwill and could have done so.⁶ The trial court never held a jury trial on the value of Yum Yum’s lost goodwill, and entered a final judgment in MTA’s favor. Yum Yum timely appealed.

STANDARD OF REVIEW

"A trial court’s finding that a business owner has not established entitlement to compensation for a loss of goodwill is generally reviewed under the substantial evidence standard. (See Dry Canyon , supra , 211 Cal.App.4th at p. 493 [149 Cal.Rptr.3d 601].) To the extent the [trial] court’s conclusion is premised on the interpretation of the requirements of a statute, ... we review de novo. ( Id. at p. 491 .)" ( People ex rel. Dept. of Transportation v. Presidio Performing Arts Foundation (2016) 5 Cal.App.5th 190, 200 [209 Cal.Rptr.3d 461] ( Presidio ).) Substantial evidence is evidence that is " ‘of "ponderable legal significance." It must be "reasonable in nature, credible, and of solid value." ’ " ( County of Riverside v. City of Murrieta (1998) 65 Cal.App.4th 616, 627, 76 Cal.Rptr.2d 606.)

DISCUSSION

A. The Legislative History Of Section 1263.510 Indicates The Statute Is To Be Construed Liberally In Favor Of Providing A Remedy To Condemnees For Loss Of Goodwill Resulting From A Taking

Section 1263.510⁷ provides for compensation for the loss of goodwill resulting from a taking.⁸ Section 1263.510, subdivision (b) defines goodwill as "the benefits that accrue to a business as a result of its location, reputation for dependability, skill or quality, and any other circumstances resulting in probable retention of old or acquisition of new patronage."

"[T]he Legislature enacted section 1263.510 in 1975 as part of a comprehensive revision of eminent domain law." ( Chhour v. Community Redevelopment Agency (1996) 46 Cal.App.4th 273, 278, 53 Cal.Rptr.2d 585 ( Chhour ).) Previously, only constitutional provisions⁹ governed " ‘the form of property ... requiring just compensation,’ " and courts did not view those provisions as providing for goodwill as a compensable form of property. ( Chhour , supra , 46 Cal.App.4th at p. 278, 53 Cal.Rptr.2d 585, citing Community Redevelopment Agency v. Abrams (1975) 15 Cal.3d 813, 819, 126 Cal.Rptr. 473, 543 P.2d 905 ( Abrams ), Oakland v. Pacific Coast Lumber etc. Co. (1915) 171 Cal. 392, 398, 153 P. 705.)

"This judicial stinginess was displaced by the passage of Code of Civil Procedure section 1263.510." ( Chhour , supra , 46 Cal.App.4th at p. 278, 53 Cal.Rptr.2d 585.) "The section was enacted in response to widespread criticism of the injustice wrought by the ... historic refusal to compensate condemnees whose ongoing businesses were diminished in value by a forced relocation." ( People ex rel. Dept. of Transportation v. Muller (1984) 36 Cal.3d 263, 270, 203 Cal.Rptr. 772, 681 P.2d 1340 ( Muller ), citing Abrams , supra , 15 Cal.3d at p. 831, 126 Cal.Rptr. 473, 543 P.2d 905.) Thus, section 1263.510 is a remedial statute that is " ‘to be liberally construed , with a view to effect its objects and to promote justice.’ " ( Muller , supra , 36 Cal.3d at p. 270, 203 Cal.Rptr. 772, 681 P.2d 1340.) We are mindful of this...