California Civil Jury Instructions (CACI) (2017)

3513. Goodwill

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3513.Goodwill
In this case, [name of business owner] is entitled to compensation for any
loss of goodwill as a part of just compensation. “Goodwill” is the benefit
that a business gains as a result of its location, reputation for
dependability, skill, or quality, and any other circumstances that cause a
business to keep old customers or gain new customers. You must include
the amount of any loss of goodwill as an item in your award for just
compensation.
New September 2003; Revised February 2007
Sources and Authority
• Compensation for Loss of Goodwill. Code of Civil Procedure section 1263.510.
• “Goodwill is the amount by which a business’s overall value exceeds the value
of its constituent assets, often due to a recognizable brand name, a sterling
reputation, or an ideal location. Regardless of the cause, however, goodwill
almost always translates into a business’s profitability.” (People ex rel. Dept. of
Transportation v. Dry Canyon Enterprises, LLC (2012) 211 Cal.App.4th 486,
493−494 [149 Cal.Rptr.3d 601], internal citation omitted.)
• “Historically, lost business goodwill was not recoverable under eminent domain
law. However, in 1975 the Legislature enacted section 1263.510 ‘in response to
widespread criticism of the injustice wrought by the Legislature’s historic
refusal to compensate condemnees whose ongoing businesses were diminished
in value by a forced relocation. [Citations.] The purpose of the statute was
unquestionably to provide monetary compensation for the kind of losses which
typically occur when an ongoing small business is forced to move and give up
the benefits of its former location.’ Thus, a business owner’s right to
compensation for loss of goodwill is a statutory right, not a constitutional
right.” (City and County of San Francisco v. Coyne (2008) 168 Cal.App.4th
1515, 1522 [86 Cal.Rptr.3d 255], internal citations omitted.)
• “Compensation for loss of goodwill in eminent domain proceedings ‘involves a
two-step process. Whether the qualifying conditions for such compensation
[citation] have been met is a matter for the trial court to resolve. Only if the
court finds these conditions exist does the remaining issue of the value of the
goodwill loss, if any, go to the jury. [Citations.]’ ‘Under section 1263.510,
subdivision (a), the business owner has the initial burden of showing
entitlement to compensation for lost goodwill.’ ” (City and County of San
Francisco, supra, 168 Cal.App.4th at pp. 1522–1523, internal citations omitted.)
• “After entitlement to goodwill is shown (which includes a showing that
compensation for the loss will not be duplicated) neither party has the burden of
proof with regard to valuation.” (Redevelopment Agency of the City of Pomona
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v. Thrifty Oil Co. (1992) 4 Cal.App.4th 469, 475 [5 Cal.Rptr.2d 687], internal
citations omitted.)
• “Only an owner of a business conducted on the real property taken may claim
compensation for loss of goodwill.” (San Diego Metropolitan Transit
Development Bd. v. Handlery Hotel, Inc. (1999) 73 Cal.App.4th 517, 537 [86
Cal.Rptr.2d 473], internal citation omitted.)
• “[W]hile there are no explicit statutory requirements regarding an expert’s use
of a particular methodology for valuing lost goodwill, the expert’s methodology
must provide a fair estimate of actual value and cannot be based on
hypothetical or speculative uses of a condemned business . . . .” (City and
County of San Francisco, supra, 168 Cal.App.4th at p. 1523, original italics.)
• “The underlying purpose of this statute is to provide compensation for the kind
of losses which typically occur when an ongoing business is forced to move
and give up the benefits of its former location. It includes not only
compensation for lost patronage itself, but also for expenses reasonably incurred
in an effort to prevent a loss of patronage.” (San Diego Metropolitan Transit
Development Bd., supra, 73 Cal.App.4th at p. 537, internal citations omitted.)
• “Goodwill must, of course, be measured by a method which excludes the value
of tangible assets or the normal return on those assets. However, the courts
have wisely maintained that there is no single acceptable method of valuing
goodwill. Valuation methods will differ with the nature of the business or
practice and with the purpose for which the evaluation is conducted.” (People
ex rel. Dept. of Transportation v. Muller (1984) 36 Cal.3d 263, 271, fn. 7 [203
Cal.Rptr. 772, 681 P.2d 1340], internal citations omitted.)
• “Although the statutory scheme applies only to eminent domain proceedings,
the right to recover lost goodwill has been extended to the indirect condemnee.
Thus, ‘goodwill is compensable in an inverse condemnation action to the same
extent and with the same limitations on recovery found in . . . section
1263.510.’ ” (San Diego Metropolitan Transit Development Bd., supra, 73
Cal.App.4th at p. 537, internal citations omitted.)
• “Goodwill may be measured by the capitalized value of the net income or
profits of a business or some similar method of calculating present value of
anticipated profits. Valuation methods differ with the nature of the business and
the purpose for which the evaluation is conducted. There is no single method to
evaluate goodwill.” (People ex rel. Dept. of Transportation v. Leslie (1997) 55
Cal.App.4th 918, 922–923 [64 Cal.Rptr.2d 252], internal citations omitted.)
• “[A] ‘cost to create’ approach is a permissible means by which to value
goodwill under [Code of Civil Procedure] section 1263.510 where, as here, a
nascent business has not yet experienced excess profits but clearly has goodwill
within the meaning of the statute and experiences a total loss of goodwill due to
condemnation of the property on which the business is operated.” (Inglewood
Redevelopment Agency v. Aklilu (2007) 153 Cal.App.4th 1095, 1102 [64
Cal.Rptr.3d 519].)
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• “As Aklilu implicitly recognized, unless there is independent proof that a
business possesses goodwill in the first place, the cost-to-create methodology
does not reflect the cost of creating any actual goodwill. Instead, it simply adds
up costs and calls the total ‘goodwill.’ The relationship between goodwill and
the costs to create breaks down even further when the condemnation takes only
a portion of the business’s goodwill. In that situation, it becomes necessary to
figure out which costs match up with which portions of goodwill that are lost;
in most cases, this will devolve into an exercise in futility or fiction.” (Dry
Canyon Enterprises, LLC,supra, 211 Cal.App.4th at p. 494.)
• “A business which is required to move because of the taking of the property on
which it operates has suffered a loss from the taking. This is true whether the
tenancy is for a fixed term, or is a periodic tenancy as in this case. The value of
the lost goodwill is affected by the probable remaining term of the tenancy.
Evidence of the remaining length of a lease and the existence of an option to
renew a lease are, of course, relevant for determining the amount of
compensation, if any, to be paid for loss of goodwill. Similarly, evidence of the
pre-condemnation duration of a periodic tenancy and the quality and mutual
satisfaction in the landlord and tenant relationship are probative for
determination of compensation for loss of goodwill.” (Los Angeles Unified Sch.
Dist. v. Pulgarin (2009) 175 Cal.App.4th 101, 107 [95 Cal.Rptr.3d 527],
internal citation omitted.)
• “[I]n some circumstances, there may be a limited right to reimbursement for
costs incurred to mitigate loss of goodwill.” (Los Angeles Unified School Dist.
v. Casasola (2010) 187 Cal.App.4th 189, 208 [114 Cal.Rptr.3d 318].)
Secondary Sources
8 Witkin, Summary of California Law (10th ed. 2005) Constitutional Law, §§ 1245,
1246
Friedman et al., California Practice Guide: Landlord-Tenant, Ch. 7-C, Bases For
Terminating Tenancy, ¶¶ 7:314−7.316.3 (The Rutter Group)
Wegner et al., California Practice Guide: Civil Trials & Evidence, Ch. 8C-H,
Foundation, ¶ 8:748.2 (The Rutter Group)
1 Condemnation Practice in California (Cont.Ed.Bar 3d ed.) §§ 4.64–4.78
14 California Real Estate Law and Practice, Ch. 508, Evidence: General, § 508.19;
Ch. 512, Compensation, § 512.13 (Matthew Bender)
4 Nichols on Eminent Domain, Ch. 13, Loss of Business Goodwill, § 13.18[5]
(Matthew Bender)
6A Nichols on Eminent Domain, Ch. 29, Loss of Business Goodwill,
§§ 29.01–29.08 (Matthew Bender)
20 California Forms of Pleading and Practice, Ch. 247, Eminent Domain and
Inverse Condemnation, § 247.136 (Matthew Bender)
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