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by Michael Blahy
People love their donut and coffee while sitting in morning traffic on their way work. For over 30 years, Yum Yum Donut Shops, Inc. (Yum Yum), a chain of donut shops had the ideal location on Crenshaw Boulevard, half a mile from the Rosa Parks Freeway (Interstate 10) in Los Angeles.
The Los Angeles County Metropolitan Transportation Authority (MTA) had plans to build a rail line, the Crenshaw/LAX Transit Corridor Project.
In California, eminent domain law was governed by constitutional provisions which did not take into account goodwill built up by businesses forced to relocate. In 1975, the stinginess was corrected with the passing of Code of Civil Procedure section 1263.510. The courts view “section 1263.510 is a remedial statute that is ‘to be liberally construed, with a view to effect its objects and to promote justice.’ ” The statute requires, a condemnee to 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. Once entitlement is established, a jury trial would decide the value of that loss.
After failed negotiations, the MTA sued Yum Yum to take their Store 58 by eminent domain, since the property was required for a commuter transit project. MTA had proposed at least ten potential relocation sites, which all were rejected by Yum Yum. Three of the sites, MTA claimed were unreasonably rejected. Yum Yum argued that it would have to invest $250,000 to $300,000 to relocate Store 58 and most of those expenses would not have been reimbursable under the Relocation Act. The court heard undisputed expert testimony establishing some loss of goodwill at all the proposed sites, but [t]he 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.
Yum Yum appealed to the California Court of Appeals.
Yum Yum Store 58 possessed following favorable properties:
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) .
The appeals court agreed with the MTA argument that “the language of section 1263.510 is unambiguous. The statute’s unambiguous plain language provides that a condemnee must show it cannot prevent a loss of goodwill by relocating or otherwise taking reasonable steps to prevent that loss to be entitled to a jury trial on the amount of that unavoidable loss”. They noted the better argument that “if the condemnee would lose goodwill—even if it relocated its business or otherwise reasonably mitigated the loss—the condemnee satisfies its threshold burden”. They emphasized, “[n]othing in section 1263.510’s language provides that the condemnee is entitled to no compensation at all for lost goodwill if the condemnee fails to mitigate a portion of that loss”.
Appeals court summarised:
(Los Angeles County Metropolitan Transportation Authority v. Yum Yum Donut Shops (California Courts of Appeal, Docket: B276280(Second Appellate District)))
Decided: February, 2019
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