Community Redevelopment Agency v. Abrams

Sixty years ago we answered this question in decisive fashion, and thereby stated the rule which presently applies in this state and, generally speaking, in all other jurisdictions of this nation.^[3] “[T]he real contention of appellant . . . [is] that business is property, and when the taking by the state or its agencies interferes with, impairs, damages, or destroys a business, compensation may be recovered therefor. We are not to be understood as saying that this should not be the law when we do say that it is not our law. It is quite within the power of the legislature to declare that a damage to that form of property known as business or the goodwill of a business shall be compensated for, but unless the constitution or the

The foregoing contentions betray a fundamental misunderstanding. The courts of this state have never taken the position that business goodwill is not property—indeed, such a position would be wholly inconsistent with statutory provisions to the contrary (see fn. 4, ante). What the courts have established is that “that form of property known as business or the goodwill of a business” (Oakland v. Pacific Coast Lumber etc. Co., supra, 171 Cal. 392 , 398) is not the form of property to which constitutional provisions requiring just compensation refer. As the leading commentator has stated the essentially universal rule, “An established business, or what is called ‘good will,’ has never been held to be by itself property in the constitutional sense.^[5] . . . [¶] While it may be an added element of value to a particular piece of land taken, a business is less tangible in nature and more uncertain in its vicissitudes than the rights which the constitution undertakes to protect absolutely. Although in some cases the destruction of an established business works a much greater hardship than many injuries for which the constitution makes

It is clear from the foregoing that defendant’s linguistic arguments based upon the status of goodwill as property simply ignore established precedents and, in so doing, beg the real question we face today. The fact that business goodwill is legislatively declared to be property and is treated as such in various legal contexts, does not render per se irrational a rule which refuses to treat it as such in a constitutional sense for purposes of awarding compensation in eminent domain. The inquiry must go much deeper—into an examination of the reasons for this distinction. Only when that examination has been made can it be determined whether the considerations of constitutional policy underlying it are presently valid.

Before turning to the indicated task we address ourselves to another contention of defendant which appears to us to be equally superficial. It is contended that the general rule denying compensation for loss of business goodwill is arbitrary because it is “shot through” with exceptions. The first such exception to which defendant refers is that relating to the condemnation of public utilities. (See Southern Calif. Edison Co. v. Railroad Com. (1936) 6 Cal.2d 737 , 750-751 [ 59 P.2d 808 ].) However, it must be noted that compensation awarded by the Public Utilities Commission for goodwill or going-concern value of public utilities is based upon wholly separate constitutional and statutory provisions.^[7] The

“What, then, are the circumstances under which the Fifth Amendment requires compensation for such an intangible? Not, indeed, those of the usual taking of fee title to business property, but the denial of compensation in such circumstances rests on a very concrete justification: the going-concern value has not been taken. Such are all the cases, most of them decided by State courts under constitutions with provisions comparable to the Fifth Amendment, in which only the physical property, has been condemned, leaving the owner free to move his business to a new location. [Citations.] In such a situation there is no more reason for a taker to pay for the business’ going-concern value than there would be for a purchaser to pay for it who had not secured from his vendor a covenant to refrain from entering into competition with him. It is true that there may be loss to the owner because of the difficulty of finding other premises suitably situated for the transfer of his good will, and that such loss, like the cost of moving, is denied compensation as consequential. [Citation.] But such value as the good will retains, the owner keeps, and the remainder dissipated by removal would not contribute to the value paid for by a transferee of the vacated premises, except perhaps to the extent that the prospect of its loss would induce the

We learn from the foregoing that the rule denying compensation for business goodwill, far from being “shot through” with exceptions, is uniformly applied in all cases to which it is applicable—i.e., in all cases wherein the condemnor takes the fee upon which a business is conducted and does not by the nature of its action wholly preclude the condemnee from transferring its going-concern or goodwill value to another location. We also learn that this rule is based on the conviction that it is “fair on the whole” to treat all such condemnees alike, refusing to create distinctions on the basis of “the remote possibility that the owner will be unable to find a wholly suitable location for the transfer of going-concern value.” (Kimball, supra, at p. 15 [93 L.Ed. at p. 1777].) We are thus brought to the question which lies at the core of our inquiry: Does the erosion by modem conditions of the assumptions underlying this rule require its abrogation as a matter of constitutional law and its replacement with a constitutionally grounded and judicially administered rule of compensation more responsive to present-day realities?^[9] It is to this question that we now turn our attention.

Ill

We judicially notice the following as facts “of generalized knowledge that are so universally known that they cannot reasonably be the subject of dispute” (Evid. Code, § 451, subd. (f)): The conditions of modern American life, including the increased concentration of people in urban centers and the need for increased governmental activity in the areas of transportation and urban redevelopment, have resulted in the disruption and displacement of increased numbers of people and businesses by

It is strenuously urged that because ultimate responsibility for determining the amount of compensation to be paid for property taken under constitutional “just compensation” clauses lies with the courts (see United States v. New River Collieries (1923) 262 U.S. 341 , 343-344 [ 67 L.Ed. 1014 , 1017, 43 S.Ct. 565 ]; Seaboard Air Line Ry. v. United States (1923) 261 U.S. 299 , 304 [ 67 L.Ed. 664 , 669, 43 S.Ct. 354 ]; Monongahela Navig’n Co. v. United States (1893) 148 U.S. 312 , 327 [ 37 LEd. 463 , 468, 13 S.Ct. 622 ]; County of Los Angeles v. Ortiz (1971) 6 Cal.3d 141 , 145 [ 98 Cal.Rptr. 454 , 490 P.2d 1142 ]), it is the courts who must fashion rules insuring that losses of business goodwill occasioned through condemnation be compensated.

This argument, at least insofar as it implies that the sole institution which may provide standards of compensation is the courts, proceeds upon an invalid premise, to wit, that the “just compensation” prescribed by constitutional provisions contemplates total indemnification for damage sustained through condemnation. However, as we have pointed out above (see text accompanying fn. 5, ante), the law simply does not equate “just compensation” with total indemnification.^[10] We have not far to look in California jurisprudence for cases other than those involving business goodwill in which demonstrable loss resulting from condemnation has been held not to constitute an element of constitutionally required “just compensation.” For example, in County of Los Angeles v. Ortiz, supra, 6 Cal.3d 141 , we held that a condemnee’s litigation expenses, although clearly resulting in a loss to the condemnee which he would not have sustained absent condemnation, did not, under a virtually unbroken line of authority, form an element of damage required to be paid by the Constitution. Such costs, we concluded, were “of policy as distinguished from constitutional dimension” and the allowance of their recovery rested with the Legislature rather than the

The central issue, then, is whether compensation for loss of business goodwill should be included within the constitutional minimum required by “just compensation” clauses or whether it should continue to be excluded from that measure and remain subject to legislative competence for the redress of demonstrable losses. We have concluded that valid reasons of policy, based primarily upon considerations of institutional competence, counsel in favor of judicial deference to the legislative branch in fashioning standards and procedures responsive to present realities in this area.

Loss of business goodwill due to condemnation of business premises is just one of a number of areas in which demonstrable loss and inconvenience are suffered by those who are uprooted from their homes and businesses by the modem phenomenon of urban redevelopment programs. The damage sustained ranges from the relatively imponderable (for example, educational damage caused young persons by midstream changes in schools) to the relatively tangible (for example,

The courts, although rarely making explicit reference to the overall problem, have, by their case by case rulings in accordance with established principles such as that we consider today, demonstrated a fundamental awareness of the real dimensions of the underlying problem. In the words of one perceptive commentator, “the courts recognize that they cannot, through the enunciation of doctrine which decides cases, adequately stake out the limits of fair treatment; that if the quest for fairness is left to a series of occasional encounters between courts and public administrators it can but partially be fulfilled; and that the political branches, accordingly, labor under their own obligations to avoid unfairness regardless of what the courts may require.” (Michelman, Property, Utility, and Fairness: Comments on The Ethical Foundations of “Just Compensation” Law, supra, 80 Harv.L.Rev. 1165 , 1252.)^[13]

In view of all of the foregoing we have concluded that sound reasons of constitutional and judicial policy counsel against a present reinterpretation of constitutional “just compensation” clauses to require compen

As we have pointed out above (part I, ante), the trial court in this case awarded compensation for the stipulated value ($10,000) of certain “ethical drugs” owned by defendant on the ground that condemnation had destroyed his market for these drugs. The drugs in question were in opened containers, and the trial court—apparently reasoning that because defendant Abrams’ physical condition rendered relocation of the business impossible, and because state law essentially forbids resale of “ethical drugs” in opened containers to another pharmacist without a certification of purity^[20] (the cost of which would exceed the value of the subject drugs)—concluded as a matter of law as follows: “Abrams’ ethical drugs in open containers, as his personal property, are compensable under Cal. Const. Art. 1, § 14 [now Cal. Const., art. I, § 19—see fn. 2, ante] (Sutfin v. State (1968) 261 Cal.App.2d 50 [ 67 Cal.Rptr. 665 ]).”

Plaintiff challenges this determination on appeal. It urges that the “ethical drugs” in question—i.e., those in opened containers—are movable personal property not affixed to the realty and as such are noncompensable in an eminent domain proceeding brought to acquire a parcel of real property. (See 2 Nichols, Eminent Domain, supra, § 5.84, pp. 5-438 - 5-439; City of Los Angeles v. Allen’s Grocery Co. (1968) 265 Cal.App.2d 274 , 279 [ 71 Cal.Rptr. 88 ].) It submits that the case of Sutfin v. State, supra, 261 Cal.App.2d 50 , cited by the trial court in support of its conclusion, is readily distinguishable because that case—an action in inverse condemnation for damage to automobiles inundated by flood waters resulting from a state highway project—involved actual physical invasion of the plaintiff’s personal property and moreover did not concern public acquisition of real property through eminent domain. The universal rule and California rule, plaintiff insists, is that personal property not affixed to the realty cannot form an element of compensation under constitutional provisions assuring “just compensation” when the realty is taken through eminent domain; this rule, it is asserted, applies regardless of whether the subject personal property is rendered essentially valueless by condemnation of the realty.

Defendant offers strenuous arguments to the contrary, urging that Sutfin is controlling and that recent decisions in state and federal courts have undermined the reasoning upon which the so-called general rule

We believe that all of defendant’s contentions in this respect may be answered by noting a fundamental distinction between this case and the Kimball Laundry case to which we have made extensive reference in part III above. In Kimball Laundry, it will be recalled, the United States Supreme Court held that when the government by its act of condemnation rendered the condemnee’s trade routes essentially valueless to it during the period of the temporary taking there involved, compensation was required because the specific nature of the condemnatory act involved (i.e., a temporary taking) in and of itself brought about the total devaluation in question.

In the instant case, on the other hand, the act of condemning the property upon which defendant conducted his business did not in and of itself result in the loss of value of which defendant complains. Rather, as we have pointed out above with respect to the matter of business goodwill, it was the personal circumstances of the condemnee himself—specifically his age and physical condition—which operated to prevent his transfer of his “ethical drugs” to a new location and his realization of their value at that new location. (See part IV, ante.) It was only this factor which rendered significant the fact of legal limitations upon the sale of those drugs to another pharmacist. Thus, the expansion of the general rule which defendant seeks is not one based on the nature-of the condemnatory act but upon its practical effect in particular personal circumstances. No case has been cited to us or has been found as a result of our study which would justify departure in this situation from the universal rule denying compensation for movable, nonaffixed personal property on condemned'realty.^[21] We conclude that the award of compensation on a constitutional basis in this instance was inappropriate and erroneous.

Considerations similar to those expressed by us in part III above also support our conclusion in this matter. The California Relocation Assistance Act, at section 7262 of the Government Code, makes specific provision for the award of statutory compensation in cases of this nature. Subdivision (a) of that section provides: “As a part of the cost of

Clearly the underscored language contemplates that an owner of a business on real property acquired for public use may elect either to move that business to a new location or to discontinue it entirely. When he chooses the latter alternative, as defendant Abrams has done in this case, and “actual direct losses of tangible personal property” result—as they are alleged to have resulted in this case—the statute provides for compensation up to “an amount equal to the reasonable expenses that would have been required to relocate such property, as determined by the public entity. Clearly, in the case of discontinuance as opposed to moving, the “reasonable expenses that would have been required to relocate” are those which would be required in order to place the subject property in the hands of one who could utilize it after the owner’s discontinuance of business. Here it was alleged, and the trial court apparently concluded, that those expenses would exceed the value of the “ethical drugs” themselves.

The presence of the foregoing statute, in combination with the considerations of policy which we have discussed in part IV above, buttresses our conclusion that the trial court was in error when it held that the settled rule of constitutional interpretation (forbidding compensation for personal property not affixed to the condemned realty) should be relaxed in cases wherein condemnation has the practical result-—due to circumstances personal to the owner—of diminishing the value to him of movable personal property located on the condemned premises. The Legislature has brought its special competence to this very area of incidental damage, and sound policy dictates that the courts refrain from setting up competing rules on a constitutional basis.

It might be thought, on the basis of the last paragraph but one, that we should affirm the judgment on this point in spite of the trial court’s