Displaced Property Owner May Not Recover Expenses In Eminent Domain Proceeding That Are Deemed Nonrecoverable By Relocation Assistance Act

In Los Angeles Unified School District v. Casasola, (— Cal.Rptr.3d —-, Cal.App. 2 Dist., August 5, 2010), a court of appeal addressed whether property owners who were displaced when a school district condemned their property could “recover under the eminent domain law expenditures expressly deemed nonrecoverable under the Relocation Assistance Act, either because they are part of a class of nonrecoverable expenses or because they exceed [Government Code] section 7262’s $10,000 cap on reestablishment expenses.” The court held that a property owner may not recover such expenditures.

Facts

Rudy and Teresa Casasola (the “Casasolas”) owned a catering truck supply company located on Western Avenue. The Los Angeles Unified School District (“District”) filed an eminent domain complaint to condemn the property. The Casasolas purchased a replacement property on St. Andrews Place, which was much larger than the Western Avenue property, but required the Casasolas to reconfigure the property to accommodate their business.

The parties signed a stipulation that the Casasolas would vacate the Western Avenue property by September 4, 2007. The stipulation provided for a $5,000 per day penalty for each day the Casasolas remained on the property after September 9, 2007. In mid-September, the Casasolas asked for additional time to vacate the property and for District to waive the penalty. District agreed to forgive the daily penalty on the condition that the Casasolas agreed to vacate the property by September 30, 2007. Later in the month, the Casasolas asked to remain on the property until after September 30th but District denied their request. The Casasolas did not vacate the property until October 10, 2007.

During the eminent domain proceedings, the Casasolas claimed they were entitled to reimbursement of expenses they paid for mitigation to avoid loss of business goodwill. The Casasolas sought a total of $1,355,273. District had agreed to reimburse the Casasolas $213,252 for moving expenses, $10,000 for reestablishment expenses, and $1,000 for searching expenses. The Casasolas claimed the remaining $1,131,021 was compensable because it was spent to mitigate the loss of their business’s goodwill.

The parties agreed to settle the fair market value of the Western Avenue property for $1,259,000, the fair market value of the improvements to the real property for $267,091, and the fair market value of the loss of goodwill for $63,000. The Casasolas reserved the right to pursue additional relocation benefits in a separate administrative action. The trial court awarded District $180,000 as a penalty for the Casasolas’ failure to vacate the property on time.

Decision

The Casasolas claim that the expenses for which they are seeking reimbursement are “relocation” expenses that were incurred in relocating their business to the St. Andrews property. They assert “that because all the relocation expenses were incurred to avoid a loss of business goodwill” the expenses are compensable pursuant to (1) Code of Civil Procedure section 1263.510 “which provides that an owner of publicly-acquired property shall be compensated for lost business goodwill,” and (2) case law which “holds that expenses incurred to avoid a loss of business goodwill are also compensable under section 1263.510.”

The court of appeal held that although expenses incurred to mitigate loss of business goodwill may be compensable under some circumstances, they “are not compensable under section 1263.510 if they constitute ‘moving expenses’ or ‘reestablishment expenses’ as defined by Government Code section 7262 (section 7262) and California Code of Regulations, title 25, section 6090.” Because the Casasolas failed to show their claimed mitigation expenses were something other than “moving expenses” or “reestablishment expenses,” they were not entitled to be compensated for the expenses in the eminent domain proceeding.

Previously, the constitutional right to just compensation for the loss of property did not include the right to be compensated for loss of goodwill to a business. The Legislature enacted section 1263.510 to address this issue. Section 1263.510 recognizes the right to compensation for loss of goodwill under certain circumstances. Recovery of loss of goodwill is available “only to the extent that such loss is caused by the acquisition of the property or the injury to the remainder and cannot reasonably be prevented by a relocation of the business and by taking those steps and adopting those procedures that a reasonably prudent person would take and adopt in preserving the goodwill.”

The California Relocation Assistance Act provides an administrative procedure for individuals and businesses that are displaced by public projects to recover moving and related expenses. Government Code section 7262 provides that a displaced business may recover up to $1,000 for expenses incurred in searching for a replacement business and up to $10,000 for expenses necessary to reestablish the business at a new site. The compensation provided for pursuant to section 7262 is independent of eminent domain proceedings and the process to seek and obtain benefits is wholly administrative. If the property owner is not satisfied with the result of the administrative process, he or she must seek judicial review through administrative mandamus. An award of relocation assistance may not be challenged in an eminent domain action. The California Code of Regulations provides a breakdown of specific types of expenses that are compensable as moving expenses and reestablishment expenses.

Although prior case law suggests “in some circumstances there may be a limited right to reimbursement for costs incurred to mitigate the loss of goodwill,” this is not the issue before the court. In the Casasolas’ case, the issue to be decided by the court of appeal was whether a property owner “may recover under the eminent domain law expenditures expressly deemed nonrecoverable under the Relocation Assistance Act, either because they are part of a class of nonrecoverable expenses or because they exceed section 7262’s $10,000 cap on reestablishment expenses.” The court held that a property owner may not recover in an eminent domain action those expenses that are not recoverable under the Relocation Assistance Act.

Code of Civil Procedure section 1263.510 provides for compensation for lost goodwill when property is taken by eminent domain. Government Code section 7262 provides that a property owner may recover certain relocation costs incurred as the result of an eminent domain action. In fact, “section 1263.510 specifically references section 7262, stating that loss of goodwill is compensable if a displaced property owner proves, among other things, that ‘[c]ompensation for the loss will not be included in payments under Section 7262 of the Government Code.’” The court found that these statutes must be read together and harmonized if possible because they concern related subject matter.

Pursuant to section 7262, “moving expenses incurred in connection with an eminent domain action are fully compensable so long as they are ‘actual’ and ‘reasonable.’” Reestablishment expenses, however, are compensable only up to $10,000, even if those expenses are in fact “actual” and “reasonable.” The court opined that if it were to interpret section 1263.510 as urged by the Casasolas “to mean that all actual and reasonably incurred relocation expenses are compensable, whether they are ‘moving expenses’ or ‘reestablishment expenses,’ the “carefully drawn statutory distinctions between these categories of expenses” would be rendered meaningless. The court declined to interpret the statute in the manner urged by the Casasolas because doing so would second guess the legislature. The court concluded the trial court properly found the reestablishment and moving expenses were not compensable in the eminent domain proceedings.

The court of appeal further found the trial court did not err in enforcing the $5,000 per day penalty. The Casasolas stipulated to the penalty and the penalty was not procedurally unconscionable.

Questions

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