Sweet News for Yum Yum Donuts: Lost Goodwill is Not an All or Nothing Proposition

Josh Cohen | California Construction Law Blog | August 12, 2019

Last month a California Court of Appeals clarified that a property owner facing eminent domain is only required to prove partial loss of goodwill, not total loss of goodwill, to be entitled to a trial on the amount of goodwill lost.

Yum Yum Donuts operated a shop in Los Angeles that was subject to eminent domain by the Los Angeles Metropolitan Transportation Authority (MTA) to make way for light railway track. At trial, Yum Yum sought loss of goodwill as part of its condemnation damages under Code of Civil Procedure section 1263.510.

At trial the MTA’s expert testified that Yum Yum could have reduced its goodwill loss if it relocated to one of three alternative locations rather than simply closing the shop. But the expert conceded that even if Yum Yum had relocated, it would have lost some goodwill.  Yum Yum refused to relocate, arguing that its relocation costs would render the move unprofitable.  The trial court found that Yum Yum’s failure to mitigate its damages barred Yum Yum from having a jury trial to recover any goodwill damages.

Yum Yum appealed, and the Court of Appeal reversed, finding that a condemnee is entitled to a jury trial on the amount of lost goodwill if it can establish that it will still lose some of its goodwill if it relocates.  Reviewing the legislative history the Court found section 1263.510 was intended to displace “judicial stinginess” about compensating condemnees.  The Court concluded the statute provides a two-step process; the trial court determines if the condemnee meets its burden of establishing that the condemnation caused loss of goodwill, that the loss is unavoidable and that the condemnee will not be obtaining double recovery.  If the condemnee meets this burden, it’s entitled to a jury trial on the amount of lost goodwill.

The Court remanded the matter for a jury trial as to the amount of goodwill lost by Yum Yum, but given that Yum Yum failed to mitigate its goodwill loss, the matter is hardly a slam dunk.