Community Redevelopment Agency v. Abrams

• Citation: 15 Cal.3d 813,126 Cal.Rptr. 473,543 P.2d 905
• Court: United States State Supreme Court (California)
• Decision Date: 29 December 1975
• Parties: , 543 P.2d 905, 81 A.L.R.3d 174 COMMUNITY REDEVELOPMENT AGENCY OF the CITY OF LOS ANGELES, Plaintiff and Appellant, v. Arthur J. ABRAMS, Defendant and Appellant. L.A. 30380.

Page 473

126 Cal.Rptr. 473

15 Cal.3d 813, 543 P.2d 905, 81 A.L.R.3d 174

COMMUNITY REDEVELOPMENT AGENCY OF the CITY OF LOS ANGELES, Plaintiff and Appellant, v. Arthur J. ABRAMS, Defendant and Appellant.

L.A. 30380.

Supreme Court of California,

In Bank.

Dec. 29, 1975.

Rehearing Denied Feb. 11, 1976.

Eugene B. Jacobs, Robert J. Hall, Oliver, Stoever & Laskin, Thomas W. Stoever and C. Edward Dilkes, Los Angeles, for plaintiff and appellant.

John H. Larson, County Counsel, Terry C. Smith, Asst. County Counsel, S. Robert Ambrose, Deputy County Counsel, Los Angeles, Martin & Flandrick, Robert Flandrick, San Marino, Harry S. Fenton, Sacramento, Joseph A. Montoya, Robert L. Meyer and Robert W. Vidor, Los Angeles, as amici curiae on behalf of plaintiff and appellant.

Fadem, Berger & Stocker, Fadem, Kanner, Berger & Stocker and Gideon Kanner, Beverly Hills, for defendant and appellant.

SULLIVAN, Justice.

In this action in eminent domain both parties have appealed from a judgment which, inter alia, awarded compensation to the condemnee, a pharmacist, for the value of certain 'ethical drugs' located on the condemned real property but refused to award any compensation for loss of business goodwill resulting from the taking. In dealing with the questions thus presented we are required to address a broad question of constitutional law which, to borrow the image used by one learned commentator in a similar context, has proved remarkably 'resistant to analytical efforts.' ¹ (See Sax, Takings, Private Property and Public Rights (1971) 81 Yale L.J. 149, 149.) Simply stated, the question is this: When and to what extent do the state and federal Constitutions require that the 'just compensation' to be paid upon the taking or damaging of private property for public use ² include payment over and above the fair market value of the property taken on account of business losses sustained by the condemnee as a result of the taking?

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 therefore. 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 legislature has so declared, it is the universal rule of construction that an injury or an inconvenience to a business is Damnum absque injuria, and does not form an element of the compensating damages to be awarded.' (Oakland v. Pacific Coast Lumber etc. Co. (1915) 171 Cal. 392, 398, 153 P. 705, 707.)

It now appears that while this matter was pending on appeal the Legislature acted in this respect. New section 1263.510 of the Code of Civil Procedure--signed into law by the Governor on October 1, 1975, as a part of a comprehensive revision of the eminent domain law of this state--will operate to render goodwill compensable to a certain extent in cases arising on or after January 1, 1976 (see new § 1230.065). This legislation, however, as all parties hereto readily concede, can have no application to the present proceeding, which was commenced in 1971--nor shall what we have to say below be construed to reflect any views on the part of this court relative to the validity or interpretation of the legislation itself. In the posture of the instant case, the question remains one of constitutional dimension: Must the settled rules of constitutional interpretation in this area now give way, in light of the changing conditions of urban society, to rules of similar constitutional statute providing for compensation for lost business goodwill and other incidental damages consequent upon exercise of the power of eminent domain?

I

The facts of the case before us are these: In the course of implementing its Watts Redevelopment Project, the Community Redevelopment Agency of Los Angeles (Agency) brought this action in eminent domain to acquire real property owned by defendant Arthur J. Abrams. For 27 years preceding the trial Abrams, a pharmacist, had operated his pharmacy on the subject property. His parcel lay within an area of approximately 20 square blocks condemned for the project, and the total condemnation not only took the pharmacy property but eliminated the neighborhood from which Abrams' clientele came.

In his answer to the complaint he claimed as elements of the just compensation required by constitutional provisions (see fn. 2, Ante) not only the value of the real property but also (1) the value of his inventory of so-called 'ethical drugs'--or drugs which may be sold only on prescription--which were in opened containers, and (2) the value of his business goodwill. In support of the latter element Abrams alleged that by reason of his age (64) and a reheumatoid arthritis condition from which he suffered he was incapable of relocating his business in a new area and thereby retaining or maintaining his business goodwill, and that as a result of this circumstance and the further fact that under state law his inventory of 'ethical drugs,' insofar as it was in containers already opened, could not be sold to another pharmacist without a certification of purity--the cost of which would exceed the value of the subject drugs--his inventory of 'ethical drugs' in opened containers would be rendered valueless by the taking of his real property.

The trial court found on the basis of substantial evidence that by reason of his age and physical condition Abrams was incapable of relocating his business in a new area; that the business goodwill of Abrams' pharmacy had been taken, damaged, and destroyed by the taking of his real property; and that the market for Abrams' stock of 'ethical drugs' had been likewise destroyed. As here relevant it concluded as a matter of law that Abrams was entitled to compensation pursuant to article I, section 14, of the state Constitution for his stock of 'ethical drugs' in open containers, but that he was not entitled to be compensated for business goodwill. On the basis of these findings and conclusions the trial court awarded Abrams $10,000, the stipulated value of the drugs in open containers, in addition to the value which the jury placed on the real property and fixtures; no award was made for loss of business goodwill. These appeals followed.

II

Defendant Abrams' arguments on the subject of compensation for business goodwill proceed on two distinct levels. The first is a general attack on the rule of noncompensability, based upon its asserted irrational and arbitrary character. The second is more specific, based upon the particular facts of this case: It urges that whatever be the general rule as to the compensability of business goodwill, compensation should be made when the condemnee is incapable of relocating his business and thus transferring Any part of his goodwill. We first address ourselves to the more general challenge.

It is urged that the rule of noncompensability for business goodwill is irrational because goodwill is itself 'property' in this state and as such should be subject to compensation like any other 'property.' It is pointed out that goodwill is declared by statute to be property; ⁴ that it is treated as such in matters of private law in the areas of tort (see Carrey v. Boyes Hot Springs etc. (1966) 245 Cal.App.2d 618, 622--623, 54 Cal.Rptr. 199), contract (see Lyon v. Lyon (1966) 246 Cal.App.2d 519, 54 Cal.Rptr. 829), business affairs (see Smith v. Bull (1958) 50 Cal.2d 294, 325 P.2d 463), marital dissolution (see In Re Marriage of Foster (1974) 42 Cal.App.3d 577, 117 Cal.Rptr. 49), and probate (see Rankin v. Newman (1896) 114 Cal. 635, 46 P. 742); and that it is taxable as such (Cal.Const., art. XIII, §§ 1, 2; Miller & Lux, Inc. v. Richardson (1920) 182 Cal. 115, 127--128, 187 P. 1041; Bank of California v. San Francisco (1904) 142 Cal. 276, 288--289, cf. dis. opn., pp. 291--292, 75 P. 832). The only area in which business goodwill is denied the status of property, defendant asserts, is when the government 'takes and destroys' it for public use. The result, it is urged, is not only a violation of constitutional 'just compensation' clauses (see fn. 2, Ante) but a denial of equal protection of the laws.

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, 153 P. 705) 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. ¹ . . . ( ) 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 compensation necessary, diminution of its value is considered a vaguer injury than the type of taking or appropriation with which the constitution deals. A business might be...