Superior Court of California

County of Los Angeles

Department 26

CITY OF INGLEWOOD,

Plaintiff,

vs.

DANFAR PCH, LLC; FARYAN ANDREW AFIFI; LEILA JANE AFIFI, et al.

Defendants.

Case No.: 21STCV06195

Consolidated with Case Nos.:

21STCV06223, and

21STCV06249

Hearing Date: October 27, 2023

[TENTATIVE] order RE:

plaintiff city of inglewood’s motion for determination of legal issues regarding goodwill valuation

Procedural Background

On February 16, 2021, Plaintiff City of Inglewood (“Plaintiff”) filed the instant three eminent domain actions against (1) Defendants Danfar PCH, LLC, Faryan Andrew Afifi, and Leila Jane Afifi, as Trustees of the Afifi Family Revocable Trust dated June 1, 2013 (collectively “Danfar Defendants”) in case numbers 21STCV06195 and 21STC06249, and (2) Savine Investments, et al. in Case Number 21STCV06223. The actions seek to obtain certain real property through eminent domain (Complaint, Ex. 2) for the Inglewood Basketball and Entertainment Center (“IBEC”) Project pursuant to a Developer Agreement between Plaintiff and Murphy’s Bowl, LLC (“Murphy’s Bowl”). (Complaint ¶ 2). Pursuant to Resolutions of Necessity, Plaintiff “seeks to transfer the propert[ies] to Murphy’s Bowl, LLC for the construction and development of the IBEC Project, and [Plaintiff asserts that it] has ensured that there are adequate controls to preserve the public use of the property in perpetuity[.]” (Complaint ¶ 9(E), Ex. 1.)

On March 1, 2021, Plaintiff filed its motion for prejudgment possession and certification of taxes, which the Court granted on June 28, 2021, and Plaintiff took possession of Defendants’ properties. (Minute Order 06/28/2021.)

On April 15, 2021, the Court granted a notice of related cases that Plaintiff filed. As a result, the instant actions (21STCV06195, 21STCV06223, and 21STCV06249) were deemed related to seven other eminent domain actions that Plaintiff filed on February 16, 2021, including case numbers 21STCV06062, 21STCV06064, 21STCV06065, 21STCV06067, 21STCV06069, 21STCV06070, and 21STCV06251. (Minute Order 4/15/2021.)

On April 20, 2021, Plaintiff filed a motion to bifurcate, which Defendants opposed in part on May 13, 2021. At the May 26, 2021 hearing, the Court granted Plaintiff’s motion to bifurcate and bifurcated the trial into two phases: phase I for right to take issues, and phase II for valuation issues. (Minute Order 5/26/2021.)

On June 17, 2022, the Court issued its final statement of decision as to Phase I, finding in favor of Plaintiff for the right to take. (Final Statement of Decision 6/17/22.) Trial for Phase II regarding valuation issues is set for November 27, 2023.

On September 27, 2023, Plaintiff filed the instant motion for a determination of legal and evidentiary issues affecting the determination of compensation under Code of Civil Procedure § 1260.040(a). On October 16, 2023, Defendant Global Restaurant Hospitality Group, LLC (“Global”) filed an opposition. On October 20, 2023, Plaintiff filed a reply.

Legal Standard

Pursuant to Code of Civil Procedure section 1260.040(a), “[i]f there is a dispute between plaintiff and defendant over an evidentiary or other legal issue affecting the determination of compensation, either party may move the court for a ruling on the issue. The motion shall be made not later than 60 days before commencement of trial on the issue of compensation. The motion shall be heard by the judge assigned for trial of the case.”

Discussion

Plaintiff seeks (1) a ruling prohibiting Defendant Global from utilizing the contractual rental amount for the Property in its calculation of alleged goodwill damages and (2) a ruling that Global may not recover any bonus value it may possess in its leasehold interest in the Property as part of its claim for goodwill damages.

Contractual Rental Amount

“Compensation for the loss of goodwill under section 1263.510 involves a two-step process. First, the court determines entitlement: that is, whether the party seeking compensation has presented sufficient evidence of the conditions for compensation set forth in subdivision (a)—causation, unavoidability, and no double recovery—such that the party is entitled to some compensation. If the party meets this burden, the matter proceeds to a second step, in which a jury (unless waived) determines the amount of the loss.” (People ex rel. Dept. of Transportation v. Presidio Performing Arts Foundation (2016) 5 Cal.App.5th 190, 201 (“Presidio”).) “For purposes of compensation under section 1263.510, ‘goodwill’ is explicitly defined by the statute. Subdivision (b) of section 1263.510 states: ‘Within the meaning of this article, “goodwill” consists of the benefits that accrue to a business as a result of its location, reputation for dependability, skill or quality, and any other circumstances resulting in probable retention of old or acquisition of new patronage.’” (Id. at p.202.)

“Courts have long accepted that goodwill may be measured by the capitalized value of the net income or profits of a business or by some similar method of calculating the present value of anticipated profits.” (People ex rel. Dept. of Transportation v. Muller (1984) 36 Cal.3d 263, 271 (“Muller”).) “However, the courts have wisely maintained that there is no single acceptable method of valuing goodwill. [Citation.] Valuation methods will differ with the nature of the business or practice and with the purpose for which the evaluation is conducted.” (Id. at p.271, Fn.7.)
In Muller, the Supreme Court found that the loss of lower rent at the pre-taking location could be used in determining good will. (Muller at p.268, [“Section 1263.510 defines ‘goodwill’ as ‘the benefits that accrue to a business as a result of its location, reputation for dependability, skill or quality, and any other circumstances resulting in probable retention of old or acquisition of new patronage.’ Dr. Muller has clearly lost a ‘benefit’ which accrued to the practice as a result of its former ‘location.’ He has lost the cheap rent in an older building which enabled his practice to show a profit.”].) Similarly, in Presidio, the Court of Appeal affirmed the trial court’s finding of loss of goodwill due to an increase in rent at the new location. (Presidio at p.202, [“The Foundation also demonstrated that after the taking these characteristics had been compromised, due to the disadvantages of the new location (such as higher rent and a lack of amenities) and an operational disruption that tarnished its reputation. Furthermore, the Foundation experienced a reduction in patronage and revenue. [¶] A reasonable inference from this evidence is that the Foundation suffered some loss of the benefit that had accrued to the Foundation as a result of the factors set forth in the statutory definition of goodwill.”].) Thus, the contractual rent amount is both relevant and permissible in determining the value of lost goodwill.

Plaintiff’s reliance on New Haven Unified School Dist. v. Taco Bell Corp. (1994) 24 Cal.App.4th 1473 (“Taco Bell”) is misplaced. In Taco Bell, the trial court awarded goodwill damages to the lessee Taco Bell based on Taco Bell’s experts’ calculations. (Id. at p.1477.) In relevant part, “[t]he statement of decision did not assign a specific value to leasehold bonus value, or even distinguish between goodwill and leasehold bonus value, but it clearly reveals that the court included compensation for the loss of the favorable terms of the original lease in the compensation for loss of goodwill.” (Id. at p.1478.) The plaintiff School District appealed insisting that there needed to be a distinction between leasehold bonus value and goodwill. (Ibid.) As the Court of Appeal noted in Taco Bell, “[t]hough the distinction may be academic in some cases, it assumes practical importance here because of a deleted provision of the 1975 lease referring to ‘bonus value.’ We will examine the distinction and then consider the lease provision.” (Ibid.)

In relevant part the Court of Appeal noted that the 1975 lease agreement between the parties predecessors in interest originally gave the right for the lessee to recover the leasehold bonus value. (Id. at p.1480.) However, the predecessors in interest deleted this phrase for bonus value and initialed this deletion. (Id. at p.1481.) Based on this deletion, the Court of Appeal concluded that Taco Bell pursuant to the lease had waived the right to obtain the leasehold bonus value. (Id. at p.1483, [“Where the contract rental is below market value, the lessor's right of recovery is limited by the contractual rights of the lessee; by surrendering any right to recovery based on these contractual rights, the lessee gives the lessor the full bundle of rights in the event of condemnation and removes any impediment for the lessor to recover the full market value.”].)

Accordingly, the Court of Appeal “conclude[d] that the trial court erred in failing to deduct the amount of the leasehold bonus value from the award of $525,000 as compensation for lost goodwill. While the expert witness for School District put a value of $283,000 on the leasehold bonus value, the court made no finding on this issue. The case therefore must be remanded for the limited purpose of determining the amount of the bonus value so that the judgment can be reduced accordingly.” (Ibid.)

In sum, Taco Bell presented a unique situation where the deletion of a clause was found to have resulted in the lessee’s waiver of leasehold bonus value in an eminent domain action. As the Court of Appeal noted in Taco Bell, the distinction between goodwill and loss of leasehold bonus value is generally academic, and the reason it was not so in Taco Bell was due only to the deletion of clauses giving the lessee the bonus leasehold value from the lease.

Here, Plaintiff fails to point to any similar circumstance in the instant action. Thus, Taco Bell’s reasoning is not applicable as “ ‘[c]ases are not authority for propositions not considered.’ ” (Los Angeles County Metropolitan Transportation Authority v. Yum Yum Donut Shops, Inc. (2019) 32 Cal.App.5th 662, 673.) Rather, the Court is bound by the Supreme Court’s reasoning in Muller noting that contractual rent can be used to determine the valuation of goodwill.

Leasehold Bonus Value as Goodwill Damages

As Taco Bell noted, the distinction between goodwill and leasehold bonus damage is generally an academic distinction absent the unique circumstances in Taco Bell. Defendant Global cannot obtain double damages for the leasehold bonus value as both a separate compensation item under Code of Civil Procedure section 1260.220(a) and as a loss of goodwill under Code of Civil Procedure section 1263.510. The Court agrees that a party generally cannot recover the same damages twice. (See e.g., Roby v. McKesson Corp. (2009) 47 Cal.4th 686, 702.) However, Plaintiff fails to show any issue of double recovery. Plaintiff fails to show that Global is seeking leasehold bonus value as both a separate compensation item under Code of Civil Procedure section 1260.220(a) and as a loss of goodwill under Code of Civil Procedure section 1263.510.

CONCLUSION

Based on foregoing, Plaintiff City of Inglewood’s motion for determination of legal issues regarding goodwill valuation is DENIED. Specifically, Plaintiff’s motion (1) to preclude defendant Global Restaurant Hospitality Group, LLC ("Global") from basing its claim for loss of goodwill on the contractual rental amount for the property located at 3950 West Century Boulevard (aka 10004 Soutth Prairie Avenue), Inglewood, California (the "Property") in its calculations of alleged goodwill damages and (2) to preclude Global from recovering any leasehold bonus value is DENIED.

Moving Party is to give notice and file proof of service of such.

DATED: October ___, 2023 ___________________________

Elaine Lu

Judge of the Superior Court