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The People v. Dry Canyon Enterprises, LLC, 11/28/12

Plaintiff Department of Transportation (the State) initiated eminent domain proceedings against a strip of defendant vineyard’s land, as part of a project to widen the highway, and the vineyard was compensated for the land and vines. A jury heard evidence on lost goodwill, and the Superior Court of San Luis Obispo County, California, granted the State’s motion for judgment on the ground that no goodwill was proven. The vineyard appealed. The court of appeal held that under Code Civ. Proc., ? 263.510, a business owner was entitled to a jury trial on the amount of goodwill lost by a taking only if he or she first established, as a threshold matter, that the business had goodwill to lose. In the current case, the vineyard offered expert testimony, but that evidence was properly excluded based on the methods used. The cost-to-create method was inapplicable. The premium pricing method, which was invented by the vineyard’s expert, did not withstand scrutiny because it was inherently subjective, in that the “premium” that drove the value of the business’s goodwill depended largely on which competitive product was chosen. Bottom line, the method calculated lost future profits on a product that had yet to be profitable, and labeled those speculative losses “goodwill.” The court affirmed the judgment.