Opinion
E038350
12-13-2006
THE PEOPLE ex rel. DEPARTMENT OF TRANSPORTATION, Plaintiff and Respondent, v. TODD GIBBONEY et al., Defendants and Appellants.
Roger Jon Diamond for Defendants and Appellants. Bruce A. Behrens, Chief Counsel, Jeffrey A. Joseph, Deputy Chief Counsel, Jeffrey R. Benowitz, Assistant Chief Counsel, and Glenn B. Mueller, Deputy Attorney, for Plaintiff and Respondent.
INTRODUCTION
In this eminent domain action, the California Department of Transportation (CalTrans) sought to condemn real property in the City of Riverside upon which defendants, Todd Gibboney and Club 215, Inc., operated a totally nude dancing establishment known as the Temptations Theater (Temptations). The property was sought in connection with the expansion and renovation of the Interstate 60-91-215 interchange. All issues were resolved prior to trial except whether defendants were entitled to compensation for loss of business goodwill and, if so, the amount of lost goodwill.
Following a bifurcated, three-day bench trial on the issue of whether defendants were entitled, in the first instance, to any compensation for lost goodwill, the trial court concluded in a five-page statement of decision that defendants failed to meet their burden of proving, by a preponderance of the evidence, that their lost goodwill "cannot reasonably be prevented by a relocation of the business or by taking steps and adopting procedures that a reasonably prudent person would take and adopt in preserving the goodwill." (Code Civ. Proc., § 1263.510, subd. (a)(2).) Accordingly, there was no trial to determine the amount of lost goodwill. Judgment was entered in favor of CalTrans, and defendants appealed.
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
Defendants first contend the trial court erroneously concluded "that Gibboney could have reasonably relocated his business" (capitalization and emphasis omitted) to an existing topless bar that was available for sale, namely Cherries in Fullerton, or to other locations in the City of Riverside. Defendants further contend that Temptations could not have been relocated as a matter of law because, in any new location, it could be forced to operate as a partially nude dancing establishment. We affirm the judgment, for the reasons explained below.
FACTS AND PROCEDURAL HISTORY
A. Summary of Trial Testimony
Todd Gibboney is the principal owner of Club 215, Inc. Gibboney testified that in late 2002, he owned and operated two adult businesses through Club 215, Inc., namely a topless bar in Colton known as Club 215 and Temptations, a totally nude dancing establishment in Riverside. Club 215 opened in May 1996, and was licensed to serve alcohol. Temptations opened in April 1998. Like all nude or partially nude dancing establishments (in the latter, dancers wear pasties and G-strings), Temptations was not licensed to serve alcohol.
Gibboney testified there were other important distinctions between topless bars and nude dancing establishments. For example, nude dancers and patrons of nude dancing establishments must be 18 years of age; in topless bars, the dancers and patrons must be 21. Topless dancers must also maintain a certain distance from patrons. Temptationss door charges were higher than Club 215s, and Temptations sold nonalcoholic beverages at high prices. Attorney Roger Diamond had experience representing adult businesses, including Gibboneys. He testified that topless bars were "unlikely" to convert to nude dancing establishments because they would have to give up their valuable liquor licenses. However, he said "some people on occasion have done that."
Gibboney acquired a leasehold interest in the Temptations property in April 1997. The lease was scheduled to expire April 2007, but Gibboney had an option to extend the lease for five years and a right of first refusal to purchase the property. The property was located on East La Cadena Drive in the City of Riverside, near the Interstate 91-60-215 interchange and fairly close to Club 215 in Colton. It was in an M-2 zone which allowed adult entertainment, including nude dancing, and included a 4,000 square foot free-standing building with adjacent parking. At the time Temptations opened in April 1998, there were no other nude dancing establishments in the City of Riverside.
In mid-2002, CalTrans contacted Gibboney regarding its potential acquisition of the Temptations property for the purpose of expanding and renovating the Interstate 91-60-215 interchange. In August 2003, CalTrans filed suit to condemn the property. Temptations ceased operations in December 2003, and CalTrans took possession of the property five days later. In February 2004, CalTrans sent a letter to Gibboneys attorneys, listing several available adult businesses, vacant land, and buildings that CalTrans said Gibboney may wish to consider as potential relocation sites for Temptations. By the time of trial in September 2004, Temptations had not relocated.
In November 2003, Richard Saretsky, who had worked for CalTrans for 35 years, was assigned to assist Gibboney in relocating Temptations. Saretsky met with Gibboney to determine the needs of the business. During the ensuing months, he searched for and found several potential relocation sites for Temptations, including existing adult businesses, buildings, and vacant land. CalTrans also retained Rosalie Udewitz, a real estate feasibility and market research expert, to assist Gibboney in identifying potential relocation sites. Udewitz met with Gibboney in July 2003, and spent over 200 hours in identifying and analyzing potential relocation sites. Like Saretsky, Udewitz identified existing adult entertainment businesses, vacant land, and buildings available for sale, and presented them to Gibboney for his consideration.
Gibboney visited each of the sites identified by Saretsky and Udewitz. For various reasons, he concluded that none of the properties presented were suitable or feasible relocation sites for Temptations. He also searched for properties on his own and found none he considered suitable. He did not hire a real estate broker, relocation expert, accountant, or financial analyst to assist him in evaluating the economic feasibility of relocating Temptations, or in analyzing whether its goodwill value could be preserved by relocating the business.
B. The Trial Courts Statement of Decision
In its statement of decision, the trial court concluded that defendants, Gibboney and Club 215, Inc., failed to prove by a preponderance of the evidence that their loss of goodwill "cannot reasonably be prevented by a relocation of the business, or by taking steps and adopting procedures that a reasonably prudent person would taken [sic] and adopt in preserving the goodwill." (§ 1263.510, subd. (a)(2).) Accordingly, the case did not proceed to a jury trial on the amount of defendants lost goodwill, if any, and judgment was entered in favor of CalTrans.
The court specifically found that Udewitz "gave a thorough analysis of [how each potential relocation site] compared to [Temptations] and why it was a feasible consideration." But Gibboney, the court found, rejected each site for various reasons, which the court described as "too costly to purchase, too costly to build or retrofit, too far away, too small, too big, lacking street appeal, not easily accessible, and not highly visible from large public thoroughfares." The court found Gibboneys testimony "concise and knowledgeable" to the extent he identified "objective factors" such as "number of parking spaces, square footage, easy access, location and street visibility" in rejecting each relocation site.
However, the court found Gibboneys testimony concerning the financial aspects of his business "inconsistent and uninformed." For example, the court noted that Gibboney rejected one topless bar that was available for sale, namely Cherries in Fullerton, as a potential relocation site "because it was not economically viable based upon his personal experience." But, the court said, Gibboney "never reviewed or considered any financial documentation relating to that business." The court said that Gibboney also had a limited understanding of accounting principles, including the effect on income of taking business depreciation for construction equipment and fixtures. Thus, the court questioned the reasonableness of Gibboneys rejection of Cherries as a potential relocation site for Temptations.
On the whole, the court described Gibboneys testimony as "anecdotal and parochial." It found that Gibboney rejected the available adult entertainment businesses "for a variety of superficial or first impression reasons without a good faith analysis of the businesses." Similarly, it found he rejected the available vacant land and building sites without a good faith attempt to determine their economic feasibility. The court also noted that Gibbony did not retain a real estate broker or relocation expert to assist him in assessing the feasibility of relocating Temptations.
DISCUSSION
A. Applicable Law and Standard of Review
A business owner whose property is taken through eminent domain does not have a federal or state constitutional right to just compensation for loss of business goodwill resulting from the taking. (Community Redevelopment Agency v. Abrams (1975) 15 Cal.3d 813, 831-832.) The owner does, however, have a statutory right to compensation for lost goodwill under the conditions set forth in section 1263.510. For purposes of the statute, 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." (§ 1263.510, subd. (b).) The statute was enacted "to provide monetary compensation for the kind of losses which typically occur when an ongoing small business is forced to move and give up the benefits of its former location." (People ex rel. Dept. of Transportation v. Muller (1984) 36 Cal.3d 263, 270.)
As pertinent here, the statute provides, "(a) The owner of a business conducted on the property taken . . . shall be compensated for loss of goodwill if the owner proves . . . [¶] . . . [¶] (2) The loss cannot reasonably be prevented by a relocation of the business or by taking steps and adopting procedures that a reasonably prudent person would take and adopt in preserving the goodwill." (§ 1263.510, subd. (a).) Although the owner has a right to a jury trial on the amount of lost goodwill, the owners entitlement to compensation for lost goodwill is an issue for the court to decide in the first instance. (Emeryville Redevelopment Agency v. Harcros Pigments, Inc. (2002) 101 Cal.App.4th 1083, 1119 ["Only upon proving to the courts satisfaction that the statutory conditions are satisfied may the [owner] present evidence of lost goodwill to the jury"].) And, although neither party has the burden of proving the amount of lost goodwill (§ 1260.210, subd. (b)), the owner has the burden of proof on the entitlement issue by a preponderance of the evidence. (Regents of University of California v. Sheily (2004) 122 Cal.App.4th 824, 831; Evid. Code, § 115.)
Thus here, defendants were required to prove by a preponderance of the evidence that Temptationss loss of goodwill, if any, could not have been reasonably prevented by relocating the business, and that there were no other steps or procedures a reasonably prudent person could have taken to preserve the goodwill. (See Regents of University of California v. Sheily, supra, 122 Cal.App.4th at pp. 831-832; § 1263.510, subd. (a)(2).) In resolving any claim of insufficiency of evidence, this court is bound by the established rules of appellate review that all factual matters will be viewed most favorably to the prevailing party, and all issues of credibility will be resolved by the trier of fact. (Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 925.) But where the pertinent facts are undisputed, this court is confronted with a question of law and is not bound by the trial courts interpretation of the law. (San Diego Metropolitan Transit Development Bd. v. Handlery Hotel, Inc. (1999) 73 Cal.App.4th 517, 528.)
B. Analysis and Conclusions
Defendants contend that the trial court erred as a matter of law in concluding that defendants reasonably could have relocated Temptations. This argument misstates the courts conclusion. The court did not affirmatively conclude that Temptations could have been feasibly relocated to any location. Instead, the court concluded that defendants failed to meet their burden of proving, by a preponderance of the evidence, that Temptationss loss of goodwill, if any, could not have been reasonably prevented either by relocating the business or by taking other steps a reasonably prudent person would have taken to preserve the goodwill. (§ 1263.510, subd. (a)(2).) The evidence supports the courts conclusion.
Significantly, Udewitz presented extensive testimony concerning several potential relocation sites for Temptations within the City of Riverside. All of the Riverside sites were zoned M-2 for adult businesses, and all were close to nearby freeways. Some were also visible from nearby freeways and were in close proximity to Temptationss original location. And the parties stipulated that all of the Riverside sites identified by Udewitz met the citys zoning and parking distance requirements for the establishment of an adult business.
But as the trial court said, Gibboney rejected each of the proposed Riverside sites, "for a variety of superficial or first impression reasons without a good faith . . . attempt to determine [their] economic feasibility . . . ." Indeed, the evidence showed that Gibboney rejected each of the proposed Riverside sites out-of-hand — based on parking, freeway visibility, and other superficial reasons — without conducting any analysis of how any of these perceived drawbacks would have undermined Temptationss goodwill or customer base.
For example, Gibboney complained that many of the proposed Riverside sites had insufficient parking. But he presented no evidence of the number of parking spaces that were needed to serve Temptationss existing or anticipated customers. Nor did he present any evidence that Temptations would lose customers by relocating to a site with fewer available parking spaces. And, to the extent any additional parking spaces were needed to preserve Temptationss goodwill or customer base, there was no evidence that additional parking spaces could not have been procured, for example, by leasing them from nearby locations during evening or weekend hours.
Similarly, Gibboney complained that many of the proposed Riverside sites were not visible from or were too far away from existing freeways. But he presented no evidence that Temptationss existing customer base or goodwill value would have been compromised to any extent by a lack of freeway visibility. There was no expert testimony that Temptations would lose business unless it was visible from nearby freeways. Nor was there any evidence that a loss of business, if any was likely to result from such a relocation, could not have been substantially mitigated or completely avoided through advertising.
Furthermore, there was no evidence that the costs of tenant improvements to any of the proposed Riverside sites, and other necessary relocation expenses, would have been prohibitive in relation to the value of the goodwill to be preserved. As the court said, Gibboney had little understanding of accounting principles and no expertise in determining or preserving goodwill value. Nor did he hire anyone to assist him in evaluating the financial feasibility of relocating Temptations to any of the proposed sites. As such, Gibboneys rejection of the proposed Riverside sites was "without substantial justification and therefore not reasonable."
Defendants further argue that the court erroneously concluded that Temptations could have been feasibly relocated to Cherries, the topless bar for sale in Fullerton. In this regard, they argue that the testimony of Gibboney and Attorney Roger Diamond was uncontroverted to the extent it showed that topless bars cannot feasibly be converted to nude dancing establishments, or vice versa, because topless bars have valuable liquor licenses that nude dancing establishments cannot utilize. As noted, however, the court did not conclude that Temptations could have been feasibly relocated to Cherries or to any other existing adult business. Instead, the court questioned Gibboneys reasons for rejecting Cherries and the other suggested businesses that were for sale as part of its larger analysis of defendants failure to meet their burden of proof. As the court said, Gibboney rejected Cherries and the other businesses that were for sale without reviewing or considering any financial documentation concerning the businesses. Further, it was by no means undisputed that Temptations could not have been feasibly relocated to a topless bar or other existing business. Attorney Roger Diamond admitted that some topless bars had been converted to nude dancing establishments.
Defendants further contend that Temptations could not have been relocated to any new location as a matter of law, based on amendments to Penal Code sections 318.5 and 318.6, which became effective on July 1, 1998. Defendants argue that, under the statutes as amended, cities and counties may completely ban totally nude dancing in adult or sexually oriented businesses, but nude dancing establishments in operation before July 1, 1998 (e.g., Temptations, which opened in April 1998), would be exempt from any such bans. Thus, defendants argue, any relocation of Temptations after July 1, 1998, would eliminate its existing statutory exemption from city and county ordinances banning totally nude dancing establishments, and possibly require it to operate as a partially nude dancing establishment.
As CalTrans points out, defendants failed to raise this issue in the trial court. As a general rule, issues not raised in the trial court cannot be raised for the first time on appeal and may be deemed forfeited. (Tiernan v. Trustees of Cal. State University & Colleges (1982) 33 Cal.3d 211, 216, fn. 4.) And, although courts have at times considered pure questions of law for the first time on appeal, particularly where the issue concerns an important question of public policy, the issue defendants raise involves factual questions which cannot be resolved on the present record. (Sea & Sage Audubon Society, Inc. v. Planning Com. (1983) 34 Cal.3d 412, 417.) Indeed, defendants did not present any evidence that the City or County of Riverside has adopted an ordinance purporting to completely ban or regulate totally nude dancing establishments, or if any such ordinance is adopted it may withstand constitutional scrutiny. (See Ebel v. Corona (1985) 767 F.2d 635, 637-639 [ordinance regulating location of existing adult book store unconstitutional as applied].) Nor, for that matter, did defendants present any evidence that Temptationss ability to continue operating as a totally nude dancing establishment, as opposed to a partially nude establishment, was necessary to preserve Temptationss goodwill.
DISPOSITION
The judgment is affirmed. Plaintiff shall recover its costs on appeal.
We concur:
Richli Acting P.J.
Miller, J.