JUST COMPENSATION FOR GOODWILL

          The Fifth Amendment to the United States Constitution requires the court to award just and fair compensation.  But goodwill is rarely compensated.  Rather the courts will utilize a market approach unless property is truly unique, or to be exactly operated as before by the condemnor.  Matter of Nassau County (Lido Boulevard), 43 AD2d 45 (2d Dept 1973), afd. 39 NY2d 958 (1976).

          State and federal courts have long ignored the mandate to pay just compensation for the goodwill of a business.  In New York, trade fixtures used for business are compensable, but not the intrinsic value of a business which may have accrued over many years.

          The excuse most often given for this deprivation of property without compensation is that a talking by eminent domain only takes real property.  Banner Milling Co. v State of New York, 240 NY 533 (1125).

          It is interesting to note that in almost every other instance, the protections afforded by the amendments known as the Bill of Rights have been expanded to afford greater protections and rights for the citizens of the United States.

          Another theory upon which compensation has been denied is that whatever constitutes the business has not been “taken” even though one may argue that it constitutes some element of property.  (See 58 ALR 3d 566, § 2, Page 568.)  The rubric goes on to say that although the sovereign has taken the property, it has not taken, in the Constitutional sense, the business itself.  This has its foundation in Bothwell v United States, 254 U.S. 231, 41 S. CT. 74 (1920) where, on appeal from a Court of Claims decision, the noted liberal Justice McReynolds delivered the unanimous opinion of the Court in one page.  In Bothwell, the government had flooded certain lands in the course of which they destroyed grazing ability of the condemnee, causing him to have to sell his cattle at distressed prices.  The Court said, “Nothing could have been recovered for destruction of business or loss sustained through enforced sale of the cattle.  There was no actual taking of these things by the United States and, consequently, no basis for … compensation.”

          When we take someone’s business, we should pay the fair and reasonable value the business had as a going concern, a valuable property, clear and distinct with a ready market.

          If there was no condemnation and the business was sold on the market surely the goodwill would be part of the consideration between buyer and seller.

          If the condemnor takes a business to continue to operate it, the goodwill will be compensated since the property will be valued as a “going concern.”  Matter of City of New York (Fifth Ave. Coach), 18 NY2d 212 (1966).

          Appropriate expert witnesses can establish the appropriate just compensation for goodwill in eminent domain.  A loss of business can be translated into loss of market value.

          It is time for the State Legislature to amend the Eminent Domain Procedure Law to provide for compensation for loss of goodwill.

Posted in Going Concern, Goodwill, Uncategorized
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