Second Avenue Subway and Judicial Takings

By M. Robert Goldstein & Michael Rikon

July 8, 2010

We read with interest the MTA’s press release that the construction of that part of the Second Avenue Subway, which ends at 63rd Street, is scheduled to be completed in 2016. Of course, that is only the latest in a series of pronouncements setting a timetable for completion, the earliest being for 2012, acknowledged in the press release itself. That is not good news for the retail tenants in that part of Second avenue affected by the ongoing construction, which has been described as a retail dead zone because of the subway construction. According to Crain’s New York Business of June 21-27, 2010 “since construction began three years ago, nearly 18 businesses have shuttered, ranging from wine shops and diners to drugstores and kitchenware shops.” We have been asked from time to time what remedies there are, if any. Our response has been that we believe, they should have redress but believe it may very well take the Court of Appeals to say so, as standing in the way is the Court of Appeals decision in Culver Contracting Corp. v. Humphrey, 268 N.Y.26 (1935).

This case, while not directly involving the issue, sets forth the then law as to such claims. As is set forth in the Appellate Division decision (241 App. Div. 825), a claim was made by abutting property owners for the damages caused by construction of a subway in the street on which they faced. The suit was for the damages caused by the construction “to property not acquired or extinguished in the proceeding.” The theory on which it was based was the impairment of access to the abutting owners. During the trial to fix damages, a suit was brought for a Writ of Prohibition by the subway contractor, which was contractually responsible to the City for such damages if the City was required to pay for them. We assume that part of the claim was the alleged negligence of the contractor. The Court held that the Condemnation Court did not have the jurisdiction to determine such a claim which would have denied the contractor a jury trial to which it was entitled and issued the writ. The Court did note that such a claim could be raised in an independent action. The property “extinguished,” as noted by the Court, appears to refer to the claim of a taking of the easement of access in the street by reason of the work being done to build the subway. However, it is in the statement by the Court of what constitutes such a claim which has relevance today.

That language has a direct impact on the present situation where the complaint is the construction taking place on Second Avenue has destroyed or seriously impaired the businesses of the retail tenants by impairing the access to these stores resulting in diminished business, vacancies and/or reduced rents.

While the Court acknowledged the continuing right to consequential damages to the remainder of property by reason of the use of the portion of the property acquired, it stated:

“Not all damages which flow from the use to which the condemned property is put can be recovered in condemnation proceedings. It is only for the taking by way of fee or easement that payment must be made in condemnation. If the property taken is to be used in such manner as permanently to interfere with or diminsh the value of the remaining property as in South Buffalo Ry., Co. v. Kirkover (126 N.Y. 301), where a steam railroad was to run over the strip taken, or in the elevated railroad cases in New York City (Story v. N.Y. El. R.R. Co., 90 N.Y. 122; Kane v. N.Y. El. R.R. Co., 125 N.Y. 164; Bohm v. Met. El. Ry. Co., 129 N.Y. 576; Amsterdam Bank Note Co. v. N.Y. El. R.R. Co., 129 N.Y. 252) where the easements of light air and access appurtenant to the abutting houses and property were cut off amounting to a deprivation of property within the meaning of the constituion, then the use to which the property taken is to be put must be considered in ascertaining the damages in the condemnation proceedings. (emphasis added)

The distinguishing word in this paragraph is the word “permanent.”

The Court then quoting from the Kirkover decision (90 N.Y. 122) noted that in the Story case that property fronting on a street had easements of light air and access in the street which were appurtenant to the land and were compensable property if taken or injured. The Court then went on to qualify that right to where it was “by reason of the permanent use to which the part taken was put.” Again, the key word here is “permanent.”

While the elevated railroads in the cited cases were for the “permanent” injury to the light air and access, one probably cannot say the same for the construction of a below ground level subway in the street. The impairment to the easement appurtenant of access is temporary, lasting only during construction. While the subway is now not scheduled for completion until 2016, it is not permanent as there is an end point, even if later than 2016.

That there is an interference with the easement of access during construction is evident. That it causes damage to the abutting properties to which that easement is appurtenant is at least claimed. While New York does not recognize loss of business as a claim in a condemnation proceeding, it does recognize loss of rental value by reason of a taking. Further, while temporary proper and necessary work in a street which interferes with access to abutting properties has been ruled to be damnum absque injuria, that is not true to a non proper street use (Story, supra). We assume that if an elevated railroad is not a proper street use it similarly applies to a subway. There are cases applying to at grade street railways where the Court did not grant damages, not because it constituted a proper street use, but because it did not interfere with the Claimant’s access to his property in a meaningful way (People v. Kerr, 27 N.Y. 188 (1863) Kellinger v. Forty-Second St. etc., R.R. Co., 50 N.Y. 206 (1872).

But if you read carefully the language of Culver Contracting, it several times qualified the nature of the interference with access which was compensable in that it had to be “permanent”. On that basis, we assume the Courts would deny compensation if the taking was not at least a permanent taking and would not recognize a ten year construction period in the street as worthy of compensation. At least that has been the assumption ever since that case.

However, we have had a sea change in taking cases since Culver Contracting by reason of cases such as First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 482 U.S. 304 (1987) as regards the necessity for a “permanent” taking to secure compensation. That was a case sounding in inverse condemnation. The Supreme Court reversed the California courts’ holding that the only remedy in an inverse condemnation claim was the setting aside of the offending regulation and not the awarding of damages. The same rule had been applied in New York in Fred F. French Investing Co., 39 N.Y. 2d 587 (1976). In New York, bothCulver Contracting and Fred F. French appear to rest upon the “permanent taking” concept. The Supreme Court in first English held (482 U.S. at 305) that “where the government has ‘taken’ property by a land-use regulation, the landowner may recover damages for the time before it is finally determined that the regulation constitutes a “taking” of his property.” The Court went on the say;” ‘temporary’ regulatory takings which, as here, deny a landowner all use of his property are not different in kind from permanent takings for which the Constitution clearly requires compensation.”

New York has accepted this concept as is evident by Seawall Associates v. City of New York, 74 N.Y. 2d 92 (1989) and ANBE Realty Co., et al. v. City of New York, 223 A.D.2d 416, 636 N.Y.S. 2d 767 (1st Dept., 1996); Similarly, Manocherian v. Lenox Hill Hospital, 84 N.Y. 2d 385 (1994) found a state statute ( Ch. 940 of Laws of 1984) unconstitutional as a regulatory taking citing, Seawall. As the Court specifically held, there are no different taking tests “dependent on whether the takings were purely regulatory or physical.” As such, it sent the case back “to resolve rights and remedies.” This was accomplished by a suit in the Court of Claims, in which damages were fixed (See 520 East 81st Street Associates v. State of New York, 19 A.D. 3d 24, 799 N.Y.S. 2d (1st Dept., 2005).Seawall, in footnote 5, recognized the change in the law when it stated: “(2) even if the local law be viewed as a temporary provision, it results in a deprivation of the owners quintessential rights to possess and exclude and, therefore, amounts to a physical taking. Under First Lutheran Church v. Los Angeles County (482 U.S. 304) where, as here, the governmental action resulted in a per se taking, the offending action constitutes a taking for whatever time period is in effect.” In Anbe, supra, damages for the temporary period were granted.

Thus, it appears that the retail tenants, if not the property owners who house them, may wish to explore whether Culver Contracting Corp. v. Humphrey represents the state of the law today and whether that case is ripe for review as applies to what is going on in Second Avenue.

Judicial Taking

In our August 25, 2009 column, we discussed a case then being briefed in the U.S. Supreme Court which posed the question of whether there could be such a thing as a “judicial taking.” As we discussed above, the Courts have long recognized “regulatory takings,” that is takings occasioned from the use of the police power by the other two branches of government other than the judiciary. The contention in Stop the Beach Renourishment Inc. v. Florida DEP, decided June 17, 2010 was that in finding facially constitutional a Florida act, Florida’s highest Court overturned long established real property law and by so doing took the petitioner’s real property without compensation. We noted in that column that as a result of the case, we would find out if there was such a thing as a judicial taking. We were wrong.

All of the Justices found there was no factual predicate for the contention in that the Florida Supreme Court correctly found the statute was constitutional. Only eight justices sat on this case, Justice Stevens having recused himself. Four of the justices, led by Justice Kennedy, found there was no reason to decide the issue of whether there could be a judicial taking under the circumstances. In an opinion by Justice Scalia, joined by Justice Roberts, Thomas and Alito, it was strenuously argued that not only was the issue necessarily to be resolved in order to reach the question of the constitutionality of the statute, but that there could indeed be a “judicial taking” for the same reasons there could be a regulatory taking. The test the decision would apply is “that there is no fair and substantial basis” for the ruling complained of and “a property right is not established if there is doubt about its existence.” As the decision states, “if a legislature or a Court declares that what was once an established right of private property no longer exists, it has taken that property no less than if the State had physically appropriated it or destroyed its value by regulation.” (emphasis in original)

While this decision is not a majority decision, five of the Justices having not considered the issue, we are certain the next case on this issue will probably follow in due course. It appears apparent to us that this case was taken for review to establish this principle and particularly so in view of the intensity of Judge Scalia’s opinion. And, if so, one has to think through the implication of the observation in Matter of New York City Housing Authority v. Muller, 270 N.Y. 333, although written in another context:

“They have found here, as elsewhere, that to formulate anything ultimate, even though it were possible, would in an inevitably changing world be unwise, if not futile, lacking a controlling precedent we deal with the question as it presents itself on the facts at the present point of time. The law of each age is ultimately what that age thinks should be the law.”

Reprinted with permission from the July 8, 2010 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.