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I Represented the Devil of Brooklyn

In this article, Michael Rikon tells of his representation of a property owner who had the courage to object to the taking of his property by a well-connected real estate developer.

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Is a real estate tax assessment appeal admissible in a condemnation case?

It happens often during a condemnation trial. The attorney for the condemnor will attempt to move into evidence an application filed by claimant to reduce real estate taxes in a tax certiorari proceeding. The argument made is that the lower value placed on the property by the former owner in the tax appeal constitutes an admission against interest. That is why an article published on March 30, 2012 in the “New Jersey Condemnation Law” blog caught our attention.

In the blog, a Kansas case is reported where an owner of a Kansas City Mall challenged a $7.5 million award of court-appointed appraisers in an eminent domain case*, only to have the award reduced to $6.95 million at trial based on evidence of the property’s value from a prior tax appeal. The Kansas Supreme Court found “the tax appeal evidence was relevant to – both material to and probative of – the fair market of the subject property.” Proving that sometimes it is best to leave well enough alone. Kansas City Mall Associates, Inc. v Unified Government of Wyandette County, March 16, 2012, (Sup. Ct.) 2012 Kan Lexis 159.

The New Jersey condemnation law blog informs us that:

In New Jersey, a property’s assessed value is not admissible as proof of a property’s market value. However, New Jersey Rule of Evidence 803 (b)(2) could permit a valuation report, or other valuation evidence, from a property tax appeal to be admitted into evidence as an admission against interest. Notably, to be admissible, the rule does not require the statement to have been against the party’s interest at the time that the statement was made. However, the mere existence of an expert report is insufficient to have it admitted against a party, and the report must have been previously relied upon by the party to qualify as the party’s statement. See Skibinski v Smith, 206 N.J. Super., 349, 353-54 (App. Div. 1985).

But what is the rule in New York? At the outset, New York’s Eminent Domain Procedure Law provides that a condemnation claim may only be tried by a Supreme Court Justice, or if against the State, a Court of Claims Judge. EDPL Sec. 501(b); Accessocraft Products Corp. v City of New Rochelle, 7 AD3d 703 (2nd Dept. 2004). First, it is important to note that New York’s State Constitution provides two different formulas for fixing value in the two valuation contexts.

In a condemnation proceeding, the subject property must be valued at its highest and best use regardless of actual use. Matter of City of New York (Clearview Expressway), 9 NY2d 439 (1961). The valuation of the subject property is set forth in the parties’ appraisal reports. Upon trial, all parties shall be limited in their affirmative proof of value to matters set forth in their respective appraisal reports. 22 NYCRR 202.61(e). Article I § 7 of the New York State Constitution provides that “private property shall not be taken for public use without just compensation.” The constitutional requirement of just compensation requires that the former property owner be indemnified so that it may put in the same relative position, insofar as that is possible, as if the taking had not occurred. Buffalo v J.W. Clement Co, 28 NY2d 241 (1971). So, in condemnation, the subject property must be valued on highest best use.

There is fundamental difference in the valuation property for tax assessment purposes. Real Property Tax Law § 302(1) states that “the taxable status of real property in cities and towns shall be determined annually according to its condition and ownership as of the first day of March and the valuation thereof determined as of the appropriate valuation date.” The New York State Office of Real Property Services (“ORPS”) has set forth in their opinion on this issue in Volume 10, Opinions of Counsel SBRPS No. 45. This opinion discusses when property should be valued according to its current use, and when it should be valued based on its highest and best use. ORPS counsel concluded in their opinion that for purposes of real property tax assessments, property must be valued based on its current use, not its highest and best use. The courts in New York State have adopted current use as the general standard for tax assessment purposes in valuing improved properties.

The cardinal principle of property valuation for tax purposes set forth in the State Constitution is that property assessments shall in no case exceed full value. NY Const. Art. XVI § 2; Matter of Commerce Holding Corp., v Board of Assessors of the Town of Babylon, 88 NY2d 724, 729. A tax certiorari determination requires an inquiry as to the property’s condition and ownership on the applicable valuation date. RPTL § 301 (1). This controlling principle of valuation has been interpreted to require valuation of improved property according to its existing use, not a potential one contemplated in the future. Matter of Gen. Motors Corp. Cent Foundry Div. v Assessors of the Town of Massena, 146 AD2d 851, 852 (3d Dept 1989).

There are other reasons why a tax assessment review proceeding is irrelevant to a condemnation proceeding. First, the date of title vesting in a condemnation proceeding is different than a tax assessment date. Matter of Lincoln Square Slum Clearance Project, 22 Misc2d 260 (Sup Ct, New York County, 1959), affd and mod 15 AD2d 153 (1st Dept 1961) affd 16 NY2d 497 (1965). Second, building values in tax certiorari proceedings cannot exceed certain amounts; (Id). Specifically, the building value in a tax certiorari proceeding cannot exceed the buildings reconstruction cost less depreciation. No such limitation exists in establishing just compensation In an eminent domain proceeding. And third, evidence of earnings in a tax certiorari proceeding carries less weight than in a condemnation proceeding. (Id).

Some courts might permit the introduction of assessed value of property in a condemnation proceeding, but such evidence should only be admissible when the other proofs of value are questionable. This should be a rare situation in a condemnation case since the parties are preceding based on appraisals. When it is considered, it is generally to assure that compensation is not less than the assessed valuation. See Matter of City of New York (Brooklyn Bridge Southwest), 25 NY2d 627 (1969).

In Matter of City of New York (2460 Jerome Ave. Realty Co.), 18 AD2d 991 (1st Dept. 1963), the court considered the assessed value of the subject property only because there was no evidence of rental value of the property in question or sale value of comparable properties. And, courts have recognized that the probative value of a tax assessment proceeding is not very high in condemnation proceedings even when such evidence is admissible. For example, in In Re Shinnecock Inlet, 43 NYS2d 532 (Suffolk County Ct. 1955) the court did not consider tax assessment evidence because the facts and the testimony in the condemnation proceeding differed so widely from the real property tax valuation. The court in that case noted that “the tax valuation has little, if any, probative value.” (Id. At 536.) And in Matter of City of New York (Lincoln Square Slum Clearance Project), 15 AD2d 153 (1st Dept. 1961) the court acknowledged that statements made by property owners in prior tax assessment proceedings lacked probative value in condemnation proceedings when it explained that:

A certain degree of cynicism is no doubt warranted by the very general practice of landowners who have applied for writs of putting down estimates that vary widely from the claims that they make when the property is about to be condemned. (Id. At 163)

Another reason for non-consideration of a former owner’s application to reduce taxes is the general and well-established law and policy which prohibits disclosure of all tax filings because of their confidential nature. Gordon v Grossman, 183 AD2d 669 (1st Dept. 1992). Citing Matthews Indus. Piping Co v Mobil Oil Corp., 114 AD2d 772 (1st Dept 1985).

* This is Kansas’ initial procedure for determination of just compensation. If unsatisfied, either side may request a trial.

Reprinted with permission from the May 4, 2012 edition of the New York Law Journal © 2012 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

 

 

Ten Rules for Condemnor’s Counsel

In this article, Michael draws from his experience from 25 years of litigation to provide tips and insight for condemnation counsel that can lead to efficient and streamlined trial processes.

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Condemnation of Machinery and Equipment

In this article, Michael Rikon provides a broad overview of what eminent domain is and what it means for property owners who operate machinery on the premises. He surveys New York law, which provides a liberal definition of what constitutes a compensable trade fixture, and also examines how machinery would be treated in various other states in the U.S.

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Damages in a Partial Taking

The measure of damages in a partial taking case is the difference between the fair market value of the property before the taking and the fair market value of the remainder after the taking.[1] Property owners are always entitled to direct damages when there is a partial taking of property.[2] They may also be entitled to remainder damages if those damages can be established.[3] Remainder damages can be either severance or consequential damages, although both terms are often used interchangeably. Technically speaking, however, severance damages are the damages that are sustained by the remainder as a result of the loss of the property taken while consequential damages are the damages that are sustained by the remainder resulting from the condemnor’s use of the property acquired.[4] As one court explained:

Consequential damages, also known as severance damages, reflect the fact that in addition to the loss of value of the property actually taken, the condemnee’s remaining property may suffer a diminution in value as a result of the loss of the condemned parcels.[5]

In Dennison v State,[6] Justice Fuld (concurring) similarly noted that consequential damages are warranted for “items that would be taken into account by an owner and a prospective purchaser in fixing the property’s market value.” In that case, the Court of Appeals affirmed lower court decisions which awarded consequential damages for loss of privacy and seclusion, the loss of view, traffic noise, and lights and odors. Consequential damages have also been awarded in cases where there was a loss of enhancement due to the location and esthetic qualities of a claimant’s property; where access to the remaining property was found to be unsuitable; where there was a loss of access from the street to the garage on the remaining property; where the remaining property was irregularly shaped as a result of the taking; where the remaining property lost a setback; and where the remaining property lost a buffer zone.[7] Severance damages are also warranted when a partial taking renders remaining property a nonconforming use.[8]

Remainder damages are typically measured by the difference between the before and after values less the value of the land and improvements appropriated.[9] In another formula, the difference between the before and after market value of the remainder area is added to the market value of the land taken.[10] According to Powell on Real Property, the latter formula is sometimes difficult to apply because it may be difficult to assign a pretaking market value to the remainder area since that parcel was part of a larger piece of land before the taking.[11] In some instances, remainder damages are based on a percentage of the market value of the property before the taking.[12] Remainder damages can be based on the opinion of an experienced, knowledgeable expert, or they can be based on market data showing a reduction in value to the remainder as a result of the taking.[13]

In City of Yonkers v State,[14] the Court of Appeals held that consequential damages for loss of enhancement attributable to location and esthetic qualities could be established by the testimony of a real estate expert who converted the injury into an “economic dollar impact, expressed as a percentage diminution of total value.” The expert in that case was acquainted with the property at issue and was also qualified by experience to express an opinion as to factors affecting the market value of real estate.

As always, the measure of damages must reflect the fair market value of the property at issue in its highest and best use as of the date of the taking, regardless of whether the property is being put to such use at the time.[15]

[1] Diocese of Buffalo v State, 24 NY2d 320, 323 (1969)
[2] See Chiesa v State, 43 AD2d 359 (3d Dept 1974), affd 36 NY2d 21 (1974) (holding that an award for direct damages cannot be offset)
[3] Klein v State, 187 AD2d 706 (2d Dept 1992)
[4] Condemnation Law and Procedures in New York at 196, Santemma, Jon, ed., New York State Bar Association (2005)
[5] Matter of City of New York (Sewer Easements Between Darlington Ave), 2008 NY Slip Op 52261(U), 21 Misc3d 1128(A) (Sup Ct, 2008) (citing Murphy v State, 14 AD3d 127, 132 (2004)
[6] 22 NY2d 409, 414 (1968)
[7] Matter of City of New York (Sewer Easements Between Darlington Ave), Id. (citing City of Yonkers v State, 40 NY2d 408, 413 (1976); Schreiber v State, 56 NY2d 760, 762 (1982); Priestly v State, 23 NY2d 152, 155 (1968); Meyers v State, 215 AD2d 357, 357-58 (1995); Niagara Mohawk Power v Olin, 138 AD2d 940, 941 (1988); Monser v State, 96 AD2d 702 (1983); Cummings v State,62 AD2d 1084 (1978), lv denied 44 NY2d 648 (1978), appeal dismissed 44 NY2d 948 (1978)).
[8] Star Enterprise v State, Ct Cl, January 15, 1997, Silverman, J., Claim No. 85217; Matter of City of New York (Sewer Easements Between Darlington Ave), 25 Misc 3d 1240(A) (Sup Ct 2009)
[9] Chem. Corp. v Town of East Hampton, 298 AD2d 419, 420 (2d Dept 2002)
[10] Matter of City of New York (Sewer Easements Between Darlington Ave), 25 Misc 3d 1240(A)(citing13-79F Powell on Real Property § 79F.04)
[11] Id.
[12] Id. (citing City of Yonkers v State, 40 NY2d 408, 411 (1976); Estate of Haynes, 278 AD2d 823, 824 (4th Dept 2000)
[13] Matter of City of New York (Sewer Easements Between Darlington Ave), 2008 NY Slip Op 52261(U), 21 Misc3d 1128(A) (Sup Ct, 2008) (citing Chem. Corp. v Town of East Hampton, 298 AD2d at 422; Zappavigna v State 186 AD2d 557, 560 (1992)
[14] 40 NY2d at 413
[15] Chem. Corp. v Town of East Hampton, 298 AD2d at 420

 

Standing Under Eminent Domain Procedure Law

Reprinted with permission from the June 28, 2011 edition of the New York Law Journal © 2011 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

“Standing” is defined in Black’s Law Dictionary (8th ed) as “A party’s right to make a legal claim or seek judicial enforcement of a duty or right.” Black’s Law Dictionary also states in a quotation: “The word standing is rather recent in the basic judicial vocabulary and does not appear to have been commonly used until the middle of our own century. No authority that I have found introduces the term with proper explanations and apologies and announces that henceforth standing should be used to describe who may be heard by a judge. Nor was there any sudden adoption by tacit consent. The word appears here and there, spreading only gradually with no discernible pattern. Judges and lawyers found themselves using the term and did not ask why they did so or where it came from.”

Many cases in condemnation proceedings dealing with the issue of standing such as In re George Washington Bridge, 12 AD2d 18, 207 NYS2d 771 (1st Dept., 1960) make the flat out statement: “In order to have standing in a condemnation proceeding, one must show an ownership interest in property (Matter of City of NY (Jefferson Houses – Lombardi), 306 NY 778).” The issue in Jefferson Houses was whether a contract vendee may be heard in a condemnation proceeding, holding that a contract vendee has an equitable title and thus has standing to make a claim. However, see subsequently enacted General Obligations Law 5-1311 which limits a contract vendee to the return of his deposit. It is the term “ownership interest” and the nature of same which has been the subject of judicial interpretation. At the end of the day, the determination appears to be do you have an interest in the condemned property which will or does suffer an injury by reason of the condemnation?

There are two general areas where the issue of standing in a condemnation proceeding becomes an issue. One is the process leading to condemnation and the other on the issue of valuation. In discussing both, there are several sections of EDPL with which we are concerned. The first is EDPL § 101. EDPL § 101, in speaking of the purpose of the Eminent Domain Procedure Law (“EDPL”), mentions, among other things, “the opportunity for public participation in the planning of public projects necessitating the exercise of eminent domain.” Indeed, the procedure for approving a condemnation calls for the public to be heard at a public hearing conducted by the public body seeking the exercise of the power of condemnation. EDPL § 203 provides that “any person in attendance shall be given a reasonable opportunity to present an oral or written statement and to submit other documents concerning the proposed public project.”

Thereafter, the body seeking to condemn is to make specific findings in determining whether to condemn, including in EDPL § 204(B)(3); “the general effect of the proposed project on the environment and residents of the locality.” Further, any review of these findings pursuant to EDPL § 207(3), in the Appellate Division, is whether they were made “in accordance with Article Eight of the Environmental Conservation Law” (SEQRA).

Thus, it is clear that the public has a voice to be heard in determining whether to condemn particular property. But suppose that voice is neither heard nor listened to and it wishes to challenge the right to condemn. Are they then “persons aggrieved,” giving them that right? As hereafter discussed, case law has held that is the end of the public’s participation. There is no such right. Unless you are a potential “condemnee”, you have no right to challenge the right to condemn. Note that we use the term “condemnee” and not owner of property by reason of the EDPL use of that term and the widened net the term casts.

Defining Condemnee

So what is a condemnee? EDPL § 103(C) defines a condemnee as “the holder of any right, title, interest, lien, charge or encumbrance in real property subject to an acquisition or proposed acquisition.” Real property is defined in EDPL § 103(F) in the following way: “real property includes all land and improvements, lands under water, waterfront property, the water of any lake, pond or stream, all easements and hereditaments, corporeal or incorporeal, and every estate interest or right, legal or equitable, in lands or water, and right, interest, privilege, easement and franchise relating to same, including terms for years and liens by way of mortgage or otherwise.” The questions that come up in the cases dealing with this subject are what is meant by an “interest” in the real property and what is “every estate, interest and right, legal or equitable in lands or water, and right, interest, privilege, easement and franchise related to same.”

The Court of Appeals in Matter of East Thirteenth Street Community Association v New York State Urban Development Corporation,84 NY2d 287, 617 NY3d 706 (1994), dealt with some of this subject. There, a community organization, owning no interest in the real estate involved, sought to challenge the determination to condemn both as to the jurisdiction to condemn and as being in violation of the State Environmental Quality Review Act (SEQRA), as well as on other grounds. The Court dealt first with the provision in EDPL § 207(A) which provides that “any person — aggrieved by the condemnor’s determination and findings — may seek judicial review thereof.” The issue, as defined by the Court, was whether that language changed the historic rule that only those “persons having some proprietary interest in property could challenge a governmental taking.”

The Court concluded that nothing in the legislative history suggests that there was any intent to change the historic rule to limit standing to challenge the condemnation “to those suffering injury, economic or otherwise.” As the Court stated: “eminent domain statutes seek primarily to protect the interests of property owners and to ensure that their property is taken only in accord with proper procedure and for just compensation (see Fifth Avenue Coach Lines v City of New York, 11 NY2d 342; 51 NY JUR2d, Eminent Domain, Sec. 320).” (However, see Brody v Village of Port Chester, 345 F3d 103 (2d Cir, 2003), 434 F3d 121 (2d Cir, 2005) which holds contrary to the essential holding of Fifth Avenue Coach as to who is entitled to notice as part of what is proper procedure.)

But that still left open a further question. Among the issues to be decided in EDPL § 207(3) is whether the Determination and Findings were made in accordance with SEQRA. The issue was whether if a challenge were made as to conformance with SEQRA, did that not give standing under EDPL to anyone, condemnee or otherwise, who had standing to challenge under that statute? Here the Court split the baby. If not a condemnee, you could not challenge under SEQRA in the EDPL context; it had to be in a separate Article 78 proceeding. If, however, you were a condemnee, you had standing to challenge conformance with SEQRA pursuant to EDPL § 207.

Cognizable Interest

So what kind of interest is cognizable for standing purposes under EDPL? Justice Abraham Gerges dealt with that problem in Matter of City of New York (Bushwick Inlet Phase I), 809 N.Y.S.2d 480, 10 Misc3d 1060(A) (not otherwise reported) Sup. Ct. Kings Co. (2005). For this the decision quoted the Court of Appeals in Matter of City of New York (Jefferson Houses – Lombardi), 306 NY 22, 282 (1954): “with the passage of years, the statutes have been renumbered, revised and amended but it has not been made to appear that the interests cognizable by the Supreme Court sitting in condemnation proceedings have been limited thereby. Rather it would appear that, that by the very language used in defining the interests which make one an owner of ‘real property,’ the legislature intended to include as many of those different interests in real property affected by the condemnation proceedings as possible.”

We add to that the further quote from Jefferson Houses which gave the rationale for this expansive view of what is a condemnee, albeit it was in another context, by the decision noting that so restricting the condemnation court “would lead the parties to seek their remedies in other tribunals resulting in ‘multiplicity of actions and delay in justice.’ It was in Jefferson Houses that an executory contract vendee was deemed an equitable owner of the real estate which gave the Court jurisdiction to determine its rights in the condemnation proceeding pursuant to the historic statutory definition of real property as “every estate, interest or right, legal or equitable, in lands—.”

In Johnson v State of NY, 10 AD3d 596 (2004), three individuals held title to three separate contiguous parcels in their individual names but, in accordance with a partnership agreement, filed a single claim as a partnership. Since title was held individually, the Court held as the partnership did not have title to the property, legal or equitable, it had no standing to file a claim. Instead, it converted the claim into one by each owner and proceeded to value the property as a single economic unit, in effect treating it as if the claim had been filed by the partnership.

In Village of Port Chester v Sorto, 14 AD3d 570, 788 NYS2d 422 (2nd Dept., 2005) an occupant of a property, who occupied space leased by his brother in law, but without any written agreement was recognized as a claimant for his trade fixtures. As the Court stated: “The Village’s focus on the fact that the Appellant was not the named tenant and did not have a written assignment or sublease was misplaced in light of the broad and inclusive definition of condemnee.” (cases cited).

In In re Bushwick Inlet, supra, the Court found standing to challenge a taking by the holder of an unexercised option to purchase the property sought to be condemned as the holder of an equitable interest in the property. This appeared to be as much an equitable finding as the finding of an equitable interest. What is interesting in this is how an option is treated in different contexts. As was noted in the decision, for Statute of Frauds purposes, it has been held to be “an interest in real estate” Kaplan v Lippman, 75 NY2d 320 (1990). However, for purposes of compensation in a condemnation proceeding, it was not deemed to be a sufficient ownership interest, (In re Water Front on Upper New York Bay, 246 NY 1 (1927)), and for purposes of having a claim in a condemnation proceeding for an assignment of award which arose upon the failure to exercise the option to purchase, was not deemed a sufficient ownership interest (In re George Washington Bridge, 12 AD2d 18, 207 NYS2d 791 (1st Dept., 1960).

If one were to examine the application of the principle of what constitutes an ownership interest in early cases such as Matter of City of New York (Triborough Bridge), 257 App Dev 267, 12 NYS2d 884 (1st Dept., 1939) and George Washington Bridge, supra, and then compare it to more recent cases, it appears there is now a much broader interpretation as to what constitutes “every estate, interest or right, legal or equitable in lands” so as to give standing in a condemnation proceeding, particularly where required to do justice and avoid a multiplicity of suits. As the Appellate Division pointed out, that is because of EDPL’s “broad and inclusive definition of condemnee” and as the Court of Appeals pointed out in Jefferson Houses, “the legislature intended to include as many of these different interests in real property affected by condemnation proceedings as possible.”

Reprinted with permission from the June 28, 2011 edition of the New York Law Journal © 2011 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

Valuing Wetlands in Condemnation Proceedings

Valuing wetlands property in a de jure condemnation proceeding requires some familiarity with the Freshwater Wetlands Act, codified as Environmental Conservation Law (“ECL”) § 24 and the Tidal Wetlands Act, codified as ECL § 25. This is because, in valuing the property acquired, the court must be guided by the principles established for challenging the denial of a permit to develop regulated property. See, Matter of City of New York (Staten Island Bluebelt System – Phase 2), Sup Ct, Richmond County, July 13, 2007, Gerges, J., Index No. 4012/04 at 6. In the absence of a de jure condemnation proceeding, the Wetlands Act is shown to be confiscatory based on a judicial review of the denial of a permit to use the property in accordance with the Wetlands Act. The two-step process involved with the judicial review was explained by the Court of Appeals in St. Aubin v Flacke, 68 NY2d 66, 70 (1986) as follows:

If the court finds that the permit denial is supported by substantial evidence, then a second determination is made in the same proceeding to determine whether the restriction constitutes an unconstitutional taking requiring compensation. The taking determination is made on the basis of a full evidentiary hearing and if the landowner prevails the Commissioner [of Environmental Conservation] is directed at his [or her] option, to either grant the requested permit or institute condemnation proceedings.

A condemnee in a de jure proceeding should not be entitled to have his or her property valued as if there has already been a successful judicial challenge to the Act, however. That is why the wetlands property is valued as restricted by the Act, with an increment added only if the Wetlands Act is shown to be confiscatory. Matter of City of New York (Staten Island Bluebelt System – Phase 2), supra. The increment represents a value for the likelihood that a condemnee would have been able to prove that the Wetlands Act would have constituted a regulatory taking if the de jure taking did not occur. In Berwick v State, 107 AD2d 79, 84 (2d dept 1985), this was explained as follows:

The law follows the realities of the marketplace, which are that a knowledgeable buyer would adjust his [or her] purchase price to offset the cost in time and money of applying for a permit and challenging its denial in court as confiscatory. Certainly, a knowledgeable buyer would not pay claimants the full unrestricted residential values of their properties on the day of taking, when the wetlands restrictions were still legally in effect. He [or she] would pay only the value of the property as so restricted, plus some increment representing its enhanced value at such future time when he [or she] is successful in nullifying the wetlands restrictions in court.

This is consistent with Chase Manhattan Bank, N.A. v State, 103 AD2d 211, 219 (2d Dept 1984), where the court wrote:

The cost in time and money of applying for a permit and challenging in court any denial as confiscatory would naturally be taken into account by any purchaser even if there appeared to be an excellent chance of ultimate success. Hence, a showing that a challenge to the application of the Tidal Wetlands Act as confiscatory would have, at least, a reasonable probability of success in court should beget only an incremental increase in the value of the appropriate property as restricted.

The condemnee has the burden to prove that a constitutional challenge to the Act as confiscatory would have, at least, a reasonable probability of success in court. Berwick v State, 107 AD2d at 93. The Act is shown to be confiscatory by comparing the market value of the property without regard to the development restrictions of the Act with the market value of the property as so restricted. This requires a before and after analysis. The Act is confiscatory in nature if the “dollars and cents” evidence establishes that no permitted use under the regulation would produce a reasonable economic return. The question that must be answered is: has the regulation destroyed the economic value of the property, or all but a bare residue of that value? See, Chase Manhattan Bank, NA, v State, supraat 223. (If it be shown that the economic value of the parcel, or all but a bare residue of that value, has been destroyed by application of the wetlands regulations, the uncompensated taking cannot stand). One must consider all of the permitted uses that the New York State Department of Environmental Conservation would permit with the regulation in place. Spears v Berle, 48 NY2d 254 (1979); Friedenberg v NYSDEC, 3 AD3d 86 (2d Dept 2003). And, the uses should be supported by credible evidence. Matter of City of New York (Staten Island Bluebelt System – Phase 2), supra. The author of this paper imagines that a wetlands expert will be required to provide an opinion on the permitted uses. If the evidence establishes that a permitted use under the regulation would produce a reasonable economic return, then, presumably, the property should be valued as regulated without the benefit of the additional increment. But if the regulation is confiscatory, then the property owner is entitled to have the property valued as regulated with the benefit of an increment.

Two cases provide some guidance on the issue of whether the Act is confiscatory. In Chase Manhattan Bank, NA, v State, supra, the property at issue was worth $53,781 as a residential property without any development restrictions in place but worth only $7,400 for a recreational use that was permitted under the restrictions of the Act. The 86% reduction in property value established that the Act was confiscatory. Similarly, a 95% loss of value constituted a compensable taking in Friedenburg v NYSDEC, supra.

In Estate of Berwick v State, 159 AD2d 544 (2d Dept 1990), the Appellate Division provided an example of how the increment is calculated. In that case, various properties at issue were first valued as unrestricted by the Act with adjustments made to the properties. For example, downward adjustments were made to reflect the costs that would be associated with developing wetlands property. An upward adjustment was made to one of the properties because it had subdivision potential. Typical appraisal adjustments were also considered. The net adjustments were then applied in a comparable sales valuation analysis in order to produce a net unrestricted value. The value of the property as restricted by the Act was then deducted from the net unrestricted value. Presumably, typical appraisal adjustments were also considered in the appraisers’ restricted value analysis even though the decision did not specifically address the adjustments. The result was then discounted by a percentage that was selected by the appraiser to reflect the time, cost, and risk that would be involved with establishing that the wetlands restrictions are confiscatory. The analysis produced the value of the increment, which was then added to the value of the property as restricted by the Act. According to the court, this reflected what a knowledgeable buyer would pay for the property in light of the reasonable probability of a successful court challenge of the Act as confiscatory.

Palazzolo v. Rhode Island Under Attack and the Albany Government Law Review on Eminent Domain

Palazzolo v. Rhode Island

Most land use and condemnation lawyers are familiar with the holding of Palazzolo v. Rhode Island, 533 U.S. 606 (2001).  InPalazzolo, the Supreme Court repudiated the so-called “Notice Rule,” which held that post-enactment purchasers could not state a claim for a regulatory taking arising from restrictions adopted before they took title to the property.  This was the law of New York.  In Basile v. Town of Southampton,[i] 89 NY2d 974 (1997), cert den 522 U.S. 907, the Court of Appeals held:

Enactments which are legitimate exercises of police power, such as wetlands regulations here, do not effect a taking when a purchaser acquires property subject to such regulations. “The relevant property interests owned by (a purchaser) are defined by those State laws enacted and if effect at the time (title is taken) and they are not dependent on the timing of State action pursuant to such laws.” Matter of Gazza v. New York State Dept of Envtl Conservation, 89 NY2d 603, 616 (decided today). Since claimant took title to her property subject to wetlands regulations and the encumbrances of certain covenants, she cannot claim the value of the property without such restrictions.

But Palazzolo changed the holding of Basile that a property owner’s right to make reasonable use of the land does not end simply because the restrictive regulations predate the acquisition of the parcel.  The Supreme Court established a three-factor framework for reviewing regulatory taking claims in Penn Central Trans. Co. v. City of New York, 438 U.S. 104 (1978).  These circumstances include consideration of “the economic impact of the regulation on the claimant and particularly, the extent to which the regulation has interfered with the distinct investment back expectations (and) the character of the governmental action.” Penn Central, 438 U.S. at 124.

The Supreme Court now has before it in a petition to grant certiorari in Guggenheim v. City of Goleta, (No. 10-1125) an appeal from the Ninth Circuit of Appeals. Guggenheim involves the purchase of a mobile home park that was subject to the City of Goleta[ii] preexisting rent control laws. A divided Ninth Circuit en banc majority would not follow Palazzolo concluding that the fact that the Guggenheims purchased their property after the rent control became effective was “fatal” to the regulatory taking claim.[iii]

The case has been noted as important for several reasons. First it is argued that the Supreme Court should provide much needed certainty by reaffirming Palazzolo. It has also been argued that the Ninth Circuit has placed an expiration date on the takings clause which is the date the property is transferred.

We have written before on the subject of regulatory takings.[iv] In that column we commented on Friedenburg v State of New York,[v] we noted that case law indicated that a regulatory taking, as distinct from a physical invasion of the property, results not in a taking in fee but in a temporary taking. Thus, in First English Evangelical Church of Glendale v County of Los Angeles, 482 U.S. 304 (1987), an action for an inverse condemnation alleging a temporary taking by reason of an interim ordinance which prohibited constructing a building on the property involved, the Court held, contrary to the holding by the California courts, that the county had to pay damages for the period the property was, in effect, made sterile. As the Court said: “temporary takings which, as here, deny a landowner all use of his property are not different in kind from permanent takings, for which the construction clearly requires compensation _ _ _. The United States has been required to pay compensation for leasehold interest shorter than this _ _ _. While this burden results from governmental action that amounted to a taking, the just compensation clause of the Fifth Amendment requires that the governmental pay the landowner for the value of the use of the land during this period _ _ _ invalidation of the ordinance or its successor ordinance after that period of time, though converting the taking into a “temporary” one is not a sufficient remedy to meet the demands of the just compensation clause.

Later the Supreme Court went back to the theme of regulatory takings in Lucas v South Carolina Coastal Council, 565 U.S. 1003 (1992) in which Judge Scalia, writing for the majority, described the two instances where the balancing of interest discussed in Penn Central Transportation Co v City of New York, 438 U.S. 104, 98 S. Ct. 2646 (1978) did not apply, thus a per se taking. They are physical invasion of property and “where regulation denies all economically beneficial or productive use of land.” Of interest in the context of what we are discussing here involves the ripeness issue in that case. Subsequent to the initiation of the law suit, which was to declare a per se taking, the offending statute was amended to make it possible for the claimant to secure a building permit. Because the lower court declined to find the case not ripe for disposition on the merits, the Supreme Court also dealt with the case on the merits noting that even if a permit was later granted there still was a right to compensation for the temporary takings between the enactment of the regulation and its amendment.

New York has had its fair share of litigation involving regulatory takings which arose from legislation controlling rents and alteration of income producing properties. One such case is Seawall Associates v City of New York.[vi]

Seawall Associates (supra) involved a New York City Local Law, which prohibited the demolition, alteration or conversion of properties that contained single-room occupancy (SRO) dwellings. The law itself was quite draconian. It provided, by five year moratorium, extendable by potentially infinite five year renewals, that SRO property owners must rehabilitate and make habitable every SRO unit in their buildings and lease every unit to a “bona fide” tenant at controlled rents. The New York State Court of Appeals, found that this was an unconstitutional taking of property without just compensation. Judge Hancock, writing for the majority, said:

“Public use without just compensation was designed to bar Government from forcing some people alone to bear public burdens which in all fairness and justice, should be borne by the public as a whole (citing case)…”

Here, the claimed physical taking is the City’s forced control over the owners’ possessory interests in the properties, including the denial of the owners’ rights, to exclude others…Where. As here, owners are forced to accept the occupation of their properties by persons not already in residence, the resulting deprivation of rights in those properties is sufficient to constitute a physical taking of which compensation is required.

Under the traditional conception of property, the most important of the various rights of an owner is the right of possession which includes the right to exclude others from occupying or using the space…This right to exclude “has traditionally been considered one of the most treasured strands in an owner’s bundle of property rights.”

Regulatory Takings

In an amicus brief filed in the Guggenheim case, Robert H. Thomas, member of the Hawaiian Bar, one of the leading experts in the law of inverse condemnation,[vii] sets forth the subject of regulatory takings on a historical basis, starting with Pennsylvania Coal Co. v Mahon,[viii] while property may be regulated to a certain extent, “if regulation goes too far it will be recognized as a taking.”

Mr. Thomas explains that the Supreme Court has established two categories of regulations that are per se takings.  First “where government requires an owner to suffer a permanent physical invasion of its property – however minor – it must provide just compensation.”[ix] Second, a per se taking also occurs when a regulation deprives an owner of “economically beneficial use of her property.”[x]

The argument is that the right to make reasonable use of property is a personal right.  Quoting from Mr. Thomas’ amicus brief:

The right to make reasonable use of property is a fundamental constitutional right:

[T]he dichotomy between personal liberties and property rights is a false one. Property does not have rights.  People have rights.  The right to enjoy property without unlawful deprivation, no less than the right to speak or the right to travel, is in truth a “personal” right…In fact, a fundamental interdependence exists between the personal right to liberty and the personal right in property.[xi]

The Ninth Circuit’s fundamental flaw was its treatment of a property owner’s takings claim as something other than a personal right.  Instead, the Ninth Circuit treated the right as one that insures to the property, and not its owner.  However, it is the Guggenheim’s rights to make use of their property – not their predecessor-in-title’s – that is at issue in this case.  Even if the takings claim here was only the prior owner’s, the Ninth Circuit wrongly assumed it could not be transferred to the Guggenheims.[xii]

Because of the split in the Ninth Circuit, the number of cases which have been decided at variance with Palazzolo, and the fragmentation of the circuits, it is anticipated that the Supreme Court will grant the petition for certiorari.

Albany Government Law Review

The latest issue of the Albany Government Law Review is devoted to eminent domain.  The issue, volume 4, Issue 1 is titled “Eminent Domain: Public Use, Just Compensation & the Social Compact.”  Both writers of this column wrote articles.  M. Robert Goldstein wrote an article titled “The EDPL Revised.”  The article discussed the lack of any substantive effort by New York’s legislature to amend the law, “New York is a state which is not inclined to limit condemnation, at least so far.” But the article is a call for a much needed total revision of the Eminent Domain Procedure Law.  Michael Rikon’s article, “Moving the Cat into the Hat: The Pursuit of Fairness in Condemnation, or, Whatever Happened to Creating a Partnership of Planning,” is a critical review of Article 2 of the EDPL, the procedure used to approve and challenge condemnation.  The article comments on the fact that New York is somewhat oblivious to property rights in an eminent domain context.  It also notes that condemnation is used so aggressively to condemn private property to transfer to private owners that it can fairly be said that in New York, a condemnor can condemn a kasha knish.

The issue contains articles by well known experts on the subject.  The entire law review issue can be read online at www.albanygovernmentlawreview.org and click issues on the toolbar.

[i] The Basile case was argued by Michael Goldstein.
[ii] The City of Goleta is located adjacent to the University of California at Santa Barbara.
[iii] Guggenheim v City of Goleta, 2010 U.S. App Lexis 25981 (9th Circuit, Dec. 22, 2010).
[iv] See Temporary Regulatory Takings, N.Y.L.J., August 14, 2008.
[v] 52 AD3d 774 (2d Dept, 2008).
[vi] 74 NY2d 92 (1989).
[vii] His blog inversecondemnation.com is a must read.
[viii] 260 U.S. 393, 415 (1922).
[ix] See Loretto v Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982).
[x] Lucas v South Carolina Coastal Council, 505 U.S. 1003, 1019 (1992).
[xi] Lynch v Household Finance Corp., 405 U.S. 538, 552 (1972).
[xii] Amicus Brief, p. 21-22.

Reprinted with permission from the May 2, 2011 edition of the New York Law Journal © 2011 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

Basic Appraisal Concepts for Dummies

This article is a must-read for anyone seeking to understand how property is appraised in a condemnation proceeding. The basic approaches to valuation are explained and the USPAP standards as applicable to condemnation matters are discussed.

Read Article >>

Filing Reports Other Than Appraisal Reports in a Condemnation Case. And, an Inverse Condemnation Case

We have previously written on New York’s “Appraisal Rule.”i We noted that what makes discovery in a condemnation case particularly unnecessary is the fact that there are supposed to be no surprises at trial. This is because of the requirement to first exchange a written appraisal or other expert report. 22 NYCRR §202.61. See Osborn Memorial Home Associates v Assessor of the City of Rye, 2004 NY Slip op 50793 U (Westchester Sup Ct, 2004) where Justice Thomas A. Dickerson provides a remarkable history of the appraisal rules in New York.

In New York, condemnation trials are limited by the information set forth in the parties’ appraisals. After the exchange of appraisals, each side may file a rebuttal report within sixty days after receipt of the document sought to be rebutted. The appraisal reports are required to contain a statement of the method of appraisal relied on and the conclusions as to value reached by the expert together with the facts, figures and calculations by which the conclusions were reached. The appraisers are also required to provide specific information regarding their comparable sales, leases and photographs of the property under review.

Upon the trial, expert witnesses are limited in their proof of appraised value to information set forth in their reports. Under the rules, the court has the ability to relieve any party of a default. It should be noted that the rule only applies to expert witnesses who are offering opinions. No report need be filed by a fact witness. In fact, the Third Department held in Faulkner v State of New York, 247 AD2d 798 (3rd Dept, 1998) that an expert may be permitted to testify without first submitting an expert report if the testimony is factual and does not constitute opinion evidence. In Faulkner, the issues concerned the testimony of a surveyor who testified as to square footage of the area taken.

The Appraisal Rule allows the parties to prepare for trial with knowledge of each other’s valuations and the foundations and justifications thereof. Parisi v State, 62 Misc2d 378, 382 (Ct Cls, 1979). As the Fourth Department stated in Novickis v State of New York, 44 AD2d 508, 512 (4th Dept, 1974), “[s]imply expressed, the Rule attempts to require full disclosure, to take the game aspect out of the case, to prevent surprises, to permit the court to determine just compensation based solely upon the facts unhindered by gamesmanship.” In Matter of White Plains Properties Corp v Tax Assessor of City of White Plains, 58 AD2d 871 (2d Dept, 1977), aff’d 44 NY2d 971 (1978), the Second Department affirmed the trial court’s preclusion of expert testimony when no report was exchanged.

We often hear the argument that only appraisals need be exchanged and filed. But this is not true at all as Matter of White Plains Properties Corp. makes clear. The Appraisal Rule is not limited to just appraisal reports but extends to other experts as well such as a professional engineer, which was viewed in White Plains Properties Corp. as an attempt to introduce expert testimony as to value since the valuation depended on that report and the failure to exchange the report upon which testimony was based precluded the use of such evidence.

The Appraisal Rule finds its basis in Section 508 of the Eminent Domain Procedure Law which is titled, “Filing of Appraisals; Reports of Other Expert Witnesses.” The text of the rule clearly indicates that in addition to appraisals, there must also be filed “all other reports of expected witnesses, intended to be relied upon at the trial, other than the valuation experts.” EDPL Section 508 also provides that each judicial department and the Court of Claims shall adopt rules requiring at a reasonable time prior to trial, the filing and exchange of written appraisal and other expert reports. ii

The Uniform Rules of the trial courts provide for the exchange and filing of appraisal reports no later than nine months after service of the claim unless extended by the court or stipulation. 22 NYCRR Section 202.61 (a)(1). While the court rules use the more inclusive term of appraisal reports, it is clear that “reports” is not limited to appraisals. In the next subparagraph dealing with rebuttal reports, the court rule provides that rebuttal reports shall be filed within sixty days after receipt of the document sought to be rebutted, here the language is more inclusive, “if a party intends to offer at trial expert evidence in rebuttal to any report, an expert’s report shall be filed…”22 NYCRR Section 202.61 (2). Clearly, all experts intended to prove value must have a report which is exchanged.

The appraisal rules as set forth in the Court of Claims rules provide specifically that “where an expert other than a valuation expert is intended to be relied upon a trial, an original and three copies of expert reports shall be filed…” 24 NYCRR Section 206.21 (e).

It is clear that if one intends to call a witness as an expert to give opinion evidence, there must first be filed a report. The report must set forth the sum and substance of the witnesses’ testimony.

If the witness is an appraiser, the report must include a statement of the method of appraisal relied on and the conclusion as to value reached by the expert, together with the facts, figures, and calculations by which the conclusions were reached. If sales, leases, or other transactions involving comparable properties are to be relied on, they shall be set forth with sufficient particularity as to permit the transaction to be readily identified, and the report shall contain a clear and concise statement of every fact that a party will seek to prove in relation to those comparables. The appraisal is also to contain photographs of the subject and comparables. 24 NYCRR Section 202.60 (g).

Thus, a non-appraiser expert must provide the basis for the expert’s opinions with a narration of the facts which support the conclusions made.

But it should be again noted that the rules have as its primary reason for requiring the disclosure on the facts and source materials on which the appraisal is based is to allow opposing counsel to effectively prepare for cross-examination. In that regard, the rule does not require that an appraisal report contain a detailed narrative explaining each of the adjustments made in the report. Bialystock & Bloom v Gleason, 290 AD2d 607 (3rd Dept. 2002).

It is important to note that the requirement of filing an expert report is to enable a party to adequately and intelligently prepare for trial of the issues. There are no surprises at a condemnation trial. Since in most instances the trial of a condemnation claim takes place within a special proceeding, discovery is very limited. Indeed, discovery flies in the face of the purpose and policy of the Eminent Domain Procedure Law which is to reduce litigation and expedite payment to property owners.  EDPL Sections 101 and 301.

The rule requiring the filing and exchange of other expert reports allows an attorney to prepare for cross-examination so that the trial will proceed quickly and efficiently. While the expert report is absolutely required for opinion evidence, it is not in and of itself designed to take the place of evidence, but rather to supplement evidence given by a person under whose direction it is prepared. Homer v State of New York, 36 AD3d 333 (3rd Dept, 1971).

In other words, the report should be utilized as a tool which, by adequate examination of its author, helps fully explain to the court the theory of the party introducing the report so the trier of the facts is fully cognizant of the issues involved in the case. In addition, testimony will allow a reviewing court to delve into aspects underlying the report so as to make an intelligent review of the trial court’s decision.

It is clear that any expert witness who is to testify as to an opinion must prepare and have filed an expert report. Further, that report must be signed and the witness’s C.V. must be attached to the report pursuant to CPLR 3101.

And, An Inverse Condemnation Case

We all remember Loretto v Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982). Loretto stands for the proposition that any physical invasion of property no matter how small constitutes a taking. The United States Supreme Court had reversed New York’s Court of Appeals which sustained a regulation allowing cable companies to place their equipment on buildings without compensation.

On September 14, 2010, the Appellate Division, Second Department decided Corsello v Verizon New York, Inc., ________ AD3d __________.  In Corsello, plaintiff complained about Verizon placing a rear “wall terminal” and “outside plant” on their property. Additionally, it was also complained about the manner in which the terminal and the cable servicing were anchored to the brick masonry of the building as well as the number of cables. In a scholarly decision, the Appellate Division distinguished inverse condemnation, or de facto appropriation from trespass.

It stated:

Inverse condemnation, or de facto appropriation, is based on a showing that an entity possessing the power of condemnation has intruded onto a landowner’s property and interfered with his or her property rights to such a degree that the conduct amounts to a constitutional taking, requiring the entity to purchase the property from the owner. (citations omitted). In contrast, a trespass is an intentional physical entry onto the property of another without justification or permission (citations omitted). While a trespass and a de facto taking are similar in that both require a physical entry, a trespass is temporary in nature, while a de facto taking is permanent (citations omitted). In other words, “a de facto appropriation differs from a trespass by the extent of its egregiousness and permanence” (citations omitted). Thus, “an entry onto the property of another cannot be both a trespass and a taking.” (citations omitted).

The court continued:

Here, as in Loretto, the installation of the rear-wall terminal involved a direct physical attachment of a box and wires.  According to the plaintiffs, the installation of this equipment deprived them of the physical use, possession, and enjoyment of that portion of their property. (citations omitted).  Indeed, the plaintiffs alleged that a metal conduit running from the terminal along the building wall had been used by a burglar to enter one of their apartments. Further, according to the amended complaint, the installation was meant to be permanent as it has been attached to the wall for several years.

Verizon responds that there can be no permanent physical occupation of the plaintiffs’ property where it has offered to remove the equipment servicing other buildings. As a procedural matter, it would be inappropriate to consider Verizon’s offer, which was tendered only after the action was commenced.

The court found that plaintiff stated a cause of action to recover damages for inverse condemnation. But the victory was short lived. The court went on to hold that with respect to Verizon’s alleged conduct in attaching additional cables to plaintiff’s building in 2004 or 2005, even if we afford a liberal construction, the plaintiffs failed to allege that said conduct constituted another de facto taking so as to trigger a limitations period for a claim of inverse condemnation.

In any event, as the Appellate Division noted, viewing the allegations in the light most favorable to the plaintiffs, the initial attachment of the terminal and wiring was a discreet, well-defined taking of property, and the mere addition of cable did not afford the plaintiffs a new limitations period. Inverse condemnation or de facto appropriation is governed by a three-year statute of limitations which begins to accrue at the time of the taking. The court did not leave plaintiffs without recourse.  It stated that plaintiffs may still pursue their causes of action to recover for unjust enrichment, trespass, and violations of the General Business Law.

i. Discovery in Condemnation and ‘The Appraisal Rule’ N.Y.L.J., April 26, 2005.
ii. This is consistent with CPLR Section 3140.

Reprinted with permission from the October 26, 2010 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.