Opinion
No. 436 C.D. 2012
03-06-2013
Commonwealth of Pennsylvania, Department of Transportation, Appellant v. SPE Assouline I, LLC and SPE Assouline II, LLC
BEFORE: HONORABLE P. KEVIN BROBSON, Judge HONORABLE PATRICIA McCULLOUGH, Judge HONORABLE ANNE E. COVEY, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY JUDGE COVEY
The Commonwealth of Pennsylvania, Department of Transportation (PennDOT) appeals from the Philadelphia County Common Pleas Court's (trial court) February 6, 2012 order finding a de facto taking of SPE Assouline I, LLC and SPE Assouline II, LLC's (collectively, Assouline) real property, and appointing a Board of Viewers. PennDOT raises five issues for review: (1) whether the trial court erred when it held PennDOT did not dispute that its proposed taking prevented Assouline from securing the funding and necessary approvals required to develop the property as condominiums; (2) whether the trial court should have considered as a significant factor that the highest and best use of the property was not legally permissible on the date the alleged taking occurred; (3) whether Assouline presented substantial evidence demonstrating that PennDOT's project impacted the proposed condominium project by December 2006, the alleged date of the taking; (4) whether the trial court committed an error of law when it concluded that Assouline's rights under Section 704 of the Eminent Domain Code were not a significant factor when considering whether a de facto taking had occurred; and (5) whether the trial court erred by failing to properly consider the totality of the circumstances when it concluded that a de facto taking had occurred. We affirm.
26 Pa.C.S. § 704.
In August or September 2003, Assouline entered into an installment sale agreement with the PIDC Financing Corporation to purchase property located at 2050 Richmond Street in Philadelphia. Assouline was experienced in condominium development and purchased the property with the intention of converting the existing building, known as the Cramp Ship Building, to condominiums. Assouline's principals testified that they believed the building's location and structural design made it ideal for such a conversion.
The installment sale agreement imposed restrictions that were to remain in effect until the balance had been paid in full. The restrictions included:
that the entire Premises shall be used only for the purpose of industrial activities or activities accessory thereto, and only for such purpose as is lawful under an Act known as the Pennsylvania Industrial Development Authority Act, as amended. Buyer shall not lease or sublease any part of the Premises without the prior written consent of Seller and [Pennsylvania Industrial Development Authority], and any lease or sublease without such consent shall be void and of no effect.Reproduced Record (R.R.) at 380a.
In 2005, Assouline began to move forward with the condominium project. Assouline established that it had approached several banks regarding the financing of the project, which resulted in a preliminary letter from Sovereign Bank, wherein, the bank stated that it was willing to proceed with a 46 million dollar loan for the project. Assouline also offered design plans and marketing material for the project. In addition, Assouline demonstrated that it met with the community to garner support for the project which would require the granting of a use variance.
At approximately the same time, PennDOT began building a highway on-ramp that was designed to use the property on which Assouline's building was located. PennDOT's plans were publicized over the next year and by the fall of 2006, it was common knowledge that PennDOT planned to take Assouline's property by eminent domain. Once PennDOT's plans became generally known, Assouline was unable to secure financing for the project.
On May 11, 2009, Assouline filed a Petition for the Appointment of a Board of Viewers pursuant to Section 502(c) of the Eminent Domain Code. Assouline's Petition asserted that PennDOT's pre-condemnation activities resulted in a de facto taking of its property on or before December 31, 2006. On May 14, 2009, PennDOT filed a Declaration of Taking for the property. On June 5, 2009, PennDOT filed Preliminary Objections to Assouline's Petition for the Appointment of a Board of Viewers. On June 12, 2009, Assouline filed Preliminary Objections to PennDOT's Declaration of Taking, alleging that the property had been the subject of a de facto taking, as described in its own Petition. The trial court consolidated the actions on June 11, 2009. A hearing was held on October 5 and 6, 2010.
26 Pa.C.S. § 502(c).
On February 6, 2012, the trial court granted Assouline's Petition and appointed a Board of Viewers. It also overruled PennDOT's Preliminary Objections to Assouline's Petition, and sustained Assouline's Preliminary Objections to PennDOT's Declaration of Taking. The trial court concluded:
PennDOT carried out a de facto taking of the Cramp Ship property in 2006 because, when PennDOT announced its intention to condemn the Property, it deprived Assouline of the 'highest and best' use of that Property. PennDOT's
announcement prevented Assouline from securing the necessary financing to proceed with its planned condominium development. That condominium plan constituted the 'highest and best' use of the Property because the plan was legally, financially, and physically feasible to a degree beyond mere 'speculation.' PennDOT's actions did not merely reduce the value of Assouline's Property, but also interfered with its actual use. Since PennDOT's 2006 actions prevented Assouline from developing the Property as condominiums, and condominiums were the 'highest and best' use of the property in 2006, [Section] 704 of the Eminent Domain Code is not an obstacle to recovery, and Assouline is entitled to the appointment of a Board of Viewers.Trial Ct. Op. at 5.
The trial court rejected PennDOT's contention that Pennsylvania case law required a condemnee to actually be put at risk of losing his or her property in order for a de facto taking to be found. Instead, the trial court held that risk of loss was only one of two possible pre-condemnation activities warranting a finding of a de facto taking. The other, the trial court held, was a deprivation of the use and enjoyment of the property. The condemnee need not show both. Thus, the trial court concluded that:
the proper legal standard for analyzing whether or not the Cramp Ship property was subject to a de facto taking is whether or not Assouline was deprived of the 'highest and best' use of the Property, irrespective of whether or not Assouline was at risk of losing the Property due to nonpayment of taxes or financial hardship.Trial Ct. Op. at 8.
Noting that "[n]either party appear[ed] to dispute that it was PennDOT's proposed taking which prevented Assouline from securing the funding and necessary zoning changes[,]" the trial court determined that the "dispositive question is whether or not the condominiums were the highest and best use of the . . . Property at the time that Assouline was deprived of its use." Trial Ct. Op. at 8 (emphasis added).
The trial court stated that in order to prove a condominium development was the highest and best use of the property, Assouline must establish that the condominium plan "was legally, financially, and physically feasible to a degree beyond mere 'speculation.'" Trial Ct. Op. at 10. PennDOT argued that Assouline could not meet its burden due to three major impediments: (1) financing; (2) rezoning of the property; and (3) the restrictions in the installment contract. As to financing, the trial court found that Assouline demonstrated that financing was available, that Assouline had received initial loan commitments, and that Assouline "would certainly have been able to secure the financing necessary for the project." Trial Ct. Op. at 11. The trial court further noted that Assouline offered credible testimony that it could have quickly obtained the necessary zoning variance. Finally, the trial court determined that Assouline presented evidence showing that the installment loan restrictions could easily be resolved through full payment of the loan. Thus, the trial court concluded that Assouline's use of the property as condominiums was not speculative, and that Assouline had established the highest and best use of the property at the time Assouline was deprived of its use was as a condominium development.
PennDOT also argued that the compensation provided by Section 704 of the Eminent Domain Code should be considered as a factor negating a finding of a de facto taking. In rejecting PennDOT's argument and finding Section 704 of the Eminent Domain Code inapplicable to the inquiry, the trial court noted, "[a] de facto taking does not mean a reduction in the economic value of a property. Rather, a de facto taking occurs when a property owner is deprived of the use of that property, regardless of what the property's value may be." Trial Ct. Op. at 13. PennDOT appealed to this Court.
It is well established that:
Appellate review in an eminent domain case is limited to a determination of whether the trial court abused its discretion or committed an error of law, and whether the findings of fact are supported by substantial evidence. Questions of credibility and conflicts in the evidence presented are for the trial court to resolve. If sufficient evidence supports the trial court's findings as factfinder, they should not be disturbed.
Before this Court, PennDOT first contends the trial court erred by holding that "[n]either party appears to dispute that it was PennDOT's proposed taking which prevented Assouline from securing the funding and the necessary zoning changes required to develop the Cramp Ship property as condominiums." Trial Ct. Op. at 8. PennDOT specifically argues that the trial court's conclusion was not supported by substantial evidence since PennDOT did, in fact, dispute the issue. PennDOT further argues that the trial court's misperception and/or mischaracterization of PennDOT's position resulted in the trial court erroneously changing the issue in the case to whether condominium development was the highest and best use of the property. We disagree.
This Court recently stated, "[a] de facto taking . . . occurs when an entity with eminent domain powers substantially deprives property owners of the use and enjoyment of their property. Property owners alleging a de facto taking bear a heavy burden of proof." In re Borough of Blakely, 25 A.3d 458, 464-65 (Pa. Cmwlth. 2011) (citation omitted). "[G]enerally, a landowner attempting to prove a de facto taking must show that the pre-condemnation activities of the condemning body either: (1) deprived the owner of the use and enjoyment of his property, or (2) subjected the owner to the loss of the property." Genter v. Blair Cnty. Convention & Sports Facilities Auth., 805 A.2d 51, 57 (Pa. Cmwlth. 2002) (quotation marks omitted).
Whether a particular activity deprives a property owner of the beneficial use and enjoyment of his property is dependent upon the type of use the owner has given to the property. In cases involving commercial properties, the loss of value and the inability to rent or sell the property are obviously relevant to whether the property is no longer income-producing and thus whether it has lost its commercial use. The beneficial use of a property includes not only its present use, but also all potential uses including its highest and best use. In the absence of evidence to the contrary, however, the presumption is that the property's current use is the highest and best use.Genter, 805 A.2d at 56-57 (citations omitted; emphasis added).
PennDOT correctly argues that the trial court, in its initial inquiry of whether a de facto taking had occurred, inaccurately noted that PennDOT had conceded that its proposed taking of the property prevented Assouline from obtaining funding and zoning changes. However, the trial court did specifically find that Assouline provided sufficient evidence to demonstrate that PennDOT's pre-condemnation activities negated Assouline's ability to complete the project. The trial court stated:
[PennDOT] argues that . . . three major obstacles stood in the way of Assouline's proposed condominium conversion: (1) financing; (2) rezoning of the Cramp Ship Property; and (3) the restrictions in Assouline's installment sale agreement. Assouline has however, through the testimony and documents presented to this Court, established that each of these obstacles would have been overcome but
for PennDOT's announced intention to take the property.Trial Ct. Op. at 10-11 (emphasis added).
Thus, the trial court found sufficient evidence to establish a causal connection between PennDOT's actions and the cessation of the condominium project when it concluded that PennDOT substantially deprived Assouline of the use and enjoyment of its property. Notwithstanding the trial court's statement that PennDOT did not dispute that its actions prevented Assouline from developing the property, it is clear that the trial court correctly understood the issues. Accordingly, PennDOT's argument is without merit.
PennDOT next argues that the trial court should have considered as a significant factor that the highest and best use of the property was not legally permissible on the date the alleged de facto taking occurred, thus a taking could not have occurred in 2006, and no taking occurred until the declared taking in 2009. PennDOT "does not argue in this appeal that the highest and best use of the property in December 2006 was not for condominium development." PennDOT's Br. at 21. It is PennDOT's contention that Assouline's current, permitted industrial use was not affected in 2006 or thereafter by its pre-condemnation activities. PennDOT asserts that its preliminary activities in 2006 did not impact in any substantial way Assouline's ability to proceed with the necessary zoning approval process to develop the property as condominiums. PennDOT's Br. at 21. A review of the trial court's opinion reveals that the trial court did consider whether the highest and best use of the property was legally permissible in 2006.
As previously noted, a de facto taking occurs when the owner is deprived of the beneficial use and enjoyment of his property. In such a context, whether the beneficial use and enjoyment of property is impaired is dependent on the type of use and includes consideration of potential uses such as the property's highest and best use. Genter.
The Pennsylvania Supreme Court has
recognized that the value of physical property may be significantly affected by government's 'permission' or 'lack of permission' to use the physical property for certain purposes. Thus governmental 'permission' in the form of zoning regulations is significant in determining just compensation. Even where the 'highest and best use' of the condemned property is prohibited by zoning ordinances existing at the time of the taking, evidence of the enhanced value such property would enjoy in its 'highest and best use' is permitted if the possibility of a change in zoning regulations is not too remote or speculative.Redevelopment Auth. of Phila. v. Lieberman, 461 Pa. 208, 219-20, 336 A.2d 249, 255 (1975) (emphasis added). PennDOT concedes in its brief that "the proscribed use can be considered as a highest and best use if proof is advanced that a zoning change is reasonably probable in the near future." PennDOT's Br. at 21. Our Supreme Court has held that "[t]he question of the existence of a reasonable probability of an imminent change in zoning is a question of fact." Snyder v. Commonwealth, 412 Pa. 15, 20, 192 A.2d 650, 652 (1963) (quotation marks omitted). Here, the trial court expressly found that the need for zoning variances did not stand in the way of the proposed condominium plan. So long as the trial court's finding is supported by substantial evidence, it may not be disturbed. Denes v. Pa. Tpk. Comm'n, 547 Pa. 152, 689 A.2d 219 (1997). "Substantial evidence is that evidence which would be accepted by a reasonable person to support the finding." Palm Corp. v. Dep't of Transp., 688 A.2d 251, 253 n.8 (Pa. Cmwlth. 1997).
Several cases demonstrate instances in which a de facto taking was found at a time when the condemnee had not yet obtained the necessary zoning approval and/or other required permits. See Lehigh-Northampton Airport Auth. v. WBF Assocs., L.P., 728 A.2d 981 (Pa. Cmwlth. 1999); Gaughen v. Dep't of Transp., 554 A.2d 1008 (Pa. Cmwlth. 1989); Peter Roberts Enters., Inc. v. Dep't of Transp., 376 A.2d 1028 (Pa. Cmwlth. 1977).
At trial, Assouline offered the testimony of expert witness, Thomas Witt, an attorney specializing in commercial real estate and land use law. Mr. Witt opined that "it's extremely likely that the property owner could have obtained the [zoning] approvals." Reproduced Record (R.R.) at 173a. Further, Mr. Witt stated his belief that the zoning changes could have been accomplished in 2006. R.R. at 174a. As noted in the trial court's opinion:
Mr. Witt described his concentration as "commercial real estate with the subspecialty in Philadelphia Zoning." R.R. at 173a.
Assouline introduced credible testimony that the process to obtain the necessary variance would not have been time-consuming, unmanageable nor speculative. Indeed, the PennDOT's own witness testified that in 2006, Philadelphia was in the grip of a 'cowboy zoning' mentality, in which the Zoning Board of Adjustment was extremely willing to accommodate projects like this one.Trial Ct. Op at 11. It was not error for the trial court to give weight to expert testimony on this matter. See Snyder. Thus, the trial court clearly considered the issue of the legality of the highest and best use as a significant factor, and concluded that there was substantial evidence to demonstrate that Assouline had been deprived of the highest and best use of the property as condominiums in 2006:
PennDOT carried out a de facto taking of the . . . property in 2006 because, when PennDOT announced its intention to condemn the Property, it deprived Assouline of the 'highest and best' use of that property. PennDOT's announcement prevented Assouline from securing the necessary financing to proceed with its planned condominium development.Trial Ct. Op. at 5. Accordingly, PennDOT's argument must fail.
PennDOT also argues that Assouline failed to present substantial evidence to demonstrate that PennDOT's project impacted the proposed condominium project by December 2006, the alleged date of the taking. Thus, PennDOT contends there was no de facto taking in 2006, and the taking did not occur until the 2009 filing of the Declaration of Taking. We disagree.
It is well established that:
where rumors begin to take on substance and an agency drafts plans, newspaper articles appear, and the agency announces, publishes, and plots its final plan on the city map, this conduct does not constitute a [de facto] taking. Likewise, where the property is in the line of taking, but actual taking is postponed pending the governor's approval, no [de facto] taking occurs. Also, there is no taking where the project is approved and funded, with the issuing of notices to and negotiations with the project owners, even though there are acquisitions of some of the properties and real estate appraisals are made on others.Visco v. Dep't of Transp., 498 A.2d 984, 986 (Pa. Cmwlth. 1985) (citations omitted). However, it is not necessary for a property owner to demonstrate that he is facing loss of the property in order to establish a de facto taking. In Gamma Swim Club, Inc. v. Department of Transportation, 505 A.2d 342 (Pa. Cmwlth. 1986), this Court recognized that:
Our courts have been persuaded by instances where the above situations occurred, plus such facts as a potential loss of the property in a mortgage foreclosure, the loss of rental income, or the loss of tenants so that the property was made useless for its highest and best use.
In order for the commercial income property owner to demonstrate a de facto taking, the focus cannot be confined to situations where the property owner is facing the loss of the property. . . . [Further,] it is not imperative that the property owner alleging a de facto taking must have unsuccessfully exposed the property to sale. That mode of
demonstration is a method of proof, not an indispensable legal requirement.Id. at 345.
Assouline acquired the property for the purpose of converting the building to condominiums. R.R. at 139a. Assouline's expert testimony established that Assouline would not have been able to obtain necessary financing for the condominium project as a result of PennDOT's plans becoming public in 2006, and that pursuing financing would have been a waste of time and money. Assouline also offered expert testimony substantiating that zoning changes could have been quickly and easily obtained. The trial court accepted Assouline's expert testimony. Because there was substantial evidence to find that PennDOT's project impacted the proposed condominium project by December 2006, PennDOT's argument cannot stand.
Next, PennDOT asserts that the trial court committed an error of law when it concluded that Assouline's rights under Section 704 of the Eminent Domain Code were not a significant factor when considering whether a de facto taking had occurred. PennDOT contends that because Section 704 of the Eminent Domain Code provides an adequate remedy to condemnees by mandating that the fair market value of property may not be impacted by the condemnation, the fact that a condemnee will be made whole at the time of condemnation is relevant in determining whether a de facto taking has occurred. We disagree.
In Conroy-Prugh Glass Co. v. Department of Transportation, 456 Pa. 384, 321 A.2d 598 (1974), the Pennsylvania Supreme Court addressed the interplay between Section 604 of the former Eminent Domain Code, 26 P.S. § 1-604 (the predecessor to Section 704 of the Eminent Domain Code) and the determination of a de facto taking:
Act of June 22, 1964, Special Sess., P.L. 84, as amended, 26 P.S. § 1-604. --------
While in ordinary circumstances, the presence of [Section 604 of the Eminent Domain Code] . . . and the protections it affords a property owner whose property has declined in value because of the imminence of condemnation, might lead to a conclusion that a decline in value after the eventual location of a proposed condemnation has become fixed, without more, should not be enough to constitute a [de facto] taking, the instant case does not involve such ordinary circumstances. Appellant is not simply a property owner whose property has declined in value due to the imminence of condemnation. Appellant is, instead, one who cannot use his property and, in fact, stands to lose his property because of the imminence of condemnation[.]Conroy-Prugh, 456 Pa. at 392, 321 A.2d at 601-02.
That same year, this Court decided Department of Transportation v. Securda & Co., Inc., 329 A.2d 296 (Pa. Cmwlth. 1974), in which it found that the lower court improperly dismissed the Commonwealth's preliminary objections to the petition for the appointment of viewers. This Court distinguished the case from Conroy-Prugh as follows:
Securda's dilemma is not the extraordinary situation involved in Conroy-Prugh where Section 604 of the Eminent Domain Code would not afford a property owner an adequate remedy for the loss suffered by a decline in property values attendant to an imminent condemnation. Contrary to Securda's argument to this Court and apparently the conclusion of the court below, neither the pleadings nor facts stipulated allege or admit that the acquisitions or condemnations affected thus far interfere with access to Securda's remaining lots, or that it is otherwise unable to use its remaining property, within or without the recorded right-of-way. Nor is there an averment, unlike Conroy-Prugh . . . that the imminence of the condemnation threatens Securda with the actual loss of its property. Securda is still free to develop his remaining building lots as it wishes (although an admittedly unrealistic business gamble), and it will be compensated for any improvements made thereon when its property is formally condemned. Although it may well be that the recording of the right-of-way plan will have the effect of depreciating
the sales value of Securda's remaining lots, adequate relief is provided by Section 604 [of the Eminent Domain Code].Securda, 329 A.2d at 299-300 (citation omitted). Thereafter, this Court more explicitly addressed the issue of whether the relief afforded by former Section 604 of the Eminent Domain Code was to be considered in determining whether a taking had occurred. In Visco, this Court stated that former Section 604 of the Eminent Domain Code related to the issue of "compensation rather than the issue of whether a taking occurred." Id. at 987. In Appeal of Naponic Enterprises, Inc., 519 A.2d 1065 (Pa. Cmwlth. 1987), this Court further explained the applicability of former Section 604 of the Eminent Domain Code to the determination of whether a de facto taking has occurred, stating:
There are no hard, fast rules in determining such a taking. It depends on the factual situations in each case. Recognizing the need to balance the flexibility of planning agencies with that of the property owner, our courts have concluded that the recording of final plans, newspaper articles, agency announcements, plans awaiting the Governor's approval, negotiations with owners, real estate appraisal, and rumors are not sufficient to constitute a de facto taking.Id. at 1068 (citations omitted). Thus, if the only loss to a proposed condemnee is the decline in value of the property, the financial recourse is Section 704 of the Eminent Domain Code since it provides protection until the formal condemnation occurs. However, in the instant matter, as noted by the trial court, Assouline offered sufficient evidence to demonstrate that the imminence of the condemnation resulted in more than "simply a decline in value." Id. Assouline established that it lost the ability to make the highest and best use of its property - the opportunity to use the property for the very purpose for which it was purchased. Thus, the trial court properly determined that the relief afforded by Section 704 of the Eminent Domain Code did not preclude a finding of de facto taking.
But where such circumstances were accompanied by extraordinary circumstances resulting in the actual loss of the property, such as a loss of tenants and income, or a mortgage foreclosure, our courts have held that a de facto taking has occurred.
The theory behind de facto recovery involving commercial property is the right of expectation of a reasonable return by the owner on his investment. The focus in these cases is the extent of the interference by the governmental agency, and the impact on the owner's rights in the parcel, i.e., whether the imminence of condemnation threatened the actual loss of the property, or simply a decline in value substantially due to the imminence of condemnation, for which compensation is provided in [S]ection 604 of the [Eminent Domain] Code, 26 P.S. § 1-604.
PennDOT finally argues that the trial court failed to properly weigh the public interest and consider the totality of the circumstances when it determined that a de facto taking occurred as of December 2006. We disagree.
Specifically, PennDOT contends that the trial court erred because it failed to properly balance the needed flexibility for planning agencies with the interests of the property owner when weighing the totality of the circumstances. Thus, it failed to "properly consider" numerous facts. PennDOT's Br. at 34. PennDOT does not further explain in what way the trial court's consideration of those factors was improper. PennDOT's use of the terms "properly consider" appears to mean that the trial court failed to give sufficient weight to the facts that PennDOT deemed important. PennDOT's Br. at 34. Because the trial court was free to weigh the evidence and render its decision accordingly, PennDOT's argument is meritless.
For all of the above reasons, the trial court's order is affirmed.
/s/_________
ANNE E. COVEY, Judge Judge Brobson concurs in the result only.
ORDER
AND NOW, this 6th day of March, 2013, the Philadelphia County Common Pleas Court's February 6, 2012 order is affirmed.
/s/_________
ANNE E. COVEY, Judge
Denes v. Pa. Tpk. Comm'n, 547 Pa. 152, 156, 689 A.2d 219, 222 (1997) (citations omitted). Further, "[w]here a trial court has either sustained or overruled preliminary objections in an eminent domain proceeding, our review is limited to determining whether the trial court committed an error of law or abused its discretion." In re Borough of Blakely, 25 A.3d 458, 463 n.3 (Pa. Cmwlth. 2011).