Opinion
CY 4024/10
04-18-2018
In the MATTER OF the CITY OF NEW YORK Relative to Acquiring Title in Fee Simple absolute in certain Real Property, where not heretofore acquired, FOR SOUTH RICHMOND BLUEBELT, PHASE 3 located in the Bluebelt areas known as Jack's Pond and Wolfe's Pond, in Community District 3, South Richmond, Borough of Staten Island, County of Richmond, City and State of New York. 594 Associates, Inc. (Block 6550 Lot 71, Damage Parcel 2), Claimant, v. The City of New York, Condemnor.
City's Attorney: City of New York Law Department, 100 Church Street, New York, New York 10007, (212) 356–3529, Michael Chestnov, Esq., Adam Dembrow, Esq. Claimants Attorney: Goldstein, Rikon, Rikon, Houghton, P.C., 381 Park Avenue South, Suite 901, New York, New York 10016, (212) 422–4000, Michael Rikon, Esq., Ashley Levi, Esq.
City's Attorney: City of New York Law Department, 100 Church Street, New York, New York 10007, (212) 356–3529, Michael Chestnov, Esq., Adam Dembrow, Esq.
Claimants Attorney: Goldstein, Rikon, Rikon, Houghton, P.C., 381 Park Avenue South, Suite 901, New York, New York 10016, (212) 422–4000, Michael Rikon, Esq., Ashley Levi, Esq.
Wayne P. Saitta, J.At issue in this condemnation proceeding is the just compensation to be awarded to Claimant, 594 ASSOCIATES, INC, for the taking of the subject property, located on Staten Island (Block 6550, Lot 71). The Condemnor, THE CITY OF NEW YORK, took title on October 26, 2010 (the vesting date). The court viewed the property on June 12, 2017, and a non-jury trial was held on, June 19–22, July 5, 7, and 10, 2017.
FACTS
The CITY acquired the subject property as part of the CITY's South Richmond Bluebelt Phase 3 project. The subject property is a vacant lot, approximately 35,106 square feet, and there is a large pond on the lot. Designated wetlands cover slightly less than half of the lot while the remainder of the lot is wetland adjacent land. The lot fronts on Huguenot Avenue, Jansen Street and Short Place and is located in the neighborhood of Huguenot of Staten Island.
The subject property was regulated as wetlands as of the vesting date. The Claimant purchased the property on October 9, 1985.
Both parties agree that because of the wetlands regulations, the owner of the property would not be able to obtain a permit to build on the property, and the highest and best use of the property, as regulated, was to remain vacant.
The parties disagree however, as to whether the restrictions on the property imposed by the State's wetlands regulations, constituted a regulatory taking.
Claimant values the property at $1,661,000 and asserts that the value must reflect an increment over the property's value, as restricted by the New York State Wetlands Regulations, to reflect the probability that those restrictions would be found to constitute a regulatory taking.
The CITY argues that the restrictions do not constitute a taking and that just compensation would be the value of the property as regulated, which it asserts is $456,000.
The Court must first determine whether there was a reasonable probability that the wetland regulations would be found to be a taking.
A property restricted by wetlands regulations is valued as restricted unless the Claimant can demonstrate that there is a reasonable probability that the wetlands regulations would be held to be a regulatory taking. If so, the Claimant is entitled to an increment above the regulated value, representing an additional amount a reasonable buyer would pay for the probability of a successful judicial determination that the regulations were confiscatory. ( Chase Manhattan Bank v. State of New York , 103 A.D.2d 211, 479 N.Y.S.2d 983 [2nd Dept. 1984] ; Berwick v. State of New York, (Berwick I) 107 A.D.2d 79, 486 N.Y.S.2d 260 [2nd Dept. 1985] ; Matter of City of New York, Staten Island Bluebelt Phase 2 (Fink) Index 4012/04 [Su Ct Kings 2007].)
It is the Claimant's burden to establish that there is a reasonable probabilitythat the regulations would be found to constitute a taking ( de St. Aubin v. Flacke, 68 N.Y.2d 66, 505 N.Y.S.2d 859, 496 N.E.2d 879 [1986] ; Adrian v. Town of Yorktown, 83 A.D.3d 746, 920 N.Y.S.2d 411 [2nd Dept. 2011] ).
To show a reasonable probability that a constitutional challenge to the wetland regulations would succeed, a claimant must demonstrate that the regulations render their property unsuitable for any economic or private use for which it is adapted, and thus destroys its economic value, or all but a bare residue of the value ( Spears v. Berle, 48 N.Y.2d 254, 422 N.Y.S.2d 636, 397 N.E.2d 1304 [1979], de St. Aubin v. Flacke, 68 N.Y.2d 66, 505 N.Y.S.2d 859, 496 N.E.2d 879 [1986] ; Chase Manhattan Bank v. State of New York, 103 A.D.2d 211, 479 N.Y.S. 983 [2nd Dept. 1984] ).
A regulation constitutes a taking per se only in the extraordinary circumstance where no productive or economically beneficial use of land is permitted ( Lucas v. South Car. Coastal Council , 505 U.S. 1003 at 1015, 112 S.Ct. 2886 at 2893, 120 L.Ed.2d 798 [1992] ; Tahoe–Sierra Pres. Council, Inc. v. Tahoe Reg'l Planning Agency, 535 U.S. 302, 122 S.Ct. 1465, 152 L.Ed.2d 517 [2002] ).
A property owner must suffer a literal total loss in value to trigger liability on the part of the government for a categorical taking (see Lucas , 505 U.S. at 1019, 112 S.Ct. at 2895 ; see also Tahoe–Sierra Preservation Council, 535 U.S. 302, 122 S.Ct. 1465 ).
In this case, the wetlands regulations do not constitute a categorical taking under a Lucas analysis, as both appraisals demonstrate a significant value as regulated, and thus the value of the property was not totally destroyed.
However, even if the regulations do not eliminate all of the economic value of a property, they may constitute a taking under the doctrine set forth by the United States Supreme Court in ( Penn Central Transp. Co. v. City of New York , 438 U.S. 104, 98 S.Ct. 2646, 57 L.Ed.2d 631 [1978] ). This analysis is an "essentially ad hoc, factual inquiry," in which the court considers: (1) "[t]he economic impact of the regulation on the claimant," (2) "the extent to which the regulation has interfered with distinct investment-backed expectations," and (3) "the character of the governmental action." Id at 124, 2659, 98 S.Ct. 2646.
The economic impact of a regulation is measured by comparing the value of the property as regulated to its value as unregulated.
In this case there is a dispute as to whether the subject property should be considered together with an adjoining parcel to determine whether the wetland regulations constitute a taking. The CITY argues that the property taken, Block 6550 lot 71 should not be viewed alone but considered together with other adjacent lots that were owned by the Huguenot Avenue Development Corporation (HADC), a corporation controlled by the principles of the Claimant. Claimant argues that only its parcel should be considered.
The block on which the property sits, Block 6550, is bounded by Huguenot Avenue, Jansen Street, Androvette Avenue, and Hylan Boulevard, and is bisected by Short Place. However, all of the lots discussed herein are located between Jansen Street and Short Place.
Prior to Claimant's purchase, the entire block north of Short Place was owned by Felice Depaulis and Jeannine Procassini. Claimant purchased Lot 71 from Depaulis and Procassini on October 9, 1985. HADC purchased the remainder of the block between Jansen Street and Short Place from the same sellers on the same date.
Both Claimant and HADC were incorporated shortly before the purchase and both corporations were owned by the same two individuals, Eli Reiss and Philip Kasidonis.
The CITY argues that because the two corporations are owned by the same two persons, and the property was purchased on the same date from the same owners, all of Block 6550 between Jansen Street and Short Place should be considered in measuring that diminution of value caused by the wetland regulations. The CITY contends that the history of the application submitted to the New York State Department of Environmental Conservation (DEC) and of the development of the parcels, demonstrate that the parcels were treated as a single economic unit by the owners. The CITY also contends that Claimant agreed to mitigation measures on lot 71 in order to obtain the permit to develop the lots owned by HADC.
Claimant argues that despite the common shareholders, the two corporations are independent legal entities that purchased separate parcels, and that the CITY has not met the burden for piercing the corporate veil in order to treat the corporations as one. Claimant also contends that their parcels were not treated as one and there were separate applications filed with DEC for each corporation's land. Claimant also points to the fact that no restrictive easement was recorded against lot 71 as part of the permit granted for the HADC property.
The relevant parcel doctrine provides that in determining whether a regulation constitutes a taking, one must look at the impact of the regulation on the value of the property as a whole rather than on discrete segments of the property. ( Penn Central , 438 U.S. 104, 98 S.Ct. 2646 ; Keystone Bituminous Coal v. DeBenedictis, 480 U.S. 470, 107 S.Ct. 1232, 94 L.Ed.2d 472 [1987] ).
One of the critical questions in doing so is determining how to define the unit of property whose value is considered in measuring the impact of the regulation ( Murr v. Wisconsin, ––– U.S. ––––, 137 S.Ct. 1933, 198 L.Ed.2d 497 [2017] ; Keystone Bituminous Coal 480 U.S. at 497, 107 S.Ct. at 1248 ).
The United States Supreme Court has declined to limit a parcel in an artificial manner to include only the portion of property targeted by the challenged regulation ( Murr v. Wisconsin , 137 S.Ct. 1933 ).
The United States Supreme Court in Penn Central held that a taking could not be established by showing that a regulation eliminated all use of only a portion of the property, in that case the developable air rights. Penn Central 438 U.S. at 130, 98 S.Ct. 2646.
The case of Keystone Bituminous Coal Association, involved a statute that required mine operator to leave a certain amount of coal in the ground to support the surface land. In determining whether the requirement that some coal be left in the ground constituted a taking, the Supreme Court held that one had to consider the impact of the regulation not just on the coal required to be left in the ground, but the impact on the mining operation of the entire property.
Where an owner possesses a full ‘bundle’ of property rights, the destruction of one ‘strand’ of the bundle is not a taking. Tahoe–Sierra Preservation Council Inc v. Tahoe Regional Planning Agency , 535 U.S. 302, 122 S.Ct. 1465, 152 L.Ed.2d 517 (2002) ; Andrus v. Allard, 444 U.S. 51, 100 S.Ct. 318, 62 L.Ed.2d 210 (1979).Determining what is the relevant parcel is more difficult when one is dealing with whether to consider adjacent parcels owned by one owner, as a single parcel.
Determining the relevant parcel to consider in determining the impact of a challenged regulation is often decisive, because the more broadly the parcel is defined, the less likely it is that a regulation will have eliminated all or all but a bare residue of the value of such parcel.
In the present case HADC was able to build six houses on the lots it owned, which contained both wetland adjacent areas and unregulated upland areas, while lot 71 is almost entirely wetlands or wetlands adjacent land.
Thus, if HADC and Claimant's lots are considered together to be the relevant parcel, then the wetlands regulations would not have eliminated all but a bare residue of the parcel's value.
The United States Supreme Court recently addressed in depth the relevant parcel question in the case of Murr v. Wisconsin (––– U.S. ––––, 137 S.Ct. 1933, 198 L.Ed.2d 497 [2017] ). That case involved an owner's claim that a statute, which prohibited selling or developing lots with less than an acre of buildable land, constituted a regulatory taking because it prohibited any development of one of their lots.
The owners argued that the Court should consider the impact only on the one vacant lot they wanted to sell. Wisconsin argued that the Court had to look at the impact of the regulation of the combined lots because under state law the two lots had been deemed merged when they passed into common ownership. The United States Supreme Court upheld the State Court's ruling that the two lots combined constituted the whole parcel for regulatory takings purposes.
The Court rejected two methods for determining what was the relevant parcel, both of which it termed unduly narrow. The first, was limiting the relevant parcel to the portion of the property effected by the challenged regulation. The second, was defining the parcel strictly as parcels are defined by state property law. Id at 1944.
The Court held that in determining what constituted the relevant parcel, a court should look at "whether reasonable expectations about property ownership would lead a landowner to anticipate that his holdings would be treated as one parcel, or, instead, as separate tracts." Id at 1945. The Court set forth three factors that should be considered in making that determination.
The first factor is how land is bounded and divided under state law, although, the Court said, this is merely one factor to consider rather than determinative alone. The second factor is the physical characteristics of the property, particularly whether the land is such that it is likely to be subject to regulation. The third factor is the effect of the burdened land on the value of the other property. Particularly, where the restrictions on the regulated part of the property might increase the value of the adjoining lot.
The Supreme Court in Murr, did not adopt the holding of the Federal Circuit Court of Appeals in Loveladies Harbor Inc. v. United States (28 F.3d 1171 [Ct. of App., Fed. Cir., 1994] ) that the relevant parcel in a regulatory takings claim is the parcel for which an owner seeks a permit.
The unique facts in Loveladies make general application of its holding inappropriate. In that case the claimant challenged a denial of a permit for 12.5 acres of wetlands out of 51 undeveloped acres it owned. Previously, the State of New Jersey had agreed to let the claimant develop the 12.5 acres in return for it dedicating development rights of the remaining 38.5 acres to the state, but the US Army Corps of Engineers subsequently denied the permit for the 12.5 acres ( Loveladies at 1180 ). The Court found it would be unjust to include the development value of the 38.5 acres which claimants dedicated to the state in determining whether the denial of a permit to develop the 12.5 acres constituted a taking. Id at 1181.
Also, the situation in the present case is the reverse of that in Loveladies. In Loveladies the claimant was seeking to develop land on the basis of having agreed to preclude development on other adjacent land it owned. Here, Claimant is challenging the regulation of land it had previously agreed to restrict in order to obtain a permit to develop the other HADC lots. Here the question is whether the value of the lots which were allowed to be developed should be considered as part of the relevant parcel, rather than whether the value of the parcel for which the owner gave up development rights should be considered, as was the case in Loveladies.
There are also significant differences in the facts between the present case and those in Murr. Here the two parcels were purchased separately, although on the same date from the same sellers. Also, the parcels were purchased by separate corporations, although both corporations were owned by the same two individuals. While the facts in Murr differ, and therefore its determination that the parcels there be treated as one is not determinative in this present case, the three factor test for determining what constitutes the relevant parcel is applicable to this case.
Turning to the first factor set forth in Murr , New York law defines what constitutes a parcel of land differently for different purposes. Most generally, a parcel is defined by the meets and bounds description in the deed. However, in the City of New York, land is divided into blocks and lots. It is by block and lots that deeds, mortgages and other encumbrances are filed. Significantly the tax lot is used to determine what can be built on the property under the New York City Zoning Resolution. However, the tax lots are not immutable. Owners can join or divided tax lots, with the approval of the City.
In fact, on Block 6550, lots were both joined and divided. The subject lot, lot 71, was created by joining former lots 70, 73, 78, 81, 83, and 86. Also, lot 63 and part of lot 65 were joined to form lot 62; lot 56 was split and added to lot 50 and to what became lot 59. Several of these lots were too small or narrow to be built upon pursuant to the block's R1–2 zoning.
Further, adjacent tax lots can be also be merged to a form a zoning lot, which will determine what can be built under the Zoning Resolution. A zoning lot may not necessarily conform to the tax lots mapped by the City. A zoning lot can consist of two or more contiguous lots on the same block that have a common owner. It can also consist of two or more lots on the same block, under single ownership that share a common boundary of at least 10 linear feet. (New York City Zoning Resolution § 12–10 Zoning lot )
Significantly, a zoning lot can also be created out of two lots on the same block not under common ownership that share a common boundary of at least 10 linear feet where the owners file a declaration that the lot is to be treated as one lot for zoning purposes. (Id § 12–10 Zoning lot)
Thus, New York City property owners are given a great deal of flexibility in defining and changing the boundaries of their lots. Both Claimant and HADC could combine or divide the lots they purchased into different parcels.In light of this flexibility, the fact that the land was owned by two separate corporations controlled by the same two individuals is of less significance. The two corporations could have joined their lots into one for zoning purposes even without transferring ownership.
However, under Murr, how the parcel is defined under State law is not determinative of what constitutes the relevant parcel for regulatory takings analysis purposes, but only one factor to consider.
The second Murr factor, the physical characteristics of the properties, is relevant to the limited extent that a large part Claimant's lot was wetland, while the HADC lots contained only wetland adjacent area and uplands. Thus, a permit to build on the HADC lots was more likely to be approved than one to build on Claimant's lot.
The third Murr factor, the effect of the burdened land on the other property, is particularly significant in this case. Here, Claimant agreed to restrictions on development of its lot, in return for obtaining permission from DEC to build six houses on HADC's lots.
Claimant first filed for a permit to four construct houses on its lot (lot 71), by an application to DEC dated June 5, 1986. The application called for building in areas that were certified wetlands. The application was in the name of Claimant, signed by Philip Kasidonis as President of Claimant, and was given the application number 20–86–0164.
Carpenter Environmental Associates (CEA) sent a letter on behalf of Claimant, dated October 5, 1987, submitting a modification of application No.20–86–0164. The modified proposal excluded building on lot 71, and proposed building seven houses on the land owned by HADC. The letter specified that "the application is to be modified to include only the following five lots 50, 54, 58, 66, and 89." The plans also indicated that houses would be built on lots 62 and 94, but Claimant contended that those lots were not regulated by DEC because they contained no wetlands and only minimal wetland adjacent area. Lots 50, 54, 58, 66, 89, 62, and 94 comprise the entirety of the parcel owned by HADC.
The DEC sent a notice of incomplete application dated December 7, 1988, in which it objected to the fact that the plans indicated that a planned house on lot 89 would be within 32 feet of the wetland located on lot 71, and directed Claimant to provide a 60 foot setback from the wetland.
DEC granted Claimant a permit dated May 31, 1989 to build six houses on the land owned by HADC. The permit number was 2–6404–00125/1–0. Claimant subsequently sent a letter to DEC dated August 7, 1989, informing DEC that the land for which the permit was given was owned by HADC.
Weiss testified at trial that both Claimant and HADC filed separate applications to each develop their properties. However, no second application was ever produced. Further, the CEA letter of October 5, 1987 is clear that it is modifying the original application by Claimant to drop its plans to develop lot 71, and instead to build solely on HADC's land. The letter states that "[t]he current materials are submitted as a modification to the earlier application." The permit, No. 2–6404–00125/0001–0, was granted for application No. 20–86–164, as modified.
Most significantly, the permit was issued based on a mitigation plan that was submitted with the application. Paragraph 19 of the permit requires that all activities authorized by the permit must be in conformance with the mitigation plan, which is identified as "594 Associates Mitigation Plan and Details received 3/30/89." That Mitigation Plan and Details contains several mitigation requirements. The first requirement is that a 50 foot buffer be maintained between the wetland on lot 71 and all proposed structures. This 50 foot buffer would include almost all of the wetland adjacent land in lot 71.
A second requirement is the maintenance of a tree and shrub zone between Short Place and lot 71. This tree and shrub zone would effectively block any access to lot 71 from Short Place.
The mitigation plan also includes a 10 foot wide buffer on the part of lot 71 that borders lot HADC's lot 66.
Lastly, the mitigation plan calls for a 50 foot wide conservation easement to run through the rear of HADC's lots from the wetland on Androvette Avenue to the wetland on lot 71. The plan specifies that the conservation easement will be maintained as a wildlife migration corridor connecting the Androvette Avenue wetland and the wetland on lot 71.
The mitigation plan and details evidence that the Claimant was treating both its parcel and the HADC parcel as one unit. Claimant agreed to substantial restrictions on developing its parcel to mitigate the impact of the development of the HADC parcel, and thus obtain a permit to development the HADC parcel.
The effect of the 50 foot buffer between any structures and the wetland was that no buildings could be built on lot 71. This buffer left only a small triangle of land bordering Jansen Place and the shrub zone buffer adjoining lot 66. When the 20 foot front yard required in a R1–2 zone is included, there is not enough available space to build a house. As a practical matter, the mitigation plan agreed to by Claimant precludes any development of its lot 71.
The fact that a conservation easement was recorded only against the HADC lots and not against the Claimant's property, does not change the fact that Claimant's agreement to the mitigation restrictions on lot 71 was a condition of approval of the development of the HADC lots.
Similarly, the fact that Claimant may not have complied with mitigation plan requirements to plant the agreed to trees and shrubs is not relevant, as its promise to do so was a condition of the permit.
Generally, the fact that the parcels were owned by separate corporations would preclude their being treated a one parcel, even though the corporations were owned by the same two individuals. However, it is also true that a corporation does not generally restrict development on its land to benefit another corporation absent sufficient consideration. The restrictions that Claimant agreed to place on its parcel directly and materially benefited that HADC parcel. In this case Reiss and Kasidonis, as the shareholders of both Claimant and HADC, benefitted from the restrictions on Claimant's land that they agreed to.
The fact that Claimant agreed to restrict development of its land to allow another corporation to obtain a permit to develop its adjacent lots demonstrates the both corporations were using the two parcels as one economic unit.
In light of the restrictions on its lot that it agreed to in order to obtain the permit for the other lots, Claimant could not reasonably expect that the two parcels would not be considered as one parcel.
Having enabled HADC to develop and sell off its lots, Claimant cannot now seek to avoid the restrictions it agreed to on its lot, because that lot is undevelopable.
An owner cannot through their own acts render their land unsaleable and then seek to strike regulations governing it, as a taking ( Corbett v. City of New York, 114 A.D.2d 435, 494 N.Y.S.2d 348 [2nd Dept. 1985] ).
When the Claimant's and HADC's properties are considered as one parcel, the fact that HADC was able to develop approximately half of the combined parcels, and build six single family houses demonstrates that the wetland regulations did not prohibit all viable economic use of the parcel or eliminate all but a bare residue of value of the property.
Therefore, Claimant cannot show that there was a reasonable probability of a successful challenge to the wetland regulations as a taking, and Claimant's property must be valued as restricted by the wetland regulations.
The values of the Claimant's property as regulated, asserted by both sides are fairly close. Claimant's appraiser values the property as regulated at $421,000, and the CITY's appraiser values it at $456,000. The Court adopts the valuation of the CITY's appraiser, and finds that the value of the subject property as of the date of vesting was $456,000. Settle order on notice.