Opinion
# 2020-032-006 Claim No. 126191 Motion No. M-93221
01-23-2020
FAY STREET WAREHOUSE, INC. v. THE STATE OF NEW YORK
Walter G. Pratt, Pro Se Hon. Letitia James, Attorney General By: Patricia M. Bordonaro, AAG
Synopsis
Defendant's motion to strike claimant's appraisal report is granted in part; defendant's motion for summary judgment is denied.
Case information
| UID: | 2020-032-006 |
| Claimant(s): | FAY STREET WAREHOUSE, INC. |
| Claimant short name: | FAY STREET WAREHOUSE |
| Footnote (claimant name) : | |
| Defendant(s): | THE STATE OF NEW YORK |
| Footnote (defendant name) : | |
| Third-party claimant(s): | |
| Third-party defendant(s): | |
| Claim number(s): | 126191 |
| Motion number(s): | M-93221 |
| Cross-motion number(s): | |
| Judge: | JUDITH A. HARD |
| Claimant's attorney: | Walter G. Pratt, Pro Se |
| Defendant's attorney: | Hon. Letitia James, Attorney General By: Patricia M. Bordonaro, AAG |
| Third-party defendant's attorney: | |
| Signature date: | January 23, 2020 |
| City: | Albany |
| Comments: | |
| Official citation: | |
| Appellate results: | |
| See also (multicaptioned case) |
Decision
The instant claim for damages concerns the appropriation of claimant's property pursuant to section 30 of the Highway Law and the Eminent Domain Procedure Law of the State of New York in a project entitled "City of Utica: North-South Arterial Highway; South City Line to Oriskany Street West, FAC 60-25, Map Nos. 400; 406; 477, Parcel Nos. 443, 450, 523-529." The instant claim was filed with the Clerk of the Court on May 22, 2015. An amended claim was filed with the Clerk of the Court on October 22, 2015. Claimant was, at the time of the appropriation, the owner of four real estate parcels located on Fay Street in the City of Utica, New York. Two parcels do not include buildings. One parcel includes a ten-story warehouse built in 1921, and one parcel includes a garage. The amended claim seeks damages in the amount of $2,248,987.00.
Initially, the Court must address claimant's late opposition papers. Here, defendant's motion for summary judgment was served on December 4, 2018 and designated a return date of January 16, 2019--26 days later. The Court assigned a return date of February 6, 2019. Pursuant to CPLR 2214 (b), claimant was required to serve a response to defendant's motion for summary judgment and any notice of cross motion no later than January 31, 2019. Thus, claimant's response papers served on February 15, 2019 and filed on February 19, 2019 are untimely under CPLR 2214 (b).
As claimant's response papers and notice of cross motion are untimely, the Court may only consider them if claimant shows good cause for the delay (CPLR 3212 [a]; Coty v County of Clinton, 42 AD3d 612, 614 [3d Dept. 2007]; Bush v Hayward, 156 AD2d 899, 901 [3d Dept. 1989]). By Affirmation dated February 21, 2019, counsel for claimant attributed the delay to law office failure.
The Court finds that claimant's proffered excuse does not constitute good cause for the late filing (see Kenny v Turner Const. Co., 155 AD3d 479, 480 [1st Dept. 2017] [finding that counsel's excuse that he was on trial for two weeks insufficient to show good cause]; Hartwich v Young, 149 AD2d 762, 765 [3d Dept. 1989] [finding that law office failure was insufficient to show good cause for counsel's late responsive papers], app denied, 75 NY2d 701 [1989], rearg denied, 75 NY2d 947 [1990]). Accordingly, the Court declines to consider claimant's untimely opposition papers, as claimant failed to show good cause for the delay.
Pursuant to the Uniform Rules for the Court of Claims (22 NYCRR § 206.21), both parties timely submitted appraisal reports. Defendant now moves to strike claimant's appraisal report on three grounds: (1) the report utilizes an incorrect valuation date and relies upon financial information from approximately six years before the subject property was appropriated; (2) the "source" documents that serve as a basis for performing claimant's valuation were not reviewed by the appraiser to determine their accuracy, nor have they been provided to defendant; and (3) the information used to perform the sales comparison and income approaches for purposes of conducting a valuation of the subject property is either unreliable or omitted entirely from the appraisal report.
Appraisal of Property Report Completed by Edward J. Gallacher, CCIM, NYS Certified General Appraiser (# 46-21039)
Claimant submitted an appraisal report completed by Mr. Gallacher to the Attorney General on November 15, 2017. The appraisal report applied a valuation date of May 30, 2012. Mr. Gallacher determined that the total value of the four parcels at issue was $1,075,000.00.
Mr. Gallacher determined the value of the parcels using the "Direct Sales Approach." The Direct Sales Approach is explained within the appraisal report as follows:
"A basic assumption of the Direct Sales Approach is that a knowledgeable buyer will not pay more for a given property than the cost of obtaining a property of comparable utility and desirability. The Direct Sales Approach indicates a measure of value by comparison of recent market transactions. The sale price of the sale properties is considered most comparable when reduced to an appropriate unit of comparison (price per unit, price per SF, etc.) and tends to set a range within which the value of the Subject site will fall" (Affirmation of Patricia M. Bordonaro, AAG, Exhibit C [Gallacher Appraisal Report], p. 22).
Mr. Gallacher used four comparable sales in utilizing the Direct Sales Comparison Approach to Value for the parcel of land on which the warehouse stood. All four sales involved properties with buildings. The first sale was located in Utica, New York. It involved a 83,783 square foot building that sold for $500,000 ($5.97 per square foot) on December 27, 2007. The second sale was also located in Utica, New York. It involved a 94,214 square foot building that sold for $2 million ($21.23 per square foot) on September 14, 2006. The third sale was located in Syracuse, New York. It involved a 152,600 square foot building that sold for $1.575 million ($10.32 per square foot) on April 1, 2005. The fourth sale was also located in Syracuse, New York. It involved a 40,044 square foot building that sold for $400,000 ($9.99 per square foot) on May 6, 2005. Mr. Gallacher explained that, due to the lack of more local sales, he had expanded his search to include surrounding counties as well as Onondaga County. He also noted that "[t]he dates of Sales are much earlier than the valuation date in this appraisal and none is closely similar to the Subject property" (Bordonario Aff, Exh. C, p. 22).
After comparing the comparable sales to the subject property, Mr. Gallacher stated that "[n]o adjustments have been applied to the Sale properties due to insufficient market data available to support adjustments" (Bordonaro Aff., Exhibit C, p. 35). Specifically, Mr. Gallacher did not make adjustments to account for date of sale, location, building size, land to building ratio, story height, access or condition. He acknowledged that he did not find any recent sales of property similar to the subject property. More weight was given to the first described comparable sale because it was the most recent sale and the closest in proximity to the subject property. Mr. Gallacher concluded that the market value of the subject property (the one parcel on which the warehouse stood) was $9.00 per square foot of gross building area, for a total market value of $1.16 million.
The three small parcels of land directly across from the warehouse building on Fay Street were valued as a single, contiguous lot. Two parcels do not contain any building improvements while one has a small garage. Mr. Gallacher used three comparable sales in utilizing the Direct Sales Comparison Approach to Value for the three small parcels of land directly across Fay Street from the warehouse building. The first sale was located in Utica, New York. It involved a 4,050 square foot lot that sold for $15,000 ($3.70 per square foot) on May 12, 2009. The second sale was located in Utica, New York. It involved a 7,620 square foot lot that sold for $15,000 ($1.97 per square foot) on July 14, 2010. The third sale was located in Utica, New York. It involved a 5,400 square foot lot that sold for $20,000 ($3.70 per square foot) on May 3, 2010. All three sales were considered, with the most weight applied to the third sale as it was an arms-length transaction while the other two were not. Using these three comparable sales, Mr. Gallacher concluded that the market value of the three small parcels of land across from the warehouse on Fay Street was $3.25 per square foot, for a total market value of $25,000.
Next, Gallacher determined the value of the property using the "Income Approach to Value." The appraisal report explains that
"[t]he Income Approach indicates a value based on the market's perception of the relationship between net income potential and value. In effect, a purchase is trading a sum of present dollars (purchase price) for the right to receive a stream of future dollars (income). The relationship between these is called the process of capitalization. The actual, historic income and expenses for the Subject property has been utilized in this analysis. The resulting net operating income has been capitalized in order to determine the indicated Market Value of the Subject" (Bordonaro Aff., Exh. C, p. 38).
Gallacher utilized three rent comparables in utilizing the Income Approach to Value. The first comparable was Champlin Commons, a document storage facility located in Yorkville, New York. Champlin Commons is a 45,000 square foot building commanding rental income of $157,000 annually ($3.70 per square foot). The second comparable was 2007 Beachgrove, a light manufacturing and assembly facility located in Utica, New York. 2007 Beachgrove is a 53,000 square foot building commanding rental income of $140,450 annually ($2.65 per square foot). The third comparable was 5900 Success Drive, a distribution/light industrial facility located in Rome, New York. 5900 Success Drive is a 25,000 square foot building commanding rental income of $68,000 annually ($2.72 per square foot).
The appraisal report notes that, as to the market rates of the comparables listed, "[t]he rate and terms vary with respect to location of the property, condition, functional utility, and which party (tenant or owner) is responsible for payment of property taxes, common area maintenance and other expenses" (Bordonaro Aff., Exh. C, p. 39).
Gallacher's Income Approach to Value method also utilized the actual income for the property for the years 2006 and 2007, which were $236,995 and $232,960 respectively. Gallacher explained that "[y]ears 2006 and 2007 were utilized in this analysis, as the announcement of the 'Taking' came during 2008. As a result, most of the tenants relocated from the property in the subsequent months and years" (Bordonaro Aff., Exh. C, p. 38).
In the section of Gallacher's appraisal report entitled "Reconciliation," Gallacher summarized the methodologies used to arrive at his final market value calculation for the subject property. For the "Direct Sales Comparison Approach" Gallacher stated:
"The Subject property was compared with relatively similar properties that have sold in the Central NY market area. No adjustments have been applied due to the lack of supportive market data. Furthermore, there are no recent sales of property like the Subject and the dates of sale for the Sale properties ranged from 5 to 7 years prior to the date of value in this appraisal" (Bordonaro Aff., Exh. C, p. 43).
For the "Income Approach" Gallacher stated:
"The Income Approach was utilized to arrive at a value for the Subject Property based on its rental potential. Direct Capitalization techniques were utilized. The factors were based on actual (historical) income and expenses in effect as of the date that NYS DOT announced its intention to 'Take' the Subject property" (Bordonaro Aff., Exh. C, p. 43).
In conclusion, Gallacher stated that more weight was applied to the Income Approach "as it relied on actual, historical data for the Subject property" (Bordonaro Aff., Exh. C, p. 34). Gallacher concluded that the market value of the subject property (all four parcels) as of May 30, 2012 was fairly represented in the amount of $1,075,000.
LAW AND DISCUSSION
The Federal and New York State Constitutions state that private property may not be taken without "just compensation" (US Const 5 th Amend; NY Const, art I, § 7). What amount is just, and the measure of damages, is generally determined by reference to the fair market value of the property according to its highest and best use on the date of the appropriation (Matter of Town of Islip [Mascioli], 49 NY2d 354 [1980]; Gold-Mark 35 Assoc. v State of New York, 210 AD2d 377 [2d Dept. 1994]). The fair market value is the price for which the property would sell if there was a willing buyer and a willing seller under no compulsion to either buy or sell (Gold-Mark 35 Assoc. v State of New York, supra). Generally, the fair market value of the property is determined at the time of the appropriation (Chase Manhattan Bank v State of New York, 103 AD2d 211, 217 [2d Dept. 1984]).
The Court of Claims Act and the Uniform Rules for the Court of Claims set forth the standards for determining the fair market value of a property appropriated to the State (see Court of Claims Act § 16; 22 NYCRR § 206.21). Section 206.21 (b) of the Uniform Rules for the Court of Claims requires that each appraisal set forth separately the value of land and improvements, with the data upon which such evaluations are based, including the following: "(1) the before value and after value, (2) direct, consequential and total damages, (3) details of the appropriation, (4) details of comparable sales, and (5) other factors which will be relied upon at trial." "The purpose of the Rule is to enable preparation for trial with knowledge of each other's valuations and the foundations and justifications thereof" (DiGennaro v State of New York, UID No. 2005-014-007 [Ct Cl, Nadel, J., July 13, 2005], citing Parisi v State of New York, 62 Misc 2d 378, 382 [Ct Cl 1970]), and to "afford opposing counsel the opportunity to effectively prepare for cross-examination" (Matter of Board of Mgrs. of French Oaks Condominium v Town of Amherst, 23 NY3d 168, 176 [2014] [internal quotation marks and citation omitted]). Where a party identifies deficiencies within its adversary's appraisal report, "[a]s a general rule, it would be difficult to persuade a Court to strike an appraisal entirely, rather than simply assess how meaningful the alleged failings are, and adjust accordingly to ascertain whether the Court has been given sufficient information to do its job" (Mazur Bros. Realty, LLC v State of New York, 36 Misc 3d 1234[A], 2010 NY Slip Op 52456[U], *4 [Ct Cl 2010]).
Direct Sales Comparison Approach
The Court will first address defendant's challenges to Gallacher's utilization of the Direct Sales Comparison Approach. Defendant argues that the Direct Sales Comparison Approach does not have any probative value because Gallacher failed to explain necessary adjustments between the comparable sales and the subject property. The Court agrees.
"An expert's opinion has little probative value unless an explanation of all necessary adjustments of the comparable sales to the subject sale has been made" (Parisi v State of New York, 62 Misc 2d at 382, citing Wright v State of New York, 33 AD2d 616 [3d Dept. 1969] [additional citations omitted]). The Parisi Court concluded that "the appraiser is expected to set forth his explanations and adjustments in writing in his appraisal" (id.). However, at least two other Court of Claims decisions have held "that adjustments of comparable sales are not required to be in the appraisal report" (Innamorato v State of New York, 65 Misc 2d 440, 443 [Ct Cl 1971]; see Azzolini v State of New York, 63 Misc 2d 631, 634 [Ct Cl 1970] [stating about the Parisi holding: "we most respectfully disagree with our learned colleague that the adjustments of comparable sales are required to be in the appraisal report"]).
In the present case, the Court need not choose between the holdings described above because Gallacher conceded in his appraisal report that he did not make any adjustments to the comparable sales "due to insufficient market data" (Bordonaro Aff., Exh. C, p. 35). "Absent such delineations, the Court cannot engage in meaningful review of the expert's estimate" (KKS Properties, LLC v State of New York, UID No. 2012-049-115 [Ct Cl, Weinstein, J., Dec. 5, 2012], revd sub nom. In re Acquisition of Real Property by State, 119 AD3d 1033 [3d Dept. 2014]).
The Court notes that, while the KKS Properties decision was reversed and remitted to the Court of Claims for new proceedings on other grounds, the Third Department found that Judge Weinstein properly rejected the valuation opinion of claimant's appraiser "based upon his failure to use his experience to factor in dollar or percentage adjustments to the comparables he used and explain his calculations" (In re Acquisition of Real Property by State, 119 AD3d at 1036).
Where no adjustments are made to comparable sales, an appraisal report must contain an explanation as to why the comparable properties are so similar to the subject property that no adjustment is necessary (Matter of Iroquois Gas Transmission Sys. (Eufemia), 227 AD2d 713, 714 [3d Dept. 1996]). Gallacher's appraisal report does not contain such a statement, and in fact lists several ways in which the comparable sales vary from the subject property (seeBordonaro Aff., Exh. C, pp. 33-34).
To summarize, because Gallacher stated that he did not perform any analysis to adjust the comparable sales when comparing them to the subject property, the market value used in the Direct Sales Comparison Approach is of no probative value to the Court. Accordingly, that section of Gallacher's appraisal report is hereby stricken and he will be precluded from testifying at trial as to the market value derived using the Direct Sales Comparison Approach.
Income Approach
The Court now addresses defendant's argument that Gallacher's appraisal report must be precluded because it utilizes an incorrect valuation. It is well-settled that "[t]he amount of damages to which a landowner is entitled as the result of a condemnation is determined as of the time of the taking" (Matter of Cent. New York Oil & Gas Co., LLC, 107 AD3d 1199, 1202 [3d Dept. 2013] [citations omitted]). " '[A] condemnee is entitled to just compensation as of the instant its property is taken by the vesting of title in the condemnor. It is as of that time that the value is to be fixed' " (Friedenburg v State, 52 AD3d 774, 776 [2d Dept. 2008], quoting Matter of City of New York [Salvation Army], 43 NY2d 512, 518 [1978] [additional citations omitted]).
Here, the parties do not dispute that defendant took possession and title to the subject property on May 30, 2012. However, as explained above, Gallacher determined the value of the subject property using information from 2005-2007. His Direct Sales Comparison Approach utilized only sales that occurred in 2005, 2006 and 2006 while his Income Approach utilized income and expense data for the calendar years 2006 and 2007.
While "[a]n appraisal report may be stricken for use of an incorrect valuation date if the use of the correct date would have resulted in a different estimated valuation . . . [it] need not be stricken if the appraiser credibly testifies that the 'report would not have differed' if the correct valuation date had been used (Matter of Gran Dev., LLC v Town of Davenport Bd. of Assessors, 124 AD3d 1042, 1043 [3d Dept. 2015], quoting Matter of Eckerd Corp. v Burin, 83 AD3d 1239, 1242 [3d Dept. 2011] [additional citations omitted]). The use of an incorrect valuation date may also be excused where "research contained in the expert's appraisal report demonstrates that comparable sales had remained steady for several years before and after the valuation date, and the deviation in valuation dates is minor" (Boffa v Assessor & Bd. of Assessment Review of City of Middletown, 154 AD3d 934, 935-36 [2d Dept. 2017]).
As to claimant's use of the years 2006 and 2007 in utilizing the Income Approach, Gallacher explained that "Years 2006 and 2007 were utilized in this analysis, as the announcement of the "Taking" came during 2008. As a result, most of the tenants relocated from the property in the subsequent months and years" (Bordonaro Aff., Exh. C, p. 38). Presumably, Gallacher is explaining the phenomenon of "condemnation blight" in which "the cloud of condemnation" permits the claimant "to establish his true value at the time of the taking but as if it had not been subjected to the debilitating effect of the threat of condemnation" (City of Buffalo v J.W. Cement Co., 28 NY2d 241, 254 [1971], citing Niagara Frontier Bldg. Corp. v State of New York, 33 AD2d 130, 132 [4th Dept. 1969]). While defendant's appraiser, Todd Thurston, doubts the validity of this argument, and also states that Gallacher failed to account for the "Great Recession" that began in 2008, the Court finds that these arguments create a question of fact for trial as to whether Gallacher's use of these dates affects the probative value of his Income Approach analysis.
Next, defendant argues that the Court should strike claimant's appraisal report because the valuation performed by Gallacher is based, in part, on financial information that was neither verified nor reviewed by Gallacher or by claimant's certified public accountant, John A. Barone.
"An expert cannot reach a conclusion by assuming material facts not supported by evidence" (Ames Dep't Stores Inc. v Assessor of Town of Greenport, 276 AD2d 890, 891 [3d Dept. 2000]). "[A] trial court may properly strike an appraisal report where it is submitted 'without ascertainable or verifiable data supporting the appraiser's conclusions of value' " (id. at 892, quoting Matter of Orange & Rockland Utils. v Williams, 187 AD2d 595, 596 [2d Dept. 1992] [emphasis supplied]).
Defendant states that Fay Street Management, Inc., the controlling entity of the subject property, never filed tax returns for the years 2008 to 2012. Thus, Barone could not have used the tax returns to support his work. Defendant explains that William Lytle, the owner of Fay Street Warehouse, Inc., filed tax returns on behalf of that entity for the years 2008 through 2012. However, Walter Pratt, the owner of Fay Street Management, Inc., did not file tax returns for that entity. The financial report prepared by Barone for the purpose of valuing the subject property relied on information obtained solely from Pratt and did not include any tax returns or financial data from Lytle. It is unclear to the Court what the relationship is between Lytle's entity and Pratt's entity and how that relationship affects the valuation of the subject property, although defendant asserts that Fay Street Management, Inc. was the controlling entity.
Barone prepared a document entitled "Statements of New Operating Income (Loss)" setting forth total revenues for the years 2005 through 2012. The figures were based on an income and expense statement (Bordonaro Aff., Exh. D). Barone also prepared a "Summaries of Sale Journals for the Months Beginning March 2005 and Ending May 2012" (Bordonaro Aff., Exh. G). Thurston acknowledged that these documents were prepared using federal tax returns and/or accountant's financial statements, however, no lease agreements for tenants at the subject property were provided (Bordonaro Aff., Exh. B, p. 12).
Defendant's principal argument in regard to the information prepared by Barone is that the Statements of New Operating Income (Loss)" and the "Summaries of Sale Journals for the Months Beginning March 2005 and Ending May 2012" contain discrepancies when they should show figures that match. When asked about the discrepancies between the two sets of figures during his deposition, Barone stated that the two sets of numbers should match (Bordonaro Aff., Exh. F, p. 48). He could not offer an explanation as to why the numbers did not match, and acknowledged that to figure out that answer, he would need to go back to the figures and check the math (id. at 46-47). However, he testified that he relied on income and expense information given to him by Pratt which is verifiable, or at least was verifiable at the time that he produced his work product (id. at 36). Although Thurston concluded that "income and expense documents relating to Fay Street Management, Inc. are not considered reliable" (Bordonaro Aff., Exh. B, p. 16), that conclusion is for the Court to make after assessing the credibility of witnesses and probative value of relevant evidence.
By Affirmation dated February 21, 2019, Walter G. Pratt averred that he" located the books of Fay Street Warehouse, Inc. and Fay Street Management, Inc." which he claims were in a box in his basement (Affirmation of William G. Pratt ¶ 2). A copy of "the books" was provided to the Court. While the Court did not consider the information contained therein in resolving the instant motion, the Court notes that it, like defendant, is skeptical of the timing and circumstances of Pratt's discovery of these documents, especially after counsel for claimant executed a stipulation stating that these records did not exist (Bordonaro Aff., Exh. J).
At this juncture, that Court finds that it would be inappropriate to strike this portion of claimant's appraisal report as any asserted deficiencies in it do not preclude its admissibility, but rather, if substantiated, go to the weight it should be accorded (see National Fuel Gas Supply Corp. v Goodremote, 13 AD3d 1134, 1135 [4th Dept. 2004]; Champlain Natl. Bank v Brignola, 249 AD2d 656, 657 [3d Dept. 1998]; see also Matter of Fistraw-Del Holding Corp. v Assessor for Town of Colonie, 235 AD2d 660, 662-663 [3d Dept. 1997] ["Many of the conclusions reached by [petitioner's appraiser] concerning the fair market value of the property were based on erroneous or insupportable premises which had the effect of devaluing the property, and the court was warranted in according it 'very little weight'"]; Fredenburgh v State of New York, 26 AD2d 966, 966-967 [3d Dept. 1966] [finding that appraiser's valuation is "entitled to little, if any, probative value" where it was based on "sheer speculation"]). Thus, the Court declines to strike that portion of Gallacher's appraisal report that utilizes the Income Approach to determine the subject property's value.
Based upon the foregoing, it is hereby
ORDERED that defendant's motion to strike claimant's appraisal report is GRANTED IN PART to the extent that the "Direct Sales Comparison Approach to Value" is hereby STRICKEN and claimant's expert is precluded from testifying regarding the same at trial and is otherwise DENIED; and it is further
ORDERED that defendant's motion for summary judgment is DENIED.
January 23, 2020
Albany, New York
JUDITH A. HARD
Judge of the Court of Claims Papers Considered: 1. Notice of Motion, dated December 3, 2018; Attorney's Affirmation Support of Defendant's Motion to Strike Claimant's Appraisal Report(s), and for Judgment as a Matter of Law Pursuant to CPLR § 3212, affirmed by Patricia M. Bordonaro, Esq., Assistant Attorney General on December 3, 2018, with Exhibits A through K annexed thereto; and Memorandum of Law in Support of Defendant's Motion (1) to Strike Claimant's Appraisal Report, and (2) for Judgment as a Matter of Law Pursuant to CPLR § 3212, dated December 3, 2018. 2. Letter from Patricia M. Bordonaro, Esq., Assistant Attorney General, dated February 19, 2019. 3. Affirmation in Opposition to Motion, affirmed by Walter G. Pratt on February 21, 2019. 4. Letter from Patricia M. Bordonaro, Esq., Assistant Attorney General, dated February 27, 2019. 5. Letter from Patricia M. Bordonaro, Esq., Assistant Attorney General, dated March 6, 2019.