Opinion
11-24-2015
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 New Creek Bluebelt, Phase 4 Within an area generally bounded by Hylan Boulevard on the West, Slater Boulevard on the North, Olympia Boulevard on the East, and Hunter Avenue on the South, in the Borough of Staten Island, City and State of New York. Lawrence N. Paolella and Liana Paolella (Fee Claimants for Damage Parcel 154, 156–160) (Block 3790 Lots 31, 33, 35, 37, 38, and 42) Claimants, v. The City of New York Condemnor.
Zachary W. Carter, Corporation Counsel of the City of New York, Michael Chestnov, Esq., City Attorney. Ashley Levi, Esq., Goldstein Rikon & Rikon and Houghton, LLP, Claimants Attorney.
Zachary W. Carter, Corporation Counsel of the City of New York, Michael Chestnov, Esq., City Attorney.
Ashley Levi, Esq., Goldstein Rikon & Rikon and Houghton, LLP, Claimants Attorney.
WAYNE P. SAITTA, J.
In this condemnation proceeding, Claimants LAWRENCE N. PAOLELLA and LIANA PAOLELLA, seek additional allowances for fees, pursuant to Eminent Domain Law section 701, in order to be justly compensated for the taking of the subject property, located on Staten Island (Block 3790 Lots 31, 33, 35, 37, 38, and 42). The Condemnor THE CITY OF NEW YORK, took title on June 11, 2007 (the vesting date). The court viewed the property on November 28, 2011, and a non-jury trial was held on January 9–11, 2012.
Upon reading the Notice of Motion of the Claimants LAWRENCE N. PAOLELLA and LIANA PAOLELLA, of Goldstein, Rikon, Rikon, and Houghton PC, counsel for the Claimant, dated June 12, 2015, together with the Affirmation in Support of Jonathan Houghton, Esq., dated June 12,2015, and all exhibits annexed thereto; the Affirmation in Opposition of Constance Leperides, Esq., Assistant Corporation Counsel attorneys for Condemnor, CITY OF NEW YORK, dated October 9, 2015, and the exhibits annexed thereto; the Reply Affirmation of Jonathan Houghton Esq., dated October 16, 2015, and the exhibits annexed thereto; and all proceedings heretofore had herein; after argument of Counsel and due deliberation thereon, the Claimants' motion for additional allowances pursuant to the Eminent Domain Procedure Law (EDPL) section 701 is granted to the extent set forth below.
The CITY OF NEW YORK took the subject property on June 11, 2007 and made an advance payment to the Claimants in the amount of $165,400, on or about February 29 2008, and a supplemental advance payment of $19,600, on or about August 26 2010. Claimant filed a claim for further compensation. Claimants' appraiser found that the property should be valued at $1,378,000.
The CITY's appraiser valued the property as restricted by wetlands regulations, and concluded that the subject property should be valued at $185,000.
After a non-jury trial this Court valued the property at $810,000 which resulted in $306,940.82 in interest. The difference between the award and the advance payment was $644,600 plus $297,207.26 in interest on the difference.
The Claimants' retainer agreement with their attorneys provided for a fee of 25% of the final award, less the advanced payments, plus 25% of any interest awarded. The attorney fees under the retainer amounted to $235,451.89 not including disbursements.
Claimants' seek an award of $235,451.89 in attorneys fees plus $7,388.08 in disbursements.
Section 701 of the EDPL provides that the court may award costs, disbursements and expenses, including reasonable attorney fees, where an award is substantially in excess of the amount of a condemnor's proof, and where such an award is deemed necessary to achieve just and adequate compensation.
The test in determining whether to award attorneys fees, and if so how much, has three steps. The first step is whether the award is substantially greater than the condemnor's proof at trial. If it is, then the court must determine what fees are necessary to achieve just compensation, or put another way, what how much time effort and expertise was needed to produce the increase award. Third, the court must set the award at an amount that is reasonable.
The award of fees in a condemnation case is not mandatory but is left to the discretion of the trial court. Hakes v. State of New York, 81 N.Y.2d 392, 599 N.Y.S.2d 498 (1993) ; Matter of New York State Urban Dev. Corp., 183 Misc.2d 900, 707 N.Y.S.2d 593 (Sup Ct N.Y. Co, 2000).
The CITY does not contest that the award in this case was substantially higher than its proof at trial or that Claimants are entitled to award of attorneys fees. The CITY raises two basic objections in opposition to the Claimants' request for attorneys fees. The first is that Claimants are not entitled to attorneys fees on the interest on the award. The second is, that because the Court rejected Claimants' theory of valuation, the attorneys fees and other expert fees should be reduced to account for the fact that not all of the fees were necessary for just compensation.
The Courts in New York are split on the issue of whether interest should be included when calculating a contingency fee pursuant to EDPL section 701. Several trial courts in the Second Department have held that the attorneys fees pursuant to EDPL section 701 may properly include fees based on the interest portion of an award.
In Matter of Newtown Creek Water Pollution Control Plant Upgrade (Second Taking), 30 Misc.3d 816, 913 N.Y.S.2d 512, 2010 N.Y. Slip Op. 20498 (Sup Ct Kings Co, 2010), the court determined that the award of attorneys fees should be calculated based upon the award, including interest, citing Matter of City of New York Powell's Cove Environmental Waterfront Park, 24 Misc.3d 1251(A), 899 N.Y.S.2d 58, 2009 N.Y. Slip Op 51948U, (Sup Ct Queens Co, 2009) unreported.
In Matter of Powell's Cove the Court also found that the attorney's fees was properly calculated on the award including interest, again reasoning that the “firm was deprived of the use of its fee, which would have been received years earlier if the City had compensated claimant in a timely fashion”. Id at 9. The court in Matter of Powell's Cove found that the condemnor had delayed in making both an advance payment and the final payment.
The CITY argues that the decision in Matter of Powell's Cove, is distinguishable from the present case because in that case there was a finding that condemnor was responsible for delaying the final payment. However, the CITY delayed final resolution in this case, by filing an appeal which was unsuccessful.
In the case of Carbone v. State of New York, 13 Misc.3d 1246(A), 831 N.Y.S.2d 358, (Ct of Claims, 2006), the Court held that a contingency fee of 33 1/3% of the amount recovered over the advance payment including interest was a customary fee arrangement and was reasonable given the amount of time and labor required, the difficulty of the issues presented, the level of skill required of the matter, the benefit resulting to claimant from the attorney's skill, and the results obtained.
In in Susan Canale as Executrix of the Estate of Hazel V. Shafer v. Town of East Hampton, Supreme Court of Suffolk County, Index No.21357/2003 (unreported decision), the Court awarded the calculation of the attorney fees based on the award including interest, holding that the interest reflected rent for the delay in tendering the judgment, and therefore is an element of just compensation.
On the other hand, several trial courts have held that calculating attorney fees to include a percentage of the interest on an award is not proper. In Meyers v. State of New York, 166 Misc.2d 586, 634 N.Y.S.2d 642 (Ct of Claims, 1995), Claimant sought fees based on a retainer which provided for fees of 50% of any amounts recovered above the advance payment. The advance payment was $1,000, and the award by the court was $37,850. The Court of Claims declined to award attorneys fees on interest on the award holding that the inclusion of interest would inject an improper and arguably duplicative element in a just compensation determination under EDPL 701.
The Court in Meyers also found the fee of 50% to be too high and awarded 1/3 of the difference between the final payment of $37,850 and the advance payment of $1,000. Id. at 589.
The only Appellate authority on point is Eastside Corp. v. City of New York, 52 AD3d 387, 860 N.Y.S.2d 85 (1st Dept 2008), in which the First Department affirmed a lower Court decision denying fees on interest. However, the First Department did not hold that attorneys fees on interest was improper but only, that “[t]he court was not bound by claimant's retainer agreement with counsel, which provided for attorney fees to be calculated as a percentage of the interest portion of the award as well as principal; it was required only to assess reasonable attorneys fees”.
These conflicting precedents can best be reconciled by recognizing that awarding attorneys fees based on interest on an award is neither proper nor improper as a matter of law. A retainer agreement is not controlling, nor is the specific manner by which attorneys fees are calculated under a retainer. The proper test for determining attorneys pursuant to EDPL 701 is what additional allowance for the costs of retaining an attorney is necessary for a claimant to be justly compensated. The manner in which the fees are structured as between a claimant and its attorneys is not determinative, the reasonableness and necessity of the resulting total fee is what matters.
The CITY also argues that because the Court rejected Claimants' theory of valuation, the full attorneys fees and other expert fees requested were not necessary for just compensation.
The requirement that the award be necessary to achieve just and adequate compensation requires more than a showing that a claimant would not have received the substantially higher award without litigation. The requirement means that a claimant is entitled to additional compensation for those portions of the attorneys', and other professionals' work that was a basis for the higher award, but not entitled to be compensated for efforts that advanced speculative or inflated valuations that were not accepted by the court. Hakes v. State of New York, 81 N.Y.2d 392, 599 N.Y.S.2d 498 (1993).
Where the proof offered by a claimant has had no effect on the final award, then it cannot be found to have been necessary to achieve just and adequate compensation and this Court will therefore not award an additional allowance as to those efforts. (see First Bank & Trust Co. of Corning v. State of New York, 184 A.D.2d 1034, affd 81 N.Y.2d 392 ).
Hakes, in fact, was an appeal of two decisions, one in Hakes and the second in the matter of First Bank & Trust Co., v. State of New York. The first was an appeal from an Appellate Division decision in Hakes which affirmed the trial court decision to award attorney fees, but deny other expert fees on the grounds that the fees for the other experts “related solely to proof of a ‘preposterous' value that was of no use to the court in its final determination.” Hakes supra at 395.
The second appeal was in the case of First Bank & Trust Co. v. State of New York, in which the Appellate Division affirmed a denial of attorney fees where the trial court found that the attorney fees were “primarily expended in an unrealistic attempt to prove consequential damages to a non-appropriated parcel”, which was rejected. Id at 396.
The Court of Appeals affirmed both the order awarding attorney fees and the order denying attorney fees, on the grounds that neither constituted an abuse of the Court's discretion. The Court of Appeals in essence held that it is within a trial court's discretion to award attorney fees or not, in a situation in which the court rejected claimant's theory of valuation.
In this case the subject property was a wetlands property, the valuation of which involved several factors. The Court had to consider both the value of the property as burdened by wetlands regulations, and the value of the property as unregulated. Additionally the Court had to determine whether the regulations constituted a regulatory taking, and if they did, what increment should be added to the regulated value of the property.
The Court adopted parts of Claimants' theories and valuation and rejected parts of its theories and valuation. The Court adopted the CITY's value of the property as regulated of $185,000 rather than the Claimants' regulated value of $220,000. The Court rejected Claimants' development proposal to the extent it called for constructing eight 10½ foot wide buildings on the site, finding that such buildings would not be marketable. However, the Court concluded that 6 buildings could be built on the site and found that Claimants' value per building lot of $180,000 to be credible. The Court noted that if Claimants' value of $180,000 per building lot were applied to six building lots, it matched the CITY's unregulated valuation, after deduction of extraordinary costs, of $1,018,000.
More importantly, the Court adopted Claimants' position that the wetland regulations constituted a regulatory taking and rejected the CITY's position that they did not. Further, the Court adopted Claimants' increment of 75% of the difference between the unregulated and regulated value of the property. The increment adopted by the Court was $625,000, which accounts for almost the entire amount awarded above the advance payment.
Where a court accepts part of a Claimant's valuation and rejects part of a Claimant's valuation the court must determine what part of the fees and expenses contributed to the court's award.
The Court rejected the testimony and proposal of Claimants' engineer and Claimants have not sought reimbursement for the engineer's fees.
Claimants seek $11,606.00, in fees for their appraiser Henry Salmon. As discussed above, the Court accepted parts of Salmon's valuation, particularly that there was a reasonable probability that the wetlands regulations constituted a regulatory taking, and that an increment of 75% should be added to the regulated value of the property. These portions of Salmon's valuation were responsible for almost the entire amount over the advance payment awarded by the Court. Conversely, those portions of Salmon's valuation which the Court did not accept, specifically his regulated value of $220,000 and his opinion that eight marketable buildings could be built on the site had relatively little impact on the final award. Therefore, Claimants are entitled to be reimbursed for the full appraiser's fee even though the Court did not accept all of his opinions.
How attorney fees should be determined where some of the attorney's efforts were spent on a theory of valuation that was rejected by the Court can be a more complicated question, because it is not always apparent what parts of an attorney's fees were generated by theories that were rejected by the court.
It is well settled that in calculating fees pursuant to EDPL section 701, a court is not bound by a claimant's retainer agreement with counsel, but rather is obligated to assess reasonable fees. Matter of City of New York v. Jamaica Arms Hotel, Inc., 44 AD3d 1040, 845 N.Y.S.2d 796 (2nd Dept, 2007) ; Matter of City of New York Eastside Corporation, 52 AD3d 387, 860 N.Y.S.2d 85 (1st Dept, 2008). In this case, Claimants' retainer provided for attorney fees of 25% of any award over the advance payment, including interest.
Were the retainer based on an hourly rate it would be necessary to attempt to divine out how much time was spent on those matters that were part of the basis for the Court's award, and those which were not.
This difficulty of making such a determination argues in favor of basing the award of attorney fees on a contingency arrangement, where the retainer so provides, and where the resulting fees would be reasonable under the circumstances. A contingency fee is particularly suited to a situation where there is a substantial increase in the award, but not all of the attorney's work contributed to that increase, because contingency fees are by design proportional to the actual increase achieved.
A contingency fee more accurately reflects that portion of the attorneys efforts that result in an increased award, than an attempt to ascertain which particular hours were devoted to tasks that were a basis for a court's determination.
Contingency fee agreements are appropriately part of a court's considerations in assessing a reasonable fee. Application of New York Convention Center Dev. Corp., 234 A.D.2d 167, 651 N.Y.S.2d 479 (1st Dept, 1996) ; Hoffman v. Town of Malta, 189 A.D.2d 968, 592 N.Y.S.2d 503 (3rd Dept, 1993) ; Matter of New York State Urban Development Corp., 183 Misc.2d 900, 707 N.Y.S.2d 593 (Sup Ct N.Y. Co, 2000) ; Islington Pond Park, 1 Misc.3d 911(A), 781 N.Y.S.2d 623, 2003 N.Y. Slip Op. 51645(U) (Sup Ct Kings Co, 2003).
There is no valid reason to reduce the percentage of a contingency fee agreement to account for that part of an attorney's efforts that were spent advancing theories rejected by the court. Had the Court accepted all of Claimants attorney's arguments the award would have been far higher, and the corresponding fee higher as well. Conversely, to the extent the Court rejected Claimants' theory of valuation, the final award is less than it would have been.
However, the Court must still consider the reasonableness of the resulting fee.
It has been held that a contingency fee of 25% of the recovery above the advanced payment is “manifestly reasonable” under EDPL section 701, where the condemnor's undervaluing the property required the pursuit of a further award. Application of New York Convention Center Dev. Corp., 234 A.D.2d 167, 651 N.Y.S.2d 479 (1st Dept, 1996). See also Meyers v. State of New York, 166 Misc.2d 586, 634 N.Y.S.2d 642 (Court of Claims N.Y.1995) which found a one third fee to be “an appropriate starting point for determining a proper additional allowance for attorney's fees”.
In this case Claimants seek $ 235,451.89 in attorneys fees which, equals 25% of the award above the advance payment including interest, and 36.5% of that part of the award not including interest.
In this case Claimants' attorneys were required to oppose the CITY's unsuccessful appeal. This required further time and effort by Claimants' attorneys, even though such efforts did not result in any further compensation under the retainer because those additional efforts did not further increase the award. However, those efforts in opposing the appeal were necessary to preserve the award and thus necessary to achieve adequate compensation. In light of the additional time and effort needed to oppose the appeal, the requested fee is reasonable.
For the foregoing reasons the award requested for attorneys of $ $235,451.89 is reasonable under the circumstances, and necessary to achieve just compensation.
Lastly, Claimants are entitled to an award for the disbursements incurred for printing, transcripts, service of process, obtaining evidence and certified documents. Claimants are also entitled to be awarded for disbursements incurred in opposing the CITY's unsuccessful appeal. There has been no showing that the Claimants' cross-appeal added materially to the costs Claimants incurred in opposing the CITY's appeal.
However expenses incurred for copying, mailing, faxing, travel, calendar and messenger services fall within the attorneys' base fee and is accordingly not compensable. Meyers v. State of New York, 166 Misc.2d 586, 634 N.Y.S.2d 642 (Court of Claims N.Y.1995) ; Matter of City of New York (Newtown Cr. Water Pollution Control Plant Upgrade [Second Taking] ), 30 Misc.3d 816, 913 N.Y.S.2d 512, 2010 N.Y. Slip Op. 20498 (Su Ct Kings Co, 2010).
Therefore the Court awards Claimants the following disbursements: Acro Photo Printing ($1445.56), FOIL request ($5.70), Court transcripts ($1,742.00), Appeal Tech ($1,232.90), Trial materials ($98.44), Subpoena fees ($150.00), Certified deeds ($478.72), Filing fees ($65.00), Gotham process ($195.00) and Appellate Costs ($875.46), which total $ 6,288.78.
WHEREFORE, Claimants' motion is granted to the extent of granting Claimants an additional award of $241,740.67 for attorney fees and disbursements. Settle judgment and order on notice.