Michael Rikon

Eminent domain, the awesome inherent power of the sovereign, has developed a distinct body of law. Practitioners in this area should be aware of the key holdings. In other words, don't leave for the courthouse until you are familiar with the following cases.

Keator v. State of New York, 23 N.Y.2d 337 (1968). Keator holds that the just compensation to which a claimant is entitled is to be determined by reference to the fair market value of the property at the date of the taking, and the fair market value also is the price that property would sell if there was a willing buyer under no compulsion to buy and a seller under no compulsion to sell. The important part of the decision is that property is to be valued at its highest and best use regardless of whether it was so used, or whether the ante litem plans to so use it.

Matter of Town of Islip (Mascioli), 49 N.Y.2d 354 (1980). Normally, the uses of a parcel of land is limited by its zoning. Mascioli holds that the reasonable probability of rezoning is a relevant factor in determining the market value of property taken in condemnation. If it was proven it is appropriate to grant the claimants some increment.

Matter of 730 Equity Corp. v. New York State Urban Development Corporation, 142 A.D.3d 1087 (2d Dept. 2016) is a good example of a rezoning probability case. The property was a former gas station on Atlantic Avenue in Brooklyn. Claimant established that the property had a reasonable probability of rezoning to commercial use. Indeed, the only reason the City did not rezone the land was because it was to be included in the Atlantic Yards project. The claimant established that the highest and best use of the property was as a hotel. It supplied expert testimony to prove that such use was economically feasible.

Chase Manhattan Bank, N.A. v. State of New York, 103 A.D.2d 211 (2d Dept. 1984) involved the condemnation of lands that were designated wetlands. The court held that the property must be valued as it the legal restrictions of Tidal Wetlands Act applied. The land then would be valued with an incremental increase representing the premium that a knowledgeable buyer would have paid for a potential change to a more valuable use. The court stated that the property owner will be required to prove by "dollars and cents" evidence as to the economic return that could be realized under each permitted use.

Trade Fixtures

Jackson v. State of New York, 213 N.Y. 34 (1914) is a wonderful decision by Justice Benjamin N. Cardozo. The state had appropriated a warehouse that contained machinery, shafting, elevators and conveyors with substantial value. The Board of Claims refused to award compensation for the trade fixtures. The Appellate Division affirmed. Justice Cardozo stated:

We think that the power of the State is not so great, nor the plight of the citizen so helpless. Condemnation is an enforced sale, and the State stands toward the owner as buyer toward seller. On that basis the rights and duties of each must be determined. It is intolerable that the State, after condemning a factory or warehouse, should surrender to the owner a stock of second-hand machinery and in so doing discharge the full measure of its duty. Severed from the building, such machinery commands only the prices of second-hand articles; attached to a going plant, it may produce an enhancement of value as great as it did when new. The law gives no sanction to so obvious an injustice as would result if the owner were held to forfeit all these elements of value. An appropriation of land, unless qualified when made, is an appropriation of all that is annexed to the land, whether classified as buildings or as fixtures, and so it has frequently been held. (Matter of City of N.Y., 118 A.D. 865; aff'd., 189 N.Y. 508; Matter of Mayor, etc., of N.Y., 39 A.D. 589; Phipps v. State of N.Y., 69 Misc. Rep. 295; Allen v. City of Boston, 137 Mass. 319.)

Rose v. State of New York, 24 N.Y.2d 80 (1969). In Rose, the Court of Appeals stated that the law of trade fixtures was evolved by the Judiciary to ameliorate the harsh result to those who substantially improved property but who had less than a fee interest. It noted that New York takes a broad view in evaluating what improvements are to be regarded as trade fixtures. Not only is machinery deemed a "fixture" where it is installed in such manner that its removal will result in material injury to it or the realty or where the building in which it is placed was specially designed to house it or where there is other evidence that its installation was of a permanent nature, (citation omitted) but also those improvements that are used for business purposes and that would lose substantial value if removed. (citation omitted).

Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1970). Penn Central is the grandfather of inverse taking cases. The City had placed a landmarks designation on the historic train station, which resulted in restrictions requiring the owner to keep the exterior of the building in good repair. The designation of landmark restricts the owner's control over the parcel. The issue was whether the restrictions deprived the owner of a "reasonable return" on private property. The landmarks designation prevented the owners from building above the terminal.

The Supreme Court did not agree, stating:

On this record, we conclude that the application of New York City's Landmark Law has not effected a "taking" of appellants' property. The restrictions imposed are substantially related to the promotion of the general welfare and not only permit reasonable beneficial use of the landmark site but also afford appellants opportunities further to enhance not only the Terminal site proper but also other properties.

Nollan v. California Coastal Commission, 403 U.S. 825 (1987) involved the imposition of a condition to property owners of the requirement that they grant the public an easement across their beachfront as a condition to the grant of a permit to develop the land. Justice Antonin Scalia stated:

Similarly here, the lack of nexus between the condition and the original purpose of the building restriction converts that purpose to something other than what it was. The purpose then becomes, quite simply, the obtaining of an easement to serve some valid governmental purpose, but without payment of compensation. Whatever may be the outer limits of "legitimate state interests" in the takings and land use context, this is not one of them. In short, unless the permit condition serves the same governmental purpose as the development ban, the building restriction is not a valid regulation of land use, but "an out-and-out plan of extortion." J. E. D. Associates, Inc. v. Atkinson, 121 N. H. 581, 584, 432 A.2d 12, 14-15 (1981); see Brief for United States as Amicus Curiae 22, and n. 20. See also Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. at 439, n. 17.

Lucas v. S.C. Coastal Council, 503 U.S. 1003 (1992). In 1986, Mr. Lucas purchased two lots in that he intended to build single family homes. However, in 1988 the South Carolina legislature enacted the Beachfront Management Act, which has the direct effect of barring petitioner from erecting any permanent habitable structures on the land. In a decision written again by Justice Scalia, the court held:

Where the State seeks to sustain regulation that deprives land of all economically beneficial use, we think it may resist compensation only if the logically antecedent inquiry into the nature of the owner's estate shows that the proscribed use interests were not part of his title to begin with. This accords, we think, with our "takings" jurisprudence, which has traditionally been guided by the understandings of our citizens regarding the content of, and the State's power over, the "bundle of rights" that they acquire when they obtain title to property.

Berman v. Parker, 348 U.S. 26 (1954). Mr. Berman owned a department store in Washington, D.C. The property was not at all blighted and was quire successful. Nevertheless, it was located in an area that was deemed injurious to the public health, which was to be taken and redeveloped. The court held:

We think the standards prescribed were adequate for executing the plan to eliminate not only slums as narrowly defined by the District Court, but also the blighted areas that tend to produce slums. Property may, of course, be taken for this redevelopment which, standing by itself, is innocuous and unoffending.

…

Once the question of the public purpose has been decided, the amount and character of land to be taken for the project and the need for a particular tract to complete the integrated plan rests in the discretion of the legislative branch. See Shoemaker v. United States, 147 U.S. 282, 298; United States ex rel. TVA v. Welch, supra, 554; United States v. Carmack, 329 U.S. 230, 247.

The rights of these property owners are satisfied when they receive that just compensation which the Fifth Amendment exacts as the price of the taking.

Kelo v. City of New London, 545 U.S. 469 (2005) relied to a large extent on Berman v. Parker, 348 U.S. 26 (1954). The case broadened the definition of public purpose. In Kelo a residential home owned by Ms. Kelo (the Pink House) was taken for development of surrounding land by Pfizer. There never was a redevelopment agreement between the City and the "developer." Further, the project was never built.

United States v. Miller, 317 U.S. 369 (1943). Miller is a very important decision. The claimant's property was one of many parcels taken for a railroad relocation. After the project was announced the land in the neighborhood increased in market value due to the proximity of the project. The court held that if the claimant's land was in the area within the confines of the project, it was not entitled to any enhancement in value due to that fact.

Michael Rikon is a partner of Goldstein, Rikon, Rikon & Houghton.