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In eminent domain case appeal, plaintiffs say AY sequence violates Kelo case

U.S. District Judge Nicholas Garaufis was emphatic in his June 6 dismissal of the Atlantic Yards eminent domain case. But the case is hardly dead, and the plaintiffs have fought back with a blistering appellate brief that, while it doesn’t fully refute Garaufis’s analysis, argues that he ignored a host of other factors, notably the sequence endorsed by the U.S. Supreme Court in the controversial 2005 Kelo v. New London decision.

Garaufis said, essentially, that, the plaintiffs—originally 13 tenants and property owners in the Atlantic Yards footprint—erred in alleging that the benefits were a pretext. (A 14th plaintiff was added as Garaufis combined a second case.)

"Because Plaintiffs concede that the Project will create large quantities of housing and office space, as well as a sports arena, in an area that is mostly blighted, Plaintiffs’ allegations, if proven, would not permit a reasonable juror to conclude that the 'sole purpose' of the Project is to confer a private benefit,” Garaufis wrote. “Neither would those allegations permit a reasonable juror to conclude that the purposes offered in support of the Project are 'mere pretexts' for an actual purpose to confer a private benefit on FCRC.”

I thought Garaufis’s analysis was flawed regarding three of four counts, since he missed nuances and details in the plaintiffs’ argument. But the appellate brief, a prelude to an exchange of at least two more legal briefs before an October 9 oral argument, has bigger fish to fry.

The brief focuses on what the plaintiffs argue is the appropriate sequencing for the exercise of eminent domain, as affirmed in Kelo. In other words, even though the case has led to a backlash in some state legislatures and has emerged as a presidential campaign issue, the plaintiffs are arguing not that Kelo should be overruled, but merely should be adhered to.

The brief states:
This deal was struck: (1) without creating a comprehensive development plan or so much as considering a single alternative to Ratner’s plan for development of the area, including his selection of Plaintiffs’ properties for seizure; (2) without a true competitive bidding process for the purchase of Vanderbilt Yards owned by the Metropolitan Transportation Authority (“MTA”); (3) with no bidding process at all for the remainder of the site, including Plaintiffs’ properties; (4) without local legislative review and approval by the City Council; and (5) without a process to allow for meaningful community input.

Who benefits?

The brief argues:
Defendants’ decision to take Plaintiffs’ properties serves only one purpose: it allows Ratner to build a Project of unprecedented size, and thus reap a profit that Defendants, tellingly, have attempted to conceal at every turn. This is not merely favoritism of a particular developer in the classic sense, although it is that. Here, the “favored” developer is driving and dictating the process, with government officials at all levels obediently falling into line.

While it may serve to allow Ratner to build such a project and reap an unknown profit, the city and state officials who are defendants can argue that, as stated in the Empire State Development Corporation’s General Project Plan and affirmed by Garaufis, that the project serves the purposes of establishing a sports arena, building affordable housing, and removing blight, among other things.

Special benefits

The brief points to favoritism:
The agreement to develop the Project and take Plaintiffs’ properties included express provisions bestowing atypical benefits upon FCRC. Under one written agreement, FCRC will receive a raft of special discretionary goodies not available as-of-right to real estate developers, including $200 million in capital contributions from the City and State,2 low-cost financing for the arena, extra property tax savings, a low-cost lease, and the guaranteed transfer of private property through eminent domain. Under a second agreement, FCRC is granted the unfettered right to develop other properties near the Project footprint including Pursuant to the pre-Project announcement agreement between Pataki, Bloomberg and Ratner, FCRC was gifted the rights to build over the MTA’s Vanderbilt Rail Yard. This was expressly confirmed, on more than one occasion, by MTA spokespersons in discussions with news reporters. Apparently embarrassed by the disclosure that a back-room deal had already been struck to convey the MTA’s property to FCRC, the MTA retracted its statements. The sham RFP was profoundly biased in favor of FCRC. Whereas FCRC had been working on its (pre-approved) proposal for purchase of the railyards with the MTA and other State officials for more than two years, the RFP gave everyone else forty-two days to generate proposals. Among other things, the RFP required proposers to submit a twenty-year profit and loss statement (pro forma). FCRC submitted a formal bid to develop over the railyards, offering to pay the MTA $50 million – $164.5 million less than the appraised value of $214.5 million. Notably, FCRC failed to submit a profit and loss projection as the RFP required.

What’s the standard?

The brief argues that Garaufis misread the standard on whether a case was plausible enough to survive a motion for dismissal. The relevant case at the time was Bell Atlantic v. Twombly. The brief states:
The court held that “Under [Bell Atlantic], Plaintiffs’ claims that the public use requirement has been violated must be dismissed” because, as in Bell Atlantic, “the facts alleged by Plaintiffs in the present case – the taking of property from some private parties and the resulting benefit to other private parties – are as consistent with lawful behavior as with unlawful behavior.”
(Emphasis in brief)

However, the brief argues, an appellate court case since decided in June, Iqbal v. Hasty, clarifies the standard, making it easier for the plaintiffs to state their claim. It requires "a flexible ‘plausibility standard,’ which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible.”
(Emphasis in original)

The brief follows up to argue that such a “notably permissive standard” is especially important in cases where “defendants have exclusive possession and control of virtually all of the evidence concerning the decisionmaking process” and “the immense power of government has been enlisted in service of seizing plaintiffs’ properties.”

The brief sets it out:
If the district court’s formula were correct, no complaint – not one – asserting a claim alleging an unconstitutional motive… could ever be sustained. It would matter not that the assertion of unconstitutional purpose, or motive, or intent, was supported by a welter of undisputed evidence, whether circumstantial (as is typical), or even direct. A reviewing court can always confidently proclaim, as the district court did here, that undisputed allegations, or allegations accepted as true, while fully consistent with an unlawful purpose, are also plausibly consistent with an lawful purpose.

Fighting facts

The brief also argues that “the district court misconstrued and/or ignored many of the detailed factual allegations that support the factual inference of improper purpose," pointing to the difference with Kelo, where the court’s opinion noted that the use of eminent domain was “executed pursuant to a ‘carefully considered’ development plan.”

In the case of Kelo, the brief draws on Justice Anthony Kennedy's concurrence [not, as I originally suggested, the opinion of the court]:
[T]he trial court considered testimony from government officials and corporate officers; documentary evidence of communications between these parties; respondents’ awareness of New London’s depressed economic condition and evidence corroborating the validity of this concern; the substantial commitment of public funds by the State to the development project before most of the private beneficiaries were known; evidence that respondents reviewed a variety of development plans and chose a private developer from a group of applicants rather than picking out a particular transferee beforehand; and the fact that the other private beneficiaries of the project are still unknown because the office space proposed to be built has not yet been rented.

(Emphasis in brief)

In this case, the issue of motive or intent must be determined by trial rather than dismissed via an exchange of briefs, especially since new facts have already emerged thanks to press and political scrutiny:
Indeed, if facts emerge in discovery, as they have during the pendency of this action even without forced disclosures, this action will likely not be subject to resolution at the summary judgment stage.

Supplemental allegations

Indeed, should the case go back to trial, the plaintiffs say they’d amend the complaint to add supplemental allegations, noting that “additional evidence of Defendants’ improper purpose has come to light" since the suit was filed. See the Fed. Rules of Civil Procedure 15(d) (p. 44 of PDF).

The allegations include:
--the MTA’s July 13 RFPs soliciting proposals from developers interested in purchasing its Hudson Rail Yards contrast with the Vanderbilt Yards RFP, 1369 pages long vs. 42 pages, with 92 days to respond, rather than 42 days, with design guidelines and a planning process before any developer was selected or even solicited.
--the doubling of the city’s commitment to the project, from $100 million to $205 million –a judge’s findings that developer Forest City Ratner misrepresented its “control” of a building it had subleased
--the news that the ESDC never saw a business plan from the developer and the KPMG report it solicited failed to include Site 5, home to a condo building.
--a 7/19/07 report on the ESDC by consultant A.T. Kearney, which “confirms Plaintiffs’ general allegations and fears concerning ESDC. The report recommends that ESDC should ‘reject its legacy of regional patronage, a pattern of funding one-off solutions, and a perceived preference for practicing the economics of political convenience.’”

AY vs. Kelo

The brief compares the sequence preceding the use of eminent domain compared to the Supreme Court’s decisions, upholding eminent domain, in Berman v. Parker (1954) and Kelo. The brief notes:
--the identity of the private developer who would benefit from the transfer of plaintiff’s property was unknown
--the legislature considered and adopted a comprehensive plan for economic development or the elimination of blight
--the beneficiaries of the takings did not conceive of the project and drive it to completion
--the legislature “did not cut a back-room deal to convey a massive swath of government-owned property to a private developer and then try to cover up the favoritism by concocting a sham public bidding process.”

With AY, the brief argues, “the difference is stark”:
--Forest City Ratner determined the map of the project
--government defendants agreed to cooperate
--an MTA official told reporters in 2004 Ratner had the rail yards without any bidding
--the “sham RFP process” in 2005 covered up the fait accompli
--the government decided the blighted area was exactly what Ratner needed.

Appropriate sequence

The brief argues that there is an appropriate sequence:
--the project emerges from a legislative body
--the body, or one delegated by it, targets an area for redevelopment
--the beneficiaries of eminent domain "are identified through an open public process."

By contrast, courts have disapproved of cases driven by private parties, effectuated by “non-legislative governmental entit[ies],” and with outlines that match the property identified by the private party.

The brief sums it up:
The Complaint cogently explains the facts that support the conclusion that blight – and Defendants’ other proffered justifications – are a pretext. Surely Defendants cannot avoid the kind of meaningful review endorsed by the majority in Kelo, by merely mouthing the words “blight” (or “jobs” or “housing”) in the face of substantial evidence to the contrary.

The brief points to a recent California case in which a trial court denied the government’s motion for summary judgment and instead said a trial would be necessary to evaluate whether the “public purpose”--providing affordable housing–was a pretext, and the actual purpose was to bestow a private benefit.

The decision by a trial court wouldn't be binding in this case, nor even would be an appellate court decision covering California. But it certainly suggests that the law, post-Kelo, is in flux.


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