Monday, November 05, 2007

Does the AY eminent domain lawsuit have a shot? Two law profs are doubtful

Two legal experts, while not expressing support for the Atlantic Yards project, nevertheless said at a panel discussion last Wednesday at Yeshiva University’s Cardozo School of Law that they thought the pending eminent domain challenge would fail in a federal appellate court, given current legal doctrine.

The court will dismiss the suit, as did the trial court judge, they said, because of the presence of some public benefits, and because judges are loath to set a precedent in which courts investigate the motives of decision-makers.

The predictions by Cardozo law professor Stewart Sterk and University of Chicago law professor Richard Epstein generated a forceful response from the third panelist, New York attorney Matthew Brinckerhoff, who represents the plaintiffs in Goldstein v. Pataki and argued the appeal, before an engaged but skeptical panel, on October 9.

Brinckerhoff (right) stressed that eminent domain doctrine seems to be evolving. If the Supreme Court opened up the possibility that motives to confer a private benefit can be questioned, as it did in the 2005 Kelo v. New London decision, he said, there must be some fact-finding to reconcile that with the established “rational basis” (the lowest level of judicial scrutiny) doctrine for finding public purposes.

Hence his hope that the appellate court sends the case back for discovery, the disclosure of information held by the defendants, and then trial to determine that the use of eminent domain is, in fact, legitimate.

Though two law professors who apparently hadn't read all (or any?) of the legal papers don't necessarily represent a consensus, neither Epstein nor Sterk are particularly sympathetic to eminent domain. So that may be a sign that the federal eminent domain case, believed by many Atlantic Yards opponents to be the best chance to stop the project, may be a longer shot than the state court challenge to the environmental review, which remains pending long after a decision was due.

Plaintiffs’ case

Brinckerhoff began by describing the case as a sweetheart deal, saying that the plaintiffs rely on Kelo, in which the court raised the question of whether the proffered public purpose was a pretext--and decided no. (The majority opinion stated:
Nor would the City be allowed to take property under the mere pretext of a public purpose, when its actual purpose was to bestow a private benefit. The takings before us, however, would be executed pursuant to a “carefully considered” development plan.)

U.S. District Judge Nicholas Garaufis’s dismissal of the Atlantic Yards challenge relied on the finding of public purpose (including removal of blight, subsidized housing, transportation improvements), which trumped any attempt to assess the factors the plaintiffs suggested indicate private purpose.

But unlike in cases that set precedent, Brinckerhoff argued, Atlantic Yards case had no legislative oversight and the private beneficiaries were known, rather than unknown, when the government decided to pursue eminent domain.

Brinckerhoff added that there’s strong circumstantial evidence—including a statement by the Metropolitan Transportation Authority that the Vanderbilt Yard would go to Forest City Ratner, 18 months before a “suspicious” Request for Proposals—that the primary purpose was to benefit Forest City Ratner. So, he said, the case should proceed.

Some skepticism

Epstein (right), a noted libertarian who supported the plaintiffs in Kelo, was unconvinced, though he said he had "sympathies on both sides."

“I think in the end this case is going to be affirmed on appeal, for which I'm not particularly happy,” he said. “In a project this complicated and this large, you can always find something good to say about it," which means courts can find a public purpose.

"The question of the primary beneficiary I don't think will be regarded as the ultimate test," he said, because it can be always said that the project will create housing and jobs, and eliminate blight. "The fact that it's a wired transaction, with only one developer... could be defended on the grounds that it expedited the situation."

His personal feeling, he said, "is a kind of plague on both your houses.” He scoffed at Brinckerhoff’s support for a fairer process. “The reason why you have these prepackaged deals,” he said, is that projects must go through “neighborhood approvals” and the “number of choke points... is absolutely crazy.”

So development at this critical location, said Epstein (who acknowledged he was an "outsider from Chicago"), "has largely been stymied" by public resistance. (Not quite. There was indeed public resistance to plans in the Atlantic Terminal Urban Renewal Area, or ATURA, but at the same time there was not until recently a market for building over railyards--and the city hadn't considered it.)

He suggested two changes to enhance development. First, he’d give up zoning, letting anyone build what they want—"and the only attention should be to the coordination of infrastructure," a not insubstantial prerequisite to increasing the supply of housing in the city.

He quipped—not without evidence--that the supply now expands when apartment residents put up additional walls. (Still, his suggestion that New Yorkers were against changing densities belies the City Planning Commission's steady pace of rezonings, typically preserving the scale of residential blocks while upzoning commercial corridors and even adding a bonus for affordable housing, as it has just done in the southern part of Bedford-Stuyvesant. And, of course, for Atlantic Yards the state would override zoning that prohibits sports facilities within 200 feet of residential neighborhoods.)

Paralysis coming?

Epstein continued: "This is what I see as the dilemma: If you can't change the zoning, then do you want to play fast and loose with the public use requirement?" That, he said, could lead to paralysis: "Having made terrible mistakes on the zoning side, then if you are constitutionally pure on the public use side, nothing is going to happen."

Such a zoning change, he said, would lessen the possibility that property owners and residents would be vulnerable to eminent domain. (Then again, he seemed most concerned about constraints of zoning on the supply of housing, not the supply of an arena.)

So he suggested a compromise. in order to put the brakes on eminent domain, those losing property should receive not merely just compensation, as dictated by the Fifth Amendment, but “super-compensation… you want them to pay through the nose, 150-200 percent of compensation.”

(While that may be a deterrent to some pursuing eminent domain, given that Epstein said that governments typically lowball compensation, the increase in allowable development rights on the Atlantic Yards site is well over 200 percent, so even that solution would be a good deal for Forest City Ratner, which has paid some owners quite well.)

Also, residents and retail operators must be relocated in the neighborhood, "so that it really hurts." (Again, not a huge burden if the development rights expand.)

"My first best preference is to agree with Matthew about public use," Epstein said, and to "disagree violently" with anyone who supports zoning practices that foster stasis. But that won't be the outcome, and that's why supercompensation is a second-best solution.

The assembly problem

Sterk (right), a specialist in real estate law, said he mostly agreed with Epstein, but said it was tough to create a system which can guarantee that infrastructure comes before or simultaneous to development--and it would be even harder to construct a system of judicial review to evaluate whether infrastructure was sufficient.

Even if a change in zoning reduced potential conflicts, governments would still need to use eminent domain to assemble large sites for projects like Atlantic Yards.

"I'm one of those people who thinks, on the whole, that government vision is not going to be so good," he said. "And that leaves me to at least propose some sort of incremental change, rather than the kind of change that Atlantic Yards proposes. We will live, for generations or more, with Atlantic Yards, and the question is: do we want that?"

How constrain eminent domain?

If we don't think we'll get good results, Sterk mused, how could the power of eminent domain be constrained. One tactic, he said, might be to require more accountability and transparency in the condemnation process--for example, giving the state legislature or city council a vote. Still, he noted that eminent domain is politically unpopular, so that might be “an uphill battle.”

(That didn’t happen in the Atlantic Yards case, where eminent domain was delegated to the Empire State Development Corporation, with a board mainly appointed by the governor.)

He noted that state law allows landowners to challenge compensation claims, so low-ball compensation is not necessarily a big problem in New York.

Several state legislatures and courts--though not in New York--have constrained the use of eminent domain in response to Kelo. "Maybe that's a more fruitful avenue," Sterk said, "maybe not in New York but in most places, than trying to constitutionalize the doctrine to a greater degree."

"I don't think the Supreme Court is, and probably should, get to the point... where it's drawing fine distinctions between who proposes a development," he said, suggesting that "ideas come from a variety of places" and it's hard to draw the line on motives.

(Well, maybe. A New Jersey judge in July overturned the use of eminent domain in Newark, agreeing that the area was not blighted. She didn't have to address claims that the process was flawed, though she acknowledged that the "evidence certainly provides cause to question the results and validity of the redevelopment investigation.")

“So I do think Matthew’s ultimately going to lose,” Sterk said. “Probably Matthew should lose, but that doesn’t mean that Atlantic Yards should ultimately be built."

A rebuttal

In response, Brinckerhoff challenged Epstein’s notion that too much process deters development. While an insider-driven stadium plan for the Hudson Yards was rejected by the state, a revised plan, with extensive design guidelines and a detailed RFP, has attracted many bidders, he said.

Is there any private property involved, Epstein asked. The answer was no, and he suggested that made a difference.

Brinckerhoff countered that he wouldn't object to an Atlantic Yards plan driven by a proper process. "If we lose, what it means is what the dissent in Kelo said all along: There is no public use restriction at all, because you can always, always point to a pretext."

Epstein quipped, referencing a song from Damn Yankees, "Whatever Lola wants, Lola gets."

The Kelo majority acknowledged motive, Brinckerhoff stressed: "If you on the one hand are allowed to question the motives of decision-makers, and on the other hand have rational basis review, you have to reconcile that in some way... in favor of allowing litigation like this to proceed."

If, after discovery, "we find a backroom quid pro quo deal between the governor and Ratner to do this deal, then it shouldn’t proceed," he said. Had Forest City Ratner dealt only with public land, that would be one thing, but taking someone's home "should be held to a higher standard. It can't just be rational basis, and part of the reason it can't be is that it's not even a legislative decision."

No backroom deal?

I'm not sure discovery would turn up evidence of a backroom deal. (Even if it did, ESDC lawyer Preeta Bansal claimed in court last month that it wouldn't violate the public use clause.) What if discovery simply showed a city and state grateful for and not too skeptical of the project? Remember, as former New York City Economic Development Corporation President Andrew Alper told City Council 5/4/04:
The developer came to us with what we thought was actually a very clever plan. It is not only bringing a sports team back to Brooklyn, but to do it in a way that provided dramatic economic development catalyst in terms of housing, retail, commercial jobs, construction jobs, permanent jobs.

So, they came to us, we did not come to them. And it is not really up to us then to go out and find to try to a better deal. I think that would discourage developers from coming to us, if every time they came to us we went out and tried to shop their idea to somebody else. So we are actively shopping, but not for another sports arena franchise for Brooklyn.


What if the city and state simply didn’t do enough due diligence? For example, the ESDC and governor's office both on 3/4/05 issued press releases relying on revenue projections made by the developer’s paid consultant, Andrew Zimbalist, rather than commission their own analysis. (Excerpt from ESDC.) And the state’s fiscal impact analysis, in contrast to that of the New York City Independent Budget Office, projected new revenues without looking at a range of costs.

A contrasting view

At the panel discussion, Epstein repeated that more process causes delay and suggested that, in Kelo at least, there was no real holdout problem, as the first phases of the New London project could have proceeded without the plaintiffs’ homes, and that a local politicians' hangout somehow escaped the condemnation map. “The really sad irony,” he said, is that “they’ve not built a thing.”

Kelo to my mind is a mindlessly easy case,” he said. "The difficulty I think in the Atlantic Yards case is that there is a holdout risk."

“I think you’re on our side,” Brinckerhoff said.

“I’m of two minds,” said the notably prolific Epstein.

Other location?

Brinckerhoff suggested that, if an arena were really a public purpose, Forest City Ratner could use its other property, such as the Atlantic Center mall, but it's much easier to get someone else's land.

Epstein said the idea that FCR could build this project without the plaintiffs' property made him “much more sympathetic,” but he’d like to see a map.

(However, Forest City Ratner couldn’t build this project as designed, of course, as the railyard component would be too small. And, of course, the developer has other plans for the Atlantic Center mall site, involving new Frank Gehry towers on top.)

“Suppose you lose,” Sterk asked Brinckerhoff. “Have you thought about strategies for compensation” based on the future value of the land?

Brinckerhoff, a specialist in constitutional law, said that wasn’t his bailiwick, that other specialists handle compensation for eminent domain.

Developing a case

He returned to his case, pointing out that, unlike in previous cases like Kelo, which went through a trial, "there's no ability to develop any evidence at all." In another foundation case, Berman v. Parker, "there were undisputed facts."

He also stressed that his approach to Kelo, citing a federal case in California regarding rent control, which calls for a trial regarding the motives of public officials regarding a taking, and a Washington, DC case, Franco v. National Capital Revitalization Corporation, "where there was strong circumstantial evidence, which actually isn't as strong as ours, that the taking was motivated by a desire to confer a private benefit." (More on that case at bottom.)

“So these things are kind of boiling up, and I think the issue I'm focused on is going to get resolved,” he said.

Sterk responded, “I understand where you’re coming from, but between a system in which every taking becomes a fact-finding case" and one in which there is "supercompensation," the latter is "much more appealing."

More process?

Then he got to a larger issue in the Atlantic Yards debate. “The major problem is not... the loss to the particular owners,” he said. “My problem with all this is the government deciding what the land use must look like for generations. Because I don't trust the government bodies that are essentially blessing Forest City Ratner, or blessing anybody else. But that's a problem, even if there's no taking at all.”

The takings clause in the Fifth Amendment, he suggested, "is largely designed to protect owners," rather than police the larger issues.

There he hit on the absence of process, the bypass of planning, and the attempt at city-making. Is there any check on a bad process?

Brinckerhoff said, "I share your skepticism about government behavior." He agreed that system would be stymied if every project had to go through similar scrutiny, but suggested that would not be the case.

Epstein suggested that both Brinckerhoff and Sterk valued process too much. “I hate process," he said. "I’m much more of a rights kind of person.”

The compensation system, he said, could maintain the rights of owners. And, he suggested, what if a trial finds that the process was fine? “Nobody on the plaintiffs' side is going to compensate Ratner" for the "five years” of delay.

“I don’t think it’s perfect,” Epstein said, “but supercompensation comes out first,” at least for projects involving private developers rather than for schools or hospitals.

A plaintiff responds

In the audience, lead plaintiff Daniel Goldstein suggested that Epstein had painted a bit of a caricature. Early on, Forest City Ratner did make “big offers” to property owners, he said, but at the same time threatened that, if they didn’t, the government would take their property. Elsewhere in Brooklyn, he said, rezonings had increased development rights.

Epstein, whose daughter is a developer who endures neighborhood meetings, responded, “With all these problems, I think we can say the injustices run in both directions.”

“I’m generally a pretty strong property rights advocate,” he added, but most homeowners prefer their neighborhoods not to change. If governments want their properties, supercompensation could “introduce a modest level of sanity.”

“My home is in the way of the arena,” Goldstein said. “But I’m not in the way of keeping the public benefits.... I'm not in the way of building an arena in Brooklyn. What we're in the way of is the huge benefit to Ratner, building this project."

Somebody else, Epstein said, would rise to block an facility proposed elsewhere. And then he got to a question raised in court by Brinckerhoff. “Is building a stadium a public use?” he asked. “It’s not so crystal clear.”

Brinckerhoff, interjecting, said it wasn't. Indeed, in court October 9, he described a sports facility as a "private, money-making enterprise,” he said, not different from a hotel that offers public access. And that's an issue in the lawsuit over the environmental review, as well.

The DC case

Because Franco v. National Capital Revitalization Corporation was decided by a panel of the District of Columbia Court of Appeals, it does not control the judges of the Second Circuit of Appeals who will decide the Atlantic Yards appeal. My reading of the case suggests it offers the plaintiffs cause for both hope and concern.

The case involves the owner of property in an old shopping center that the city said exhibited blight and should be turned into a more modern development. The court wrote:
[O]ur task is a limited one – to determine whether the trial court properly concluded that Mr. Franco had failed to plead a legally sufficient defense.


The court said it should not always defer to a legislative determination of public purpose:
The trial court did not undertake any factual inquiry to determine that the legislation had “an overriding public purpose” and “will provide substantial benefits to the public.” Thus, its discussion suggests that, once the legislature has declared that there is a public purpose for a condemnation, an owner is foreclosed as a matter of law from demonstrating that the stated reason is a pretext. We do not interpret Kelo so broadly.


That offers hope to the plaintiffs. Indeed, as the court pointed out, Kelo didn't raise questions of illegitimate purpose:
An extensive record had been developed during a seven-day bench trial, and the Court noted that “[t]he trial judge and all the members of the Supreme Court of Connecticut agreed that there was no evidence of an illegitimate purpose in this case.”

Thus, Kelo recognized that there may be situations where a court should not take at face value what the legislature has said. The government will rarely acknowledge that it is acting for a forbidden reason, so a property owner must in some circumstances be allowed to allege and to demonstrate that the stated public purpose for the condemnation is pretextual. It may be difficult to make this showing, and the Supreme Court’s decision may raise many more questions than it answers, but a pretext defense is not necessarily “foreclosed by Kelo.”


The Kennedy concurrence

The plaintiffs in Brooklyn have drawn on Justice Anthony Kennedy's nonbinding concurrence, in which he laid out criteria for a legitimate use of eminent domain, among them that the government chose from a number of potential bidders and that the beneficiaries were unknown at the time the decision to pursue eminent domain was made--factors absent regarding Atlantic Yards.

In Washington, DC, the plaintiff alleges that a city agency entered into an agreement with a developer two years before a bill concerning the site was introduced to the the City Council.

The DC Court of Appeals wrote:
Although Justice Kennedy’s concurrence discusses at some length a court’s role when presented with allegations of a pretextual public purpose, that discussion is not the holding of the court... Nevertheless, Justice Kennedy’s concurring opinion may accurately predict what the Court will hold when the record before it does not resolve the pretext issue.

That might bode well for an Atlantic Yards appeal to the Supreme Court, but that doesn't mean, however, that the appeal would even be heard.

What's a pretext?

The DC Court of Appeals pointed out some ambiguity:
Unfortunately, “the Kelo majority did not define the term ‘mere pretext’... the majority opinion in Kelo did suggest (without deciding) that a transfer of property from one private party to another, “executed outside the confines of an integrated development plan, . . . would certainly raise a suspicion that a private purpose was afoot... And it certainly would be relevant if the government proposes a transfer to a private party, but “the projected economic benefits of the project [are] de minimus.” 545 U.S. at 493 (Kennedy, J., concurring).


The Empire State Development Corporation projects significant economic benefits, while the plaintiffs in Brooklyn argue they are much less--possibly de minimus. Still, a project of this size certainly will create jobs.

The DC Court wrote:
We conclude that a reviewing court must focus primarily on benefits the public hopes to realize from the proposed taking. If the property is being transferred to another private party, and the benefits to the public are only “incidental” or “pretextual,” a “pretext” defense may well succeed. On the other hand, if the record discloses (in the words of the trial court) that the taking will serve “an overriding public purpose” and that the proposed development “will provide substantial benefits to the public,” the courts must defer to the judgment of the legislature. Harder cases will lie between these extremes.
Other courts applying Kelo have inquired whether the record demonstrates a public purpose for the taking.


And one of those examples was Goldstein v. Pataki:
(conclusory allegations were not sufficient to state a “pretext” claim; plaintiffs “concede[d]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”; they did “not allege any facts suggesting that any Defendant had any reason to bestow a benefit on any private party”).


The plaintiffs in Brooklyn say that's a misreading. Still, the DC court suggests that the sequence that led to condemnation, an issue stressed by Brinckerhoff, may be less important than the public purposes, as suggested by Epstein. The court wrote:
Mr. Franco argues that the taking at issue here fails the public use requirement because some of the factors mentioned in Kelo are not present. (He argues especially that the identities of the benefitting private parties were known before the taking was authorized by the legislature and that there is no comprehensive plan for redeveloping the area.) However, nothing in Kelo suggests that the items of evidence mentioned there set constitutional standards. Indeed, there are suggestions that the most important, perhaps determinative, consideration was that the plan “unquestionably serve[d] a public purpose.”


The decision concludes cautiously:
We emphasize that further proceedings, including discovery, should honor the “longstanding policy of deference to legislative judgments” concerning the public purpose of a taking... The Supreme Court has explained, and reiterated, that “[t]he role of the judiciary in determining whether th[e] power [of eminent domain] is being exercised for a public purpose is an extremely narrow one,”...And resolving the pretext defense does not necessarily require a trial. We simply hold that in this case the defense may not be rejected as a matter of pleading.

1 comment:

  1. This analysis forgets where the story starts:-

    -Before Forest City Ratner came in and made a proposal about developing the Vanderbilt Yards (so obvious there is no credible case for giving it an exclusive to develop or bid on the public site) Forest City Ratner was already receiving bail-out public subsidy money for nearby sites that were underperforming in large part because FCR is inept as conventional developer and “ept” only when it comes to wrangling special public subsidy deals.

    Also, the analysis as to whether ostensible public use can be POSSIBLY be found is far too quick and superficial. Even if a public purpose could be found associated with the block being condemned for the arena, the peculiar wrench shape of the Atlantic Yards foot print highlights that the way in which eminent domain is being used is suspiciously odd. The shape of the footprint emphasizes how another entirely different block, the Ward Building block, is being condemned for little or no good ostensible purposes, while next to it the footprint curves around to avoid condemning an adjacent block with very similar characteristics. The adjacent block not being condemned involves ownership by a developer who has political relationships and who was in another set of negotiations with the official public agency supposed to be doing the condemning right around the time the footprint was established. It is probably not an accident that Ward block which has probably the least reason to be condemned on an allocable basis may net the most profit because construction on it does not involve the expense of building a platform.

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