Tuesday, June 24, 2008

In state court case, questions of “condemnation blight” and "reasonable" efforts to proceed

On Monday morning, when most Atlantic Yards watchers were waiting to learn whether the Supreme Court would hear the AY eminent domain appeal (it said no), another legal drama was playing out in State Supreme Court in Manhattan, before State Supreme Court Justice Jane Solomon. Tenants, nearly all with rent-stabilized leases, in two buildings, are charging (lawsuit, follow-up) that the Empire State Development Corporation (ESDC) is violating a provision of the Eminent Domain Procedure Law (EDPL) that requires disposition of properties within a decade.

Solomon seemed skeptical of the main thrust of the argument made by attorney George Locker, who has filed two previous cases on behalf of the 13 tenants, who live in two Forest City Ratner-owned buildings within the footprint of the planned arena block.

Then again, she did seem somewhat sympathetic to Locker’s effort to paint the footprint as suffering from “condemnation blight,” a state of suspended neglect, and that the project has changed enough to require a public hearing.

The petitioners seek to annul the State Funding Agreement and also to order the court to require another public hearing, based on the law establishing the ESDC.

AY “does not exist”

Locker noted that documents approved in December 2006, including a Modified General Project Plan (GPP), serve as “planning documents” rather than contracts. The first contract is the 9/12/07 State Funding Agreement, which wasn’t revealed until 3/21/08.

The GPP and other documents all state a ten-year timeline to build the project, he said, and everything that required analysis under the law was based on that time frame. “If the funding agreement followed the General Project Plan,” he said, “we wouldn’t be here.”

However, Locker noted that there’s no start date for Phase 1, and that the developer has 12 years from the delivery of property to complete that phase without penalty. As for Phase 2, which would contain 70% of the affordable housing, 70% (alleged) of the jobs, and all the open space, there’s no timetable.

“The bulk of the Atlantic Yards project, as far as the operative contracts are concerned, does not exist,” he said.

While the ESDC has filed a motion to dismiss the case for failure to state a cause of action, “it’s a rather high standard,” Locker said.

“Condemnation blight”


Locker, whose main case relies on an untested area of state law, hearkened back to the 1974 Report of the State Commission on Eminent Domain. “The legislature was very concerned with the passage of time, what they called ‘condemnation blight,’” he said, pointing to a requirement that the condemnor begin proceeding to acquire property within three years. The commission had noted that “the current lack of such a requirement results in tenants vacating the property and destroys an owner’s incentive to maintain such property.”

If property is not acquired in three years, the project would be deemed abandoned. Also, the state must complete the taking of properties in a decade.

Solomon asked what had happened to Locker’s clients. He said the onus remained on the ESDC to acquire title to the buildings they live in. (The use of eminent domain would be a “friendly condemnation” of an FCR-owned building, aimed to extinguish rent-stabilized leases faster than would occur through a typical procedure before the state Division of Housing and Community Renewal.)

“There has been none [acquisition of title] with all of this publicity [about the project]?” Solomon asked a bit quizzically.

“Yes,” Locker responded.

Whose ten years?


He stressed that there was a ten-year limit before a project could be abandoned. “Empire State Development cannot take property by eminent domain, and give itself, or the Ratner organization, the right to abandon it after more than ten years.”

Philip Karmel, representing the ESDC, said the funding agreement has a “limited purpose,” to allow the ESDC to provide $100 million for “certain project-related infrastructure in advance of project documentation.” Such documentation “is still in active negotiation,” he said, with an outer deadline of December 2009.

Karmel said the three-year period to acquire property began only a few months ago at the conclusion of previous litigation Locker had brought. However, he said, “the ten-year period has absolutely no application to this case at all.”

He said it applied only to projects in which the condemnor announced plans to acquire property in multiple stages. Regarding Atlantic Yards, ESDC “intends to acquire all property at once,” he said.

He said another mention of a ten-year period is only relevant if the property remains unimproved--which is not the same as not finishing Phase 1.

Condemnees and fee owners


Do the petitioners have standing? Locker pointed to a previous case in which the ESDC said--and judges affirmed--the tenants did in fact have ownership rights via their leases and could be treated as condemnees. However, Karmel pointed out that the law says the condemnor must sell it back to “the original fee owner”--and the petitioners, despite having ownership rights, never owned their buildings.

Solomon seemed convinced. “You’re not an original fee owner,” the judge said of Locker.

Karmel noted that the previous case had established Locker’s clients as condemnees.

“That’s different,“ said the judge. Karmel concurred, saying that the previous case was based on a different section of the EDPL.

Project murkiness


Locker returned to the timetable issue, which buttresses his argument that the project has changed and requires a new public hearing. The funding agreement, he said, “says the Ratner organization has an unlimited time to build 70 percent of the project.” About eight months after the December 2006 determination and findings, “the project essentially disappears.”

Locker added that City Comptroller William Thompson had said publicly, most recently in press coverage last week, that he didn’t know what Atlantic Yards is.

“Reasonable” efforts to proceed

Karmel attempted to rebut those concerns. “The foundation stone is the funding agreement,” he said, adding that the claim that there is no deadline “is a complete and total mischaracterization.” Rather, the developer is required to use “commercially reasonable efforts” to move forward.

What does that mean?

“It means you have to try your hardest,” he said.

Solomon was skeptical, asking if such efforts could have anything to do with “external circumstances” (presumably the credit market, among other things).

“They should be taken into account,” Karmel acknowledged. (He did not use the word “draconian”--a term used in legal papers--to describe the penalties the ESDC would levy.)

Co-counsel Charles Webb said that condemnations would begin “in October or November of ’08,” a date that apparently disregards the likelihood that other pending cases may slow the process.

And the time period, Solomon asked, to complete the condemnations is “07 to 10”?

Webb concurred.

“All the while we have condemnation blight,” Solomon mused, “but Mr. Karmel would say they’re working on the infrastructure.”

The judge said she wasn’t sure she’d have a decision before the end of the summer.

2 comments:

  1. This is so obviously NOT an approved megaproject. Any doubts? The words of ESDC’s own representative Philip Karmel above establish this. He says the funding agreement, (he called it the “foundation stone”- really?) “has a “limited purpose,” to allow the ESDC to provide $100 million for “certain project-related infrastructure in advance of project documentation.” Such documentation “is still in active negotiation.”

    `Active negotiation?’

    ESDC’s ill-conceived notion that Ratner has some sort of theoretical monopoly on this non- approved as yet undefined megadevelopment needs to be jettisoned. It makes it impossible to effectively or `actively’ negotiate for the State’s or public’s benefit.

    When Karmel endeavored as best he could to assert that the “foundation stone” funding agreement actually somehow obligates Ratner in any important respect he quoted from the agreement that the developer is required to use “commercially reasonable efforts” to move forward.

    Gosh & Golly-Gee! Is this the strongest provision of the agreement he could cite and what does that mean?

    What does it mean?

    It means that the notion of the Ratner monopoly ensconced in the funding agreement is being used by Ratner as the basis to bully the public. He threatens to leave the public with a Ratner-created-wasteland unless the public antes up more subsidy in amounts not yet specified.

    Do Karmel, or ESDC appreciate the supreme irony in this? Or, are they just content that because they have `obligated’ Ratner he is ‘trying his hardest’ to make the best of his granted monopoly.- `Trying his hardest `to soak the public?’

    Jettisoning the idea Ratner has a monopoly on development in the area opens up crucial possibilities for appropriate principled development in the Vanderbilt Yards area. ESDC doesn’t seem to understand this. They don’t seem to be willing to negotiate for it. Accordingly, removing ESDC from the Atlantic Yards picture as proposed by recent legislation offers some remarkable potential benefit.

    **

    For more information on the Atlantic Yards Development Trust and the Atlantic Yards Governance Act see: Push for AY Development Trust begins; how much power would it have? http://atlanticyardsreport.blogspot.com/2008/06/push-for-ay-development-trust-begins.html)

    Michael D. D. White
    Noticing New York

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  2. Now Ratner has to look forward to another hearing in the fall. Tough way to raise financing ...

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