Monday, September 29, 2008

Groundbreaking, 2008? Eminent domain case survives motion to dismiss; hearing no sooner than March

The chances for anything more than a faux Atlantic Yards groundbreaking in 2008 have now plummeted, after an attempt by the Empire State Development Corporation (ESDC) to short-circuit the pending state eminent domain case has been denied by an appellate court. That means an oral argument would occur no sooner than March, with a decision some months after that.

The decision denying the ESDC's motion to dismiss, apparently on procedural grounds, doesn’t give the plaintiffs the edge in a long-shot case similar to the one that already failed in federal court, which was seen as more hospitable to such a challenge. But it does undermine the unrealistic timetable regularly promoted by developer Forest City Ratner and complicates the arena naming rights deal with Barclays Capital.

FCR has pledged multiple times that a groundbreaking would take place in November or December, notwithstanding the likelihood that pending legal cases and the unavailability so far of tax-exempt bonds would jeopardize the project.

FCR could still hold a groundbreaking on land it already owns, but it can’t raise funds to build the arena until the lawsuits are cleared. The pledge of a 2008 groundbreaking likely was keyed to the requirement that the $400 million Barclays deal requires arena financing to be closed by November--seemingly an impossibility now.

Two court cases

To make the groundbreaking more legitimate, the developer may have been betting that favorable court decisions in two major cases, even if they could be appealed, would indicate more certainty about the project's future.

In an appeal of a judge's decision dismissing a case challenging the project's environmental review, a panel of the Appellate Division, First Department, heard an oral argument on September 17. A decision might emerge before the end of the year. At least two of five justices expressed skepticism in court, and even a 3-2 victory by the defendant ESDC would guarantee an appeal; then again, comments from the bench do not necessarily signal a result.

In the case challenging eminent domain, which begins in appellate court, the ESDC tried to short-circuit the result by filing a motion to dismiss rather than a motion in opposition, which would presage a further exchange of legal papers and then an oral argument.

Last week, in a decision dated September 25, a four-judge panel of the Appellate Division, Second Department, unanimously and without explanation denied the motion, meaning that there will be oral argument--and ensuring more legitimacy to the result than had the case been dismissed on motions alone.

"The seizure of my clients' homes and businesses is unconstitutional. We are pleased that the Court has recognized the merit of our case and will now hear the arguments in full," said lead attorney Matthew Brinckerhoff. (Here's a press release from Develop Don't Destroy Brooklyn, which has organized and funded both major lawsuits.)

New timetable

That moves back the timetable for this case. The ESDC must file its response by October 15, leaving the petitioners--9 residential and commercial tenants and property owners--until January 15 to file their brief, The ESDC would have until February 15 to file its answer, and petitioners would have to file the final legal papers by February 25. Oral argument would be conducted sometime after that.

The court dismissed the ESDC's motion without prejudice, meaning that the same arguments can be raised in legal briefs that are discussed in court.

Given that most of the plaintiffs' case was dismissed in federal court, and the main new claim has never been tested in court, the defense has the edge. The arguments over the motion to dismiss described below engage the crux of the case.

Note that the ESDC filed two motions and the petitioners one, so the state has the last word so far in arguing about the case details.

Filed too late?

The ESDC, in its motion to dismiss, argued that the plaintiffs were a year and a half late, given that state law requires challenges to eminent domain be filed within 30 days after the project was approved--meaning January 11, 2007. The ESDC noted that a separate case challenging the Eminent Domain Procedure Law (EDPL), involving 13 tenants in the Atlantic Yards footprint, had already been dismissed in state court.

“After striking out in federal court, Petitioners brazenly seek to have this Court review once again the previously confirmed Determination and Findings,” the ESDC contended. “This Court should not countenance Petitioners’ transparent attempt to further delay this important public project.” The ESDC says that the EDPL was intended “to have a single exclusive and expedited judicial review.”

(Critics of the EDPL want to modify it, pointing at a State Senate hearing earlier this month that the limited amount of time for an argument in court and the inability to call witnesses effectively denies condemnees a fair fight.)

”[I]f Petitioners are allowed to proceed in this Court at this time, it will create the precedent for all future challengers of public projects to first bring their EDPL challenge in federal court, and then, if unsuccessful there, to later bring the challenge in the Appellate Division," the ESDC argued. "Public projects will routinely be delayed for years.”

(Whether AY is a “public project" is a matter of debate.)

The ESDC noted that the initial federal court complaint, filed in October 2006, asserted only violations of federal constitutional rights, but an amended complaint, filed 1/5/07, added a fourth cause of action, against ESDC under state law. A federal judge dismissed the federal claims with prejudice and the state claim without prejudice.

The petitioners, in their legal response, charged--successfully, it seems--that the ESDC’s motion was out of order: “ESDC’s new tack is to unilaterally grant itself a preference and accelerate the determination of the merits of this action.” They reminded the court that the state law claim had been dismissed without prejudice.

Public purpose

"[T]he federal district court determined that numerous public purposes undeniably would be achieved by the Project,” the ESDC said in its motion, citing tax revenues, job creation, blight removal, affordable housing, transit improvements, and a sports arena.

The new lawsuit, it should be noted, adds additional evidence regarding the sequence of the project and the city’s willingness to accept the proposal from a private developer rather than market valuable property.

The petitioners’ response pointed out that the state appellate court review requires reviewing the record, including the hearing transcript and briefs, and will conduct oral argument. Unmentioned, though perhaps implied, is that this would differ somewhat from the evidence and argument presented in the federal case.

Given that the takings and public use provisions of the state constitution mirror that public use clause of the Fifth Amendment, the package of claims, the ESDC argued, should be barred by the doctrine of collateral estoppel, which precludes re-litigation of an issue clearly raised in a prior action, no matter the tribunal.

In response, the petitioners said that's wrong, because the case contains state claims not addressed in federal court. They made an important semantic argument: "Contrary to Respondent’s intimations, the federal court did not 'find' that the Project’s purpose is public, which would be the only legitimate basis for even arguing that collateral estoppel might apply. There was no fact-finding of any kind. It did not have to be that way. If Respondent were as eager for an expeditious ruling on the merits as it now claims to be, it could have sought a merits based ruling..."

(Federal Judge Nicholas Garaufis wrote, “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. 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.”

So while he didn’t find a public purpose, he did find that the plaintiffs hadn’t raised a sufficient claim to argue that the purpose was private. Then again, his conclusions could be challenged, as I wrote.)

Disagreeing the the ESDC, the petitioners argued that the state constitution is in fact more protective of property rights than its federal counterpart, and that was never presented to the federal court.

(That begs the question: why file first in federal court? Because there was the potential opportunity to gather documents via discovery and question witnesses on the stand--both unavailable in state court. Though the plaintiffs did not get to discovery, hearings before Garaufis and Magistrate Judge Robert M. Levy likely allowed more discussion of the merits of the complaint than would be available before the State Appellate Division.)

The ESDC argued, "If Petitioners are permitted a second bite at the apple under these circumstances, they must at the very least be bound by the adverse determinations the federal court (Petitioners’ own preferred adjudicative body) made on issues dispositive to their constitutional claims--claims which, even as re-crafted under the New York Constitution, are materially identical to those presented in the prior federal litigation."

Article 18 debate

The petitioners’ additional and novel claim turns on Article 18, section 6 of the State Constitution, which deals with housing and slum clearance, which provides that no loan or subsidy shall be made to aid any project unless the project contains a plan for the remediation of blight and the “occupancy of any such project shall be restricted to persons of low income as defined by law and preference shall be given to persons who live or shall have lived in such area or areas.”

The defense, however, says Article 18 must be understood as a whole, and that section 1 addresses housing “for persons of low income as defined by law, or for the clearance, replanning, reconstruction and rehabilitation of substandard and insanitary areas, or for both such purposes.”
(Emphasis in ESDC papers)

“Since the powers are separate and distinct, the Legislature may exercise one power (blight eradication) without simultaneously exercising the other (low rent housing for persons of low income),” the ESDC argued.

Section 6 addresses financial aid for a project and, while the word “project” is undefined in Article 18, it must, says the ESDC, apply to a low rent housing project rather than a project like Atlantic Yards, which serves multiple purposes. Should the petitioners’ argument prevail, the ESDC contends, all sorts of urban renewal projects receiving state funds would have to be low income housing projects, an interpretation that “would lead to absurd results.”

The petitioners pointed out that a “land use improvement project,” as the ESDC has designated Atlantic Yards, must be in accordance with Article 18. They argue that section 6 ties together the goals of eradicating blight and constructing low-income housing. They cited the language of one drafter at the state’s 1938 Constitution Convention: “the purpose is to tie up slum clearance and housing projects.”

The debate rests on different interpretations of Article 18, which can seem murky. As the ESDC points out, the first section, section 1, addresses low-income housing or slum clearance, suggesting different tracks. By contrast, the petitioners cite the final section, section 10, which seems more limiting; it states that “nothing in this article contained shall be deemed to authorize or empower the state, or any city, town, village or public corporation to engage in any private business or enterprise other than the building and operation of low rent dwelling houses for persons of low income...”

If the petitioners prevail, however, it would imply that some previous ESDC projects were invalid. A law professor interviewed by the Brooklyn Paper thought that was unlikely.

Indeed, the ESDC argued that section 6 “has no bearing on the Atlantic Yards development, since that development is not a low rent housing project,” adding, “By reading section 6 without regard to any other provision in Article 18, petitioners have come up with an interpretation that effectuates one purpose (the provision of housing for persons of low income) while frustrating the other (the eradication of blight)."

In fact, stated the ESDC, under this interpretation “all seven thousand [actually 6430, though 6860 when the lawsuit was first filed] residential units in the Atlantic Yards development would have to be set aside for persons of low income.” The “absurd “ consequence would strip the State of its power to fund projects on blighted property.

Finally, the ESDC charged that the petitioners “cherry pick” quotes from Constitutional Convention delegates, without recognizing that the delegates referred to a “project” as low-rent housing for former slum dwellers--not any development in a blighted area.

Low-income housing

The petitioners charge, not so accurately, that the project “does not provide housing for ‘persons of low income’ at all, much less a preference for the persons of low income displaced by the project.”

Some 900 of the 2250 housing units would be designated as low-income (under 50% of Area Median Income, though the area encompasses wealthy suburbs). Then again, their delivery is hardly assured. Some of those displaced, as long as they sign an agreement that might leave them vulnerable should the project not be built, would be guaranteed places in the project.

As for the ESDC’s claim that the petitioners’ argument leads to absurd results, the petitioners responded, “The results are only absurd in Respondent’s bizarre world where the area condemned for the Project as 'blighted' has no actual 'blight,' and 'affordable housing' is not affordable to low-income people.” (This is apparently a reference to the fact that, as noted by BrooklynSpeaks, though “the proposed project will displace families earning less than $21,000 annually, none of the affordable units currently proposed are affordable to those families.”)

In the response, the ESDC stated, “Petitioners ignore the fact that affected residents can be protected without transforming all state-funded projects within blighted areas into low-rent housing project. In fact, the Atlantic Yards development fully provides for the suitable relocation of all persons living within the development footprint. This is the precise issue previously litigated in this Court.”

(The term “fully provides” is debatable. The Court found there was a “feasible” relocation plan for rent-stabilized tenants who lose their homes, but, as their attorney pointed out, the services of a real estate broker, moving assistance, and a $5000 payment would hardly guarantee similarly affordable housing in today's real estate market.)

Expect all these arguments to be amplified as the case moves toward its day in court.

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