Friday, February 20, 2009

As oral argument in state eminent domain case approaches, questions of a cost-benefit analysis and a different state standard

The Atlantic Yards eminent domain case, after dismissal in the federal courts, goes to state court Monday, February 23, when the oral argument will be heard before the Appellate Division, Second Department. (That division, as opposed to a lower court, is designated to hear all cases challenging New York State’s Eminent Domain Procedure Law (EDPL).)

The new case has to be considered a long shot. The EDPL allows only 15 minutes for oral argument, and there’s no opportunity to cross-examine witnesses or acquire documents through discovery--reasons why critics say New York law is in desperate need of reform.

That’s why the plaintiffs--nine (originally 13) residential and commercial property owners and renters--first went to federal court, where the case was dismissed after two long hearings, an appellate argument, and then an unsuccessful effort to get the U.S. Supreme Court to hear it.

[Update] A decision could be issued within two months. Should the plaintiffs lose, they'd have several months to file an appeal to the state’s highest court, the Court of Appeals. (Is the appeal discretionary, as I originally wrote? It's mandatory if there's a "substantial" constitutional question, but that's a matter for debate.) The case is organized and funded by Develop Don't Destroy Brooklyn.

New twist

Some but not all of the arguments in Goldstein et al. v. Empire State Development Corporation (ESDC) reprise those made in the federal case, though, in one new argument, the plaintiffs may have established an advantage.

They contend that, in order for the state to assess whether public benefits from the project would trump the private ones, the ESDC should have conducted an analysis, but didn't do so.

The ESDC's response is to proffer a report that was not released publicly before the project was approved and did not truly represent an analysis, the plaintiffs point out. (Note that in the most recent set of legal volleys, the plaintiffs get the last word.)

Procedural issue

Many of the arguments in the pending case reprise those aired in legal papers arguing for the lawsuit to be dismissed. The Appellate Division, which rejected the motion for dismissal in September, did not make any judgment on the merits of the arguments.

The ESDC argues that the case was filed more than a year-and-a-half late, given the 30-day deadline to file in state court, but the petitioners “forum-shopped.” Should the challenge be precluded by that statute of limitations, the case would be over; however, the Appellate Division already passed on the opportunity to dismiss it for those reasons.

State vs. federal constitution

The U.S. Constitution allows private property to be taken for public use with just compensation, and the 2005 Kelo decision confirmed that public purpose--even for economic development based on the taking of private homes--could be considered public use.

In federal court, the Atlantic Yards eminent domain plaintiffs asked that the project be invalidated because the project represented a sweetheart deal, one they contended was disallowed by Kelo; a trial court judge and an appellate court said that the valid public purposes represented the end of the inquiry.

In the current case, the plaintiffs argue that the New York Constitution--despite similar text saying private property shall not be taken for public use without just compensation--must be given “an independent construction” that may be more protective than the United State Constitution. They contend that language requiring public use should be taken literally, despite expansion of the notion over the years.

They note that the state constitution, “irrespective of the Second Circuit Court of Appeals’ crabbed view of the Fifth Amendment”--a reference to the dismissal of the federal eminent domain case--offers greater protections, citing cases from 1878, 1888, 1918, and 1920, pointing out that those cases “have never been expressly overruled by the Court of Appeals.”

The brief contends that those earlier cases “are not infected by jurisprudence from the federal courts, including the Supreme Court, that have slowly moved away from a plain reading of the federal public use clause in favor of a test that considers only whether a proposed taking serves a conceivable public benefit or purpose no matter how remote or speculative it may be.” It cites a 2002 Illinois case in which the State Supreme Court distinguished between “public purpose” and “public use.”

In response, the ESDC points out that the petitioners’ brief fails “to cite a single Public Use case to support their assertion” and that as far back as the 1930s state courts had stopped requiring actual public use, just a rational relation to a public purpose. In fact, the ESDC says, state courts have generally interpreted public use under the EDPL more broadly than federal courts have interpreted public use under the Fifth Amendment.

The issue, however, may be unresolved until an appeal. Interestingly enough, in a decision issued Tuesday in a case (PDF) known as In the Matter of Aspen Creek Estates, Ltd., v. Town of Brookhaven, the Court of Appeals rejected a claim based on Kelo but noted, "Finally, the parties have not argued, and we do not decide, whether the New York Constitution... imposes a more stringent standard for takings than does the Fifth Amendment as interpreted by Kelo."

Sweetheart deal?

The plaintiffs' brief sets out the hurdles facing Ratner’s plan: private ownership of much land; a publicly-owned railyard; the need to override zoning; and the fact that selection of private developers for large projects is “typically subject to competitive selection.” Ratner’s solution: enlist the help of Gov. George Pataki and Mayor Mike Bloomberg.

The brief points out that the MTA initially said the railyards would go to Ratner, then held a belated, truncated RFP--far less extensive than that for the later Hudson Yards project--and wound up negotiating exclusively with Forest City Ratner, which offered a lower cash bid of $50 million to rival Extell’s $150 million, for property appraised at $214.5 million.

The plaintiffs note that the ESDC’s blight study reviewed not the irregularly-shaped AY site and environs, but only the properties selected by Ratner. (Indeed, there’s a vacant lot, by definition “blighted,”nearly adjacent to the site.) And the blight study was conducted by the consulting firm AKRF, which, "without exception" has always conducted "pro-development" studies.

The brief cites other pretextual public benefits, pointing out that the arena likely would be an economic loss, arguing that delays in affordable housing mean it “will never be realized.” (The brief calls the affordable housing “a stalking horse for luxury condominiums,” but since it was filed in late November, Forest City Ratner has backed away from condo plans.)

It argues that nearly 3000 low-income households would be displaced--overstating while citing the analysis in the environmental review that such households are at risk of displacement--"for the ever-dwindling possibility that it might create 2250 affordable units--a net affordable housing loss"

As for whether the case is precluded by the federal dismissal, the brief points out that there was no finding that the project has a public purpose, just that the court concluded that plaintiffs had failed to state a sufficient claim.

The ESDC relies on findings in the federal case, noting that the “federal district court determined that numerous public purposes undeniably would be achieved by the Project,” including tax revenues, job creation, blight removal, affordable housing, and a sports arena.

In a counter-statement of facts, the ESDC brief offers a fib I’ve already pointed out--delineating that it pursues its mission "in part by promoting large-scale real estate projects...” While that language (right) is attributed to a court opinion, the text in that opinion came directly from the ESDC’s own brief.

Procedural challenges


The plaintiffs' brief contends that there are two Equal Protection Clause violations: that properties owned by those similarly situated, such as Shaya Boymelgreen’s Newswalk condo, were excluded; and that no competitive bids were sought for the project as a whole.

The ESDC responds that the equal protection claim fails only if the public use claim fail, and that, because the EDPL requirements were followed, it complied with due process.

Separate case impact?

The ESDC argues that the petitioners are not entitled to judicial review of the EDPL's Determination and Findings, given that the state appellate court had previously confirmed them in a separate state case brought by renters in two footprint buildings.

“Allowing Petitioners to impose additional delays... would defeat the clear legislative intent that challenges to public projects be determined expeditiously, so as not to delay or cause suspension of public projects,” the ESDC argues, pointing out that such delays would defeat the legislative intent. (Whether or not that’s true, in this case, the economy is a larger factor in delays.)

Moreover, the petitioners' brief argues, “Respondent cynically (and irresponsibly) misleads this Court when it implies that the issues presented in this action were previously determined” in that previous case brought by renters in two buildings in the project footprint.

That case, however, did not challenge whether proposed eminent domain violated the EDPL’s public benefit requirement or the constitution’s public use, due process, and equal protection clauses, but rather questions whether the ESDC had adopted a feasible plan to relocate displaced tenants.

Beyond public use

In a claim not present in the federal case, the petitioners argue that Article 18, Section 6 of the New York Constitution requires projects developed with state subsidies or loans to be restricted to low-income people, looking back some 70 years to a state constitutional convention.

It 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.”

As for Article 18, section 6, the “claim is meritless,” since restrictions apply “only to low-rent housing projects receiving state aid.” The ESDC argues that the interpretation would preclude other affordable housing projects aimed at people of moderate income.

In response, the plaintiffs argue that the interpretation of Article 18, Section 6 would not lead to absurd results; given that courts permit legislative discretion in defining low-income, “all that would be required for this project to be constitutional acceptable is a finding that the project will serve those who would be unable to afford a home if the unhindered free market was permitted to dictate housing costs.”

No such determination was made, the brief points out, because “at least” 50 percent of the housing can be market rate.

Cost-benefit analysis

The petitioners now emphasize an issue briefly mentioned in the initial lawsuit: that, because the ESDC “did virtually nothing” to determine the benefit to Ratner, “this fact alone merits a rejection” of the agency’s determination.

In more recent years, the plaintiffs argue, as the Court of Appeals has eschewed a strict public “use” test in favor of a more flexible public benefit or purpose analysis, it has still consistently invalidated proposed takings where the public benefit was “only incidental and in large measure subordinate to the private benefit conferred.”

However, the ESDC, the plaintiffs says, “never even considered the relative benefit to Ratner versus the perceived public benefit to be gained by approving the Project.”

In response, the ESDC argues that the private benefit is incidental to the public benefits: "Apart from sarcasm, citiations to unverified allegations of the Petition and reliance upon newspaper articles which are outside the record, Petitioners present nothing to establish their claim."

A footnote asserts that the petitioners’ claim that there had been no quantification of benefits was baseless: “At ESDC’s request, in 2006, prior to ESDC’s determination, FCRC provided to ESDC its financial projections for the Project, including FCRC’s projected return on its investment.”

And the ESDC retained KPMG to vet the numbers, which it did--here's the report in PDF, released in 2007 in the pending case challenging the project's environmental review.

However, the KPMG study tried to assess the financial viability of the project rather than assess profits or balance private and public benefits.

So, the plaintiffs in a reply brief cite two cases in which the court evaluated the ratio between public and private benefit. Given the absence of such evaluation, “the Determination must be rejected so that the ESDC can perform the required comparative analysis, disclose its findings to Petitioners and the public at large, and thereafter conduct a public hearing as required by the EDPL."

Though the ESDC argues that only the record should be considered, the plaintiffs point out, “Respondent allows that perhaps there should be a one-way exception for material that it would like to add to the record”--the KPMG report.

“Respondent is in a difficult position,” the brief states. “As it must, it acknowledges that there is no evidence of any kind in the administrative record that would allow this Court (or Petitioners) to compare Ratner’s profits form the Project to the perceived benefit to the public.”

The KPMG report, the brief states, was “a cursory (and secret) attempt that was provided only to ESDC, not the public, and not until after the ESDC approved the project.

Public disclosure, the plaintiffs argue, is “even more critical here because the members of Respondent ESDC are unelected and otherwise unaccountable.”

Pre-judging the case?

A footnote in the plaintiffs' papers offers an intriguing detail: “Respondent’s tactic appears to be an attempt to capitalize on the ill-informed statements made by the Clerk of the Court when he telephoned Petitioners’ counsel and announced the Court’s intention to expedite this case (beyond the expedited treatment already provided by the Court’s rules) because it was unfair to further delay the Project when this court had ‘previously decided the public benefit’ and other issues raised by Petitioners in this action. As Petitioners’ counsel explained during the call, that statement is false.”

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