Appellate Division Limits Eminent Domain’s Application Of “Public Purpose”

The U.S. Supreme Court’s controversial 2005 decision in Kelo v New London (545 US 469) greatly expanded the government’s power of eminent domain by holding that the government could transfer land from one private owner to another to further economic development. The Supreme Court held that a municipality’s taking of non-blighted private property by eminent domain, in furtherance of a plan for economic development that would be open for use by the general public, could constitute a permissible “public use” within the meaning of the Fifth Amendment of the Federal Constitution (id. at 487-490). The majority in Kelo emphasized that nothing in its decision prevented states from placing restrictions upon the exercise of eminent domain specifically through state statutes or constitutional interpretations as to what qualifies as a “public use.”

That’s just what happened last Tuesday in the Second Department’s decision in Matter of 49 Wb, LLC v Village of Haverstraw, 2007 NY Slip Op 05506 where the Court limited the Eminent Domain Procedure Law’s (EDPL) application of “public use, benefit or purpose.” The facts were as follows:

The “Graziosi Building” was a two-story building located in the Village of Haverstraw. The building consisted of a dental office on the first floor and vacant offices on the second floor. In July 1999, Ginsburg Development Company, Harbors Haverstraw, LLC, and related entities (hereinafter collectively referred to as Ginsburg), informally proposed to develop the downtown Haverstraw Hudson River waterfront through a “public/private redevelopment project.” Thereafter, in April 2002, the Village of Haverstraw adopted a resolution requiring Ginsburg to develop 40 affordable housing units within the Waterfront Development District, and to rehabilitate or construct approximately 85 additional scattered-site units of affordable housing throughout the greater Village.

Graziosi Realty, LLC, which owned the Graziosi Building, had listed the property for sale in 1999. Efforts to sell the property in 2005 to Housing Opportunity for Growth, Advancement and Revitalization, Inc. (hereinafter HOGAR) were unsuccessful. The Graziosi Building was eventually sold to 49 WB, LLC (hereinafter 49 WB) in June 2005. HOGAR was the Village’s designated affordable housing and neighborhood preservation not-for-profit organization, and was also a tenant of the Graziosi Building. While HOGAR, during its tenancy at the Graziosi Building, had always intended to purchase and develop the property, HOGAR could not meet the financing requirements.

Eleven days after 49 WB’s purchase of the Graziosi Building, the Village published notice of a public hearing on its proposed acquisition of the property through eminent domain. Public hearings were conducted. The hearing focused on two competing proposals for the development of the Graziosi Building. HOGAR proposed to add a third floor to the building and construct 16 residential condominiums on the second and third floors, to be sold to Village residents and volunteers for between $175,000 and $220,000. The Village entertained HOGAR’s proposal on condition that HOGAR would completely finance the acquisition of the Graziosi Building for the Village. The second competing proposal was from 49 WB as the owner of the Graziosi Building. 49 WB offered to provide six to eight affordable housing units on two additional floors to be constructed. The units would be rented to municipal employees and volunteers at 50% of the market rent so that the remaining 50% could be applied toward the tenants’ future home purchases in the Village. 49 WB also promised HOGAR a long-term lease for its offices at the Graziosi Building. 49 WB argued that HOGAR’s proposal of selling condominiums was a “one shot deal” as compared with 49 WB’s rolling rentals that would enable more persons over time to “launch into the next phase of home ownership.”

The Village passed a resolution finding that condemnation was appropriate. The Village issued determinations and findings concluding that “public purpose” was satisfied in three ways (1) the Graziosi Building, upon condemnation by the Village and then acquisition by HOGAR, was well suited for a community outreach health center; (2) the property provided a suitable location for HOGAR’s offices; and (3) the site supported the construction of up to 16 affordable housing units.

The Second Department rejected each of these “public purposes” bases.

It found the alleged “public purpose” of having a community health center was illusory as a dentist was already leasing a portion of the premises, 49 WB had presented plans to introduce a health center to the site, and there was nothing to indicate that HOGAR would be more likely or successful in delivering a health center to the site than 49 WB.

The finding that “purpose purpose” was satisfied because there would be office space for HOGAR was also illusory. The Court noted that again HOGAR was already a tenant in the building, and 49 WB was willing to extend HOGAR’s lease. There was nothing to indicated that “public purpose” would be furthered by HOGAR being an owner rather than a tenant of the building.

Lastly, was the affordable housing basis. Here, the Second Department found that this basis was pretextual because under the specific wording of the Village’s 2002 resolution it would allow the 16 affordable housing units proposed for construction by HOGAR to apply to Ginsburg’s obligation to locate 85 units of scattered sites throughout the Village. Thus, since 49 WB would be constructing 6 to 8 units of affordable housing, and Ginsberg would be required to provide 85 units, if the 16 units were subtracted from Ginsburg’s requirement, the condemnation would actually provide less affordable housing units than if the condemnation did not occur. The Court recognized that providing affordable housing was a legitimate use of eminent domain. But on this record the Court found that the only rational conclusion that could be drawn was that the Village’s true purpose for condemnation was to assist its waterfront developer Ginsburg in meeting the developer’s private scattered-site affordable housing obligation and to reduce costs to the developer. Thus, it was only benefiting private purposes and not public purposes.

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