New York Law Review

Tag: Just Compensation

  • Keystone Associates v. Moerdler, 19 N.Y.2d 78 (1966): Temporary Moratorium on Land Use as a Taking

    Keystone Associates v. Moerdler, 19 N.Y.2d 78 (1966)

    A temporary legislative moratorium on demolition of a building, designed to allow a private corporation to raise funds for condemnation, constitutes a taking of property requiring just compensation if it unreasonably interferes with the owner’s property rights.

    Summary

    Keystone Associates leased the Old Metropolitan Opera House with plans to demolish it and build an office tower. The New York legislature then passed a law creating a private corporation with the power to condemn the property and imposing a 180-day moratorium on demolition to allow the corporation time to raise funds. Keystone challenged the law. The New York Court of Appeals held that the moratorium, enacted solely to facilitate a potential future condemnation by a private entity, constituted an unreasonable interference with Keystone’s property rights and was therefore a taking requiring just compensation. The court further held that the statutory provision of $200,000 was insufficient to cover Keystone’s damages and that the legislature cannot set a maximum limit on compensation.

    Facts

    The Metropolitan Opera Association (the Association) leased its old opera house to Keystone Associates, who planned to demolish the building and erect a 40-story office building. Keystone was required to commence demolition within six months and posted $1,000,000 as security. After the Association vacated the premises and delivered possession to Keystone, the New York Legislature created The Old Met Opera House Corporation (the Corporation) and empowered it to condemn the property for use as a cultural auditorium. The legislation also allowed the city to delay demolition permits for 180 days at the Corporation’s request, provided the Corporation posted $200,000 as security for damages to the owner if no condemnation occurred.

    Procedural History

    Keystone initiated a proceeding to compel the issuance of a demolition permit, and the Association filed an action to declare the statute unconstitutional. Special Term declared the statute an unconstitutional taking. The Appellate Division affirmed. The Old Met Opera House Corporation appealed to the Court of Appeals of New York.

    Issue(s)

    Whether a temporary legislative moratorium on the demolition of a building, designed to allow a private corporation to raise funds for future condemnation, constitutes an unconstitutional taking of property requiring just compensation.

    Holding

    Yes, because the moratorium constituted an unreasonable interference with Keystone’s property rights, and the compensation provided was insufficient and improperly determined by the legislature.

    Court’s Reasoning

    The Court of Appeals determined that the statute’s purpose was to appropriate the Association’s and Keystone’s property for public use, as evidenced by the legislative declaration that preserving the building would serve the recreational and cultural needs of the state. The court emphasized that the 180-day delay was authorized solely to allow the Corporation to raise funds for the appropriation. Citing Forster v. Scott, 136 N.Y. 577, the court reaffirmed the principle that a law depriving an owner of the beneficial use and enjoyment of their property, or imposing restraints that materially affect its value without legal process or compensation, constitutes a taking. The court distinguished the case from valid exercises of police power, noting that the statute lacked findings that a shortage of auditoriums existed. The court rejected the argument that the $200,000 security deposit constituted just compensation, as it was demonstrably less than the damages Keystone would incur in rent, maintenance, and taxes. The court further reasoned that the determination of just compensation is a judicial function, not a legislative one. As the court stated, “All that is beneficial in property arises from its use and the fruits of that use, and whatever deprives a person of them deprives him of all that is desirable or valuable in the title and possession.”

  • In re City of New York, 21 N.Y.2d 219 (1967): Just Compensation Requires Valuation of Intangible Assets in Condemnation

    In re City of New York, 21 N.Y.2d 219 (1967)

    When a municipality condemns a viable, operating transit system, just compensation requires not only appraisal of the tangible property but also separate valuation and compensation for the intangible going concern assets.

    Summary

    The City of New York condemned two privately-owned transit systems. The trial court determined the award based on reproduction cost new less depreciation of the tangible assets but rejected evidence of the value of the intangible assets, such as coach routes, operating schedules, and trained personnel. The Court of Appeals held that the city must compensate the owners for the value of both the tangible and intangible assets. The court reasoned that the city took the transit systems as going concerns and utilized the intangible assets, therefore, just compensation requires that these assets be valued and paid for in addition to the tangible assets. The court highlighted that the failure to allow fare increases suppressed earning power for political reasons and did not negate going concern value.

    Facts

    Claimants operated the nation’s two largest privately owned transit systems: Fifth Avenue Coach Lines, Inc. and Surface Transit, Inc.
    Fifth Avenue operated 28 routes in Manhattan, totaling 22,000,000 revenue bus miles annually.
    Surface operated 49 routes in Manhattan and The Bronx, totaling over 24,000,000 revenue bus miles annually.
    The City of New York condemned these transit systems.
    The city continued to operate the system after condemnation, utilizing the same routes, personnel, and operating procedures.
    Claimants were denied reasonable fare increases for political reasons, suppressing their earning power.

    Procedural History

    The trial court fixed the award based on reproduction cost new less depreciation, rejecting evidence of the value of intangible assets.
    The Appellate Division affirmed, stating that the trial court had considered going concern items in reaching its conclusion. Justice Rabin dissented in the Appellate Division.
    The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether just compensation in a condemnation proceeding involving a transit system requires valuation and compensation for intangible going concern assets, in addition to the tangible assets, when the city continues to operate the system utilizing those assets.

    Holding

    Yes, because when a municipality condemns a viable, operating transit system and continues to operate it using its intangible assets, just compensation requires separate valuation and compensation for those intangible assets, in addition to the tangible property. “These assets, without which the city would not have operated the system, can no more be taken without compensation than can its tangible corporate property.”

    Court’s Reasoning

    The court stated that the right to a reasonable fare is part of all franchise contracts. Claimants were capable of profitable operations under reasonable rates, entitling them to going concern value. The court relied on cases such as Kimball Laundry Co. v. United States, emphasizing that the claimants’ capability for profitable operations under reasonable rates entitled them to going concern value.
    The court found that the trial court erred in not accounting for the going concern items in its award, noting that the Appellate Division erred in concluding that the trial court considered these items.
    The court emphasized that the city took the transit systems as going concerns and used their intangible assets, such as coach routes, operating schedules, operating records, systems of procedures, and trained personnel. These assets enabled the city to operate the system immediately after condemnation. The court stated that, in condemnation cases, it is necessary to appraise the physical property and the going value separately, citing People ex rel. Kings County Light. Co. v. Willcox.
    The court rejected the argument that going concern value should not be allowed due to inadequate plant, dwindling profits, and poor future prospects, citing Matter of City of New York [New York Water Serv. Corp.].
    The court stated that the measure of value is the cost of putting the entire transit systems together new plus all improvements, tangible and intangible, less depreciation.