Penn Central Transp. Co. v. City of New York

• Decision Date: 23 June 1977
• Citation: 42 N.Y.2d 324,397 N.Y.S.2d 914,366 N.E.2d 1271
• Parties: , 366 N.E.2d 1271, 10 ERC 1389, 7 Envtl. L. Rep. 20,579 PENN CENTRAL TRANSPORTATION COMPANY et al., Appellants, v. CITY OF NEW YORK et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 914

397 N.Y.S.2d 914

42 N.Y.2d 324, 366 N.E.2d 1271, 10 ERC 1389,

7 Envtl. L. Rep. 20,579

PENN CENTRAL TRANSPORTATION COMPANY et al., Appellants, v. CITY OF NEW YORK et al., Respondents.

Court of Appeals of New York.

June 23, 1977.

John E. F. Wood, John M. Friedman, Jr., Peter H. Jacoby, John M. Johnston and Edna R. Sussman, New York City, for appellants.

W. Bernard Richland, Corp. Counsel, New York City (Leonard Koerner, Stanley Buchsbaum and L. Kevin Sheridan, New York City, of counsel), for respondents.

Louis J. Lefkowitz, Atty. Gen., New York City (Samuel A. Hirshowitz and Philip Weinberg, New York City, of counsel), amicus curiae.

Paul S. Byard, Ralph C. Menapace, Jr., Terence H. Benbow, William C. Chanler, Francis H. Horan, Richard H. Pershan, Francis T. P. Plimpton, Orville Schell, Jr., Whitney North Seymour, Robert F. Wagner, Jr. and Bethuel M. Webster, New York City, for The Committee to Save Grand Central Station and others, amici curiae.

BREITEL, Chief Judge.

In broad terms, the problem in this case is determining the scope of governmental power, within the Constitution, to preserve, without resorting to eminent domain, irreplaceable landmarks deemed to be of inestimable social or cultural significance. In controversy is the constitutionality of regulation which would prohibit appellants, owner and proposed developer of the air rights above Grand Central Terminal, from constructing an office building atop the terminal.

Undisputed is the principle, rooted in the due process clause of the Constitution, that government may not, by regulation, deprive a property owner of all reasonable return on his property. There are two issues nevertheless. The first is the extent to which government, when regulating private property, must assure what is described as a reasonable return on that ingredient of property value created not so much by the efforts of the property owner, but instead by the accumulated indirect social and dire governmental investment in the physical property, its functions, and its surroundings. The second issue is whether above-the-surface development rights, transferable to adjacent sites under the city landmark ordinance, may be considered in computing return on the property when the landmark property and some of the sites to which the rights may be transferred share a common owner.

Plaintiffs, Penn Central Transportation Company and its affiliates, who have a fee interest in Grand Central Terminal, and UGP Properties, Inc., lessee of the development rights over the terminal, seek a declaration that the landmark preservation provisions of the Administrative Code of the City of New York, as applied to the terminal property, are unconstitutional. They also seek to enjoin defendants, the City of New York and the City Landmarks Preservation Commission, from enforcing those provisions against the subject property Trial Term granted the requested relief, but a divided Appellate Division reversed and granted judgment to defendants. Plaintiffs appeal.

The order of the Appellate Division should be affirmed. Although government regulation is invalid if it denies a property owner all reasonable return, there is no constitutional imperative that the return embrace all attributes, incidental influences, or contributing external factors derived from the social complex in which the property rests. So many of these attributes are not the result of private effort or investment but of opportunities for the utilization or exploitation which an organized society offers to any private enterprise, especially to a public utility, favored by government and the public. These, too, constitute a background of massive social and governmental investment in the organized community without which the private enterprise could neither exist nor prosper. It is enough, for the limited purposes of a landmarking statute, albeit it is also essential, that the privately created ingredient of property receive a reasonable return. It is that privately created and privately managed ingredient which is the property on which the reasonable return is to be based. All else is society's contribution by the sweat of its brow and the expenditure of its funds. To that extent society is also entitled to its due.

Moreover, in this case, the challenged regulation provides Penn Central with transferable above-the-surface development rights which, because they may be attached to specific parcels of property, some already owned by Penn Central or its affiliates, may be considered as part of the owner's return on the terminal property.

Thus, the regulation does not deprive plaintiffs of property without due process of law, and should be upheld as a valid exercise of the police power.

Grand Central Terminal was formally opened to the public in 1913. Undisputed is its architectural, historical, and cultural significance (for further detail see opn. at App.Div., 50 A.D.2d 265, 269, 377 N.Y.S.2d 20, 24). On August 2, 1967, in accordance with the provisions of the New York City Administrative Code, the terminal was designated a landmark by the Landmarks Preservation Commission, and the designation was confirmed by the Board of Estimate on September 21, 1967 (see Administrative Code of City of New York, § 207-2.0).

On July 18, 1968, plaintiffs submitted to the Landmarks Preservation Commission an application for a permit to construct the proposed office building, seeking a certificate that the work would have no exterior effect on protected architectural features (Administrative Code, § 207-5.0). The request was denied on September 20, 1968. Then plaintiffs applied to the commission for a certificate that the proposed building, even if it would have had an exterior effect, was appropriate to the site (Administrative Code, § 207-6.0). Three separate alternative proposals, each calling for erection of a substantial office building atop the terminal, were submitted. On August 26, 1969, the certificate of appropriateness was denied. Not involved, because not raised in light of the denial of a certificate of appropriateness are the plans for the interior of the terminal. None of these administrative determinations was ever directly challenged in the courts (cf. Lutheran Church in Amer. v. City of New York, 35 N.Y.2d 121, 126-128, 359 N.Y.S.2d 7, 11-13, 316 N.E.2d 305, 308-309).

Instead, on October 7, 1969, plaintiffs brought this action seeking judicial invalidation of the landmark preservation provisions of the Administrative Code as applied to the terminal. Plaintiffs also sought damages for a temporary "taking" of property from the time of original designation as a landmark to the time of the requested judicial invalidation. Of course, any so-called temporary "taking" is more accurately described as a deprivation of property without due process of law (French Investing Co. v. City of New York, 39 N.Y.2d 587, 593-595, 385 N.Y.S.2d 5, 8-9, 350 N.E.2d 381, 384-385, app. dsmd. 429 U.S. 990, 97 S.Ct. 515, 50 L.Ed.2d 602).

Trial court found the landmark preservation provisions, as applied, constitutionally deficient, but severed the question of damages. As noted, the Appellate Division, with two dissenters, reversed, and granted judgment to defendants.

This is not a zoning case. In many ways, the restrictions imposed on the use of the property are similar to zoning restrictions, but the purposes are different, and in determining whether regulation is reasonable, the purposes behind the regulation assume considerable significance (id., p. 596, 385 N.Y.S.2d p. 10, 350 N.E.2d p. 386). Zoning restrictions operate to advance a comprehensive community plan for the common good. Each property owner in the zone is both benefited and restricted from exploitation, presumably without discrimination, except for permitted continuing nonconforming uses. The restrictions may be designed to maintain the general character of the area, or to assure orderly development, objectives inuring to the benefit of all, which property owners acting individually would find difficult or impossible to achieve (see, e. g., Berenson v. Town of New Castle, 38 N.Y.2d 102, 109-110, 378 N.Y.S.2d 672, 679-680, 341 N.E.2d 236, 241-242; Matter of 113 Hillside Ave. Corp. v. Zaino, 27 N.Y.2d 258, 262-263, 317 N.Y.S.2d 305, 265 N.E.2d 733).

Nor does this case involve landmark regulation of a historic district. Historic district regulation, like zoning regulation, may be designed to maintain the character, both economic and esthetic or cultural, of an area (see Maher v. City of New Orleans, 5 Cir., 516 F.2d 1051, esp. p. 1060, cert. den. 426 U.S. 905, 96 S.Ct. 2225, 48 L.Ed.2d 830; Opinion of the Justices to the Senate, 333 Mass. 773, 778-780, 128 N.E.2d 557). The difference, generally, is that zoning does this largely by regulating construction of new buildings, while historic district regulation concentrates instead on preventing alteration or demolition of existing structures. In each case, owners although burdened by the restrictions also benefit, to some extent, from the furtherance of a general community plan.

Nor does this case partake of the principles applicable to a taking in eminent domain. As noted earlier, there is no taking for which just compensation must be paid. And it is the concept of just compensation which is so integrally related to value based on return. Instead, landmark regulation is a limitation on exploitation of property, an attribute shared with the classifications of zoning and historic districting. Yet landmark regulation is different because the burden of limitation is borne by a single owner. He may or may not benefit from that limitation but his neighbors most likely will. In contrast both an owner and his neighbors benefit to some degree and in some manner from zoning and historic districting.

Restrictions on alteration of individual landmarks are not designed to further a general community plan. Landmark restrictions are designed to...