Adventurers Whitestone Corp. v. City of New York

• Decision Date: 16 May 1985
• Citation: 65 N.Y.2d 83,479 N.E.2d 241,489 N.Y.S.2d 896
• Parties: , 479 N.E.2d 241 ADVENTURERS WHITESTONE CORPORATION, Respondent, v. CITY OF NEW YORK, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 896

489 N.Y.S.2d 896

65 N.Y.2d 83, 479 N.E.2d 241

ADVENTURERS WHITESTONE CORPORATION, Respondent, v. CITY OF NEW YORK, Appellant.

Court of Appeals of New York.

May 16, 1985.

Frederick A.O. Schwarz, Jr., Corp. Counsel, New York City (Peter A. Mound, Joseph I. Lauer and Robert Pfeffer, New York City, of counsel), for appellant.

Herman Itskowitz and Alfred D. Jahr, New York City, for respondent.

M. Robert Goldstein, New York City, for H.G.V. Associates et al., amici curiae.

Michael J. Greco, New York City, and John E. Watkins, Jr., for Pauline E. Tully et al., amici curiae.

OPINION OF THE COURT

MEYER, Judge.

Interest on a condemnation judgment is paid to compensate for delay in payment of the award and is payable at such rate as is fixed by statute. Interest on the value of the property taken is required by the just compensation clauses of the Federal and State Constitutions as a substitute for the beneficial use of the property during the period between the date of the taking and the date of final judgment. It is, nevertheless, payable at the rate fixed by statute unless it is established in the condemnation proceeding that as compared to the prevailing market rate the statutory rate is unreasonable. Plaintiff, having failed to contest the statutory rate in the condemnation proceeding, was entitled only to interest at the statutory rate both pre- and postjudgment, which concededly it has received. The order of the Appellate Division, 102 A.D.2d 769, 477 N.Y.S.2d 19, should, therefore, be reversed, with costs, and the complaint dismissed.

I

Plaintiff's property was taken by the city as part of a capital project on April 4, 1974. During hearings held by Supreme Court, Queens County, in May, September and December 1976, no issue was raised concerning the rate of interest to be paid. Tentative decrees dated September 14, 1978 and November 28, 1978, fixed the value of the property taken, but made no mention of interest. On December 13, 1978, the Corporation Counsel was directed to submit a final decree, but no decree was submitted until July 18, 1979. Both parties appealed and on June 8, 1981 the Appellate Division increased the fixture award but otherwise affirmed (82 A.D.2d 829, 439 N.Y.S.2d 676). On appeal to us, the Appellate Division's order was affirmed on April 1, 1982 (55 N.Y.2d 345, 449 N.Y.S.2d 669, 434 N.E.2d 1036).

On July 12, 1982, the city comptroller offered payment of the principal sum thus fixed, plus 6% interest. ¹ Plaintiff responded by letter on July 19, 1982, demanding 9% interest, that rate having been fixed by Supreme Court, Bronx County, in a decision dated August 7, 1981 in Matter of South Bronx Neighborhood Dev. Plan, 110 Misc.2d 571, 442 N.Y.S.2d 869, as the fair rate required as of January 1, 1978 to constitute just compensation. The Bronx decree was affirmed by the Appellate Division on September 28, 1982 (89 A.D.2d 948, 454 N.Y.S.2d 566) and by us (sub nom. Matter of City of New York 58 N.Y.2d 532, 462 N.Y.S.2d 619, 449 N.E.2d 399) on May 3, 1983.

On July 21, 1982, plaintiff accepted the city's vouchers, reserving the right to additional interest as demanded in its previous letter, and on August 12, 1982 filed its notice of claim. Payment having been refused by the city, plaintiff then began this action in Supreme Court, New York County, to recover the difference between 6% and 9% interest from January 1, 1978. The city moved to dismiss the action as barred by res judicata, plaintiff having failed to raise the constitutionality of the interest rate in the Queens County proceeding. Plaintiff cross-moved for summary judgment, arguing that Administrative Code § B15-28.0(b) authorized its separate action, that the Queens decree made no mention of interest and that the city was not only collaterally estopped but also required as a matter of stare decisis to pay 9% interest from January 1, 1978 as fixed by the Bronx decree. Supreme Court, New York County, denied the city's motion and granted plaintiff's cross motion, awarding plaintiff the interest demanded plus attorney's fees. The Appellate Division modified, on the law, by vacating the award of attorney's fees but otherwise affirmed (102 A.D.2d 769, 477 N.Y.S.2d 19), and granted the city's motion for leave to appeal (CPLR 5602).

We conclude (1) that the Constitution requires interest at the prevailing rate only for the period between taking and award and only upon a demonstration that the statutory rate is unreasonably low, (2) that the Administrative Code does not foreclose litigation of the reasonableness issue as part of the condemnation proceeding and (3) that a claimant who fails to litigate the issue in the condemnation proceeding may not maintain an independent action to recover additional interest.

II

There is a material distinction between prejudgment interest and postjudgment interest. Matter of Rochester Carting Co. v. Levitt (36 N.Y.2d 264, 367 N.Y.S.2d 242, 326 N.E.2d 808) held that, "Interest accruing prior to the award is payable as a substitute for the beneficial use of real property, and its payment is constitutionally required. Post-judgment interest, by way of penalty or incidental interest, is not constitutionally required, and statutes regulating such interest have as a rule not been deemed to run afoul of the 'full compensation' requirement" (36 N.Y.2d, at p. 268, 367 N.Y.S.2d 242, 326 N.E.2d 808; accord, Matter of Riccardi v. Abrams, 85 A.D.2d 65, 448 N.Y.S.2d 542, appeal dismissed and lv. dismissed 56 N.Y.2d 1033). Thus, postjudgment interest will be increased or decreased from the effective date of a statute changing the applicable rate (Matter of Board of Educ. 35 A.D.2d 973, 317 N.Y.S.2d 918 Matter of Incorporated Vil. of Hempstead 33 A.D.2d 1036, 308 N.Y.S.2d 798 see, Matter of City of New York 284 N.Y. 48, 29 N.E.2d 465, remittitur amended 284 N.Y. 701, 30 N.E.2d 729, affd. summarily sub nom. A.F. & G. Realty Corp. v. City of New York, 313 U.S. 540, 61 S.Ct. 839, 85 L.Ed. 1508 People ex rel. Emigrant Indus. Sav. Bank v. Sexton, 284 N.Y. 57, 29 N.E.2d 469 ).

As to prejudgment interest, however, just compensation, under both the 5th Amendment to the Federal Constitution ² and article I ( § 7) of the State Constitution, ³ requires not only payment of the value of the property at the time of the taking but also interest on that sum to account for the delay between the taking and the judgment (Matter of City of New York 58 N.Y.2d 532, 536, 462 N.Y.S.2d 619, 449 N.E.2d 399, supra; City of Buffalo v. Clement Co., 28 N.Y.2d 241, 265-266, 321 N.Y.S.2d 345, 269 N.E.2d 895; Matter of City of New York 284 N.Y. 48, 54, 29 N.E.2d 465, supra ). The amount of interest necessary to bring the payment into accord with the constitutional requirement is a judicial question, although the interest rate fixed by the Legislature will be deemed presumptively reasonable unless the claimant rebuts the presumption with evidence of prevailing market rates establishing that the statutory rate is so "unreasonably low" as not to constitute just compensation (Matter of City of New York supra, 58 N.Y.2d at p. 537, 462 N.Y.S.2d 619, 449 N.E.2d 399, and cases cited). But the statutory rate being presumptively reasonable, a claimant who claims to be constitutionally entitled to a higher rate of interest bears the burden of proving the constitutional insufficiency of the statutory rate (see, Heyert v. Orange & Rockland Utils., 17 N.Y.2d 352, 364, 271 N.Y.S.2d 201, 218 N.E.2d 263). ⁴

III

Plaintiff argues that interest did not become an issue until the comptroller failed to apply the 9% rate mandated by the Brookfield Refrig. case to the warrant for its award, that under the New York City Administrative Code it could not have litigated the interest issue in the condemnation proceeding, and that it would be illogical to require it to do so when it could not be known at the time of the trial of the condemnation issues when the award would finally be paid.

The last contention need not long detain us for constitutional interest is, as above noted, payable only for the period from taking to judgment, ⁵ which in most circumstances will follow soon after conclusion of the trial.

Plaintiff's argument based on the Administrative Code stems from section B15-28.0(b), which provides that, "In a capital project proceeding, payment shall be made within two calendar months after the entry of the final decree. In default of such payment, the owners or other persons entitled to be paid in the proceeding may at any time after application first made to the Comptroller therefor, sue for and recover the amount due, with lawful interest, and the costs of such suit." This, it is contended, clearly contemplates a second, plenary suit in which interest is to be litigated. The difficulty with the argument is that it fails to distinguish between prejudgment constitutional interest, which is part of the award, and postjudgment statutory interest, which is not. The reason for providing for suit on the final decree rather than execution upon the condemnation award is unclear, ⁶ but the Administrative Code does not proscribe the raising of the constitutional interest rate issue in the condemnation proceeding. That interest is not provided for in the condemnation award and is first added in the comptroller's warrant is not surprising in light of the presumption that the statutory rate is constitutional and the comptroller's obligation to proceed according to the statute unless after litigation of the constitutional interest question the court has held otherwise as to the period during which that rate applies. It follows that, as we said in Matter of City of New York (Jefferson Houses--Lombardi ), 306 N.Y. 278, 282, 117 N.E.2d 896: "Far better is it--and, as we view the laws, consistent with the intent of the Legislature as expressed in the words of the statutes--to permit one court, having the parties then present before it and ready * * * to submit...