Home Gas Co. v. Miles

• Decision Date: 15 July 1974
• Citation: 79 Misc.2d 26,358 N.Y.S.2d 846
• Court: New York Supreme Court
• Parties: HOME GAS COMPANY, Plaintiff, v. Harold L. MILES and Walter Miles, Defendants.

Page 846

358 N.Y.S.2d 846

79 Misc.2d 26

HOME GAS COMPANY, Plaintiff, v. Harold L. MILES and Walter Miles, Defendants.

Supreme Court, Special Term, Schuyler County.

July 15, 1974.

Hinman, Howard & Kattell, Binghamton (John M. Keeler, Binghamton, of counsel), for plaintiff.

Victor D. Borst, for defendants.

FREDERICK B. BRYANT, Justice.

This action was instituted by the Home Gas Company pursuant to section 23--1303 of the Environmental Conservation Law for the condemnation of underground storage rights in the Oriskany Sandstone formation beneath the surface of the defendants' farm in Schuyler and Yates Counties. By order of this Court dated November 5, 1969, such condemnation was authorized and Commissioners of Appraisal appointed.

Defendants are the owners in fee of 94.77 acres of land in the Town of Tyrone, Schuyler County and the Town of Barrington in Yates County. This property is located in the Wayne portion of what is referred to as the Wayne-Dundee gas field. This field was at one time an active natural gas producing area but has in recent years been used mainly for the storage of natural gas brought in by pipeline from southern United States gas fields. The area consists of an underground layer of porous material known as Oriskany Sandstone which lies approximately 1800 feet beneath the surface of the defendants' property.

The condemnation order decreed that, subject to determination of damages, the plaintiff was entitled to take title to the following interests in the defendants' property:

1. The underground layer of Oriskany Sandstone beneath the defendants' property for so long as the plaintiff and its successor in interest shall continue to store gas in the Wayne-Dundee storage field.

2. Any commercially recoverable native gas and oil in place in such subterranean area.

3. An abandoned gas well, with the right to plug and abandon such well and a right of way across the surface of defendants' property for such purpose. At the hearing it was stipulated that the right of way had already been used for this purpose and that the well had, in fact, been plugged and abandoned.

The Commissioners spent nine days in hearings extending over a period of twenty-two months. On December 18, 1973, they filed their report awarding a total of Twenty Thousand Three Hundred Sixty-one Dollars ($20,361.00) to the defendants as damages for the taking of the underground storage rights and for gas and oil in place. Such damages included One Thousand Twenty-five Dollars ($1,025.00) for the abandoned well and right of way above referred to and Five Thousand One Hundred Twenty Dollars ($5,120.00) for commercially recoverable native gas.

The defendants now move to confirm the award. The plaintiff seeks an order rejecting the award and setting it aside on the grounds of irregularity and excessiveness.

In its final award the Commissioners broke down the elements of damage as follows:

                Market value of property with gas storage
                   rights                                  $ 28,432.00
                Market value of commercially recoverable
                   native gas in place                        5,120.00
                                                           -----------
                                                           $ 33,552.00
                Market value after condemnation            $ 14,216.00
                                                           -----------
                Loss in market value                       $ 19,336.00
                Stipulated value of abandoned well            1,000.00
                Rental value of temporary easement               25.00
                                                           -----------
                                                    Total  $ 20,361.00
                

For the reasons set forth herein the Court concludes that the award must be rejected and set aside and that the issue of damages must be re-tried before new Commissioners unless the defendants shall stipulate to accept a lower amount.

The Court is mindful of the limited power which it has in reviewing the decision of Commissioners of Appraisal in condemnation cases. This power is defined in Matter of Huie, 2 N.Y.2d 168, at page 171, 157 N.Y.S.2d 957, at page 961, 139 N.E.2d 140, at page 143, in the following language:

'The power of the courts to review an award of the commissioners is strictly limited, and every intendment is in favor of the action of the commission, Adirondack Power & Light Corp. v. Evans, 226 App.Div. 490, 493, 235 N.Y.S. 569, 574. The Supreme Court at Special Term cannot modify their award, but must either confirm or reject their report, Administrative Code, §§ K41--16.0, K41--23.0. This is not the case of a review by the court of a verdict of a jury (Adirondack Power & Light Corp. v. Evans, supra). The courts will reject a determination of the commissioners only for irregularity in the proceedings, or if based on an erroneous principle of law; see Matter of City of New York Northern Blvd., 258 N.Y. 136, 155, 179 N.E. 321, 326, or, if it 'shocks not only one's sense of justice, but one's conscience'. Matter of City of New York (Old Third Ave.), 241 App.Div. 13, 16, 270 N.Y.S. 761, 764, appeal dismissed 265 N.Y. 503, 193 N.E. 291; see Adirondack Power & Light Corp. v. Evans, supra; Matter of Huie (Merrill-City of New York) (306 N.Y. 951, 120 N.E.2d 221), supra; Matter of Cibulas v. Village of Menands, 266 App.Div. 895, 42 N.Y.S.2d 787.'

Thus the Court recognizes the power of the Commissioners to accept or reject expert testimony and their right to base their determination of value on their own knowledge and observation. But the authorities do not support an assumption by the commissioners of unrestrained power to arbitrarily determine the amount of damages to be awarded. In this respect they are in a position similar to that of trial jurors and must find some support for their decision in the evidence. They must determine fair market value on some foundation other than speculation and must follow the rules with reference to what constitutes fair market value as established by the courts.

The Commissioners have valued the underground storage rights taken by the plaintiff at One Hundred Fifty Dollars ($150.00) per acre. This amounts to fifty percent of the total market value of the farm found by the Commissioners. In the opinion of this Court such valuation is so excessive that it shocks the Court's conscience and sense of justice. City of Troy v. Manufacturers Nat. Bank, 30 A.D.2d 889, 291 N.Y.S.2d 434. The Court is also of opinion that the valuation thus established is not supported by the evidence. Further, the Court finds that the evidence before the Commissioners does not support an award for commercially recoverable native gas in place at the time of taking. It is also the Court's opinion that interest has been improperly allowed from 1963 instead of from the date of the award.

VALUATION OF UNDERGROUND STORAGE RIGHTS

While this action to condemn sub-surface gas storage rights is a case of first impression in New York State, the value of such rights has been established by the courts of other states in accordance with the same rules which prevail here. In Milby v. Louisville Gas and Electric Co., 375 S.W.2d 237, a Kentucky court reversed an award of One Hundred Forty Dollars ($140.00) per acre as excessive. In Peoples Gas Light and Coke Company v. Buckles, 24 Ill.2d 520, 182 N.E.2d 169, the Illinois court found an award of Twenty-five Dollars ($25.00) per acre for such rights to be proper, while in Midwestern Gas Transmission Co. v. Mason, 31 Ill.2d 340, 201 N.E.2d 379, the same court affirmed a finding of the Commissioners that such rights had no value to the owner.

Each of these cases recognized and applied well established principles of law with reference to the valuation of property taken in condemnation which appear to this Court to have been overlooked by the Commissioners in this proceeding.

In determining the question of damages it is important to keep in mind what is being taken. The Wayne-Dundee area was for many years a gas producing area. All of the comparable sales and leases relied on by the expert appraisers and by the Commissioners reflect this fact. These comparable sales included operating rights, rights to drill and extract gas and oil, rights to lay pipeline, to install compressor equipment and the like. Apparently the days of gas and oil production in this field are over. The sandstone formation is empty of economically recoverable gas. But it still has a use, however limited.

Hence the only property right being taken in this case is the right to inject and store natural gas in the Oriskany Sandstone beneath the defendants' farm and to withdraw it for customer use. This right is something the defendants cannot use. It can be acquired and used only by a company which has obtained a license from the State of New York entitling it to conduct such operations. Only one such company can use such storage area at a time. The right is to continue only so long as such storage is utilized. The owner of the farm is not giving up valuable oil, gas or surface rights. His surface area is not affected. He is simply giving up space which he can in no way use and which has only a limited rental value.

Thus, in determining damages, the fair market value of those underground storage rights to the owner is the crucial issue. This basic principle--that the value for condemnation purposes is value to the owner and not value to the taker--seems to have been overlooked by the Commissioners and undoubtedly resulted in the high value they placed on the gas storage rights. See Board of Hudson River Regulating Dist. v. Cady, 131 Misc. 768, 228 N.Y.S. 159; McGovern v. New York, 229 U.S. 363, 33 S.Ct. 876, 57 L.Ed. 1228; United States ex rel. TVA v. Powelson, 319 U.S. 266, 63 S.Ct. 1047, 87 L.Ed. 1390; City of New York v. Sage, 239 U.S. 57, 61, 36 S.Ct. 25, 26, 60 L.Ed. 143, where the court said:

'But what the owner is entitled to is the value of the property taken, and that means what it fairly may be believed that a purchaser in fair...