In re New Creek Bluebelt

• Decision Date: 15 November 2017
• Citation: 65 N.Y.S.3d 552,156 A.D.3d 163
• Parties: In the Matter of NEW CREEK BLUEBELT, PHASE 3. Baycrest Manor, Inc., respondent; City of New York, appellant.
• Court: New York Supreme Court — Appellate Division

156 A.D.3d 163

65 N.Y.S.3d 552

In the Matter of NEW CREEK BLUEBELT, PHASE 3.

Baycrest Manor, Inc., respondent;

City of New York, appellant.

Supreme Court, Appellate Division, Second Department, New York.

Nov. 15, 2017.

Zachary W. Carter, Corporation Counsel, New York, NY (Rochelle Cohen, Michael Chestnov, and Adam Dembrow of counsel), for appellant.

Goldstein, Rikon, Rikon & Houghton, P.C., New York, NY (Jonathan Houghton of counsel), for respondent.

JOHN M. LEVENTHAL, J.P., CHERYL E. CHAMBERS, SYLVIA O. HINDS–RADIX, and FRANCESCA E. CONNOLLY, JJ.

LEVENTHAL, J.P.

An owner whose property has been taken in condemnation is entitled to "just compensation" ( U.S. Const., 5th Amend.). At issue on this appeal is how to determine just compensation when the property at issue is subject to wetlands regulations that restrict its development. In Chase Manhattan Bank v. State of New York, 103 A.D.2d 211, 479 N.Y.S.2d 983, this Court held that property taken in condemnation must be valued as restricted in use by wetlands regulations, but that an owner who could prove a reasonable probability of successfully challenging the application of the regulations as an unconstitutional taking of its property would be entitled to an increment, representing the premium that a knowledgeable buyer would be willing to pay for a potential change to a more valuable use. On appeal, the City of New York, the condemnor of the subject property, contends that an owner of wetlands property taken in condemnation is no longer entitled to such an increment because Chase Manhattan Bank has been implicitly overruled by Court of Appeals cases that effectively bar a buyer of regulated property from ever bringing a successful takings claim. Thus, the City maintains that no knowledgeable buyer would be willing to pay a premium for the probability of a successful judicial determination that the regulations were confiscatory. For the reasons that follow, we hold that Chase Manhattan Bank remains good law, and that a "reasonable probability" increment may be included in valuing regulated wetlands properties where an owner makes an evidentiary showing of entitlement to it.

The claimant, Baycrest Manor, Inc., owned two contiguous unimproved lots, totaling more than 7,000 square feet, near the east shore of Staten Island. The claimant acquired title in the early 1970s and, subsequently, the majority of the property was designated as wetlands. On November 3, 2006, the City acquired the property from the claimant as part of a multi-phase project to manage stormwater along the New Creek Bluebelt.¹ Shortly after the City acquired title, the claimant commenced this proceeding seeking compensation for the taking.

The Supreme Court held a nonjury trial to determine the amount of compensation to be awarded to the claimant. Following the nonjury trial, in a fifth separate and partial final decree dated January 29, 2015, the court awarded the claimant the principal sum of $382,190.25, plus interest, as just compensation for the taking. The court calculated the amount of this award based on its conclusion that the claimant established that there was a reasonable probability that the imposition of the wetlands regulations on the property would be found to constitute an unconstitutional taking. As a result, the court decided that the claimant was entitled to an increment above the regulated value of the property, representing the premium a reasonable buyer would pay for the probability of a successful judicial determination that the regulations were confiscatory. The court found that the value of the property as if unrestricted was $490,587, and that the restricted value was $57,000, a difference of $433,587. The court found the 75% increment requested by the claimant to be appropriate, and awarded the claimant 75% of the $433,587 difference between the restricted and unrestricted value of the property, resulting in an award of $382,190.25.

The City appeals from stated portions of the fifth separate and partial final decree. We now modify the fifth separate and partial final decree by reducing the principal sum awarded from $382,190.25 to $156,987.84, and, as so modified, we affirm the fifth separate and partial final decree insofar as appealed from, and remit the matter to the Supreme Court, Richmond County, for the entry of an appropriate amended fifth separate and partial final decree.

In Valuing Regulated Wetlands Properties Taken in Condemnation, the Reasonable Probability Incremental Increase Rule Remains Good Law

An owner whose property has been taken in condemnation has a constitutional and statutory right to just compensation (see U.S. Const., 5th Amend.; N.Y. Const. art. I, § 7, subd. [a]; EDPL 101 ). "Just compensation" is generally measured by the market value at the time of appropriation, i.e., "the price a willing buyer would have paid a willing seller for the property" ( Matter of Town of Islip [Mascioli], 49 N.Y.2d 354, 360, 426 N.Y.S.2d 220, 402 N.E.2d 1123 ). Applying this principle in our 1984 decision in Chase Manhattan Bank, this Court found that property taken in condemnation must be valued in accordance with all legal restrictions on its use at the time of taking, including the stringent development restrictions of the Tidal Wetlands Act (see Chase Manhattan Bank v. State of New York, 103 A.D.2d at 214–217, 479 N.Y.S.2d 983 ). However, we then recognized the possibility that a claimant "may take the position that, absent the condemnation, a higher or more productive use of the property would have been available by reason of a legislative rezoning or a judicial declaration of invalidity of the use restriction" ( id. at 217, 479 N.Y.S.2d 983 ). In such a case, "[i]f the claimant proves a reasonable probability of such a rezoning or declaration of invalidity, the value of the property as zoned or restricted on the day of taking will be augmented by an increment, representing the premium a knowledgeable buyer would be willing to pay for a potential change to a more valuable use" (id.). This is called the "reasonable probability-incremental increase rule" (id.). This Court again relied on this rule in considering the proper valuation of wetlands property taken in condemnation in Berwick v. State of New York(107 A.D.2d 79, 84, 486 N.Y.S.2d 260 ), and, more recently, in Matter of New Cr. Bluebelt, Phase 4(122 A.D.3d 859, 861, 997 N.Y.S.2d 447 ).

The City argues that Chase and Berwick have been implicitly overruled by several New York Court of Appeals cases which bar the purchaser of a property already subject to wetlands regulation from successfully pursuing a regulatory takings claim. The City contends that since a subsequent purchaser cannot challenge a preexisting regulation as a taking, the "framework proposed by Chase and Berwick[ ] for determining compensation for the taking of regulated wetlands properties is incompatible with contemporary takings law and can no longer serve as a basis for applying an increment above the regulated values of such properties." Essentially, the City's argument is that in light of the Court of Appeals' decisions, no knowledgeable buyer would be willing to purchase the subject property at a price above its regulated value in the hope of successfully challenging the wetlands regulations as a taking. Accordingly, the City maintains that the claimant should not have been awarded any increment above the $57,000 market value of the property as restricted by wetlands regulations.

In support of its argument that the purchaser of property already subject to wetland regulations that restrict its use cannot successfully challenge the regulations as a taking, the City relies primarily upon the Court of Appeals' 1997 decision in Matter of Gazza v. New York State Dept. of Envtl. Conservation, 89 N.Y.2d 603, 657 N.Y.S.2d 555, 679 N.E.2d 1035. In that case, the petitioner purchased a parcel of residential property subject to wetlands regulations, and then sought a building variance to allow him to construct a single-family house. After the Department of Environmental Conservation denied his application, the petitioner commenced a proceeding to review its determination, contending that the denial of a building variance constituted a taking without just compensation. The Court of Appeals rejected the petitioner's argument that "the denial of a variance due to legislation enacted to preserve wetlands is a taking despite the fact that the legislation was fully enacted and in force when he purchased the property" ( id. at 608, 657 N.Y.S.2d 555, 679 N.E.2d 1035 ).

In reaching its conclusion that no taking had occurred, the Court reasoned:

"Our courts have long recognized that a property interest must exist before it may be ‘taken’ ( United States v. Willow Riv. Co., 324 U.S. 499, 502–503, 65 S.Ct. 761, 89 L.Ed. 1101 ; Bennett v. Long Is. R.R. Co., 181 N.Y. 431, 435, 74 N.E. 418 ). Neither may a taking claim be based upon property rights that have already been taken away from a landowner in favor of the public. For example, government may ‘assert a permanent easement that was a pre-existing limitation upon the landowner's title’ ( Lucas v. South Carolina Coastal Council, 505 U.S. [1003,] 1028–1029, 112 S.Ct. 2886, 120 L.Ed.2d 798 ). Similarly, regulatory limitations that ‘inhere in the title itself’ will bind a purchaser ( id., at 1029, 112 S.Ct. 2886, 120 L.Ed.2d 798 ). To paraphrase Supreme Court's ruling, the purchase of a ‘bundle of rights' necessarily includes the acquisition of a bundle of limitations.

"Under a State's power of eminent domain, the legitimate exercise of police power to advance the general welfare may result in the redefinition of property interests in favor of the public. It is that redefinition of a landowner's title that can serve as the basis of a takings claim. Indeed, the United States and New York State Constitutions both provide that a private party must be compensated when such interests are ‘taken’ away so a landowner may

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