Metropolitan Transp. Authority v. Bruken Realty Corp.

• Decision Date: 30 July 1984
• Citation: 479 N.Y.S.2d 646,125 Misc.2d 497
• Parties: METROPOLITAN TRANSPORTATION AUTHORITY and the Long Island Rail Road, Plaintiffs, v. BRUKEN REALTY CORPORATION and Delbay Corporation, Defendants.
• Court: New York Supreme Court

Page 646

479 N.Y.S.2d 646

125 Misc.2d 497

METROPOLITAN TRANSPORTATION AUTHORITY and the Long Island Rail Road, Plaintiffs, v. BRUKEN REALTY CORPORATION and Delbay Corporation, Defendants.

Supreme Court, New York County.

July 30, 1984.

Cravath, Swayne & Moore by Max Shulman, New York City, for plaintiffs.

Weiss, Bershad, Specthrie & Lerach by Patricia M. Hynes, Jeremy Heisler, Elizabeth A. Shollenberger, New York City, for defendants.

MARTIN EVANS, Judge.

Plaintiffs here move for summary judgment in this action for a declaratory judgment. The action seeks a declaration that a certain option is void, as being allegedly violative of the Rule against Perpetuities (the "Rule") as adopted by the Legislature (by the Assembly on June 21st, 1965 and by the Senate on June 22nd, 1965.) now the Estates, Powers & Trust Law, Sec. 9-1.1(b).

The underlying facts are not unduly complex. However, they are important both to the parties, and to the public at large, since the requested judgment would not only have the effect of declaring void a particular option in favor of the defendant, but would, by parity of reasoning, result in the avoidance of an identically worded option, involving four railroad tunnels under the East River which are used by the Metropolitan Transportation Authority (MTA) for the operations of the Long Island Railroad. Also, on the basis of a claim of failure of consideration, the judgment might give rise to a claim to set aside, or otherwise affect, the agreement made in 1965 whereby the State of New York, through the Metropolitan Commuter Transportation Authority (now the MTA) purchased the Long Island Railroad from the Pennsylvania Railroad Company (Pennsylvania).

Earlier in 1965, after a Special Committee had recommended the purchase of the Long Island Railroad, the State of New York appointed Dr. William J. Ronan and William A. Shea, Esq. to negotiate with the Pennsylvania Railroad Company for the purchase of the Long Island Railroad.

On June 9, 1965 Dr. Ronan and Mr. Shea reported to the Governor and to the legislative leaders the results of their negotiations, and submitted to them the Memorandum of Understanding, which was dated June 9, 1965.

The report set forth the practical necessity of the acquisition of the property through a negotiated contract, rather than by a condemnation proceeding, particularly because of the Long Island Railroad's continuing need to use the four tunnels under the East River and the Pennsylvania Station. The Long Island Railroad was to obtain their use, as a gateway to midtown Manhattan, through a 99 year lease, at a reasonable annual rent. The report further stated that the Long Island Railroad was to have an option to purchase the four tunnels if Pennsylvania no longer needed them for its operations. The report indicated that the air rights over the Long Island City freight yards were to be conveyed by the Long Island Railroad to Pennsylvania, which would reduce the purchase price and permit unified air rights development with other areas whose ownership Pennsylvania was retaining, in what is known as the Sunnyside yards.

The Memorandum of Understanding, (which was later followed by a contract executed on December 22, 1965) was signed on behalf of the State of New York by the representatives of the Governor, the representative of the Legislative Majority Leadership, and by appropriate officers of Pennsylvania. It provided for a purchase price of $65,000,000. It also provided, inter alia, in Paragraph 3(b), for the transfer of the air rights over certain property of the Long Island Railroad, together with easements over the land below, and provided, in Paragraph 4, that

"At such time as New York determines that all or any part of the real property underlying the air rights referred to in paragraph 3(b) above is no longer necessary for New York transportation operations, Pennsylvania (or a subsidiary) shall have the option to purchase all or any part of the property so determined to be unnecessary at the fair market value thereof."

The Memorandum of Understanding, in Paragraph 6, provided for a 99 year lease to the Long Island Railroad of the tunnels and of Pennsylvania Station, and of related facilities. It gave the Long Island Railroad the right to terminate the lease on five years notice.

Paragraph 7 of the Memorandum of Understanding gave two options to New York State, each relating to two of the four tunnels under the East River. Paragraph 7(a), relating to the two tunnels whose operations were to be leased to the Long Island Railroad and shared in operation by both Pennsylvania and the Long Island Railroad, stated:

"At such time as Pennsylvania determines that either or both of the two East River Tunnels now occupied by Railroad are no longer necessary for said operations by Pennsylvania (or its subsidiary) New York shall have the option to purchase either or both of such tunnels determined to be unnecessary at the fair market value thereof."

The second option, in Paragraph 7(b), related to the two tunnels which were not then to be leased to the Long Island Railroad, but which were used solely by Pennsylvania. It stated,

"If Pennsylvania determines that either or both of the two East River Tunnels now occupied by Pennsylvania are no longer needed for railroad purposes by Pennsylvania and Pennsylvania determines to sell, or to offer such tunnels for sale, New York shall have the option to purchase either or both of such tunnels determined to be unnecessary at the fair market value thereof."

Of the nine paragraphs of the Memorandum of Understanding, these options comprised 2 paragraphs.

On June 23, 1965 the Legislature approved the purchase of the Long Island Railroad on the basis of the terms and conditions set forth in the Memorandum of Understanding, by appropriation of the $65,000,000 on that date to effectuate the purchase. (See the Supplemental Budget, L.1965, Ch. 442, 1965 N.Y.Laws, 1233, 1317.)

On December 22, 1965 the agreement between the MTA and Pennsylvania Railroad was executed. On that date the Governor of the State of New York made a public statement. See 1965 Public Papers of Governor Nelson A. Rockefeller, 1396, in which, on behalf of the State, he announced his approval of the contract.

Under the contract, the closing was set for January 20, 1966, and on that date the various documents which are here involved were executed and delivered.

A deed of the air rights, commencing at a level 22 feet above the railroad tracks, and over twelve specified lots of land, was granted to Delbay Realty Corporation, a subsidiary of Pennsylvania. The Deed also granted to Delbay an easement ¹ to construct and maintain columns, footings, foundations, drains, utility and service lines and stairways on the land itself so long as these did not interfere with the operations of the Long Island Railroad, and the Railroad agreed to move its structures and facilities, at Delbay's expense, if that was necessary to the enjoyment of the easement.

The Option agreement granted to Delbay the option heretofore referred to, for a period of 99 years. The option was to be effective, as to each of the separate lots, only when MTA decided that it no longer needed that lot.

The affidavits of Edwin K. Taylor, Esq. and Harry McNally, both of whom aver that they were among the group of representatives of Pennsylvania who negotiated the sale, state that it was anticipated that the condition precedent to the exercise of the option; namely, the determination by MTA that it did not need the particular lots for transportation purposes, would be made within a few years because it was the intention of both Pennsylvania and the Long Island Railroad to phase out the freight operations at that location.

If Delbay decided to exercise the option, it was required to notify MTA within 90 days from the date that it received notice from MTA. The price was to be the "fair market value" of the land, and was to be fixed by arbitration before the American Arbitration Association.

On April 16, 1982, MTA advised Delbay that MTA no longer needed six of the lots, all of which were located in various blocks as shown on Section 1 of the Tax Map of the Borough of Queens. MTA, in its letter to Delbay, stated, in pertinent part:

"As a result of our Board's determination, the Delbay Corporation may now exercise its option rights on those parcels, identified in the attached Resolution. Should Delbay wish to exercise its option, then notice must be delivered to the LIRR/MTA not more than ninety (90) days after receipt of this notice, setting forth all or a specified portion of the property described in the Board's Resolution, ...."

On July 6, 1982 Delbay assigned that part of its option relating to two of the six lots to Bruken Realty Corp. and, on July 12th, 1982 notified MTA of the assignment. On July 13th, 1982 Bruken Realty Corp. notified the MTA that it elected to purchase the two lots in accordance with the option agreement.

There followed some oral discussions between MTA and Bruken relating to the procedure to be used to determine the fair market value of the property, and a written agreement, memorializing the changes to the procedures that had been set forth in the original agreement was executed by MTA and Bruken, under date of August 12, 1982. In substance, the parties provided that they would attempt to have the fair market value determined by agreement of their respective appraisers, no later than October 15th, 1982; and agreed that they would only resort to the arbitration procedures defined by the original agreement if the appraisers were unable to agree. This agreement also stated that:

"9. Except as expressly modified herein the terms of the Option Agreement are unmodified and in full force and effect."

The appraisers could not agree, and on or about November 9, 1982, Bruken, in accordance with the provisions of the Agreement between it and MTA, demanded arbitration. No ...