ANOTHER UNCONSTITUTIONAL TAKING CLAIM DISMISSED

In our May 11, 2018 blog, we wrote about the Second Department’s affirmance of the dismissal of a claim by Yellow Cab Medallion owners that their property was taken when the City of New York permitted Uber and other for hire vehicles to provide on demand ground transportation.

The Court held, inter alia: Moreover, we agree with the Supreme Court’s determination that the TLC’s alleged decision to “allow black cars to pick up e-hails” did not, as a matter of law, constitute an unconstitutional taking of the petitioners’ property (see Illinois Transp. Trade Assn. v City of Chicago, 839 F3d 594 [7th Cir]; Minneapolis Taxi Owners Coalition, Inc. v City of Minneapolis, 572 F3d 502, 509 [8th Cir]; Boston Taxi Owners Assn. v Baker, 2017 US Dist LEXIS 9628 [D Mass, No. 16-11922-NMG]; Newark Cab Assn. v City of Newark, 235 F Supp 3d 638 [D NJ]).  The crux of the petitioners’ claim is that the TLC’s decision to “allow black cars to pick up e-hails” has diminished the value of their medallions, decreased the number of taxicab trips per day, and reduced their medallion income.  However, “‘[p]roperty’ does not include a right to be free from competition” (Illinois Transp. Trade Assn. v City of Chicago, 839 F3d at 596).  Accordingly, the TLC’s decision to allow companies such as Uber to pick up passengers via a smartphone application does not interfere with a taxicab’s use of its medallion or exclusive right to pick up passengers via street hail.  Matter of Glyka Trans. LLC v City of New York, 2018 N.Y. App. Div. LEXIS 3094 (2d Dept, May 2, 2018).

We noted that in our experience, Fifth Amendment claims are usually not successful in wrongs that are more likely administrative abuse or torts.  It is an unfortunate result.  Taxi medallions were very valuable because they provided an exclusive privilege.  Many cab owners paid a million dollars or more for their medallions and mortgaged the purchase.  To cover that debt, many taxi drivers have to drive most of the day to break even.  There should be some form of relief for the City’s action in allowing the competition.  We can update this postscript by sadly observing that it has been reported that five Yellow taxi drivers have committed suicide this year due to the personal financial crisis the industry is suffering.

On May 22, 2018, the Appellate Division, First Department rendered a lengthy decision in Matter of Stahl York Avenue Co., LLC v The City of New York.  2018 NY Slip Op 03653.  The decision was authored by the Honorable Marcy L. Kahn.

The appeal decided a hybrid article 78/plenary action to determine whether the denial by respondent New York City Landmarks Preservation Commission (LPC) of the hardship application of petitioner, Stahl York Avenue Co., LLC (Stahl), to demolish two buildings included within a designated landmark was without rational basis and whether Stahl is entitled to money damages on the ground that the inclusion of the two buildings within that designated landmark constitutes an unconstitutional taking (see US Const Amends V, XIV; NY Const, Art I, § 7).

There had been prior litigation challenging the LPC determination and the City’s approval of that determination was arbitrary and capricious.  This current action related to a hardship application seeking a certificate of appropriateness approving the demolition of the two buildings on the ground of insufficient return, in accordance with Title 25 of the Administrative Code of the City of New York (§ 25-301 et seq.). (Landmarks Law).  Stahl represented that it was entitled to a certificate of appropriateness pursuant to section 25-309 of the Landmarks Law because the expenses incurred in operating the two buildings in question, both before and after the payment of real estate taxes, significantly exceeded the income that they generated, and that therefore it would be appropriate to demolish the buildings, build mixed-income condominium towers in their place, and use the proceeds from that redevelopment to perform renovations at the other buildings in the landmarked historic area.

The First Department would not disturb the denial of the hardship application noting that LPC made an alternate reasonable return calculation which showed the two buildings were capable of earning a reasonable return.

What interested us was the Court’s discussion of the Taking Claim.

Justice Kahn provided a discussion of the Law.  She stated, the takings clause of the federal constitution prohibits governmental taking of “private property . . . for public use, without just compensation” (US Const Amend V).  A per se taking occurs if a regulation deprives the owner of all economically beneficial use of the property (see Lucas v South Carolina Coastal Council, 505 US 1003, 1019 [1992]), or a regulation may rise to the level of a taking under a multi-factor inquiry outlined in Penn Cent. Transp. Co. v City of New York (438 US 104 [1978]).  In Penn Central, the United States Supreme Court instructed that most regulatory takings cases should be considered on an ad hoc basis, with three primary factors to be weighed: the regulation’s economic impact on the claimant, the regulation’s interference with the claimant’s reasonable investment-backed expectations, and the character of the government action (id. at 124).  The Penn Central multi-factor inquiry focuses on the magnitude of the economic impact of a regulatory action and the extent of that regulation’s interference with property rights to determine if a regulatory action constitutes a taking (see Lingle v Chevron U.S.A. Inc., 544 US 528, 540 [2005]).  In Penn Central, the owner of Grand Central Terminal argued that a restriction on its ability to add an office building on top of the station amounted to a taking of its air rights, but the Supreme Court concluded that the correct unit of analysis was the owner’s “rights in the parcel as a whole” (438 US at 130-131).  The Court noted that claimants cannot establish a takings claim “simply by showing that they have been denied the ability to exploit a property interest that they heretofore had believed was available for development” (id. at 130).

The decision followed with a discussion of the Supreme Court’s decision Murr v Wisconsin, ___ US ___, 137 S Ct 1933 (2017).  The Murr Court treated the two lots as a single parcel in concluding that regulations preventing the separate sale of the two adjacent lots did not amount to an uncompensated taking.

The Murr Court opined that the proper test for determining whether parcels should be treated separately or as a whole for takings analysis purposes is objective in nature and should determine whether reasonable expectations about property ownership would lead a landowner to anticipate that its holdings would be treated as one parcel or as separate lots.  The Court then set forth a three-factor test for this purpose.  First, courts should give substantial weight to the property’s treatment, and in particular how it is bounded or divided, under state and local law.  Second, courts should look to the property’s physical characteristics, including the physical relationship of any distinguishable tracts, the topography and the surrounding human and ecological environment.  Third, courts should assess the property’s value under the challenged regulation, with special attention to the effect of burdened land on the value of other holdings (Murr, 137 S Ct at 1944 – 1946),

Applying that three-factor test, the Murr Court first found that state and local regulations had effectively merged the two lots into one parcel.  Second, the Court found that the two lots were contiguous and that their narrow shape made it reasonable to expect that their potential uses would be limited.

Having concluded that the property in question should be considered as a whole, the Murr Court found that there had been no taking, as the regulations in question did not result in depriving the owners of all economically beneficial use of their property.  The Court arrived at this conclusion by applying the “more general test of Penn Central,” which it found did not support the conclusion that the landowners had suffered a taking (id. at 1949).

The Stahl York Avenue decision then stated, in this case, application of the Murr analysis leads to the conclusion that all of the lots within the landmarked historic area, including the two buildings at issue, should be treated as one parcel for taking analysis purposes.

Considering the property as a whole, here, as in Murr, the regulatory action at issue, which, in this case, is the LPC’s amendment of the landmark designation to include the two buildings in question, did not result in complete deprivation of the owner’s economically beneficial use of it’s property. The owner is still free to rent units within all the buildings.

The decision is well worth reading by anyone with an interest in Real Property in the City of New York.

Posted in Inverse Condemnation

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