On November 24, 2015, Justice Wayne P. Saitta of the Supreme Court of New York, Richmond County, awarded this firm 100% of its requested attorney fees, pursuant to the New York Eminent Domain Procedure Law (“EDPL”) § 701, in the total amount of $241,740.67. Matter of City of New York [New Creek Bluebelt, Phase 4 (Paolella)], 2015 NY Slip Op. 51735(U), 2015 N.Y. Misc. LEXIS 4338 (Sup. Ct. Richmond County 2015).
In this eminent domain proceeding, the City of New York (“City”) took our client’s property and made an advance payment of $165,400 and a supplemental advance payment of $19,600. We claimed that the property was worth $1,378,000, or $1,193,000 more than what the City offered.
The Court found, and the Appellate Division, Second Department affirmed, a property value of $810,000. The Court also calculated interest of $306,940.82. This was $644,600 more than the advance payment plus $297,207.26 in interest on the difference.
The City took our client’s property, which consisted of 19,500 square feet and entirely consisted of wetlands. Matter of New Creek Bluebelt, Phase 4 [Paolella], 122 A.D.3d 859 (2d Dep’t 2014). The property was regulated as wetlands on the vesting date and all parties agreed that our client would not be able to obtain a permit to develop the property. Thus, the property’s highest and best use as regulated was vacant land. All parties also agreed that our client purchased the property before it was regulated as wetlands.
The issue was whether the imposed wetlands regulations constituted a regulatory taking.
“In a condemnation proceeding, a property restricted by wetlands regulations is valued as regulated by the wetland regulations unless the claimant can demonstrate that there is a reasonable probability that the wetlands regulations would be held to be a regulatory taking. If so, Claimants are entitled to an increment above the regulated value representing an additional amount a reasonable buyer would pay for the probability of a successful judicial determination that the regulations were confiscatory. It is the Claimants’ burden to establish that there is a reasonable probability that the regulations would be found to constitute a taking.”
“To show a reasonable probability that a constitutional challenge to the wetland regulations would succeed, a claimant must demonstrate that the regulations render their property unsuitable for any economic or private use for which it is adapted, and thus destroys its economic value, or all but a bare residue of the value.” Matter of City of New York [New Creek Bluebelt, Phase 4 (Paolella)], 35 Misc.3d 1224(A) (Sup. Ct. Richmond County 2012) (citations omitted), aff’d, 122 A.D.3d 859 (2d Dep’t 2014).
Here, the wetlands regulations precluded any development of the property or any use other than leaving it vacant. Still, the question was whether this has destroyed all but a bare residue of the value of the property.
The Court did a Penn Central regulatory takings analysis, see Pennsylvania Central Transportation Company v. City of New York, 438 U.S. 104 (1978), and found that, together with an 82% reduction of value as regulated, there was a reasonable probability that the wetlands regulations could be successfully challenged as a regulatory taking.
The Court then adopted our argument and found a 75% increment to the difference between the unregulated and regulated value. This reflects the adjustment of value a willing buyer would have paid for the property on the date of vesting on the expectation that they could successfully challenge the wetland regulations. This increment is added to the regulated value.
The Court found a property value of $810,000 and, ultimately, interest of $306,940.82.
The Appellate Division, Second Department, affirmed the Court’s increment and valuation methodology. Matter of New Creek Bluebelt, Phase 4 [Paolella], 122 A.D.3d 859 (2d Dep’t 2014).
We moved for additional allowances pursuant to EDPL § 701. Our retainer agreement was 25% of the award above the advance payments, including awarded interest.
Under EDPL § 701, a court may award costs, disbursements and expenses, including reasonable attorney fees, where the award is substantially in excess of the advance payments and where the award is necessary to achieve just compensation. In other words, the test to determine whether to award attorney fees is threefold: (1) was the award substantially in excess; (2) what fees were necessary to achieve the award; and (3) the award must be reasonable.
The City argued that we were not entitled to attorney fees on the awarded interest.
The Court noted that courts in New York are split on whether interest should be included when calculating a contingency fee pursuant to EDPL § 701.
Several courts held that attorney fees may properly include fees based on the interest. See Matter of City of New York [Newton Creek Water Pollution Control Plant Upgrade (Second Taking)], 30 Misc.3d 816 (Sup. Ct. Kings County 2010); Matter of City of New York [Powell’s Cove Environmental Waterfront Park], 24 Misc.3d 1251(A) (Sup. Ct. Queens County 2009); Carbone v. State, 13 Misc.3d 1246(A) (Ct. Cl. 2006); Susan Canale as Executrix of the Estate of Hazel V. Shafer v. Town of East Hampton, Index No. 21357/2003 (Sup. Ct. Suffolk County 2003) (unreported decision); cf. Westchester County v. Baruch, 247 N.Y. 398, 400 (1928); Matter of Bd. of St. Opening & Improvement, 128 A.D. 432, 436 (1st Dep’t 1908), aff’d, 194 N.Y. 545 (1909).
The reasoning is because attorneys are deprived of the use of their fees, which would be received years earlier if condemnors compensated claimants in a timely fashion after taking property. See Newton Creek, supra, citing Powell’s Cove, supra.
The Court only found one appellate case on point, Matter of City of New York [Eastside Corp.], 52 A.D.3d 387 (1st Dep’t 2008), and stated, “the First Department did not hold that attorneys fees on interest was improper but only, that ‘[t]he court was not bound by claimant’s retainer agreement with counsel, which provided for attorney fees to be calculated as a percentage of the interest portion of the award as well as principal; it was required only to assess reasonable attorneys fees.’”
The Court concluded that “awarding attorneys fees based on interest on an award is neither proper nor improper as a matter of law[,]” but is a matter left to the discretion of the trial court. See Hakes v. State, 81 N.Y.2d 392 (1993).
The City also argued that the court rejected our theory of valuation and therefore our full attorney fees and other expert fees were not necessary for just compensation.
The Court disagreed.
It stated that it adopted parts of our theories and valuation. Most important, the Court “adopted [our] position that the wetland regulations [on the property] constituted a regulatory taking and rejected the City’s position that they did not. Further, the Court adopted [our] increment of 75% of the difference between the unregulated and regulated value of the property. The increment adopted by the Court was $625,000, which accounts for almost the entire amount awarded above the advance payment.”
“There is no valid reason to reduce the percentage of a contingency fee agreement to account for that part of an attorney’s efforts that were spent advancing theories rejected by the court. Had the Court accepted all of Claimants attorney’s arguments the award would have been far higher, and the corresponding fee higher as well. Conversely, to the extent the Court rejected Claimants’ theory of valuation, the final award is less than it would have been.”
Last, the Court found that our 25% contingency fee was “manifestly reasonable” and that courts have found that one third contingency fees are “an appropriate starting point for determining a proper additional allowance for attorney’s fees.”