Eminent Domain Railway Corridor Valuation: New York Appellate Court Holds State Liable for $67,000,000 in Just Compensation

In a ground-breaking New York eminent domain case where the State of New York took almost seven acres of CSX Transportation, Inc.’s railroad and railway property in order to widen the Brooklyn-Queens Expressway in the Woodside and Jackson Heights areas of Queens, New York City, and then vigorously argued that CSX suffered no damage and should not even be awarded anything as just compensation, the New York State Appellate Division, Second Department, on July 27, 2016, in its second time ruling on this case, held that the State was completely incorrect and must pay CSX just compensation that amounts to approximately $67,000,000, inclusive of interest.

This case has a protracted history spanning 16.5 years.

The State appropriated and vested title in CSX’s property in January of 2000.  The State took 236,836 square feet in fee, 43,856 square feet by permanent easements, and 1,880 square feet by temporary easements.

The appropriation involved the Fremont Secondary line, a rail freight line that is eight miles long, running from the Bronx to Queens in New York City.  Amtrak and CSX each own about half of the line.  It is the only direct freight link between Long Island, Brooklyn, Queens, and the rest of the mainland.

The appropriation required CSX to relocate its rail line.  In order to keep CSX’s railroad running, the State paid for and constructed new bridges, a new rail line, and new retaining walls.  But for the BQE project, these remedial measures were not necessary.

CSX found that the highest and best use of the property was a railway corridor that could also be used for power transmission, pipelines or fiber optics.  The State argued a more limited highest and best use of just railway corridor.

CSX utilized a “Corridor Valuation” and valued the property using sales of comparable rail corridors.

A Corridor Valuation is a three step process.

The first two steps determine the value of the land alone within the corridor.   The corridor is divided into segments based upon the adjacent land use and, for each segment, the “Across-the-Fence” value (“ATF”) is determined based upon comparable sales.

As an example, if the property across-the-fence is residential land valued at $100 per square foot, then the ATF value, or land value, of that segment of the corridor will be valued at $100 per square foot.  The purpose of the ATF value is to measure location and market conditions for the corridor.

In the final step, a “Corridor Factor” is determined.  A corridor connects two points together and that connection and the ability to use the corridor to run a rail line, a pipeline, etc., are of greater worth than just the land itself. Thus, the Corridor Factor is the equivalent of a multiplier that measures the importance of the corridor.

Not all corridors are created equal.  Using comparable corridor sales, one may learn, for example, that heavily travelled Amtrak lines have a Corridor Factor of 4, regional passenger lines have a Corridor Factor of 3, infrequently used freight lines have a Corridor Factor of 1.5 and that a corridor used for electrical lines alone has a Corridor Factor of 1.1.

As another example, if one assumes that there were two railroad corridors side-by-side, each having a land value of $1 million, an Amtrak line would have a value of $4 million (4 x $1 million) while the heavily used freight line would have a value of $3.5 million (3.5 x $1 million).

Here, CSX valued segments of its property at $40, $49, or $51.50 per square foot for a total ATF value of $11,815,031.  Multiplied by a Corridor Factor of 2.5, the total value of the fee taking was $29,537,577.50.

The State valued the property using the cost approach, or reproduction cost less depreciation, which is used for valuing specialty properties.  The State valued the land along with the cost of improvements it constructed, including the demolition of three bridges, their replacement with a much longer span, and the construction of new retaining walls.  The State argued that the cost of the new construction was more than the value of the appropriated land and that CSX was not damaged.  In fact, the State argued that it increased the value of CSX’s property by $24,868,000.

In the alternative, the State argued a Corridor Factor of 0.15 to be applied to CSX’s ATF value, or $1,772,255.

The New York Court of Claims dismissed the State’s valuation method because improvements to remaining land cannot be used to offset the value of land taken in eminent domain.  New York Cent. Lines, LLC v. State, 29 Misc.3d 1205(A) (Ct. Cl. 2010).

While the trial court adopted CSX’s method of valuation and its ATF, the court did not apply any Corridor Factor.  Instead, the court only awarded $12,104,006 for the fee takings.

Both parties appealed, respectively, for excessiveness and inadequacy of the award.  The Appellate Division, Second Department, found that the trial court properly rejected the State’s valuation approach and properly rejected the State’s 0.15 Corridor Factor.  New York Cent. Lines, LLC v. State, 101 A.D.3d 966 (2d Dep’t 2012).

However, the Second Department stated, “[h]aving rejected the State’s appraisal, the trial court was bound to either accept the claimant’s appraisal or explain the basis for any departure.”

The Second Department reversed and found that “[t]he Court of Claims’ determination in this regard was neither ‘supported by the evidence nor adequately explained by the court.’”  The court “remit[ted] the matter for a determination as to the appropriate corridor factor to be applied to the ATF value as estimated by the claimant’s expert, and for the entry of an appropriate amended judgment thereafter.”

On remand, instead of the Court of Claims applying CSX’s Corridor Factor as the Second Department instructed, the Court of Claims reviewed CSX’s comparable corridor sales in depth and created its own Corridor Factor of 1.29, for a value of $14,059,655.  New York Cent. Lines, LLC v. State, 41 Misc.3d 1209(A) (Ct. Cl. 2013).  The court did this despite having no evidence other than what CSX presented.  There was no range of evidence.  There was only evidence of a 2.5 Corridor Factor.

Again both parties appealed, respectively, on grounds of excessiveness and inadequacy.  Despite the Second Department’s prior decision to the contrary, the State nevertheless argued that no Corridor Factor should be applied.  The Second Department noted this intentional ignorance and stated that the law of the case doctrine foreclosed re-examination of this previously decided issue because the State failed to present new evidence or new law that would change the determination.  New York Cent. Lines, LLC v. State, 2016 NY Slip Op. 05633, 2016 N.Y. App. Div. LEXIS 5492 (2d Dep’t 2016).

Further, the Second Department stated that on remand, “the Court of Claims improperly disregarded the claimant’s expert’s determination that the appropriate corridor factor was 2.5.”

Moreover, the Court of Claim’s departure from the 2.5 Corridor Factor and independent determination “was insufficient and not supported by the evidence.”  In other words, if the only evidence presented on a Corridor Factor is presented by CSX, there is no room to deviate and the sole evidence must be adopted.  A court is not an appraiser and cannot create its own valuation outside the range of evidence.

The Second Department concluded that “since the Court of Claims should have accepted the claimant’s expert’s determination of a 2.5 corridor factor, we remit the matter to the Court of Claims to apply a 2.5 corridor factor to the ATF value of the appropriated property, and for the entry of an appropriate second amended judgment thereafter.”

Thus, this time, the Second Department clearly instructed the application of a 2.5 Corridor Factor, leaving no room for the Court of Claims to again disregard the Second Department’s instructions and deny just compensation.

Jonathan M. Houghton, a partner of our firm, Goldstein, Rikon, Rikon & Houghton, P.C., tried the case in the Court of Claims and argued both appeals before the Second Department.

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