Courts Reject Full Funding Obligation Prior To Condemnation

Appellate courts reviewing determinations supporting condemnation decisions have limited review powers. Prospective condemnees consistently attempt to broaden that review by asserting failings in the process or with the proposed project. Recent cases have seen variations on arguments derived from the condemnor’s alleged failure to fund projects, arguments universally rejected by the reviewing courts.

Under the Eminent Domain Procedure Law (EDPL), review of condemnation determinations rests with the Appellate Division of the Supreme Court, but review is limited by EDPL 207(C), which requires the that the court “shall either confirm or reject the condemnor’s determination based on whether

(1) the proceeding was constitutionally sound;

(2) the condemnor had the requisite authority;

(3) its determination complied with SEQRA and[, inter alia,] EDPL article 2; and

(4) the acquisition will serve a public use."

“[T]he party challenging the condemnation has the burden of establishing that the determination was without foundation and baseless ... Thus, [i]f an adequate basis for a determination is shown and the objector cannot show that the determination was without foundation, the condemnor's determination should be confirmed.”[1]

In the Matter of Niagara Falls Redevelopment, LLC v City of Niagara Falls, [2] the property owner argued that the City did not have funding in place for the proposed acquisition of a long vacant parcel for a recreation facility. Therefore there was no valid purpose as it was not a legitimate public use if it was unfunded.  The Court held such considerations were outside of the scope of its limited review: “We reject petitioners’ contentions that the determination should be annulled  because the City has failed to establish how it plans to pay for the project and because it failed to conduct a market study as required by the City's comprehensive plan, inasmuch as those contentions do not fall within the limited scope of this Court's statutory review.”[3]

In Matter of 3649 Erie, LLC v. Onondaga County Industrial Development Agency,[4] the IDA condemned a parcel of land that was part of a defunct mall. Petitioner asserted that “the condemnation of the property is unconstitutional because OCIDA failed to establish that it has sufficient funds to pay petitioner sure and adequate compensation for its parcel.”[5] Here the Court did not reject the argument out of hand, but stated that even if the state or federal constitution actually required a source of funding to be identified, the IDA had met the obligation by entering into a cost recovery agreement with the proposed developer, and “[t]here is no prohibition against private funding of a public condemnation.”[6]

Hodgson Russ Insights.  One of the larger problems with these arguments is that review of the validity of a condemnation determination is separate from the EDPL valuation process.  Condemnees are effectively arguing about an inability to fund an acquisition before the EDPL even requires an appraisal be obtained or an offer of purchase be made (see EDPL Article 3).  Further, virtually all condemning agencies have borrowing authority, rendering insufficiency of funding speculative at best. These cases are also attempted to redefine more narrowly what constitutes a public purpose or use, but that term “is broadly defined as encompassing virtually any project that may confer upon the public a benefit, utility, or advantage.”[7]

If you questions about these cases, or any aspect of the EDPL process, contact a member of the Hodgson Russ Tax Assessment and Eminent Domain Practice.

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[1] Matter of HBC Victor LLC v. Town of Victor, 225 A.D.3d 1254, 1255 [4th Dept. 2024], lv denied 42 N.Y.3d 901, 2024 WL 4125682 (2024)(internal quotation marks omitted)

[2]  218 AD3d 1306, 1307-1308 (4th Dept 2023), appeal dismissed 40 N.Y.3d 1059 (2023), and leave to appeal denied, 225 A.D.3d 1244 (2024), and leave to appeal denied, 42 N.Y.3d 904 (2024).

[3] Id, Petitioners’ arguments were afflicted with several other fatal flaws. First they claimed that the City’s other reason for condemnation- the blighted state of the property -  was inapplicable because the site had been properly maintained. But the Court properly applied the correct standard for determining blight, noting the property had long been vacant, and putting underutilized property to productive use is a valid public purpose (see Sunrise Props., Inc. v. Jamestown Urban Renewal Agency, 206 A.D.2d 913 (4th Dept. 1994), lv denied 84 N.Y.2d 809  (1994). Additionally, the developer asserted that the City’s comprehensive plan gave this developer sole right to develop the property. The Court rejected this argument, noting it was virtually an argument of an illegal contract to agree, and noted that the former City Council could not bind the current Council as to development. 218 AD3d at 1306.

[4] 220 N.Y.S.3d 540 (4^th Dept 2024).

[5] 220 N.Y.S.3d at 543.

[6]  Id.,quoting Sun Co. v. City of Syracuse Indus. Dev. Agency, 209 A.D.2d 34, 41 [4th Dept. 1995), appeal dismissed 86 N.Y.2d 776 (1995)..Petitioners, along with petitioners in a companion case of Transform Saleco, LLC v. Onondaga County Industrial Development Agency, 2024 WL 4798491 (4^th Dept 2024), also asserted the condemnation was beyond the power of the IDA because of the residential and retail nature of part of the project, but the Court rejected this argument because the challenged uses were not slated for the condemned parcel but rather for a parcel already owned by the county.

[7]  Matter of Syracuse Univ. v. Project Orange Assoc. Servs. Corp., 71 A.D.3d 1432, 1433 (4th Dept. 2010), appeal dismissed & lv denied 14 N.Y.3d 924 [2010]; see generally Kelo v. City of New London, 545 U.S. 469, 480, 125 S.Ct. 2655, 162 L.Ed.2d 439 (2005).