De Laus v State of New York

[*1] De Laus v State of New York 2008 NY Slip Op 50991(U) [19 Misc 3d 1133(A)] Decided on March 31, 2008 Ct Cl Patti, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 31, 2008
Ct Cl

Frank V. De Laus, Barbara De Laus and Charles M. Morreale Claimant(s)

against

The State of New York, Defendant(s)



107904



Claimant's attorney:REDMOND & PARRINELLO, LLP

BY: JOHN R. PARRINELLO, ESQ.

Defendant's attorney:HON. ANDREW M. CUOMO

Attorney General of the State of New York

BY: REYNOLDS E. HAHN, ESQ.

Assistant Attorney General

Third-party defendant's attorney:

Philip J. Patti, J.

The Claimants were the owners of an improved parcel of land located in the Town of Greece, Monroe County and more particularly at 1450 West Ridge Road, which was taken in its entirety pursuant to §30 of the Highway Law and Eminent Domain Procedure Law of the State of New York. The taking map containing the subject's description is entitled S. H. 6, Rochester- West Greece (West Ridge Road), Map No. 42, Parcel No. 44, filed in the Monroe County Clerk's Office on May 25, 2000. The foregoing was stipulated to by the parties at the commencement of the trial and I adopt the description of the subject as set forth on the appropriation map. Claimants were served with the notice of appropriation by certified mail on June 21, 2000 and the claim has not been assigned by Claimants to any other tribunal or Court for audit or determination. The Court viewed the property on September 18, 2007.

An explanation of the history of this claim is warranted in order to fully understand why this is not the ordinary total acquisition, but rather has the additional facet of a claim by Claimants that the value of their property was lessened by the prolonged period of time from the announcement of the above project and the date of taking, discouraging Claimants from expending monies maintaining the subject and either selling or leasing it. The consequence is that the effect was a loss in value caused by condemnation blight.

At the time the Claimants acquired the subject property it was improved with a building originally constructed as a Howard Johnson restaurant. It had been extensively remodeled and also expanded in 1986 after it had been acquired by Claimants from the previous owner, Cosmic Venture Corporation.[FN1]

The improved portion of the subject contained 3753ñ square feet and the total area, as stipulated by the parties, consisted of 30,000 square feet. Claimants and the Petrellas entered into a five-year lease in 1987 which contained two options to renew on the same terms, except there was to be increase(s) in rent. The first option had to be exercised on or before February 1, 1992, running until January 31, 1997, with the second term from February 1, 1997 to January 31, 2002 (see Exhibit 6). The options were premised on the lessees having fully performed all of the terms and conditions of the lease. The lessees were obligated under the terms of the lease to pay all the taxes, insurance, utilities, maintenance and repair of the equipment, fixtures and furniture, repairs and replacements, whether ordinary or extraordinary, [*2]foreseeable or unforeseeable, structural or otherwise (Exhibit 6, Article 2, pp. 2 and 3). This was to include not only the building but sidewalks and parking lot areas. In 1991 a fire in the restaurant caused significant damage to the premises, necessitating repair and restoration of the furniture, fixtures and equipment.

Apparently the Claimants and their tenants had a beneficial arrangement for the first five years and the Petrellas exercised the first option. The proof at trial establishes that in 1993 and 1994 the Petrellas began to incur problems in making the monthly contractual rent payments and Claimants were in regular communication with the tenants in an attempt to collect the past due rent. In 1995, according to the testimony, the Petrellas declared bankruptcy after discussing their problems with Claimant Frank V. DeLaus and he advised them to take that step. As a consequence, the parties agreed that Petrellas' rent would be changed to a range from $1,500.00 to $1,700.00 per week, with the rest of the terms of the lease to remain in effect. The Petrellas apparently were able to meet this rent during the years 1995 and 1996, and Claimants received $81,300.00 and $81,400.00 respectively for those years, or a per square foot rental of $21.66 in 1995 and $21.70 in 1996 (see Exhibits 31 and 32).

In 1997 Claimants permitted the Petrellas to remain on the premises but contacted a realtor to market the subject property. Also in May of that year Claimant Frank V. DeLaus was made aware of the Defendant's interest in acquiring all of the subject for the widening and realignment of Ridge Road and Stone Road. He contacted the State in an attempt to learn more about its plans for the premises, while at the same time continuing the effort to market the subject. He communicated with the State both by letter and telephonically over the next several years in an attempt to resolve the future of the subject (Exhibits 34, 36, 37, 39, 40, 43, 44, 45 and 47). During this period there were newspaper articles regarding the State's proposed improvement, including one dated October 1, 1998 specifically regarding the subject property (Exhibit 38). A public hearing was held in July 1999 regarding the proposed project.

The Claimants contend that from 1997, when news of the project was first talked about, to the date the subject was acquired, Claimants' ability to market their property was negatively impacted. In addition, Claimants contend that they were reluctant to invest any further monies to improve the property until the State determined whether it would acquire the subject, and, if so, when. Claimants lost their tenant in May of 1999 and they were then saddled with the obligation to use their own money to pay the taxes, insurance and mortgage on an asset which was yielding no return on their investment since, according to the uncontradicted testimony of Claimant Frank V. DeLaus, any prospective tenants were unwilling to [*3]enter into a lease for a property that might be taken by the State for the highway project (Transcript - p. 68). Furthermore, it made no business sense to put additional monies into the property since it was likely to be appropriated by the State.

Paul Wells, Assistant Commissioner for the Office of Engineering of the New York State Department of Transportation (DOT), responding to the May 4, 1999 letter from Claimant Frank V. DeLaus (Exhibit 43), agreed with Claimants that news of the proposed project affected the way "people think about the proposed project area and that includes current and prospective tenants and owners" (Exhibit 44). He went on to include in this letter pertinent language of the Uniform Relation Assistance and Real Property Acquisition Policies Act of 1940, as amended, which in essence states that any increase or decrease in the value of property occasioned by the potential acquisition of same for a public improvement, except for what was under the reasonable control of the owner, would be disregarded when determining value.

Therein lies the central issue in this case. Claimants are seeking to have their property valued at a point in time prior to the impact on the property of "condemnation blight." Understandably the State argues that there is no evidence to support an award to reflect the diminution of value to the subject due to such blight. While I am not completely satisfied with either appraisal, as they both have meaningful impairments as revealed by respective counsel's thorough examination and cross-examination of the respective appraisers, there is sufficient testimonial and written proof in this record for me to render my decision. The motions by each party to strike the other party's appraisal are therefore denied, and I will rely upon those portions which are supported by this record, and give little probative value where noted.

The appraisers both utilized the Market Data and Income Approaches to reach their respective opinions of the subject's value [FN2] and were in agreement that the highest and best use of the subject was for commercial use with Claimants' appraiser stating that it would include restaurant use. Claimants' appraisal denominated "Complete Appraisal Summary Report" (Exhibit 1), was completed on October 20, 2000, after the appraiser, Terry Kraus, had inspected the subject in July of 2000. He concluded that the value of the parcel utilizing both approaches was $650,000.00 at the date of acquisition. He then relied on his Income Approach to arrive at the subject's value considering the impact that condemnation blight had on the property and determined its value to be $820,000.00. He based this on several factors as set [*4]forth in his appraisal which I have set forth above, but I do not necessarily agree with his characterizations of what had transpired (Exhibit 1, pp. 15 and 16).

Mr. Kraus's work product was attacked by the State as deficient in that it lumped adjustments into combined categories such as land area/location; building age/condition, quality and marketability; building size/utility, and basement/FFE (furniture, fixtures and equipment), without categorizing each separately with a corresponding dollar adjustment. This prevented the State from being able to determine how the individual adjustment for each specific factor was arrived at and allocated. In addition, on cross-examination Mr. Kraus stated that he had been retained to do a summary report and not a so-called self-contained appraisal, which he implied would have been presented with greater detail. However, while I again find that even though there is detail lacking, as compared to appraisals normally provided in these trials, Mr. Kraus's testimony added sufficient explanation to be of assistance to me.

He relied on four comparable sales of restaurants located in Greece, Penfield, Henrietta and Brighton. He stated that he did not individually verify each sale since he culled them from records maintained by Midland Appraisal Associates, Inc. (Midland) and thus did not include in his Summary Report a statement that he had individually verified the sales or leases he used. He also conceded that he did not conduct an interior inspection of the comparables specifically for this report, but had been in Sale Nos.1 and 2 on prior occasions, albeit not specifically for the purpose of this appraisal. For Sale Nos. 3 and 4, he merely drove by and did not do an interior inspection. However, he noted that he reviewed information on each of those sales, as well as the rental comparables he used, from information accumulated by his company (Midland) over the years, as well as public records. While the information in his summary appraisal was not set forth in the same detail as a self-contained appraisal would traditionally contain, it nevertheless was based on the same data, but in a truncated format. He stated that although he did not inspect each and every comparable utilized, he did not feel it was necessary to do so, since the information utilized to make his various adjustments was available in public, as well as company, records, and he combined them with his observations of the sales and applied his expert opinion to make his adjustments.

Based on this testimony I have re-examined his adjustments based on the proof in this record. With respect to each improved sale upon which he relied in his Whole-to-Whole analysis, I am persuaded that some of his adjustments are excessive. It is clear that the subject has a superior location to Sale No. 1. Clearly Sale No. 1 was in better overall condition than the subject, but I find that his negative 5% [*5]adjustment to reflect this fact was too low, and increase that to 10 % to reflect its superior condition and maintenance. Further, I find that his positive adjustment of 20% for building size/utility is excessive and have reduced that to 15%. With respect to Sale No. 2, I have reduced the positive adjustment to the sale price for land area and location to 10%, since it is located in the same relative area as the subject, but is a larger parcel, and I have disregarded the positive adjustment made under marketability. Sale No. 3 is the least comparable of the sales offered, and I did not attribute significant probative weight to it. As to Sale No. 4, Mr. Kraus's adjustment for land area/location was not adequate based on its location on Monroe Avenue within close proximity to an exit ramp from Route I-590, and I have increased that adjustment to 15%. Also, I cannot accept his opinion reflecting the subject's superior building age/condition etc. of 80%. Such a drastic adjustment arguably renders this sale uncomparable. I believe and find that a positive 35% adjustment is warranted.

With respect to the State's expert's appraisal (Exhibit A) prepared by Todd Thurston, it was established that he had actually completed a project appraisal in late 1999 or early 2000 for the Ridge Road project while an employee of Pomeroy Appraisals. However, he was aware that the subject was to be involved in this project sometime in 1998 or 1999. Mr. Thurston left Pomeroy's employment sometime in 2001 and started his own company, and sometime in 2003 was engaged by the State to prepare Exhibit A. While working for Pomeroy he had conducted an internal and exterior inspection of the subject for the preparation of the project appraisal. That appraisal, as well as his trial appraisal, both utilized the Market Data and Income Approaches to value. He noted in Exhibit A, as well as in his trial testimony, that the subject suffered from deferred maintenance and acknowledged that he was aware in 1999 that neither the tenant nor the owner would be expending money in light of the impending acquisition. While the premises were vacant at the time he inspected it in 1999, he did not know if the lease had been terminated and apparently never sought out that information from either the tenant or the owners. He stated that he merely assumed that it had been terminated but had not verified it. At the time that he was hired to prepare the trial appraisal the improvements had been removed. In his trial appraisal he stated that he was not penalizing the subject for either deferred or standard maintenance in arriving at the subject's value (Exhibit A, p. 6, Special Assumptions and Limiting Conditions).

In arriving at the subject's land value only, I have made adjustments to the sales offered by the State. Each of these sales is located within the project area and had access to Ridge Road prior to the sale. With respect to the land value, I have [*6]considered each sale but have given Sale Nos. 1 and 2 greater weight due to their proximity to the subject. I made additional adjustments to these sales to reflect the subject's better topography, accessibility and the appraiser's unsupported conclusions that the subject could or would not attract "high quality tenants or national restaurants." While it is not clear on this record the consideration this warranted, it is clear that it was a factor when he arrived at his conclusions. In addition, while he stated that he would not give any consideration to the deferred maintenance of the subject or Claimants' reluctance to invest any further monies in the subject because of the impending acquisition, it is apparent to me that indeed it had an impact on his final opinion of value both to vacant land value as well as improved.

I find the value for the subject's land only is $14.95 per square foot for the stipulated area of 30,000 square feet, or $448,500.00.

I have reviewed Mr. Thurston's three Market Data or Whole-to-Whole sales and have given greater weight to Sale Nos. 1 and 3, as they are in closer proximity to the subject as Sale No. 2 is located in the Town of Brighton. Also these sales, unlike those proffered by the Claimants' appraiser, all occurred at a time preceding or within a reasonable proximity of the State's incipient acknowledgment of the scope of its Ridge Road project and the evolved intent to acquire all or part of the subject. As a consequence, I have attributed greater probative value to them in arriving at the subject's value using the Whole-to-Whole Market Data Approach. The sales offered by the State, except for improved Sale No. 3, occurred after the public hearing in July of 1999.

There is ample proof in this record that Ridge Road had been experiencing a pattern of growth prior to this project, while there is nothing before me that establishes the area around Sale No. 2 was enjoying the same benefit. In addition, the record before me leads to the conclusion that the State's appraiser, while stating that he did not give weight or consideration to the subject's deferred maintenance in his analysis of these comparables, had actually done exactly that by his selection of these sales and the adjustments he allocated to them.

What is bothersome to me is his apparent disregard or lack of information of what improvements were made to the subject after the fire in 1991 and his reliance on 1986 as being the last time any renovations were made to the subject. He further acknowledged at trial that Claimants, aware that their property was to be taken by the State, determined not to invest any further money in the subject. Moreover, there is proof on this record that even their ability to attempt to market the subject was impacted by the impending Ridge Road project. Therefore, the premise relied upon by the State, that the subject as improved was of lesser value than if the [*7]land was vacant, is somewhat flawed when all the circumstance are considered.

After my review of the record and an analysis of Claimants' Sale Nos. 1, 2 and 4, and the State's Sale Nos. 1 and 3, and utilizing the adjustments deemed appropriate and supportable on this record as previously stated, I find the subject value as improved is $148.75 per square foot, or $558,300.00 . My findings take into consideration the effect of condemnation blight on the subject throughout the time preceding the subject's ultimate acquisition as testified to by Claimant Frank V. DeLaus.

As noted above, both appraisers also used the Income Approach to arrive at an alternate value for the subject. Claimants' appraiser, utilizing this approach, fixed the subject's value at $650,000.00, which was the same value he arrived at under his Market Approach. The State's expert arrived at a value of $365,000.00. I am unable to rely on either of the appraiser's opinions of the subject's value based on this approach to value, as I found both their work project and testimony to be less reliable than their Market Data documentation.

The State's appraiser adopted three leases he considered comparable to the lease that was in place for Claimants' property. He did not regard the lease with the Petrellas, since it was his opinion that since 1992 the tenant was unable to meet the monthly rental as provided in the first option period set forth in Exhibit 6. He stated that since the Petrellas were permitted to continue to occupy the premises at the reduced rental, it allowed him to infer that the rent was unrealistic (Exhibit A, p. 8). In addition, he determined an applicable vacancy and collection loss of 10 %, but there is no support for that conclusion in Exhibit A, and at trial he stated that it was based upon his observations within the area where the subject was located (Transcript - pp. 279-282). He also admitted that the subject was not vacant from 1987 to 1999, as documented by Claimants' Schedule E filings for those years (Exhibits 23, 24, 26, 28, 29, 31, 32, 35, 42 and 46). I am not unaware that during the time the Petrellas leased the subject they experienced financial problems that necessitated bankruptcy and an attempt by them, as well as Claimants, to renegotiate rents, but there is nothing in the record before me that changed the other terms of the lease. Mr. Thurston acknowledged that while he assumed the lease was no longer in effect, he did not know if that was the case, nor did he attempt to verify his assumption.

The Claimants' appraisal report, while it sets forth several leases that Mr. Kraus allegedly relied on as comparable to the subject, contains only cursory information and no substantive explanation in the record detailing how he utilized these rentals.

Claimants assert that the subject's value was impaired by what is [*8]commonly referred as condemnation blight and that its true value should be determined on the date of its acquisition, but as if it had not been the victim of the debilitating effect of the cloud of condemnation (City of Buffalo v Clement Co., 34 AD2d 24, mod 28 NY2d 241). While the State's appraiser allegedly followed this mandate in preparing his work product, it was apparent to me on this record that he did not do so in any substantive way, which resulted in my having to make what I believe to be necessary further adjustments to his offerings to reconcile the values with the proof. Conversely, Claimants' appraiser applied it solely to his Income Approach (Exhibit 1, pp. 15, 16) which I have previously discussed, but his offerings set forth in his Market Data or Whole-to-Whole Approach likewise had to be modified based on his complete trial testimony.

In sum, based on the record before me I find that the subject value was diminished by the cloud of condemnation from October 1, 1998 (the date when a newspaper article affecting the subject property was first published)[FN3] to the date of the de jure taking, stipulated to be May 25, 2000, and I fix its value and award the sum of $558,300.00 to Claimants.

Therefore, Claimants are awarded $558,300.00 for all damages, with appropriate interest thereon from May 25, 2000, the date of taking. Since the record before me establishes that the notice of acquisition was served by certified mail on June 21, 2000, and not by personal service (see EDPL §514[B] and Sokol v State of New York, 272 AD2d 604), there shall be no suspension of interest, and this award shall be inclusive of interest from the date of this decision, and thereafter to the date of entry of judgment herein, pursuant to CPLR 5001 and CPLR 5002; and subject toCourt of Claims Act §19(4).

The award to Claimants herein is exclusive of the claims, if any, of persons other than the owner of the appropriated property, its tenants, mortgagees or lienors having any right or interest in any stream, lake, drainage, irrigation ditch or channel, street, road, highway or public or private right-of-way or the bed thereof within the limits of the appropriated property or contiguous thereto; and is exclusive also of claims, if any, for the value of or damage to easements or appurtenant facilities for the construction, operation or maintenance of publicly owned or public service electric, telephone, telegraph, pipe, water, sewer or railroad lines.

All motions not heretofore ruled upon are now denied. To the extent that Claimants have paid a filing fee, it may be recovered pursuant to Court of Claims Act [*9]§11-a(2).

LET JUDGMENT BE ENTERED ACCORDINGLY.

Appendices: Footnotes

Footnote 1:Cosmic Venture Corporation was a publicly held corporation at that time and both Claimants DeLaus were majority shareholders; Carmine and Mauro Petrella also were shareholders who leased the property and operated Carmine's, a family restaurant, at the time.

Footnote 2:It was stipulated by the parties that the subject's assessed valuation at the time of taking was $593,000.00.

Footnote 3:I decline the State's suggestion that, if compensating for condemnation blight, the date of valuation should be the date of the public announcement on June 14, 1999. As noted above, the newspaper article on October 1, 1998 memorialized in print what was common knowledge in the environs of the subject property.