Petitioner's order to show cause for distribution of funds through a special proceeding.
|Claimant(s):||SPJ DISTRIBUTORS, INC.|
|Claimant short name:||SPJ|
|Footnote (claimant name) :|
|Defendant(s):||THE STATE OF NEW YORK|
|Footnote (defendant name) :|
|Judge:||GINA M. LOPEZ-SUMMA|
|Claimant's attorney:||Goldstein, Rikon & Rikon, P.C.
By: Michael Rikon, Esq.
|Defendant's attorney:||Hon. Letitia James, Attorney General
By: Rosalinde Casalini and Christopher Gatto, Assistant Attorneys General
Seyfarth Shaw LLP
By: Gershon Akerman and Michael E. Jusczyk, Esqs.
|Third-party defendant's attorney:|
|Signature date:||May 20, 2020|
|See also (multicaptioned case)|
The following papers were read and considered on this Order To Show Cause: Petitioner's Order To Show Cause filed October 25, 2019; Petitioner's Verified Petition with Annexed Exhibits A-H as well as annexed Affidavits of Service; Petitioner's Affirmation in Support with annexed Exhibits A-K; Respondent's Affirmation in Opposition; Respondents' Affidavit with annexed Exhibits 1-17 filed November 8, 2019; 7-Eleven, Inc., Affirmation in Response to Order to Show Cause with annexed Exhibits 1-6; and Petitioner's Affirmation in Reply dated December 5, 2019 with annexed Exhibits A-C.
Petitioner, SPJ Distributors, Inc, seeks an order for the distribution of the sum deposited (the advance payment) into the Eminent Domain Account under EDPL § 304 (E) pursuant to Court of Claims Act (CCA) § 23, for the partial appropriation and temporary easement of portions of petitioner's property and improvements for project Coram-Patchogue Project, Town of Brookhaven, County of Suffolk, State of New York. The subject property address is 2810 Route 122, Medford, New York 11763 and more specifically described by the official appropriation maps on Map 715 FEE, Parcel 716 and Map 779 TE, Parcels 782, 783 and 784.
On June 5, 2018, the State of New York appropriated petitioner's property in connection with a construction project. Prior to the taking, on May 17, 2018, petitioner was offered the sum of $280,100.00 for just compensation for the property taken. Respondent provided petitioner with an Assignment of Claim and Release (ACR) for 7-Eleven, Inc., Sun Life Assurance Company of America, as well as Frank and Jeanette Grippi. This letter also informed petitioner that before the money could be released, 3 copies of the agreement must be received and all closing documents must be completed and returned. On June 20, 2018, respondent advised counsel by letter that it deposited an advance payment into an Eminent Domain Account pursuant to EDPL § 304. This deposit was made on June 5, 2018. The State of New York did not provide any further rationale for depositing the advance payment including interest into an Eminent Domain account. On July 17, 2018, petitioner accepted the offer of just compensation as an advance payment and requested information as to any other information that was needed. Petitioner submitted executed agreements on September 28, 2018 and requested additional copies of the required assignments of claim. Respondent supplied the copies on November 19, 2018. On December 6, 2018 petitioner sent respondent vouchers and the affidavit of title. On May 23, 2019, petitioner sent Sun Life Assurance Company's ACR to respondent. Petitioner never sent respondent ACR's for 7-Eleven and the Grippis.
Petitioner commenced this distribution proceeding pursuant to EDPL § 304 (E) (1) and CCA § 23. Respondent identified several parties with a potential interest in the subject property as follows: Petitioner (assignee of claim); 7-Eleven, Inc. (corporate); Sun Life Assurance Company of America (mortgagor); Frank and Jeanette Grippi (franchisee) and the Attorney General's Office (a necessary party pursuant to EDPL § 304 [E] and Court of Claims Act § 23). The parties were all served. 7-Eleven responded to the Order to Show Cause and appeared at the hearing. There was no appearance by Sun Life Assurance Company or Frank and Jeanette Grippi. SPJ withdrew its application for sanctions against 7-Eleven.
EDPL 304 (E) (1) sets forth the procedure for the payment of advance appropriation funds into an interest bearing account when the Attorney General determines that there is a conflict of title or a conflict otherwise arises so that he is unable to certify the persons legally entitled to the amount payable. The funds may then be distributed "as ordered by the court of claims on application of any person claiming an interest in the amount deposited." After the funds are deposited, the statute requires that the Attorney General "notify all parties claiming an interest in the fund that the amount payable thereunder has been deposited and is subject to an application by an interested person or persons to a distribution proceeding." The statute incorporates the procedure set forth in Court of Claims Act § 23 for the distribution of deposited Court of Claims awards. Section 23 of the Court of Claims Act requires a special proceeding on notice to all interested persons to show cause why a final order of distribution should not be made.
Petitioner, SPJ Distribution, contends that the State's decision to deposit the advance payment was contrary to law and statutory interest should be running from the date of vesting. In support, petitioner sets forth that its lease with 7-Eleven specifically precludes the tenant from making any claims which shall serve to reduce the landlord's compensation for the fee value of the land and buildings. Petitioner also contends it is improper to force petitioner to provide releases for anything other than liens on the property because payment of the advance payment cannot be conditioned on the waiver of any other right pursuant to EDPL § 304 (A) (4).
Additionally, petitioner set forth that 7-Eleven has demanded $52,500 in exchange for signing the ACR. Lastly, petitioner contends that there is no conflict of title because the tenant can file a separate claim for the value of its trade fixtures notwithstanding any agreement that a fee owner signs for its advance payment.
Respondent, the State of New York, argues that contrary to the allegations of the petition, it complied with the EDPL when the money was deposited into an eminent domain account because the State determined it was necessary to proceed without delay to let a construction contract and to comply with federal and state regulations. The money was placed on deposit pursuant to EDPL § 304 (E) (2). In support of its position, the State offers the affidavit of Diane Kinneary, a Real Estate Officer 1 at the New York State Department of Transportation (DOT) as well as a May 7, 2018 letter from the Federal Highway Administration (FHA) to the DOT regarding the subject roadway project.
The May 7, 2018 letter states that the FHA concurred with the DOT's request for a Right of Way Certification Waiver and has approved the contract to proceed through contract advertisement, as well as award, with certain conditions. The letter continues, in part, that the State still had to acquire and would, with due diligence, attempt to make certain acquisitions prior to August 10, 2018, the estimated contract award date. Petitioner is listed among other property owners as a property that would not be available until June 7, 2018. Nevertheless, the letter stated that the project had already been advertised.
Ms. Kinneary set forth that the DOT determined that it was necessary for the letting of the contract and in the best interest of the State to make a deposit in an eminent domain account prior to June 7, 2018. In support, she stated that the letting of the contract was scheduled for June 7, 2018. The letting date is typically the day after all construction bids must be submitted and the date that DOT opens the bids. Ms. Kinneary affirmed that the State believed that the FHA was more likely to grant the request to advertise if the DOT could complete a majority of the acquisitions prior to June 7, 2018. Ms. Kinneary stated that because the project had federal funds in some phases, the acquisition phase had to comply with all federal rules including 23 CFR § 630.205 which requires the State to develop right of way availability statements and 23 CFR § 635.309 which requires the State to certify the safety of any relocated individuals and to certify that either it has legal and physical possession of the property or the rights to occupy and physical possession or replacement housing is made available before it may begin to advertise for a project.
Ms. Kinneary stated that in order to comply with 23 CFR § 635.09, DOT must have physical occupancy of the properties. She asserted that, in order to have physical occupancy, 49 CFR § 24.102 (j) requires the offer of just compensation be paid or deposited before the DOT takes possession of a property. She concluded that in order for the DOT to have possession, the agreed upon price must be paid to the owner. She stated that an EDPL § 304 (E) (2) deposit complies with the federal requirements of legal and physical possession.
Ms. Kinneary also stated that the DOT believed that failure to comply with the estimated dates in which the FHA based its conditional approval could result in readjustment of construction schedules, delay completion of the project and increase costs due to construction delays. However, this argument is speculative as the money was deposited into an eminent domain account prior to even accepting any bids for the construction.
Respondent alternatively contends that if the deposit pursuant to EDPL §304 (E) (2) was not proper, the request for interest should still be denied because petitioner failed to provide the necessary documents to the DOT. In support, it sets forth that the offer of acquisition was mailed on May 17, 2018 and thus pursuant to EDPL § 304 (C), petitioner had until August 15, 2018 to provide all the necessary paperwork to the DOT, which included the assignment of claims for Sun Life, 7-Eleven and the Grippis. On July 17, 2018, counsel for petitioner accepted the offer of settlement as an advance payment in a letter to respondent. Respondent received the executed agreement on October 4, 2018 and in that letter counsel requested that respondent re-send the assignment of claims which were forwarded on November 19, 2018. Only an assignment of claim and release executed by Sun Life Assurance Company was received on May 28, 2019.
Respondent contends that requiring ACR's does not condition payment on a waiver of any right. The DOT requires ACR's to ensure that it is making the advance payment to the proper party. In addition, respondent argues that although a tenant has the right to bring a trade fixtures claim, that right does not eliminate the requirement to deposit the money in a special eminent domain account. Respondent further contends that the failure to bring all claims prior to the distribution proceeding could potentially expose it to double payments.
Lastly, respondent argues that the petitioner has not made out a prima facie showing of entitlement to the funds on deposit as the petition does not set forth why the petitioner is entitled to the funds pursuant to Court of Claims Act § 23.
7-Eleven who was served with the Order to Show Cause responded through an attorney's affirmation. 7-Eleven argues that its ground lease with SPJ Distributors establishes that it is entitled to $52,500 from the advance payment. In support of this argument, 7-Eleven sets forth that the ground lease expressly provides that along with the premises, it is leasing all rights and appurtenances. 7-Eleven did not provide the entire ground lease but instead attached only certain sections of the lease to its papers. Section 18 of the lease which is entitled Eminent Domain expressly grants to 7-Eleven the right to make a claim for an award in condemnation, or participate in an award, loss or damage to fixtures and improvements made to the premises, or any claim that 7-Eleven is permitted or elects to make or to receive notices or participate in the condemnation proceedings. Section 18 also refers to Article 60 which is a rider to the lease and states in pertinent part that 7-Eleven will not make any claim which shall serve to reduce SPJ's compensation for the fee value of the land and building.
Thus, 7-Eleven argues it is entitled to compensation for funds other than for the fee value of the land and building associated with a condemnation.
7 -Eleven refers to the DOT's Explanation of Acquisition which allocated $226,000 in direct damages to the fee; $15,700 in temporary easement damages and $36,800 in damages to the improvements. 7-Eleven contends that it is the party harmed by the temporary easement and damages to the improvements. The Explanation of Acquisition, lists the improvements as grass/mulch; 6 large shrubs; 13 medium shrubs; 14 small shrubs; concrete curbing; asphalt; 1 tree and 1 double sided illuminated sign on metal pole. The State offered the double sided illuminated sign on the metal pole for sale at its salvage value of $1,000.
Petitioner in Reply contends that 7-Eleven has never submitted a claim for compensation and is thus precluded from taking part in the advance payment. SPJ points out that 7-Eleven has not yet filed a claim and it is not entitled to temporary easement damages as those damages are for a temporary taking of the fee.
With respect to the improvements listed in the Explanation of Acquisition, petitioner contends that the grass, plants, curbing, asphalt and sidewalk are improvements that are merged with the fee and are therefore not compensable. Petitioner states that the illuminated sign is a trade fixture and that the failure of the DOT to separately itemize this item has created uncertainty as to its appraised value.
Petitioner also contends that respondent's deposit into an eminent domain account is an unconstitutional deprivation and is part of an ongoing pattern in which respondent uses federal projects as a pretext to deposit eminent domain funds. Petitioner alleges that the property owner is given no advance notice of the deposit or reason for the deposit. Respondent also refuses to identify the conflict of title information in its title report so it has no justification for its need for assignments of claim and releases.
Petitioner also alleges that after the unexplained deposit, the property owner is given no opportunity to cure whatever issue, if any, that led to the deposit. Petitioner correctly points out that it had to initiate a distribution proceeding before it knew the reason for the deposit.
Petitioner further contends that respondent failed to establish that it was necessary to deposit the advance payment in order to proceed with the letting of the contract and to comply with federal laws, rules and regulations. Petitioner refers to the affidavit of Diane Kinneary and cites the statement that the DOT believed the federal agency was more likely to grant the State's request to advertise if it completed the majority of the acquisitions prior to the let date of June 7, 2018 (¶18). Petitioner also contends that 24 CFR § 635.309 allows for the State to advertise prior to full acquisition. Petitioner contends that by its own admission, the State deposited the advance payment under the pretext that it might advertise earlier. Lastly, petitioner contends that respondent did not point to any federal regulations which the State was in danger of breaching if it did not deposit the money in an eminent domain account.
Petitioner also argues that respondent has not provided any justification as to why an ACR was necessary from 7-Eleven, its tenant, in order to effect a valid transfer of title nor has it justified what entities may have claim to title of the subject property.
EDPL § 304 (E) (2) provides, inter alia, that:
"notwithstanding any other provision of law to the contrary, if an acquisition is being made for a federally-aided project and the condemnor determines it necessary to deposit the amount of the highest appraised value without delay in order to proceed with the letting of a construction contract and to comply with federal laws, rules and regulations, the condemnor may request the comptroller to make the deposit herein provided at any time subsequent to the vesting of title in the State of New York and provided an offer of payment in full or as an advance payment has been made to the owner. The written approval of the attorney general shall not be necessary under this paragraph, but the comptroller shall, after making the aforesaid deposit, transmit to the attorney general a notice in writing approximately identifying the proceeding or project, the map and parcel number or numbers and the name of the depository bank, together with the date and amount of the deposit.
After the deposit has been made as herein provided, the attorney general shall notify all parties having or claiming to have an interest in the fund that the amount payable thereunder has been deposited and is subject to an application by an interested person or persons to a distribution proceeding . . . No judgment of distribution shall be made unless the court shall first obtain personal jurisdiction over all persons certified by the attorney general as having or claiming to have an interest in the fund."
Respondent failed to establish how the deposit of the advance payment without delay into an eminent domain account was necessary to proceed with the letting of the construction contract. The evidence established that respondent only believed it would help with its request to advertise. Moreover, with regard to cited federal regulations, as Judge Weinstein pointed out in Freiman Coated Fabric Corp v State of New York UID No. 2014-049-045 (Ct Cl, Weinstein J., August 20, 2014), "the connection between the cited federal regulations and the deposit is, at best opaque." The State takes the position that because 23 CFR § 635.309 requires it to have legal and physical possession of the property as defined by 49 CFR §102 (j) before advertising can begin, it must pay the money into an eminent domain account. However, possession of the property was obtained when the property was appropriated and title vested in the State of New York on June 5, 2018. As of that date, the State has the right of entry onto the property and the right to take possession for the proposed public project (EDPL § 402 [A] ). Thus, respondent had legal and physical possession of the property on June 5, 2018. A mere recitation of federal regulations, combined with speculation, is insufficient to establish that a deposit into an eminent domain account is necessary to proceed with the letting of a construction contract and to comply with federal laws, rules and regulations. It is noteworthy that the May 7, 2018 letter from the FHA to the DOT states that the contract has already been advertised even though the subject property was not yet acquired by the State.
Thus, the Court finds that, given the facts and circumstances in this matter, the deposit pursuant to EDPL § 304 (E) (2) was improper (Matter of Sagres 9, LLC v State of New York, 164 AD3d 903 [2d Dept 2018]).
Petitioner also argues that it is entitled to 9% interest from the date of vesting because respondent did not determine that there was a conflict of title or that a conflict arose so that it was unable to certify who was legally entitled to the advance payment and did not wait the requisite 90 days pursuant to EDPL 304 (C) before depositing the money into an eminent domain account.
EDPL § 304 (C) provides that:
"in the event a condemnee shall reject the offer or the offer shall be deemed rejected pursuant to subdivision (B) or a condemnee unreasonably fails to provide the condemnor with all papers reasonably necessary to effect a valid transfer of title as acquired, within ninety days of receipt, the condemnor's obligation to pay interest on the amount of the offer shall be suspended until such time as the condemnee accepts the offer as payment in full, or as an advance payment, or provides the necessary title papers as the case may be."
The evidence established that the offer of compensation was accepted as an advance payment on July 17, 2018, within the 90 days of the offer, but that the paperwork deemed necessary by respondent was not received within that 90 day period. The executed agreement for advance payment was signed on September 26, 2018 and received by respondent on October 4, 2018. Only one of the three ACR's required by respondent was executed and was not returned to respondent until May 28, 2019. There was no further communication with respondent regarding petitioner's inability to get the ACR signed and executed by 7-Eleven.
7-Eleven retained counsel and by letter dated May 3, 2019, it indicated that it was not willing to sign the ACR unless a monetary settlement could be reached. (OTSC Exhibit H). Petitioner has not provided any other evidence that failure to provide the ACR's was reasonable.
Additionally, contrary to the petitioner's contention, the respondent did not impermissibly seek to condition the advance payments upon petitioner's waiver of any other right in violation of EDPL 304 (A) (4) (Mazur Bros. v State, 59 AD3d 399, 400 [2d Dept 2009]).
Thus, a deposit into an eminent domain account and suspension of the statutory interest was warranted when petitioner failed to provide respondent with all the necessary closing papers as well as there being conflicting claims to the amount payable (Matter of Sagres 9, LLC v State of New York, 164 AD3d 903 [2d Dept 2018]; Matter of Mazur Bros. Realty, LLC v State of New York, 117 AD3d 949 [2d Dept 2014]; see EDPL 304 [C] and [E] ). Consequently, the State could properly deposit the funds in the eminent domain account on August 15, 2018(1) , 90 days after petitioner received the offer.
Pursuant to EDPL 304 (E) (1), any funds deposited into an eminent domain account are subject to an application by an interested person through a distribution hearing (Mazur Bros. Realty, LLC v State of New York, 97 AD3d 826 [2d Dept 2012]; Mazur Bros. Inc. v State of New York, 59 AD3d 399 [2d Dept 2009]).
Petitioner sought this distribution hearing after it received and rejected 7-Eleven's demand for $52,500 in exchange for signing the ACR. 7-Eleven calculated its demand by totaling the appraised damages for the temporary easement, $15,700, and the improvements $35,800.
In the present proceeding, 7-Eleven established that it has a ground lease with petitioner which expressly grants to it the right to make a claim or participate in an award in condemnation for loss or damage to fixtures and improvements made to the premises or any claim that 7-Eleven is permitted or elects to make. 7-Eleven is not permitted to make any claim which shall serve to reduce petitioner's compensation for the fee value of the land and building.
The Court of Claims must determine the tenant's rights in connection with the appropriation of the property before distributing any money to the owner (id.). 7-Eleven contends that based upon the lease provision it is entitled to $52,500 of the advance payment offer.
The taking of a temporary easement entitles the landowner to recover the loss in rental value of the land encompassed within the temporary easement during the term of the appropriation plus further damage, if any, caused to the property (Kadlec v State of New York, 264 AD2d 420 [2d Dept 1999]). Those further damages, or consequential damages need not be paid for the State's taking of a temporary easement when there is no actual interference with the property owner's use of his property (McCurdy v State, 10 NY3d 234, 240, ). Thus, consequential damages for any loss suffered as a result of the temporary easement need to be actual and not theoretical.
The evidence established that it would be pure speculation to find that 7-Eleven is the party harmed by the temporary easement and thus entitled to damages for the temporary easement. As such, 7-Eleven has failed to establish that it is entitled to the $15,200 in temporary easement damages.
It is well settled that a tenant is entitled to be compensated for trade fixtures annexed to real property that has been condemned by the State in its exercise of eminent domain powers (Whitehall Corners v State of New York, 210 AD2d 398 [2d Dept 1994]). However, items installed by a tenant which have become an integral part of the realty are not ordinarily compensable (Mazur Bros. v State of New York 97 AD3d 826 [2d Dept 2012]). Neither are those items where the lease expressly provides that improvements are to become part of the property of the landlord upon installation (Interlake Serv. St. v State of New York, 249 AD2d 275 [2d Dept 1998]).
The lease, as provided by petitioner, in ¶ 11 sets forth that all fixtures, except for the HVAC unit and walk-in coolers, remain the property of the tenant. As petitioner pointed out, the Explanation of Acquisition listed all of the improvements and trade fixtures which include, a sign, landscaping, curbing and asphalt and valued them in the aggregate. The evidence established that 7-Eleven owned the sign. Petitioner contends that the landscaping, curbing and concrete are improvements that are merged with the fee and are not compensable to 7-Eleven as a leaseholder. 7-Eleven contends that all improvement costs were born by the tenant and it is entitled to compensation for the improvements in an eminent domain proceeding through the terms of ¶ 18 of its lease with petitioner. However, no other evidence was provided to the Court with respect to the improvements made by 7-Eleven, if any, to the property that were part of the acquisition by the State.
Based upon the evidence submitted, the Court is unable to ascertain the rights of the parties with respect to the "improvements." Petitioner argues that it should not be penalized based upon the ambiguity of the respondent's breakdown of damages which required this proceeding. However, this alone does not entitle petitioner to the entire value of the improvements as valued by the DOT in its Explanation of Acquisition.
Although, 7-Eleven established it has the right to make a claim for damages, its papers, which do not even include a complete copy of the lease, do not establish its entitlement to $52,500 of the advance payment funds.
Petitioner has established its superior interest to the advance payment funds with respect to the fee taking damages valued at $227,600 and the temporary easement damages valued at $15,700. However, petitioner has failed to establish such an interest in the fixtures and/or improvements damages valued at $36,800.
Therefore, the Court, having obtained jurisdiction, hereby grants the petition in part and the Comptroller is directed to pay petitioner the balance on deposit in eminent domain account W140649, less $36,800, and hold the remaining balance of $36,800 on deposit in the eminent domain account, no sooner than thirty (30) days after the service of this Decision and Order, with notice of entry, upon all interested parties stated in the order to show cause. The Court also holds that interest on the deposit shall be paid at a rate of 9% from the date of vesting until August 15, 2018(2) , along with any ordinary interest on the deposit amassed thereafter. The petitioner shall file the affidavits of service of the Decision and Order with notice of entry with the Clerk of this Court.
May 20, 2020
Hauppauge, New York
GINA M. LOPEZ-SUMMA
Judge of the Court of Claims
1. Respondent in its papers stated that "the petitioner unreasonably failed to provide the required ACR's and therefore suspension of interest is warranted as of February 23, 2019." (¶25) In a footnote, respondent explained it was giving petitioner every benefit by calculating the date to suspend interest from November 19, 2018, the date when the DOT sent petitioner additional documents, rather than the earlier date of August 15, 2018, 90 days after petitioner received the offer. However, respondent withdrew this offer on the record at the special proceeding held in this matter.
2. 90 days from the date of receipt of the State's advance payment offer.