Opinion
2003/115590.
Decided February 16, 2007.
Michael Rikon, Esq., Goldstein, Goldstein Rikon Gottlieb, P.C., New York, NY, Attorney for Claimant.
Nixon Peabody LLP, Key Towers at Fountain Plaza, Buffalo, New York, Attorney for Condemnor.
This is a bifurcated condemnation proceeding concerning the land, building and improvements formerly known as the Falls Street Faire, located at Old Falls Street, Niagara Falls, New York (the "Subject Property"). Title to the Subject Property vested in USA Niagara Development Corporation ("Condemnor") on July 22, 2003 (the "Vesting Date"). The claim for compensation for the land and building portion of the Subject Property (the "Building") was previously tried before the Hon. Vincent E. Doyle (May 10-13, 2005), and an award was made on that sole issue (the "Fee Award"). Justice Doyle further ordered a hearing on the "more limited issue of whether or not the [373 items which Settco, LLC ("Claimant") claimed as trade fixtures (the "Items")] qualify as compensable trade fixtures" (January 6, 2006 Order and Judgment) (the "Trade Fixture Claim"). Pursuant to a further order of the Supreme Court (Hon. Gerald J. Whalen), entered May 1, 2006, the January 6, 2006 Order and Judgment was modified, and the scope of the hearing was expanded to include the valuation those items (if any) found to be compensable trade fixtures. The Court made the required viewing of the Subject Property (which was altered significantly from the Vesting Date), and conducted an evidentiary hearing on the Trade Fixture Claim (on various days) between August 23, 2006 and October 5, 2006.
Following the hearing (and at the request of the Court), the parties submitted proposed findings of fact and conclusions of law.
FACTS RELEVANT TO THE DECISION
In the event the Court were to determine that the Items constitute compensable trade fixtures as of the Vesting Date, the parties stipulated to their reproduction costs, except for Items 142, 227, 230, 250, 264, 314, 350 and 360 (Court Exhibit 6). However, the parties did not stipulate to any applicable depreciation or increments.
It is undisputed that the Falls Street Faire was designed to be an indoor entertainment center with amusement rides, festival shopping and restaurants a theme park atmosphere. The Falls Street Fair opened for business on July 1, 1991, with approximately 50% of the interior "shops" (e.g., fudge shop, ice cream shop, etc.) leased and in operation, together with amusement rides.
As a result of a dispute between the City of Niagara Falls and (then) operators of the Falls Street Faire (Claimant's predecessor in title), the Falls Street Faire closed on January 6, 1992 (approximately six (6) months after its grand opening, and approximately eleven and one-half (11.5) years prior to the Vesting Date).
As of the Vesting Date, the Building consisted of one story, with a second floor mezzanine area. It measured 113,500 (total) square feet, consisting of 106,500 square feet on the first floor, and 7,000 square feet on the mezzanine area (Court Exhibit 1). Claimant acquired title to the Subject Property on or about October 18, 2001, but never resumed the business operations of the Falls Street Faire, or otherwise conducted any business at the Subject Property.
During the Fee Award trial, Claimant's appraiser, Daniel Sciannameo ("Sciannameo") appraised the Building and concluded that it had a highest and best use (as improved) for an amusement/entertainment or retail building (including a casino). (Court Exhibit 4a, p. 27).
Mr. Sciannameo valued the Building by comparing it to eleven (11) sales of similar retail and recreational buildings, all of which were completed commercial structures having a similar use to the highest and best use of the Building. (Court Exhibit 4a, p. 29-54).
By Decision and Order dated September 26, 2005, Justice Doyle concluded that the Building had a highest and best use for commercial development and that Claimant's sales were more comparable to the Building than were Condemnor's sales. (Court Exhibit 1).
Justice Doyle determined that the Building had a fair market value of $5,107,500.00, or $45 per square foot of building area as of the Vesting Date. (Court Exhibit 1). The Appellate Division, Fourth Department affirmed that award, confirming that Claimant's sales were more comparable to the Building than were Condemnor's appraisor's sales. (Court Exhibit 5). However, there was no determination that the Building was a "specialty" property.
In support of the Trade Fixture Claim, Claimant filed an appraisal of the Items prepared by Mr. Anthony Rusciano ("Rusciano"), dated February 20, 2004 (the "Rusciano Appraisal") (Claimant's Exhibit 2). Rusciano testified for Claimant at trial as a valuation expert with respect to the Trade Fixture Claim.
Mr. Charles Land ("Land") appraised the Items on behalf of Condemnor and found no compensable trade fixtures at the Subject Property because none of the Items were used in any trade or business on the Vesting Date.
Land also prepared and filed an appraisal of the Items, dated October 7, 2004 (Condemnor's Exhibit NNN), and an amended appraisal, dated July 11, 2006 (Condemnor's Exhibit OOO) (collectively, the "Land Appraisal"). The Land Appraisal valued the Items in the event the Court found any of the Items to be trade fixtures. Land also testified on behalf of Condemnor at trial as a valuation expert.
Mr. John Bartolomei ("Bartolomei"), who participated in the construction of the Subject Property, testified as a fact witness for Claimant regarding the development of the Falls Street Faire, its opening and eventual closing in January 1992.
Mr. Michael Mistriner ("Mistriner"), an Architect for the redevelopment of the Falls Street Faire after the Vesting Date, testified as a fact witness for Condemnor regarding the physical conditions he observed at the Subject Property (including, but not limited to various of the Items) on, and prior to the Vesting Date.
On September 5, 2006, the Court viewed the Subject Property with counsel for the parties, including the mezzanine area (EDPL § 510). The Court also viewed the exterior of the former Falls Street Station Building ("Falls Street Station"), which is located just north of the Subject Property, and which was built at approximately the same time as the Falls Street Faire, having a similar exterior appearance.
Relevant here, it is undisputed that from January 1992 through the Vesting Date (approximately eleven and one-half (11.5) years), the Items were not used in any trade or business by anyone, including Claimant (Transcript of proceedings ("Tr."), Volume 1, at pp. 128-129).It is further undisputed that a number of the Items were never used at any time and/or were never completed (Tr., Volume 1, p. 1-7, 138).
Equally significant, Claimant did not offer any proof that the Items would lose substantial value if they were removed from the Subject Property, or that removal would result in material damage to the Building or to the Items.
ANALYSIS AND DETERMINATION
It has been long been the law in this State that a Condemnor must pay the value of what it takes (see, e.g., Matter of City of New York [Allen St.], 256 NY 236, 242, 245, 249, [1931]; Matter of City of New York [Glantz], 55 NY2d 345, 351 (quoting Matter of City of New York [Allen St.], supra at 243)).
Indeed, the constitutional requirement of just compensation (U.S. Constitution, 5th Amendment; New York Constitution Art. I, § 7, subd. [a]) requires that the property owner be indemnified so that he may be put in the same relative position, insofar as this is possible, as if the taking had not occurred (see, e.g., Banner Milling Co. V. State of New York, 240 NY 533).
An appropriation of land therefore, unless qualified when made, is an appropriation of all that is annexed to the land, whether classified as "buildings" or "fixtures", and the value of the fixtures must be included in determinating the total value of the property so appropriated ( Marraro v. State of New York, 12 NY2d 285, 292; Jackson v. State of New York, 213 NY 34). Personalty, on the other hand, although used in conjunction with realty, is not compensable ( Madfes v. Beverly Development Corp., 251 N.Y.12 [1929]; Stahl v. Norwich, 204 App. Div. 552; see, also, Marraro v. State of New York, 12 NY2d 285, 292), nor is personalty which has lost its identity by becoming a structural part of a building ( Marraro v. State of New York, 12 NY2d 285, 292, citing Matter of City of New York [Delancey St.], 120 App.Div. 700; See, also, Great A P Tea Co. v. State of New York, 22 NY2d 75).
The law of fixtures in condemnation proceedings "was evolved by the judiciary in order to ameliorate the harsh result to those who substantially improved property but who had less than a fee interest." (Rose v. State of New York, 24 NY2d 80, 85). "Thus, at the time of the taking, an owner of . . . trade fixtures installed on the property . . . is entitled to compensation for the value of those fixtures . . . regardless of whether or not the owner of the fixtures is also the owner of the fee" ( Matter of the City of New York [College Point Industrial Park], 55 NY2d 353, 361). "The nature of the fixture and the mode of its annexation may be the decisive factor in some cases; not in all. Judicial definitions . . . must often be limited to the problem presented in the particular case which called for formulation of the definition" ( Matter of City of New York [Allen St.], 256 NY 236).
Cognizant of the realities of business practice and in deference to the obligation to insure that compensation be just (i.e., in an effort to do equity), the New York Courts have defined certain improvements as "fixtures":
. . . Not only is machinery deemed a fixture "where it is installed in such a manner that its removal will result in material injury to it or the realty, or where the building in which it is placed was specifically designed to house it, or where there is other evidence that its installation was of a permanent nature (citations omitted), but also those improvements which are used for business purposes and which would lose substantial value if removed.( Rose v. State of New York, 24 NY2d 80 (1969) (citations omitted) (emphasis added).
Thus, four (4) groups of "improvements" qualify as fixtures. None of the Items constitute "machinery". The determination here turns on whether the Items constitute "those improvements which are used for business purposes, and which would lose substantial value if removed" ( Id.; see also, Matter of City of New York [339 Grand St. Corp.], 10 AD2d 498, 500).
The issue is properly determined by reference to the time of the taking ( Wolfe v. State of New York, 22 NY2d 292; Kahlen v. State of New York, 223 NY 383; Matter of Board of Water Supply of NY, 277 NY 452). Just compensation, however, "is properly measured" by assessing the actual loss to the owner ( Rose v. State of New York, 24 NY2d 87 (citing St. Agnes Cemetery v. State of New York, 3 NY2d 37, 43)), and a condemnor is not required to place a claimant in a better position than he was prior to the taking; a claimant is only to be placed in the same position as he was prior to the taking, "not in a better financial or operating position because of the taking. . . ." ( Rose, 24 NY2d 80, 88) (emphasis added). "[It] is the duty of the State . . . to see that [compensation] is just, not merely to the individual whose property is taken, but to the public which is to pay for it" ( Matter of City of New York [College Point Industrial Park], 55 NY2d 353, 363 (quoting Searl v. School Dist., Lake County, 133 U.S. 553, 562)).
Relevant to the inquiry is whether the improvements were an integral part of a going business (see, e.g., City of Buffalo v. J.W. Clement Co., Inc., 34 AD2d 24; Rose v. State of New York, 24 NY2d 80, 86; Matter of City of New York [Allen St.], 256 NY 236; Matter of City of New York [Lincoln SQ. Slum Clearance], 15 AD2d 153, 175).
Indeed, in the bevy of cases cited by the parties in their post-trial submissions, the "improvements" at issue were "in regular use" as of the time of the taking (see, e.g., Matter of City of New York [41st Avenue], Index No. 16073/79 (September 24, 1986)), or the owners or tenants were conducting a business on the premises as of the date of the taking (see, e.g., Matter of the City of New York [Brooklyn Bridge Southwest Urban Renewal], 51 Misc 2d 1008; Matter of the City of New York [Seward Park Slum Clearance], 10 AD2d 498; Fulton Street, 72 Misc 2d 171 at 175; Matter of the City of New York [ Superior Reed Rettan Furniture Co.], Index No. 16073/79 (September 24, 1986), aff'd, 160 AD2d 705 (2nd Dept. 1990), at p. 25; Matter of the Application of the City of New York [East River Drive], 159 Misc. 741, 751 (trade fixtures were . . . "used in the business carried on by the Claimant upon the Premises"); Matter of New York City School Construction Authority [Alawie], Index No. 16404/93 (August 12, 1997) ("Alawie was engaged in business at the time of the taking. . . . This is sufficient to meet the criteria in Rose that the machines be used for business purposes"); Matter of the Village of Port Chester [Megamat Laundromat; Inc.], Index No. 6448/00 (October 17, 2005) (" . . . the business had been fully operational, 24 hours a day seven (7) days a week, for about two and one-half (2 ½) years when title vested in the condemnor"); and Matter of the Village of Port Chester [Greater Estate Services of American, Inc.], Index No. 6448/00 (March 9, 2006) ("on the title vesting date, claimant operated [a business]").
Furthermore, the Court's own research has revealed no case from this, or any other jurisdiction that would allow for recovery for items not used in any trade or business as of the time of the taking.
There was no trade or business conducted at the Subject Property for over a decade prior to the Vesting Date, and Claimant never engaged in any trade or business at the Subject Property. The operation of only a portion of the Subject Premises over a decade earlier by another entity (not Claimant) fails to meet the standard for designating any of the Items as trade fixtures.
Even during the original owner's brief six-month stint, the Subject Property was only partially occupied (Tr, Volume I, p. 37), and over half the Building was never completed or used (Tr, Volume I, p. 37, Volume V, p. 15-16).
Once the Falls Street Faire closed for business in January, 1992, the Items appeared abandoned until Condemnor acquired the Subject Property in July 2003 — eleven years later (Tr. Volume I, p. 128-129).
Equally important, Claimant failed to show that any of the Items would lose substantial value upon removal from the Subject Property, or that removal of the Items would result in material damage to the Building or to the Items (see, e.g., City of Buffalo v. Michael, 16 NY2d 88; Marraro v. State, 12 NY2d 285; Matter of City of New York [Seward Park Slum Clearance], 10 AD2d 498; and Whitehall Corners, Inc. V. State of NY, 210 AD2d 398).
Based upon the foregoing rules of law and after carefully considering the proof, the Trade Fixture Claim is hereby denied. Claimant is not entitled to compensation for the Items.
This decision shall constitute the Order and Judgment of this Court, and shall be filed as such.