New York’s statute allowing reimbursement for legal and appraisal fees in eminent domain proceedings is Section 701 of the Eminent Domain Procedure Law. The statute provides as follows:
In instances where the order or award is substantially in excess of the amount of the condemnor’s proof and where deemed necessary by the court for the condemnee to achieve just and adequate compensation, the court, upon application notice, and opportunity for hearing, may in its discretion, award to the condemnee an additional amount, separately computed and stated, for actual and necessary costs, disbursements and expenses, including reasonable attorney, appraiser and engineer fees actually incurred by such condemnee. The application shall include affidavits of the condemnee and all parties that have incurred expenses on the condemnee’s behalf, setting forth inter alia the amount of the expenses incurred.
The statute has been held to be remedial in nature. Matter of City of New York (Douglaston Little Neck Branch Library), 160 AD2d 696, 697 (2d Dept 1990).
The Court of Appeals explained the reason for EDPL § 701,
In fairness to a private property owner forced to litigate the value of its property when the State comes forward with an unreasonably low offer in effecting a taking of that property, the Legislature enacted section 701 of the Eminent Domain Procedure Law. This section allows the owner to apply for allowances – litigation costs expended to ensure just compensation. General Crushed Stone Co. v State of New York, 93 NY2d 23, 25 (1999).
Citing an earlier Court of Appeals decision, Judge Ciparick noted,
The section assures that ‘a condemnee receives a fair recovery by providing an opportunity for condemnees whose property has been substantially undervalued to recover the costs of litigation establishing the inadequacy of the condemnor’s offer.’ (Hakes v State of New York, 81 NY2d 392, 397). As the statute makes clear, the inadequacy of the condemnor’s offer is shown by comparing it to the actual award valuing the property. 93 NY2d at 26-27.
As the Court of Appeals made clear in General Crushed Stone, it was the Legislature’s clear statutory directive that just and adequate compensation cannot be achieved where the ultimate award is significantly impaired by costs necessary to demonstrate that the condemnor’s offer was substantially lower than it should have been. (See Hakes v State of New York, supra, 81 NY2d at 398; Taylor v State of New York, 200 AD2d 273; Walsh v State of New York, 180 AD2d 290; United States v Bodcaw Co., 440 U.S. 202). Allowances under § 701 merely provide a means of mitigating the financial damage wrought by the condemnor’s low, original offer. 93 NY2d at 27.
EDPL § 701 requires two determinations: first, whether the court’s award is substantially in excess of the amount of the condemnor’s proof; and second, whether the court deems the award to be necessary for the condemnee to achieve just and adequate compensation.
EDPL § 701 provides that an additional allowance may be recovered for legal fees, appraisal and other expert fees, “[i]n instances where the order or award is substantially in excess of the amount of the condemnor’s proof….”
By case law, “condemnor’s proof” has been defined as the amount of the pre-vesting offer.
In Matter of New York City Transit Authority (Superior Reed & Rattan Furniture Co. Inc.), 160 AD2d 705, 709-710 (2d Dept 1990), the Second Department stated,
The legislative history concerning the amendment to EDPL 701 explicitly states that the purpose of the enactment is to “assure that property owners whose properties have been substantially undervalued will not have to bear costly litigation expenses for proving the inadequacy of a condemnor’s offer”, and to ensure that they will not forego their constitutional and statutory right to receive just compensation (see, Governor’s approval mem, 1987 NY Legis Ann, at 263; see also, Long Is. Pine Barrens Water Corp. v State of New York, 144 Misc 2d 665, 669). Thus, the only interpretation which would fulfill the legislative intent of the amendment, and the policy of the EDPL, is that the city’s initial offer, rather than its trial proof, be utilized for comparison purposes.
But Superior Reed had the condemnor arguing that the basis for comparison should be the amount of its appraisal which was an increase from the pre-vesting offer. The Court would not allow this as it was the low pre-vesting offer which required the claimant to go forward with the litigation. We understand and appreciate the rationale for the decision. The problem has been that the formula has been applied without much thought.
The State of New York is fond of filing a lower trial appraisal then the one used for the advance payment. In one case, CMRC, Ltd. v State of New York, 16 AD3d 204 (1st Dept 2005), the First Department affirmed the denial of an additional allowance pursuant to EDPL § 701. The trial court applied the pre-vesting offer of $4,865,000 to the award of $5,854,550 and held that the increase was not enough to merit the recovery. The fact of the matter was that the State’s trial appraisal was $3,600,000, much less than the advance payment. CMRC Corp. v State of New York, 270 AD2d 27, 28 (1st Dept 2000) (Rubin, J., dissenting).
The blind application of the formula rewarded the bad and improper conduct of the State.
As Justice Benjamin N. Cardozo noted, “[t]he system of law-making by judicial decisions which supply the rule for transactions closed before the decision was announced would indeed be intolerable in its hardship and oppression if natural law … did not supply the main rule of judgment to the judge when precedent and custom fail or are displaced.” Benjamin N. Cardozo, The Nature of the Judicial Process 142 (Yale University Press 1965) (1921).
The award after trial when compared to the State’s “proof on trial” was substantial and merited an allowance. In addition, if the condemnor was successful in having the trial court award the amount of its appraisal, there would be a deficiency judgment awarded against the claimant. EDPL § 304(H). Remarkably, if the Court of Claims judge would have learned of the amount of the pre-vesting offer, the Attorney General would have moved for recusal.
The reason for the statute is that a condemnee cannot be made whole when the award received as just compensation must have the expenses of litigation deducted. The legislature adopted EDPL § 701 to assure fair and proper pre-vesting offers. If after trial an award is “substantially” in excess of that offer, or a lower appraisal used at trial, an award pursuant to EDPL § 701 should be made.