Posted On: March 31, 2009

Sale of Municipal Property with a Purchase Money Mortgage is Not an Illegal Gift or Loan

The New York Court of Appeals held today that a municipality may sell municipal real property and take back a purchase money mortgage without violating the State Constitutional prohibition against municipalities making a gift or loan. In Matter of 10 E. Realty LLC v. Incorporated Village of Valley Stream, the court found that: "the Village made no loan of money or property to the purchaser. The fact that the consideration in this sale mentions an interest rate and a term of payment, or that a mortgage was taken as a security interest, does not make this transaction involving a deferred payment plan an unconstitutional loan."

The Village had sold a parcel of municipal property for $275,000 with payment deferred over fifteen years, with interest at 5% and took back a mortgage to secure the payments. The Petitioners challenged the action claiming it violated Article VIII of the State Constitution which provides: ""[n]o county, city, town, village or school district shall give or loan any money or property to or in aid of any individual, or private corporation or association, or private undertaking ..." (NY Const art VIII, § 1)."

The Court disagreed finding that there was no violation of the Constitutional provision. Citing an earlier decision the Court noted:
"In Mandelino v Fribourg, this Court answered the question of "whether a purchase money mortgage is to be regarded in law as a loan" in the negative (23 NY2d 145, 147 [1968]). Although decided in the context of the usury laws, the rationale is equally applicable in this case. "A contract which provides for [payment of interest] ... upon a deferred payment ... constitutes the consideration for the sale ... " (id. at 151) and such a transaction is not the type contemplated by the Gift or Loan clause (see Sun Print & Publ Assn v Mayor of the City of New York, 152 NY 257, 268-269 [1897])."

Posted On: March 30, 2009

Authority of Municipalities to Disclose Verizon’s Quarterly Franchise Reports to Cablevision Pursuant to FOIL

The Appellate Division, Second Department decided two cases last week, Matter of Verizon New York, Inc. v. Devita and Matter of Verizon New York, Inc. v. Mills on the issue of whether quarterly franchise reports submitted to municipalities by Verizon are exempt from disclosure under the Freedom of Information Law (FOIL). The cases basically held that disclosure of the detailed revenue and customer information contained in quarterly reports filed with municipalities fell within the exemption from disclosure provided in (Public Officers Law section 87(2)(d)). However, the court also held that, since FOIL favored disclosure, it is a matter of discretion whether the municipalities actually disclose the information and remitted both matters to the municipal officials to decide, in their discretion, whether to release the information.

In the Devita case, Verizon sought to enjoin both the Village of Laurel Hollow and the Town of Hempstead from releasing the quarterly reports in response to a FOIL request from Cablevision. Due to the procedural history of the two claims the Court remitted the matter to the municipalities for a determination. In the Mills case, which involves the Village of Elmsford, the Village had actually determined to release the information to Cablevision. The court's decision in Mills not only mirrored the determination in the Devita case, also remitting the matter, but it expanded upon the analysis.

In the Mills case the Village sent a letter to Verizon advising it intended to release the information stating the Village ""did not intend to become an arbiter of pending disputes between Verizon and Cablevision" and Verizon sued to block the release.

The court noted Public Officers Law § 87(2)(d) "allows an agency to deny access to records submitted by a commercial enterprise 'which if disclosed would cause substantial injury to the competitive position of the subject enterprise'." It further found that "Verizon met its burden of demonstrating that its franchise reports fell squarely within the statutory exemption to FOIL disclosure under Public Officers Law § 87(2)(d) for records 'which if disclosed would cause substantial injury to the competitive position of the subject enterprise.' Moreover, Verizon offered the required 'particularized and specific' justification for the denial of Cablevision's request'."

But the Court also found that the exemptions should be "narrowly interpreted" and therefore it is a matter of discretion as to whether the information should actually be released. Although the Village had originally decided to release the information, the Court went on to hold that merely being unwilling to be the "arbiter of pending disputes" was not a valid reason for the Village to grant access and remitted the matter so that the Village could issue a reasoned decision demonstrating that it had considered "the facts underlying Cablevision's FOIL request and Verizon's opposition to it."

No doubt there will be further litigation over this issue.

Posted On: March 24, 2009

City's Extension of Credit to Purchase Ferry Service Was Not Illegal

The Appellate Division Fourth Department dismissed a challenge to the City of Rochester using its credit to purchase a ferry service. In Matter of Summers v. City of Rochester, the court dismissed the claim on the grounds of laches but then went on to analyze the City's actions under the N.Y Constitution and Local Finance Law and found its action valid.

When a private ferry service between Rochester and Toronto was a discontinued the City formed a limited liability company, the Rochester Ferry Company LLC (RFC) owned solely by the City, for the purpose of acquiring and operating the ferry. In 2005, the City entered into a guarantee and indemnity agreement (guarantee) with a third party, Export Finance, in order to guarantee the issuance of a mortgage for RFC to purchase the ferry. In 2006, the new Mayor discontinued the service and the City assumed the debt of RFC, dissolved RFC and sold the ferry leaving a debt to Export Finance of 19.4 million dollars.

Plaintiff, who was originally a proponent of the ferry service, then commenced this action seeking to prevent the City from paying the debt on the grounds that to do so would violate Article VIII section 1 of the N.Y. Constitution which prohibits a municipality from loaning "its credit to or in aid of any individual, or public or private corporation or association, or private undertaking." Alternatively, Plaintiff claimed the agreement violated the Constitution Article VIII section 2 and Local Finance Law section 11.00 by contracting indebtedness for longer than the period of probable usefulness and Constitution Article X section 5, because the City did not obtain a special act of the State Legislature before forming RFC.

Initially, the court held that the claims are barred by the doctrine of laches. Noting that the Plaintiff was aware of and was actually a proponent of the City operating the ferry service in January, 2005, the court found that the Plaintiff delayed until August, 2007 to commence the action. The court held that the City established it would be harmed by not carrying out the agreement to pay the loan as its only choice would then be to default in paying the loan, resulting in damage to the City's credit. But after reaching the conclusion that the case should be dismissed, the court took the somewhat unusual step of analyzing the underlying legal issues.

The Court concluded that there was no violation of the Constitution or the Local Finance Law. It found that as "the City was the sole member of RFC, it did not lend its credit to others in violation of that constitutional provision." It further held that the loan was for a period well within the useful life of the ferry. Finally, the Court determined that a special act of the legislature was not required, stating instead that public corporations must be created by special act of the legislature but there is "nothing in the Limited Liability Company Law prohibiting municipalities from creating an LLC...". Thus, it appears the Court has created a loophole in the constitutional requirement that municipalities must obtain authorization from the State Legislature to create a public corporation.

Posted On: March 23, 2009

Court Upholds Finding That Wind Powered Generators are a Utility

In the emerging area of wind power the Appellate Division upheld the decision of a local zoning board that wind powered generators are a utility. In Matter of Wind Power Ethics Group v. Zoning Board of Appeals of the Town of Cape Vincent, the Court found that the interpretation that wind powered generators fit the definition of utility in the local zoning ordinance was a "rational construction... entitled to deference." The local zoning ordinance defines a utility as "telephone dial equipment centers, electrical or gas substations, water treatment or storage facilities, pumping stations and similar facilities." The court concluded the determination that a wind powered generator is a utility "is neither irrational nor unreasonable, and that the determination is supported by substantial evidence."

Posted On: March 22, 2009

Court Voids Denial of Permit Renewal For Failure to Adhere to Administrative Precedent

A determination of the New York City Board of Standards and Appeals (BSA) to deny a permit renewal was reversed by the Appellate Division as arbitrary, capricious and without a rational basis. In Matter of Menachem Realty Inc. v Srinivasan the court found the denial of a permit renewal to complete construction, after a site had been rezoned, was inconsistent with prior determinations of the BSA.

Petitioner had a permit to construct a six story building but upon audit by the Department of Buildings (DOB) a number of objections to the construction were noted and a notice was sent to Petitioner by DOB. Thereafter, the property was rezoned and the DOB revoked the permit for failure to address two of its objections. Petitioner applied for an extension of the permit in order to complete construction. Before the BSA hearing was held, the DOB restored the permit on the grounds that the objections had been cured. However, upon hearing the application of Petitioner the BSA found that the permit was not valid on the effective date of the rezoning and therefore it could not issue a renewal.

The court found the BSA ruling was inconsistent with previous findings and that the lower court was correct in holding "the BSA's determination was arbitrary and capricious because it treated similarly-situated parties in a nonuniform manner." The court went on to note: "the BSA failed to adhere to its own precedent and to properly distinguish its prior determinations in which it had found that permits were valid on essentially the same facts...".

Posted On: March 19, 2009

Court Upholds Denial of Area Variance Due to Self Created Hardship

In a somewhat unusual decision the Appellate Division, in Matter of Tsunis v. Zoning Board of Appeals of Incorporated Village of Poquott upheld the denial of an area variance citing the zoning board's finding of self-created hardship. While self created hardship is one of the statutory criteria a zoning board must use in weighing whether to grant an area variance, Village Law also provides at section 7-712-b (3)(b)(5) that in considering self created hardship such "consideration shall be relevant to the decision of the board of appeals, but shall not necessarily preclude the granting of the area variance."

As a result of the limiting language in Village Law, zoning boards are often reluctant to use self created hardship as a basis for denying an area variance. In this case the court held : "the ZBA's determination that the alleged hardship was self-created is supported by the evidence in the record..." and the "determination was not otherwise illegal, arbitrary, or an abuse of the ZBA's discretion...." Thus, it appears, at least from the decision, that the primary basis for the denial in this case was self created hardship.

Posted On: March 17, 2009

Oral Agreement With Mayor Is Not Binding On Village

In an action to collect additional benefits based upon an oral agreement with the former Mayor of the Village of Malverne the Appellate Division reversed a jury finding that a contract existed. In Garrigan v. Incorporated Village of Malverne the court held : "such contract was insufficient to support the plaintiff's claims since, absent a resolution from the Village Board reducing the oral contract to writing, the Village cannot be bound...."

Another issue in the case was whether other aspects of the claim were barred by the applicable statute of limitations. The court noted the statute "never began to run since the Village Board did not specifically reject plaintiff's November 2001 request...." Thus, the court effectively found that failing to formally reject a claim allows the claim to survive.

Posted On: March 15, 2009

Court Holds Challenges to Zoning Amendments Do Not Alway Have to Be Brought Within Four Months

In August, 2006 we discussed the Court of Appeals decision in the case of Eadie v. Town Board of the Town of North Greenbush (7 N.Y.3d 306[2006]) in a post entitled "Court Holds Challenge to Zoning Law Must Be Brought Within Four Months- Sometimes." A few weeks ago in the case East Suffolk Development Corp. v Town Board of Town of Riverhead, the Appellate Division, Second Department advised that sometimes the challenge can be brought within six years.

The Town sought to have a challenge to a zoning amendment dismissed as untimely because it had not been brought within four months. We can only presume there was no SEQRA challenge involved, as SEQRA is not mentioned in the decision.

In denying the Town's motion the court held the amendment is a legislative act and that : "a declaratory judgment action, not a CPLR article 78 proceeding, is the proper vehicle to challenge the validity of the defendants' action...and the six-year statute of limitations set forth in CPLR 213(1) applies...." Thus, it now appears the statute of limitations for challenging a zoning amendment is six years-sometimes.

Posted On: March 2, 2009

New York Court Upholds SEQRA Findings Related to Climate Change

The Appellate Division (Fourth Department) issued a decision in early February, 2009 upholding a denial by the Town of Ellicottville of site plan and special permit approval to construct a cogeneration plant using wood chips as fuel, as part of a larger development proposal. In Matter of Laidlaw Energy and Environmental Inc. v Town of Ellicottville, the court found that the conclusion contained in the State Environmental Quality Review Act (SEQRA) findings that "serious increases in harmful emissions" from the plant would result in an "unacceptable adverse impact" was not arbitrary and should be upheld.

For a detailed discussion of the case see our other Blog,

Posted On: March 2, 2009

Property Owners Within the Modified Zoning District Have Standing to Challenge Amendment

The Appellate Division Second Department modified a lower court decision dismissing an action challenging a zoning amendment, where the lower court had held that petitioners all lacked standing to bring the action. In Matter of Bloodgood v. Town of Huntington the court separated the petitioners into several categories in order to analyze the question of standing from the standpoint of the potential environmental harm to each of the petitioners resulting from the rezoning.

The challenge at issue was based upon an alleged failure to take a "hard look" at the environmental impacts of the amendment, as mandated by SEQRA, prior to adopting the zoning amendment. The court held that those owning property within the zoning district that was the subject of the amendment had standing and that "where the challenge is to the SEQRA review undertaken as part of a zoning enactment, the owner of property that is the subject of the rezoning need not allege the likelihood of environmental harm."

Further, the court held that the lower court erred in dismissing the complaint of a property owner whose property was located within fifty to sixty feet of the rezoned district. That property owner had alleged specific adverse impacts upon his property of traffic, sewerage, and groundwater that would result from the zone change. Therefore, the court ruled he had the requisite standing to challenge the SEQRA determination.

However, the court found that the individual petitioners who owned property that was not in close proximity to the rezoned district lacked standing and that "their allegations of environmental impact are in no way different from those of the public at large." Finally, the court found that the local civic association also lacked standing, as its standing claim is based upon the standing of its members. The civic association member upon whom the standing claim rested was one of those individuals found to lack standing himself.