Brief for Appellee — Penn Central Transp. Co. v. New York City

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Supreme Court of the United Stytes

MAR 2 i978

AEL RODAK, JR., CLERK

OCTOBER TERM, 1977

Docket No. 77-444

Penn Centrat Transportation Company, Toe New York

and Hartem Ramroap Company, Tae 5lst Srreer

Reatty Corporation, UGP Properties, Inc.,

Appellants,

Tur Crry or New York, et al.,

Appellees.

Ow APPEAL FROM THE CovurRT oF APPEALS

or THe Strate or New York

ee - eee...

APPELLEES’ BRIEF

AutLen G. ScHWART=2,

Corporation Counsel of

the City of New York,

Attorney for Appellees,

Municipal Building,

New York, N.Y. 10007.

(212) 566-3322 or 4337

L. Kevi~ SHERIDAN,

Leonanp Koerner,

Dorotuy Miner,

of Counsel.

TABLE OF CONTENTS

PAGE

| CRSSEIOND TOOURMOTE ois cco csccccsecveccovsccovccace 1

BOERS ccccccccccccevesrecdccccnccesceceacedeconce

Se SE ENED Sod dawetopenediccccecewedaves

Grane Comtral Termmimal 0... ccsccccccccscccscsccnees 5

Historic Preservation Legislation ................. 8

A. Federal legislation on historic preservation . . 8

B. The law on historic preservation in states and

DE: nctnccehae ceedescbensa céeead canes 10

C, Landmarks Preservation in New York City .. 11

I Ge GND 6 hc cdc ecdtede ciccesdianes 16

ARGUMENT:

I—-The complaint was properly dismissed. The

New York City Landmarks Laws, as applied

to Grand Central Terminal, did not deprive

the owner of due process. The owner failed

to show that the landmark designation inter-

fered with continued use of the Terminal or

prevented it from earning a reasonable rate

GE SURED. shed caddis cacccccddccecvenecscvices 20

Il—Assuming, arguendo, that the Landmarks Law

is invalid as applied to Grand Central Ter-

minal, the appellants are in no event entitled

to damages or compensation. There has been

no legally authorized, or de facto, exercise of

the power of eminent domain. The invalida-

tion of a police power regulation as confis-

catory does not entitle the property owner

to a money judgment ........... 000.00 0e 37

DR cunts cudeund) edaseksasesesbbesaeosene 40

ii TABLE OF CONTENTS

Taste or Cases

Cases Cited: PAGE

Benenson v. United States, 548 F.2d 987 (Ct. Cl.,1977) = 11

Berman v. Parker, 348 U.S. 26 (1954) .........05. 22

Matter of Charles vy. Diamond, 41 NY 2d 318, 360 N.E.

Se SEED ccucas ee ceqceeasaneddceneeats’ 38, 39

Citizens to Preserve Overton Park, Inc. v. Volpe, 401

OT ToT ee TTTT TTT TTTTTriT Tee 10

City of Buffalo vy. Clement Co., 28 NY 2d 241, 269

Se I Ew cd ccecOncesédebssdebisuce 38

City & County of Denver v. Denver Ruick, 141 Col.

SE Ge Ws BORD CHOSE ccc cccccccsccectescece 27

City of New Orleans v. Dukes, 427 U.S. 297(1976) . .23, 27

City of Santa Fe vy. Gamble-Skogmo Inc., 73 N.M.

Ce ee io ee Oe ED c.cbcccccsecececcoses 11

City of St. Paul vy. Chicago, St. P., M. & O. Ry. Co.,

413 F. 2d 762 (8th Cir., 1969), cert. den. 396 U.S.

PP EE bbb anh onde ve0s 6eccccesdsteveess 11

Construction Ind, Assn., Sonoma Cty. v. City of

Petaluma, 522 F, 2d 897 (9th Cir., 1975), cert. den.

Gab Uae Gee CET ED ccc ccvccicvcesccccececes 26, 27

Cromwell v. Ferrier, 19 NY 2d 283 (1967) .......... 27

Figarsky v. Historic District Commission of the City

of Norwick, 171 Conn, 198, 368 A. 2d 168

CREED edit icdbdccbddccdedccdcecveecceonctecs 11, 24

First Presbyterian Church of York v. City Council of

the City of New York, 25 Pa. C, 154, 360 A. 2d

257 (Commonwealth Ct. of Pa., 1976) .......... 11, 24

French Inv. Co. vy. City of New York, 39 NY 2d 587,

350 N.E. 2d 381 (1976), app. dism. 429 U.S. 990

EEUTED cccccednccvescnccceecevencssecccessees 37

TABLE OF CONTENTS iii

PAGE

Goldblatt v. Town of Hempstead, 369 U.S. 590 (1962)

16, 17, 22, 23, 24, 26

Gorieb v. Fox, 174 U.S. 680 (1927) ....... 0. cece 91, 22

Griggs v. Allegheny County, 369 U.S. 84 (1962) ..... 36

Hadacheck v. Sebastian, 239 U.S. 394 (1915) ........ 22, 24

HFH, Ltd, vy. Superior Court of Los Angles Co., 125

Cul. Reptr. 365, 542 P. 2d 237 (1975), cert. den.

ED cao. ces siueee dn keaunense 6 39

Lafayette Park Baptist Church v. Scott, 553 8.W. 2d

856 (Missouri Ct. of App., 1977) ..........4... 11, 24

Maher vy. City of New Orleans, 371 F. Supp. 653 (E.D.

La., 1974), affd. 516 F. 2d 1051 (5th Cir., 1976),

cert. den. 426 U.S, 905 (1976) ........ 11, 17, 21, 24, 26

Mailman Development Corp. y. City of Hollywood, 286

So. 2d 614 (Fla, App., 1974) cert. den. 293 So, 2d

713, cert. den. 419 U.S. 844 . 0... ccc eee eens 39

Matter of Seagram & Sons v. Tax Comm,, 14 NY 2d

314, 200 N.E. 2d 447 (1964) ......ccceeeeeeees 28

Modjeska Sign Studios, Inc. v. Berle, —— NY 2d

—— (Opinion dated December 22, 1977) ...... 34

Opinion of the Justices to the Senate, 333 Mass. 773,

128 N.E. 2d 557 (1965) .... ccc ccceceessevecvnes 11

Pennsylvania Coal Co. v. Mahon, 260 U.S. 393

(1GBB) iccccccdccticcccccccvcertebtevecccsees 22, 24

Queenside Hills Realty v. Sarl, 328 U.S. 80 (1946) - 26

Rebman vy. City of Springfield, 111 Ll. App. 2d 430,

SE Te BE Ge CHOEE ccccderencccceccnceccees 11

Rogers v. Village of Tarrytown, 302 N.Y. 115, 96 N.E.

BO TEE CIBER) 6 cc ccccccccsccvccccccvcccccccece 27

iv TABLE OF CONTENTS

PAGE

Superior Uptown Ine, vy. City of Cleveland, 39 Ohio St.

2d 36, 313 N.E. 2d 820 (1974) ......cceeeeeveees 39

Town of Deering ex rel. Bittenbender v, Tibbetts, 105

N.H. 481, 202 A. 2d 232 (1964) .......cceeeeees 11

Matter of Trustees of Sailors’ Snug Harbor vy. Platt,

29 AD 2d 314, 288 N.Y.S. 2d 314 (1st Dept.,

BOGE) ccc ccccccccesescccccnconsnesenteeeeeel 11

United States v. Causby, 328 U.S. 256 (1946) ...... 36

Veling v. Ramsey, 94 N.J. Sup. 459, 228 A. 2d 873

t. sR 20, 38

Village of Belle Terre v. Boraas, 416 U.S. (1974) . .16, 22,

Village of Euclid vy. Ambler, 272 U.S. 365 (1926) . .16, 21, 22

Visidor Corp. v. Cliffside Park, 48 N.J. 214, 225 A. 2d

105 (1966), cert. den. 386 U.S. 972 (1966) ....... 39

Young v. American Mini Theatres, 427 U.S. 50 (1970) = 22

Statutes Cited:

Administrative Code of the City of New York,

RS ee 26

Wee BIVGD occcccccccccsccescssseseteceuns 38

Authorities Cited:

Rathkopf, The Law of Zoning & Planning, § 26.01... 27

In THE

Supreme Court of the United States

OCTOBER TERM, 1977

Docket No. 77-444

Penn CentraL Transportation Company, THE New York

anp Hartem Rarmroap Company, Tre 5lst Street

Reatty Corporation, UGP Properttss, Inc.,

Appellants,

Tue Crry or New York, et al.,

ome Appellees.

On APPEAL FROM THE CouRT oF APPEALS

OF THE StaTE oF New YORK

APPELLEES’ BRIEF

Questions Presented

1. Does application of New York City Landmarks Law

to Grand Central Terminal deprive the owner of due proc-

ess of law where the owner of the property did not estab-

lish that the landmarks designation interfered with

continued use of the Terminal or prevented it from earn-

ing a reasonable rate of return?

2. Assuming, arguendo, that the Landmarks Law, as

applied to Grand Central Terminal is an invalid police

regulation, are the appellants entitled to damages or com-

pensation for the alleged temporary taking of their

property?

Facts

The Instant Lawsuit

(1)

On January 22, 1968, after the New York City Land-

marks Preservation Commission had designated Grand

Central Terminal as a landmark, UGP Properties, Ine.

(hereafter UGP) and Penn Central (then New York Cen-

tral) entered into a lease and sublease arrangement which

provides for the “demise” of the transferable development

rights over Grand Central Terminal to UGP for the pur-

pose of constructing an office building of approximately 56

stories over the Terminal and, in part, replacing portions

of the landmark structure (R1872-1957).*

On July 18, 1968, the appellants applied to the Land-

marks Commission for a certificate of no exterior effect for

the so called Breuer I plan (Breuer referring to the archi-

tect), a speculative office tower to be cantilevered over

Grand Central Terminal. This request was denied on

September 20, 1968 (Ri13a, 25a, 2242, 331-336). On Janu-

ary 20, 1969, the appellants applied to the Landmarks

Commission for a certificate of appropriateness either for

Breuer I or for a new proposal, Breuer IT (2242). Prior

* In their brief, appellants state that the lease with UGP “guar-

anteed” the railroad $3,000,000 a year (App.Br., p. 5). The use

of the term guarantee is misleading. UGP was only a corpo-

rate shell and there was no assured source of the funds. This

payment depended totally on the success of a speculative office

building which would have been completed during a period when

there was an extraordinary surplus of office space.

_ References to the Appendix to the Jurisdictional Statement

will be preceded by J.S.A. References preceded by J.A. will be to

the Joint Appendix. References preceded by R will be to the

Record on Appeal in the Court of Appeals.

to the public hearing on the matter, it was discovered

that the land on which Breuer II was proposed to be built

included land over which the appellants did not have control

and that Breuer II would have interfered with certain

existing New York City easements (R2242-2243). Conse-

quently appellants prepared new plans, Breuer II Revised,

to avoid these problems (R1998-2002, 2252). Both versions

of Breuer II involved the destruction of the southern fa-

eade of the Terminal.

On August 26, 1969, a certificate of appropriateness was

denied for all of the above proposals. In its report deny-

ing the certificate, the Landmarks Commission described

the public hearings, described the two proposals, and sum-

marized the arguments that had been made (R2242-2255).

It also referred to the alternatives that had been proposed

for the transfer of development rights to nearby sites

(R2247).*

(2)

On October 7, 1969, the appellants initiated this lawsuit

seeking declaratory and injunctive relief from the Land-

marks Law on its face and as applied, and “compensation’’

for the alleged temporary taking of their property for the

period between its designation as a landmark and the re-

quested judicial invalidation thereof (R7a-2la). A trial

was held in which evidence was presented by the parties

with respect to appellants’ claims of hardship.

At the conclusion of the trial, the trial court, Supreme

Court, New York County, found that appellants had proven

economic hardship (J.S.A. 70a). The trial court relied

primarily on the income and expense statements submitted

by the appellants for 1969 and 1971, which showed that

for those two years the revenues from the Terminal’s

concessions were less than the listed expenses (A57a-58a).

The trial court did not attribute any value to the transfer

* The procedures for the transfer of development rights is set

forth infra, pp. 14-16.

of the unused development rights to other properties

owned by Penn Central (J.S.A. 58a).

The Appellate Division of the Supreme Court of the State

of New York (two justices dissenting) reversed the Su-

preme Court and dismissed the complaint (J.S.A. 27a).

Reported at 50 AD 2d 265, 377 N.Y.S. 2d 20 (1st Dept.,

1975). The Court, citing this Court’s decision in Goldblatt

v. Town of Hempstead, 369 U.S. 590 (1962), found that

the appellants had not demonstrated that the challenged

land use regulation, enacted pursuant to an exercise of the

police power, deprived them of all reasonable beneficial

use of their property (J.S.A. 26a-27a). With respect to

the income and expense statements of 1969 and 1971 sub-

mitted by Penn Central, the Appellate Division noted that

while those statements had listed the income from the con-

cessions only, they listed railroad operating expenses as

well as expenses of the concession business. In addition,

no rental value whatsoever was imputed to the vast space

in the Terminal devoted to railroad purposes alihough that

was the Terminal’s principal use (J.S.A. 25a). The Appel-

late Division also found, inter alia, that the appellants had

not shown that the unused development rights could not be

profitably transferred to other sites (J.S.A. 25a-26a).

In its order, the Appellate Division set forth findings of

fact and stated that the findings of fact made by the New

York Supreme Court, accompanying the judgment appealed

from, which were inconsistent with the findings of the Ap-

pellate Division, were reversed (J.S.A. 46a-50a).

The Court of Appeals of the State of New York unani-

mously affirmed the order of the Appellate Division

(J.S.A. 15a). Reported at 42 NY 2d 324, 366 N.E. 2d 1271

(1977). In its opinion, the Court recognized the principle

that government regulation would be invalid if it so re-

stricted the use of property as to prevent the owner from

realizing a reasonable return on the permitted use (J.S.A.

2a). The Court found that the appellants had not demon-

strated that the subject parcel, as restricted, was incapable

of earning a reasonable return (AQ9a, 13a). The Court

stated that designation of a single landmark is not pursu-

ant to a general community plan and thus bears some

resemblance to “spot” or discriminatory zoning. But it

noted that unlike such zoning, in this case there was

a valid purpose (J.S.A.6a-7a). In addition, it found that

Penn Central had received certain benefits. These benefits

include tax exemption, subsidies which increased the value

of Penn Central’s Terminal Area, and valuable trans-

fer development rights (J.S.A. 7a-9a).

The Court then applied the traditional test and found

that the appellants had not established that the property

is incapable of earning a reasonable rate of return when

continued in the use to which it had been devoted and which

use remained unaffected by its designation as a landmark

(J.S.4. 10a-Lla).

The Court, in concluding, stated that Penn Central could

present in the New York State Supreme Court any “addi-

tional submissions which, in light of this opinion may use-

fully develop further the factors discussed” (J.S.A. 14a).

Grand Central Terminal.

In 1869, Cornelius Vanderbilt was authorized by the

State Legislature to erect a railroad station on the site of

the present Terminal.* At approximately the same time,

Vanderbilt acquired additions to his surrounding railroad

property so that he owned practically all of the ground

area of the present day complex. The “Grand Central

Depot,” opened in 1871, was unexceptional and rapidly be-

* The description in this section is taken from the report of the

Landmarks Commission recommending designation of the Termi-

nal as a landmark and from Grand Central Terminal and Rocke-

feller Center: A Historic Critical Estimate of Their Significance,

by Frrcew and Waite, published by the New York State Depart-

ment of Parks and Recreation, Division for Historic Preservation,

1974, pages 1-8 (hereafter, “Fitch”’).

came inadequate to handle the expansion of suburban and

long distance railroad traffic that occurred at the end of the

last century. A dangerous problem of smoke in the train

tunnels developed and was solved by electrification.

In addition to eliminating the problem of smoke, elec-

trification opened the way to a complete submergence of all

the tracks and a double level track system, which permitted

the accommodation of more trains without the purchase of

more land. Sub-surface trackage, in turn, permitted the

railroad to plan the construction of revenue producing

buildings on air rights over the submerged tracks.

From its inception (it was formally opened to the public

in 1913) the Terminal has been recognized not only for its

architecture, but as a superb example of comprehensive

urban design. It is not merely a magnificent gateway to

the City, but in its system of handsome public spaces for

the accommodation of passengers and in its ingenious sys-

tem of connections between trains, subways and street

traffic, it became ‘‘the generator of a vast concentration of

new urban development’’ (Fitch, pp. 5-7).

A significant result of the new Terminal project was the

emergence of Park Avenue as the most prestigious resi-

dential district in the nation. In covering over its track-

oge between 42nd and 52nd Streets, the railroad upgraded

its nearby properties and recouped a large part of its in-

vestment (Fitch, p. 6). Inelnded in the properties of the

Grand Central Terminal Complex are the Barclay, Bilt-

more, Commodore, Roosevelt and Waldorf Astoria Hotels,

the Yale Club and numerous office buildings along Park

Avenue (id. at p. 6, J.A. 93). See also, as to the develop-

ment of the Grand Central Terminal complex, New Haven

Inclusion Cases, 399 U.S. 392, 438-440 (1970).*

*In their brief, appellants note that there was a plan in 1911,

before the Terminal was completed, to put a twenty story office

(footnote continued on following page)

The architect for the new Terminal, Reed & Stem of

St. Paul, Minnesota, selected by nationwide competition,

introduced, inter alia, the concept of ramps. Later Whit-

ney Warren of Warren and Wetmore took over the archi-

tectural design of the Terminal and introduced the fine

Beaux Arts facade. Also of note are the scale of the

monumental columns, the handsome sculptured details,

the main concourse with constellations painted by Paul

Helleu, and the monumental statuary group (Mercury,

Hercules and Minerva) atop the 42nd Street facade (See

photographs J.A. 108-110).*

As stated in Urban Design Manhattan, a report on the

Second Regional Plan, by the Regional Plan Association

(Viking Press, 1969), at p. 38:

‘‘The Grand Central Terminal complex built be-

tween 1903 and 1913 is the conceptual archetype of

integrated multilevel development, mixed activities

and direct mass transportation access. It has yet to

be surpassed * * *.’’

On August 2, 1967, after a public hearing, the City’s

Landmarks Preservation Commission proposed designa-

tion (later accepted by the Board of Estimate) of the Ter-

(footnote continued from preceding page)

tower over the Terminal building. This plan was discarded ; plans

were filed and a certificate of occupancy obtained only for the

existing building (R28-29). It is clear from the drawing that the

1911 plan was for a tower of a size and style compatible with that

of the Terminal and cannot be compared to the huge siab office

towers of over 50 stories proposed by the appellants and rejected

by the Landmarks Commission. The appellants did not seek a

certificate of appropriateness from the Landmarks Commission to

build anything remotely resembling the contours of the 1911 plan.

* The reproductions of the photographs of Grand Central Ter-

minal in the Joint Appendix do not properly show the building.

The actual photographs showing the building are contained in the

Record on Appeal in the Court of Appeals on file with this Court.

The pictures appear at pages 2232 through 2238.

minal as a landmark (R2240-2241). In its report, it

stated, inter alia (R2240):

‘*Grand Central Station, one of the great buildings

of America, evokes a spirit that is unique in this City.

It combines distinguished architecture with a brilliant

engineering solution, wedded to one of the most fabu-

lous railroad terminals of our time. Monumental in

scale, this great building functions as well today as it

did when built. In style it represents the best of the

French Beaux Arts.’’

Historic Preservation Legislation

In recent years, municipalities throughout the world

have become increasingly concerned with the preservation

of buildings and sites which have historical, aesthetic or

cultural significance. Jacob H. Morrison, Historic Preser-

vation Law, 1972 Supplement, pp. i-ii. See also, Rohan,

Zoning and Land Use Controls, Vol. 2, Section 7.01, at

pages 7-2 through 7-9; Ashworth, Contemporary Develop-

ments in British Preservation Law and Practice, 36 Law

§ Cont. Prob. 348 (1971). This heightened recognition of

the public interest in the value of man’s handiwork, par-

ticularly in urban areas, has resulted in legislation, at all

levels of government, aimed at preserving our historical

and cultural heritage.

A. Federal legislation on historic

preservation.

Since 1966 Congress has passed major new laws further-

ing historic preservation. For a detailed review of this

legislation as of 1971, see Gray, The Response of Federal

Legislation to Historic Preservation, 36 Law § Cont. Prob.

314-328 (1971).

In the National Historie Preservation Act of 1966, Con-

gress found and declared ‘‘that the historical and cultural

foundations of the nation should be preserved as a living

)

part of our community life and development in order to

give a sense of orientation to the American people.’’ 16

U.S.C, § 470(b).

The Act provides for an expanded National Register of

Historie Places* (first provided for in the Historie Sites

Act of 1935); state grants-in-aid; grants-in-aid for the

National Trust for Historic Preservation, which had been

chartered by Congress in 1949; and the establishment of

the Advisory Council on Historic Preservation with, inter

alia, advisory powers respecting protection of National

participation. 16 U.S.C. §§ 470(a)(1), 470(a)(2), 470(g),

(j), (i).

The 1969 National Environmental Policy Act (NEPA)

makes historic preservation an integral part of our na-

tional environmental goals and it provides elaborate pro-

cedural machinery for assuring that federal agencies in-

corporate these goals in their planning. 42 U.S.C. §§ 4321,

4331(b) (4).

In the housing area, HUD has been authorized to pro-

vide grant assistance for historic preservation purposes

and the Emergency Home Assistance Act provides mort-

gage loan guarantees where the loans are made ‘‘for the

purpose of financing the preservation of historic [residen-

tial] structures.”’ 12 U.S.C. § 1708; 16 U.S.C, $470b-1;

42 U.S.C. § 1500-1. See also the Historical and Archeo-

logical Preservation Act. 16 U.S.C. 4 469.

In the transportation field, Congress again declared it

to be national policy that special efforts be made to pre-

serve historic sites and required that the Secretary of

Transportation disapprove any project which requires the

use of any federal, state or local historic sites or parkland

unless there is no feasible and prudent alternative and

*On January 17, 1975, Grand Central Terminal was listed on

the National Register of Historic Places and was designated a na-

tional historic landmark.

such project includes ‘‘all possible planning to minimize

harm”’ to the site. 49 U.S.C, §1653(g). See Citizens to

Preserve Overton Park, Inc. vy. Volpe, 401 U.S, 402, 412-

413 (1971), where this Court, in construing this section as

applied to parklands, said that ‘‘preservation must be

given paramount importance.’’

The Urban Transportation Act of 1970 requires that

planning for mass transportation projects include con-

sideration of their effects on ‘historical and cultural

assets.’ 49 U.S.C. §1610. The Amtrak Improvement

Act of 1974 seeks to encourage the preservation of pas-

senger railroad terminals of historic significance and

architectural quality. It authorizes the Secretary of Trans-

portation to provide financial and other assistance for

purposes of promoting the conversion of terminals to

‘‘inter-modal’’ transportation centers and civie and cul-

tural activity centers where the terminal is listed on the

National Register and its architectural integrity will be

preserved in such a conversion; and it provides that funds

for such purposes be expended in the manner most likely

to maximize the preservation of terminals of historic sig-

nificance. 49 U.S.C. § 1658 (i)(1), (2), (8), (4). It also

directs that the ‘‘National Railroad Passenger Corpora-

tion shall give preference to using station facilities that

would preserve buildings of historical and architectural

significance.”’ 49 U.S.C. § 1653(i) (6).

B. The law on historic preservation

in states and localities.

Since the 1950's, encouraged in part by federal programs,

there has been extraordinary growth of state and local

legislation for the preservation of landmarks and historic

districts, which legislation has been upheld overwhelmingly

when tested in the courts. See generally Jacob H. Morri-

son, Historic Preservation Law (1965 and 1972 Supple-

ment). By 1965, 51 cities and every state had enacted

some form of historic preservation law; and as of 1976

there were over 500 landmark and historic district commis-

sions throughout the United States. For cases upholding

preservation laws, see for example, Maher vy, City of New

Orleans, 371 F. Supp. 653 (15.D. La., 1974), affd. 516 F. 2d

1051 (5th Cir,, 1975), cert. den. 426 U.S, 905 (1976); Matter

of Trustees of Sailors’ Snug Harbor v. Platt, 29 AD 2d 376,

288 N.Y.S. 2d 314 (lst Dept., 1968); First Presbyterian

Church of York v. City Council of the City of York, 25

Pa. C. 154, 360 A, 2d 257 (Commonwealth Ct. of Pa., 1976) ;

Figarsky v. Historic District Commission of the City of

Norwich, 171 Conn, 198, 368 A. 2d 163 (1976); Lafayette

Park Baptist Church v. Scott, 553 S8.W. 2d 856 (Mo. Ct.

of App., 1977) ; Rebman v. City of Sprin. eld, 111 Til. App.

2d 430, 250 N.E. 2d 282 (1969); Opinion of the Justices to

the Senate, 333 Mass. 773, 783, 128 N.E. 2d 557, 564

(1955); City of Santa Fe v. Gamble-Skogmo, Inc., 73 N.M.

410, 389 P. 2d 13 (1964); Town of Deering ex rel. Bitten-

bender v. Tibbetts, 105 N.H. 481, 202 A. 2d 232 (1964). See

also City of St. Paul v. Chicago, St. P., Mdo, Ry. Co., 413

F’, 2d 762 (8th Cir., 1969), cert. den. 396 U.S. 985 (1969) ;

Benenson v. United States, 548 F. 2d 989, 949 (Ct. CL,

1977).

C. Landmarks Preservation in New York City.

The preservation of landmarks in urban areas is of spe-

cial importance. In New York City, the need is urgent.

The intensity of commercial development in Manhattan's

central business district is unique in the world. Unlike

other cities, most of the activities in which the New York

area plays a major role (finance, insurance, corporate

headquarters, communications, foreign trade, wholesaling,

apparel, printing, nonprofit organizations, culture and en-

tertainment) are of a kind which locate primarily in the

center of the City, Urban Design Manhattan. A report

by the Regional Plan Association (Viking Press, 1969),

pp. 6, 13.

The economic and cultural life of the area is greatly

affected by the quality of its physical environment (id.,

p. 26). The Regional Plan Association observed (id.,

p. 17): “We believe that, increasingly the success of the

Manhattan Central District will depend on people’s ability

to move freely and comfortably within it and to enjoy

the experience of being there.” The importance of Grand

Central Terminal as exemplifying the integration of trans-

portation with a variety of mixed activities in a technically

sound way has been emphasized by the Regional Plan As-

sociation (at pages 38, 40-41, 70-71 et passim). As stated

by the Association (at p. 110):

“The historic and cultural heritage of the City must

be not only saved from demolition but incorporated

into future development proposals. This preservation

of landmark buildings is imperative to bond the

present with the past, thereby forming a continuity

which will complement the old while we build for the

future.”

(1)

In 1956, the State of New York, in accordance with the

nationwide trend, passed the Historic Preservation Act,

specifically enabling municipalities to provide for the pro-

tection of places, buildings and works of art ‘‘having a

special character or special historical or aesthetic interest

or value.’’ Formerly General City Law, § 20 (25a), now

McKinney’s General Municipal Law, § 96-a.

In 1965, New York City provided for a comprehensive

program for landmark preservation by adding Section

‘2004 to the New York City Charter, and Chapter 8A

(Sections 205-1.0 et seq.) to the Administrative Code of

the City of New York (J.S.A. 76a-112a). Section 205-1.0

of the Code set forth the purpose and publie policy behind

the enactment (J.S.A. 76a). The City Council set forth

its findings and declared as a matter of policy that the

‘protection, enhancement, perpetuation and use of im-

provements and landscape features of special character or

special historical or aesthetic interest or value is a public

necessity required in the interest of the health, prosperity,

safety and welfare of the people” (J.S.A. 76a).

Section 2004 of the New York City Charter establishes

a Landmarks Preservation Commission composed of

eleven members, including ‘‘at least three architects, one

historian qualified in the field, one city planner or land-

scape architect, and one realtor’’; also the membership shall

include at least one resident of each of the five boroughs.’’

It is the Commission’s task, after public hearing, to

designate landmark properties and historic districts.

Admin. Code § 207-2.0 (J.S.A. 84a). The Board of Es-

timate is to approve, disapprove or modify the designa-

tion, but, before it does so, the designation must be inte-

grated with the master plan governing land use in the

city, Le., the secretary of the Board ‘‘shall refer such des-

ignation or amendment thereof to the City Planning Com-

mission, which witiin thirty days after such referral, shall

submit to such board a report with respect to the relation

of such designation or amendment thereof to the master

plan, the zoning resolution, projected public improvements

and any plans for the renewal of the area involved.’’

Admin, Code § 207-2.0(@)(1) (J.S.A. 85a).

Pursuant to this procedure, the Landmarks Commission

has designated more than five hundred landmarks and

thirty-one historic districts throughout the City of New

York.

Once a landmark is designated, the ordinance requires

that those in charge of it keep ‘‘it in good repair.’’ See-

tion 207-10.0 (J.S.A. 104a). In addition, the Commission

is authorized to regulate construction, reconstruction, al-

teration and demolition on a landmark site. Section 207-

4.0 (J.S.A. 88a). Comprehensive procedures are provided

where one wishes to make changes. A landmark owner

may seek a ‘‘certificate of no exterior effect’’ or, if there

will be exterior effect, a ‘‘certificate of appropriateness.’’

Sections 207-5.0-207-7.0 (J.S.A. 90a-93a). As to taxpaying

commercial properties, there is also a procedure for seek-

ing a certificate of appropriateness authorizing demolition

on the ground of insufficient return where tax relief or

other aid fails to afford the owner a reasonable return on

the value of his property for continued use as restricted

by law. A similar procedure, providing for different

forms of relief, is available to certain tax-exempt proper-

ties used for charitable purposes. Section 207-8.0 (J.S.A.

94a).

(2)

Integrated with the Landmarks Law are certain amend-

ments to the New York City Zoning Resolution which per-

mit the transfer of unused development rights over land-

mark properties located in higher density areas of the

City, to other nearby sites. Zoning Resolution, Sections

74-79 to 74-793 (J.S.A. 113a-118a).

The City Planning Commission’s report (CP-20253),

dated May 1, 1968, in support of the original transfer

amendments, stated:

“We anticipate that the proposed amendments will

have multiple benefits. The owner of a designated

landmark can realize an economic gain by selling his

unbuilt, but allowable development rights; the buyer

of these rights, in return, can acquire additional floor

use he would otherwise not have; the neighborhood,

meanwhile can retain an essential amenity, a revitalized

landmark, plus new development harmonious with the

character of the area * * *,’’

The original May 1968 transfer provisions authorized the

City Planning Commission to grant a special permit for

the transfer of development rights to adjacent sites which

included sites adjacent but for streets or street in-

tersections. Also, as originally enacted, the maximum

amount of floor area that could be transferred was the

basic maximum allowable floor area on the zoning lot in

excess of that already developed of all the buildings on the

landmark lot (in effect, the total unused development

rights), but the permitted floor area increase in any

recipient lot was limited to 20% of the floor area otherwise

permitted on the recipient site. Common ownership was

not necessary.

In December 1969, Sections 74-79 et seq. of the Zoning

Resolution were amended to increase the availability of

transfers of development rights from landmark properties.

In central business districts, the 20% limitation as to

recipient lots was removed (J.S.A. 113a). In addition, in

such districts, the definition of an “adjacent lot,” i.e., a

recipient lot, was expanded to mean a lot contiguous or

one which is across a street and opposite to another lot or

lots which except for the intervention of streets or street

intersections form a series extending to a lot occupied by

the landmark building. All such lots shall be in the same

ownership [as defined in Section 12-10]. Penn Central has

a significant number of properties in the Grand Central

Terminal area which come within this definition (see Pltfs.

Exh. 10 at J.A. 93).

Section 74-79, from its i ception in 1968, has required

an application for a special permit for transfer to include

a site plan of the landmark lot and the adjacent lot, includ-

ing plans for all development on the adjacent lot; a pro-

gram for the continuing maintenance of the landmark;

and such other information as may be required by the City

Planning Commission. As a condition for such permits,

the City Planning Commission must find (a) that the

transfer will not unduly increase the bulk of any new de-

velopment, density of population or intensity of use in any

block, to the detriment of nearby blocks and (b) “that the

program for continuing maintenance will result in the

preservation of the landmark” 74-792 (J.S.A. 115a). The

City Planning Commission is authorized to prescribe, in

order to ensure that the transfer is in accordance with

the plan, “appropriate conditions and safeguards to mini-

mize adverse effects on the character of the surrounding

area” (J.S.A. 117a).

Summary of Argument

(1)

The appellants, without any analysis, have argued that

the City of New York, in applying the Landmarks Law to

Grand Central Terminal, has taken their property and

must pay the appellants compensation because they have

been denied the most profitable use of their property. It

is our position that the designation of Grand Central Ter-

minal as a landmark was a proper exercise of the police

power. Since the appellants did not establish that the

property, as restricted, was not economically viable, the

complaint was properly dismissed.

This Court has noted that, in the exercise of the police

power, a state has broad power to respond to emerging

economic and social problems. See Village of Euclid v.

Ambler Realty Co., 272 U.S. 365, 395 (1926). The power

in restricting land use has been extended to legislation

for aesthetic and other similar purposes having to do with

the quality of life. See Village of Belle Terre v. Boraas,

416 U.S. 1, 5-6 (1974).

Where the land use regulation is within the police

power, the validity of the regulation will depend on an ex-

amination and balancing of three elements: the impor-

tance of the regulation to the public good, the reasonable-

ness with which the regulation attempts to achieve that

good and whether the restriction on the parcel renders it

economically unviable. These three considerations were set

forth by this Court in Goldblatt v. Town of Hempstead,

369 U.S. 590, 593-594 (1962). be

With respect to the first consideration, as we stated

above, land use regulation for aesthetic and other similar

purposes, is included within the police power. The land-

marks law satisfies the second element. It is reasonable

in light of the purpose to be achieved. The only method

to preserve landmarks is to prohibit their owners from

destroying them without permission.

The remaining criteria is the impact on the particular

parcel. On this consideration, the plaintiff, to succeed in

attacking a land use regulation, must demonstrate that the

regulation deprives him of all reasonable use of the prop-

erty. See Goldblatt, supra, 369 U.S. 590.

This standard has been applied to owners of property

in historic districts who attack land use regulations pro-

hibiting the destruction of their property within the dis-

trict. See Maher v. New Orleans, 516 F. 2d 1051, 1066

(5th Cir., 1975), cert. den. 426 U.S. 905 (1976).

The appellants do not dispute the application of this

test to buildings in historic districts. They object to the

application of this test to their building on the ground that

it is not part of a district. It is our position that appel-

lants’ argument misapprehends the purpose of landmarks

legislation in New York City. In New York City, the

landmark scheme directly relates to all aspects of life in

the City and all property owners participate in the bene-

fits gained. Individual designations are part of a com-

prehensive scheme to preserve historic properties

throughout the entire City. The Landmarks Commission

has designated over 500 buildings and thirty-one historic

districts. After a building is designated, the designation

must be submitted to the City Planning Commission which

must submit a report to the Board of Estimate with re-

spect to the relation of such designation to the master

plan and the zoning resolution. After receipt of the re-

port the Board of Estimate may approve, disapprove or

modify such designation. New York City Administrative

Code § 207-2.0(g)(1) (J.S.A. 85a).

This overall scheme distinguishes landmarks designa-

tion from a zoning case involving discriminatory or

‘*spot’’ zoning.

Appellants’ property is being treated similarly to any

other owner of property which has been designated as a

landmark. Appellants would be entitled to relief if they

could establish that the property was not economically

viable. At trial Penn Central argued that it had lost money

in running the Terminal. In support of its position, Penn

Central submitted a statement of Revenues and Costs for

Grand Central Terminal for 1969 and 1972. In these

statements Penn Central did not include the value of

owner-occupied space in the Te:minal used by the Rail-

road for railroad purposes (the appellants do not dispute

Penn Central’s need for a Terminal), offices, storage and

employee amenities. The revenues included only rents

from the concessions. In contrast, in the costs portion of

the statements the appellants included the expenses of the

entire Terminal, not distinguishing between those ex-

penses incident to real estate operations and those inci-

dent to railroad operations. In addition, the appellants

did not attribute any value to the transfer development

rights. At trial, the evidence showed that the air rights

had substantial value.

The Appellate Division, in reversing the Supreme Court,

reversed the trial court’s findings of fact and, in its own

findings, found that the “Statement of Revenue and Costs”

had improperly failed to impute rental value and had im-

properly attributed railroad operating expenses to its real

estate operations (J.S.A. 49a-50a). The Appellate Division

also found that the appellants did not establish that the

air rights could not have been profitably transferred to

other sites (J.S.A. 49a). These findings were confirmed

by the Court of Appeals.

The appellants’ entire brief is devoted to the decision

of the Court of Appeals. It urges that the New York

Court of Appeals established new concepts in eminent do-

main. The Court of Appeals specifically rejected the ap-

plication of principles applicable to a taking in eminent

domain to this case (J.S.A. 5a). The Court of Appeals,

in its opinion, assumed that the traditional police power

test would apply to the designation of an individual

landmark. The Court stated that, unlike buildings

in historic districts, individual landmarks are not part

of a comprehensive plan and the designation imposes

burdens on the owner without benefits. The Court then

noted that in a particular case there may be sufficient

benefits to bring such a restriction within the proper exer-

cise of the police power. Those benefits here included the

tax exemption, the valuable transfer development rights,

and that portion of the value of the Terminal which has

been created by public contribution. The Court reasoned

that these benefits justified applying the police power test

applicable to all land use regulations. The Court, in ap-

plying the test, concluded that the appellants had failed to

sustain their burden of proof.

The Court considered the special benefits because it did

not see individual designations as being pursuant to a

comprehensive plan. It is our position that on this point,

the Court erred. As we noted above, the designation of

each individual landmark is part of a comprehensive plan

to preserve all historic buildings throughout the City which

in turn is integrated into the general community plan.

Even if the single designation cannot be considered as

part of a general plan, the Court of Appeals only consid-

ered the special benefits to Grand Central Terminal to en-

able it to apply the traditional test. Those benefits place

Grand Central in the same position as an owner of a

property in an historic district. If he can show economic

hardship, he is entitled to obtain relief. In this case, the

New York State appellate courts, in findings not con-

tested by appellant, indicated that the appellants had failed

to meet that burden.

(2)

Assuming, arguendo, that the Landmarks Law is in-

valid as applied to Grand Central Terminal, the appel-

lants are not entitled to damages. There can be no cause

of action for an inverse condemnation. The Landmarks Law

in this case was enacted pursuant to the police power. Con-

demnation of Grand Central Terminal, for public owner-

ship, would require compliance with the procedures set

forth in the New York City Administrative Code, Section

B15-1.0 et seq. Nor has there been a de facto taking.

There has been no physical invasion of the land or other

official action interfering with the appellants’ use of its

property sufficient to constitute a taking.

The appellants do not have a claim for damages. The

invalidation of a police power regulation does not entitle

the property owner to damages. See, e.g., Veling v. Ram-

sey, 94 N.J. Sup. 459, 228 A. 2d 873, 874 (1976). Munici-

palities must be free to exercise the police power. To re-

quire municipalities to be liable in damages for an im-

proper exercise of the police power, would impair their

power to perform a vital governmental function.

ARGUMENT

I The complaint was properly dismissed. The New

York City Landmarks Law, as applied to Grand

Central Terminal, did not deprive the owner of

due process. The owner failed to show that the

landmark designation interfered with continued

use of the Terminal or prevented it from earning

a reasonable rate of return.

(1)

Appellants in their brief specifically concede that a

landmarks law is a proper subject for the exercise of the

police power (App. Br., pp. 12, 22-23). The appellants

contend, however, that in applying a landmarks law to

Grand Central Terminal, the appellees should be required

to pay them compensation because the appellants have

been denied the most profitable use of their property.

This position that there was a taking because of a de

facto condemnation is urged upon this Court without any

attempt by appellants to show that the subject property

as restricted is not economically viable. In support of

that argument, appellants divide the landmark parcel into

two parts, the Terminal itself and the air rights over the

Terminal (App. Br., pp. 9, 11, 24, 26). Their argument

appears to be that the City, in the application of the

Landmarks Law, has “taken” the air rights above the Ter-

minal, a separate and distinct property, without paying

just compensation. This attempt to divide the regulated

property into two distinct parts is contrary to traditional

property law. The right to develop above one’s property

is one of the bundle of rights which inhere in all property

ownership. It is noteworthy that in traditional zoning

and historic district regulation, the very same “taking”

would occur. In those instances, it has been held that

there is no taking. See Village of Euclid v. Ambler

Realty Co., 272 U.S. 365 (1926); Gorieb v. Fox, 274 U.S.

603 (1927); Maher v. City of New Orleans, 516 F.2d 1051

(Sth Cir., 1975), cert. den. 426 U.S. 905 (1976). For, in all

land use regulation, there is not a separate calculation on

the reasonableness of the return on each right in the bundle,

but instead an assessment of the reasonableness of the total

return on the property as a whole. Thus, appellants’

statement on page 24 that the “economic return to Penn

Central from the Terminal’’ is ‘‘immaterial in deciding

whether or not there has been a taking of the Terminal air

rights by operation of the Landmarks Law”? is incorrect.

It is our position that appellants have improperly con-

fused the principles of eminent domain, which they incor-

rectly urge were applied by the New York Court of Ap-

peals, with principles governing a lawful exercise of the

police power. As set forth below, the designation of

Grand Central Terminal was a proper exercise of the

police power. Since appellants failed to establish at a

trial that the property, as restricted, was not economically

viable, dismissal of the complaint was proper pursuant to

traditional standards of land use regulation.

(2)

This Court has established a substantial body of prece-

dent setting forth the appropriate criteria for determining

whether a land use regulation is a valid exercise of the

police power. In Village of Euclid v. Ambler Realty Co., 272

U.S. 365 (1926), this Court, in sustaining a zoning ordi-

nance, stated that it would not find such ordinance to be out-

side the scope of the police power unless its provisions “are

clearly arbitrary and unreasonable, having no substantial

relation to the public health, safety, morals or general

welfare.” 272 U.S. at p. 395. In its opinion, this Court

further recognized that a State legislature has flexible

power to respond to unique economic and cultural prob-

lems, particularly those arising from the vast changes in

the extent and the complexity of the problems of modern

city life. 272 U.S. at pp. 386-387. See also, Young v.

American Mini Theatres, 427 U.S. 50, 71-72 (1970) ; City of

New Orleans v. Dukes, 427 U.S. 297, 303 (1976); Gorieb v.

Foz, 274 U.S. 603, 610 (1927). The police power, in a land

use context, has been extended to the promotion of general

community development, which includes legislation for

aesthetics and other purposes affecting the quality of life.

See Village of Belle Terre v. Boraas, 416 U.S. 1, 5-6 (1974).

See also Berman v. Parker, 348 U.S. 26, 31-33 (1954).

Where the land use regulation is within the police power,

the burden is on plaintiff to establish that the line sepa-

rating valid regulation from confiscation has been breached.

In meeting this burden, it is insufficient to show that the

regulation has deprived the property owner of the most

profitable use of his property. Goldblatt v. Town of Hemp-

stead, 369 U.S. 590, 592-593 \(1962); Hadacheck v.

Sebastian, 239 U.S. 394, 405 (1915). See also Pennsylvania

Coal Co. v. Mahon, 260 U.S. 393, 414-416 (1922).

The cases cited above indicate that a determination of

whether the land use regulation is valid will depend on an

examination and balancing of three elements: the im-

portance of the regulation to the public good; the reason-

ableness with which the regulation attempts to achieve that

good; and how substantially the regulation affects the

economic viability of the particular parcel.

In Goldblatt v. Town of Hempstead, 369 U.S. 590, 594

595 (1962), this Court set forth these considerations as

providing the test of constitutionality of an ordinance

regulating land use by prohibiting excavation below the

water table. Preliminarily, the Court found that although

the ordinance completely prohibited the continued opera-

tion of the plaintiffs’ sand and gravel mine and deprived

the property of its most beneficial use, this did not make

it unconstitutional (pp. 592-593, 596). Nor did constitu-

tionality hinge on whether the use prohibited was a com-

mon law nuisance (p. 593). In applying the test as to the

importance of the regulation for the general welfare of the

community, this Court concluded that the plaintiff had

failed to meet its burden of presenting evidence sufficient

to overcome the presumption of constitutionality. 369 U.S.

at p. 596.

As we noted above, citing cases, land use regulation for

aesthetic purposes has been recognized by this Court as of

vital importance to the welfare of the community and

within the police power of state legislatures. More than

this, as we have shown earlier, at all levels of government

there has been an increasing awareness of the need to pre-

serve our cultural heritage, represented in part by our

landmark buildings and historic districts. It has been

recognized that such preservation is directly related to the

economic and cultural vitality of the City.

The second consideration is whether the restrictions are

reasonable in light of the public purpose to be achieved. In

Goldblatt v. Town of Hempstead, supra, 369 U.S. at p. 595,

this Court referred to “the availability and effectiveness

of other less drastic protective steps” as a prime test for

determining the reasonableness of the regulation. Here,

since the public purpose is to preserve landmarks, preserva-

tion can only be accomplished by requiring that the land-

marks not be destroyed or altered without permission.

The remaining criterion is the impact of the regulation

upon the parcel’s economic viability. Under the decisions

of this Court, Goldblatt, supra, 369 U.S. 590, Hadacheck,

supra, 239 U.S. 394 and Pennsylvania Coal, supra, 260

U.S. 393, the plaintiff, to succeed in attacking a Landmarks

Law as an unconstitutiona! deprivation of property, must

demonstrate that the law, as applied to the subject parcel,

deprives him of all reasonable economic use of the property.

This standard was applied in Maher v. New Orleans, 516

F. 2d 1051 (5th Cir., 1975), cert. den. 426 U.S. 905 (1976),

which involved the power of the City of New Orleans to

enact an architectural contro] ordinance applicable to the

historic French Quarter of New Orleans. In upholding the

ordinance, the Court of Appeals found that the plaintiff was

not entitled to relief because he could not demonstrate that

the subject property, as restricted, could not yield a rea-

sonable rate of return. 516 F. 2d at p. 1066.

See First Presbyterian Church of York v. City Council

of the City of New York, 25 Pa. Co. 154, 360 A. 2d 257,

260-261 (Comm. Ct. of Pa., 1976); Figarsky v. Historic

District Commission of the City of Norwich, 171 Conn. 198,

368 A. 2d 163 (1976), where the Courts, in applying

similiar tests, upheld denial of demolition permits. See

also, Lafayette Park Baptist Church v. Scott, 553 S.W. 2d

856, 862-863 (Mo. Ct. of App. 1977).

As we will show infra, pp. 27-33, the state appellate courts

properly found in the instant case that the appellants had

not demonstrated that the Terminal, as restricted by the

Landmarks Law, is incapable of earning a reasonable rate

of return upon its value for the use to which it has been

continuously devoted, and which use is unaffected by desig-

nation as a landmark.

(3)

It is noteworthy that appellants do not dispute the ap-

plication of the three-fold test, including the requirement

that a plaintiff demonstrate that the property, as restricted,

is not economically viable, to individual parcels located

within designated historic districts (App. Br., pp. 22-23).

They object to the use of the test only when an individual

building, outside of a district, is designated as a landmark.

In such a case, appellants contend that a state should only

be allowed to restrict the use of property if it pays com-

pensation to the owner. This attempt to treat buildings

of unique historic, cultural or aesthetic character differ-

ently, depending on whether they are sufficiently contiguous

to be classified as a district, or sufficiently separated to

require individual designations for a city-wide classifica-

tion, does no more than place form over substance and

represents a misapprehension of the purpose of landmarks

legislation.

As we discussed in an earlier part of our brief, land-

marks preservation is necessary to the general welfare of

the people, particularly in New York City where the eco-

nomic and cultural life of a densely populated metropolis

is strongly affected by the quality of its physical environ-

ment. The more successful a landmarks law is in pre-

serving the urban environment as an attractive place to

live, the more it will contribute to the preservation of the

City’s quality as a center of communication, finance, and

transportation. The landmarks scheme directly relates to

all aspects of life in the City and all property owners

participate in the benefits gained.

Appellants’ parcel of land has not been ‘‘singled out’’

for discriminatory regulation. The individual designations

under the New York City Law are part of a general com-

munity plan to preserve historic properties throughout the

entire city. The landmarks legislation contemplates that

designations will continue to be made (Section 207-2.0,

subd. i, J.S.A. 86a). Each designation must be forwarded

to the City Planning Commission, which must submit a re-

port to the Board of Estimate with respect to the relation

of such designation to the master plan, the zoning resolu-

tion, projected public improvements and any plans for the

renewal of the area involved. New York City Admin. Code

§ 207-2.0(g)(1) (J.S.A. 85a). As a result, the landmarks

preservation program is part of a general land use plan for

the entire city. The law sets forth specific criteria which

must be met for designation. The Landmarks Commission

has designated over 500 buildings and thirty-one historic

districts throughout the five boroughs of New York City, all

of them contributing to the vitality of the city in which

appellants own property. If a landowner believes that the

designation is improper, he may challenge the designation

whether or not the property is in an historic district and

will be entitled to relief if he can show that the property

is not economically viable or that the designation is

unreasonable.

It may well be that the burdens of landmarks regulation

are not equal and the benefits are not exactly proportionate

to the burdens, but that is also true of all land use regula-

tion, including zoning, which does not impose uniform re-

straints and reciprocal benefits. In a large number of land

use regulation cases in which the owner of the restricted

property unsuccessfully challenged the regulation, it was

recognized that the burdens to the owner were greater

than the benefits. See Goldblatt v. Town of Hempstead,

369 U.S. 590 (1962) (zoning); Queenside Hills Realty v.

Saal, 328 U.S. 80 (1946) (requirement of a sprinkler sys-

tem); Maher v. The City of New Orleans, 516 F. 2d 1051

(5th Cir. 1975) (historic district regulation) ; Construction

Ind. Assn., Sonoma Cty. v. City of Petaluma, 522 F.2d

897 (9th Cir., 1975), cert. den. 424 U.S. 984 (1976) (mora-

torium on residential development) and Cromwell v.

ee a eee oe aE CES | EL SE ES OE <—-

Ferrier, 19 N Y 2d 263, 225 N. E. 2d 749 (1967) (hill-

boards).

The designation of an individual landmark is not

analogous to spot zoning. Spot zoning is unplanned land

use regulation which results in an arbitrary or unreasonable

devotion of a small area so zoned or rezoned to uses incon-

sistent with those to which the rest of the district is re-

stricted. See Rodgers v. Village of Tarrytown, 302 N.Y.

115, 123, 96 N.E. 2d 731, 734 (1951); City & County of

Denver v. Denver Buick, 141 Col. 121, 347 P. 2d 919 (Col.

1959); Rathkopf, The Law of Zoning & Planning §§ 26.01-

26.03. It is the overall scheme of the Landmarks Law which

distinguishes this case from cases involving spot zoning.

The designation of Grand Central Terminal is pursuant to

general plan. It is related to the preservation of other

structures which, taken all together, maintain the attractive

quality of the City. It is not unreasonable to distinguish

historie properties from the unhistoric. This distinction,

in which pursuant to a general plan historic buildings

are treated differently from buildings which are not land-

marks, bears a rational relationship to a legitimate state

interest. See City of New Orleans v. Dukes, 427 U.S. 297

303-305 (1976); Village of Belle Terre v. Boraas, 416 US.

1, 7-8 (1974) ; Construction Ind. Assn, Sonoma Cty. v. City

of Petaluma, 522 F. 2d 897, 906 (9th Cir., 1975) cert. den.

494 U.S. 934 (1976).

In sum, appellants’ property is being regulated pursuant

to the same legislative scheme affecting hundreds of other

landmark parcels in this City. As indicated above, appel-

lants were entitled to avoid regulation by establishing that

the property, as restricted, was not economically viable. In

this case, the state courts found that appellants failed to

meet that burden.

(4)

At the trial, Penn Central argued that it was suffering

an operating loss in running the Terminal. The basis for

Penn Central’s claim is a “Statement of Revenues and

costs’’ for Grand Central Terminal for 1971 and a similar

statement for 1969 (J.A. 100-104). These statements were

prepared specifically for this litigation (J.A. 61, 62, 65).

In these statements, ‘‘Grand Central Terminal’’ includes

the station building and the subsurface area, including plat-

forms (J.A. 61).

The state appellate courts found that the first significant

legal error in the statements occurred in Penn Central’s

treatment of “Revenues.” It is fundamental that the rental

value of an improvement must include the imputed value

of the owner-occupied space. See Matter of Seagram &

Sons v. Tax Comm., 14 NY 2d 314, 200 N.E. 2d 447 (1964).

But Penn Central included under “Revenues” only the

rents received from the Terminal’s commercial tenants and

concessionaires (J.A. 61). Thus the total revenue figure

of $3,174,257 includes rentals for what is only a portion of

the Terminal’s total space. It does not include any rental

value for those portions of the Terminal used by the rail-

road for offices, storage and employee amenities (J.A. 64).

More important, the “Revenues” figure does not include

any rental value for the vast bulk of space in the Terminal

which is used for railroad purposes.* Where rental value

for a building’s principal use is altogether omitted, such

“study” as to its economic viability is obviously of little

probative value. The reasonable rental value of the space

used by a railroad in passenger business as a terminal can-

not properly be deleted from any meaningful analysis of

the property’s capacity to yield a reasonable return.

* Appellants in their brief suggest that the Terminal is physi-

cally deteriorating (App. Br., p. 1). To the contrary, any visitor

to the station would be aware that the physical structure of the

Terminal has been substantially upgraded in recent years. The

Terminal serves thirty thousand commuters daily with additional

hundreds of thousands of persons, who use the City’s subway sys-

tem, passing through the Terminal, \itch, p. 6.

The magnitude and significance of the error made by the

appellants in the New York Supreme Court can be readily

seen. The space devoted to railroad use, and leased to a

governmental agency, which operates the service is vast.

It includes the main concourse; the tracks and platforms;

connecting areas on the main concourse level and on the

various subsurface levels; the lower level concourse; the

areas used for the sale of tickets; the areas used by the

various workers involved in the Terminal (e.g. the station

master and his staff). All of this enormous space, contain-

ing massive railroad facilities and improvements, was ne-

glected by Penn Central, as if it did not exist. It may be

noted that the assessed valuation of the transportation

portions of the Terminal] is approximately double the as-

sessed valuation of those portions of the Terminal devoted

to commercial and concession use (J.A. 91), and rents from

commercial and concession use exceeded three million dol-

lars a year (J.A. 102).

With respect to the appellants’ list of “Costs of Mainte-

nance and Operation,” the appellants failed to distinguish

between expenses incident to real estate operations and

those incident to railroad operations. Thus although

“Revenues” were limited to values generated by the com-

mercial and concession use of the Terminal, the “cost”

items were not so limited (J.A. 64-65, 66, 100-104).

Appellants attributed to the Terminal building not just

those expenses which could be considered expenses of

maintaining the real estate, but all of their expenses in

operating a railroad terminal. Mr. Milano, regional con-

troller of the metropolitan region of Penn Central, who

testified about the expenses listed on the “Statement of

Revenues and Costs,” admitted that the $1,141,679 listed

for “maintenance, repairs and service plant operation,”

the largest single cost item, referred to costs of the entire

terminal operation, as did the $632,753 listed for “clean-

ing,” the $438,566 for “policing” and the $69,485 for

“other direct costs” (rubbish removal et alia) (id.). This

would also be true of the “materials and supplies’

($69,692) used in “maintenance,” the “utilities” ($660,710),

and the “supervision of maittenance” ($205,029).

In addition, ‘‘track cleaning’’ ($57,188), ‘‘supervision”’

of track cleaning ($5,816), and general administrative ex-

penses ($350,301) (which refer to such things as the

salaries of the general manager of the railroad and his

staff and accounting costs) are not properly attributable

in any degree to operations of the Terminal alone. They

are expenses of the entire business (J.A. 64-65, R945, 947-

948).

Of the total expenses of $5,076,724, the only cost that is

clearly attributable solely to the real estate and not in

whole or in part to the business is the $598,494 for ‘‘real

estate taxes.’’ Other items of expense such as ‘‘Gross

earning taxes’’, ‘‘track cleaning’’, ‘‘supervision of track

cleaning,’’ ‘‘depreciation’’ and ‘‘general administrative

expenses’’ of the railroad are not attributable in any part

to the costs of running the building. These total $812,805.

As for all the other expenses for maintenance and so on,

appellants can properly list as expenses only that por-

tion which is attributable to the operation of the real estate

and not to the operations of their business. As with their

error in computing rentals, the record is completely in-

accurate. They made no attempt whatever to make the

necessary allocation. The appellate courts properly found

that there was a total failure of proof in the appellants’

attempt to establish economic hardship based on the income

and expense statements.

In addition, appellants did not establish that the unused

transfer rights over the Terminal could not have profitably

transferred to other sites. To the contrary, at the trial it

was shown that, in appropriate cases, transfer rights have

substantial value. Thirty thousand square feet of develop-

ment rights had been transferred from Amster Yard, a

landmark in mid-town Manhattan to a site on the same

block. Such a transfer permits construction of a larger

ee eee es

building on the receiving site. The transfer was effected

at a price of approximately $494,000 (R1206-1209).

Both Penn Central and UGP had acknowledged by their

actions that the transfer rights from the landmark site to

an adjacent site constituted a valuable asset, which could

be the subject to a sale.

In 1969 UGP had its architect, Marcel Breuer, prepare

schematic plans for an office building on the site of the

Biltmore Hotel which would be of equivalent size to the

proposed towers over Grand Central Terminal. The plans

for such a building had reached a stage ‘‘comparable to’’

the plans for the proposed towers (J.A. 36-37). The Bilt-

more Hotel was to be demolished, approximately 1.3 million

square feet of development rights transferred to the site

and a building of 2.1 million square feet was to be con-

structed (J.A. 37, 73-74). The remaining unused develop-

ment rights would have been available to Penn Central to

transfer to other sites.

The 1969 amendments to the Zoning Resolution were ex-

pressly intended to expand the number of sites that could

receive transfers of development rights from the Grand

Central Terminal site (J.A. 68-69). Although there was

disagreement in the testimony as to whether the developer

had agreed to apply for a transfer once the amendment

was enacted (as testified to by Jacquelin Robertson, the

Director of the Office of Midtown Planning and Develop-

ment, J.A. 73-74) or agreed only to seriously consider such

an application (as testified to by Murray Drabkin of UGP

(J.A. 38-39), it is undisputed that virtually all of the details

as to such application had been worked out with the City

Planning Commission and that the Commission was ready

to proceed with the required public hearing (J.A. 70-71,

75-76, 77). |

The evidence also indicated that, in late 1970 and 1971,

UGP and Penn Central negotiated for a lease on the

Biltmore site and a transfer of air rights from the land-

mark parcel to the Biltmore site. UGP’s offer of $3.8

million in annual rent was turned down by Penn Central

which was asking for $5 million (J.A. 33-35). That the

economic value of the air rights above the Terminal were

being preserved, is thus clearly apparent from the record

proof. When Penn Central offered its midtown properties

for sale in 1971, UGP placed two alternative bids, one for

the Grand Central Terminal air rights together with the fee

in the Biltmore site and one for the air rights plus the fee

in the Roosevelt Hotel site. It offered $11.7 million for the

Biltmore, plus $3.5 million for the air rights (J.A. 47-49).

Although these bids were rejected by Penn Central, they

evidence UGP’s view of the economic feasibility of both

proposals.*

In their brief, without referring to any evidence sub-

mitted at the trial, the appellants argue that the value of

the air rights is minimal because of the procedures neces-

sary to obtain approval of the transfer (App. Br., pp.

40-41). A transfer of development rights is required to be

approved by the New York City Planning Commission and

the Board of Estimate. In this case the City Planning

Commission, which, in cooperation with the appellants, had

developed a plan to amend the Zoning Resolution to benefit

Grand Central Terminal, and the Board of Estimate were

prepared to proceed expeditiously. At no time in the course

of trial or an appeal in the state courts, did the appellants

seriously question that, in fact, such approval was almost

certainly forthcoming.

The evidence offered by the appellants in support of their

argument of economic hardship, relating to the air rights

and the statement of revenues and expenses was carefully

reviewed by the State appellate courts. The Appellate

Division, in its order dismissing the complaint found that

* Interest in the development rights was also expressed by two

major real estate developers in New York City, Harry Helmsley

and Goldman-DiLorenzo (.J.A. 77, 86-87).

ee Pe ee

the appellants had failed to show that the unused develop-

ment rights could not have been profitably transferred to

one or more nearby sites (J.S.A. 49a). In presenting their

proof of alleged hardship the appellants had ascribed no

value to the development rights (id.). The Appellate Divi-

sion also found that the statement of revenues and expenses

failed to impute any rental value for the part of the Ter-

minal used for railroad purposes and that the statement

improperly attributed a considerable amount of their oper-

ating expenses to real estate operations (J.S.A. 49a-50a).*

These findings of fact were affirmed by the New York

Court of Appeals.

(5)

The appellants’ entire brief is devoted to an analysis of

the decision of the New York Court of Appeals which it

characterizes as having fashioned srecial rules in per-

mitting the City to designate Grand Central Terminal with-

out the payment of just compensation (see particularly,

App. Br., pp. 9, 20-23). The appellants’ brief assumes

that this is a ‘‘taking’’ case involving the principles of

eminent domain and that the only issue is whether the

Court of Appeals, instead of awarding the appellants just

compensation, approved of a lesser standard of fair com-

pensation in cases involving historic buildings. There is

nothing in the opinion of the Court of Appeals to support

*In their brief appellants (p. 8, fn. 7) state that, in the New

York courts, Penn Central presented substantial evidence that it

could not earn, either before or after the designation, a reason-

able rate of return. As we discussed in the main text, this evidence

was found to be insufficient by the Appellate Division and the New

York Court of Appeals. The findings of the trial court were

reversed (J.S.A. 45a-55a).

Throughout the amicus brief of the Real Estate Board of New

‘ork, Inc. there are statements of ‘‘fact’’ relating to the condition

of the Terminal and the burden on the appellants to operate the

Terminal (Br., pp. 27, 39). These assertions were also rejected

by the Appellate Division and the Court of Appeals.

such a theory. To the contrary the Court of Appeals stated

that the principles of eminent domain are not applicable to

this case (J.S.A. 5a).°

In his opinion, Judge Breitel presumed that the tradi-

tional police power test would apply to the designation of

an individual landmark (J.S.A. 5a).** At the beginning of

his opinion, Judge Breitel stated that the landmarks desig-

nation of Grand Central Terminal was not zoning because

zoning imposes both benefits and burdens on an owner and

is affected pursuant to a general plan (J.S.A. 4a). Judge

Breitel concluded that landmarks designation of an indi-

vidual parcel is not designed to “further a general com-

munity plan’’ and imposes burdens on the owner without

comparable benefits, even though it has an acceptable pur-

pose distinguishing it from discriminatory or spot zoning

(J.S.A. 5a-6a).

Then Judge Breitel noted that, in a particular case, there

may be benefits to a landmark site sufficient to keep it

within the ambit of the police power (J.S.A. 5a-6a). These

benefits included the tax exemption (pltfs.’ Exh. 8 at

J.S.A. 91); the valuable transfer development rights; the

* For example, the appellants state that the Court of Appeals

(citing its opinion at pp. 2-3) erred in holding that, in landmark

cases, ‘‘compensation need not be paid for such portion of the

value of air rights that the court asserted to be attributable to the

efforts of ‘organized society’”’ or the “social complex” in which

the Terminal is located (App. Br., pp. 16-17). A reading of the

pages cited by the appellants indicates that the Court was discussing

these factors in the context of the police power and the appropriate

test is reasonable rate of return.

** Our interpretation of the opinion of the Court of Appeals in

the instant case has been confirmed by the New York Court of Ap-

peals in Modjeska Sign Studios, Inc. v. Berle, ——- N Y 2d .

opinion dated December 21, 1977. In commenting on its decision in

Penn Central, the Court noted that the landmark regulation there

“did not deprive the property owner of the ability to use the reg-

ulated land in a manner which would ensure a reasonable return

on its investment” (Opin., p. 5).

iat tren, mentee ne ee

value of the Terminal which has been created by the public

contribution, and the enormous value of the land owned by

Penn Central in the area surrounding Grand Central Ter-

minal (See pltfs.’ Exh. 10, at J.S.A. 93).

The Court reasoned that these benefits justify applying

to Grand Central Terminal the traditional police power test

applicable to regulation of land use. Applying the tradi-

tional test, the Court of Appeals properly concluded that

the appellants failed to show that the property, as re-

stricted, was incapable of earning a reasonable rate of re-

turn.*

This is precisely the test that we discussed in subdivi-

sion 2 of our argument. The Court of Appeals went

through an extra step where it considered the tax exemp-

tion, ete., because it did not see site-by-site landmark desig-

nation as being pursuant to a general community plan. We

think that in this, the Court erred. As we discussed above,

supra, pp. 25-27, the designation of individual land-

marks is part of a comprehensive plan to preserve historic

buildings throughout the City which plan is, in turn, inte-

grated into the genera! land use plan for the entire City.

The Court of Appeals’ analysis could, at best, only be ap-

plicable to a municipality which has no landmarks legisla-

tion and passes a law to preserve an historic building in

private ownership.

But even assuming that a single designation cannot be

considered as part of a general community plan, the Court

of Appeals only referred to the particular benefits to Grand

Central Terminal to apply the traditional test applicable

*In their brief in discussing “anticipated economic return”,

the appellants, citing the opinion of the Court of Appeals, group

the Terminal with “other nearby buildings” (p. 24). This is a mis-

representation of the opinion of the Court of Appeals. The Court

of Appeals only referred to the increased value of the ‘‘nearby

buildings’’ for the purpose of indicating a factor to be considered

in determining whether or not the landmark parcel, as restricted,

was economicaly viable (J.S.A. 13a-l4a).

to a land use regulation enacted pursuant to the police

power. These particular benefits place the owner of prop-

erty in the same position as an owner of property in an

historic district or an owner of property subject to a zon-

ing resolution. If he can show economic hardship, he will

be entitled to relief. In this case, the appellants failed to

meet that burden.

(6)

We will not discuss each of the cases cited by the appel-

lants in their brief. Those cases, including Griggs v. Alle-

gheny County, 369 U.S. 84 (1962) and United States v.

Causby, 328 U.S. 256 (1946), involve the application of

the principles of eminent domain where there has been a

physical invasion of the owner’s land or some other gov-

ernmental action which interfered with the existing use.

In the instant case, the property, as restricted, is continu-

ing to function as a terminal. The appellants have used

these cases in support of their argument that the New

York Court of Appeals found the instant designation to

be a taking, but incorrectly denied just compensation there-

for. As we discussed above, supra, p. 21, this argument is

based on the improper assumption that the landmark par-

cel consists of two distinct properties, the Terminal and

the air rights above the Terminal. This taking argument

is not supported by the opinion of the Court of Appeals.

The Court of Appeals stated that there had been no taking

and found that the principles of eminent domain were not

applicable to the case (J.S.A. 5a). The appropriate issue

in this case is whether the land use regulation has made the

property economically unviable. We have shown that the

appellants did not sustain their burden of proof on this

issue.

Il Assuming, arguendo, that the Landmarks Law is

invalid as applied to Grand Central Terminal, the

appellants are in no event entitled to damages or

compensation. There has been no legally author-

ized, or de facto, exercise of the power of eminent

domain. The invalidation of a police power regu-

lation does not entitle the property owner to a

money judgment.

Assuming, arguendo, that the Landmarks Law is invalid

as applied to Grand Central Terminal, the appellants are

not entitled to damages or compensation.

The issue of an award of compensation for an inverse

condemnation was raised in French Inv. Co. v. City of

New York, 39 NY 2d 587, 350 N.E. 2d 381 (1976). In

French, the Court of Appeals held that an amendment to

the zoning resolution which rezoned the parks in Tudor

City in Manhattan was unconstitutional but that this did

not constitute a compensable taking. The Court of Appeals

however, on the ground that the issue was not properly

raised, refused to determine whether the plaintiff would

be entitled to damages flowing from an illegal exercise of

discretionary governmental power. 39 NY 2d at p. 599, 350

N.E. 2d at p. 388. The plaintiffs sought review of the

denial of an award of compensation in this Court. The

appeal was dismissed. 429 U.S. 990 (1976).

In Mailman Development Corporation v. City of Holly-

wood, 286 So. 2d 614 (Fila. App., 1974), cert. den. 293 So.

2d 713, cert. den. 419 U.S. 844, the State Court upheld the

dismissal of one count of a complaint which pleaded a

taking by reason of the confiscatory effect of a zoning

change challenged in another count of the same complaint.

In this case, there could be no cause of action for an

inverse taking. The provisions of the Landmarks Law at

issue here were enacted pursuant to the police power.

There has been no attempt to appropriate Grand Central

Terminal to public ownership. The challenged actions of

the Landmarks Commission, in designating the Terminal a

landmark and in denying the appellants a certificate of no

exterior effect or a certificate of appropriateness, could not

legally have effected a condemnation justifying an award

of compensation. The authority to exercise the power of

eminent domain requires capital budget action under New

York City Charter, Chapter 9. The procedures for a con-

demnation in New York City are set forth in the New York

City Administrative Code, Section B15-1.0 et seq. See also

New York City Charter, Section 382. Compare 207-8.0

(g)(2) of the Administrative Code (J.S.A. 100a), which

specifically provides for condemnation with respect to land-

marks in certain instances not applicable here. Even then,

it is not the Landmarks Commission which is authorized

to condemn. The Commission is authorized only to make

recommendations to the Mayor; then the City has the

option of instituting condemnation proceedings.

Nor can it be said to be a de facto taking. There has been

no physical invasion of the land, ouster of the owner, or

official action interfering with the appellants’ use of its

property sufficient to constitute a de facto taking. Cf. City

of Buffalo v. Clement Co., 28 NY 2d 241, 255-257, 269 N.E.

2d 895, 903-904 (1971); Matter of Charles v. Diamond, 41

NY 2d 318, 329, 360 N.E. 2d 1295, 1308 (1977).

Nor do the appellants have a cause of action for damages.

A statement on the applicable principle was set forth in

Veling v. Ramsey, 94 N.J. Sup. 459, 228 A. 2d 873 (1967).

In Veling, plaintiff brought an action for damages for the

loss of the use of property following the invalidation of

successive zoning amendments. The municipality’s defense

was good faith action in reliance upon opinions of plan-

ning experts. In awarding summary judgment to the

municipality, the Court stated (228 A. 2d at 874):

‘*The adoption of these amendments to the zoning

ordinance by the governing body represents the ex-

ercise of a discretionary governmental function.

No cause of action against the municipality can be

grounded on the alleged invalidity of such an official

legislative determination. Visidor Corp. v. Cliffside

Park, 48 N.J. 214, 225 A. 2d 105 (1966) * * *.

The power of a municipality to adopt zoning regula-

tions pursuant to statutory authority is an essential!

aspect of the police power. The governing body must

be free to exercise that power in good faith to amend

or alter its zoning regulations when it determines the

public interest so requires, to hold otherwise would

saddle municipalities with oppressive financial burdens

and litigation which would seriously impair if not

nullify, their power to perform a vital governmental

function. See Visidor Corp. v. Cliffside Park, supra.’’*

To similar effect is Matter of Charles v. Diamond, 41

NY 2d 318, 331-332, 360 N.E. 2d 1295, 1304-1305 |(1977) ;

Superior Uptown Inc. v. City of Cleveland, 39 Ohio St. 2d

36, 313 N.E. 2d 820 (1974); Mailman Development Corpo-

ration v. City of Hollywood, 286 So. 2d 614, 615 (Dist. Ct.

of App., Fla., 1974), cert. den. 293 So. 2d 717, cert. den. 419

U.S. 844 (1969); HFH, Ltd. v. Superior Court of Los An-

geles County, 125 Cal. Reptr. 365, 542 P. 2d 237, 242-243

(1975), cert. den. 425 U.S. 904 (1976); Vustdor Corp. v.

Cliffside Park, 48 N.J. 214, 225 A.2d 105 (1966), cert. den.

386 U.S. 972 (1966).

If a contrary rule were established permitting an award

of damages for an invalid police power regulation, public

officials would be reluctant to enact innovative but untested

legislation. The result would be a substantial disruption

in the functions of municipalities with respect to projects

involving discretionary action such as the building of high-

ways, regulation of noise, zoning and landmarks preserva-

tion.

CONCLUSION

The order appealed from should be affirmed, with

costs.

March 1, 1978.

Respectfully submitted,

Auten G. ScHWARTz,

Corporation Counsel of

the City of New York,

Attorney for Appellees.

iL. Kevin SHERIDAN,

LEonARD KOERNER,

Dorotuy MINER,

of Counsel.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.