Summary Judgment in Tax Cases; Reverse-Inverse Condemnation in New Jersey

By M. Robert Goldstein & Michael Rikon

October 27, 2009

Summary judgment is, we all know, a drastic remedy which should only be granted if it is clear that no material issues of fact have been presented. Issue finding, rather than issue determination, is the court’s function. The application will be denied if there is any doubt about the existence of a triable issue of fact or if a material issue of fact is arguable. It is rare to see summary judgment in a real estate valuation case. Yet, in Matter of Barnett v Assessor, Town of Carmel (Index No. 1612/2006), NYLJ, Jan. 27, 2010, P. 30, Col. 3, the Honorable John R. LaCava granted a petitioner in a tax assessment case summary judgment where the taxpayer alleged that the Town selectively reassessed the residential property in question from $150,000 to $240,000.

Selective Reassessment

Judge LaCava noted that where a petitioner alleges a change in assessment in a tax year in which there is no municipal-wide reassessment the assessor is required to provide an explanation of both the change in assessment on petitioner’s parcel and his assessment methodology in general. He noted that “this court has also frequently examined municipal re-evaluations and found that the assessor’s explanations of the changes were either lacking, or non-existent.” The court found that the Town failed to raise material issues of fact with respect to the change made to assessment or a description of its own general assessment methodology. What was provided by the assessor was nothing but varying explanations of who observed the improvements to the property without support from the property card or any other documents, or the assessor’s own first hand knowledge.

Recent Purchase Price as Evidence of Value

In another example of awarding summary judgment, in an Article 7 Real Property Tax Law case, the same court awarded judgment to a property owner of an industrial warehouse building. The premise for the application was a recent arm’s length purchase for $3,500,000 which was taxed when the equalization rate was applied as if it had a $13,000,000 market value. The court stated, “here, the petitioners allege that the 2007 and 2008 assessments simply, and significantly, exceed the fair market value of the subject premises, when calculated by application of the 2007 and 2008 equalization rates to the sale price of the property in 2006. It has indeed consistently been held that a petitioner may establish its entitlement to summary judgment by showing that the recent sale price of the property was the best evidence of the value of the property.” (See JB Park Place Realty, LLC v Village of Bronxville, 50 AD3d 689 (2d Dept 2008). This court has held similarly – – “Amongst the recognized valuation methods “[t]he best evidence of value, of course, is a recent sale of the subject property between a seller under no compulsion to sell and a buyer under no compulsion to buy.” JB Park Place Realty, LLC v Assessor of Village of Bronxville, 13 Misc3d 1233(A) (Supreme Court, Westchester County, 2006, citing Matter of FMC Corporation v Unmack, 92 NY2d 179, 189 (1998); see also Matter of 325 Highland, LLC v Assessor of the City of Mount Vernon, 5 Misc3d 1018 (Supreme Court, Westchester County, 2004).”

It was not helpful to the assessing agency that the sole rejoiner to issue of probative value of the sale was to offer nothing on personal knowledge and only the sheerest speculation that the sale price was motivated by factors such that it represents a distress sale.

The court concluded,

The Court thus finds, regarding petitioners’ motion, that, at the outset, petitioners have met the initial burden, by demonstrating entitlement to judgment as a matter of law, based on the arm’s length nature of the sale, the recent nature of the sale, and the price at which the property was sold. When viewing respondents’ properly submitted proof in a light most favorable to them, and upon bestowing the benefit of every reasonable inference to them (Boyce v Vasquez, 249 AD2d 724, 726 (3d Dept 1998), based on the abject failure of respondent to impugn the arm’s length nature of the transaction, material issues of fact do not exist as to the property assessed value of the subject premises in the tax years at issue. Matter of Application of TBS Realty Management, LLC v Village of Hillburn (Index No. 3034/07), Rockland County, December 22, 2009, J. LaCava.

The Rule is the Same in Condemnation

The same rule applies in a condemnation case. The fundamental proposition is that an actual sale of the subject property at arm’s length is the very best of evidence, because directly reflective of market value, if recent in time, and not explained away as abnormal in any fashion. Plaza Hotel Associates v Wellington Associates, Inc., 37 NY2d 273 (1975). Other courts have stated that such evidence is not conclusive and does not provide an absolute standard of value, but becomes only one of the factors to be considered. J.C.W. Realty Corp v State of New York, 44 AD2d 618, (3rd Dept 1974). The party also may “explain” away the recent purchase price.

New Jersey’s Reverse-Inverse Condemnation Case

The New Jersey Supreme Court has before it a most unusual case, Klumpp v Borough of Avalon (Docket No. 64, 722). It appears that the Klumpps lost their home in a 1962 storm which caused substantial damage along the New Jersey shoreline. In the aftermath of the storm, the Borough passed a series of resolution purportedly authorizing the construction and maintenance of sand dunes along the shoreline. The Borough removed debris and constructed sand dunes on the property. In 2003, the Klumpps applied for a permit to build a house. The permit was rejected because they could not demonstrate that they had access to their property. It seems the Borough had closed the only street servicing the property. The property owners petitioned the Borough to reopen the road, then filed suit alleging their right of private access to their property.

The Borough defended, alleging “title by operation of law” and under the common law doctrine of adverse possession. The trial court found that the Borough “stole” the property. Even though it found that there was a continuing trespass, it applied a six year statute of limitations and dismissed the claim. On appeal, the Appellate Court found that the Klumpps were entitled to prosecute a claim for access to their property, but that it was an open question as to whether the Borough could allow access in light of its regulatory scheme and obligations with regard to the dunes it constructed.

On remand, the trial court determined that the Borough could not allow access to the property. The court also remarkably determined that Avalon had taken the property through “inverse condemnation” in 1962. As a result, the lack of access had no prejudicial effect.

Inverse Condemnation

We have written on this subject before on September 24, 1992, we wrote a column devoted to Lucas v South Carolina Coastal Council. Another column followed at N.Y.L.J. P. 3, Col. 3, on December 23, 1993. As we stated there, in substantive due process inverse condemnation analysis, two distinct tests have evolved; one applicable to physical takings and the other to regulatory types. “A ‘taking’ may not readily be found when the interference with property can be characterized as a physical invasion by government, than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good.” (Penn Cent Trans Co v New York City, 438 US 104, 124 98 S Ct 2646, 2659, 57 Led2d 631, supra (citation omitted). Physical invasion cases are special because of the nature and quality of the governmental intrusion on a private party’s property rights. A simple bright line rule applies: “any permanent physical occupation is a taking.” (Loretto v Teleprompter Manhattan CATV Corp, 458 US 419, 432, 102 S Ct 3164, 3174, 73 LE2d 868, supra (emphasis added). [W]hen the “character of the governmental action” is a permanent physical occupation of property, (the Supreme Court’s) cases uniformly have found a taking to the extent of the occupation, without regard to whether the action achieves an important public benefit or has only minimal economic impact on the owner.”

Element of Trespass

In truth, inverse condemnation has all of the elements of trespass. It is believed by some that the concept was invented for the purpose of relieving municipalities of the requirement of paying treble damages. In Clempner v Town of Southold, 154 AD2d 421, 546 NYS2d 101, (1989) holding that there was no inverse condemnation (or any other cause of action), the Appellate Division, Second Department, said.

Inverse condemnation, or de facto appropriation, is based on a showing that “the government has intruded onto the citizen’s property rights to such a degree that the conduct amounts to a constitutional taking requiring the government to purchase the property from the owner.” Village of Tarrytown v Woodland Lake Estate, 97 SD2d 338, 343, 468 NYS2d 513, quoting from O’Brian v City of Syracuse, 54 NY2d 353, 357, 445 NYS2d 687, 429 NE2d 1158; See, Borntrager v County of Delaware, 76 AD2d 969, 970, 428 NYS2d 766). “Inverse condemnation, rather than trespass, is the appropriate theory for granting damages to an injured landowner where the trespasser is cloaked with the power of eminent domain.” (Tuffley v City of Syracuse, 82 AD2d 110, 116, 442 NYS2d 326). A cause of action sounding in inverse condemnation is not found in tort, and, therefore, compliance with the notice of claim provisions of General Municipal Law §50-e is unnecessary.

As we see it, the error of the New Jersey courts was applying a taking rule in the Klumpps case. Government cannot take property through inverse condemnation. Rather, it is a cause of action where the property owner is seeking compensation for a de facto taking of the property. It is an assertion that the challenged governmental action is actually an exercise of eminent domain for which the governmental entity has failed to commence de jure condemnation procedures. Thus, conceptually, an inverse condemnation is clearly not one and the same as a taking. In this case, the courts have allowed the offensive use of inverse condemnation to divest property owners of their rights. Furthermore, an inverse condemnation cannot occur without an affirmative act on the part of the property owner. This did not happen, or ripen until the Klumpps were denied the right to build on their property. See Palazzolo v Rhode Island, 533 US 606, 620 (2001) holding that a regulatory taking claim is ripe only when it becomes clear to what extent a property may be used.1

1 The amicus brief of the Pacific Legal Foundation written by David G. Evans, presents an excellent discussion of the facts and law.

Reprinted with permission from the October 27, 2009 edition of the New York Law Journal © 2009 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.