Discovery in Condemnation Cases and “The Appraisal Rule”

By M. Robert Goldstein and Michael Rikon

April 26, 2005

Discovery in a condemnation case is unusual and when it is allowed, it is extremely limited. Indeed, the Eminent Domain Procedure Law (EDPL) provides for only two instances of discovery.

The first is set forth in EDPL § 302. This provision gives a condemnor the right to inspect the property prior to vesting and to request financial information to be used for a pre-vesting offer. A party affected by such demand may, where the demand for such information is unreasonable, petition the court for relief. The provision provides that the failure of the owner to comply with the request suspends the condemnor’s obligation to make an offer pursuant to Article Three until the information is provided. Since property is valued utilizing market rents and market expenses, most appraisers ignore actual circumstances in a condemnation case. The same is not true in tax protest cases.

Another type of discovery sanctioned by the EDPL is the right to enter the property prior to acquisition to conduct an environmental survey and related tests. EDPL§ 404.

Discovery is Disfavored

Discovery is disfavored in a condemnation case because it runs contrary, indeed is the antithesis to the legislative purpose of the EDPL which requires the establishment of rules to reduce litigation and expedite payments to property owners. EDPL § 101.

The stated policy of the EDPL set forth in §301 confirms the necessity of the condemnor to make every reasonable and expeditious effort to justly compensate persons for such real property by negotiation and agreement.

The condemnor is also required to file a Note of Issue after the last date to file a claim, EDPL §506, or, more practically, after the last appraisal is exchanged.

There is another reason why discovery is unnecessary in a condemnation and that is that is “The Appraisal Rule” which will be discussed later.

Pretrial disclosure was originally considered by the New York State Commission on Eminent Domain. In an early draft of the proposed EDPL, the Commission envisioned full pretrial discovery as set forth in Civil Practice Law and Rules (CPLR) Article 31 (Proposed § 610). Examinations before trial were also provided for. (Proposed §610) However, after much deliberation, pre-trial discovery was dropped in all later reports by the Commission (see 1972, 1973 and 1974 Reports of the State Commission on Eminent Domain). The final version of the EDPL adopted by the legislature as Chapter 839 of the Laws of 1977 does not provide for pre-trial discovery.

A condemnation proceeding, like a tax certiorari proceeding, is a special proceeding. Under CPLR 408, leave of the court is required for disclosure in all special proceedings. The Advisory Committee notes to CPLR 408 indicate that the requirement of an Order for Disclosure is designed to preserve the summary nature of a special proceeding.

It seems more likely that limited discovery will be allowed in tax reduction cases especially if the discovery is related to income and expenses of the property, but not always. In Matter of General Electric Company v. Macejka, 117 A.D.2d 896 (3rd Dept., 1986), the Third Department held that for a court to direct disclosure in a special proceeding, the information sought must be found to be material and necessary to the defense. “The test is one of usefulness and reason.” The Appeals Court deferred to the trial court stating that the lower court “has broad discretion in the control of the disclosure process. Deference should be accorded by the Appellate Court to the trial court’s exercise of discretion and this is especially indicated in a special proceeding such as the one before us where the legislature has specifically given the court greater control of disclosure than in actions.” The Third Department affirmed the trial court’s denial of discovery on the basis of a failure to show necessity. Other courts have indicated that discovery should be permitted in special proceedings only upon a showing of “ample need” or disclosure should be available only when “special circumstances” exist which warrant it. Harris v. Bigelow, 135 Misc.2d 331 (Civ. Ct. N.Y. Co., 1987). Notwithstanding, from time-to-time, a judge will order discovery in a condemnation case but usually when there is an issue of title or standing.

As noted above, the legislature has specifically given the trial court greater control over disclosure in a special proceeding than is usual. See CPLR 408; General Elec. Co. v. Macejka, 117 A.D.2d 896, 897; Matter of American Cyanamid Co. v. Board of Assessors, 225 A.D.2d 440 (2nd Dept., 1998); Matter of Xerox Corp. v. Duminuco, 216 A.D.2d 950 (4th Dept., 1995); Matter of State of New York v. Town of Northampton, 171 A.D.2d 395 (3rd Dept., 1991); Matter of General Electric Company v. Macejka, 117 A.D.2d 896 (3rd Dept., 1986).

The Appraisal Rule

What makes discovery in a condemnation case particularly unnecessary is the fact that there are no surprises on trial. This is because of the requirement to first exchange a written appraisal or other expert report. 22 NYCRR § 202.61. See Osborn Memorial Home Association v. Assessor of the City of Rye, 2004 NY Slip op 50793 V (Westchester Sup. Ct., 2004) where Justice Thomas A. Dickerson provides a remarkable history of the appraisal rules in New York. In New York, condemnation trials are limited by the information set forth in the parties’ appraisals. After the exchange of appraisals, each side may file a rebuttal report within 60 days after receipt of the document sought to be rebutted. The appraisal reports are required to contain a statement of the method of appraisal relied on and the conclusions as to value reached by the expert together with the facts, figures and calculations by which the conclusions were reached. The appraisers are also required to provide specific information regarding their comparable sales, leases and photographs of the property under review.

Upon the trial, expert witnesses are limited in their proof of appraised value to details set forth in their reports. Under the Rules, the Court has the ability to relieve any party of a default. It should be noted that the Rule only applies to expert witnesses who are offering opinions. No report need be filed by a fact witness. In fact, the Third Department held in Faulkner v. State of New York, 247 A.D.2d 798 (3rd Dept., 1998) that an expert may be permitted to testify without first submitting an expert report if the testimony is factual and does not constitute opinion evidence. In Faulker, the issue concerned the testimony of a surveyor who testified as to square footage of the area taken.

The Appraisal Rule allows the parties to prepare for trial with knowledge of each other=s valuations and the foundations and justifications thereof. Parisi v. State, 62 Misc.2d 378, 382 (Ct. Cls., 1979). As the Fourth Department stated in Novickis v. State of New York, 44 A.D.2d 508, 512 (4th Dept., 1974) “[s]imply expressed, the Rule attempts to require full disclosure, to take the game aspect out of the case, to prevent surprises, to permit the court to determine just compensation based solely upon the facts unhindered by gamesmanship.” In Matter of White Plains Properties Corp. v. Tax Assessor of City of White Plains, 58 A.D.2d 871 (2nd Dept., 1977), aff’d 44 N.Y.2d 971 (1978), the Second Department affirmed the trial court’s preclusion of expert testimony when no appraisal report was exchanged. However, this does not mean that a trial court will automatically preclude expert testimony or strike a defective appraisal if it lacks the level of detail indicated by 22 NYCRR 202.59(g)(2). In Guilo v. Semon, 265 A.D.2d 656 (3rd Dept., 1999), the Court held that although the petitioner’s appraisal lacked the requisite facts, figures and calculations upon which the appraiser’s opinion was based, there was sufficient evidence to establish a prima facie case that the assessment was erroneous. The Court searched the appraisal and found enough facts, figures and calculations regarding the comparable sales despite the deficiency which would allow respondent to cross-examine.

We note above that the Rules provide that the trial court can relieve a party from a violation of the Appraisal Rule. It is far better to make an application prior to trial to either be relieved of default in the service of a report, or to extend the time to exchange or allow amended or supplemental reports to be filed. The trial court also has the inherent ability to grant any such application after the trial has begun. If a party believes that the other side’s report is defective, one should not wait for the trial to object to the report. Rather, one should file a motion in limine shortly after exchange. Trial courts look askance at trial by ambush and will often deny motions to preclude when they are made on the day of trial. There is another fundamental reason for the court’s reluctance to bar valuation evidence at a trial in a condemnation case.

The Fourth Department put it best in Town of Cheektowaga v. Starlite Builders, Inc., 247 A.D.2d 933 (4th Dept., 1998). InCheektowaga, the trial court granted the condemnor’s motion to strike claimant’s appraisal and directed judgment for the Town initially dismissing the claim entirely. Later, realizing that just compensation had to be paid, the court entered a supplemental judgment in the amount of the town’s appraisal report. The Fourth Department reversed and stated that “A condemnation proceeding is not a private litigation. There is constitutional mandate upon the court to give just and fair compensation for any property taken. This means ‘just’ to the claimant, and ‘just’ to the people who are required to pay for it. The rules are abundantly clear that property must be appraised at its highest and best use and paid for accordingly.” (Macali Cadillac-Oldsmobile v. State of New York, 104 A.D.2d 477, 481, quoting Matter of County of Nassau [County Beach Club], 43 A.D.2d 45, 48, aff’d 39 N.Y.2d 958; see Yaphank Dev. Co. v. County of Suffolk, 203 A.D.2d 280). Frank Micali Cadillac-Oldsmobile, Inc. v. State of New York, 104 A.D.2d 477 (2nd Dept., 1984) cited by the Cheektowaga court is informative because the Appellate Court found that both appraisals were defective and remanded for retrial, again stating that a condemnation proceeding is not a private litigation. Thus, the court must exercise due care to assure that just compensation is paid. The same is not true in a tax protest case where tax assessments are presumptively deemed valid and the burden is on the party challenging an assessment to establish that the property is overvalued.

Reprinted with permission from the April 26, 2005 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited.