Eminent Domain Law

Condemnation of Fee Set Aside When Power Authority Fails to Demonstrate Why 35-Year Lease Was Inadequate

Matter of Steel LOS III LP v. Power Authority of the State of New York

NYLJ 9/19/08, p. 27, col. 3

Supreme Ct., Nassau Cty

(Phelan, J.)

In an article 78 proceeding, landowner challenged the condemnation of its reversion interest as unnecessary for any public purpose. The court granted the petition, concluding that the state power authority had failed to demonstrate how an existing 35-year lease on the property was inadequate to serve the stated public purpose.

Landowner's parcel, which is slightly larger than one-half acre in size, is adjacent to property owned by Calpine, a developer of power plants and a power producer. In 2003, the Long Island Power Authority (LIPA) approached Calpine about building a power plant, Bethpage 3, on the site. At first, LIPA negotiated exclusively with Calpine for construction of a plant, but subsequently issued a Request for Proposals (RFP) for construction of the plant. In the RFP, LIPA sought a 20-year agreement to provide power, and construction of a plant on property controlled by the bidder through “fee ownership, a land lease, option to lease or purchase, or equivalent demonstration of site control.” Shortly thereafter, Calpine negotiated a lease of landowner's parcel for 35 years, with a 10-year option to extend. The rent was to be $430,000 in 2005, and was to increase to $530,000 in 2008, with two percent annual increases thereafter. Calpine submitted the lease in support of its proposal to LIPA to build the plant. LIPA then awarded a 20-year power purchase agreement to Calpine, but at a price considerably lower than LIPA had previously discussed paying to Calpine. LIPA then sought the assistance of the New York State Power Authority (NYPA) in development of the plant, largely because NYPA could issue permits and a certificate of occupancy without the approval of local government authorities. Calpine then transferred control and custody of the property to NYPA so that NYPA could expedite the permitting process. NYPA, however, concluded that only fee ownership would be satisfactory for construction of the power plant, and instituted proceedings against landowner under EDPL section 206(D), an emergency provision which permits bypass of the usual eminent domain process when “the public interest will be endangered by any delay.” NYPA then acquired the property, prompting landowner to bring this article 78 proceeding to set aside the transfer.

In granting the petition and setting aside the transfer, the court emphasized that NYPA had never demonstrated why it needed more than the 35-year lease that Calpine had already negotiated with landowner. The court noted that whether a taking is for public use is a question for the court, and that a government body may not take private property under the pretext of a public benefit. Here, the court emphasized that the RFP had expressly indicated that a land lease would be adequate to demonstrate control over the premises, and found that NYPA had offered no reasons for its insistence that only fee ownership would suffice for construction of the plant. The court also questioned whether NYPA's invocation of the EDPL's emergency provisions was justified, but found it unnecessary to address that question in light of the court's determination that the acquisition was a pretext for conferring a private benefit on Calpine.

Condemnation of Fee Set Aside When Power Authority Fails to Demonstrate Why 35-Year Lease Was Inadequate

Matter of Steel LOS III LP v. Power Authority of the State of New York

NYLJ 9/19/08, p. 27, col. 3

Supreme Ct., Nassau Cty

(Phelan, J.)

In an article 78 proceeding, landowner challenged the condemnation of its reversion interest as unnecessary for any public purpose. The court granted the petition, concluding that the state power authority had failed to demonstrate how an existing 35-year lease on the property was inadequate to serve the stated public purpose.

Landowner's parcel, which is slightly larger than one-half acre in size, is adjacent to property owned by Calpine, a developer of power plants and a power producer. In 2003, the Long Island Power Authority (LIPA) approached Calpine about building a power plant, Bethpage 3, on the site. At first, LIPA negotiated exclusively with Calpine for construction of a plant, but subsequently issued a Request for Proposals (RFP) for construction of the plant. In the RFP, LIPA sought a 20-year agreement to provide power, and construction of a plant on property controlled by the bidder through “fee ownership, a land lease, option to lease or purchase, or equivalent demonstration of site control.” Shortly thereafter, Calpine negotiated a lease of landowner's parcel for 35 years, with a 10-year option to extend. The rent was to be $430,000 in 2005, and was to increase to $530,000 in 2008, with two percent annual increases thereafter. Calpine submitted the lease in support of its proposal to LIPA to build the plant. LIPA then awarded a 20-year power purchase agreement to Calpine, but at a price considerably lower than LIPA had previously discussed paying to Calpine. LIPA then sought the assistance of the New York State Power Authority (NYPA) in development of the plant, largely because NYPA could issue permits and a certificate of occupancy without the approval of local government authorities. Calpine then transferred control and custody of the property to NYPA so that NYPA could expedite the permitting process. NYPA, however, concluded that only fee ownership would be satisfactory for construction of the power plant, and instituted proceedings against landowner under EDPL section 206(D), an emergency provision which permits bypass of the usual eminent domain process when “the public interest will be endangered by any delay.” NYPA then acquired the property, prompting landowner to bring this article 78 proceeding to set aside the transfer.

In granting the petition and setting aside the transfer, the court emphasized that NYPA had never demonstrated why it needed more than the 35-year lease that Calpine had already negotiated with landowner. The court noted that whether a taking is for public use is a question for the court, and that a government body may not take private property under the pretext of a public benefit. Here, the court emphasized that the RFP had expressly indicated that a land lease would be adequate to demonstrate control over the premises, and found that NYPA had offered no reasons for its insistence that only fee ownership would suffice for construction of the plant. The court also questioned whether NYPA's invocation of the EDPL's emergency provisions was justified, but found it unnecessary to address that question in light of the court's determination that the acquisition was a pretext for conferring a private benefit on Calpine.