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Interest On Condemnation Awards In
New York
By M. Robert Goldstein & Michael J. Goldstein
Interest on a condemnation award is the equivalent of the
beneficial use of the property for which just compensation
is required by the Fifth and Fourteen Amendments to the Constitution
of the United States from the date of the taking (1). It is
part of a condemnees "just compensation". The amount
of interest is a judicial question to be determined by the
Court (2). The interest on a condemnation award stands on
a different footing from those on claims and judgments generally.
The former is constitutionally protected (3), while the latter
is purely statutory (4).
Prior to 1939, General Business Law, Section 370 (now
General Obligations Law, Sec. 5-501) was generally
applicable to all transactions. It provided for a six percent
interest rate. In 1939, as a product of the then depression,
three statutes were enacted to prescribe a "not to exceed"
rate of four percent on judgments and accrued claims against
the State (State Finance Law, Sec. 16) against
municipal corporations (General Municipal Law , Sec.
3-a) and against public corporations (Laws of
1939, Ch.583). Section 3-a of the General Municipal Law
was amended in 1956 to reduce that rate to three percent except
as to claims arising out of condemnation proceedings and for
wrongful death, where the four percent rate was retained.
With the rise in interest rates, there ensued over the years,
a series of unsuccessful challenges to General Municipal Law,
Sec 3-a's, four percent interest rate. In 1966, State
Finance Law, Sec. 16 was amended to provide for six
percent interest. By then, the Federal Government was paying
six percent interest. This was followed by the New Municipal
Building case in 1968 (5), where Section 3-a was held by the
trial Court to be violative of both the right to "just
compensation" and "equal protection of the laws"
with the Court fixing a six percent interest rate as just
compensation. It was affirmed by the Appellate Division on
the basis of the trial Court's decision and affirmed
by the Court of Appeals. As a result, General Municipal
Law, Sec. 3-a was amended to provide for six percent
interest.
Subsequently, once again interest rates started to rise and
once again there were launched unsuccessful challenges to
the six percent interest rate (6). A number of these case
reached the Court of Appeals. Among them was In Matter
of County of Nassau (Eveandra Enterprises, Inc.) (7),
where that Court, in upholding the six percent rate, in the
face of proof by a Claimant of substantially higher interest
rates, with no proof submitted by the County, stated: "The
result we reach here is not unreasonable and lends stability
to the mandate for the payment of full and equitable compensation
as fixed by the legislature. The appropriate interest rate
is not measured by the particular fluctuations in categories
of interest rates for public or private securities or lending.
So long as the statutory rate constitutes a judicially acceptable,
fair return for the deprivation of the use of that property
or the money equivalent of that use, either or in combination,
the statutory rate should be considered proper."
Other Court pronouncements were equally instructive to set
the parameters of judicial review of the presumptively reasonable
rate (8) as set by the legislature, some in the Federal Courts.
Thus, in Miller v. United States (9) it was
stated: "There is, however, a strong judicial policy
in favor of the establishment of a uniform rate of interest
applicable to condemnation cases in order to award discrimination
among litigants." and "The keystone to defendant's
arguments in favor of limiting the rate of interest to six
percent is its analogy of plaintiff's situation to a
person who bought a government obligation in 1968 at the current
rate of six percent. No reasonable investor would purchase
an obligation with both an uncertain date of maturity and
an uncertain amount of principal payable at maturity".
In Kirby Forest Industries, Inc. v. United States,
(10) it was stated "But if the disbursement of
the award is delayed the owner is entitled to interest thereon
sufficient to insure that he is placed in as good a position
pecuniarily if the payment had coincided with the appropriation".
(citing cases)
In 1982, after a sufficiently long period of higher interest
rates, the lower Court In the Matter of City of New
York (Brookfield Refrigeration Corp. ) (11) found
that a nine percent interest rate was required to afford just
compensation, finding the six percent rate insufficient. This
was affirmed by the Appellate Division and Court of Appeals.
It was followed by the State Legislature enacting Chapter
681 of the Laws of 1982 which amended State
Finance Law Sec. 16, Laws of 1939, Chapter 583 and
part of General Municipal Law, Section 3-a,
omitting, however, that portion relating to interest on condemnation
awards, by increasing the interest rate to nine percent.
Since, in Brookfield Refrigeration, the Court
determined six percent interest did not afford just compensation,
despite the legislature's failure to amend the General
Municipal Law to increase the rate as to condemnation awards,
as the other interest statues had been amended, the municipalities
continued to pay nine percent interest until 1986. In
Matter of the City of New York (Estate of Michael Levine)
(12) the Appellate Division Second Department found
insufficient evidence to overcome the presumption of validity
of the unchanged statutory six percent interest rate as to
condemnation proceedings in General Municipal Law, Section
3-a. Thus left a two tier interest rate for condemnation proceedings,
six percent for the municipalities and nine percent for all
others.
As may be noticed, while there had been many challenges to
statutory interest rates, none had been by the condemnors.
That, however, did not last. In 1997, in the case of Rodriguez
v. New York City Housing Authority (13), the Court
of Appeals held that where the statutory language in that
statute stated the rate in terms of "not to exceed"
it did not fix that as an inviolate rate as to the condemnor
and it could be challenged by it. The language in that statute
was identical to those in the other statutes and it was clear
that decision was a precedent as to all of them. It also stated
the standard of review, as "the fact that another interest
computation may also be "reasonable" does not mandate
the selection of that rate in an exercise of discretion",
still holding with the presumption of fairness and reasonableness
which attached to the statutory rate.
All of this, however, relates only to pre-judgment interest.
In Adventurers Whitestone Corp. v. City of New York
(14) and Rochester Carting Co., v. Levitt (15)
the Court held the constitutional protection of "just
compensation" only applied to pre-judgment interest,
not post-judgment interest. So where does that leave us in
the world of condemnation pre-judgment interest rates. First,
the rate is challengeable by either party. Secondly, there
is a need for evidence to overcome the presumption that the
statutory rate is valid fair and reasonable, that particular
fluctuations in the rate are not sufficient to overcome its
validity and there is a need for stability in the rate of
interest being paid to condemnees. The issue appears to be
of when does an increase or decrease in interest rates cease
to be mere fluctuations.
In M.T.A. v. American Pen Corp., (16) the Court,
in finding that a nine percent pre- judgment interest rate
applied to the M.T.A. as a "public corporation",
instead of the four percent rate in its "right to sue"
statute, included an interesting footnote to its citation
of the following language from Matter of City of New
York (New Municipal Building) (17). "Additionally,
Unconsolidated Laws Sec. 2501 mirrors the statute applicable
in condemnation proceedings against the State (see, State
Finance Law, Sec. 16) in the State rate and the rate generally
applicable to its public corporations would be consistent
with the underlying purposes of the EDPL, which are "to
assure that just compensation shall be paid to those persons
whose property rights are acquired by the exercise of the
powers of eminent domain - - - (and) ensure equal treatment
to all property owners (EDPL 101; see also Matter of
City of New York (New Mun. Bldg.) 57 Misc.2d 156, 162)
(differentiation between condemnors with respect to applicable
interest rate was wholly arbitrary, ‘unreasonable and
palpably improper' because, among other reasons, ‘the
constitution guarantees the same measure of just compensation
to all owners'." The footnote to this statement
reads: "we recognize that a six percent interest rate
applies in condemnation proceedings against municipal corporations,
and that uniformity among property owners - an oft stated
goal of the Legislature -has not yet been achieved".
To some, this appears to be an invitation to challenge
General Municipal Law, Sec. 3a, as it applies to condemnation
proceedings, as a denial of the equal protection of the laws,
since it refers to the New Municipal Building case which found
the then four percent rate as a denial of the equal protection
of the laws, when the State rate was six percent.
But all of this still leaves open the question of what is
the nature of the proof needed to overcome the presumption
of reasonableness that attached to the statutory interest
rate. The language of the cases gives us some hint as to the
nature of the proof. Kirby Forest Industries, Inc.,
v. United States (18) spoke of it as placing the condemnee
in as good a pecuniary position as if paid immediately. Most
of the cases cited herein referred to the various interest
producing instruments available in the market place. In
Guido v. State of New York (19) the Court rejected
the use of the one year treasury bills, finding reasonable
risked securities more appropriate. In one case, it was spoken
of equating it to the beneficial use of the property, while
in another it was related it to "a judicially acceptable,
fair return for the deprivation of the use of the property
or money equivalent of that use, either or in combination"
(20)
In Matter of New York State Urban Development Corporation
(21) the Court went beyond Treasury bills , interest paying
securities and bank accounts and noted, "the universe
of voluntary investment was vast", noting an average
rate of return from stocks, bonds and cash vastly higher than
the statutory rate. He also looked at the rate of return on
the property condemned as set forth in the competing appraisals.
He noted returns on Triple A and B corporate bonds ,concluding
that "considering the range of investment choices the
claimants were deprived of, by reason of not having use of
their compensation due to the involuntary appropriation of
their property", a nine percent rate of interest was
proper. While this case was never appealed, its summary of
the relevant proof used seems to portend the nature of the
proof to be used in such instances, particularly in view of
Guido v. State of New York (22) which followed
it. Further, in M.T.A. v. American Pen Corp. (23)
the trial Court adopted the findings of the Court
in In Matter of New York State Urban Development Corporation,
supra in determining that nine percent interest
was a fair and reasonable rate, which findings were affirmed
in the Court of Appeals.
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Phelps v. Untied States, 274 U.S. 341, 344; Seaboard
Airlines Railway Company, et.al. v. United States, 261
U.S. 299, 304: United Stated v. Thayer -West Point Hotel
Co., 329 U.S. 585, 588; Brooks - Scanlon Corp. v. United
States, 265 U.S. 106, 123; Matter of the City of New York
(Brookfield Refrigeration Corp.), 58 N.Y.S.2d 532, 469
N.Y.S.2d 616 (1983).
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Monongahela Navigation Co. v. U.S., 148 U.S. 312, 327;
Seaboard Airlines Railroad Company, (supra.) at page 306;
Matter of City of New York (Brookfield Refrigeration Corp.,
supra; Matter of City of New York (New Municipal Building)
57 Misc.2d 156, 291 N.Y.S.2d 656 (1968); aff'd. 32
A.D.2d 530, 294 N.Y.S.2d 675 (1969); aff'd. 27 N.Y.2d
518 (1970).
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Matter of Bronx River Parkway, 284 N.Y. 48 (1940).
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People Ex rel Emigrant Industrial Savings Bank v. Sexton,
284 N.Y. 57 (1940).
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Matter of City of New York (New Municipal Building),
supra.
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Matter of County of Nassau (Eveandra Enterprises), 42.
N.Y.2d 849 850, app.den. 434 U.S. 804; City of Buffalo
v. Clement Co. 28 N.Y.2d 241, 265-266; Matter of City
of New York (Lincoln Square Slum Clearance Project), 15
A.D.2d 153, 178-182, aff'd. 16 N.Y.2d 497; Mater
of City of New York (Washington Heights - Highbridge Park
Urban Renewal Area), 82 Misc.2d 557, aff'd. 56 A.D.2d
513, Mot for lv to app.den. 41 N.Y.2d 806.
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42 N.Y.2d 849, 397 N.Y.S.2d 62 (1977).
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Matter of City of New York (Brookfield Refrigeration
Corp.), supra, at page 621
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620 F.2d 813 (1980).
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467 U.S. 1 (1984).
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Supra.
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196 A.D.2d 654, 601 N.Y.S.2d 620 (2d. Dept., 1993).
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90 N.Y.2d 805, 661 N.Y.S.2d 891 (1997).
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65 N.Y.2d 83 (1986).
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36 N.Y.2d 264 (1975).
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94 N.Y.2d 154, 701 N.Y.S.1d 301 (1999).
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57 Misc.2d 156, 162.
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Supra.
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722 N.Y.S.2d 694, aff'd. 732 A.D.2d 877 (2d Dept.,
2001).
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Matter of County of Nassau (Eveandra Enterprises, Inc.),
supra.
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176 Misc.2d 772, 674 N.Y.S.2d 562 (Sup. Ct. N.Y. County,
Parness, J. 1998).
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Supra.
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Supra.
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