Michael Rikon
Michael Rikon ()

In New York there are two separate procedures utilized to acquire property by eminent domain. Most takings occur by virtue of an Article 4 Special Proceeding in Supreme Court which results in an order directing the filing of an acquisition map. When the State of New York takes property, it files an appropriation map in the County Clerk’s Office and thereby appropriates the property. Both procedures assume compliance with statutory requirements. The valuation date in each instance will be the title vesting date.

The condemnation claim will be filed and litigated in Supreme Court. The appropriation claim will be litigated only in the Court of Claims. In accordance with the Court Rules, each party must file an appraisal valuing the property at its highest and best use on the date of the taking.

The Third Department recently decided a case involving litigation over an appropriation claim. The court reversed an order of the Court of Claims which quashed a subpoena to obtain an appraisal prepared by a non-testifying appraiser for the State of New York. In Lerner v. State of New York, 113 AD3d 916 (3d Dept. 2014), the claimants were owners of real property located in Sullivan County taken by the state for a highway reconstruction project.

In addition to the appropriation claims, claimants also filed a claim alleging that the Department of Transportation trespassed and caused property damages to the unseized portions of the land by using the land during construction and altering the surrounding property so as to create flooding and drainage issues. After the claims were joined for trial, claimants sought an unfiled appraisal prepared by an appraisal company retained by the Transportation Department before the appropriation. The materials sought included appraisals, valuations, reports, notes and photographs regarding the condition of the property before the construction began.

As is its policy, the Transportation Department had two appraisals prepared of the property prior to the taking. As required by the Eminent Domain Procedure Law (EDPL), it made a pre-vesting offer which represents 100 percent of the highest approved appraisal (EDPL §303). If the matter is not disposed of by settlement, a former property owner may elect to take the offer as an advance payment without prejudice (EDPL §304), and then file a claim for just compensation.

The state more often files the lower second appraisal. In other articles,1 we have pointed out the impropriety of this procedure which exposes the claimant to a potential judgment if the trial court accepts the state’s appraisal as the fair market value on title vesting (EDPL §304(h)). In our experience, most of the advance payment is used to satisfy mortgages and other liens. Thus, not only will the property owner lose its property, but could wind up owing the state money for the privilege.2

Considerations

On the question of discovery of a prior appraisal, the normal refrain from the Attorney General is that the appraisal which is sought is conditionally immune from discovery because it is among materials prepared in anticipation of litigation. But that is not completely true.

Any analysis should begin with the nature of the litigation. These cases are not arising in the context of a tort case. They are eminent domain takings which require constitutionally guaranteed just compensation. “A condemnation proceeding is not a private litigation.” Town of Cheektowaga v. Starlite Builders, 247 AD2d 933 (4th Dept. 1998).

The Third Department highlighted the issue in Lerner holding that while materials prepared in anticipation of litigation may enjoy conditional immunity, those materials lose their immunity when the document is “adopted” by defendant. “Once used in dealing with some third party, the report is not material prepared solely for litigation even though it may also be used for settlement or negotiation. The state having thus adopted the appraisal, it is available by way of discovery and its contents may be used in evidence as an admission against interest” Erie L.R. Co. v. State of New York, 54 AD2d 1089, 1090 (4th Dept 1976).

This adoption includes when the defendant submits the document to the federal government to demonstrate compliance with federal regulations in order to obtain funds or reimbursement. Barnes v. State of New York, 67 AD2d 1065 (3d Dept 1979). Barnes is also important because the court held that in seeking a protective order, the state bears the burden of proof to show the impropriety of disclosure.

Another very important case in this area is Cronk v. State of New York, 100 Misc.2d 680 (Ct. Cls. 1979). In Cronk, the trial court noted that the unfiled appraisal had been used in order to justify a request for federal reimbursement of moneys expended in the acquisition of property. In addition, the state retained the prior appraisal in order to justify the request in the event of a federal audit. The Cronk court also ruled that the introduction of the prior appraisal was not barred by the agreement for advance payment. Indeed, it held that the advance payment agreement was not a binding or enforceable contract.

In Lerner, the claimant needed the report since he had a substantial need and inability to establish the pre-vesting conditions of his land which could prove the condition of the property immediately before the construction. “Thus, even if the documents were drafted solely for litigation purposes, the appraisal and supporting documents would be subject to disclosure based on claimant’s substantial need and their lack of another source for that proof (See CPLR 3101(d)(2)).”

There are other instances when the unfiled appraisal should be deemed adopted. One is when the amount set forth in the prior report is used to set the consideration of a sale of the subject to a developer. Another is when the unfiled appraisal is disclosed to third parties. An example would be providing the higher appraisal to the other appraiser, thereby losing its confidentiality.

It is time for the legislature or the courts to put an end to the game the state and other condemnors play. The taking of property by eminent domain is a very serious event. There should be a minimum award expressed in the pre-vesting offer. Once paid as an advance payment, it should never be lowered.

Cross-Examination

It must be mentioned that if a prior appraisal, in any form, was rendered by the same appraiser, it may also be used for impeachment purposes.

Prior appraisals can always be used to impeach an appraiser on cross-examination. But before we focus on this, one should also be aware of The Appraisal Foundation’s requirements regarding appraisal report retention. The Appraisal Standards Board has adopted Uniform Standards of Professional Appraisal Practice (USPAP). USPAP was adopted to promote and maintain a high level of public trust in appraisal practice by establishing requirements for appraisers. USPAP addresses the ethical and performance obligations of appraisers through definitions, rules, standards and statements. USPAP also provides advisory opinions.

USPAP requires an appraiser to maintain a work file for each appraisal. The work file must contain the name of the client and related information; true copies of any written reports, documented on any type of media; summaries of oral reports or testimony, or a transcript of testimony; and all other data, information, and documentation necessary to support the appraiser’s opinions and conclusions.

The appraiser must retain the work file for a period of at least five years after preparation or at least two years after final disposition of any judicial proceeding in which the appraiser provided testimony related to the assignment, whichever period expires last. This is a mandatory part of USPAP’s ethics rule. Thus, the failure to maintain copies of prior reports can be shown to violate the appraiser’s ethics rule which alone may result in substantial impeachment.

In a recent case, the Second Department affirmed the imposition of sanctions and a negative inference made on an appraiser who destroyed his drafts. Matter of Village of Port Chester (Bologna), 95 AD3d 895 (2012) lv. apl. den. 20 NY3d 852 (2012).

Once it has been determined that a prior opinion of value exists it must be produced for use on cross-examination. It doesn’t matter what label has been put on the prior report, “draft,” “attorney’s work product,” “confidential,” etc. If prepared by the witness, it qualifies as a prior appraisal.

Allowing a prior appraisal to be produced provides counsel with a fair opportunity for effective cross-examination, consistent with a party’s constitutional right of confrontation and with Rule 4514 of the New York Civil Practice Law and Rules.

It is well-established law in New York that a prior appraisal prepared by an expert witness testifying at trial may be introduced into evidence to impeach the credibility of that witness’ testimony. In the Matter of Hicksville Properties v. Board of Assessors, 116 AD2d 717, 718 (1986) (“where an unfiled appraisal report was prepared by a party’s trial expert and is inconsistent with his trial testimony, the unfiled report may be introduced into evidence for impeachment purposes and used to cross-examine the witness”) citing Swartout v. State of New York, 44 AD2d 766; Matter of City of New York (Brooklyn Bridge Southwest Urban Renewal Project), 50 Misc.2d 478.

But note that the prior appraisal is not to be produced until the appraiser testifies on direct.

The First Department held in CMRC Ltd. v. State of New York, 270 AD2d 27 (2000),

The motion court improvidently exercised its discretion when it ordered the State to turn over an appraisal report dated November 22, 1995. The report, which was prepared in contemplation of the settlement of an eminent domain proceeding, ‘enjoy[s] the conditional immunity from disclosure which is conferred on material prepared for litigation by CPLR 3101(d)’ (Schad v. State of New York, 240 AD2d 483, 484). To the extent that the report might become relevant and discoverable for the purpose of impeaching the State’s appraisal expert at trial, disclosure at this juncture is premature. We note that if the State chooses to call the expert to testify, a reasonable adjournment will sufficiently protect claimant’s right to cross-examination, but we also note the possibility that the State may choose not to call the expert as a witness. In sum, we cannot agree with the dissent that the cloak of immunity protecting the State’s appraisal report may presently be removed merely because, at some point in the future, the material sought may become discoverable.

Citing CMRC, Ltd. v. State of New York, supra, as authority, the Third Department held in Matter of Niagara Mohawk Power v. Town of Moreau, 8 AD3d 935 (2004), “while it is true that materials prepared for litigation by an appraiser who is not called as a witness are protected from disclosure as attorney work product (See, Xerox Corp. v. Town of Webster, 206 AD2d 935 (1994); see also CPLR 3101(d)), here, petitioners established that Lagassa’s appraisal relied upon and incorporated information contained in Thompson’s prior appraisals of the subject hydroelectric power facilities. As such, these prior appraisals are relevant for the purpose of impeaching Lagassa on cross-examination and, thus, are subject to disclosure (See CMRC, Ltd. v. State of New York, 270 AD2d 27 (2000).”

Michael Rikon is a partner of Goldstein, Rikon, Rikon & Houghton.

Endnotes:

1. “Condemnors Behaving Badly,” NYLJ April 29, 2013.

2. Clearly, the filing of a lower appraisal is improper under the Federal Uniform Relocation Assistance and Real Property Acquisition Policies Act, 42 USC Secs. 4601-4655; 49 CFR 24.101-24.108 since it is coercive conduct designed to force a claimant to settle its claim. CFR 24.12(h).