ALBANY – The state can use its power of eminent domain to acquire the rest of the property Columbia University needs for a major expansion into West Harlem, New York’s highest court decided unanimously yesterday.

The Court of Appeals, in reversing an Appellate Division, First Department, decision blocking the use of condemnation, ruled that the state did not unreasonably find that the West Harlem area to be taken over by the $6.3 billion Columbia expansion is “blighted” for purposes of eminent domain.

The Court also held that there is a rational basis to find that a project by either a public or private educational institution that benefits a community is engaged in a “civil purpose” for which condemnation can be invoked.

The 7-0 ruling appeared to put the Columbia project back on track after a plurality of the First Department panel ruled late last year that the state failed to show that college expansion had a “public use, benefit or purpose” that would qualify a “private elite” institution like Columbia to benefit from eminent domain (NYLJ, Dec. 4, 2009).

The First Department determined that the Empire State Development Corp. (ESDC) had improperly found that the neighborhood to be taken over by Columbia was “blighted.”

But the Court of Appeals ruled that the development corporation had relied on two valid studies of the area by private consultants to reach the “blighted” determination.

“It cannot be said that ESDC’s finding of blight was irrational or baseless,” Judge Carmen Beauchamp Ciparick wrote for the Court in one ruling encompassing two cases, Matter of Kaur v. New York State Urban Development Corp. and Matter of Tuck-It-Away, Inc. v. New York State Urban Development Corp., 125. “Indeed, ESDC considered a wide range of factors including the physical, economic, engineering and environmental conditions at the Project site. Its decision was not based on any one of these factors, but on the Project site conditions as a whole.”

The eradication of “blight” has been a basis for invoking eminent domain for a community project in New York since the Great Depression. The Court noted yesterday that it affirmed the standard in its ruling in Goldstein v. New York State Urban Development Corp., 13 NY3d 524 (2009), which approved the use of eminent domain for the $4.9 billion Atlantic Yards project in Brooklyn that will include a new arena for the National Basketball Association’s Nets (NYLJ, Nov. 25, 2009).

The Court in Goldstein also limited its review of findings of blight by government agencies in eminent domain cases, saying it was the province of the Legislature to change standards, if lawmakers choose to do so, and not the courts. In Goldstein, Chief Judge Jonathan Lippman said perhaps it is time to reconsider the notions of “blight” and “unsanitary” when applied to building conditions, but he added that such changes are up to the Legislature.

In Matter of Kaur, Judge Ciparick termed it “improper” for the First Department panel to have handed down a ruling containing a de novo review of the development corporation’s criteria for determining blight given the then-still-fresh Court of Appeals’ ruling in Goldstein.

The Court also held that under §6260(d) of the Urban Development Corporation Act, the development corporation is empowered to acquire property for a range of projects, including “educational, cultural, recreational” and for other purposes.

The potential public good of the Columbia project is “at least as compelling in its civic dimension” as the Atlantic Yards construction given the go-ahead in Goldstein, the Court said.

“The purpose of the [Columbia] Project is unquestionably to promote education and academic research while providing public benefits to the local community,” Judge Ciparick wrote. “Indeed, the advancement of higher education is the quintessential example of a ‘civic purpose.’”

Judge Robert S. Smith said he agreed with all of the Court’s ruling except the part explicitly extending eminent domain consideration to most, if not all, educational and recreational projects.

“Surely this approach will, in some imaginable cases, cause the statute to be unconstitutional as applied: would anyone seriously suggest, for example, that private tennis camps or karate schools (‘educational’ uses), or private casinos or adult video stores (‘recreational’ uses), qualify as ‘public’ uses in the constitutional sense?” Judge Smith wrote in a brief concurring opinion.

Columbia’s Plans

As many as 16 new buildings would be constructed as part of the Columbia project, including a new laboratory and academic building to house its graduate business school and studio arts programs.

The project would also contain at least two acres of open spaces, wider streets, better lighting and other features that Columbia said would improve the quality of life throughout West Harlem.

The school said it will pay for the expansion, which would create an estimated 6,000 permanent new jobs once completed. It has been planning the project since 2001.

Opponents of eminent domain in the Columbia case are owners of a gas station and a storage facility that have refused to sell to the university.

Norman H. Siegel, who argued for the plaintiffs, said he would explore the possibility of appealing to the U.S. Supreme Court.

“This decision sets a terrible precedent regarding the use of eminent domain in New York state,” he said. “The decision opens the door to even greater abuse.”

John R. Casolaro of Carter, Ledyard & Milburn argued on behalf of Columbia and Empire State Development Corp. He referred comment on the ruling to the state agency yesterday. A spokeswoman said agency officials were pleased that the project would now move forward.

Fraud Suit Allowed

In a separate ruling yesterday, the Court decided in DDJ Management v. Rhone Group, 131, that three investment funds and their agent may sue two groups of private equity investment funds for fraud after the plaintiffs lost a total of $40 million in an investment controlled by the equity funds.

The Court’s 7-0 ruling, by Judge Smith, reversed a First Department panel that had blocked the suit. The appeals panel had held that the plaintiffs were “sophisticated investors” who failed to do due diligence in their investment in American Remanufacturers Holdings Inc. before lending the company $40 million.

Judge Smith ruled, however, that deceptive statements were made to the investors about the financial health of American Remanufacturers Holding and that now the plaintiffs should not be denied the opportunity to prove fraud “merely because hindsight suggests that it might have been possible to detect the fraud when it occurred.”

Judge Smith wrote, “Plaintiffs made a significant effort to protect themselves against the possibility of false financial statements: they obtained representations and warranties to the effect that nothing in the financials was materially misleading. We decline to hold as a matter of law that plaintiffs were required to do more—either to conduct their own audit or to subject the preparers of the financial statements to detailed questioning.”

Arnold M. Weiner of Baltimore argued for DDJ and other investors. Herbert M. Wachtell of Wachtell, Lipton, Rosen & Katz in Manhattan was among the attorneys representing the defendants.

In another ruling yesterday in Eidlisz v. New York University, 128, the Court decided more information was needed on both ends of a dispute between New York University and Leonard Eidlisz, a student who contends he was unfairly denied a dental degree by the college’s dental school.

Mr. Eidlisz argues that he completed his coursework and paid his bill, but was denied a degree that would allow him to take the dental boards and begin practicing (NYLJ. April 15, 2009).

The Court refused to allow NYU to invoke a statute of limitations defense against Mr. Eidlisz’s breach of contract claim on the grounds that it made an academic decision to deny him a degree.

The Court, in denying Mr. Eidlisz’s motion for summary judgment, said more must be known about the nature of the college-student relationship before a court can rule on Mr. Eidlisz’s bid for his diploma.

Robert L. Plotz of Orans, Elsen, Lupert & Brown represented Mr. Eidlisz.

Nancy Kilson of NYU’s Office of Legal Counsel represented the school.