Section 27 of New York's Transportation Corporations Law allows a telecommunications company to use eminent domain to go on private property and install the equipment it needs. Pictured is Verizon's gray junction box, right, attached to an exterior wall of the Eastchester Heights housing complex in the Bronx.
Section 27 of New York’s Transportation Corporations Law allows a telecommunications company to use eminent domain to go on private property and install the equipment it needs. Pictured is Verizon’s gray junction box, right, attached to an exterior wall of the Eastchester Heights housing complex in the Bronx. (AP/Mark Lennihan)

The U.S. Supreme Court’s requirement that a person whose property is seized by eminent domain first obtain a final decision and exhaust their state remedies before suing in federal court applies to the physical taking of property, the U.S. Court Appeals for the Second Circuit ruled Wednesday.

The circuit also held that the same requirements of finality and exhaustion apply to procedural due process claims, when those claims arise out of the same circumstances as a takings claim.

The circuit clarified the law on takings and whether challenges to them are ripe for federal review in a putative class action challenging Verizon’s use of New York’s eminent domain powers to install multi-unit terminal boxes on private property.

Eastern District Judge Dora Irizarry had dismissed the complaint because the claims were unripe under the test set by the U.S. Supreme Court in Williamson County Reg’l Planning Comm’n v. Hamilton Bank Johnson City, 473 U.S. 172 (1985).

The question before the Second Circuit in Kurtz v. Verizon New York, 13-3900-cv, was whether Williamson County applied to both physical takings and a “permutation” of due process claims unaddressed by circuit precedent—claims that procedural due process was violated by a lack of notice and a hearing before the taking occurs.

Williamson County, according to Judges Dennis Jacobs (See Profile), Guido Calabresi (See Profile) and Debra Ann Livingston (See Profile), said that a takings claim under the Fifth Amendment to the U.S. Constitution is not ripe for review without a final decision and until owners have exhausted their state remedies.

The plaintiff in Kurtz argued that Williamson County, which involved the application of zoning laws and regulations that a property owner claimed amounted to an unconstitutional “taking” under the Fifth Amendment, applied only to regulatory takings and not to the physical taking of property.

But the Second Circuit disagreed, with Jacobs writing for the court.

Section 27 of New York’s Transportation Corporations Law allows a telecommunications company to use eminent domain to go on private property and install the equipment it needs, in this case boxes that are attached to an exterior wall or a pole in the yard that are used to split local high-capacity cables into individual lines.

Section 27 provides that authority is “subject to the right of owners thereof to full compensation for the same,” through the state’s “inverse condemnation” procedures.

The plaintiffs claim an unconstitutional physical taking by Verizon and say the company violated their procedural due process rights by either concealing or failing to notify them of their right to compensation, offering no compensation, giving the impression they must allow the boxes or they would be denied telephone service and telling the plaintiffs it was up to them to initiate eminent domain proceedings.

The plaintiffs are represented by attorney David Wise of Cranford, N.J. who has brought two related cases. The first was brought in 2007 under New York statutory and common law—not under the Fifth Amendment’s Due Process and Takings Clause. Ultimately, in Corsello v. Verzion New York, Inc., 18 N.Y.3d 777 (2012), the circuit held that property owners had stated a valid inverse condemnation claim, but affirmed a lower court’s denial of class certification.

While Corsello was pending, Wise filed the Kurtz action in the Eastern District and a similar action in Queens County Supreme Court, Grillo v. Verizon N.Y. Inc., No. 12580-11 (N.Y. Sup. Ct.) The Grillo action is being held in abeyance until the federal action was decided.

Irizarry granted Verizon’s motion to dismiss in September 2013 and the Second Circuit heard oral argument on April 11.

On Wednesday, Jacobs said the finality requirement of Williamson County is met by a physical taking, but “The exhaustion requirement, however, remains.”

Jacobs noted that plaintiffs can satisfy the exhaustion requirement “by showing that the state’s inverse condemnation procedure is unavailable or inadequate,” but Kurtz had failed to do so.

“The plaintiffs’ takings claim here is unripe,” he said. “Although the pleading of a physical taking sufficiently shows finality, plaintiffs flunk the exhaustion requirement by their failure to seek compensation at the state level.”

And “Since we have concluded that New York’s inverse condemnation procedures are adequate on their face,” he said, “no claims would arise until the plaintiffs, having availed themselves of those procedures, show them wanting in practice.”

Jacobs said it is clear from the case law that New York State has a “reasonable, certain and adequate provision for obtaining compensation,” Country View Estates @Ridge LLC v. Town of Brookhaven, 452 F.Supp. 2d 142 (E.D.N.Y. 2006).

He took note of the pending Grillo action in Queens seeking compensation, saying that, until it “has run its course, the plaintiffs have no ripe takings claim for adjudication in federal courts.”

Having applied Williamson County to the physical takings, Jacobs then turned the application of the case to the plaintiffs’s due process claims, which he said “fall within a gap in our precedents: procedural due process claims arising from a physical taking.”

The plaintiffs argued in their brief the Second Circuit has “repeatedly not applied [Williamson County] [r]ipeness to procedural due process claims involving denial of appropriate notice and hearing in takings-type contexts.”

But Jacobs said the case law did not support their argument and “We are persuaded by those courts holding that Williamson County applies to due process claims arising from the same nucleus of facts as a takings claim.”

Kirkland & Ellis partner Patrick Philbin and associate John Moran of the firm’s Washington, D.C. office, represented Verizon. Philpin declined comment.