Mass. Appeals Court, No. 13-P-145, February 28, 2014: No municipal duty to enforce preservation easement; no standing for mandamus declaratory judgment.
Van Liew brought a mandamus action against the Selectmen of Chelmsford, MA, to require them to enforce a preservation easement. (In Massachusetts, Preservation easements and conservation easements are governed by the same statute, M.G.L. chapter 184, section 32, and referred to as “restrictions”.) The easement, contained in a deed when the Town sold the property, prohibited constructing any additional buildings other than “barnlike structures and silos … [with] the exterior appearance of farm buildings and barns.” A subsequent owner, Epsilon Group, LLC (“Epsilon”) obtained permits to construct a two-story office building, a parking lot, and other structures on the property. The Selectmen voted not to take legal action to enforce the preservation restriction. (These facts are taken from the Superior Court opinion, civil action 12-1581, Nov. 9, 2012) and the recorded easement.) Van Liew contended that the proposed construction violates the easement and that Selectmen have a nondiscretionary statutory duty to enforce the easement. He sought a writ of mandamus compelling the Board to initiate legal action to enforce the easement and declaratory relief to that same effect. The trail court held Van Liew lacks standing to seek mandamus because the Selectmen have no “public duty” to enforce the easement. It also said Van Liew was not entitled to a declaratory judgment because did not have a “legally cognizable injury.” (According to his appellate brief, Van Liew is a resident of the Town, but it makes no mention of where he lives in relation to the easement property.) The trial court granted the Town’s motion to dismiss. Van Liew appealed.
The appeals court upheld the trial court’s decision. As to mandamus the court wrote, “As the judge correctly determined, the public right exception is unavailing here because enforcement of the preservation restriction, rather than a duty required by law, is discretionary. See G. L. c. 184, § 32.” As to declaratory judgment, the court agreed that the absence of a “particularized interest” meant that Van Liew has no legally cognizable injury.
The court’s decision was issued under a rule that it may be cited for its persuasive value but not as binding precedent.
The decision is available at Google Scholar at http://scholar.google.com/scholar_case?case=12244023845822915253&q=Van+Liew+v.+Board+of+Selectmen+of+Chelmsford&hl=en&as_sdt=40000006&as_vis=1 and is currently also at http://weblinks.westlaw.com/result/default.aspx?action=Search&cnt=DOC&db=MA-ORCS-WEB&eq=search&fmqv=c&fn=_top&method=TNC&n=1&origin=Search&query=CO%28APPFTT%29+%26+DA%2802%2F28%2F2014%29+%26+TI%28VAN+LIEW%29&rlt=CLID_QRYRLT89787625973&rltdb=CLID_DB96460625973&rlti=1&rp=%2Fsearch%2Fdefault.wl&rs=MACS1.0&service=Search&sp=MassOF-1001&srch=TRUE&ss=CNT&sskey=CLID_SSSA94475625973&vr=1.0. Because of the limitations of the ruling, the decision is unlikely to appear the Massachusetts Trial Court Law Libraries website http://masscases.com/.
IRS, Written Determination 201405018, January 31, 2014: 501(c)(3) status of organization that received three conservation easements revoked due to numerous irregularities.
Private Letter Ruling 201405018 available at http://www.irs.gov/pub/irs-wd/1405018.pdf. A full description and explanation of the revocation written by Prof. Nancy A. McLaughlin is featured at the Nonprofit Law Prof Blog posting “IRS Rules Tax-Exempt Status of Organization Accepting Conservation Easements Should be Revoked,” February 5, 2014.
Thanks to Prof. McLaughlin for bringing this Letter Ruling to public attention.
US District Court, M.D. Pennsylvania, January 13, 2014, No. 3:11cv514: Attorneys fees and costs approved for easement defense.
As reported here in August 2013, the court had previously found that a conservation easement held by Norcross unambiguously bans fracking. Norcross then sought payment from Stockport of Norcross’ attorneys fees and court costs. Section 7.2 of the Easement provides, in relevant part, that “any costs incurred by Grantee [Norcross] in enforcing the terms of this Easement against Grantor [Stockport], including, without limitation, costs of suit, expert witness fees and attorneys’ fees… shall be born by Grantor.” Stockport objected to a portion of the fee payment sought by Norcross as excessive or unnecessary because they were not incurred in “enforcing” the terms of the Easement. The court found such fees were reasonable and therefore ordered Stockport to pay them.
The court’s memorandum and order is available at http://courtweb.pamd.uscourts.gov/courtwebsearch/pamd/tW90JNKhV1.pdf#xml=http://courtweb.pamd.uscourts.gov/courtweb/PDFResult.aspx.
U.S. Tax Court, T.C. Memo. 2013-266, November 19, 2013: No historic preservation easement deduction when donor doesn’t have right to restrict entire exterior.
A historic preservation easement was donated by a partnership (the “Partnership”) on the façade of a building divided for ownership purposes into two segments: an “Office Property”, which consists of the first 14 floors of the property, and the “Residential Property”, which consists of residential condominium units on the top 6 floors of the property. The Partnership owns the Office Property. The owner(s) of the Residential Property did not join in the preservation easement.
Before granting the preservation easement the owners of the Office Property and the Residential Property entered into an agreement that set out their respective rights and obligations as to the building (the “Amended Declaration”). That agreement defined the capitalized word “Façade” to mean only two sides of the building exterior. Under that definition, the owner of the Office Property owns the “Facade” and the Amended Declaration said that the owner of the Office Property has the sole right to grant an easement in or dedicate the “Façade” to or for the benefit of any private, city, county, state or federal historic preservation agency or trust. It also said that neither owner could materially alter the “Façade” without the consent of the other owner.
The historic preservation façade easement defined “Protected Façade” differently from the Amended Declaration’s definition of “Façade”. It said “Protected Façade” means “the existing facades on the front, sides and rear of the Building and the measured height of the Building.” Thus, the preservation easement protected more of the building than the Partnership owned or was explicitly allowed by the Amended Declaration to grant an easement on. That easement said that before making any change to the “Protected Facades” it was necessary to obtain the consent of the easement holder.
The sole question before the court was whether the donation of the preservation easement met the test for a “qualified conservation contribution” under the Tax Code. Section 170(h)(4)(B) of the Code requires, among other things, that in order for a façade easement on a certified historic structure to qualify it must preserve the entire exterior of the building, including the front, sides, rear, and height of the building. While the preservation easement’s restrictions covered the entire exterior (as defined by the Tax Code), the question before the court was whether the grant by Partnership could effectively protect the entire exterior given the ownership position of the Partnership and its rights under the Amended Declaration.
The court explained that it would look to State law to determine the nature of the property rights and whether under State law the Partnership could grant an easement that restricted the entire exterior of the property.
The court first concluded that the partnership only had ownership rights to the “Façade” as defined by the Amended Declaration. It then held that the Partnership did not gain the additional right to grant a preservation easement on the parts of the building that were not the “Façade” (as so defined) by dint of the provision in the Amended Declaration that said that the owner of the Residential Property could not make certain alterations to the property without the prior written consent of the Partnership as owner of the Office Property. The court said that that provision only limited alterations that will “materially alter the Façade” of the property. Accordingly, the court held, the Partnership does not have the right to restrict alterations to the two sides of the building not covered by the “Façade” (as defined by the Amended Declaration) or certain excluded portions of the two sides included in the defined “Façade”. Because the Partnership lacked that right, they could not legally contribute what they did not have, i.e., a preservation restriction that would meet the test for a qualified conservation contribution eligible for a tax deduction.
The court did not reach the question of whether under Illinois State law, an ownership right in the entire exterior of a building is required to grant a preservation easement on it, because the court reached its conclusion based on the limitations of the Amended Declaration.
Decision available at https://www.ustaxcourt.gov/InOpHistoric/61YorkMemo.Laro.TCM.WPD.pdf.
US Tax Court, T.C. Memo. 2013-254, November 12, 2013: Preservation easement deductible despite similar restrictions in local New York City historic preservation law.
The court held that this façade easement for a “certified historic structure” qualifies for a tax deduction despite some overlap with New York City’s Landmarks Law. The decision offers reasons that the circumstances in this case differ from those in prior tax court decisions that denied a deduction for a façade easement for buildings subject to New York’s Landmarks Law.
The Gorra property, a “certified historic structure,” is in a Historic District of New York City. The Gorras granted a historic preservation façade easement to the National Architectural Trust, now known as the Trust for Architectural Easements (Trust). Under the easement, the Trust’s consent, in its sole discretion, is required for any change to the existing facades on the front, sides and rear of the building and the “measured height” of the building.
The building is also subject to the City’s Landmarks Law (N.Y. City Admin. Code sec. 25-303 et seq.). The Landmarks Law requires property owners to keep designated properties in good repair and to obtain approval from the New York City Landmarks Preservation Commission (LPC) before starting alterations that that require a buildings permit or will affect the building’s exterior (other than height).
In this case the IRS said that because the easement doesn’t preserve the property any more than local law does, the easement didn’t satisfy the tax law requirement that to be eligible for a deduction, a donated easement must be exclusively for “conservation purposes” (as defined by the law). The Tax Code (Section 170(h)(4)(A)(iv)) says preservation of a historically important land area or a certified historic structure is a valid conservation purpose, but it doesn’t prohibit a deduction when local laws aim at the same goal. The Gorras argued in the alternative that (1) the question of whether a conservation easement or preservation easement is any more restrictive than local development laws should only address whether the easement causes any reduction in value of a property, and (2) their easement is more restrictive than the Landmarks Law.
Without explicitly analyzing whether the interplay of local law and preservation easements should be a question of conservation purpose, the court agreed with the Gorras that the conservation purposes test was satisfied because of the particulars of this easement and the Landmarks Law, and the monitoring record of the Trust as compared with the LPC. To do so, the court had to distinguish this case from earlier tax court decisions and to assess the monitoring record differently than had been done in the past.
The differences between this easement and the Landmarks Law cited by the court included:
- Protected features: the easement restricted the height and open spaces; the law does not.
- Decision process & criteria: the easement gives the Trust “unlimited” discretion as to façade alterations; LPC’s decision making has to follow certain specific guidelines, their approval is based on whether an alteration remains consistent with the exterior architectural features of neighboring improvements, and their decisions may be appealed.
- Height: the easement requires Trust consent for changes to height; the Landmarks Law doesn’t regulate or limit the height and bulk of buildings or the area of yards and other open spaces.
- Monitoring: the Trust “actively” inspects annually and keeps a photographic record; the LPC primarily relies on complaints or building department procedures and doesn’t regularly photograph.
- Enforcement access: because the easement restricts the “open spaces” of the property as well as the facades, the Trust’s monitoring visits require an appointment to access the property’s backyard. [Editorial note: protection of the backyard would not be a “conservation purpose” unless it were “a historically important land area”.]
Despite the negative judgments expressed by the tax court in prior decisions about Trust and its record of performance’s, and the injunction imposed by the US District Court for District Of Columbia on the Trust prohibiting it from various activities regarding historic preservation easements, the court nevertheless found that the Trust’s monitoring and enforcement record as to the Gorra property was more burdensome and effective than the LPC’s procedures and record.
The court distinguished these facts and circumstances from those of prior tax court decisions in which a façade easement was held not to require more protection than the New York City Landmarks Law, as follows:
- 1982 East, LLC: The Gorra easement protects the rear of the building, while the easement in 1982 East, LLC did not.
- Scheidelman: The Gorra easement limits the height of the building, while the Scheidelman easement did not, although the court noted that the Scheidelman donation was completed in 2004, before the law required protection of a certified historic structure’s height to qualify for a deduction.
- Dunlap: The Dunlap property was designated by the City to be in “a sound, first-class condition,” and thus was subject to a higher standard of preservation than the Gorra property, which was not so designated, so the Dunlap easement did not add anything.
- Herman: The Gorra easement protects the building height, front, side, rear, and the building’s surrounding property, while in Herman the donation was only of unused development air rights.
The court noted that in Simmons v. Commissioner, it found that the easements were more restrictive than Washington, D.C. law because even though substantively not more restrictive, “the easements still added an additional level of approval before any changes could be made to the properties.”
The court concluded that the appraisal done for the Gorras overvalued the easement. The appraiser testifying in support of the Gorras’ claimed deduction of 9% of value of the property before the easement said, “There’s no scientific way to break down the parts” of the 9% diminution in value. The appraiser for the IRS said there was zero diminution in value.
Finding the Gorra easement more restrictive than the Landmarks Law, the court agreed there was a reduction in value, but decided it was 2%.
Because the Gorras’ claimed deduction was more than 200% of the court’s determination of value, the taxpayer was liable for a 40% penalty for gross valuation misstatement. The court noted the reasonable cause exception does not apply in the case of gross valuation misstatements for charitable donations.
Decision available at http://www.ustaxcourt.gov/InOpHistoric/GorraMemo.Kerrigan.TCM.WPD.pdf.
This decision was first brought to my attention by Nancy McLaughlin’s post at Nonprofit Law Prof Blog.
Appellate Court of Illinois, First District, No. 06 CH 19422, unpublished, September 26, 2013: Words ‘historic’, ‘significant’, ‘value’ not vague in landmarks ordinance.
The plaintiffs challenged the landmarks ordinance under which the city designated as historic landmarks the neighborhoods in which the plaintiffs own property. They asserted that the ordinance was invalid and unconstitutional because it uses words and phrases with vague meanings as criteria by which the landmarks determination is made. This court decision was in response to cross motions for summary judgment by the parties.
The court’s analysis started from a presumption of validity in favor of the ordinance. The court wrote that an ordinance could be found to be vague if it authorizes or encourages discriminatory enforcement, but is not vague “if it provides law enforcement and the judiciary with a reasonable standard to prevent arbitrary and discriminatory legal enforcement.” The court noted that a “reasonable standard” requires neither “mathematical certainty” nor “perfect clarity and precise guidance.”
The plaintiffs challenged words and phrases in the seven criteria the ordinance says the landmarks commission is to use in making a landmark recommendation, such as “may or may not,” “or other,” “value,” “exemplary,” “critical,” “historic,” and “significant,” and the ordinance’s requirement that the commission consider “whether there is a significant historic, community, architectural, or aesthetic interest or value in the property.”
The court rejected the plaintiffs’ challenge and upheld the statute, writing, “… we find that all of [these words and phrases] have popular understandings and are used commonly enough to not be considered vague in the context of a constitutional challenge. … In the broader context, the Ordinance deals with historic preservation, which encompasses a greater purpose and objective. Because the words used to implement this have common meaning and are intelligible, as reflected by the standards discussed, we find that the challenged terms and phrases are sufficiently detailed under the circumstances to guide the Commission in its duties and responsibilities.”
A link to the decision can be found in the National Trust for Historic Preservation’s Preservation Leadership Forum blog, at http://blog.preservationleadershipforum.org/2013/10/11/chicago-landmarks-ordinance/#.UmAIrBBuGB5, which also provides interesting commentary on the case by Will Cook.
Thanks to Jess Phelps at Historic New England for bringing this decision to my attention.
Supreme Court of Minnesota, No. A11-1705, September 25, 2013: Action on certificate of appropriateness to alter historic landmark is “relating to zoning” under Minnesota law.
Under Minnesota law (Minn. Stat. § 15.99, subd. 2(a) (2012)) a city has only 60 days to “approve or deny” an application for a “written request relating to zoning” or the request is automatically approved. When plaintiff 500, LLC (the “developer”), submitted plans to develop a property, the Minneapolis Heritage Preservation Commission (the “Commission”) nominated the property for designation as a local historic landmark. The Commission’s action placed the property under “interim protection,” which prohibits “destruction or inappropriate alteration [of a nominated property] during the designation process” in the absence of a “certificate of appropriateness.” The developer submitted a written request to the Commission for its proposal but the Commission denied the request more than 60 days later. The developer sued. Both the trial court and the appeals court sided with the City, saying that a certificate of appropriateness is not a “request relating to zoning.”
The Minnesota Supreme Court reversed the lower court decision, based on the court’s interpretation of the plain meaning of the words of the statute (which are not defined in the statute). The court said “relating to” means “to stand in some relation; to have bearing or concern; to pertain; refer; to bring into association with or connection with.” Zoning, the court said, had been defined by the court in a prior case as “the regulation of ‘building development and uses of property.’” Putting the two definitions together, the court said the statute means a “request that has a connection, association, or logical relationship to the regulation of building development or the uses of property.”
The court found that the developer’s request to the Commission fell within that definition because (1) “heritage-preservation proceedings have a connection, association, or logical relationship to zoning”, (2) the state’s historic preservation enabling laws (the Minnesota Historic District Act and the Municipal Heritage Preservation Act. Minneapolis, Minn., Code of Ordinances § 599.20 (2013)) “recognize a connection, association, or logical relationship between heritage preservation and zoning” and (3) the city’s own heritage preservation ordinances “identify a connection, association, or logical relationship between an application for a certificate of appropriateness and zoning.”
A concurring opinion by one Justice did not dispute that “request related to zoning” includes a request for a certificate of appropriateness, but expresses a reservation. The concurring opinion stated that in this case, the 60-day decision window should not toll from the date of submission of the developer’s request to the Commission to the date of the Commission’s denial of that request. Rather the 60-day window should toll from the date of the developer’s appeal to the City Council of the Commission’s denial of the request to the date of the Council’s denial of the appeal. That denial was within 60 days of the developer’s appeal. Nevertheless, this Justice concurred in the result because in the pleadings the City conceded that, if the application for a certificate of appropriateness constitutes a written request relating to zoning, the denial of that application was outside the 60-day limit.
Decision available at http://mn.gov/lawlib/archive/supct/1309/OPA111705-0925.pdf.
U.S. District Court, W.D. Washington, Tacoma, Case No. C12-5140 RBL, September 25, 2013: Holds USDA conservation easement either created two lots or owner is entitled to a rescission of easement.
Plaintiff GLW owns 110 acres of undeveloped land located along the Columbia River Gorge, on which its predecessor sold a conservation easement to the United States Forest Service under the Columbia Gorge National Scenic Area Act. The easement reserved to the owner the right to develop two legal, buildable lots, as follows:
“The right is reserved to break the ownership into two tracts, Tract I being 62 acres in farm and woodlot and 5 acres in homesite, and Tract 2 being 38 acres in farm and woodlot and 5 in homesite. At the time of this easement, the right is acknowledged that construction of two dwellings for use in conjunction with the management of the two tracts if the proposed homesite is within the constraints of the [Columbia River Gorge National Scenic] Act[.]”
At the time of the grant of the easement, the minimum lot size under the County Code was 40 acres, and each of the two parcels described in the easement met that minimum. GLW and USDA agreed that but for the easement the owner of the entire tract would have four legal, buildable lots, because the existing lots predated the Gorge Act and the 40 acre minimum lot size.
GLW sought County approval to define two legal lots (to develop one and sell the other) and to “nominally” (in the court’s words) adjust the boundary line between the two building parcels, as sketched in the easement, to create one 56 acre lot and one 51 acre lot. The County determined that the boundary line adjustment was acceptable, but that it required the Forest Services’ approval. The Forest Service refused to consent to the adjustment.
GLW sued, alleging that the Forest Service’s refusal to consent to its proposed land use action was an abuse of discretion. Both GLW and the USDA moved for summary judgment. Although the court wrote very critically of the USDA’s arguments in this case, the court denied both party’s summary judgment motions but took the step of issuing a holding “that either the … [easement] created two lots, or GLW is entitled to a rescission of it: they have either four legal lots, or are entitled to two, without interference from its contracting partner, the Forest Service.” The court also noted, “It is undisputed that the Boundary Line Adjustment would not adversely affect the goals of the Gorge Act any more than would the development of the two lots sketched as part of the initial agreement.”
Because the County’s actions are on appeal at the County level, the court also stayed the case pending the outcome of the County litigation.
Decision available at http://scholar.google.com/scholar_case?q=GLW+VENTURES+LLC+v.+US+Department+of+Agriculture&hl=en&as_sdt=40000003&case=7432613605202822162&scilh=0.
U.S. Tax Court, T.C. Memo. 2013-224, September 23, 2013: Appraisal deemed “qualified” on reconsideration, based on Scheidelman II decision.
This case is a reconsideration of the Tax Court’s decision in Friedberg v. Commissioner, T.C. Memo. 2011- 238 (Friedberg I) in light of the US 2nd Circuit Court of Appeals decision in Scheidelman v. Commissioner, 682 F.3d 189 (2d Cir. 2012) (Scheidelman II). In Friedberg I the Tax Court held that the appraisal by Michael Ehrmann submitted by the taxpayer to substantiate their claim for a deduction was not a “qualified appraisal” as to the donated façade easement, while there remained issues of material fact that prevented the court from deciding (on summary judgment) whether it was a qualified appraisal as to donated development rights.
On reconsideration, the court decided that the Ehrmann appraisal was indeed a qualified appraisal both as to the façade easement and the development rights. The court understood Scheidelman II to hold that the requirement of Income Tax Regs. section 1.170A-13(c)(3)(ii)(K), is fulfilled if the appraiser’s analysis is present, even if the IRS Commissioner deems it to be unconvincing (Scheidelman II, 682 F.3d at 198) and that any evaluation of the appraisal’s accuracy is irrelevant for purposes of deciding whether the appraisal is qualified pursuant to Income Tax Regs. section 1.170A-13(c)(3)(ii)(J).
The court found that regardless of whatever doubts it had about the value of the appraisal, the appraisal nevertheless provides sufficient information to enable the IRS to evaluate the appraiser’s methodology and to conclude that it states a method of valuation as required by section 1.170A-13(c)(3)(ii)(J), and a specific basis for valuation as required by section 1.170A-13(c)(3)(ii)(K).
The IRS also tried to challenge the appraisal of development rights on the basis of the appraiser’s testimony (post-Friedberg I) that he told the petitioner he had never appraised development rights before doing so for the petitioner. The court rejected that challenge. It said that under the plain language of the Regulation in effect at the time the relevant tax return was filed, section 1.170A-13(c)(5), (the relevant section now being section 170(f)(11)(E)(ii)), an appraiser is a qualified appraiser based on whether “he or she makes the requisite declaration that he or she is qualified to appraise the value of the contributed property,” not based on what the IRS thinks of the appraiser’s education, experience, or other characteristics.
A trial will still be necessary to determine whether the valuations in the appraisal justify the tax deduction claimed by Friedberg.
Decision available at http://www.ustaxcourt.gov/InOpHistoric/FRIEDBERGMemo.Wells.TCM.WPD.pdf.
US District Court, M.D. Pennsylvania, No. 3:11cv514, August 27, 2013: Conservation easement’s prohibition of industrial or commercial activity unambiguously bans fracking.
At issue was whether the wording of a conservation easement was ambiguous regarding prohibition of surface activity by plaintiff Stockport Mountain (Stockport) for natural gas hydraulic fracturing (fracking). Defendant Norcross Wildlife Foundation, Inc. (Norcross) brought a motion for summary judgment. The federal court’s standard of review was under Pennsylvania law, which is to first look to the contract language to determine the parties’ intent and to enforce unambiguous language. Also, the court recognized the Pennsylvania statute that instructs courts interpreting conservation easements to construe the terms of those easements liberally. 32 PA. CONS. STAT. ANN. § 5055(c)(2). Although in a summary judgment decision, courts must examine the facts in the light most favorable to the party opposing the motion (Stockport), the question whether a contract is ambiguous is a question of law so the burden of proof to show the necessary indefiniteness of meaning was on Stockport, as the party claiming that ambiguity exists. The court granted Norcross’ motion for summary judgment.
Norcross’s argument was that section 4 of the conservation easement was unambiguously broad enough to ban fracking without mentioning it by name. The pertinent part of that section read:
“4. Prohibited Uses. The following activities and uses are expressly prohibited:
“a) All uses and activities in the Conservation Reserve Areas, except as permitted under Section(s) 4(m) and 5(b). . . .
“c) Industrial or commercial uses of any kind, including commercial recreation, except home occupations that do not involve more than two outside employees, and do not involve outside storage of materials or supplies, equipment or products. . . . This is intended to also prohibit commercial structures of any kind, including any commercial communication devices, signs or billboards.”
Stockport countered that other sections of the easement, when read together with section 4, create an ambiguity as to natural gas activity.
As to the meaning of the words in section 4, the court held that they have their “ordinary meaning,” as defined in Merriam-Webster Dictionary Online, http://www.merriam-webster.com/dictionary/ (last visited Aug. 22, 2013). The key words in section 4 were defined by Webster and the court as follows:
“Commercial”: “occupied with or engaged in commerce or work intended for commerce.”
“Commerce”: “the exchange or buying and selling of commodities on a large scale involving transportation from place to place.”
“Industrial”: “of or relating to industry”
“Industry”: “systematic labor especially for some useful purpose or the creation of something of value,” or, industry is alternatively defined as “a distinct group of productive or profit-making enterprises.”
The court understood Stockport’s activities as commercial because they include a lease … to obtain rental payments and royalties; division of proceeds from the sale and transportation of a commodity; and the use of commercial traffic and the erection of temporary commercial structures. The court understood Stockport’s activities as industrial because they include the use of machinery in a systematic effort to generate a marketable commodity produced via the systematic efforts of employees operating machinery.
Stockport had three theories arguing that other sections of the easement create an ambiguity in section 4 when read together with it.
First, Stockport pointed to section 5 of the easement, which reserves for the landowner the “right to engage in or permit or invite others to engage in, all uses of the Property not expressly prohibited herein.” The court found no ambiguity created by section 5, writing, “the proposed natural gas activities fall under the common meaning of commercial and industrial activity, and such activity is categorically prohibited in section 4(c) of the easement. Thus, the proposed natural gas drilling activity cannot be reserved for Stockport under section 5 because such activity is already proscribed in section 4(c).”
Second, Stockport argued that the easement is ambiguous because some commercial and industrial activities, such as limited timbering and quarrying, are allowed. The court rejected this theory, saying that the structure of section 4 is to set out a general prohibition on commercial and industrial activity while exempting certain home occupations, limited timbering and limited quarrying. The court wrote, “Rather than creating ambiguity, the exemption of certain activities from section 4′s prohibitions indicate that the easement’s drafters intended to prohibit all commercial or industrial activities not specifically exempted.”
Third, Stockport tried to say that the absence of an explicitly prohibition against natural gas drilling creates an ambiguity. The court found it would be unreasonable to require conservation easements to enumerate every conceivable prohibited activity in order to prohibit them.
Turning from the words actually used in the contract or easement, the court (following Pennsylvania courts) examined “objective, extrinsic evidence” to assess the easement for ambiguities. It said Stockport failed to put forward any piece of objective, extrinsic evidence to support its contentions.
The court also rejected Stockport’s argument that the parties couldn’t have intended to prohibit natural gas drilling because they could not have know of the feasibility of shale gas production when they executed the conservation easement. The court wrote, “The law does not require that parties to a conservation easement consider every possible use of property before it can be prohibited. Rather, the law requires that the court accept the plain meaning of the easement language used, and not ‘the silent intentions of the contracting parties, [to] determine the construction to be given [to] the agreement.’ [citation omitted] The court cannot overlook the categorical prohibition in section 4(c) simply because the parties did not envision a boom in natural gas drilling.”
The court awarded Norcross attorneys’ fees and costs, because a section of the conservation easement specifically provides:
“Any costs incurred by Grantee in enforcing the terms of this Easement against Grantor, including, without limitation, costs of suit, except witness fees and attorneys’ fees, . . . shall be borne by Grantor. If Grantor prevails in any action to enforce the terms of this Easement, Grantor’s costs of suit, including without limitations, attorneys’ fees, shall be borne by Grantee.”
Decision available at http://www.mitchellwilliamslaw.com/wp-content/files_mf/scan_attachment29.pdf or by searching for the case name at http://courtweb.pamd.uscourts.gov/courtweb/CourtWeb.aspx.
In a prior decision this court had denied a summary judgment to Norcross, at that time finding additional discovery of fats by the parties was needed to decide whether the easement language was or was not ambiguous.
US Court of Appeals, 11th Circuit, No. 12-12984, August 29, 2013: 11th Circuit agrees with 1st on landmark designation RIULPA ripeness test.
An Orthodox Jewish congregation (Temple) challenged the City’s designation of the congregation’s synagogue as a historic landmark. The designation would limit the Temple’s plans to alter its building to make it better conform with Orthodox religious precepts as understood by the Temple. The designation was first approved by the city Preservation Board, and as allowed by the City’s Code of Ordinances the temple timely appealed the Board’s decision to the City Commission. The Code of Ordinances provides, “The decision of the City Commission [on appeal] shall constitute final administrative review, and no petition for rehearing or reconsideration shall be considered by the City.” The City Commission voted to affirm the Board’s decision and designate the Temple as a historic landmark. The Temple did not seek review of the merits of the City’s decision via the Florida state-court procedure of common law certiorari. Instead, the Temple sued in federal court, alleging that the City’s designation of its property as a historic landmark violated the Religious Land Use and Institutionalized Persons Act (RLUIPA), 42 U.S.C. §§ 2000cc to 2000cc-5; the Florida Religious Freedom Restoration Act of 1998 (FRFRA), Fla. Stat. §§ 761.01-.05; the Free Exercise Clause of the Florida Constitution; and the Equal Protection, Free Exercise, and Substantive Due Process Clauses of the United States Constitution by operation of 42 U.S.C. § 1983. The Temple alleged by discriminatory animus on the part of City officials, many of whom were former members of the Temple. In addition, the Temple sought a declaratory judgment that the City Ordinance setting forth the standards for declaring historic landmarks is void for vagueness on its face.
The District Court dismissed the claim as unripe, saying that until the Temple was denied a building permit because of the landmark designation, the claim was not ready for court action. That court relied on the Williamson County decision, Williamson Cnty. Reg’l Planning Comm’n v. Hamilton Bank of Johnson City, 473 U.S. 172, 105 S. Ct. 3108 (1985), which held that a landowner must “obtain a final decision regarding the application of the zoning ordinance . . . to its property” before his or her claim ripens into one justiciable in federal court. 473 U.S. at 186, 105 S. Ct. at 3116; challenges to land use regulations “[are] not ripe until the government entity charged with implementing the regulations has reached a final decision regarding the application of the regulations to the property at issue.”
The Appeals Court understood the Temple’s claim not as focusing on potential future limitations to alterations but on the very act of landmark designation, alleging that the designation was motivated by discriminatory animus. “[T]he Temple,” the court wrote, “alleges an injury stemming from the City’s initial act of designating it to be a historic site, not from the application of any land use regulation to its property.” Accordingly, the court said Williamson was an inappropriate precedent to look to. Instead the court found persuasive the First Circuit’s decision in Roman Catholic Bishop of Springfield v. City of Springfield, ___ F.3d ___, No. 11-1117, 2013 WL 3782025, (1st Cir. July 22, 2013), and the Second Circuit’s in Dougherty v. Town of N. Hempstead Bd. of Zoning Appeals, 282 F.3d 83, 90 (2d Cir. 2002), both of which declined to apply Williamson County to ripeness questions in First Amendment claims. The court wrote, “[W]where, as here, the plaintiff alleges that the mere act of designating his or her property historic was motivated by discriminatory animus, Williamson County is inappropriate because the injury is complete upon the municipality’s initial act, and staying our hand would do nothing but perpetuate the plaintiff’s alleged injury. In such cases, we think traditional notions of ripeness provide the appropriate mode of analysis, and so we apply them here.”
The traditional ripeness tests are (1) whether the issues are fit for judicial decision and (2) the hardship to the parties of withholding court consideration, applying those tests “most charitabl[y]” in the First Amendment context. The court found for the Temple on both those tests. As to whether the City designated the Temple to be a historic site for discriminatory reasons, “that issue became as ripe as it will ever be the moment the Temple was initially designated a landmark.” As to the second, “fitness and hardship” requirements, the court wrote that “to delay the resolution of these claims where no further factual development is possible would serve only to work further hardship upon the Temple. That we will not do.” The court therefore vacated the district court’s opinion dismissing as unripe the Temple’s challenges to designation.
The district court had also dismissed the Temple’s facial void-for-vagueness challenge to the ordinance, deferring it to whenever the Temple might bring a ripe challenge to the designation. The appeals court vacated that dismissal as well, because of its decision about ripeness.
Decision available at http://www.ca11.uscourts.gov/opinions/ops/201212984.pdf.
Kansas Supreme Court, No. 100,997, August 23, 2013: Under Kansas Historic Preservation Act governing body decides whether (1) there are no feasible and prudent alternatives to the project and (2) the project program includes all possible planning to minimize harm to the historic property.
“The Topeka City Council granted Grace Episcopal Cathedral and The Episcopal Diocese of Kansas, Inc. (the Church) a building permit for a parking lot on Bethany Place, a registered state historic site owned by the Church, despite complaints that the construction would adversely impact that historic site. As a matter of first impression, we must determine who is obligated under the Historic Preservation Act, K.S.A. 75-2715 et seq., to establish that (1) there are no feasible and prudent alternatives to the project and (2) the project program includes all possible planning to minimize harm to the historic property as required by K.S.A. 2012 Supp. 75-2724(a)(1).
“We hold that the governing body—in this case the Council—must make those determinations and that it failed in its statutory responsibility to obtain the information necessary to discharge its duties. We hold further that the Council did not take what the caselaw characterizes as a “hard look” at all relevant factors that must be reviewed before authorizing a project that encroaches upon, damages, or destroys historic property. And because the proceedings below did not follow this rubric, we reverse and remand for a rehearing after the Council makes the proper inquiries. We also reject and overrule the Court of Appeals’ analysis in Allen Realty, Inc. v. City of Lawrence, 14 Kan. App. 2d 361, 790 P.2d 948 (1990), which purports to place the burden of proof in these matters on the project’s proponent.”
Decision available at http://www.kscourts.org/Cases-and-Opinions/opinions/SupCt/2013/20130823/100997.pdf.
Massachusetts Appeals Court, No. 12-P-1309, Aug. 21, 2013: No standing to enforce perpetual restriction or challenge historical certificate of appropriateness.
Four individuals living in the vicinity of St. James Episcopal parish church (but not abutters), challenged actions by the Massachusetts Historical Commission (MHC) and the Cambridge Historical Commission (CHC) in connection with a commercial development on church property. (The nature of the alterations to the church property was not of primary significance to the outcome of the case but the facts were that the church itself, listed on the National Register of Historic Places, would not be physically altered while an adjoining parish hall would be demolished and a small park designed in 1915 by a noted landscape architect would be substantially changed.)
In 1987, the parish granted MHC a perpetual preservation restriction (preservation easement) on its land (under Mass. Gen. Laws c. 184, s. 32, the “perpetual easement statute”), which gave MHC prior approval rights for all “alterations … to the Premises.” MHC approval was to be granted only where it determined that the proposed alteration “will not impair” “the characteristics which contribute to the architectural, archaeologic[al] or historical integrity of the Premises.” The easement did provide enforcement rights to the general public or the plaintiffs.
In 2005, the CHC and the parish entered into a contract (the “2005 agreement”) whereby CHC expressly declined to designate the church a landmark (although it met the relevant regulatory criteria) and in lieu thereof established a “Statement of Standards … that should inform future alterations to the premises.” The 2005 agreement provided (among other things) that “[a]ll construction on the site should preserve open views of the church structure, should be compatible with the church, and should retain the largely free-standing character of the church on its site.” The agreement noted that although the parish house was the oldest structure on the site, its historic significance had been substantially diminished by alterations made over the years, and specifically recognized that “if at some point the church desires to construct a new parish house or other parish-related structure on the site,” then “[c]onsideration should be given to allowing the removal of the parish house.” With respect to the garden, the agreement recognized that the garden itself had historic value and it stated that “[i]nsofar as is practicable, the Garden should be maintained as a historic landscaped open space [and] [e]ncroachment on the garden should be avoided or minimized.”
Later, in connection with the proposed development, the developer and the parish negotiated a deal with CHC whereby CHC issued both a “certificate of appropriateness” approving the development and a recommendation to the city council that landmark status be granted to the church. The city council adopted the CHC’s recommendation to designate the church a landmark while allowing the project to proceed. The landmark designation recognized that the CHC had already approved the proposed demolition and construction through issuing its certificate of appropriateness.
Under various legal theories the plaintiffs challenged the approval of the project by MHC and CHC. The plaintiffs appealed after being rebuffed in the lower court, and the defendants CHC and MHC moved to dismiss. For the purposes of considering this motion the court assumed that the project could impair aspects of the church’s historic value and that garden has independent historical value that the project could diminish or destroy.
Preservation Easement: The court held that the plaintiffs lacked standing to bring a case to require enforcement of a perpetual preservation easement under the perpetual easement statute. Citing a 1997 case holding that only the holder of an agricultural preservation easement (granted under the same statute) can enforce it, the court noted that the difference between the two types of easements is immaterial with regard to who may enforce them. Lest this holding be read too broadly, the court went out of its way to say, “None of this is to say … that because a third party lacks a right to enforce a government-held restriction against the owner of restricted land, that party therefore necessarily lacks a right to seek judicial review of an administrative decision made by the holder of the restriction.” The 1997 agricultural easement, the court wrote, “did not address the question whether, under some circumstances, a project opponent might have an available means of seeking such review, as well as standing to do so.” (The complaint in this case did not make that claim.)
The court went on to offer dictum that this case does not present the question whether ten citizens could seek to enforce a preservation restriction under a different statute (M.G.L. c. 214, § 7A) authorizing citizen suits to enforce “a statute, ordinance, by-law or regulation the major purpose of which is to prevent or minimize damage to the environment,” and defining “damage to the environment” to include “destruction of … parks or historic districts or sites”.)
The court rejected plaintiffs’ argument that they should be considered third-party beneficiaries of the easement. The court also rejected the plaintiffs’ argument that MHC’s approval of the project was in effect a “release” of the easement that did not follow the perpetual easement statute’s procedure for releases. The court held that as a matter of law, MHC’s decision was not a release because the preservation easement does not flatly prohibit any particular changes to the site, but instead relies on case-by-case determinations by MHC.
Historic impact review process: Plaintiffs also appealed the trial judge’s determination that Massachusetts’ historic impact review process law (M.G.L. c. 9, s. 27C) doesn’t apply in this case. That law requires MHC to review projects initiated by State agencies, or that require State funding or licensing. The trial court’s ruling was based on the plaintiffs’ failure to allege that the project was initiated by a State agency or was one that required State funding or approval, although the court noted that ruling did not explain why MHC’s approval under the preservation easement would not be a State “license.” Because plaintiffs did not argue that the trial judge erred in that ruling, the appeals court held that the argument had been waived. The court did note, “Whether and how the § 27C [historic impact review] process applies where the MHC itself is the licensing agency is a question that falls in the first instance to the MHC.”
2005 Agreement: The plaintiffs asked the court to enforce the terms of the 2005 agreement between the CHC and the parish. The court agreed with the trial judge that by the actions of CHC and the parish when CHC issued the recommendation for landmark designation and certificate of appropriateness, those parties intended to abrogate that contract. The court also held that the plaintiffs were not intended third-party beneficiaries of the 2005 agreement. The court sympathized with the plaintiffs’ argument that “where, as here, a government body enters into a contract in lieu of utilizing available regulatory vehicles, such a regulatory agreement implicates more than mere contract law, and the modification of such an agreement may not be immune from all judicial review.” Nevertheless the court declined to take action on that argument because the plaintiffs did not file a timely action seeking review of the 2010 certificate of appropriateness. The court called the issuance of the certificate “the means taken by the CHC to effectuate its decision”, thereby implying something regarding when “the modification of such an agreement” can be said to have taken place.
Certificate of appropriateness: Plaintiffs challenged CHC’s issuance of the certificate of appropriateness. Under the terms of the applicable City ordinance, the need for a certificate of appropriateness is triggered as to projects that affect designated landmarks or districts, but the ordinance says that only an applicant has a right to challenge a certificate of appropriateness determination by the CHC. Given that, the court found the plaintiffs’ proximity to the site irrelevant and the plaintiffs lack standing to challenge the certificate. (The court noted, “Under particular circumstances, a party might be able to demonstrate standing to challenge a municipal decision regardless of whether the relevant ordinance or by-law affirmatively recognized that right. [Cite] A municipality does not necessarily get the final word regarding who can seek judicial review of its regulatory decisions.” The court also said, however, that most of the plaintiffs’ alleged harms “are not ones that the ordinance was enacted to protect, and hence, as a matter of law, they cannot provide standing” and the alleged harm that does implicate historical values was not unique to the plaintiffs.) [Editorial note: this reader got the impression from the Opinion’s recitation of the facts that MHC issuance of the certificate of appropriateness in fact preceded the city council’s landmark designation. If that’s correct, then it’s not clear to this reader under what legal rubric the certificate was issued and why the limitations in the landmarks ordinance regarding standing should be relevant in this case.]
Decision available at http://www.universalhub.com/2013/jacqueline-kelley-and-others-vs-cambridge-historic. (Presumably it will eventually be available at http://http://masscases.com/.)
US Tax Court, T.C. Memo. 2013-204, August 29, 2013: Kaufman III is about post-extinguishment proceeds, not subordination. Reconsideration of Mitchell I denied.
In Mitchell v. Commissioner, 138 T.C. 324 (2012) (Mitchell I) Mitchell granted a conservation easement to the Montezuma Land Conservancy (Conservancy) but it was not until two years after the grant was donated and recorded that Mitchell got and record a subordination of a mortgage to the easement. The Mitchell I decision held that the subordination requirements of section 1.170A-14(g)(2) of the Treasury Regulations require that a subordination agreement must be in place at the time of the easement gift and that this regulation creates “strict requirements that may not be avoided.”
Mitchell now argued that the decision in Mitchell I should be reconsidered and vacated in light of the Court of Appeals decision in Kaufman v. Shulman, 687 F.3d 21 (1st Cir. 2012) (Kaufman III). The court refused to reconsider, principally because it understood Kaufman III to turn on legal issues different from the ones in the Mitchell case. As characterized by the court in Mitchell II, “Kaufman III addressed the proper interpretation of the proceeds regulation [described below in this post] and, in particular, the breadth of the donee organization’s entitlement to proceeds from the sale, exchange, or involuntary conversion of property following the judicial extinguishment of a perpetual conservation restriction burdening the property. The Court of Appeals held that it was sufficient that the donee organization have a right to postextinguishment proceeds that was absolute against the owner-donee of the burdened property. … Conservancy’s [the donee in the Mitchell case] right to postextinguishment proceeds was not determinative in Mitchell I as we ruled that petitioner had failed to meet the subordination regulation, and therefore we need not discuss the postextinguishment proceeds.”
In Kaufman III, one issue on which the Court of Appeals overruled the Tax Court had to do with the Treasury Regulations’ requirements that a conservation easement must say that if the easement were ever extinguished a portion of the proceeds of any future sale or the insurance proceeds paid because of destruction of a historic structure subject to a preservation easement (“postextinguishment proceeds”) must be paid to the donee (the grantee of the easement). Mitchell read the essence of Kaufman III as holding that if the conservation easement deed protected the proceeds to be paid to Conservancy in perpetuity upon termination of the conservation easement, thereby perpetuating an easement’s purpose as opposed to the conservation easement itself, the conservation easement satisfied the requirements of section 1.170A-14(g), Income Tax Regs. The court in Mitchell II rejected this interpretation. As described by the court in this decision, Kaufman III merely held that if the owner-donor is subject to a contractual right to the required share of the proceeds in favor of the donee (as distinct from an absolute right that runs with the land), that is sufficient to satisfy the requirements of Treasury Regulation section 1.170A-14(g)(6). Thus the court in Mitchell II wrote that Kaufman III did not state a general rule that protecting the proceeds from an extinguishment of a conservation easement would satisfy the in-perpetuity requirements of section 1.170A-14(g) generally.
Mitchell also argued that the subordination regulation should be read in tandem with the so-remote-as-to-be-negligible standard in section 1.170A-14(g)(3), Income Tax Regs. The court also rejected this interpretation, saying that in Kaufman II it had found that the so-remote-as-to-be-negligible standard does not modify the proceeds regulation and that in Kaufman III, the Court of Appeals for the First Circuit agreed. The court said that the subordination requirement is a comparably specific requirement to which the so-remote-as-to-be-negligible standard should not apply.
Mitchell also contended that a “functional subordination” of the conservation easement to the mortgage existed at the time of the gift because the donor/grantor of the easement had sufficient funds to discharge the mortgage debt “at all times before the actual subordination two years later” and that this “functional subordination” was as good as a recorded contractual subordination. The court held, “There is no functional subordination contemplated in section 1.170A-14(g)(2), Income Tax Regs., nor do we intend to create such a rule.”
In response to another line of argument from Mitchell, the court wrote that the subordination regulation section 1.170A-14(g)(6) is not merely a “safe harbor” method of subordination, but is a specific provision of section 1.170A-14(g) that is mandatory and may not be ignored.
Decision available at http://www.ustaxcourt.gov/InOpHistoric/MitchellMemo.Haines.TCM.WPD.pdf.
US Tax Court, 2013 T.C. Memo 172, July 25, 2013: Reconsideration denied, Kaufman III not applicable. Judicial extinguishment mandatory for conservation easements.
In Carpenter v. Commissioner, 2012 T.C. Memo 1 (Carpenter I), the Tax Court held that a Colorado conservation easement extinguishable by mutual consent of the parties does not guarantee protection in perpetuity under state law as required by Internal Revenue Code, and therefore a federal tax deduction for a “qualified conservation contribution” could not be claimed for the donation of that easement. The petitioners asked the court to reconsider its decision because, they asserted, the Court of Appeals for the First Circuit decision in Kaufman v. Shulman, 687 F.3d 21 (1st Cir. 2012) (Kaufman III), partially overturning the Tax Court’s Kaufman decision — Kaufman v. Commissioner, 136 T.C. 294 (2011) (Kaufman I) — was an intervening change in the relevant law that warranted reconsideration. The court, however, held that Kaufman III does not apply to the Carpenter case and is not an intervening change in law which would justify reconsider.
The court wrote that the petitioners made two arguments. First, they said Kaufman III held that the Kaufman historic preservation easement satisfied the perpetuity requirement of the Tax Code (§170(h)(5)(A)) and Treasury Regulations (§1.170A-14(g)) so long as the easement guaranteed to the easement holder its appropriate share of insurance or condemnation proceeds post-extinguishment. They asserted that notwithstanding any extinguishment of the Carpenter easement by mutual consent, that easement also guaranteed post-extinguishment proceeds to the holder and therefore the perpetuity requirement, as interpreted by Kaufman III, was satisfied. Second, the petitioners argued that regardless of what the easement said, Colorado law protects post-extinguishment proceeds in a manner that is even stronger than the protection in Kaufman III, thereby providing another way the perpetuity requirement, as interpreted by Kaufman III, was satisfied. Petitioners said that in these two ways, the change in the law resulting from the holding in Kaufman III should change the outcome as to their easement and deduction.
The court countered that the holder’s right to post-extinguishment proceeds in the Carpenter easement was irrelevant to the flaws in its provision allowing extinguishment by mutual consent.
The court tried to distinguish the situation in Carpenter from Commissioner v. Simmons, 646 F.3d 6, 10 (D.C. Cir. 2011), which was cited by the Appeals Court in Kaufman III as precedent for its decision. In Simmons the historic preservation easements allowed the holders to give consent to facade changes or to abandon some or all of its rights. Simmons said that provision did not violate the perpetuity requirement but is “needed to allow the donee organization to accommodate such change as may become necessary to make a building livable or usable for future generations while still ensuring the change is consistent with the conservation purpose of the easement.” In Carpenter II the court said that the easement’s provision allowing extinguishment by mutual consent was not similar.
The court also reinterpreted its own words in Carpenter I regarding the necessity under the Code and Regulations for a judicial proceeding to extinguish an easement. In Carpenter I the Tax Court wrote that in Kaufman I, “[W]e declined to rule that a conservation deed must require a judicial proceeding to extinguish an easement for the easement to be perpetual. [citation omitted] We once again decline to create an absolute rule. Rather, we find that the extinguishment regulation provides taxpayers with a guide, a safe harbor, by which to create the necessary restrictions to guarantee protection of the conservation purpose in perpetuity.” But in Carpenter II the court wrote, “To make our position clear, extinguishment by judicial proceedings is mandatory. Therefore, we reject petitioners’ argument that section 1.170A-14(g)(6), Income Tax Regs., contemplates any alternative to judicial extinguishment.”
The court also rejected the petitioners’ argument based on Colorado law, saying that it was only a rehash of an argument they made in Carpenter I using a new legal theory and therefore not an appropriate basis to grant reconsideration.
In a footnote, the court explained its holding that, even apart from the applicability of the Kaufman III analysis, Kaufman III, which was decided by the Court of Appeals for the First Circuit is not binding law as to Carpenter. It wrote, “[T]he Court will follow the clearly established position of a Court of Appeals to which a case is appealable. However, we will give effect to our own views in cases appealable to courts that have not yet decided the issue. This case is appealable to the Court of Appeals for the Tenth Circuit absent stipulation otherwise. … The Court of Appeals for the Tenth Circuit has not yet ruled on the issue of whether a taxpayer may mutually agree with a donee organization to terminate a conservation easement when it becomes impossible to carry out the purpose of the conservation easement and still meet the requirements of sec. 1.170A-14(g)(6)(i), Income Tax Regs.”
Decision available at http://www.ustaxcourt.gov/InOpHistoric/CarpenterMemo.Haines.TCM.WPD.pdf
For some commentary on this decision, with which PLD does not necessarily agree, see http://lawprofessors.typepad.com/nonprofit/2013/07/carpenter-v-commissioner-revisited-federally-deductible-conservation-easements-must-be-extinguishabl.html by Prof. Nancy McLaughlin.
United States Court of Appeals, 1st Circuit, No. 11-1117, July 22, 2013: Church’s constitutional and RLUIPA claims against historic district designation not ripe or rejected.
The Roman Catholic Bishop of Springfield (RCB) closed the Our Lady of Hope (“Church”), built in 1925. The City of Springfield passed an ordinance (the “Ordinance”) declaring the Church property a historic district under the Massachusetts Historic Districts Act (MHDA) Mass. Gen. Laws ch. 40C. Under MHDA, any alteration of the exterior architectural features of the Church are forbidden unless the RCB first applied to the Springfield Historical Commission (SHC) to allow a specific alteration as described in plans and specification and the SHC issued a certificate of appropriateness, a certificate of non-applicability, or a certificate of hardship for those alterations. Although the RCB did not submit an application to the Commission to alter the Church, the RCB immediately challenged the Ordinance in court.
According to the Appeals Court, under Roman Catholic canon law, the RCB has procedures for dealing with architectural religious symbols when a church has been closed for worship. If an eventual new use of the property were one deemed “sordid” by the RCB, the procedures require alterations to those symbols that are not compatible with their preservation in place without alteration.
The RCB’s claims were that the Ordinance, by its enactment and by its potential consequences, gives the SHC veto power over its religious decision making, and in doing so violates its First Amendment rights to free speech and free exercise of religion; its rights under the federal Religious Land Use and Institutionalized Persons Act (RLUIPA), 42 U.S.C. § 2000cc et seq.; and its rights under the Massachusetts state constitution and the Massachusetts Civil Rights Act, Mass. Gen. Laws ch. 12, § 11I. The U.S. district court, on cross-motions for summary judgment, found that some of RCB’s claims were not ripe for review and that its remaining claims failed as a matter of law. Roman Catholic Bishop of Springfield v. City of Springfield, 760 F. Supp. 2d 172 (D. Mass. 2011). (Preservation Law Digest report available; full text of the district court decision available at http://scholar.google.com/scholar_case?case=167538812952529546&hl=en&lr=lang_en&as_sdt=2,22&as_vis=1.) The RCB appealed.
Ripeness: The court held that the RCB’s claim based on the enactment of the Ordinance is ripe, but rejected the remainder of the RCB’s claims as not ripe for judgment. The court said the standard for determining whether a matter is ripe is two-fold: (1) “the fitness of the issues for judicial decision and [(2)] the hardship to the parties of withholding court consideration.” The fitness test in turn has two prongs: “whether there is a sufficiently live case or controversy, at the time of the proceedings, to create jurisdiction… [and] The prudential component asks whether resolution of the dispute should be postponed in the name of judicial restraint from unnecessary decision of constitutional issues.” (Internal quotations omitted.)
Regarding the enactment of the Ordinance, the court found the ripeness tests were met, so the court could move on to a decision on the merits about the RCB’s claims under RLIUPA, the U.S. Constitution and the Massachusetts Constitution. The court said that the existence of the Ordinance requiring the RCB to submit to the SHC’s authority “presently imposes delay, uncertainty, and expense, which is sufficient to show present injury.”
As to the RCB’s claims based on the potential consequences of compliance with the Ordinance, the key factor in the court’s holding that these claims were not ripe was that the RCB had neither presented to the court nor the SHC any plans to alter the Church. The absence of any such plans made the claim of injury purely hypothetical. “Without knowing what RCB can or cannot do with the Church under the Ordinance, we cannot know to what extent, if any, RCB will suffer from a burden on its religious practice,” the court said. (The Appeals Court’s reasoning on this point was different from the district court’s.) The court held, however, that the district court should not have granted summary judgment to the City on these claims. Instead, the court remanded those claims back to the lower court to be dismissed without prejudice.
RLIUPA Substantial Burden: The court rejected the RCB’s claim that enactment of the Ordinance violates RLUIPA on two grounds. First, RLIUPA prohibits any government land use regulation that imposes a “substantial burden” on a religious institution’s religious exercise (which includes the use, building, or conversion of real property for the purpose of religious exercise) unless the government demonstrates that imposition of the burden on that institution “(A) is in furtherance of a compelling governmental interest; and (B) is the least restrictive means of furthering that compelling governmental interest.” 42 U.S.C. § 2000cc(a). Thus, the first issue for the court to decide, as a question of law (there being no contested facts), was whether the enactment created a “substantial burden” within the meaning of this statute.
Noting that the Supreme Court has not defined “substantial burden” in this context, the court chose to identify “some relevant factors” in a “functional approach to the facts of a particular case” to decide if the burdens in that case “may cumulate to become substantial.” The court rejected use of any abstract test. The court then listed three factors that other courts have considered, emphasizing that this is not an exhaustive list: (1) “whether the regulation at issue appears to target a religion, religious practice, or members of a religious organization because of hostility to that religion itself”; (2) “whether local regulators have subjected the religious organization to a process that may appear neutral on its face but in practice is designed to reach a predetermined outcome contrary to the group’s requests”; and (3) “whether the land use restriction was ‘imposed on the religious institution arbitrarily, capriciously, or unlawfully.’”
Applying this analysis to enactment of the Ordinance, the court found the enactment did not fail the first two tests, despite “troubling facts.” (There was no analysis of the third factor.) The court noted that it is in the nature of historic districts that the districts created do not apply automatically to the general population, and “their entire purpose is to prevent only particular property owners in limited areas from changing the appearance of particular properties. The court then found that the “actual, tangible burdens” of the mere existence of the Ordinance on the RCB were not substantial — there were no facts alleged to show that the existence of the Ordinance imposed substantial expenses on the RCB that it would not otherwise have had, and the delay of RCB action until an SHC application decision was not excessively time consuming.
RLIUPA Equal Terms: The court also found that despite the historic district being applied to a single parcel owned by a religious institution, due to the nature of the MHDA and the City’s other designations of historic districts, the Ordinance does not violate RLIUPA’s prohibition against any land use regulation that treats a religious institution “on less than equal terms with a nonreligious assembly or institution.” 42 U.S.C. § 2000cc(b)(1).
Constitutional Free Exercise Claims: On these claims, the court subjected the Ordinance to so-called strict scrutiny because, for federal purposes, it is not a neutral law of general applicability, and Massachusetts law applies strict scrutiny even to such claims regarding laws of general applicability. Applying its analysis of the “substantial burden” question under RLUIPA, the court rejected the RCB’s free exercise claim as to the enactment of the Ordinance.
Decision available at http://media.ca1.uscourts.gov/cgi-bin/getopn.pl?OPINION=11-1117P.01A.
Dist. Court, D. Idaho, No. CIV. 1:10-186 WBS, July 8, 2013: Conservation easement deduction fraud penalty dismissed, other issues go to trial.
This decision is on motions for summary judgment (to decide the issues in question without proceeding to a trial about them) in the dispute between the IRS and the Peskys about whether, in light of various agreements and transactions between the Peskys and The Nature Conservancy (TNC), the Peskys were entitled to a charitable contribution tax deduction for a conservation easement the Peskys granted to TNC in 2002 on land in Idaho, and the IRS properly assessed a 75% penalty for fraud.
The IRS refused Pesky’s claim for a qualified conservation contribution tax deduction and assessed a deficiency and penalty, alleging that the grant of easement was a quid pro quo for benefits the Peskys received from TNC. The Peskys paid the deficiency and sued the US in 2010 for a refund of both. In Pesky I, this same court decided questions about the admissibility of certain evidence. In Pesky II, this court refused to dismiss an IRS claim for a 75% penalty for conservation easement tax fraud. The PLD post on Pesky II described relevant facts of the Pesky-TNC transactions.
The court, repeating well known standards, said it would grant a motion for summary judgment only if the moving party establishes the absence of a genuine issue of material fact by presenting evidence that negates an essential element of the non-moving party’s case or by demonstrating that the non-moving party cannot produce evidence to support an essential element upon which the non-moving party will bear the burden of proof at trial. The evidence presented has to be viewed in the light most favorable to the non-moving party and the court has to draw “all justifiable inferences” in favor of the non-moving party. If there is a genuine issue of material fact that remains, the issue can’t be decided by summary judgment and must go to trial for resolution.
The motions for summary judgment now were the following:
1. Quid Pro Quo: Each party moved to dismiss based on whether the conservation easement was a quid pro quo transaction with TNC; the IRS claimed it was, the Peskys said it wasn’t. The court recited the general precedent that there is no charitable contribution unless the taxpayer transfers money or property “without adequate consideration.” The transfer does not qualify as a deductible contribution if there is an understanding that the taxpayer’s money or property won’t go to the charitable organization unless the taxpayer “receives a specific benefit in return, and where the taxpayer cannot receive the benefit unless he pays the required price…” (i.e., there is a quid pro quo for the contribution).
Weighing the evidence presented to it, the court denied both parties’ motions for summary judgment based on the quid pro quo issue. The key facts had to do with whether a certain Assignment Agreement between Pesky and TNC (see the description in Pesky II) could be seen as a stand-alone and self-contained transaction or was so tied to the Peskys’ Pledge Agreement with TNC and the conservation easement to TNC as to constitute a quid pro quo. The court found that there is a genuine issue of material fact whether the two Pesky-TNC transactions were separate enough that the easement was given without consideration from TNC, meaning the issue should go to trial.
2. Contemporaneous Written Acknowledgement: The IRS claimed the Peskys failed to provide an acknowledgment (required by Internal Revenue Code § 170(f)(8)(B) and related regulations) that they received goods and services from TNC in exchange for the conservation easement. The IRS’ motion for summary judgment on this issue was also denied. The court said finding for the IRS required finding that a good or service was received in consideration for the conservation easement, and because there is a genuine issue of material fact whether there was a quid pro quo, the court could not make the necessary finding. Accordingly, that issue also goes to trial. The court noted , “Neither party cites a case in which a court decided at summary judgment whether or not a deduction under § 170 was disallowed as a matter of law due to receipt of substantial benefit, and the Ninth Circuit has upheld jury instructions when the district court conducted a jury trial on the issue.”
3. Qualified Appraisal: The IRS claimed the Pesky appraisal was not a qualified appraisal under Treasury Regulations § 1.170A-13(c)(3)(ii) because it did not consider the likelihood of development of property the Peskys could acquire under the agreements with TNC which the IRS claimed were part of the quid pro quo arrangement and because the appraisal did not factor in the terms of those agreements. The court denied summary judgment on this issue too, saying that even if the court were to find the appraisal deficient, a genuine issue of material fact exists as to whether the Peskys should be excused from those requirements under the “reasonable cause” exception of the Code §170(f)(11)(A)(ii)(II).
4. 75% Fraud Penalties: Pesky moved to dismiss the IRS’s claim for a 75% penalty for fraud under 26 U.S.C. § 6663(a) in Pesky’s claimed deduction for the conservation easement. (The IRS asked for summary judgment about the accuracy penalty, but the fraud penalty.) The court granted Pesky’s motion. Pesky’s alleged fraud was in not disclosing to the IRS one of the agreements other than the conservation easement with the intent to conceal the alleged quid pro quo. The cited standard to establish liability for the civil fraud penalty is “the Government must establish: (1) a knowing falsehood; (2) an intent to evade taxes; and (3) an underpayment of tax.” The court also noted that to find fraud, the court must find that it “highly probable” to have happened, a higher standard of proof than “a preponderance of the evidence.” The court said the evidence showed the decision not to disclose the agreements was primarily made by Pesky’s attorneys, not Pesky and it appears that the attorneys had good faith reasons for their decisions, separate from any intent to conceal the agreement from the IRS. The court wrote, “Viewing all evidence in the light most favor the United States, the court cannot conclude that a reasonable juror could find it ‘highly likely’ that Alan Pesky’s deduction of the Conservation Easement was due to fraud.”
The decision is not yet available on the web other than by searching Google Scholar © for, e.g., “Pesky v. US, Dist. Court, D. Idaho July 2013” but note that there is a companion decision, issued the same date by the same court and judge under the same docket number, addressing other charitable deductions claimed by the Peskys.
U.S. Supreme Court, No. 12-901, 5/28/13: Supreme Court lets Historic Boardwalk Third Circuit decision stands.
The U.S. Supreme Court denied certiorari to Historic Boardwalk Hall LLC, letting stand the Third Circuit Court of Appeals decision in Historic Boardwalk Hall, LLC v. Commissioner of Internal Revenue, US Third Circuit Court of Appeals, No. 11-1832, decided August 27, 2012. PLD’s summary of the Third Circuit decision is available at http://preservationlawdigest.com/2012/09/03/historic-boardwalk-hall-llc-v-commissioner-of-internal-revenue/.
U.S. Supreme Court,No. 11-1447, June 25, 2013: Denial of land use permit for refusal of mitigation may be taking.
The following excerpts marked “Headnotes” are from the syllabus or headnotes prepared by the SCOTUS Reporter of Decisions, which are not part of the opinion of the Court. The excerpts marked “Majority Opinion” are from the Court’s opinion (written by Justice Alito, joined by Justices Kennedy, Roberts, Thomas and Scalia), and the excerpts marked “Dissent” are from the dissenting opinion (by Justice Kagan, joined by Justices Ginsburg, Breyer and Sotomayor):
“Koontz sought permits to develop a section of his property from respondent St. Johns River Water Management District (District), which, consistent with Florida law, requires permit applicants wishing to build on wetlands to offset the resulting environmental damage. Koontz offered to mitigate the environmental effects of his development proposal by deeding to the District a conservation easement on nearly three-quarters of his property. The District rejected Koontz’s proposal and informed him that it would approve construction only if he (1) reduced the size of his development and, inter alia, deeded to the District a conservation easement on the resulting larger remainder of his property or (2) hired contractors to make improvements to District-owned wetlands several miles away. Believing the District’s demands to be excessive in light of the environmental effects his proposal would have caused, Koontz filed suit under a state law that provides money damages for agency action that is an ‘unreasonable exercise of the state’s police power constituting a taking without just compensation.’
Majority Opinion: “The District considered the 11-acre conservation easement to be inadequate, and it informed petitioner that it would approve construction only if he agreed to one of two concessions. First, the District proposed that petitioner reduce the size of his development to 1 acre and deed to the District a conservation easement on the remaining 13.9 acres. To reduce the development area, the District suggested that petitioner could eliminate the dry-bed pond from his proposal and instead install a more costly subsurface stormwater management system beneath the building site. The District also suggested that petitioner install retaining walls rather than gradually sloping the land from the building site down to the elevation of the rest of his property to the south.
“In the alternative, the District told petitioner that he could proceed with the development as proposed, building on 3.7 acres and deeding a conservation easement to the government on the remainder of the property, if he also agreed to hire contractors to make improvements to District-owned land several miles away. Specifically, petitioner could pay to replace culverts on one parcel or fill in ditches on another. Either of those projects would have enhanced approximately 50 acres of District-owned wetlands. When the District asks permit applicants to fund offsite mitigation work, its policy is never to require any particular offsite project, and it did not do so here. Instead, the District said that it ‘would also favorably consider’ alternatives to its suggested offsite mitigation projects if petitioner proposed something ‘equivalent.’”
“The trial court found the District’s actions unlawful because they failed the requirements of Nollan v. California Coastal Comm’n, 483 U.S. 825, and Dolan v. City of Tigard, 512 U. S. 374. Those cases held that the government may not condition the approval of a land-use permit on the owner’s relinquishment of a portion of his property unless there is a nexus and rough proportionality between the government’s demand and the effects of the proposed land use. …”Headnotes
“1. The government’s demand for property from a land-use permit applicant must satisfy the Nollan/Dolan requirements even when it denies the permit.
“(a) The unconstitutional conditions doctrine vindicates the Constitution’s enumerated rights by preventing the government from coercing people into giving them up, and Nollan and Dolan represent a special application of this doctrine that protects the Fifth Amendment right to just compensation for property the government takes when owners apply for land-use permits. The standard set out in Nollan and Dolan reflects the danger of governmental coercion in this context while accommodating the government’s legitimate need to offset the public costs of development through land use exactions. Dolan, supra, at 391; Nollan, supra, at 837.
“(b) The principles that undergird Nollan and Dolan do not change depending on whether the government approves a permit on the condition that the applicant turn over property or denies a permit because the applicant refuses to do so. …
“(c) … the District errs in arguing that because it gave Koontz another avenue to obtain permit approval, this Court need not decide whether its demand for offsite improvements satisfied Nollan and Dolan. Had Koontz been offered at least one alternative that satisfied Nollan and Dolan, he would not have been subjected to an unconstitutional condition. But the District’s offer to approve a less ambitious project does not obviate the need to apply Nollan and Dolan to the conditions it imposed on its approval of the project Koontz actually proposed.
“2. The government’s demand for property from a land-use permit applicant must satisfy the Nollan/Dolan requirements even when its demand is for money. …”
“The significant legal questions that the Court resolves today are whether Nollan and Dolan also apply when that case is varied in two ways. First, what if the government does not approve the permit, but instead demands that the condition be fulfilled before it will do so? Second, what if the condition entails not transferring real property, but simply paying money? This case also raises other, more fact-specific issues I will address: whether the government here imposed any condition at all, and whether petitioner Coy Koontz suffered any compensable injury.
“I think the Court gets the first question it addresses right. The Nollan-Dolan standard applies not only when the government approves a development permit conditioned on the owner’s conveyance of a property interest (i.e., imposes a condition subsequent), but also when the government denies a permit until the owner meets the condition (i.e., imposes a condition precedent). … When the government grants a permit subject to the relinquishment of real property, and that condition does not satisfy Nollan and Dolan, then the government has taken the property and must pay just compensation under the Fifth Amendment. But when the government denies a permit because an owner has refused to accede to that same demand, nothing has actually been taken. The owner is entitled to have the improper condition removed; and he may be entitled to a monetary remedy created by state law for imposing such a condition; but he cannot be entitled to constitutional compensation for a taking of property. So far, we all agree.
“Our core disagreement concerns the second question the Court addresses. The majority extends Nollan and Dolan to cases in which the government conditions a permit not on the transfer of real property, but instead on the payment or expenditure of money. That runs roughshod over Eastern Enterprises v. Apfel, 524 U. S. 498 (1998), which held that the government may impose ordinary financial obligations without triggering the Takings Clause’s protections. The boundaries of the majority’s new rule are uncertain. But it threatens to subject a vast array of land-use regulations, applied daily in States and localities throughout the country, to heightened constitutional scrutiny. I would not embark on so unwise an adventure, and would affirm the Florida Supreme Court’s decision.
“… Second, no taking occurred in this case because Koontz never acceded to a demand (even had there been one), and so no property changed hands; as just noted, Koontz therefore cannot claim just compensation under the Fifth Amendment. The majority does not take issue with my first conclusion, and affirmatively agrees with my second. But the majority thinks Koontz might still be entitled to money damages, and remands to the Florida Supreme Court on that question.”
Decision available at http://www.supremecourt.gov/opinions/12pdf/11-1447_4e46.pdf.
Some interesting commentary on this decision can be found at:
A New York Times Op Ed by John D. Echeverria, a professor at Vermont Law School, published June 26, 2013
American Planning Association blog APA Policy News For Planners, “High Court’s Koontz Decision Raises Questions”, by Molly Stuart http://blogs.planning.org/policy/2013/06/26/high-courts-koontz-decision-raises-questions/ (Thanks to Leslie Ratley-Beach for highlighting this blog)
Law of the Land blog, “U.S. Supreme Court Hands Down Koontz Case”
http://lawoftheland.wordpress.com/2013/07/01/u-s-supreme-court-hands-down-koontz-case/, an analysis by Pace Law Professor John R. Nolon
Court of Appeals of Maryland,No. 65, September Term, 2012, June 24, 2013: Maryland agricultural preservation easement not a charitable trust.
This case is the appeal of the decision in Long Green Valley Ass’n v. Bellevale Farms, Inc., 205 Md. App. 636, 683, 46 A.3d 473, 501 (2012) (Long Green Valley I). It holds that in Maryland, the agricultural preservation easement at issue, granted to the Maryland Agricultural Land Preservation Foundation (“MALPF”), a state agency, is not a charitable trust, and therefore the appellants, private parties, do not have standing to seek enforcement of the easement.
As reported here previously, the owners of Bellevale dairy farm sold an agricultural preservation easement to MALPF. MALPF later approved Bellevale’s proposed construction and operation of a creamery, processing facility, farm store and parking on the property. The owners of an abutting property (Yoders) and a conservation organization (Long Green Valley Association or LGVA) claimed the creamery, etc., violated the easement and brought suit, asking the court to compel MALPF to enforce the easement. LGVA was denied standing in the lower courts on the basis that the agricultural preservation easement did not constitute a charitable trust (under § 14-302(a) of the Maryland Estates and Trusts Article). Had the easement been deemed a charitable trust a non-party “interested persons” like LGVA would have had standing to seek to enforce the provisions of the easement. LGVA brought this appeal to the higher Court of Appeals to gain standing to enforce a charitable trust.
The court reasoned that to reach a decision it had to determine whether the parties that created the easement had the intent of creating a charitable trust. LGVA sought to prove the intent to create a charitable trust by focusing on evidence extrinsic to the language of easement. The court, however, wrote, “We need not resort to extrinsic evidence in parsing the plain meaning of the Respondents’ [Bellevale Farms, Inc.] intent because the language of the Bellevale Easement demonstrates clearly that the Respondents did not intend for the Easement to impose a charitable trust.” Having said that, the court nevertheless felt the need to review the intent of the MALPF program’s statutory purpose to counter LGVA’s interpretation that the MALPF’s program fulfilled a charitable purpose (an element necessary to creation of a charitable trust in Maryland).
As to the language of the easement, the court took note of the following easement wording:
- “[T]he intention of the parties that the said land shall be preserved solely for agricultural use in accordance with the provisions of the Agricultural Article;”
- That it is the “Grantor [who] covenants for and on behalf of Grantor, the personal representatives, successors and assigns of the Grantor, with the Grantee, its successors and assigns, to do and refrain from doing” the various covenants and restrictions (emphasis added);
- That “the parties, for themselves, their personal representatives, successors and assigns, further covenant and agree as follows . .. .” (emphasis added);
- That the State, “to the use of the Department of Agriculture on behalf of” the MALPF, may enforce the Easement, but expressly excluding any other individual from enforcing it;
- That the MALPF as Grantee, and not any member of the public, has “the right to enter on the above described land from time to time for the sole purpose of inspection and enforcement of the easement, covenants, conditions, limitations and restrictions . . . .”;
- That it is the MALPF, and no other entity, that is entitled to determine whether any proposed use of Bellevale Farms may violate the provisions of the easement;
- Several terms and provisions regarding the definition of “agricultural use,” including that the “agricultural” use to which Bellevale Farms is restricted, includes farm operations “relating to the processing, storage, or sale of farm, agricultural, or woodland products”; and
- The same permitted uses of Bellevale Farms for purposes of profitable farming and sale of farm products, rather than for a charitable preservation of land for public use and enjoyment.
Taken together, the court found the intent was not to provide a public benefit or create a charitable trust.
The court then turned to the MALPF’ statutory scheme (somewhat reluctantly: “Resort, if need be [emphasis added], to the statutory scheme of the MALPF program provides further support for the conclusion that the Bellevale Easement has no charitable purpose.”) The court wrote, “Although public benefits potentially and incidentally flow from the MALPF program, we conclude that the overarching purpose of the program is not charitable because its primary goal is to promote and enable profitable farming by purchasing easements in privately-maintained land.”
[The court did not examine why the state found it necessary to promote and enable private profit if not for a more fundamental public purpose, saying only that saying only that “some consequential benefits flow to the general public in Maryland” as a result of “a program that is market-oriented and profit-driven.”
[In the end, the court’s holding that the parties did not intend for the easement to create a charitable trust, and that therefore LGVA does not have standing to ask a court to enforce the easement, was based on both the instrument creating the easement and the statutory scheme of the MALPF program through which the easement was purchased. It is not at all clear that the court would have reached the same conclusion had the easement not been purchased under a statutory program to support local agricultural enterprises.]
The decision is available at http://mdcourts.gov/opinions/coa/2013/65a12.pdf