Massachusetts Appeals Court, No. 13-P-354, April 3, 2014: Recreational use law from liability even when defendant gets economic benefit; no consumer protection liability either.
Linda Patterson brought suit after she was injured from a fall inside a historic church while she toured it. The Pattersons claimed the recreational use statute, M.G.L. c. 21, § 17C (current version at https://malegislature.gov/Laws/GeneralLaws/PartI/TitleII/Chapter21/Section17C), did not bar liability on her negligence claims, and that she was entitled to remedies for unfair and deceptive trade practices under the consumer protection act, M.G.L. c. 93A. The trial judge found against the Pattersons and they appealed. The appeals court upheld the trial court judgment.
The injury happened during a tour of the church offered by a nonprofit foundation (foundation), organized to put on tours and historical programs at the church. The foundation has a memorandum of understanding (MOU) with the church. Under the MOU the foundation pays the church for the right to operate at the church. The foundation raises revenue from its gift shop, from fees for specialized tours to exclusive areas of the church, and from other fundraising efforts. Neither the Pattersons nor anyone in their sightseeing group were charged a fee to enter or tour the church. Mrs. Patterson attributed her fall to the difference in height between the floor of an aisle and the floor of a pew and the painting of the step the same color as the aisle carpet.
The only recreational use statute issue on appeal was whether the foundation lost the protections of the statute because it “impose[d] a charge or fee” under the statute. The Pattersons asserted that the foundation lost that protection because it generates revenue and pays the church an annual fee, arguing that a defendant who reaps an economic benefit from property utilized by the public free of charge is barred from relief under the statute.
The court found that the foundation’s other income and financial relationship with the church did not create an indirect fee for the Pattersons’ to enter or tour the church. This distinguished the facts in this case from precedents in other cases in which an indirect fee was found to exist, thereby depriving the defendants in those cases from the statute’s protection. The court found that the Pattersons made no contribution, direct or indirect, to the payments the foundation made to the church, and that would be so even if it were true that the church would not have been open to the public free of charge in the absence of the foundation’s annual payment to it.
(The recreational use statute applies under certain conditions to property used for recreational, educational, religious, or charitable purposes. The court said the undisputed facts showed that the situation met those conditions because the foundation has an interest in the land, Mrs. Patterson was injured when engaged in a recreational activity on that land, and the foundation did not “impos[e] a charge or fee” for the injured plaintiff’s use of the land. Under the statute a person engaged in a recreational activity is owed “only the standard of care applicable to trespassers: that is, landowners must refrain from willful, wanton, or reckless conduct as to their safety,” and not the duty of reasonable care owed other lawful visitors. On appeal the Pattersons did not dispute that the high volume of tourism activity does not disqualify the Pattersons’ visit from being considered a “recreational use” or that visiting a tourist destination while on vacation is a “recreational activity,” or that the foundation’s actions or omissions rose to the level of wilful, wanton, or reckless conduct.)
The Pattersons asked the court to interpret the legislative history of the recreational use statute to exclude the foundation and church from the statute’s protection the foundation they generate revenue on the church property. The court held that the purposes and requirements of the recreational use statute are sufficiently clear on its face that it would be inappropriate for the court to delve into the legislative history.
The court also rejected the Pattersons’ claim that because the church was not in compliance with certain accessibility requirements when Mrs. Patterson was injured, the church and the foundation are liable under the Massachusetts Consumer Protection Act, M.G.L. c. 93A. The court said there was nothing in the record to support the contention that, whatever negligence there might have been, it was or resulted in an unfair or deceptive act or practice. The implication was that in order for noncompliance with the accessibility requirements to be or result in an unfair or deceptive act or practice, the result had to be intentional, or there had to be fraud or deceit. The court found the foundation and church had not been fraudulent or deceitful by encouraging church visitors to sit in the pew boxes.
Lastly the court held that the accessibility regulations are not directed at the protection of consumers in the marketplace, but instead regulate building accessibility, and therefore the failure to comply with them did not violate the Attorney General’s Chapter 93A Regulations (940 CMR § 3.16(3)).
The decision is available at http://www.universalhub.com/2014/linda-patterson-and-another-vs-christ-church-city and until April 17 at http://weblinks.westlaw.com/result/default.aspx?action=Search&cnt=DOC&db=MA-ORSLIP&eq=search&fmqv=c&fn=_top&method=TNC&mt=Westlaw&n=1&origin=Search&query=TO%28ALLAPP+ALLAPPRS%29&rlt=CLID_QRYRLT6275833401374&rltdb=CLID_DB6149333401374&rlti=1&rp=%2Fsearch%2Fdefault.wl&rs=MAOR1.0&service=Search&sp=MassOF-1001&srch=TRUE&ss=CNT&sskey=CLID_SSSA2449333401374&sv=Split&vr=1.0. It may eventually be available at http://masscases.com/name.html by searching for “Patterson”.
U.S. Tax Court, T.C. Memo 2014-52, March 31, 2014: Façade Easement had zero value; penalties imposed.
The issues in this case about the federal tax deduction for a “qualified conservation contribution” (a historic preservation façade easement) were principally the valuation of the façade easement and what, if any, penalties the taxpayer should pay for misstating the value in their tax return. The case was before the tax court on remand from the U.S. Court of Appeals for the First Circuit. Kaufman v. Shulman, 687 F.3d 21 (1st Cir. 2012), aff’g in part, vacating and remanding in part Kaufman v. Commissioner, 136 T.C. 294 (2011), and 134 T.C. 182 (2010). It is the latest in a number of decisions involving problematic appraisal of façade easements granted to the National Architectural Trust (NAT).
The property is in Boston’s designated South End historic district and is subject to the South End Landmark District Residential Standards and Criteria (South End Standards and Criteria). The court described those rules as requiring approval by the South End Landmarks Commission (commission) for almost all exterior alterations to any property within the district, and providing specific repair criteria for many elements of the exterior.
The court weighed the credibility of competing appraisals’ assumptions and conclusions about whether and to what extent the preservation easement reduced the value of the property any more than the South End Standards and Criteria did. The court found the weight of evidence convincing that that the restrictions of the NAT façade easement are “basically duplicative of, and not materially different from, the South End Standards and Criteria.”
The Kaufmans’ appraiser, Hanlon (who had been recommended by NAT), concluded the façade easement reduced the property’s value prior to the easement donation by 12%, allowing a deduction of $220,800. The IRS appraiser, Bowman, concluded the easement caused no reduction in the property’s “after” value, yielding zero deduction.
The court found the IRS appraisal far more credible and decided the façade easement had no deduction value. The court did not like Hanlon’s starting point of accepting a general 15% reduction in value as proposed in the now-infamous IRS article, “Facade Easement Contributions,” by Mark Primoli (Primoli article). Hanlon had also modified this general number by assigning a percentage value to each separate “burden” that he thought were imposed by the easement (with the sum of the assigned percentages equal to 15%), and then adjusting the weight of those separate burdens by the differences he identified between the restrictions in the Kaufman preservation easement as compared to those imposed by the South End Standards and Criteria. The court wrote, “Even were we to accept that he identified the constituent burdens constituting the overall burden imposed by a facade easement, we accept neither his 15% starting point nor the relative percentages that he assigned to each constituent burden.” While the court did not entirely reject Hanlon’s concepts it did find “the lack of general acceptance and the uniqueness of his method are facts relevant to our determining its reliability … support[s] our conclusion that his method is not reliable.”
The court found credible the opinions of IRS’s appraiser, Bowman, that the easement did not change the highest and best use of the property (which Hanlon had conceded), there was no significant difference between the restrictions in the NAT easement and the underlying South End Standards and Criteria “that would likely be recognized by a typical buyer” [emphasis added], and no evidence of diminution in value or difficulty in marketing or financing preservation restriction-encumbered properties. The court also gave credence to Bowman’s testimony that insurance and maintenance costs for the property would not be greater than for other property in the historic district owned by a prudent owner or subject to mortgage lender requirements.
Because of the infinite percentage difference between the claimed deduction ($280,000) and what the court found to be appropriate ($0), it found that an accuracy-related penalty of 40% on account of a gross valuation misstatement (Code Sec. 6662(h)(1) and (2)(A)(i)) could be imposed unless the “reasonable cause exception” (Code Section 6664(c)) applies. The reasonable cause exception would not be available for a gross valuation overstatement of a charitable contribution deduction unless the claimed value of the property was based on a “qualified appraisal” by a “qualified appraiser” and the taxpayer made a good-faith investigation of the value of the contributed property. (Code Sec. 6664(c)(2) and (3); sec. 1.6664-4(h), Income Tax Regs.) The court, while finding that Hanlon and his appraisal minimally met the standards of a qualified appraiser and appraisal, did not find that the Kaufmans conducted a good faith investigation.
The court did not say what would constitute a good faith investigation but did say that the Kaufmans had not met their burden of proving that they had conducted one by simply (a) believing that the preservation easement was more restrictive than the South End Standards and Criteria, (b) having their accountant review the appraisal and tell them it was “consistent in form with other real estate appraisals that he had seen,” (c) relying on the Primoli article’s range of values, and (d) expressing concern to a NAT representative about resale value. The court held it against Mr. Kaufman that he is “a sophisticated consumer of statistical analyses” and opined he had good reason to question the appraisal’s value conclusion.
In the alternative, the court held that an accuracy-related penalty on account of negligence may be imposed. In addition to the absence of a good faith investigation, the court found negligence based on the Kaufmans’ certification to their lender, after getting the Hanlon appraisal, that “[t]he easement restrictions are essentially the same restrictions as those imposed by current local ordinances that govern this property.” The court brushed aside the Kaufmans’ attempt to say that they had not really read what they signed, saying that at the very least they were careless, “whether in not reading what they signed, in not reading carefully what they signed, or, in Gordon Kaufman’s case, in reaching a subjective conclusion in willful ignorance of relevant data.”
Decision available at http://www.ustaxcourt.gov/InOpHistoric/KaufmanMemo.Halpern.TCM.WPD.pdf
Iowa Court of Appeals, Nos. 3-1154/13-0328, March 26, 2014: Certiorari exclusive remedy for project permit approval in historic district.
A permit (COA) is required for certain exterior construction in the historic districts of the unincorporated villages known as Amana Colonies. The permit decision is made by the Amana Colonies Land Use District Board of Trustees (Board). The Cutlers applied for and received a COA after months of hearings and project plan revisions. Opponents of the project, aggrieved residents of the Amana Colonies, challenged the Board decision in district court and sought summary judgment. That court held that the exclusive remedy to challenge the Board’s decision was by certiorari and that the court lacked jurisdiction over the declaratory judgment action. The district court also concluded, in the alternative (if it had jurisdiction), that the Board did not act unreasonably, arbitrarily, or capriciously in approving the project. The appeals court affirmed the lower court decision.
First, the appeals court ruled that the Board’s decision was “quasi-judicial” and therefore could be challenged by a certiorari action under the Iowa Rule of Civil Procedure. The Board’s determination in a COA decision was quasi-judicial because it required the exercise of discretion in finding facts and applying the law, like a zoning decision. Then the court held that certiorari is the exclusive remedy to challenge this type of land use decision, when only the grant or denial of a particular application is at issue. Declaratory judgment would be available only if the validity of the ordinances were at issue. The court therefore upheld the dismissal of the action.
The court went on, however, to also affirm the lower court’s decision that even if declaratory judgment were an available remedy, the Board’s grant of the permit would stand because, on the undisputed facts, the Board’s decision was facially valid and a rational exercise of its authority
Decision available at http://www.iowacourts.gov/About_the_Courts/Court_of_Appeals/Court_of_Appeals_Opinions/Recent_Opinions/20140326/3-1154.pdf.
Mich. Court of Appeals, No. 302385, March 25, 2014: Land trust did not tortuously interfere with owners business relationships.
In this litigation, the Glasses, who were subject to an unsuccessful attempt by the IRS to disallow a federal income tax deduction for a conservation easement the Glasses donated to the Little Traverse Conservancy Trust (LTC) (Glass v Comm’r of Internal Revenue, 471 F3d 698, 706 (CA 6, 2006), sued LTC and the Van Lokerens (neighbors and Mary Ann Van Lokeren became a member of the LTC board). At issue were actions of LTC and the Van Lokerens in connection with the Glasses’ attempt to sell land subject to the conservation easement. The Van Lokerens alleged these parties intentionally interfered with the Glasses’ sale of their property, tortuously interfered with the Glasses’ “business/economic relationships,” conspired to maliciously prosecute the Van Lokerens in a 2008 case brought by LTC and the Van Lokerens in connection with the attempted sale, and abused process by placing and maintaining a lis pendens on Glass’s property. The court affirmed a lower court decision and dismissed the Glasses’ claims.
The legal issues in this case are not particularly about conservation easements or land trusts, but the facts may offer perspective to holders of conservation easements and owners of land subject to conservation easements about activities by a land trust that could be alleged to be — but in the end were found not to be — tortuous interference with a business relationship, or creating a libel (or cloud) on title. The facts and circumstances can be found in the unpublished decision at http://publicdocs.courts.mi.gov:81/opinions/final/coa/20140325_c302385_64_302385.opn.pdf.
Supreme Court, April 1, 2014: Enforcement order banning access upheld.
In the latest twist in this long running restriction enforcement litigation, a motion for a stay of judgment was denied. The case began as a reverter action for violation of a combined historic preservation and conservation easement. The Enoshes held an unlimited life estate on an ill-defined property “between the rivers.” The life estate was subordinate, however, to an easement that required the property to remain in its natural condition in perpetuity, but allowed harvesting of all native fruits and vegetables other than the fruits of two trees. The easement holder, one Yahweh, alleged that the Enoshes violated the easement by “partaking” of one of those fruits. The Enoshes, represented by separate counsel, raised three joint defenses: first, they claimed that an agent of the holder with apparent authority had given them consent to harvest the fruit; second, they claimed the prohibition was unenforceable because of the doctrine of merger – the easement holder was the owner of the property and always had been; third, they said their violation was de minimis. Adam Enosh asserted separately that he had not, in fact, violated the easement – he asserted that he merely tasted what his wife Eve had harvested.
The case was first decided in Yahweh’s favor on summary judgment and the Enoshes were banned from the property, enjoined from reentry, and subject to various other penalties. The first appeal by the Enoshes, claiming that the easement had never specified a remedy for a violation, was denied. In ensuing appeals and counterclaims, the Enoshes have been unsuccessful in getting the original removal order lifted. Motions to intervene in the case by several for-profit and nonprofit organizations, including Get Back to the Garden, Inc. and Friends of Organized Religion, have generated reams of scholarly literature on questions of standing and whether the original easement or the removal order allowed the Enoshes a way to make restitution and thereby have the order nullified. One unique aspect of the litigation is that no one has figured out how to bring the issue of charitable trust into the pleadings.
Readers will recall that in related litigation, the Tax Court upheld the IRS position that Yahweh was not entitled to a charitable deduction for the grant of the easement. In Yahweh’s favor, the easement was held to have the “conservation purpose” of protection of a relatively natural habitat but not any other conservation purpose (the property included no certified historic structure, the property was not a historically important land area as it had no history, the easement did not allow for scenic enjoyment by the public — no access, no public at the time of creation, etc.). Nevertheless, there was no deduction because the easement had no value: the appraisal itself stated that there was no “before” on the basis of which one could establish a before and after value, and no comparables. Having reached that conclusion the court did not address the IRS’s contention that the holder, Yahweh, was not a qualified organization.
Original decision available at http://aprilfools.com/dumbjoke/genesis3.
Texas Court of Appeals, 4th Dist., No. 04-13-00221-CV, March 19, 2014: No abuse of discretion if board relies on non-expert opinion of neighbors in demolition decision.
Reilly sought a permit from the City historic preservation officer to demolish a house in a historic district in San Antonio. When the permit was denied, Reilly appealed to the Board of Adjustment, which also denied the demolition permit. Reilly appealed that decision in court, and the court overruled the Board. The Board then appealed to the Court of Appeals.
To obtain a demolition permit for a structure in the historic district, the City’s Unified Development Code requires the owner to establish “by a preponderance of the evidence that the structure or property has undergone significant and irreversible changes which have caused it to lose historic, cultural, architectural, or archaeological significance.” (Note that the Code authorizes the denial of a demolition permit, not merely a demolition delay.) The issue at trial and on appeal was whether the Board abused its discretion by finding that Reilly did not meet this burden.
At the Board’s hearing, Reilly presented evidence that the house had lost its significance. Local residents testified in opposition, offering information about the property’s past and current significance to the community. On appeal, Reilly’s primary argument was that the evidence presented by the residents was not relevant or competent because the residents were not experts. Reilly argued the Board was required to rely on the opinions of experts to evaluate loss of significance.
The court upheld the Board and the denial of a demolition permit, and overturned the lower court decision. The court held that the Board did not act improperly to listen to the non-expert testimony of the residents and to use it as a legitimate factor to decide that the house retained significance. The court wrote that the board was not required to apply strict judicial rules of evidence, and that even under those rules, the residents’ testimony was “in all likelihood permissible” (“A non-expert witness may offer opinion testimony when it is rationally based on his perception and helpful to a clear understanding of his testimony or the determination of a fact issue”). Further, the court noted that the City Code requires demolition decisions to be based on the Secretary of the Interior’s standards and guidelines for archaeology and historic preservation, and that the Guidelines “emphasize the overall importance of public participation in the historic preservation process…”
The court’s own decision making process followed cited precedents that the board’s decision is presumed to be legal; the party attacking it bears the burden of establishing that the board clearly abused its discretion; a trial court may not substitute its judgment for the judgment of the board as to factual findings; and – most significantly – that a party challenging a board’s factual findings “must establish that the board could have reasonably made only one decision, and not the decision it made.” [Emphasis added]
The decision is available at http://www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=9f52f13f-8848-45f6-9e1c-0242487d12ca&MediaID=b45e7d4d-77fb-407c-ad6f-823e92a71747&coa=%22%20+%20this.CurrentWebState.CurrentCourt%20+%20@%22&DT=Opinion.
US Tax Court, 142 TC 7, March 11, 2014: No federal tax deduction for conservation easement when state law limits easement to 99 years.
Wachter, in a bargain sale transaction, donated to a land trust a portion of the value of a conservation easement on North Dakota land. Wachter claimed a tax deduction for donation of a qualified conservation contribution. The IRS denied the deduction, saying that the conservation easement did not satisfy the requirements of the Tax Code and Treasury Regulations that the easement must be enforceable in perpetuity. The IRS argued that North Dakota law limits the term of most easements to 99 years, and therefore this conservation easement would not exist in perpetuity. Wachter argued that the 99-year limitation qualifies as a “remote future event” under Treas. Reg. section 1.170A-14(g)(3), thereby coming within an exception or defense to the perpetuity requirement.
The court sided with the IRS. It noted that North Dakota is the only State that has a law that provides for a maximum duration that may not be overcome by agreement. It wrote that logically, the event termination of the North Dakota conservation easement is not remote, but on the contrary, “On the dates of the donations it [termination] was not only possible, it was inevitable.” The court cited prior tax court and other federal court decisions defining “so remote as to be negligible” as “`a chance which persons generally would disregard as so highly improbable that it might be ignored with reasonable safety in undertaking a serious business transaction’”, and “`a chance which every dictate of reason would justify an intelligent person in disregarding as so highly improbable and remote as to be lacking in reason and substance’.”
Because other questions of fact remained unresolved between Wachter and the IRS, the court declined to issue a summary judgment ruling on another issue, whether Wachter provided to the IRS with a “contemporaneous written acknowledgment” that met the requirements of Tax Code section 170(f)(8) and Treasury Regs. section 1.170A-13(f)(15).
The decision is available at http://www.ustaxcourt.gov/InOpHistoric/WachterDiv.Buch.TC.WPD.pdf.
U.S. Court of Appeals, Tenth Circuit, No. 12-9009, March 7, 2014: Highest and best use in easement appraisal must be most reasonably probable in the reasonably near future.
Esgar appealed the decision of the Tax Court in Esgar v. Commissioner (Esgar I), US Tax Court, 2012 TC Memo 35, February 6, 2012. In Esgar I the Tax Court calculated the fair market value of a donated conservation easement. In doing so it determined the “before” value of the property using as the highest and best use the property’s present use as agricultural, and rejected Esgar’s claim that highest and best use was gravel mining, a hypothetical use. The Esgar I court also held the income from the sale of Esgar’s transferable tax credits from the State of Colorado was a short term capital gain because the time Esgar held the tax credit (two weeks) was the relevant holding period, not Esgar’s holding period for the underlying property.
On appeal the court upheld the Tax Court regarding the definition of highest and best use, saying the appropriate standard is “the use that was most reasonably probable in the reasonably near future.” The court cited prior rulings that a highest and best use, if it is not the current use, must be realistic, a use “for which the property is adaptable and needed or likely to be needed in the reasonably near future,” and one that would occur with reasonable probability and “closeness in time.” The court said this is the same standard as required by Treasury Regulation § 1.170A-14 (h)(3)(ii). The court found it was not clear error for the Tax Court to determine that gravel mining was not the highest and best use but the current use, agriculture, was. The court also held that it is acceptable to refer to eminent domain case decisions for precedent in determining highest and best use in qualified conservation contribution cases.
Before reaching this conclusion the court considered Esgar’s contentions about the appropriate rules of evidence. It found that section 7491 of the Tax Code did not shift the burden of proof to the IRS, because both parties produced evidence. The court also found that the Tax Court was reasonable in finding that preponderance of evidence favored the IRS.
The court also upheld the Tax Court holding that the income from the sale of Colorado conservation easement tax credits was a short term capital gain.
The decision can be found by searching at https://www.ca10.uscourts.gov/opinion/search.
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.