Penn Central Transportation Co. v. City of New York , 377 N.Y.S.2d 20 ( 1975 )

Murphy, J.

Defendants have thus far been more successful, at the appellate level, in repelling a direct frontal attack on the constitutionality of the New York City Landmarks Preservation Law (Administrative Code of City of New York, ch 8-A) than in applying it to a given factual situation. (Cf. Lutheran Church in Amer. v City of New York, 35 NY2d 121; Matter of Trustees of Sailors’ Snug Harbor v Platt, 29 AD2d 376.) A majority of us now feels that the time for its full, implementation has arrived.

The specific issue presented in this case is whether, as applied to these plaintiffs, the city’s Landmarks Preservation Law and the action of defendants thereunder with respect to certain property commonly known as the Grand Central Terminal are unconstitutional. Trial Term responded affirmatively on the grounds that plaintiffs’ private property was taken for public use without just compensation and that they were deprived of due process and equal protection of the laws. We disagree.

In recent years, as we have become painfully aware that "the frontier” has been disappearing and our natural resources are rapidly being depleted, there has been an increasing national growth of interest in preserving irreplaceable buildings and sites which have historical, aesthetic or cultural significance.

These changing attitudes now acknowledge that "[u]rban landmarks merit recognition as an imperiled species alongside the ocelot and the snow leopard. Over fifty per cent of the 12,000 buildings listed in the Historic American Buildings Survey, commenced by the federal government in 1933, have been razed. The threat to the remainder continues undiminished as the recent loss of Chicago’s Old Stock Exchange and the precarious status of New York’s Grand Central Terminal attest. If this trend is not reversed the nation at its bicentennial in 1976 will mourn the loss of an essential part of its architectural and cultural heritage rather than celebrate the visible evidence of its past.” (The Chicago Plan: Incentive Zoning and The Preservation of Urban Landmarks, 85 Harv L Rev 574-575.)

Since 1966 Congress has passed major new laws furthering historic preservation. (See Gray, The Response of Federal Legislation to Historic Preservation, 36 Law & Cont Prob 314.) The National Historic Preservation Act of 1966 found and declared "that the historical and cultural foundations of the Nation should be preserved as a living part of our community life and development in order to give a sense of orientation to the American people”. (US Code, tit 16, § 470, subd [b].)

Though "fraught with trouble” (Lutheran Church in Amer. v City of New York, 35 NY2d 121, 131, supra), the preservation of landmarks in urban areas is of special importance. Great cities have always been havens for educational and cultural activities. New York’s rich history is reflective of the great deal of time, money and talent invested in building its own architectural heritage. Structures such as the Brooklyn Bridge, the Metropolitan Museum of Art, the New York Public Library and Grand Central Terminal are important and irreplaceable components of the special uniqueness of New York City. We have already witnessed the demise of the old Metropolitan Opera House (see Matter of Keystone Assoc. v Moerdler, 19 NY2d 78) and the original Pennsylvania Station. Stripped of its remaining historically unique structures, New York City would be indistinguishable from any other large metropolis.

Following the evolving national trend, New York City, in 1965, provided for landmark preservation by adding chapter 8-A to its Administrative Code, pursuant to enabling legislation adopted by the State nine years earlier (former General City Law, § 20, subd 25-a, now General Municipal Law, § 96-a). The council "declared as a matter of public policy thát the protection, enhancement, perpetuation and use of improvements of special character or special historical or aesthetic interest or value is a public necessity and is required in the interest of the health, prosperity, safety and welfare of the people”; and established, as the purpose of the chapter, inter alia: "the protection, enhancement and perpetuation of such improvements and of districts which represent or reflect elements of the city’s cultural, social, economic, political and architectural history”, the safeguarding of "the city’s historic, aesthetic and cultural heritage”, the fostering of "civic pride in the beauty and noble accomplishments of the past”, the protection of "the city’s attractions to tourists and visitors” and the promotion of "the use of historic districts and landmarks for the education, pleasure and welfare of the people of the city.” (Administrative Code, § 205-1.0.)

Briefly stated, the Landmarks Preservation Law provides for the establishment of a commission which, after a public hearing, proposes to the Board of Estimate the designation of landmark properties and historic districts. The board approves, disapproves or modifies the designation after receipt of a report from the City Planning Commission. (Administrative Code, § 207-2.0.)

Once a landmark is so' designated it must be kept "in good repair” (§ 207-10.0) and any alteration, construction or demolition of an improvement on the site is regulated. (§ 207-4.0.) Comprehensive procedures are provided for changes. A landmark owner may seek a "certificate of no exterior effect” or, if there will be such exterior effect, a "certificate of appropriateness.” (§§ 207-5.0-207-7.0.) There is also a procedure for seeking a certificate of appropriateness on the ground of insufficient return in the case of taxpaying commercial properties; and a similar procedure, but a different form of relief, for certain tax exempt properties used for charitable purposes. (§ 207-8.0.)

Related to the Landmarks Preservation Law are certain amendments to the New York City Zoning Resolution which permit the transfer of unused development rights over landmark properties located in certain high density areas of the city to other nearby sites. (Zoning Resolution, §§ 74-79-74-793.)

Grand Central Terminal is unquestionably one of New York City’s best known buildings. Along with the Empire State Building and the Statute of Liberty, the image of its facade symbolizes New York City for millions of visitors and residents. The terminal as a whole includes a variety of architectural and engineering elements: railroad tracks and platforms; space and facilities for marshaling and handling railroad equipment; passage-ways and ramps affording access to adjacent streets, office buildings and subway stations; and concourses for the use of passengers and pedestrians passing through the terminal. The Main Concourse, probably the terminal’s most striking feature, is a large room, 120 by 375 feet, with a ceiling 125 feet high at its apex.

From its formal opening to the public in 1913 (as a replacement for the "Grand Central Depot” built by Cornelius Vanderbilt in 1871) the terminal has been recognized not only for its architecture, but as a superb example of comprehensive urban design. The complete submergence of all the tracks and a double level track system not only resulted in the accommodation of more trains without the acquisition of more land, but permitted construction of revenue-producing buildings on air rights over the railroad tracks and the development of Park Avenue as one of this Nation’s most prestigious residential communities. (See Fitch and Waite, Grand Central Terminal and Rockefeller Center: A Historical Critical Estimate of Their Significance, published by the New York State Parks and Recreation Division for Historic Preservation [1974].) Today, although somewhat neglected over the years, Grand Central Terminal still remains a splendid edifice and a major part of the cultural and architectural heritage of New York City.

On August 2, 1967, after a public hearing and over objection of plaintiff Penn Central Transportation Company ("Penn Central”), the Landmark Preservation Commission proposed the designation of Grand Central Terminal as a landmark, predicated on the following findings:

"On the basis of a careful consideration of the history, the architecture and other features of this building the [Commission] finds that Grand Central Terminal has a special character, special historical and aesthetic interest and value as part of the development, heritage and cultural characteristics of New York City.

"The Commission further finds that, among its important qualities, Grand Central Terminal is a magnificent example of French Beaux Arts architecture; that it is one of the great buildings of America, that it represents a creative engineering solution of a very difficult problem, combined with artistic splendor; that as an American Railroad Station it is unique in quality, distinction and character; and that this building plays a significant role in the life and development of New York City.”

It is worthy of note, in such connection, that the Amtrak Improvement Act of 1974 (88 US Stat 1526) in accordance with the congressional declaration that it is national policy to preserve historic sites, seeks to encourage the preservation of passenger railroad terminals of special significance and architectural quality, such as Grand Central Terminal, by authorizing the Secretary of Transportation to provide them with financial and other assistance. (US Code, tit 49, § 1653.)

Plaintiff Penn Central (including, for the purposes hereof, its subsidiaries, plaintiffs The New York and Harlem Railroad Company and The 51st Street Realty Corporation) is the successor to the New York Central Railroad Company and the Pennsylvania Railroad. Plaintiff UGP Properties, Inc. ("UGP”), which was incorporated after the landmark designation here in issue, is a wholly-owned subsidiary of a British company.

Penn Central’s losses over the last several years brought it to insolvency and bankruptcy. In order to minimize such losses and provide offsetting revenues, it entered into a lease with UGP in January, 1968, pursuant to which UGP was to erect a tower exceeding 50 stories over the terminal. UGP undertook to pay to Penn Central $1,000,000 per year during construction and thereafter an amount that was guaranteed to equal not less than $3,000,000 annually. In addition, UGP assumed a portion of Penn Central’s real estate taxes estimated at $578,500. These rental payments were to be offset in part by the elimination of approximately $700,000 to $1,000,-000 in net rents presently received from concessionaires whose space would be occupied by the proposed new building. Commencing in July, 1968, plaintiffs submitted several building designs prepared by the architectural firm of Marcel Breuer & Associates to the Landmarks Commission (called Breuer I, Breuer II and Breuer II Revised) and requested an appropriate certificate (of no exterior effect or of appropriateness). Plaintiffs appear to have indicated a preference for Breuer II Revised, which would have preserved the terminal’s Main Concourse, but not its famous south facade. On August 26, 1969, a certificate of appropriateness was denied.

Since Grand Central Terminal receives partial real estate tax exemption (Real Property Tax Law, § 489-ff), no further administrative remedy, in the form of relief on the ground of economic hardship, was available to it. (Administrative Code, § 207-8.0.) The instant action, seeking declaratory and injunctive relief from the Landmarks Law, on its face and as applied, as well as compensation for the temporary taking (between the landmark designation and its expected judicial invalidation), was commenced. The trial court severed the cause of action for damages and, as above indicated, entered judgment declaring the Landmarks Law, as applied to plaintiffs, unconstitutional and permanently enjoined defendants from acting thereunder to prevent the construction of a lawful improvement on the terminal site. For the reasons hereinbelow stated, such determination should be reversed.

Although the apparent basis for the Trial Judge’s decision is the found presence of "such elements as economic hardship, lack of compensatory alternative to alleviate economic hardship, inadequacy of relief by tax rebate, etc., etc.”, the rationale would seem to be stated in the penultimate paragraph of his opinion: "The point of decision here is that the authorities empowered to make the designation may do so but only at the expense of those who will ultimately have to bear the cost, the taxpayers.”

Such language suggests (in accordance with the interpretation by the court below of the holding in Lutheran Church in Amer. v City of New York, 35 NY2d 121, supra) that any regulation of private property to protect landmark values constitutes a compensable taking. Such holding would surely, as the amicus brief submitted hereon states, "eviscerate New York’s Landmarks Preservation Law.”

While the line between a compensable "taking” and a noncompensable "regulation” is sometimes difficult to discern, it nevertheless exists. (See, generally, Sax, Takings And The Police Power, 74 Yale LJ 36.)

In Matter of Trustees of Sailors’ Snug Harbor v Platt (29 AD2d 376, 377, supra) we upheld the validity of the Landmarks Preservation Law as "the right, within proper limitations, of the State to place restrictions on the use to be made by an owner of his own property for the cultural and aesthetic benefit of the community”. And the Court of Appeals concluded that we were "correct in refusing to declare the entire law unconstitutional on its face.” (Lutheran Church in Amer. v City of New York, 35 NY2d 121, 131, supra.)

The sole question to be decided, then, is whether plaintiffs have satisfactorily established that the law, as applied to them in this case, imposes such a burden as to constitute a compensable taking. Put another way, while the exercise of the police power to regulate the private use of property is not unlimited, it is for the one attacking such regulation in any given case to establish that the line separating valid regulation from confiscation has been breached.

In reaching such determination, consideration must be given to the importance of the regulation to the public good, the reasonableness of the regulation in achieving such end and the effect of the regulation on the economic viability of the parcel involved. (Goldblatt v Hempstead, 369 US 590.) We believe the first two requirements are met by the clearly stated purpose of the Landmarks Preservation Law and the unavailability of any reasonable alternative (short of condemnation) for the preservation of a landmark.

The remaining issue is the economic impact of the law on the particular parcel. In Lutheran Church in Amer. v City of New York (35 NY2d 121, supra), the court dealt with a landmark devoted to a charitable use. Adopting a concept first enunciated by this court (Matter of Trustees of Sailors’ Snug Harbor v Platt, 29 AD2d 376, supra) it applied, as the standard: does the designation "prevent or seriously interfere with the carrying out of the charitable purpose”? (35 NY2d 121, 131, supra.)

In the instant case, the landmark parcel is not devoted to a charitable purpose; and no claim is made that it cannot be used for its prime function—as a railroad terminal. Accordingly, (and as Lutheran implied), the test to be applied is the same as in zoning cases, i. e.: have the plaintiffs demonstrated that the regulation in issue deprives them of all reasonable beneficial use of their property? (Cf. Williams v Town of Oyster Bay, 32 NY2d 78; Adamo v Town of Babylon, 28 NY2d 982; Salamar Bldrs. Corp. v Tuttle, 29 NY2d 221.)

Plaintiffs’ burden, in such connection, is to establish that they are incapable of obtaining a reasonable return from Grand Central Terminal operations, not that they are not receiving it. (Cf. Salamar Bldrs. Corp. v Tuttle, 29 NY2d 221, supra; Stevens v Town of Huntington, 20 NY2d 352; Arverne Bay Constr. Co. v Thatcher, 278 NY 222.) In our view, such burden has not been met.

To support the claim that it is actually sustaining a loss from terminal operations, Penn Central submitted a "Statement of Revenues and Costs” for the years 1969 and 1971. These statements, which were prepared for the instant litigation, improperly attribute a considerable amount of railroad operating expenses (and some taxes) to their real estate operations. For example, the expense items included "Station Master and Staff”, "Information Clerks” and "Gate Usher”. Such huge cost items (for 1971) as "maintenance, repairs and service plant operation” ($1,141,679), "cleaning” ($632,753), "policing” ($438,566), "materials and supplies” ($69,692), and "utilities” ($660,710) were related to the entire terminal operation and not segregated as between the railroad and real estate portions thereof.

Moreover, and to compound the error, no rental value whatsoever was imputed to the vast space in the terminal devoted to railroad purposes. (Cf. Matter of Seagram & Sons v Tax Comm. of City of N. Y., 14 NY2d 314.) Since Penn Central is in the passenger railroad business it, of necessity, must have a terminal (including trackage, platforms, concourse, waiting rooms, ramps, ticket windows and public amenities) for such service. The reasonable rental value of such space cannot properly be omitted from any meaningful analysis of the property’s capacity to yield a reasonable return.

Obviously, if the entire expense of operating a railroad terminal is offset only by nonrailroad rents generated by the commercial and concession use thereof, even the most profitable terminal will show a "deficit”.

Additionally, on the record before us, plaintiffs have failed satisfactorily to show: (a) an inability to increase the terminal’s commercial income by transforming vacant or underutilized space to revenue-producing use; or (b) that unused development rights over the terminal could not have been profitably transferred to one or more nearby sites (see New York City Zoning Resolution, § 74-79 et seq.); or (c) that Penn Central’s agreements with the Metropolitan Transportation Authority and the Connecticut Transportation Authority provide a basis for invalidating the terminal’s landmark designation.

Finally, the assertion that the Landmarks Preservation Law unconstitutionally discriminates against Penn Central because, as the recipient of partial tax exemption, it is ineligible for statutory hardship relief, has already been disposed of by us. On an analogous claim in a comparable situation we hold "that this does not render the statute unconstitutional. It must be interpreted as giving power to the commission to provide relief in the situation covered by the statute, but not restricting the court from doing so in others.” (Matter of Trustees of Sailors’ Snug Harbor v Platt, 29 AD2d 376, 378, supra.)

To summarize, in view of the nationwide "burgeoning awareness that our heritage and culture are treasured national assets” (Maher v City of New Orleans, 516 F2d 1051, 1060), New York City’s Landmarks Preservation Law is a valid exercise of its police power. The need to preserve structures worthy of landmark status is beyond dispute; and the propriety of the landmark designation accorded Grand Central Terminal is essentially unchallenged.

Plaintiffs’ burden of proving the statute unconstitutional, as applied to them, is exceedingly heavy (cf. I. L. F. Y. Co. v City Rent & Rehabilitation Administration, 11 NY2d 480; Wasmuth v Allen, 14 NY2d 391); and, on the instant record, has not been met. At best, they have shown that they have been deprived of the property’s most profitable use. But that is not the constitutional test. (Goldblatt v Hempstead, 369 US 590, supra; United States v Central Eureka Min. Co., 357 US 155.)

The validity of the Landmarks Preservation Law, as applied to Grand Central Terminal, does not depend on a showing that the landmark parcel will be undiminished in any degree by the regulation’s restrictions; only that it will not "deprive the individual property owner of 'all beneficial use of his property’ ”. (Salamar Bldrs. Corp. v Tuttle, 29 NY2d 221, 225, supra.)

In short, "[p]laintiffs have shown hardship but not confiscation.” (Mary Chess, Inc. v City of Glen Cove, 18 NY2d 205, 210.) But such hardship, in the proper exercise of the city’s police power, must be subordinated to the public weal, since such regulatory authority is not only "the least limitable of all the powers of government” (Matter of Engelsher v Jacobs, 5 NY2d 370, 373, cert den 360 US 902), but it "is not to be limited to guarding the physical or material interests of the citizen. His moral, intellectual and spiritual needs may also be considered. The eagle is preserved, not for its use but for its beauty.” (Barrett v State of New York 220 NY 423, 428.)

In light of the foregoing, the order and judgment of Supreme Court, New York County (Saypol, J.) entered, respectively, on January 21, 1975 and February 4, 1975, and all findings of fact and declarations of law inconsistent herewith, should be reversed, on the law and the facts, said order, judgment and findings vacated, and judgment entered declaring that plaintiffs have failed to establish that the New York City Landmarks Preservation Law is unconstitutional as applied to them, with costs.

Settle order on notice providing, inter alia, for new findings of fact consistent herewith.