Redevelopment Authority of City of Erie v. Owners or Parties in Interest , 1 Pa. Commw. 378 ( 1971 )

Opinion by

Judge Mencer,

This appeal involves the condemnation of a three-story building located at 924 State Street in the main business district of Erie, Pennsylvania. The Redevelopment Authority of the City of Erie filed, in connection with this property, a Declaration of TaMng on December 13, 1968. Preliminary objections¹ challenging the taMng of the property were filed by the owners, hereinafter referred to as the appellants, but they were dismissed by the Court of Common Pleas of Erie County. We believe the preliminary objections should have been sustained.

The property in question was purchased by appellants in 1954. At that time, and now, their neighbor to the north was a Murphy’s Five and Ten Cent Store. Their neighbor to the south was a three-story structure owned by Mr. Achilles Pulakos, hereinafter referred to as Pulakos, and leased by him to a family corporation, known as Pulakos’ Candies, for use as a retail candy store. These properties are located on the west side of State Street, and both the appellants’ property and the property of Pulakos are small lots with frontages of twenty feet on State Street and depths of 147 feet.

Appellants’ property was originally leased for a retail drug store and later subleased to a discount drug chain for the same purpose. The first floor was used as a drug store and the second and third floors were vacant.

In October of 1962, the City Planning Commission of the City of Erie certified the Downtown Erie Project Area, which included appellants’ property, as a blighted area. The Council of the City of Erie, pursuant to the Urban Redevelopment Law of Pennsylvania, Act of May 24, 1945, P. L. 991, 35 P.S. §1701, as amended, directed the Redevelopment Authority of the City of Erie to prepare a Redevelopment Proposal for the elimination of the blighted and substandard conditions in the project area. The proposal that was developed, with the help of a firm of expert planners, provided that appellants’ property, the Pulakos property, and several other properties, be assembled to provide the needed land area for the construction of a downtown hotel. If this proposal had been followed, the appellants likely would not have had a basis to oppose the condemnation of their property because, as was said in Schenck, v. Pittsburgh, 364 Pa. 31, 35-36, 70 A. 2d 612, 614 (1950), “. . . in the absence of an indication that the Commission did not act in good faith or was wholly arbitrary in certifying the area designated by it as blighted, its certification to that effect is not subject to judicial review,” and, “since [the Urban Redevelopment Law] gives the power of eminent domain to the Urban Redevelopment Authority, it is for that agency, and not for the courts, to determine whether or not the power should be exercised in this particular instance. It has been held in many cases that where the right of eminent domain is vested in a municipality, an administrative body, or even a private corporation, the question as to whether the circumstances justify the exercise of the power in a given instance is not a judicial one, at least in the absence of fraud or palpable bad faith.” See also: Schwartz v. Urban Redev. A. of Pgh., 416 Pa. 503, 206 A. 2d 789 (1965).

It is the phrase “palpable bad faith” that is the root consideration raised in this appeal. These words have vital meaning when used as a limitation on the power of a governmental authority to condemn property. Bad faith is generally the opposite of good faith and, under the factual situation of the present case, implies a tainted motive of interest. Bad faith becomes palpable when such motive is obvious or readily perceived. The courts have the responsibility to see that an authority has not acted in bad faith, and that property be taken by eminent domain only to the extent reasonably required for the purpose for which the power is exercised.

Activities of public authorities should be subject to judicial scrutiny. We agree with what Justice Roberts said in Price v. Philadelphia Packing Authority, 422 Pa. 317, 329, 221 A. 2d 138 (1966): “As public bodies, they exercise public powers and must act strictly within their legislative mandates. Moreover, they stand in a fiduciary relationship to the public which they are created to serve and their conduct must be guided by good faith and sound judgment. See Schwartz v. Urban Redevelopment Auth., 411 Pa. 530, 536, 192 A. 2d 371, 374 (1963); Heilig Bros. Co. Inc. v. Kohler, 366 Pa. 72, 77-78, 76 A. 2d 613, 616 (1950). The mushrooming of authorities at all levels of government and the frequent complaint that such bodies act in an arbitrary and capricious manner in violation of existing law dictate that a checkrein be kept upon them. Schwartz v. Urban Redevelopment Auth., 411 Pa. 530, 536, 192 A. 2d 371, 374 (1963); Keystone Raceway Corp. v. State Harness Racing Comm., 405 Pa. 1, 5, 173 A. 2d 97, 99 (1961).”

In the instant case the original proposal was changed. What caused the change to be made? An examination of the record discloses that Pulakos decided that he would fight the taking of his property. He was determined to show the Redevelopment Authority that acquiring his property was not going to be as easy as taking candy from a baby. He had a recipe which he believed would produce for himself a sweet result. The chief ingredient that he had at his disposal was political influence. Mr. Adolph Agresti, Vice Chairman of the Authority, testified that Pulakos (and family) “had doors open to him.” A review of what transpired to satisfy Pulakos is indeed revealing of how the doors swung open to Pulakos and shut to appellants.

The Authority began by offering Pulakos several other downtown properties but none was acceptable to him. If this was not the answer, what would be satisfactory to Pulakos? How about deleting appellants’ lot from the property being assembled for hotel development and selling it to Pulakos? If this could be accomplished, then Pulakos could merely move his candy store next door and everything would be dandy.

The mix was started in 1966 by John Corapi, Executive Director of the Authority, travelling to Memphis, Tennessee, in an effort to convince Holiday Inns that the hotel could be built in Erie without using appellants’ property. The effort was unsuccessful. The Authority next turned its attention to Metropolitan Hotels, Inc., of Baltimore, Maryland. The Vice Chairman, the Executive Director and the Assistant Director of the Authority, together with the Mayor of the City of Erie, travelled to Baltimore with Gus Pulakos and his son, Achilles Pulakos. The testimony of Adolph Agres-ti, Vice Chairman of the Authority, is most enlightening as to what occurred at the meeting in Baltimore: “Q. Mr. Agresti, coming to the events which lead to the deletion of the Kaufman parcel² from the transit housing offer, would you explain in your words what occurred from your personal knowledge? A. Well, during the interim from 1966 to the present time, or 1968, the past two years we were fortunate enough to have the Hilton Hotel or the Statler Hilton Hotel people show an interest in the location on tenth and State, and the developers are called the Metropolitan Hotel in Baltimore. They have the franchise and they have, we’ve had negotiations with them for several months, eight or ten months, in regards to the location, the size of the land and number of rooms, and so forth, and in the meantime we tried to negotiate the twenty feet for Pulakos and we were not successful. So, with pressures to bear, whether it be members of Council or the Mayor, they prevailed on the Authority that we should probably set up a meeting in Baltimore with the hotel people. Q. Were you present at that meeting? A. Yes. Q. Were you the Authority representative at that meeting? A. I was the only member of the Authority with our executive directors. Q. Continue. A. And the Mayor was at the meeting with the two Pulakos, Cus and Achilles. We had a meeting with the staff of the Metropolitan Hotels, Inc. and some of the Hilton officials and we met with them most of the day, and at that time they showed us a prototype that would be feasible for Erie, and when we approached them on the subject of deleting the twenty feet for Pulakos, they were upset about this because they felt that they needed as many sleeping rooms as possible, and at the present time they were planning on 250 sleeping rooms and deleting this twenty feet, they would sacrifice 18 sleeping rooms, and this, they did not like, and they thought the Authority was wrong to allow this twenty feet because they needed all the land they wanted, but beccmse of the pressures being put upon them, they were willing to concede and modify their plans and be satisfied with 232 sleeping rooms instead of tlie 250, and, of conrse, they wanted an adjustment in the land price. Q. Are you aware of the dollar amount of that adjustment? A. Well, at the time of the first proposal, six months prior to that, the offer was $125,000 from the Metropolitan Hotels and when their preferential treatment expired, they gave us another offer which was only $100,000.” (Emphasis supplied.)

Thus, not having been successful in previous negotiations, the Authority and the Mayor applied pressure to force Metropolitan Hotels, Inc., to modify its plans with an adjustment of the land price offer from $125,-000 to $100,000. The Pulakos interests were to be served at the expense of the public and of the appellants.

Much paperwork and backtracking then had to be done to move the plan from the back burner of the Baltimore meeting to the front burner of legal respectability. The formal proposal of Metropolitan Hotels, Inc., had to be amended and resubmitted as to price and number of rooms. The Urban Renewal Plan for the Downtown Erie Urban Renewal Project had to be modified and amended to eliminate appellants’ lot from, the transient housing assemblage and reclassified as to use to Commercial Retail. Approval of such modifications and amendments had to be obtained from the local, state and federal agencies involved. Updated reuse appraisals had to be obtained and a formal invitation extended to Pulakos to submit a proposal to relocate his business on appellants’ lot. The Authority, on October 4, 1968, requested a letter of intent by November 5, 1968, and a proposal by December 17, 1968. The letter of intent was received on time but the time for receipt of the proposal was extended to February 4, 1969, and finally to April 1, 1969. The Authority’s minutes of March 4, 1969, stated that if Pulakos did not submit a proposal by April 1, 1969, tbe Authority would withdraw the exclusive status of Pulakos to acquire appellants’ property.

Was the modification of the Urban Renewal Plan for Downtown Erie solely to enable Pulakos to acquire appellants’ land, or was it justified by planning considerations and the final disposition to Pulakos only incidental thereto? The testimony of Charles H. Reeve, Director of Planning and Urban Renewal for the consulting firm of James P. Purcell Associates, was as follows : “Q. Mr. Reeve, are you aware that the Authority is proposing to eventually convey the White Cross parcel to Mr. Pulakos if the preliminary objections in this matter are eventually dismissed by the courts? A. Yes, I am. Q. State, in your professional opinion, your thinking in regard to this program. A. Well, with all due regard for Mr. Pulakos, who has been in Erie for a long period of time, and the consideration that is being extended to him, I feel, from a planning standpoint, it is a mistake. Q. Would you amplify that last remark of yours to the degree of explaining what you may think should be done with this parcel? A. Well, I think this should be included in the parcel as it was originally proposed to have the development of a transient housing site, that is, a motel or motor hotel, so that the whole development can be handled as an integrated complex of shops and stores serving both downtown aud the transient housing facility. To sliver off the so-called White Cross parcel for Mr. Pulakos will merely perpetuate a situation which I have already identified as a blighting characteristic. . . . Q. Now, let’s get on to what — I understood you to be somewhat critical of the actions of the Redevelopment Authority in intending to supply the White Cross parcel to Mr. Pulakos. Do I understand you to say you think this is very poor planning? A. Yes sir. Q. Does it make any economic sense to you at all, from an economic or social use of the premises? A. I think if there were some way that they could accommodate Mr. Pulakos and integrate him into the motel-hotel development instead of as a separate parcel, it would be far superior, and would represent, in my mind, what would be good planning, as against a single isolated parcel, which I believe is one of the faults in terms of the downtown areas that exist today, and we’re going to retain this. This, to me, I think is poor planning, and I would have hoped that they would be able to integrate him into the commercial development. Q. This is what I was curious about; the concept of providing Mr. Pulakos with a twenty-foot strip is exactly the concept that you say good planning attempts to avoid, am I correct? A. Yes.”

Mr. William L. Siskind, Director and Chairman of the Board of Metropolitan Hotels, Inc., testified that “the only reason that we even considered making that last proposal was the overwhelming pressure, or of factors that were presented to us, to allow preferential treatment to this one particxilar businessman in Erie, in that the White Cross property was to go to him, that twenty feet was to go to him. If it doesn’t go to him, there is no reason for us ever excluding it, and we would want the property to be included as per the original proposal.” He further testified that he did not like excluding the appellants’ property since it was a needed piece of property for the development of the hotel.

The Urban Redevelopment Law grants to an authority the power to sell any real property in a redevelopment area provided that the sale will not be prejudicial to the realization of the redevelopment proposal. Act of May 24, 1945, P. L. 991, as amended, 35 P.S. §1709 (k). The testimony of Mr. Reeve and Mr. Sis-kind points to tie prejudicial nature of tie sale to Pulakos. Tie power to sell does not exist when prejudice will result.

Tie true fact is tiat tie appellants’ land was to be acquired for tie sole purpose of relocating tie Pulakos store. Tiis iad been arranged prior to tie filing of tie Declaration of Taking as to appellants’ property. Tie Autiority conceded tiat appellants’ property, after demolition of tie building, would be conveyed to tie Pulakos interests wio would tien erect a one-story candy store occupying tie entire lot. Tiis would result in tie land continuing to be used as a retail store, witi tie identity of tie owners being tie only tiing cianged. Tie Autiority’s own records siow tiat during October, 1968, action was taken to amend tie Urban Renewal Plan, to obtain necessary approval of suci amendment and to “sincerely solicit” an exclusive proposal from Pulakos for tie sole purpose of obtaining tie property in question for tie benefit of Pulakos. Tie Autiority contends tiat it could give suci preference to Pulakos because it iad a policy of preferential treatment in land disposition. However, suci a policy of preferential treatment must only be applied to tie disposition of land wiici tie Autiority ias in fact acquired for a public purpose, and only wien tie land is no longer needed because tie public purpose ias been fulfilled. Suci a policy does not provide tie Autiority witi any power to acquire one man’s land by condemnation in order to satisfy another man’s needs. It is one thing to condemn a given quantity of land for a public purpose and after a period of time, or tie fulfillment of tie purpose, dispose of a portion of tie land as no longer needed, and it is another to accomplish tie public purpose witi a smaller quantity of land and yet condemn an additional parcel for a private purpose. In the first instance tie policy of preferential treatment is proper but in tbe second it is reprehensible.

Nothing, of course, is better settled than that property cannot be taken by government without the owner’s consent for the mere purpose of devoting it to the private use of another. In Lance’s Appeal, 55 Pa. 16, 25 (1867), the Supreme Court held that the power of eminent domain can never be exercised except for a public purpose supposed and intended to benefit the public, and that “after the right has been exercised the use of the property must be held in accordance with and for the purposes which justified its taking. Otherwise, it would be a fraud on the owner, and an abuse of power.”

In Philadelphia Clay Co. v. York Clay Co., 241 Pa. 305, 309-310, 88 A. 487 (1913), the court stated the following: “While the power of the legislature to invest individuals or corporations with the right to take private property for a public use is clearly recognized by the Constitution, there is not a suggestion anywhere that private property may be taken for a private use. It has been uniformly held by the courts in our own state as well as in other jurisdictions that under the right of eminent domain private property can only be taken for a public use, and that it is not within the power of the legislature to invest either an individual or a corporation with the right to take the property of a private owner for the private use of some other individual or corporation even if a method is provided for ascertaining the damages and paying what shall be deemed just compensation. The underlying principle is that the owner of property has the right to the uninterrupted use and enjoyment of it against all the world, subject, however, to the sovereign right of the state to take so much of it as may be necessary to serve the various public uses to which it may be properly subjected.”

This reasoning is still valid and has in no way been altered by Belovsky v. Redevelopment Authority, 357 Pa. 329, 54 A. 2d 277 (1947), which held that the Urban Redevelopment Law was constitutional. It is also important to recognize that the Urban Redevelopment Law grants enormous powers and must carefully be examined under the facts in each case, in the light of the constitutional guarantees which relate to the right of private property. See Chief Justice Bellas concurring opinion in Faranda Appeal, 420 Pa. 295, 302, 216 A. 2d 769 (1966).

In Belovsky, supra, the court recognized the principle that the owner of property has the right to the uninterrupted use and enjoyment of it, subject to the right of the sovereign to take so much of it as may be necessary to serve the various public uses. The court stated, at page 341 of Belovsky, as follows: “Indeed, so far from it being legally objectionable that property acquired by eminent domain be resold or retransferred to private individuals after the purpose of the taldng is accomplished, the law actually requires that property be taken by eminent domain only to the extent reasonably required for the purpose for which the power is exercised (Bachner v. Pittsburgh, 339 Pa. 535, 539, 15 A. 2d 363, 365) and upon cessation of the public use the public ownership is properly discontinued.”

Therefore, property can only be acquired to the extent reasonably required for the public, not private, purpose for which the power is exercised. In the instant case the original plan was to condemn appellants’ property for the building of a hotel which the lower court found to be for the economic and social betterment of the community. This would have been a public use with only incidental private benefit to the hotel owners. However, that public use had been completely abandoned long before December 13, 1968, when the Declaration, of Talcing was filed. At that time the hotel project was assured, without the necessity of appellants’ laud, which had been reclassified for commercial retail purposes and promised to Pulakos. In the instant case the purpose for condemning appellants’ land on December 13, 1968, was clearly not for the purpose of the hotel project or any other public purpose, but only to solve Pulakos’ problem of resettling. It cannot be determined that the public good is enhanced by replacing a drug store with a candy store by the vehicle of condemnation.

The Belov shy case also held, at page 340, that: “When, therefore, the need for public ownership has terminated, it is proper that the land be re-transferred to private ownership, subject only to such restrictions and controls as are necessary to effectuate the purposes of the act. It is not the object of the statute to transfer property from one individual to another; such transfers, so far as they may actually occur, are purely incidental to the accomplishment of the real or fundamental purpose.”

In the instant case the sale to Pulakos, after modification of the plan, would not be incidental to the accomplishment of the fundamental purpose, or after the accomplishment of any public purpose, but rather the solution to Pulakos’ problem of where to relocate his business.

The Authority asserts that once an urban renewal area is determined to be blighted it follows that any parcel within the area can be condemned without regard to the reason for the condemnation. This overlooks the essential requirement that for any particular taking to be constitutional it must be for a public purpose. The converse is equally true. If the taking is not for a public purpose, it is unconstitutional.

A district Court of Appeal of Florida recently ruled on this question in Brest v. Jacksonville Expressway Authority, 194 So. 2d 658 (1967), which was affirmed by the Supreme Court of Florida at 202 So. 2d 748. In Brest, an Expressway Authority attempted to condemn land outside of the land needed for construction of the expressway, the purpose being to relocate a private railroad track which had been within the needed right-of-way. The benefit of the condemnation would accrue only to a private railroad company which did not have the right of eminent domain. Appellants’ property, on December 13, 1968, was not needed for the public purpose of constructing a hotel for the economic and social betterment of the community and therefore the benefit of condemnation would accrue only to Pulakos who did not have the right of eminent domain.. The court, in Brest, held that: “The Legislature cannot under the guise of exercising sovereign power of eminent domain, which can only be exerted for a public purpose, take a citizen’s property without his consent and give or sell it to another for private use, even though compensation is paid therefor, for to do so would be in violation of the Constitution of the United States, Amendment 14. Also the power to take private property is in every case limited to such and so muoh property as is necessary for the public use in question.”

The Authority contends that it has condemned appellants’ land for the lawful purpose of eliminating a substandard structure located within a blighted area. Such a condemnation, following the refusal of the Authority to allow the appellants to repair and rehabilitate their building, is one made in palpable bad faith. The record in this case establishes that the appellants are as ready and able as is Pulakos to eradicate the substandard or blighted conditions on their land. The Authority refused to allow the appellants to do so but made arrangements to sell the land to Pulakos to accomplish the very same purpose. Yet the Urban Redevelopment Law contemplates rehabilitation of individual structures: Section 3(m), 35 P.S. §1703 (m), in the definition of the word, “redevelopment,” discusses a program of “voluntary repair and rehabilitation of buildings”; Section 9(b), 35 P.S. §1709(b), in enumerating the powers of an authority, also refers to “voluntary repair and rehabilitation”; Section 2(c.1) 35 P.S. §1702(c.1) declares as a matter of legislative finding that certain portions of blighted areas may be susceptible to rehabilitation in such manner that the conditions and evils enumerated in the Act may be eliminated or remedied.

The record establishes that the appellants were never notified as to what building defects the Authority considered in reaching the determination that the building was substandard. Even when appellants requested information on this matter, the Authority refused to supply it until after condemnation. All of this further suggests that the Authority’s real reason for condemning the property was to provide a new home for Pulakos’ Candies and not to remove a substandard building. Such action is constitutionally impermissible.

We conclude that (1) the pressure exerted on the redeveloper; (2) the modification of the redevelopment plan to the prejudice of the plan; (3) the refusal to permit appellants to eradicate the blighted condition of their property and (4) the understanding with Pula-kos that he should receive appellants’ property, prior to the filing of the Declaration of Taking, were sufficient circumstances to constitute palpable bad faith. Therefore, such a taking was beyond the power conferred upon the Authority by law. Where good faith is absent, the actions of governmental bodies will be set aside. See Goodman Appeal, 425 Pa. 23, 227 A. 2d 816 (1967); Heilig Bros. Co. Inc. v. Kohler, 366 Pa. 72, 76 A. 2d 613 (1950).

Findings of fact made by a chancellor who saw and heard witnesses, when confirmed by the court en banc,³ will not be reversed on appeal if they are supported by adequate evidence: Pregrad v. Pregrad, 367 Pa. 177, 80 A. 2d 58 (1951). However, that well-settled principle is confined to findings which are true and genuine findings of fact. With respect to inferences and deductions from facts and conclusions of law, both the court en banc and the appellate courts have the power to draw their own inferences and make their own deductions and conclusions. Felt v. Hope, 416 Pa. 118, 206 A. 2d 621 (1964); Kalyvas v. Kalyvas, 371 Pa. 371, 89 A. 2d 819 (1952). We cannot agree with the conclusion of the chancellor “that there is no evidence before the Court to indicate that the Authority acted fraudulently, arbitrarily, capriciously or in bad faith in condemning the property of the owners.” The chancellor indicated that his conclusion was reached because appellants’ property was substandard in 1963 and was located in an area of blight. The chancellor, in his Opinion, said, “All structures in the area not having been marked for removal, was the Authority justified in condemning this specific property? Again the testimony leaves little doubt that this must be answered in the affirmative, for despite the fact that the three-story structure can be rehabilitated by the elimination of the top two floors, it is and was at the time of the inspection (December 20, 1963) sub-standard.”

However, this overlooks what happened after December 20, 1963. It disregards the pressure applied to the redeveloper; the prejudicial modification of the redevelopment plan; refusal to permit appellants to rehabilitate their property once it had been removed from the redevelopment plan and the understanding to sell appellants’ land to Pulakos even before tbe Declaration of Taking was filed.

It would be incorrect to conclude that bad tbe concoction stirred up by tbe Pulakos problem been allowed to simmer a bit longer on tbe back burner, tbe final product would bave been more salable and certainly more palatable. Such a conclusion would be erroneous since time alone could not bave distilled away tbe prejudice to tbe original public plan that would bave provided a larger hotel, $25,000 more money for tbe City, better utilization of tbe land, and equal treatment to both Pulakos and appellants.

Our ruling today deals only with tbe legality of tbe Declaration of Taking filed on December 13, 1968. There is no need for us to speculate concerning what should be done if appellants do not rehabilitate their property and correct tbe substandard condition of their building. We likewise refrain from any speculation or consideration as to any future condemnation of appellants’ property. Any sucb condemnation would bave to be judged on tbe facts and law pertaining to it as of tbe time of taking.

For tbe reasons stated, tbe order of tbe chancellor dismissing tbe appellants’ preliminary objections is reversed, tbe preliminary objections are sustained, and tbe Declaration of Taking of appellants’ property by tbe Redevelopment Authority of tbe City of Erie is quashed. Costs to be paid by tbe Redevelopment Authority of tbe City of Erie.

1 Preliminary objections constitute the exclusive method of challenging condemnation proceedings under the Eminent Domain Code. Mahan v. Lower Merion Township, 418 Pa. 558, 212 A. 2d 217 1965).

2 Appellants' property was variously identified in the record as “Kaufman property”, “924 State Street”, “Brown-Jones” and the “White Cross property”.

3 The record does not disclose that a conrt en banc did aifirm the chancellor’s findings of fact.