by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
ZONING AND LAND USE; PROCEDURE; EXACTIONS: Evidence that city would not issue building permit absent payment of unlawful exaction is insufficient to show that landowner paid exaction "under duress" and and therefore landowner may not obtain reimbursement even when landowner establishes that exaction is unconstitutional.
Video Aid Corporation v. Town of Wallkill, 651 N.E.2d 886 (N.Y. 1995).
Plaintiff remitted $27,000 to defendant-municipality in satisfaction of a sewer and water tap-in fee due in conjunction with his application for a building permit. Although it did not remit the fee upon its original application for the building permit, plaintiff paid the fee when city officials told it that it could not obtain the permit otherwise. The permit pertained to expansion of the plaintiff's existing facility, and the plaintiff already had architectural and engineering plans and had "committed the space." Evidence at trial showed that delay would have cost money and might have cost the benefit of certain contractual commitments. The trial court and the appellate division had concluded that the evidence did satisfy the existing judicial standards for "payment under duress," and that plaintiff was entitled to a refund.
The town did not appeal the determination that the exaction was unconstitutional, but did argue on appeal that there was insufficient evidence to establish duress.
On appeal, the New York Court of Appeals concluded that there was no coercion present even though no work on the building project could proceed without payment of the fee and subsequent issuance of the building permits. The court noted that a simple notation on the check that the payment was made under protest would have been sufficient. It indicated that a basic requirement that protest be indicated at time of payment is necessary to permit public agencies to operate on a sound fiscal basis, because it permits agencies to be aware when collected funds may have to be refunded. There is an exception to this requirement when payment is made under duress, the court conceded, but the exception should be narrowly applied.
The decision was 4-3, with a strong dissenting opinion arguing that this case fell squarely within the established precedent for finding of duress. An earlier opinion had upheld a refund when an exaction was required in order for the landowner to obtain expedited treatment of a determination that the project satisfied certain critical public standards. If a city cannot hold an applicant hostage by throwing up potential delays to development, the dissent reasoned, why should it be able to demand an exaction as a condition to a building permit under circumstances where the delay in issuance of the permit will cost the applicant time and, consequently, money?
As to the "fiscal integrity" issue, the dissent points out that prior courts had held that these concerns should not override concerns of unjust enrichment for the city when it demands an unconstitutional payment, especially when there is no showing that it has disbursed the collected funds. In this case, the lawsuit challenging the payment was initiated thirty days following the payment, and the town made the exaction to help defer its costs on an existing bond project, not to undertake any new projects.
Comment: The editor could understand (but wouldn't much like) a rigid rule that required indication of payment under protest in order to justify a refund. Then, at least, there would be a bright line that everyone could understand. But where there is an exception permitting a trial court to evaluate evidence of duress, then surely evidence that the landowner already is committed to a project that will be delayed if a building permit is not issued can constitute sufficient evidence.
By reversing the trial court here, the Court of Appeals is sending a clear message that the "duress" justification must be very narrowly construed, and may in fact be reading the exception out of existence. It may be that the only justfiable evidence of duress in the future will be to show that the landowner justifiably feared retaliation against his project if he indicated that the payment was made under protest. This, of course, is a very difficult showing to make. Even though landowners might in many cases feel that kind of coercion, it will be difficult for them to demonstrate that their feelings are legitimate. Trial courts are far less "affirming of feelings" than the landowner's therapist might be.
Practice Note: Clearly conventional wisdom in New York would be to make any and all exaction payments under protest, with the thought that this is effectively the only way to preserve one's rights to a refund if it later develops that the exaction formula is bad. If this becomes standard practice, then perhaps the likelihood of retaliation in individual cases will be lower.
Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Stacy Walter at the ABA. (312) 988 5260 or email@example.com
Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.