Eminent Domain Abuse in New York (Upstate Edition)

Yesterday, U.S. District Court Judge Frederick Scullin dismissed the majority of a lawsuit filed by J.C. Penney against the owner of the mall where it leases retail space.  The Carousel Center, located in Syracuse, New York, is currently undergoing a [doomed] expansion project–the largest commercial development to break ground in Syracuse in 20 years. The project is in part bolstered by public support in the form of generous tax breaks and ridiculous green giveaways (the planned hotel will be “powered by rainwater, solar,” and construction vehicles by biofuel), which has become a contentious issue in local Syracuse politics. But the development is also supported by questionable eminent domain condemnations.

In its complaint, J.C. Penney alleged that the mall owner violated the terms of its lease agreement, including provisions that required the retailer’s consent before any significant alteration to the mall was allowed to take place.  The court found that the mall was not liable because–at the insistence of the mall’s owners–the Syracuse Industrial Development Agency had condemned the property through eminent domain, which stripped all rights J.C. Penney had to its retail space per the original lease agreement. However, there appears to be some evidence that the takings were pretextual and that the developer violated the terms of the lease prior to the condemnation. This means it is possible that J.C. Penney will get some relief, despite New York’s notoriously biased and antiquated eminent domain statute. (And where exactly is the blight in this case justifying the takings? It seems difficult to apply the over-broad definition that came out of Berman v. Parker, as the condemnee is not a lone department store surrounded by “slums [and] blighted areas that tend to produce slums” in an economically-depressed inner city neighborhood, but an anchor store in a large, secure, modern shopping center.)

Unfortunately, the same cannot be said for Syracuse taxpayers, as the expansion project has also run into serious financial problems and completion of the expansion is now in jeopardy. In June, Citigroup, the primary construction lender, halted funding for the expansion project after it came to light that no tenants have agreed to lease the new space and that massive cost overruns now require drastic changes to the financing plan (specifically, Citi now wants the developer to contribute more cash). The case is currently tied up in appeals court, and the construction jobs and other benefits touted by cheerleading politicians have yet to materialize.