Opinion ID: 1981302
Heading Depth: 1
Heading Rank: 22

Heading: Can the State demand as much of Empire's property as it wants, in exchange for allowing conversion?

Text: The majority opinion implies that Chapter 1 is not problematic because it gives Empire a choice. Empire, the majority notes, was not legally required to convert to profit-making status (more precisely, to transfer its assets to a profit-making entity in exchange for stock, and then sell the stock to the public and dissolve). Chapter 1 does not compel Empire to convert. . . . [C]onversion only takes place if Empire so chooses (majority op at 357). The majority acknowledges that Empire may have had no choice as a practical matter, but adds that any duress stemmed from Empire's inability to prosper as a not-for-profit organization, not from pressure exerted by the State ( id. at 358). The United States Supreme Court has made clear, however, that the Takings Clause limits a state's power to acquire private property by inducing the owner to surrender it in exchange for a needed government authorization. Nollan v California Coastal Comm'n (483 US 825 [1987]) involved homeowners who needed a permit from the California Coastal Commission to rebuild their home. The Commission granted permission, but only on condition that the Nollans allow the public an easement to pass across their property. The Supreme Court held that this was a taking, relying on the lack of an essential nexus between the condition attached to the government permit and the purpose that could have been served by refusing permission (483 US at 836-837). In the absence of such a nexus, the Supreme Court said, the State's restriction on the Nollans' right to rebuild their home amounted to `an out-and-out plan of extortion' ( id. at 837, quoting J.E.D. Assoc., Inc. v Town of Atkinson, 121 NH 581, 584, 432 A2d 12, 14 [1981]). In Dolan v City of Tigard (512 US 374 [1994]), the Supreme Court added a rough proportionality requirement to the essential nexus test. Even where a nexus existed, the Court held, the surrender of property that the state demands as a condition to permitting the development of land must be roughly proportional to the adverse impact that can be expected from the development. These exactions cases refute the idea that, since the State was free to refuse to allow Empire's conversion, it was also free to allow it on condition that Empire give the State a 95% share of the proceeds. Defendants do not argue here, and the majority does not hold, that such a blatant holdup (more blatant than what actually happened in this case) could pass muster under the exactions cases  but the State does argue, and the majority seems to agree, that exactions analysis has no place outside the land-use context. (Majority op at 355 [We decline . . . to expand our exaction analysis beyond the realm of land-use regulation].) The implication, presumably, is that no plan of extortion by the State, no matter how gross, is invalid under the Takings Clause unless it is an interest in real property that is being extorted. This suggestion seems to me both unacceptable in principle and inconsistent with the Supreme Court's exactions decisions. It is true that the Nollan and Dolan cases involve land use; indeed, many, probably most, takings cases involve real property. But the relevant clauses of the state and federal constitutions apply to real and personal property alike ( see e.g. Phillips v Washington Legal Foundation, 524 US 156 [1998]). I know of no precedent suggesting that the cash in a private bank account is subject to less protection under the Takings Clauses than a private house or tract of land. Different kinds of property sometimes call for different rules, of course, and it may well be that in cases not involving land use the details of the Nollan and Dolan nexus and proportionality tests will be modified, but it is unthinkable that the Constitution provides no protection at all against exactions of personal property. Nothing in the Supreme Court's exactions decisions suggests that their rationale is limited to real property. Indeed, the Nollan case shows that it is not so limited in its discussion of Ruckelshaus v Monsanto Co. (467 US 986 [1984]), a case involving not real property but trade secrets. The dissent in Nollan argued that Nollan was similar to Monsanto ( Nollan, 483 US at 859), while the majority distinguished Monsanto ( Nollan, 483 US at 833 n 2)  but neither suggested that Monsanto was inapplicable because it was not a land-use case. Thus, both the majority and the dissent in Nollan assumed that like reasoning was applicable to real and personal property. And in Dolan, the Court made clear that the rules governing exactions are derived not from any peculiar characteristics of land-use cases but from the well-settled doctrine of `unconstitutional conditions,' which limits the government's power to require surrender of a constitutional right in exchange for a discretionary benefit conferred by the government ( Dolan, 512 US at 385). Nor does our decision in Matter of Smith v Town of Mendon (4 NY3d 1 [2004]) imply that exactions analysis is inapplicable where no real property is involved. Town of Mendon did involve real property, and our discussion in that case focused on whether the Town's invasion of the Smiths' interest in real property was sufficient to trigger exactions analysis. We concluded that it was not because the Town had not required the physical dedication of property to public use but only more modest conditions on development permits ( id. at 12). I thus conclude that exactions analysis applies here; it would be unconstitutional for the State to require, as a condition to allowing Empire's conversion, that Empire pay 95% of its assets to the State or to whatever recipients the State found worthy. I cannot believe that the majority, despite some of the language in its opinion, would reach a different conclusion. Requiring the turning over of most of a private entity's wealth is not what we called in Town of Mendon a modest condition to a needed governmental permission. The critical question, to which I now turn, is whether what actually happened here is fundamentally different from such a blatant, unconstitutional exaction.