Thank you, Jim, and thank you very much. I am pleased to be here this morning. I am not going to talk about fish this morning, but I am going to tell you about a case in which there is a lot of clams at stake.
Unlike the cases that Ms. Berliner was talking to you about, in her situation the agency that condemns acknowledges that they are taking the property, and the only issue is what is the value. In our case we have two hurdles that we have to get over. We have to convince a court that the regulation that was enacted constituted a taking of the property, a very significant hurdle because there is extensive deference given to municipal regulation and legislation. Then the second hurdle is, how do you prove the value?
This is a case brought by three related companiesBriarcliff Associates, Thalle Industries, and Thalle Construction Companyfamily-owned businesses all controlled by George Paciano. It is a real family industry. George Paciano had started in the business when he was twelve years old working in his father's construction company, Thalle Construction Company. Thalle Industries was a mine operator. They own a quarry in Fishkill, New York, and, in connection with doing some construction work in Westchester County, Mr. Paciano became familiar in the early 1980s with a 128-acre piece of property from which he had taken some rock to do one of his jobs.
That property had been mined for emery since the early 1900's and in 1950 the town of Cortlandt, which is in the northwestern corner of Westchester County, had zoned it for quarrying acknowledging that that was a proper use of that property and that is a suitable use for the property. A mom and pop operation had been started on the property in the early 1900s, and it continued until about 1985 when its owner, a retired school teacher, decided that she wanted to retire to Florida and wanted to divest herself of the property. She had never had the money to put in updated mining equipment; she never had the opportunity to make it a commercial mining operation because she didn't have the resources.
George Paciano found out about the property, he walked it, he knew rock, he knew sand and gravel, and he knew the construction business. And he knew that this was a gold mine. It was steeply sloping, rocky terrain; it had almost no overburden, which means it was very simple for mining purposes; and it had 29 million tons of aggregate above the road elevation and another 60 to 90 million tons if you were to mine into the ground. It was in Westchester County, where there was maybe one other rock quarry, and it wasn't a very big one, and in the middle of a market area that had a demand for from anywhere from 1 ½ million to 5 million tons a year for aggregate for construction purposes, for asphalt, for roads, for houses, things of that nature. It was in a growing area. And, of course, he had a built-in demand because Thalle Construction Company was a road contractor. So Thalle Industries would mine the property, Thalle Construction would buy the material, and Thalle Construction always knew it had an immediate and ready source of material for its projects. And, as luck would have it, the property was zoned for quarry in 1985 when he decided to buy it.
He closed on the property and immediately started efforts to get the property ready for mining. There were roads that had already existed because of the mining operations. They tried to re-grade the roads and put in some of the infrastructure, they brought electricity to the property for a rock crushing plant, and he did other types of erosion control measures and things of that nature to ready the site for mining.
In 1985 you needed a mining permit from the Department of Environmental Conservation. Now Catherine Martin, the prior owner, had gone through the exercise of getting a mining permit, but she didn't have the money to post the bond, so the permit was never formally issued. Briarcliff Associates started the process of getting the mining permit and started working with the Department of Environmental Conservation.
One of Paciano's competitors from across the river in Rockland County had heard of the acquisition of the property and the filing of the mining permit application and got the neighbors in the area concerned about the magnitude of an operation that could take place on the property. He stuffed envelopes with literature about the number of trucks that would come and the adverse impacts of mining and of all the horrors that an aggregate quarry on this property would bring to the town of Cortlandt.
That is when the political pressure was brought to bear on the elected officials. There were requirements in the town of Cortlandt for an excavation permit. It was a law that was on the books, but it had never been enforced against this property until Paciano had tried to start this mining operation. The Town came in and said, you need an excavation permit, you need a blasting permit, and, while you are going through those applications, we are going to fight you at the state level on your mining permit.
Litigation ensued over whether or not the excavation permit was required because really the State was the entity that regulated mining and the argument was that excavation was an aspect of mining and therefore it was preempted by the state regulation. The Pacianos had to spend years in court fighting that battle. It was a win and a loss, and ultimately the determination was that the Town could regulate excavation because they were imposing higher or more stringent standards than the State was. So the State said, fine, go ahead. We would like you to join in with us and regulate this use.
In 1988 while the excavation permit litigation was going on, while applications for mining permits and blasting permits were pending with DEC and with the Town, the Town said, you know what, let's just eliminate the use on the property and that will take care of it from a legislative angle. So they re-zoned the property to allow only residential use on two acres. They didn't do a single study about whether or not you could put septics on the property because there was no public sewer available, they didn't look as to whether or not you could install wells, and they didn't examine the cost of the infrastructure for that kind of a development. They just said, we don't want mining so let's let residential use go on the property. And they changed the law.
We started a lawsuit claiming, among other things, that that re-zoning constituted a regulatory taking for which the Pacianos were entitled to damages.
If that weren't enough about twelve months later the Town decided let's just put the final nail in the coffin. Under their vehicle and traffic law jurisdiction, they enacted a regulation that limited the length and weight of trucks that could travel on the road on which this property had its frontage. It was the only road from which access could be obtained to this property. They said, you can't have trucks longer than 35 feet and you can't have trucks that weigh in excess of five tons. It may be no surprise to any of you that you cannot quarry a piece of property and transport rock back and forth from the site to other locations in trucks that are no longer than 35 feet and no more than five tons. What the Town didn't think about, though, was that you couldn't construct a residential subdivision with that kind of regulation in place either, and so we amended our complaint in the action and we challenged the road ordinance on "takings" ground.
The federal and the state courts have said that you have a per se taking if a regulation deprives you of all or substantially all of the economically beneficial use of your land. We call this "the natural state test." If you have to leave your property in its natural state or close to it, you have a very good case for a regulatory taking, a per se regulatory taking. But it doesn't have to leave you with no value. If you have some use of your property, you can still have a taking under an ad hoc factual inquiry. In that situation the courts look at what is the effective regulation on the value of the property and you look at what is the effect of the regulation on legitimate investment backed expectations.
George Paciano was able to get on the stand and testify because a lot of people had heard him say that the only reason he bought that property was to mine it and in 1985 when he bought it he was allowed to mine it under the zoning, there was no regulation on the methods that could be used, the amount that could be mined or the type of material that could be mined, and he invested in excess of $1.7 million putting that mining operation into place.
We spent almost 100 days in the courtroom trying this case with over 24 experts on both sides. We had mining experts, we had engineering experts who testified as to whether or not you could develop the property for residential purposes, we had independent road contractors who testified as to the cost of putting in the infrastructure and the road for that subdivision and any common driveways that were proposed, we had residential appraisers, we had wetlands experts, soils scientists, and then, of course, we had some fact witnesses, most specifically Mr. Paciano and his family.
You see the Town had hired an engineer who prepared a subdivision for the property and claimed that you could subdivide this property and develop it for seven to eight single-family residences. It laid out a road; it didn't conform with the town's regulation. It was longer than any other road in the town. If any private individual had gone to the municipality and the planning board and sought approval for that road, they would have been thrown out, but the town's engineer comes in and he said you can put a road in here, you can use common driveways, I can find places for septic, I can find places for wells, and they prepared a subdivision. We had an engineering expert who went through the process of actually debunking that argument and demonstrating that physically if you could put a road in this location it would cost you more than you could ever hope to earn when you sold out those lots. We are talking about a road that would cost between $1.5 to $1.7 million to install.
We also were able to demonstrate that with the road ordinance in place, the value of the property was diminished by 98 percent. Our real estate appraiser said that at most it was worth $205,000, and this is Westchester County where you have, you know, real estate appraisals are just exorbitant,$205,000 for 128 acres because you couldn't get the equipment that you needed to get to the property in order to develop it.
We had the single representative in charge of approving septics in Westchester County testify that he went out and he looked at the septic areas that the town's engineer said were suitable for septic and none of them, none of them were suitable. None of the tests that were done qualified under Westchester's health department regulations and from his own visual observation he would not suggest that those areas be looked at any further. Septics. If you can't put septics and you don't have public sewer, you can't have houses. And we had a judge who understood that.
Once we were able to prove to the court that you couldn't develop the property for residential use and that quarrying was its highest and its best use, the next hurdle was to get to the valuation. We had a mining expert who came and testified that the value of that property at the time that the Town rezoned it was $9 million. It was based on the quality of rock on the site. It was the hardest rock available in New York state. It met the most stringent requirements of the state of New York Department of Transportation for aggregate for the top course of pavement. And, in the course of doing this litigation, I learned that there are very few quarries anywhere in New York State that can satisfy that requirement. The quantity of rock, as I already referred to, was incredible. It was huge amounts. You could never mine it during anybody's lifetime. We were in a growing market, a very stable market, a high population area. There is certainly sufficient demand to demonstrate what the margin of profit would be based on other operations in the vicinity, and our expert testified as to what it would take to get a mining permit. Now, that was certainly something that we would have to obtain in order to go forward, because this property had not been mined in the past, had not been permitted for mining in the past. Our expert, who is out of the Albany area, testified that it would take two to three years in 1988 to get the mining permit. Now, that is important because today it is almost impossible to get a mining permit with the state of DEC and the involvement of "local," not local, but well-heeled, environmental groups that are very closely involved with DEC and involved with the mining permit process.
So, with all those criteria in place he came to a conclusion that that property was worth $9 million, and the court believed him, and the court awarded us judgment in that amount plus interest from the date of rezoning, in excess of $6 million. Right now the case is on appeal to our Appellate Division down in Brooklyn. We have almost finished briefing it and we are hoping that by the end of the year there will be a decision.
The case is significant because it deals with how far can a municipality go before it is going to be held accountable for its regulations. It is significant because the industry that it purports to regulate is an industry that is very important not just to the residents of New York State but to the government as well. One of the largest consumers of aggregate in the State of New York is the Department of Transportation. If you don't have resources available for aggregate and for asphalt, then the cost of repairing the roads and constructing new roads in New York State will skyrocket. Our client has tried to work very hard with the Department of Transportation to get the right hand, Department of Transportation to tell the left hand, the Department of Environmental Conservation, how important it is for the Department of Environmental Conservation to issue mining permits and to renew mining permits for mines that have been operating and have not had violations.
Those are very important factors in this case. It also has to do with how you value mineral-bearing property, which is an interesting legal issue that will develop in this case as it goes up through the court system. This is probably one of those cases that is made for the Court of Appeals, if not higher.
The chair asked me to comment on what this case teaches us about what we can do to avoid this in the future. Mining is an important industry to the state government as well as to its residents. The state has pre-empted certain aspects of the regulation of mining. It has not yet pre-empted local decisions about where mining can occur. There are uses in the state of New York that local government cannot comment on. For example, if a Department of Mental Health and Hygiene facility wants to get established in a residential community, there are certain regulations that have to be complied with, but local government can't prohibit that. Local government also has certain restrictions on its ability to regulate the location of day care facilities.
One of the things that you might think about doing as an organization and also individually is, when the opportunity arises, trying to let your state legislators know how important this industry is and that it might want to look into regulating or prohibiting local regulation at the location of mines. If you have done any reading recently in the telecommunications area, the federal government has decided that it is going to pre-empt the location of telecommunications facilities to a certain extent and require that municipalities permit them in their jurisdiction.
Just in closing and in summary, it is a case that we are going to be watching to see where it will take us on the takings ground, on how far a municipality can go to regulate your use of property, and also how it relates to valuation issues. Thank you.