author: Hancock, Jr., J.

text:
    The People of the State of New York, Respondent, v George Hetrick, Appellant.
    Argued October 15, 1992;
    decided November 18, 1992

      POINTS OF COUNSEL

      Joseph J. Balok, Jr., Public Defender of Chemung County, Elmira (John R. McGlenn of counsel), for appellant.
    Evidence seized pursuant to a search warrant based solely on the sworn statement of a nine-year-old child must be suppressed absent inquiry by the issuing court of the child to ascertain her understanding of the nature of an oath. (People v Nisoff, 36 NY2d 560.)

      James T. Hayden, District Attorney of Chemung County, Elmira, for respondent. The trial court properly denied defendant’s motion to suppress physical evidence.

      (People v Griminger, 71 NY2d 635; People v Bigelow, 66 NY2d 417; People v Hicks, 38 NY2d 90; People v Cantre, 95 AD2d 522, 65 NY2d 790; People v Page, 150 Misc 2d 627; People v Soler, 144 Misc 2d 524; People v Phillipe, 142 Misc 2d 574; People v Malone, 140 Misc 2d 602; People v Wiggans, 140 Misc 2d 1011; People v Cortez, 140 Misc 2d 267.)
   OPINION OF THE COURT

Hancock, Jr., J.

This appeal by defendant presents a question concerning the validity of a warrant to search defendant’s residence for which the sole factual basis was information provided by a nine-year-old child detailed in an affidavit attached to the warrant application. Defendant contends that the child’s statements could not have constituted the basis for probable cause because the Village Justice issuing the warrant failed to examine her pursuant to CPL 60.20 as to her ability to understand the nature of an oath. For reasons which follow, we hold that the child’s hearsay statements were acceptable as the predicate for probable cause and that CPL 60.20 did not require the Magistrate to examine the child prior to issuing a warrant. We, therefore, affirm.

I.

On August 19, 1988 Hope Graves and her nine-year-old daughter Katy Hetrick reported to the Elmira Heights police that Katy had seen her father, the defendant, engaging in illegal drug activity. In both oral and written statements taken by Officer Kowulich, Katy said that while at her father’s premises for visitation between July 15 and August 15, 1988 she saw her father and others using cocaine and marihuana. She described both the illegal substances and the drug paraphernalia, how they were used, and where they were stored. She stated that when she returned home, her mother asked her if defendant was drinking again and she replied, "No, but he was smoking pot and doing cocaine with these people at his apartment. There were people there about 5 times a week, and they were always getting high.” She explained, "I asked my father what that stuff was that they were doing and he told me pot and coke.”

Katy had drawn pictures for her mother depicting the paraphernalia and drug practices she had seen and she showed those pictures to the police. In her statement, Katy said, "I drew pictures of a pipe, a pot cigarette, a mirror showing coke on it with a person’s nose on the end, and a large plastic thing they also smoke pot out of.” She told the police, "They sniff the coke with [a] dollar bill. My father and his friends always did this stuff in the kitchen. I knew this stuff was bad and when they started getting high, I went to the living room to watch TV.” Katy identified several persons who were present while they were "getting high.” According to her statement, defendant "kept the pot on the kitchen table under some newspapers. He also kept the coke there when he had it.”

In addition, Katy described a trip to Tonawanda, New York, with her father on August 12, 1988 where he obtained marihuana and cocaine from "Joe.” She recounted, "I saw Joe reach under a couch and pull out a large plastic bag. It was filled with white powder and I asked my dad what it was. He said it was coke. Joe then gave some of the coke to everyone there in smaller plastic bags. They also sniffed it and smoked it while I was there * * * Everyone took some coke home with them, including my dad.” The last time Katy saw her father "get high” was on Sunday, August 14th. She told the police "I always went into the other room because I was scared and knew it was wrong. I also wanted to protect myself. I know pot and coke are drugs, and doing them is illegal and bad.”

After preparing her affidavit, Officer Kowulich and Katy’s mother read Katy a legal warning concerning false statements. Both asked Katy if she knew the difference between telling the truth and telling a lie. Katy answered that she did understand the difference and knew that she could get in trouble for telling a lie. Before she signed her affidavit, Chief Padgett of the Elmira Heights Police asked Katy about the importance of being truthful. Katy again stated that she knew the difference between the truth and a lie and affirmed that what she had told the police was the truth. After Chief Padgett read Katy’s affidavit back to her, Katy, her mother and Chief Padgett signed it.

Based on Katy’s information, Kowulich presented a sworn warrant application to a Village Justice who issued a search warrant for defendant’s apartment. In executing the warrant, the police found drugs and drug-related items in defendant’s apartment. They arrested defendant and charged him with criminal possession of marihuana in the third degree (Penal Law § 221.20), criminal possession of a controlled substance in the seventh degree (Penal Law § 220.03) and endangering the welfare of a child (Penal Law § 260.10 [1]).

Defendant moved to suppress the items seized on the ground that the warrant had been issued without judicially examining Katy pursuant to CPL 60.20 as to her ability to understand the nature of an oath. After County Court denied the motion to suppress the evidence, defendant pleaded guilty to criminal possession of marihuana in the third degree and endangering the welfare of a child. On appeal, the Appellate Division affirmed the denial of defendant’s motion, holding that "[i]nasmuch as the child’s statement satisfied the requirements for hearsay information to provide probable cause upon which to issue the search warrant, the fact that the child could not give sworn testimony in the absence of the inquiry required by CPL 60.20 should not invalidate the warrant” (175 AD2d 491, 492-493). We now affirm.

II.

Under both the United States and New York Constitutions, no warrant may issue except upon probable cause based on facts presented to the Magistrate under oath or affirmation (US Const 4th Amend; NY Const, art I, § 12). The requirement of probable cause may be satisfied by unsworn hearsay, however, when the police officer applying for the warrant has knowledge of facts derived from a reasonably trustworthy source sufficient to cause a person of reasonable caution to believe that contraband is present in the premises to be searched (see, CPL 690.40; People v Bigelow, 66 NY2d 417, 423). It is settled law in New York that probable cause may be based on unsworn hearsay only when the two-prong test of Aguilar v Texas (378 US 108) and Spinelli v United States (393 US 410) is satisfied, i.e., if there is a reasonable showing that the informant was reliable and had a basis of knowledge for the statement (see, People v Griminger, 71 NY2d 635, 639; People v Bigelow, supra, at 423; People v Rodriguez, 52 NY2d 483, 489). Although the United States Supreme Court has abandoned the Aguilar-Spinelli test in favor of the more permissive totality-of-the-circumstances rule (see, Illinois v Gates, 462 US 213), New York has continued to afford the protection of Aguilar-Spinelli as a matter of State constitutional law (see, People v Griminger, 71 NY2d, at 637, supra; People v Bigelow, supra, at 425).

In the present case, under established rules Katy Hetrick’s statements were acceptable as the necessary factual basis for probable cause under the Aguilar-Spinelli test. Without question, Katy had a basis of knowledge for her statements, i.e., her personal observation of the events she described. There are, moreover, ample indicia of the reliability of her statements. Katy’s affidavit, given before her mother and Officer Kowulich, was detailed and specific as to dates, persons present, substances used, consumption practices, and storage locations. Moreover, she demonstrated an understanding of the importance of truthfulness before her mother, Officer Kowulich and Chief Padgett. The thoroughness and detail of Katy’s statements, as well as her understanding of her duty to tell the truth, sufficiently demonstrate her reliability such that a reasonable person would conclude that contraband was present in defendant’s apartment (see, People v Bigelow, 66 NY2d, at 423, supra; People v Hicks, 38 NY2d 90, 92). Indeed, because Katy was an identified citizen informant, and not an unnamed informant, there was a "built-in” basis for crediting her reliability (see, People v Hicks, supra, at 94; People v Cantre, 95 AD2d 522, 526, affd on opn below 65 NY2d 790).

Defendant argues, however, that Katy’s out-of-court statements could not have been accepted as the basis for the warrant because Katy was only nine years old and the requirements of CPL 60.20 had not been met. CPL 60.20 requires that witnesses under the age of 12 be examined as to their ability to understand the nature of an oath. This section creates a presumption that witnesses less than 12 years old are not competent to be sworn as a witness in a criminal proceeding. The presumption may be overcome, however, if, upon examination, the court is satisfied that the witness understands the nature of an oath (see, People v Nisoff, 36 NY2d 560, 565-566). Thus, according to defendant, because the court did not examine Katy, her statements could not be accepted as providing the necessary factual basis. We disagree.

Defendant’s argument overlooks the critical distinctions between the nature and cogency of the proof necessary to constitute "legally sufficient evidence” under CPL 70.10 (1) required to sustain an indictment (see, CPL 190.65 [1]) and the proof needed to meet the "reasonable cause to believe” standard under CPL 70.10 (2) for the issuance of a search warrant. To meet the higher standard of legal sufficiency, CPL 70.10 (1) specifies "competent evidence which, if accepted as true, would establish every element of an offense charged and the defendant’s commission thereof’ (emphasis added). In contrast, for the "reasonable cause to believe” standard, CPL 70.10 (2) requires only apparently reliable evidence or information of such weight and persuasiveness as to convince a person of ordinary intelligence, judgment and experience "that it is reasonably likely” that contraband is present in the designated place (see, CPL 690.40 [2]).

Significantly, the more onerous legal sufficiency standard (CPL 70.10 [1]) demands competent evidence while there is no such requirement for the "reasonable cause to believe” standard (CPL 70.10 [2]). Thus, there is no requirement that probable cause to issue a warrant be based on competent evidence (see, CPL 70.10 [2]; see also, United States v Ventresca, 380 US 102, 107; 1 LaFave, Search and Seizure § 3.2 [d]; Preiser, Practice Commentaries, McKinney’s Cons Laws of NY, Book 11 A, CPL 70.10, at 176-177). Indeed, Aguilar-Spinelli and their New York progeny — detailing the circumstances under which hearsay information may provide the factual predicate for probable cause for a search warrant— presuppose that probable cause may in fact be based on incompetent hearsay evidence.

The presumption against a child’s testimonial capacity under CPL 60.20 which defendant seeks to invoke here is an evidentiary rule relating only to the capacity of a child witness to give competent evidence admissible at a criminal proceeding (see, Preiser, Practice Commentaries, McKinney’s Cons Laws of NY, Book 11 A, CPL 60.20, at 572; Richardson, Evidence § 390 [Prince 10th ed]). In that CPL 70.10 (2) imposes no requirement of competent admissible evidence to establish probable cause, CPL 60.20 is clearly inapplicable. Defendant’s contention that CPL 60.20 does apply to hearsay information submitted in a warrant application is unsupported by any authority. Indeed, both the statutory language and the case law make clear that section 60.20 applies only to a witness actually testifying under oath in a criminal proceeding (see, e.g., People v Nisoff, supra; People v Oyola, 6 NY2d 259; People v Klein, 266 NY 188; see also, Richardson, Evidence § 390 [Prince 10th ed]). County Court therefore properly denied defendant’s motion to suppress physical evidence seized upon the execution of the warrant.

Accordingly, the order of the Appellate Division should be affirmed.

Acting Chief Judge Simons and Judges Kaye, Titone, Bellacosa and Smith concur.

Order affirmed.


source: Caselaw Access Project

author: Acting Chief Judge Simons.

license: Public Domain

text:
    In the Matter of Allied Corporation, Respondent, v Town of Camillus et al., Appellants. (And a Second Proceeding.)
    Argued October 20,1992;
    decided November 18, 1992

      POINTS OF COUNSEL

      O’Hara & O’Connell, P. C., Syracuse (Joseph G. Shields and Dennis G. O’Hara of counsel), and Dirk J. Oudemool, Syracuse, for appellants.
    I. The subject property must be valued as a waste containment facility, which was its use as of the taxable status dates. (Matter of Adirondack Mtn. Reserve v Board of Assessors, 99 AD2d 600, 64 NY2d 727; Matter of Addis Co. v Srogi, 79 AD2d 856, 53 NY2d 603; Matter of Onondaga County Water Dist. v Board of Assessors, 45 AD2d 258, 39 NY2d 601; City of Rochester v Assessor of Town of Conesus, 136 AD2d 881.) II. The wastebeds are a specialty and must, therefore, be valued in accordance with reproduction cost, less depreciation. (Matter of County of Nassau [Colony Beach Club], 43 AD2d 45, 39 NY2d 958; Matter of Brooklyn Union Gas Co. v State Bd. of Equalization & Assessment, 65 NY2d 472; Matter of Great Atl. & Pac. Tea Co. v Kiernan, 42 NY2d 236; Matter of Rochester Urban Renewal Agency [Patchen Post], 45 NY2d 1; Gramercy Boys’ Club Assn, v City of New York, 141 AD2d 365; Matter of Onondaga County Water Dist. v Board of Assessors, 45 AD2d 258; Albany Country Club v State of New York, 19 AD2d 199, 13 NY2d 1085; Samuelson v Salamanca Urban Renewal Agency, 34 AD2d 369; Matter of Merrick Holding Corp. v Board of Assessors, 45 NY2d 538; Matter of Penthouse Mfg. Co. v Assessor of Vil. of Freeport, 102 AD2d 870.)

      Bond, Schoeneck & King, Syracuse (H. Dean Heberlig, Jr., of counsel), for respondent.
    I. The property is not a specialty. (Matter of Brooklyn Union Gas Co. v State Bd. of Equalization & Assessment, 65 NY2d 472; Matter of County of Suffolk [C. J. Van Bourgondien, Inc.], 47 NY2d 507; Salzberg v State of New York, 24 AD2d 664, 18 NY2d 965; City of Rochester v Assessor of Town of Conesus, 136 AD2d 881; Matter of County of Nassau [Lido Beach] 67 Misc 2d 1065; Samuelson v Salamanca Urban Renewal Agency, 34 AD2d 369; Matter of City of Rochester v S. C. Toth, Inc., 59 AD2d 1020, 45 NY2d 984.) II. The cases involving environmentally impacted property support respondent’s valuation. (Matter of Northville Indus. Corp. v Board of Assessors, 143 AD2d 135.)
   OPINION OF THE COURT

Acting Chief Judge Simons.

In this tax certiorari proceeding, the issue presented for review is whether Supreme Court properly valued petitioner Allied Corporation’s property for tax purposes in 1987 and 1988. The property consists of more than 1,000 acres of earthen-walled wastebeds and buffer zones where waste material from an industrial process has been deposited to eventually solidify. Respondent Town of Camillus contends that the property was used as a holding and settling facility for the waste, even though the plant producing the waste had ceased operations, and should be valued as such. Inasmuch as there was no comparable market data for such a use, it viewed the property as a specialty using the cost of reproduction less depreciation to value the property. Petitioner maintains that because the property was no longer receiving waste in 1987 and 1988, it had no further industrial use and should be valued by the comparable sales method as a property having no immediate practical use, not as a specialty. Even if the property is valued as wastebeds, it claims the property is fully depreciated and therefore should be valued as vacant land.

Supreme Court concluded that the property could not be valued as a specialty because the wastebeds were no longer in use and the improvements were no longer appropriate and economically feasible (see, Matter of County of Suffolk [C. J. Van Bourgondien, Inc.] 47 NY2d 507, 511-512). Finding a highest and best use of the buffers as recreational and concluding the wastebeds had no foreseeable use for 20 to 25 years, it determined the value by means of comparable sales in the area. The Appellate Division affirmed. We conclude that use of the comparable sales method was error and that the wastebeds and supporting facilities should have been valued as a specialty. We therefore reverse the order of the Appellate Division and remit the matter to Supreme Court for further proceedings.

The property consists of five wastebeds covering 868 acres surrounded by a buffer zone of approximately 155 acres consisting of sloping hillsides and wetlands. The wastebeds themselves resemble mesas ranging in height from 35 to 70 feet, with gravel dikes creating the walls of each structure. Allied’s predecessor began using the property in the early part of this century to receive waste material generated by its "solvay process” at a nearby industrial plant. Initially, the deposits were contained below ground. As these reservoirs became filled, Allied built the huge gravel dikes above ground to expand holding capacity. Other improvements on the property include a settling lagoon, fences, access roads, catwalks, piping and a pumphouse.

The waste material was delivered to the wastebed through a pipeline in the form of a slurry. Initially, the substance has a toothpaste-like consistency, but over a period of 20 to 25 years, the material is transformed into a solid. During this process, liquid from the waste leaches through the dikes and into the surrounding ditches, which then carry it to the settling lagoon. Even older wastebeds continue to leach, as rain and snow fall on the beds. The material is not classified as hazardous, although some asbestos was deposited at the site during dumping unrelated to the industrial process. Four of the five wastebeds are full; the parties agree that the fifth will receive no more deposits with the closing of Allied’s plant. The assessment on one of the wastebeds (No. 11) has not been challenged. The settling process was completed by 1988 and therefore it was valued as vacant land.

The Town’s assessor valued the wastebed facility as a specialty, using reproduction cost less depreciation. Three calculations were central to his analysis: the base land value, the value of the improvements and depreciation. He determined the base land value by using comparative sales of five properties: four sold for landfill use and the fifth purchased as a site for a petroleum farm. The value of improvements was taken from an engineer’s report projecting what it would cost to construct a new wastebed facility in 1990. Finally, to determine depreciation, the assessor calculated the "total economic life” of each wastebed, a period of years that included both a bed’s "industrial life” — the period during which it was receiving deposits — and its "transitional life” — the period from the last deposit to the point when the land would be sufficiently firm to support an alternate use. He concluded that the transitional life was 55% of the total economic life. By using that figure in conjunction with data on the length of time each bed functioned as an active receiving facility, he was able to calculate the total economic life and then depreciate the cost of each wastebed over a period of years beginning with its initial deposit and concluding with the end of its transitional life. This methodology produced a value of $4,800 per acre for the facility as a whole.

Allied, which had evaluated the property at $60 to $400 an acre, instituted this proceeding to challenge that assessment. After trial, the court concluded that the Town’s use of the specialty valuation method constituted error because only an ongoing concern could be deemed a specialty. In the view of the court, the site had ceased to be used as a wastebed facility when Allied discontinued its industrial operation in 1986. However, because most of the land did not have sufficient consistency to support other foreseeable use for 20 to 25 years, Supreme Court found that the "highest and best use” of the buffer was largely as a recreational site and that the wastebeds had "no uses now.” The court employed a comparable sales approach and viewed the wastebed acreage as being similar to specified parcels of swampland. The wastebeds were valued at $166 to $250 per acre; the buffer zone at $570 to $600 per acre. The Appellate Division affirmed on the opinion of Supreme Court.

Allied’s property is a singular type with a novel past and uncertain future. Unlike the swampland that Supreme Court used as comparables to value the wastebeds, Allied has devoted the property to the deposit of waste, a use that is increasingly commonplace in an industrial society and one that frequently has long-term effects on the land. Not surprisingly, courts and local governments are now beginning to contend with the problem of fairly valuating environmentally damaged properties (see, Arnold, Appraising and Valuing Contaminated Properties, 16 ALI-ABA No. 4; Patchin, Valuation of Contaminated Properties, Jan. 1988 Appraisal Journal, at 7; Firestone Tire & Rubber Co. v County of Monterey, 223 Cal App 3d 382, 272 Cal Rptr 745; Inmar Assocs. v Borough of Carlstadt, 112 NJ 593, 549 A2d 38). No finding of contamination of Allied’s wastebeds has been made, but many of the same economic considerations are present, most notably the "stigma” attached to environmentally damaged land in the eyes of any potential buyers, the risk that undetected or currently unclassified hazardous materials will be identified, and the costs of clean-up and rehabilitation. The particularized conditions of such properties make valuation difficult. In most instances, the comparable sales method is inappropriate, as it is in this case. We conclude that on the record the property should have been valued as a specialty (see, Matter of Brooklyn Union Gas Co. v State Bd. of Equalization & Assessment, 65 NY2d 472; Matter of Great Atl. & Pac. Tea Co. v Kiernan, 42 NY2d 236).

Analysis starts with recognition that while property must be assessed at market value, there is no fixed method for determining that value. The ultimate purpose of valuation, whether in eminent domain or tax certiorari proceedings, is to arrive at a fair and realistic value of the property involved so that all property owners contribute equitably to the public fisc. Any fair and nondiscriminating method that will achieve that result is acceptable (see, Matter of Great Atl. & Pac. Tea Co. v Kiernan, supra, at 240; Matter of Merrick Holding Corp. v Board of Assessors, 45 NY2d 538, 541; G.R.F., Inc. v Board of Assessors, 41 NY2d 512). The best evidence of value, of course, is a recent sale of the subject property between a seller under no compulsion to sell and a buyer under no compulsion to buy (see, Matter of Grant Co. v Srogi, 52 NY2d 496, 511). Absent that evidence, however, the courts have traditionally valued property by one of three methods: comparable sales, capitalization of income or reproduction cost less depreciation (Matter of Great Atl. & Pac. Tea Co. v Kiernan, 42 NY2d 236, 237-238, supra; see generally, Lee and LeForestier, Review and Reduction of Real Property Assessments in New York, ch 1 [3d ed]).

Evidence of comparable sales is generally the preferred measure of a property’s value for assessment, but where there is insufficient relevant data, value may be determined by other methods (Matter of General Elec. Co. v Town of Salina, 69 NY2d 730, 731; Matter of Great Atl. & Pac. Tea Co. v Kiernan, supra, at 242; Matter of Merrick Holding Corp. v Board of Assessors, supra). But even when alternative theories must be used, the courts have been cautious about applying the reproduction cost less depreciation method because it is most likely to result in overvaluation, given its tendency to ascribe too little weight to such factors as rising construction costs and diminishing value by functional obsolescence (G.R.F., Inc. v Board of Assessors, supra, at 514). Accordingly, we have limited its use to properties deemed "specialties,” those properties that are "uniquely adapted to the business conducted upon [them] or use made of [them] and cannot be converted to other uses without the expenditure of substantial sums of money” (Matter of Great Atl. & Pac. Tea Co. v Kiernan, supra, at 240 [italics in original]; see also, Matter of County of Nassau [Colony Beach Club], 43 AD2d 45, 49, affd 39 NY2d 958). Such properties, because of their use, have no easily ascertainable market value (see, Matter of Brooklyn Union Gas Co. v State Bd. of Equalization & Assessment, 65 NY2d 472, 485, supra).

There are generally four criteria for determining whether a specialty exists: (a) the improvement must be unique and must be specially built for the specific purpose for which it is designed; (b) there must be a special use for which the improvement is designed and the improvement must be so specially used; (c) there must be no market for the type of property and no sales of property for such use; and (d) the improvement must be an appropriate improvement at the time of the taking or assessment and its use must be economically feasible and reasonably expected to be replaced (Matter of County of Suffolk [C. J. Van Bourgondien, Inc.] 47 NY2d 507, 511-512, supra, quoting Matter of County of Nassau [Colony Beach Club] supra). Applying those criteria, Supreme Court rejected the Town’s characterization of the wastebed facility as a specialty because it was no longer being "specially used” and because it was not "appropriate” and "economically feasible.”

The rejection of the Town’s specialty argument, like Allied’s argument that the facility is 100% functionally depreciated, was premised on the assumption that the wastebeds’ sole purpose was receiving waste from Allied’s industrial operation. The record demonstrates, however, that the waste-beds’ primary purpose is retaining waste after receiving it and holding it until the solidification process has run its course. In that function, the wastebeds are no different from warehouses or storage silos that have become filled to capacity. They continue to be used even though no new material is being added and, contrary to Allied’s claim, they are not 100% functionally depreciated by virtue of the fact that new material is not being added. The site’s design, which includes a system of ditches and a settling lagoon that remain fully operational, makes plain Allied’s intention to create a specialized storage and solidification operation with a long-term lifespan — a lifespan dictated by the settling process itself, not by the cessation of waste delivery to the site. As Supreme Court found in reviewing the valuation of the settling lagoon, four of the wastebeds are still leaching and will continue to leach "for years to come.” The improvements on the property were obviously made specially in contemplation of that ongoing process.

We need not determine the point at which the settling process will have ceased and the site’s use ended. It is enough to find that on the taxable status dates relevant here, March 1, 1987, and March 1, 1988, the wastebeds continued to be "specially used.” Allied asserts that by 1987 the beds contained solid materials, an assertion apparently made to buttress the conclusion that the wastebeds are no longer functioning as retainers. Neither the factual premise nor the conclusion is supported by the record, however. Supreme Court described new deposits as being like toothpaste and found that even after 20 to 25 years any construction would have to be done on slabs. Moreover, Allied’s own appraiser testified that on the taxable status dates the property was so soft that it was not conducive to hiking.

But even if we accept Allied’s claim that the material has become a "solid,” the fact remains that walls of the wastebeds continue to hold a definable material undergoing a long-term process of leaching out and settling. The site is not merely earth or fill that has been contoured in a particular fashion and can now be recontoured by the next buyer; the wastebeds, to perform their function, must necessarily remain intact. Nor could Allied seriously argue that it had no continuing interest in 1987 and 1988 in maintaining, as a retaining and settling facility, the wastebeds and the leachage system. Allied was required to store the waste somewhere — if not here, somewhere else. Indeed, Allied’s continuing interest in the property is evident from its preparation of an Environmental Impact Statement and work with the Department of Environmental Conservation to determine needed rehabilitation of the site.

Although the record does not disclose whether the company would have repaired in 1987 and 1988, or would repair now, a break in a wastebed wall or ditch that threatened the containment of the waste material or its run-off, a reasonable inference can be drawn that it would. Allied’s own appraiser was aware of the potential risks when he stated, "Today there is nothing known to exist in those wastebeds except for the asbestos deposited in specific locations that would indicate that any of the material would be classified as hazardous or toxic, but that doesn’t eliminate the possibility that some time in the future that could occur.” In its own self-interest, it would appear that Allied would have to maintain the beds until the leaching process was complete or nearly complete.

Supreme Court’s rejection of the specialty designation was also based on its finding that to be a specialty the improvements had to be "appropriate” and "economically feasible” under the fourth criterion for a specialty. The court having found that the wastebeds were not in use necessarily concluded that they also were not economically feasible or appropriate. Because the wastebeds were in use, however, and not 100% functionally depreciated on the taxable status dates, the facility was economically feasible and appropriate.

Allied argues that it should nonetheless prevail on this ground because the fourth criterion provides that "the improvement must be * * * reasonably expected to be replaced.” The company asserts that, with the industrial plant closed, there is no possibility of the wastebeds ever being replaced. Allied’s literal reading of the criterion gives it a meaning it was not intended to have in an assessment case.

The four-part criteria for a specialty were developed in eminent domain cases (see, Matter of County of Suffolk [C. J. Van Bourgondien, Inc.], 47 NY2d 507, supra; Matter of County of Nassau [Colony Beach Club], 43 AD2d 45, supra). In eminent domain, the issue of replacement is not speculative or hypothetical; the courts are interested in making certain that governments are not forced to pay the high valuations typically produced by the reproduction cost less depreciation method if the use of the property is so unproductive or lacking in utility that the owner would likely discontinue the use on his own in the absence of the taking. However, when the "expected to be replaced” language is applied to assessment cases, it has little relevance for the simple reason that nothing is being taken away by an assessment action and therefore nothing is in need of replacement. Faced with a similar argument in Matter of Brooklyn Union Gas Co. v State Bd. of Equalization & Assessment (65 NY2d 472, 486-487, supra), we stated that the criterion referred not to reproduction of the specific improvements or structures but to continuation of the "use or function” in the event of some hypothetical act of destruction. The relevant consideration in assessment cases is the property’s value on the taxable status date — not its future use or value or the intentions of the owner. Accordingly, whatever vitality the criterion had previously enjoyed in eminent domain cases, it adds nothing to the analysis in assessment cases and was effectively curtailed by our opinion in Brooklyn Union Gas.

In sum, we conclude that use of the comparable sales method was error here, where there was ongoing use of the improvements and no ascertainable market. For the same reasons, we hold that Supreme Court, in determining an alternative method for setting fair market value, should have found on the record presented that the property was a specialty and used the reproduction cost less depreciation method.

Accordingly, the order appealed from should be reversed, with costs, and the matter remitted to Supreme Court, Onondaga County, for further proceedings in accordance with this opinion.

Judges Kaye, Titone, Hancock, Jr., Bellacosa and Smith concur.

Order reversed, etc.

       The court went on to conclude "[w]hat remains, then, is the land only since a specialty applies only to buildings and improvements.” The statement should not be read, as Allied advocates, for the proposition that because the wastebeds are not buildings they cannot qualify as specialties. The court was restating its belief that no use was being made of the property and therefore a specialty designation did not apply. While land alone cannot be a specialty, improvements to land can justify a finding that a property is a specialty (Albany Country Club v State of New York, 19 AD2d 199, 201, affd 13 NY2d 1085 [golf course improvements valued by the specialty valuation method]).


author: Bellacosa, J.

text:
    The People of the State of New York, Respondent, v Kevin Brown, Appellant.
    Argued October 15,1992;
    decided November 19, 1992

      POINTS OF COUNSEL

      Howard A. Pincus, New York City, and E. Joshua Rosenkranz for appellant.
    The trial court improperly imposed consecutive sentences because both convictions arose from a single act that occurred in a matter of seconds. (People ex rel. Maurer v Jackson, 2 NY2d 259; People v Walsh, 44 NY2d 631; People v Kuey, 155 AD2d 481, 76 NY2d 738; People v Wallace, 152 AD2d 713, 74 NY2d 952; People v Repola, 280 App Div 735, 305 NY 740; People v Balzer, 155 AD2d 733; People v Haxhijaj, 99 AD2d 973; People v Martinez, 82 Misc 2d 56; People v Day, 73 NY2d 208; People v Sturkey, 77 NY2d 979.)

      Robert M. Morgenthau, District Attorney of New York County, New York City (Robert M. Raciti and Nikki Kowalski of counsel), for respondent.
    Defendant was lawfully sentenced to consecutive prison terms for the crimes of criminal possession of stolen property and reckless endangerment. (People v Catone, 65 NY2d 1003; People v Brathwaite, 63 NY2d 839; People v Underwood, 52 NY2d 882; People v George, 67 NY2d 817; People v Truesdell, 70 NY2d 809; People v Pons, 68 NY2d 264; People v Creekmore, 106 AD2d 260, 65 NY2d 978; Block-burger v United States, 284 US 299; People v Okafore, 72 NY2d 81.)
   OPINION OF THE COURT

Bellacosa, J.

Defendant was sentenced to consecutive terms of imprisonment upon his conviction by a jury of reckless endangerment in the first degree (Penal Law § 120.25) and criminal possession of stolen property in the third degree (Penal Law § 165.50). The Appellate Division affirmed, and a Judge of this Court granted leave to appeal. The sole issue before us is whether Penal Law § 70.25 (2) forbids consecutive sentencing in this case. We conclude it does not and therefore affirm the conviction and sentence.

This case stems from defendant’s conduct initially in unlawfully possessing and driving a stolen automobile in the Times Square area of midtown Manhattan on New Year’s Eve in 1988. Police officers, alerted to the possible criminal conduct involving the automobile, approached defendant in the vehicle and ordered him to pull over. After at first appearing to cooperate, defendant accelerated the vehicle onto the sidewalk and into a crowd of pedestrians and police officers, injuring several of them.

The subject vehicle, a 1987 Pontiac Grand Am, was stolen from a convenience store in New Rochelle at approximately 10:30 p.m. on December 31, 1988. Approximately two hours later, at about 12:20 A.M., in still densely crowded Times Square, a civilian pedestrian pointed out the Grand Am to a police lieutenant. The stolen vehicle, with defendant Brown at the wheel, was stopped for a red traffic light on 40th Street, a short distance from its intersection with Avenue of the Americas. Police barricades had been set up at that intersection to control New Year’s Eve revelers and traffic. The lieutenant and a detective approached the stolen vehicle while defendant was "standing half in and half out of the car”, and his brother was sitting in the front passenger seat. The lieutenant ordered defendant to move the car to the right side of the street. Defendant appeared to comply by beginning to drive slowly with the driver’s door still ajar. As the vehicle approached the curb, the lieutenant repeated an order for defendant to turn off the ignition and hand over the keys. Defendant continued to drive the car slowly toward the corner of 40th Street and Avenue of the Americas, the location of the police barricades and dense crowds. When the vehicle was only two to three car lengths from the intersection, defendant suddenly accelerated, driving the Grand Am onto the sidewalk and plowing into the barricades and the wall of pedestrians and police. Several people were injured and the vehicle sustained damage. The vehicle came to rest just past the intersection. Though defendant immediately fled into the dense crowd, he returned to the scene shortly thereafter, apparently to ascertain his passenger brother’s situation. The police arrested defendant at the scene of the crimes.

Defendant’s only argument on appeal is that the trial court lacked the power to sentence him consecutively because both of his convictions, he claims, arose from a "single act”. The Appellate Division concluded that consecutive sentences were properly imposed, because "the act of possessing the stolen automobile and the act of driving that automobile into a crowd of people were separate and distinct” (174 AD2d 448, 449).

Where a defendant commits "two or more offenses * * * through a single act ,” trial courts must impose only concurrent sentences (Penal Law § 70.25 [2] [emphasis added]). However, trial courts retain consecutive sentence discretion when separate offenses are committed through separate acts, though they are part of a single transaction (see, People v Brathwaite, 63 NY2d 839, 843; see also, People v Truesdell, 70 NY2d 809, 811; People ex rel. Maurer v Jackson, 2 NY2d 259, 264). An "act” under Penal Law § 15.00 (1) is a "bodily movement”.

In this case, defendant’s possession of the stolen automobile was an act legally separate from his act, after being intercepted by police officers, of driving the stolen vehicle into a crowd of pedestrians on a sidewalk. The act of the possessory crime, though continuing, is distinct for consecutive sentence purposes from the discrete act of reckless endangerment.

The evidence proves that defendant initially committed a continuing possessory crime — driving a vehicle, stolen some hours before, through the streets of midtown Manhattan. Defendant, when intercepted by police, either feigned compliance or intended to comply with the lawful direction to pull over and relinquish control of the stolen vehicle. In a legally and factually attenuated act, distinct from the mere continuing unlawful possession, defendant propelled the vehicle into a crowd of people on a sidewalk behind police barricades. On these facts, the act with its attendant circumstances was independent of the possessory crime for consecutive sentencing purposes. Defendant’s discrete acts — possession and propulsion of the vehicle — impacted different victims, were separated by place and were temporally differentiated, though in part overlapping. Thus, the possessory and substantive crimes were not of the "single act” variety for which consecutive sentencing authority is forbidden (see, People v Sturkey, 11 NY2d 979, 980; see also, People v Day, 73 NY2d 208, 210).

It is appropriate and useful to distinguish our precedents dealing with weapons possession and interrelated, ensuing substantive crimes. The evidence in this case renders it virtually certain that defendant did not initially possess the stolen vehicle for the purpose of recklessly endangering the lives of others, especially as carried out here (contrast, e.g., People v Sturkey, 11 NY2d, at 980, supra; see also, People v Walsh, 44 NY2d 631, 635). Thus, this case does not fall within and does not fit the narrow rationale and statutory interpretation underlying our cases dealing with consecutive sentencing in weapons prosecutions, where there is an interrelated, ensuing substantive crime. Here, defendant’s possession of the vehicle was accompanied by a culpable mental state significantly discrete from that associated with the creation of the grave risk of death to others, i.e., reckless endangerment. Thus, neither the fact that the possessory offense was necessarily continuing in nature, nor that the property possessed — the vehicle — was also the instrument used in defendant’s conduct creating the grave risk of death to other persons, are determinative of the issue involving the sentencing regime here. This case did not involve a possessory offense with an instrumentality that is naturally or inherently interrelated, as occurs in the weapons possession and use circumstances in which we have interpreted the statute as precluding consecutive sentences.

In sum, the record supports the determinations of the lower courts that the offenses of which defendant stands convicted spring from distinct acts, not a "single act”, distinguishable by culpable mental state, nature and manner of use, time, place and victim. Thus, discretionary consecutive sentencing authority was available to the trial court. In so concluding, we note also that our construction and application of Penal Law § 70.25 (2) does not compel consecutive sentencing. The trial court retained the discretion, if the circumstances had warranted, to sentence concurrently. It did not do so and it did not err in sentencing as it did.

Accordingly, the order of the Appellate Division should be affirmed.

Acting Chief Judge Simons and Judges Kaye, Titone, Hancock, Jr., and Smith concur.

Order affirmed.


text:
    Goodstein Construction Corp., Dic-Underhill Industries and Milstein Properties, a Joint Venture, Respondent, v City of New York, Appellant.
    Argued October 14,1992;
    decided November 19, 1992

      POINTS OF COUNSEL

      O. Peter Sherwood, Corporation Counsel of New York City, New York City (Barry P. Schwartz and Fay Leoussis of counsel), for appellant.
    The Court below erred in reversing that part of the Supreme Court’s order which had granted the City summary judgment to the extent of dismissing the complaint insofar as it seeks nearly $800 million in lost future profits. Those asserted damages are, as a matter of law, too speculative to be recoverable because they are premised on the highly uncertain prospects that plaintiff would have received the requisite but discretionary approval of the New York City Board of Estimate as the purchaser and developer of the urban renewal sites in question, and would have been granted discretionary tax abatements; and, thereafter, that the project would have been timely completed, on budget and when the commercial office and housing markets and other economic conditions would have been strong. Moreover, there is no evidence whatsoever that, at or prior to the time the parties entered into the designation agreements, the parties contemplated that the City assumed liability for plaintiff’s loss of the claimed profits if the project was not realized. (Goodstein Corp. v City of New York, 67 NY2d 990; Berley Indus, v City of New York, 45 NY2d 683; Manshul Constr. Corp. v Dormitory Auth., 79 AD2d 383; Kenford Co. v County of Erie, 73 NY2d 312; Maruki, Inc. v Lefrak Fifth Ave. Corp., 161 AD2d 264; Matter of Waybro Corp. v Board of Estimate, 67 NY2d 349; Walentas v Lipper, 862 F2d 414, 490 US 1021; Citizens Comm, for Faraday Wood v Lindsay, 507 F2d 1065, 421 US 948; 25 Fifth Ave. Mgt. Co. v Ivor B. Clark, Inc., 280 App Div 205, 304 NY 808.)

      Stroock & Stroock & Lavan, New York City (Charles G.

      Moerdler, Laurence Greenwald, Elizabeth A. Mullins and Amanda F. Shechter of counsel), for respondent.
    Plaintiff is entitled to recover on its claim for damages and, therefore, the Court below properly reversed that part of the opinion below which granted partial summary judgment to defendant. (Alvarez v Prospect Hosp., 68 NY2d 320; Consolidated Edison Co. v Jet Asphalt Corp., 132 AD2d 296; Fuchs v MiCAD Sys., 138 AD2d 312; 25 Fifth Ave. Mgt. Co. v Ivor B. Clark, Inc., 280 App Div 205, 304 NY 808; Brown v Smalin & Bock, 168 AD2d 531; American List Corp. v U.S. News & World Report, 75 NY2d 38; Teachers Ins. & Annuity Assn, v Tribune Co., 670 F Supp 491; Kooleraire Serv. & Installation Corp. v Board of Educ., 28 NY2d 101; Ellenberg Morgan Corp. v Hard Rock Cafe Assocs., 116 AD2d 266; DeForest Radio Tel. & Tel. Co. v Triangle Radio Supply Co., 243 NY 283.)
   OPINION OF THE COURT

Hancock, Jr., J.

This action for damages against the City of New York arises from the termination of plaintiffs exclusive right to negotiate the terms and conditions of a contemplated land disposition agreement (LDA) for two sites in the Washington Street Urban Renewal Area. In a prior appeal, we affirmed the denial of the City’s motion to dismiss the complaint as insufficient on its face under CPLR 3211 (a) (7) (see, Goodstein Constr. Corp. v City of New York, 67 NY2d 990 [Goodstein I]). In this appeal by the City from the Appellate Division’s denial of its motion for summary judgment, we address a different legal issue: whether an action based on the City’s abrogation of plaintiffs exclusive right to negotiate the LDA can be the basis for recovery of damages for loss of anticipated profits. For reasons which follow, we conclude that plaintiff has no claim for such damages and that, accordingly, there should be a reversal.

Facts and Procedural History

Plaintiff, a joint venture engaged in construction and real estate projects, and defendant City of New York entered into two letter agreements, each dated June 2, 1982, for the development of two separate sites, 5B and 5C, within the Washington Street Urban Renewal Area. Each June 2 letter referred to a prior letter — dated January 29, 1982 for site 5B and February 1, 1982 for site 5C — from the Department of Housing Preservation and Development (HPD) notifying plaintiff of its selection as exclusive negotiator for the respective site. By the terms of the June 2 letter agreements, plaintiff was designated "to exclusively negotiate the terms and conditions of a land disposition agreement ('LDA’)” with the HPD. Site 5B, to be purchased for $14,358,967, was to be developed for commercial use and site 5C, bearing a purchase price of $13,679,800, developed for multifamily residential use. Any binding obligation on the City under the LDA, which would contain the "terms, covenants, and conditions relative to the sale and development of the site”, was to be contingent upon the fulfillment of various legal requirements, including approval by the affected Community Board and the City Planning Commission under the Uniform Land Use Review Procedure mandated by section 197-c of the 1975 New York City Charter (ULURP), and finally by the City’s then-existing Board of Estimate.

The letter agreements imposed various obligations on plaintiff during the period of negotiation including: furnishing a $100,000 letter of credit for each site to assure diligent prosecution of the negotiations; developing at its "sole risk, cost and expense” building designs, marketing concepts and financial projections; submitting progress drawings; and bearing the costs of cooperating in meeting the legal requirements necessary for final approval by the Board of Estimate and execution by the City. The HPD, for its part, agreed to complete expeditiously all of its obligations incident to the ULURP precertification process and other legal requirements and to request the Board of Estimate "to calendar” for its consideration any successfully negotiated LDA. Each letter agreement contained a provision giving plaintiff the option to cancel and receive the return of its letter of credit in the event that, upon the expiration of a specified period, the Board of Estimate had not approved the LDA. The letters of January 29, 1982 and February 1, 1982, referred to and incorporated in the June 2, 1982 letter agreements, provided that "the City retained] the right to terminate negotiations at any time” in which case the City could "negotiate with any other applicant or non-applicant”, just as it could if it "decided not to extend the negotiation period”.

By letter dated November 29, 1983, the City notified plaintiff that it had been "dedesignated” as exclusive negotiator for the two sites, stating as the reason that it had decided it was in the best interests of the City to reserve the two sites for commercial development by back office users, many of whom wished to construct their own buildings. No LDA was ever concluded. On May 4, 1984, plaintiff commenced this action containing four causes of action and seeking $800 million in damages, all but $1 million of which represents loss of anticipated profits. In its first cause of action, plaintiff alleges that the City breached the letter agreements in failing to cooperate with plaintiff, failing to exercise good faith in carrying out its obligations under the agreements, and purporting to terminate plaintiffs exclusive negotiation rights by sending the "dedesignation” letter of November 29, 1983. In the second cause of action, also for breach of the letter agreements and of the City’s obligation to act in good faith thereunder, plaintiff alleges that the City thwarted plaintiffs ongoing negotiations with Shearson/American Express, Inc. with respect to site 5B by, among other things, reversing its prior decision to grant a tax abatement for that site. The third cause of action seeks damages for the City’s alleged tortious interference with plaintiffs precontractual relations with Shearson. In its fourth cause of action, plaintiff alleges that the City breached the letter agreements by dealing with Merrill Lynch and Company in connection with sites 5B and 5C, the same sites about which plaintiff was conducting negotiations with the City.

The City moved to dismiss the first and second causes of action for facial insufficiency (CPLR 3211 [a] [7]). The IAS Court denied the motion and the Appellate Division affirmed unanimously, noting that "the [letter] agreements did impose the implied obligations of good faith, cooperation and fair dealing implicit in any contract * * * [for which] the law does afford a remedy” (Goodstein Constr. Corp. v City of New York, 111 AD2d 49, 52 [emphasis added]). Our Court affirmed with two members dissenting (Goodstein Constr. Corp. v City of New York, 67 NY2d 990, 991, supra). In concluding that the causes of action were sufficiently pleaded, our Court emphasized that the complaint alleged that defendant had acted in violation of its good-faith contractual obligation to cooperate. That the City could have refused to continue negotiations and that only the Board of Estimate could approve the LDA, we held, were "not dispositive on a motion addressed to the face of the pleadings” (id., at 992).

The City thereafter moved for summary judgment dismissing the complaint in its entirety. The IAS Court granted it partial summary judgment, dismissing the four causes of action only insofar as they sought loss of anticipated profits. The IAS Court concluded that although plaintiff might be entitled to recover for its out-of-pocket expenses, it could not recover for loss of future profits, inasmuch as "the viability of all damage claims (tort and contract) asserted in the complaint, other than for reimbursement for out-of-pocket expenses, is contingent on an LDA having been consummated between HPD and plaintiff and then approved by the necessary agencies (including the Board of Estimate), and * * * there is no way of knowing whether such agreement would be concluded and such approvals obtained” (Goodstein Constr. Corp. v City of New York, 145 Mise 2d 870, 876-877).

On plaintiff’s appeal, the Appellate Division reversed unanimously and denied defendant’s summary judgment motion (see, Goodstein Constr. Corp. v City of New York, 169 AD2d 229). It reasoned that "the [letter] agreements implicitly indicate that the plaintiff reasonably anticipated and the City must have believed, that the agreements were entered into by the plaintiff for profit-making purposes” and that "it is an issue of fact whether such damages were fairly within the contemplation of the parties herein” (id., at 237).

On the City’s motion, the Appellate Division granted leave to appeal to this Court and certified the following question of law: "Was the order of this Court, which reversed the order of the Supreme Court, properly made?” We answer the question in the negative.

Discussion

It is established as law of the case that plaintiff’s causes of action are sufficiently pleaded (see, Goodstein Constr. Corp. v City of New York, 67 NY2d 990, supra) and that, if successful at trial, plaintiff may be entitled to recover reliance damages for the sums it has expended. The question now is whether, under these causes of action, plaintiff may also recover — in addition to out-of-pocket expenses — damages for the lost profits it assertedly would have realized if the proposed developments for sites 5B and 5C had taken place. Any such damages would have to arise from the City’s alleged failure to act in good faith in cooperating with plaintiff under the exclusive negotiation letters to the end that the terms and conditions of the anticipated LDA might be agreed upon.

An analysis of plaintiff’s claim for loss of profits must start with an examination of the precise nature of the obligation on which the claim is based. That obligation, it must be emphasized, arises not from the actual LDA, but from a preliminary agreement to negotiate an LDA. The distinction is critical. Plaintiff does not claim that the City breached any substantive obligation to be performed by it under the prospective LDA and, indeed, could not make such claim inasmuch as no LDA was ever concluded. Moreover, the City could not, in any event, have been contractually bound by any LDA concluded with plaintiff because both the exclusive negotiating agreements and the then existing law expressly conditioned the City’s contractual obligation on final approval by the Board of Estimate.

That the Board of Estimate was required to approve the LDA in order for it to be a binding contract was by no means a prerequisite calling for action that was merely perfunctory or ministerial. On the contrary, the required approval contemplated a discretionary legislative action that was political in nature and not subject to judicial review (see, Kaskel v Impellitteri, 306 NY 73; Matter of City of New York [Ely Ave.], 217 NY 45; Cicalo v New York City Hous. & Dev. Admin., 79 Misc 2d 769, 775, affd 51 AD2d 957 [affirmed unanimously for reasons stated at Special Term by Fein, J.], lv denied 40 NY2d 803; Walentas v Lipper, 862 F2d 414 [2d Cir 1988]). The precise question, then, is whether plaintiff, in addition to its claim for reliance damages, can have a valid claim for the loss of its expectancy based upon the City’s anticipated performance of the obligations it would have undertaken assuming that the negotiations had progressed to agreement and that an LDA had been finally approved by the Board of Estimate.

We conclude that both the law and logic preclude such a recovery. Contract damages are ordinarily intended to give the injured party the benefit of the bargain by awarding a sum of money that will, to the extent possible, put that party in as good a position as it would have been in had the contract been performed (see, Restatement [Second] of Contracts § 347, comment a; § 344). Here, the City’s sole obligation under the letters of January 29, February 1, and June 2, 1982 was to negotiate in good faith. The City was neither bound to agree to an LDA nor to continue the negotiating process. To allow the profits that plaintiff might have made under the prospective LDA as the damages for breach of the exclusive negotiating agreements would be basing damages not on the exclusive negotiating agreements but on the prospective terms of a nonexistent contract which the City was fully at liberty to reject. It would, in effect, be transforming an agreement to negotiate for a contract into the contract itself.

In dismissing plaintiff’s claims for loss of profits, the IAS Court properly noted that "a party’s 'alleged failure to bargain in good faith is not a but-for cause of [plaintiff’s] lost profits, since even with the best faith on both sides the deal might not have been closed [and] attributing [plaintiff’s] lost profits to [defendant’s] bad faith may be speculative at best’ ” (Goodstein Constr. Corp. v City of New York, 145 Misc 2d 870, 876, supra [quoting Arcadian Phosphates v Arcadian Corp., 884 F2d 69, 74, n 2 (2d Cir)]). As one commentator has put it, an "award based on [the expectation interest] would give the injured party the 'benefit of the bargain’ that was not reached. But if no agreement was reached and * * * it cannot even be known what agreement would have been reached, there is no way to measure the lost expectation” (1 Farnsworth, Contracts § 3.26a, at 314 [emphasis added]; cf., Matter of Allen v Eberling, 24 AD2d 594 [unsuccessful bidder not entitled to lost profits based on bid that was not accepted]; Excavation Constr. v United States, 494 F2d 1289, 1290 [Ct Cl 1974] [damages for improperly rejected bid cannot exceed bid preparation costs]; Sardella Constr. Co. v Braintree Hous. Auth., 3 Mass App Ct 326, 329 NE2d 762 [1975] [recovery limited to bid preparation costs]).

There is a further reason for rejecting plaintiffs loss of profits damages claim even assuming hypothetically that the letter agreements could somehow provide the theoretical predicate for such damages. Under the accepted rule of Hadley v Baxendale (9 Exch 341, 156 Eng Rep 145 [1854]), it must be shown "that the particular damages were fairly within the contemplation of the parties to the contract at the time it was made” (Kenford Co. v County of Erie, 67 NY2d 257, 261). The letter agreements under which plaintiff makes its claim, it must be noted, were terminable by the City, and the LDA, had its terms ultimately been accepted by the HPD, was subject to various layers of governmental approval before it could be binding, including approval by the Board of Estimate. The City argues that under the rule of Hadley v Baxendale, loss of profits based on fulfillment of the terms of the contract being negotiated could not have been reasonably contemplated as damages for a breach of the agreement to negotiate those very contractual terms. We agree.

As the City points out, to allow plaintiff loss of anticipated profits of some $800 million, based on the hypothesized successful completion of the proposed improvements in sites 5B and 5C, would have the anomalous effect of holding the City responsible as guarantor, under a proposed LDA to which neither party had agreed, for the profits from projected improvements which plaintiff would never have to construct. Our decision in Kenford Co. v County of Erie (73 NY2d 312) is pertinent. There, this Court reversed plaintiffs recovery for lost profits based on the anticipated enhancement in the value of land surrounding a domed stadium to be built under a contract which the County had cancelled. In dismissing plaintiffs lost profits claim as not within the reasonable contemplation of the parties under Hadley v Baxendale, the Court stated:

"To hold otherwise [and allow the claim] would lead to the irrational conclusion that the County, in addition to promising to build the domed stadium, provided a guarantee that if for any reason the stadium were not built, [the plaintiff] would still receive all the hoped for financial benefits from the peripheral lands it anticipated to receive upon the completion of the stadium. According to [plaintiffs] version of the facts, [plaintiff] was to realize all of its anticipated gains with or without the stadium. Clearly, such a result is illogical and without any basis whatsoever in the record” (Ken-ford Co. v County of Erie, 73 NY2d 312, 321, supra; see, Kenford Co. v County of Erie, 108 AD2d 132, 148-150).

Here — where the claims are founded only on an agreement to negotiate — awarding plaintiff lost profits based on the projected improvements would be even more "irrational” and "illogical and without any basis” (73 NY2d, at 321, supra) than in Kenford where the plaintiff could base its claim on a formal binding contract to construct the stadium. It can hardly be supposed that by subscribing to these exclusive negotiating agreements, the City officials envisioned that they were then exposing the City to liability of catastrophic proportions when the other party was assuming no risk whatsoever. Contrary to plaintiffs contention, the City’s knowledge of the details of plaintiffs plans and cost estimates does not suggest that the City was agreeing to underwrite the hypothetical profits from these plans on the assumption that the LDA would be finally approved and the plans completed (see, Ken-ford Co. v County of Erie, 73 NY2d 312, 319-320, supra [rejecting a similar argument]). It is simply not conceivable that the City officials could have contemplated that in entering into the exclusive negotiating agreements they were subjecting the City to such an unfair and one-sided allocation of the risks (see, Restatement [Second] of Contracts § 351 [3] [1979]; see, Kenford Co. v County of Erie, 73 NY2d, at 321, supra; Kenford Co. v County of Erie, 108 AD2d, at 149-150, supra).

The order of the Appellate Division should be reversed, with costs, the order of Supreme Court reinstated and the certified question answered in the negative.

Acting Chief Judge Simons and Judges Kaye, Titone and Bellacosa concur; Judge Smith taking no part.

Order reversed, etc.

      . Plaintiff also challenged the dedesignation in a CPLR article 78 proceeding brought to vacate and annul the determination on the grounds that the Department of Housing Preservation and Development’s action was arbitrary and capricious. We affirmed the dismissal of that petition on the ground that plaintiffs did not "provide a clear legal right to article 78 relief’ (Matter of Goodstein Constr. Corp. v Gliedman, 69 NY2d 930, 931 [Goodstein II], affg 117 AD2d 170).

      . As noted (supra, at 371), the IAS Court denied the City’s motion for summary judgment dismissing the complaint to the extent that plaintiff sought recovery for reimbursement for out-of-pocket expenses. The City did not appeal and the Appellate Division did not challenge plaintiff’s right to recover reliance damages. Nor does the City dispute in this Court that plaintiff, if successful, would be entitled to recover reliance damages for out-of-pocket expenses.

      . Under General Municipal Law § 507 (2) (c) the sale of urban renewal property to a private entity, such as plaintiff, could be effected only upon the approval of the appropriate "governing body”. At all times in question here, the Board of Estimate was the "governing body” under the then prevailing definition in General Municipal Law § 502 (1) because the Board of Estimate was vested with "final authority respecting the use, development and improvement of city land” (1975 NY City Charter §67 [4]; see, Matter of Waybro Corp. v Board of Estimate, 67 NY2d 349, 355 [final approval authority in City’s ULURP process vested in the Board of Estimate under 1975 NY City Charter § 197-c (f)]).

      . The Walentas court held that an exclusive New York City urban renewal negotiating agreement similar to those in question here conferred no property interest on the developer for the purpose of a claim under 42 USC § 1983. In dismissing the action, the court observed that "no binding contract could come into existence until the New York City Board of Estimate, in the context of the city’s Uniform Land Use Review Procedure, approved [the plaintiff] as the developer” and that plaintiff’s "selection as developer would have been a discretionary determination by a political body which, as the district court correctly stated, plaintiff 'had no right to expect.’ Walentas v. Lipper, 636 F.Supp. 331, 336 (S.D.N.Y. 1986)” (Walentas v Lipper, 862 F2d, at 419-420, supra).


author: Titone, J.

text:
    Prudential Insurance Company of America, Appellant, v Dewey, Ballantine, Bushby, Palmer & Wood et al., Defendants, and Gilmartin, Poster & Shafto, Respondent.
    Argued September 9,1992;
    decided November 19, 1992

      POINTS OF COUNSEL

      Howrey & Simon (William E. Wallace, III, Thomas A. Isaacson and Gary L. Ivens of counsel), of the District of Columbia Bar, admitted pro hac vice, and Hertzog, Calamari & Gleason, New York City (Peter S. Calamari of counsel), for appellant.
    I. Gilmartin failed to carry its burden of proving the absence of a material factual dispute on whether it owed a duty to Prudential. (Ossining Union Free School Dist. v Anderson LaRocca Anderson, 73 NY2d 417; Glanzer v Shepard, 233 NY 236; White v Guarente, 43 NY2d 356; Ultramares Corp. v Touche, 255 NY 170; Royal Am. Mgrs. v IRC Holding Corp., 885 F2d 1011; Credit Alliance Corp. v Andersen & Co., 65 NY2d 536; Westpac Banking Corp. v Deschamps, 66 NY2d 16; Fourth Ocean Putnam Corp. v Interstate Wrecking Co., 108 AD2d 3, 66 NY2d 38; Burns Jackson Miller Summit & Spitzer v Lindner, 59 NY2d 314; Key Intl. Mfg. v Morse/Diesel, Inc., 142 AD2d 448.) II. Gilmartin failed to carry its burden of proving the absence of a material factual dispute on whether its opinion letter was erroneous. (Westmount Intl. Hotels v Sear-Brown Assocs., 65 NY2d 618; Scarpulla v County of Suffolk, 128 AD2d 603; Leighton’s Inc. v Century Circuit, 95 AD2d 681; Two Guys from Harrison-N. Y. v S.F.R. Realty Assocs., 63 NY2d 396.)

      Bower & Gardner, New York City (Nancy Ledy-Gurren and Deborah Bass of counsel), for respondent.
    I. Prudential’s cause of action for legal malpractice was properly dismissed because of the absence of a duty owed to Prudential. (Crossland Sav. v Rockwood Ins. Co., 700 F Supp 1274; Vereins-Und Westbank, AG. v Carter, 691 F Supp 704; Lavanant v General Acc. Ins. Co., 164 AD2d 73, 77 NY2d 939; Council Commerce Corp. v Schwartz, Sachs & Kamhi, 144 AD2d 422, 74 NY2d 606; National Westminster Bank v Weksel, 124 AD2d 144, 70 NY2d 604; Associated Factors Corp. v O’Neill Detective Agency, 146 AD2d 728; Benedek v Heit, 139 AD2d 393, 73 NY2d 703; Stern v Consumer Equities Assocs., 160 AD2d 993.) II. Prudential was not a third-party beneficiary of the retention agreement between U.S. Lines and the Gilmartin firm. (Port Chester Elec. Constr. Co. v Atlas, 40 NY2d 652.) III. There is no genuine dispute meriting trial; Prudential’s claims against the Gilmartin firm were properly resolved by the grant of summary judgment. (Donahue v Copiague Union Free School Dist., 64 AD2d 29, 47 NY2d 440; De Angelis v Luther Med. Ctr., 58 NY2d 1053; Blye v Manhattan & Bronx Surface Tr. Operating Auth., 124 AD2d 106, 72 NY2d 888.)
   OPINION OF THE COURT

Titone, J.

Pursuant to its client’s instructions, defendant law firm furnished to plaintiff third party an opinion letter that assertedly contained false assurances. While a law firm supplying such a letter may have a duty running to the third parties, the record in this case does not support the conclusion that the assertion in the opinion letter caused plaintiff’s loss. We thus conclude that summary judgment was properly awarded to this defendant.

I

The relevant facts are essentially undisputed and can be briefly summarized. In early 1986, United States Lines (U.S. Lines), a major shipping concern, informed the Prudential Insurance Company of America (Prudential) and certain of its other key creditors that it was anticipating difficulty in meeting its debt obligations. Prudential thereafter agreed to a restructuring of a $92,885,000 debt that U.S. Lines owed it in connection with a 1978 loan. At the time, that debt was secured by a first preferred fleet mortgage on certain vessels owned by U.S. Lines.

In order to implement the debt restructuring, Prudential and U.S. Lines executed an amendment to the financing and security agreement that they had entered into when the 1978 loan was made. Section 4 of that amendment set forth various conditions to Prudential’s agreeing to the restructuring, including a requirement that Prudential receive "[t]he favorable opinion of Messrs. Gilmartin, Poster & Shafto [Gilmartin], counsel to [U.S. Lines], to such effect as shall be satisfactory to Prudential.”

In fulfillment of that requirement, Gilmartin, at the specific direction of U.S. Lines, thereafter drafted and delivered an opinion letter to Prudential. The opinion letter contained an assurance that the mortgage documents that were to be recorded in connection with the debt restructuring, and which, incidentally, had been prepared by other counsel, represented "legal, valid and binding” obligations of U.S. Lines. Moreover, according to Gilmartin’s letter, neither Federal nor State law would interfere "with the practical realization of the benefits of the security intended to be provided” by those documents. Prudential ultimately accepted Gilmartin’s opinion letter as satisfactory, and permitted the recording of those mortgage documents. Prudential later learned that one of the recorded documents erroneously stated the outstanding balance of the first preferred fleet mortgage securing the debt as $92,885, rather than the correct sum of $92,885,000. As a result, Prudential suffered significant losses when U.S. Lines subsequently filed for bankruptcy. Those losses ultimately included 17.5% of the net proceeds ($11,400,000) from a foreclosure sale of five of the ships involved in the first preferred fleet mortgage, which percentage Prudential had agreed to pay U.S. Lines in settlement of their dispute at the time the validity of the mortgage was in doubt. The claimed losses also included the related Federal court litigation costs associated with defending the mortgage (see, Prudential Ins. Co. v S. S. Am. Lancer, 870 F2d 867 [2d Cir 1989]).

Prudential thereafter commenced this action against Gil-martin, contending that the law firm’s opinion letter had falsely assured it that the mortgage documents in question would fully protect its existing $92,885,000 security interest. Although Prudential acknowledged that it was not actually in privity with Gilmartin, it nevertheless contended that the relationship between them was sufficiently close so as to support a cause of action in negligence. Alternatively, it maintained that Gilmartin could be held liable to it, in contract, on a third-party beneficiary theory.

Following joinder of issue, Gilmartin moved for summary judgment on both causes of action. After reviewing the various submissions of the parties, the Supreme Court, New York County, granted Gilmartin’s motion. The court reasoned that the law firm’s relationship with Prudential was, under the circumstances, too attenuated to give rise to any duty of care running from Gilmartin to Prudential. Similarly, the court found that, at the very most, Prudential was an incidental beneficiary of Gilmartin’s agreement with U.S. Lines relating to the preparation of the opinion letter. Prudential thus lacked the standing of an intended beneficiary to bring suit on any misstatements in the letter which may have caused its losses. On appeal, the Appellate Division affirmed the grant of summary judgment to Gilmartin (170 AD2d 108). That Court then granted Prudential leave to appeal to this Court pursuant to CPLR 5602 (b), certifying the following question of law: "Was the order of this Court, which modified the order of the Supreme Court, properly made?”

II

Initially, it must be stressed that attorneys, like other professionals, may be held liable for economic injury arising from negligent representation. Although the defendants in many of the prior cases addressing this issue have been accountants, there is no reason to arbitrarily limit the potentially liable defendants to that class of professionals (see, Ossining Union Free School Dist. v Anderson LaRocca Anderson, 73 NY2d 417, 424). Indeed, liability was imposed on engineering consultants in Ossining (supra), and in Ultra-mares Corp. v Touche (255 NY 170, 188) and Glanzer v Shepard, (233 NY 236, 240), it was suggested that in the right circumstances pecuniary recovery might be had from lawyers. We now conclude that in circumstances such as these, a theoretical basis for liability against legal professionals can be presented.

Gilmartin contends that Canons 4 and 5 of the Code of Professional Responsibility, regarding the preservation of client loyalty and client confidences, argue against imposing liability on attorneys in these circumstances. However, where, as here, the negligent acts, i.e., the creation of an opinion letter and the transmission of that letter to a third party for the party’s own use, were carried out by the lawyer at the client’s express direction, the ethical considerations of Canons 4 and 5 are insufficient reason to insulate attorneys from liability (see, Crossland Sav. v Rockwood Ins. Co., 700 F Supp 1274, 1282-1283; Vereins-Und Westbank, AG. v Carter, 691 F Supp 704, 715-716).

Ill

Having concluded that legal professionals are not immune from liability in these cases, we turn now to the question whether liability may attach in the present circumstances. This Court has long held that before a party may recover in tort for pecuniary loss sustained as a result of another’s negligent misrepresentations there must be a showing that there was either actual privity of contract between the parties or a relationship so close as to approach that of privity (see, e.g., Ossining Union Free School Dist. v Anderson LaRocca Anderson, supra, at 424; Credit Alliance Corp. v Andersen & Co., 65 NY2d 536; Ultramares Corp. v Touche, supra; Glanzer v Shepard, supra). Such a requirement is necessary in order to provide fair and manageable bounds to what otherwise could prove to be limitless liability (see, Ossining Union Free School Dist. v Anderson LaRocca Anderson, supra, at 421).

Since Prudential concedes that it was not in direct privity with Gilmartin, we must determine whether the relationship between Prudential and Gilmartin was sufficiently close to support liability. For that purpose, we must look first to the substantial body of decisional law delineating the boundaries of liability to parties not in privity. In Glanzer v Shepard (233 NY 236, supra) a bean seller retained public weighers and directed them to furnish one copy of the weight certificate to a particular prospective buyer. The certificate was inaccurate and, as a result, the buyer suffered a loss. In language that is as applicable now as it was then, this Court concluded that the law imposed a duty on the weighers in favor of the buyer, despite the absence of privity between them, because the representations at issue had been made "for the very purpose of inducing action” on the part of the buyer (id., at 239). In other words, the buyer’s use of the certificates was "not an indirect or collateral consequence” of the action of the weighers. Rather, it was a consequence which, to the weighers’ knowledge, was the "end and aim of the transaction” (id., at 238-239).

By contrast, in Ultramares Corp. v Touche (255 NY 170, supra), where accountants had prepared a certified balance sheet for their client and provided some 32 copies to be exhibited generally to "banks, creditors, stockholders, purchasers or sellers, according to the needs of the occasion” (id., at 173-174), the accountants were not liable to third parties who may have relied on the financial information to their detriment. That was so because the accountants’ report was primarily intended as a convenient instrument for the client’s use in developing its business and only "incidentally or collaterally” was it expected to assist those to whom the client "might exhibit it thereafter” (id., at 183).

In White v Guarente (43 NY2d 356), accountants had contracted with a limited partnership to perform an audit and prepare the partnership’s tax returns. It was clear that the accountants’ services were obtained to benefit the specific members of the partnership, "a known group possessed of vested rights, marked by a definable limit and made up of certain components” (id., at 361). In these circumstances, this Court held that the relationship between the parties, accountants and a limited partner, was clearly one approaching privity.

Similar conclusions were reached in the more recent cases dealing with this issue. In Credit Alliance, where we held the allegations insufficient to establish a relationship approaching privity between the plaintiffs and defendant accountants, there were no direct dealings between the plaintiffs and defendants, no specific agreement by the defendants to prepare the report for the plaintiffs’ use or according to the plaintiffs’ requirements, no specific promise to provide the plaintiffs with a copy of the report, and no actual provision of the report to the plaintiffs by the defendants. In sum, the necessary link between the relevant parties simply did not exist and there was no basis for liability.

Conversely, in the companion case (European Am. Bank & Trust Co. v Strauhs & Kaye, 65 NY2d 536), the prerequisites for the cause of action in negligence, as well as in gross negligence, were fully satisfied because the defendant accounting firm was well aware that a primary "end and aim” of its auditing process was to provide the third-party plaintiff with the financial information it required. Not only did the accountants know the identity of the specific nonprivy party who would be relying on their reports, but they were also aware of the particular purpose for their services and they engaged in conduct creating an unmistakable relationship with the plaintiff, including having direct written, oral and in-person communications with the plaintiff’s representatives. Significantly, the opinion in Credit Alliance distilled the principles emerging from the prior case law and identified three critical criteria for imposing liability: (1) an awareness by the maker of the statement that it is to be used for a particular purpose; (2) reliance by a known party on the statement in furtherance of that purpose; and (3) some conduct by the maker of the statement linking it to the relying party and evincing its understanding of that reliance (id., at 551).

In the two cases decided since Credit Alliance, we have applied its criteria to sustain liability in one instance and foreclose it in another. In Ossining Union Free School Dist. v Anderson LaRocca Anderson (73 NY2d 417, supra), the plaintiff school district was permitted to recover for pecuniary loss arising from negligent misrepresentations in reports prepared by two engineering consultants who were retained by the school’s architects. We held that the consultants had a duty to the school district, notwithstanding the absence of privity, because "[n]ot unlike the bean weighers in Glanzer, [the consultants] allegedly rendered their reports with the objective of thereby shaping this plaintiff’s conduct” (id., at 426). In contrast, in Security Pac. Bus. Credit v Peat Marwick Main & Co. (79 NY2d 695), we held that there was no relationship between the plaintiff and the defendant accounting firm "sufficiently approaching privity” because no claim was made and no evidence tendered that the accounting firm’s report was to be prepared for the specific purpose of inducing the plaintiff’s reliance, there was no evidence that the firm had shaped its audit opinion to meet any of the plaintiff’s needs, and no proof that the firm had directly supplied the plaintiff with a copy of the audit report or opinion, or ever agreed to do so (id., at 706-707). Additionally, there was no claim that the firm was aware that ” 'a primary, if not the exclusive, end and aim of auditing its client was to provide [plaintiff] with the financial information it required’ ” (id., at 707).

The Credit Alliance criteria and the cases on which those criteria are based clearly support the imposition of liability here. First, it is undisputed that Gilmartin was well aware that the opinion letter which U.S. Lines directed it to prepare was to be used by Prudential in deciding whether to permit the debt restructuring. Thus, the end and aim of the opinion letter was to provide Prudential with the financial information it required. Indeed, the amendment to the 1978 financing and security agreement made Prudential’s receipt of the opinion letter a condition precedent to closing.

Second, as fully expected by Gilmartin, Prudential unquestionably relied on the opinion letter in agreeing to the debt restructuring. Specifically, Prudential focused on certain statements in the letter which assured it, generally, that the mortgage documents represented "legal, valid and binding” obligations of U.S. Lines which, once recorded, would be enforceable against it "in accordance with [their] respective terms.” Finally, by addressing and sending the opinion letter directly to Prudential, Gilmartin clearly engaged in conduct which evinced its awareness and understanding that Prudential would rely on the letter, and provided the requisite link between the parties. Accordingly, contrary to the conclusion of the courts below, the bond between Gilmartin and Prudential was sufficiently close to establish a duty of care running from the former to the latter. Since this determination disposes of the question of Gilmartin’s liability, we find it unnecessary to reach Prudential’s alternative contract claim.

IV

Having concluded that Gilmartin owed Prudential a duty of care, we now turn to the question of whether Prudential has demonstrated that there is a triable issue of fact as to whether that duty was breached here (see, CPLR 3212 [b]). In support of its claim that Gilmartin breached a duty owing to it, Prudential contends that the opinion letter falsely assured it that the mortgage documents in question would continue to fully protect its existing $92,885,000 security interest.

Initially, it should be stressed that the purpose of an opinion letter, as correctly spelled out by defendant, is to offer assurances to the creditor about the inner workings of the borrower’s business, in particular, that no further corporate formalities are necessary to make the loan documents valid; that the documents are fully authorized under applicable law; that the terms, as written, are enforceable against the borrower; and that the proposed transaction does not violate some other obligation by which the borrower is bound. An examination of the opinion letter reveals that, although it did not make the specific assurance of a dollar amount of security, it did fulfill its purpose of assuring procedural regularity in forming the opinion.

The opinion letter initially made clear that, in rendering its opinion, Gilmartin had relied in part upon certificates of certain public officials and corporate officers, and upon corporate documents and records, with respect to the accuracy of material factual matters which were not independently established. Then, with reference to the mortgage documents in issue, the letter simply stated that those documents represented "legal, valid and binding” obligations of U.S. Lines, which, when recorded, would be enforceable against it "in accordance with [their] respective terms”, whatever those terms might be. No specific dollar amount was assured.

Next, Gilmartin qualified its opinion by limiting the enforceability of the mortgage documents by the bankruptcy, insolvency, reorganization and other similar laws of general application affecting creditors’ rights. Finally, Gilmartin further qualified its assurances when it said that "[t]he rights and remedies set forth in the [ship mortgages] are subject to applicable state laws which, in our opinion, will not interfere with the practical realization of the benefits of the security intended to be provided thereby.”

In sum, a duty of care was owed to Prudential in these circumstances, and the facts do not prove a breach of that duty. In preparing the opinion letter, Gilmartin represented that it took the particular procedural measures, as discussed above, in investigating and substantiating the mortgage documents in question. After taking those measures, Gilmartin made certain general assurances to Prudential in the opinion letter. Those assurances did not set forth a specific dollar amount as securing the debt. It was agreed that the letter was to be in a form satisfactory to Prudential, which condition was satisfied when Prudential accepted the letter containing no more than general assurances. We can only conclude on these facts, where neither procedural nor substantive misrepresentations were made by Gilmartin, that the law firm was properly awarded summary judgment.

Accordingly, the order of the Appellate Division should be affirmed, with costs, and the certified question should be answered in the affirmative.

Acting Chief Judge Simons and Judges Kaye, Hancock, Jr., and Bellacosa concur; Judge Smith taking no part.

Order affirmed, etc.