Appeal from the order of the Court of Common Pleas of Erie County, No. 3371-A, 1968, in case of In Re: Premises commonly known as 924 State Street, City Index No. 3005-102 and LPA Parcel No. 31-8, etc., Redevelopment Authority of the City of Erie, v. Owners or Parties in interest. Appeal transferred September 14, 1970, to the Commonwealth Court of Pennsylvania by the Supreme Court of Pennsylvania.
Irving Murphy, with him John J. Stroh, and McDonald, Illig, Jones and Britton, for appellants.
John M. Quinn, with him Quinn, Plate, Gent, Busek and Leemhuis, for appellee.
President Judge Bowman, and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Manderino, Mencer and Barbieri (who has since been appointed to the Supreme Court of Pennsylvania and did not participate in the decision). Opinion by Judge Mencer. Concurring Opinion by Judge Crumlish, Jr. Dissenting Opinion by Judge Manderino.
This appeal involves the condemnation of a three-story building located at 924 State Street in the main business district of Erie, Pennsylvania. The Redevelopment Authority of the City of Erie filed, in connection with this property, a Declaration of Taking on December 13, 1968. Preliminary objections*fn1 challenging the taking of the property were filed by the owners, hereinafter referred to as the appellants, but they were dismissed by the Court of Common Pleas of Erie County. We believe the preliminary objections should have been sustained.
The property in question was purchased by appellants in 1954. At that time, and now, their neighbor to the north was a Murphy's Five and Ten Cent Store. Their neighbor to the south was a three-story structure owned by Mr. Achilles Pulakos, hereinafter referred to as Pulakos, and leased by him to a family corporation, known as Pulakos' Candies, for use as a retail candy store. These properties are located on the west side of State Street, and both the appellants' property and the property of Pulakos are small lots with frontages of twenty feet on State Street and depths of 147 feet.
Appellants' property was originally leased for a retail drug store and later subleased to a discount drug chain for the same purpose. The first floor was used
as a drug store and the second and third floors were vacant.
In October of 1962, the City Planning Commission of the City of Erie certified the Downtown Erie Project Area, which included appellants' property, as a blighted area. The Council of the City of Erie, pursuant to the Urban Redevelopment Law of Pennsylvania, Act of May 24, 1945, P.L. 991, 35 P.S. § 1701, as amended, directed the Redevelopment Authority of the City of Erie to prepare a Redevelopment Proposal for the elimination of the blighted and substandard conditions in the project area. The proposal that was developed, with the help of a firm of expert planners, provided that appellants' property, the Pulakos property, and several other properties, be assembled to provide the needed land area for the construction of a downtown hotel. If this proposal had been followed, the appellants likely would not have had a basis to oppose the condemnation of their property because, as was said in Schenck v. Pittsburgh, 364 Pa. 31, 35-36, 70 A.2d 612, 614 (1950), ". . . in the absence of an indication that the Commission did not act in good faith or was wholly arbitrary in certifying the area designated by it as blighted, its certification to that effect is not subject to judicial review," and, "since [the Urban Redevelopment Law] gives the power of eminent domain to the Urban Redevelopment Authority, it is for that agency, and not for the courts, to determine whether or not the power should be exercised in this particular instance. It has been held in many cases that where the right of eminent domain is vested in a municipality, an administrative body, or even a private corporation, the question as to whether the circumstances justify the exercise of the power in a given instance is not a judicial one, at least in the absence of fraud or palpable bad faith." See also: Schwartz v. Urban Redev. A. of Pgh., 416 Pa. 503, 206 A.2d 789 (1965).
It is the phrase "palpable bad faith" that is the root consideration raised in this appeal. These words have vital meaning when used as a limitation on the power of a governmental authority to condemn property. Bad faith is generally the opposite of good faith and, under the factual situation of the present case, implies a tainted motive of interest. Bad faith becomes palpable when such motive is obvious or readily perceived. The courts have the responsibility to see that an authority has not acted in bad faith, and that property be taken by eminent domain only to the extent reasonably required for the purpose for which the power is exercised.
Activities of public authorities should be subject to judicial scrutiny. We agree with what Justice Roberts said in Price v. Philadelphia Parking Authority, 422 Pa. 317, 329, 221 A.2d 138 (1966): "As public bodies, they exercise public powers and must act strictly within their legislative mandates. Moreover, they stand in a fiduciary relationship to the public which they are created to serve and their conduct must be guided by good faith and sound judgment. See Schwartz v. Urban Redevelopment Auth., 411 Pa. 530, 536, 192 A.2d 371, 374 (1963); Heilig Bros. Co. Inc. v. Kohler, 366 Pa. 72, 77-78, 76 A.2d 613, 616 (1950). The mushrooming of authorities at all levels of government and the frequent complaint that such bodies act in an arbitrary and capricious manner in violation of existing law dictate that a checkrein be kept upon them. Schwartz v. Urban Redevelopment Auth., 411 Pa. 530, 536, 192 A.2d 371, 374 (1963); Keystone Raceway Corp. v. State Harness Racing Comm., 405 Pa. 1, 5, 173 A.2d 97, 99 (1961)."
In the instant case the original proposal was changed. What caused the change to be made? An examination of the record discloses that Pulakos decided that he would fight the taking of his property.
He was determined to show the Redevelopment Authority that acquiring his property was not going to be as easy as taking candy from a baby. He had a recipe which he believed would produce for himself a sweet result. The chief ingredient that he had at his disposal was political influence. Mr. Adolph Agresti, Vice Chairman of the Authority, testified that Pulakos (and family) "had doors open to him." A review of what transpired to satisfy Pulakos is indeed revealing of how the doors swung open to Pulakos and shut to appellants.
The Authority began by offering Pulakos several other downtown properties but none was acceptable to him. If this was not the answer, what would be satisfactory to Pulakos? How about deleting appellants' lot from the property being assembled for hotel development and selling it to Pulakos? If this could be accomplished, then Pulakos could merely move his candy store next door and everything would be dandy.
The mix was started in 1966 by John Corapi, Executive Director of the Authority, travelling to Memphis, Tennessee, in an effort to convince Holiday Inns that the hotel could be built in Erie without using appellants' property. The effort was unsuccessful. The Authority next turned its attention to Metropolitan Hotels, Inc., of Baltimore, Maryland. The Vice Chairman, the Executive Director and the Assistant Director of the Authority, together with the Mayor of the City of Erie, travelled to Baltimore with Gus Pulakos and his son, Achilles Pulakos. The testimony of Adolph Agresti, Vice Chairman of the Authority, is most enlightening as to what occurred at the meeting in Baltimore: "Q. Mr. Agresti, coming to the events which lead to the deletion of the Kaufman parcel*fn2 from the transit housing
offer, would you explain in your words what occurred from your personal knowledge? A. Well, during the interim from 1966 to the present time, or 1968, the past two years we were fortunate enough to have the Hilton Hotel or the Statler Hilton Hotel people show an interest in the location on tenth and State, and the developers are called the Metropolitan Hotel in Baltimore. They have the franchise and they have, we've had negotiations with them for several months, eight or ten months, in regards to the location, the size of the land and number of rooms, and so forth, and in the meantime we tried to negotiate the twenty feet for Pulakos and we were not successful. So, with pressures to bear, whether it be members of Council or the Mayor, they prevailed on the Authority that we should probably set up a meeting in Baltimore with the hotel people. Q. Were you present at that meeting? A. Yes. Q. Were you the Authority representative at that meeting? A. I was the only member of the Authority with our executive directors. Q. Continue. A. And the Mayor was at the meeting with the two Pulakos, Gus and Achilles. We had a meeting with the staff of the Metropolitan Hotels, Inc. and some of the Hilton officials and we met with them most of the day, and at that time they showed us a prototype that would be feasible for Erie, and when we approached them on the subject of deleting the twenty feet for Pulakos, they were upset about this because they felt that they needed as many sleeping rooms as possible, and at the present time they were planning on 250 sleeping rooms and deleting this twenty feet, they would sacrifice 18 sleeping rooms, and this, they did not like, and they thought the Authority was wrong to allow this twenty feet because they needed all the land they wanted, but because of the pressures being put upon them, they were willing to concede and modify their plans and be satisfied with
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sleeping rooms instead of the 250, and, of course, they wanted an adjustment in the land price. Q. Are you aware of the dollar amount of that adjustment? A. Well, at the time of the first proposal, six months prior to that, the offer was $125,000 from the Metropolitan Hotels and when their preferential treatment expired, they gave us another offer which was only $100,000." (Emphasis supplied.)
Thus, not having been successful in previous negotiations, the Authority and the Mayor applied pressure to force Metropolitan Hotels, Inc., to modify its plans with an adjustment of the land price offer from $125,000 to $100,000. The Pulakos interests were to be served at the expense of the public and of the appellants.
Much paperwork and backtracking then had to be done to move the plan from the back burner of the Baltimore meeting to the front burner of legal respectability. The formal proposal of Metropolitan Hotels, Inc., had to be amended and resubmitted as to price and number of rooms. The Urban Renewal Plan for the Downtown Erie Urban Renewal Project had to be modified and amended to eliminate appellants' lot from the transient housing assemblage and reclassified as to use to Commercial Retail. Approval of such modifications and amendments had to be obtained from the local, state and federal agencies involved. Updated reuse appraisals had to be obtained and a formal invitation extended to Pulakos to submit a proposal to relocate his business on appellants' lot. The Authority, on October 4, 1968, requested a letter of intent by November 5, 1968, and a proposal by December 17, 1968. The letter of intent was received on time but the time for receipt of the proposal was extended to February 4, 1969, and finally to April 1, 1969. The Authority's minutes of March 4, 1969, stated that if Pulakos did
not submit a proposal by April 1, 1969, the Authority would withdraw the exclusive status of Pulakos to acquire appellants' property.
Was the modification of the Urban Renewal Plan for Downtown Erie solely to enable Pulakos to acquire appellants' land, or was it justified by planning considerations and the final disposition to Pulakos only incidental thereto? The testimony of Charles H. Reeve, Director of Planning and Urban Renewal for the consulting firm of James P. Purcell Associates, was as follows: "Q. Mr. Reeve, are you aware that the Authority is proposing to eventually convey the White Cross parcel to Mr. Pulakos if the preliminary objections in this matter are eventually dismissed by the courts? A. Yes, I am. Q. State, in your professional opinion, your thinking in regard to this program. A. Well, with all due regard for Mr. Pulakos, who has been in Erie for a long period of time, and the consideration that is being extended to him, I feel, from a planning standpoint, it is a mistake. Q. Would you amplify that last remark of yours to the degree of explaining what you may think should be done with this parcel? A. Well, I think this should be included in the parcel as it was originally proposed to have the development of a transient housing site, that is, a motel or motor hotel, so that the whole development can be handled as an integrated complex of shops and stores serving both downtown and the transient housing facility. To sliver off the so-called White Cross parcel for Mr. Pulakos will merely perpetuate a situation which I have already identified as a blighting characteristic. . . . Q. Now, let's get on to what -- I understood you to be somewhat critical of the actions of the Redevelopment Authority in intending to supply the White Cross parcel to Mr. Pulakos. Do I understand you to say you think this is very poor planning? A. Yes sir. Q. Does it make
any economic sense to you at all, from an economic or social use of the premises? A. I think if there were some way that they could accommodate Mr. Pulakos and integrate him into the motel-hotel development instead of as a separate parcel, it would be far superior, and would represent, in my mind, what would be good planning, as against a single isolated parcel, which I believe is one of the faults in terms of the downtown areas that exist today, and we're going to retain this. This, to me, I think is poor planning, and I would have hoped that they would be able to integrate him into the commercial development. Q. This is what I was curious about; the concept of providing Mr. Pulakos with a twenty-foot strip is exactly the concept that you say good planning attempts to avoid, am I correct? A. Yes."
Mr. William L. Siskind, Director and Chairman of the Board of Metropolitan Hotels, Inc., testified that "the only reason that we even considered making that last proposal was the overwhelming pressure, or of factors that were presented to us, to allow preferential treatment to this one particular businessman in Erie, in that the White Cross property was to go to him, that twenty feet was to go to him. If it doesn't go to him, there is no reason for us ever excluding it, and we would want the property to be included as per the original proposal." He further testified that he did not like excluding the appellants' property since it was a needed piece of property for the development of the hotel.
The Urban Redevelopment Law grants to an authority the power to sell any real property in a redevelopment area provided that the sale will not be prejudicial to the realization of the redevelopment proposal. Act of May 24, 1945, P.L. 991, as ...