In an August 2019 decision, the Fourth Department of the Appellate Division of the Supreme Court of the State of New York ruled that property owners cannot assert a lawsuit alleging inverse condemnation and other damages against the government based solely on government action directed at a neighboring property.

In a lawsuit entitled Peter Mitchell and Parker’s Grille, Inc. v. City of Geneva et al., the owners of a restaurant in downtown Geneva sued the City of Geneva after the owner of a dilapidated neighboring property used state economic development funds awarded by the city to rehabilitate the building and then convert it into a competing restaurant.

The plaintiffs’ lawsuit, which sought from Geneva in excess of $1,000,000, asserted claims for inverse condemnation, negligent misrepresentation, and tortious interference with prospective business relations. The complaint claimed Geneva’s award of the funds to the plaintiffs’ neighbor constituted an act of eminent domain against the plaintiffs’ property. The complaint also claimed an employee of Geneva mislead plaintiffs when the employee incorrectly predicted the neighbor would not ultimately receive the funding. Finally, the complaint claimed Geneva’s award of the funds to the neighbor caused plaintiffs to lose business. The lawsuit did not plead any claims against the neighboring property owner.

Harris Beach PLLC attorneys H. Todd Bullard and Aaron T. Frazier filed a pre-trial motion to dismiss the complaint on behalf of Geneva. The lower court agreed the lawsuit had no merit, and dismissed the complaint.

The Fourth Department appeal court affirmed the dismissal. The appeal court found the inverse condemnation claim deficient because it failed to allege the city imposed any direct restraints on plaintiffs’ property. The court found the negligent misrepresentation claim deficient both because it failed to allege a special relationship sufficient to support municipal negligence, and because it was based on predictions which are not actionable. The court found the tortious interference claim deficient because it failed to allege Geneva engaged in any malicious or wrongful conduct directed at plaintiffs’ customers. The appeal court denied plaintiff the opportunity to amend the complaint to correct the deficiencies because deposition testimony and flaws in the proposed amendments established any attempts by plaintiffs to amend the complaint would be futile.

The Fourth Department’s decision in this case reinforces a longstanding principle of eminent domain law: in order to state a cognizable claim for inverse condemnation, a plaintiff must plead the government either physically invaded the plaintiff’s property, or directly restrained plaintiff’s use of its property. A complaint asserting government action directed at neighboring property only indirectly affected the plaintiff’s property is not enough to proceed on an inverse condemnation claim.