Opinion
No. 801 C.D. 2014
04-22-2015
Woodland Terrace Homeowners' Association, Maryann Kurmlavage and Constellar Corp., Appellants v. Philadelphia Board of License and Inspection Review, Trustees of the University of Pennsylvania, O.A.P., Inc., and Azalea Gardens Partners, LP
BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE ROBERT SIMPSON, Judge HONORABLE JAMES GARDNER COLINS, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY JUDGE COHN JUBELIRER
Woodland Terrace Homeowners' Association, Maryann Kurmlavage, and Constellar Corporation (collectively, "Objectors") appeal from an Order of the Court of Common Pleas of Philadelphia County (trial court), which affirmed a decision by the Philadelphia Board of Licensing and Inspection Review (Board). The Board affirmed, by virtue of a tied vote, the Philadelphia Historical Commission's (Historical Commission) decision to grant a financial hardship application (Application) to demolish a building, designated as historic, located at 400 S. 40th Street in West Philadelphia (Property) to Azalea Gardens Partners, LP (Azalea Gardens) and the Trustees of the University of Pennsylvania (University) (together, "Applicants"). On appeal, Objectors argue that (1) the Board erred when it accepted the Historical Commission's interpretation of Applicants' obligation to attempt a sale of the Property in good faith prior to approval of the Application; (2) the Board abused its discretion by accepting the Historical Commission's conclusions in the absence of substantial evidence; and (3) the trial court erred by affirming the Board when Applicants had not shown that an unconstitutional taking would occur should the Application be denied. The University and the City of Philadelphia (City) contend that Objectors lack standing and that judicial estoppel bars the instant appeal. We affirm.
Azalea Gardens are the developers retained by the University to develop the Property should the Application be granted.
The Philadelphia Historic Preservation Ordinance (Ordinance), as set forth in Title 14 of The Philadelphia Code, governed financial hardship applications at the time of this action. Title 14 was repealed and reenacted effective August 22, 2012. Because this action commenced March 7, 2012, the previous version of the Ordinance governs this appeal.
The Board is a nominal appellee and is represented in this appeal by the City; Applicants are Intervening Appellees.
I. BACKGROUND
This case involves Objectors' challenge to the proposed demolition of the Property, which had been designated historic. The trial court discussed the Property's history in detail, which we summarize. The Property was built in the mid-nineteenth century as a private mansion. The once beautiful mansion was transformed into a convalescent nursing home in 1942. (Meeting Minutes of the Historical Commission at 7, May 11, 2012, R.R. 581a.) Since becoming a nursing home, the Property had been significantly "altered and almost entirely encased in a series of unsympathetic concrete block additions." (Meeting Minutes of the Historical Commission at 7, May 11, 2012, R.R. 581a.) The Property was granted historical status in 1973, and has since entered into a state of serious disrepair. (Board Decision, Findings of Fact (FOF) ¶¶ 5, 44.) The nursing home was shut down in September of 2002 and the University purchased the Property in 2003 with the goal of eliminating blight and redeveloping the Property. (FOF ¶ 44.) The Property was not habitable at the time the University purchased it. (FOF ¶ 44.) The previous owner shut the heat off prior to closing, causing the pipes to burst. (FOF ¶ 44.) The ensuing flood completely destroyed the heating and plumbing system. (FOF ¶ 44.) Although the University spent between $25,000 to $35,000 annually to make the Property safe, the Property has remained vacant and in an uninhabitable condition. (Hr'g Tr. at 201-02, December 17, 2012, R.R. at 309a-10a.)
The Historical Commission described the Property as follows:
Thomas and James T. Allen, plasterers, constructed the historic house in the Italianate style in 1853 or 1854 for John P. Levy, a partner in the Neafie & Levy Ship & Engine Building Company. James T. Allen is known to have commissioned famed architect Samuel Sloan to design speculative Italianate and Gothic style houses for the area around 40th (then called Till) and Pine Streets in early 1854. Sloan may have designed this house. David P. Leas, a partner in Leas & McVitty, a leather tannery, substantially altered and expanded the house in the Colonial Revival style in 1902. Architects Keen & Mead probably prepared the plans for the Leas rehabilitation and expansion. The house to the south along 40th Street was demolished about 1907; part of its lot was incorporated into the 400 S. 40th Street lot. Twins were constructed on the remainder along Baltimore Avenue. The Italianate-Colonial Revival house at 400 S. 40th Street was converted into a convalescent home in 1942, but still retained its 1902 appearance. In 1964 and 1975, the house was significantly altered and almost entirely encased in a series of unsympathetic concrete block additions. Although the Historical Commission designated the property on 1 November 1973, it appears that it did not review the 1975 additions and alterations.(Meeting Minutes of the Historical Commission at 7-8, May 11, 2012, R.R. 581a-82a.)
The Board issued two separate sets of findings: one issued by the two members voting to affirm the Historical Commission and one issued by the two members voting against granting the Application. Because a tie results in affirmation, the findings of the two members voting to affirm the Historical Commission will serve as the factual findings of the Board.
After a University Professor by the name of Vladimir Sled was murdered by someone who lived across the street from the Property in 1996, the President of the University told his employees to do all they could "to fix and cure the neighborhood of these issues." (Hr'g Tr. at 198, December 17, 2012, R.R. at 309a.)
The University began to explore potential future uses soon after purchasing the Property. (Hr'g Tr. at 202-03, R.R. at 310a.) Over the next ten years, the University took a variety of steps to find a feasible adapted use of the Property. First, the University hired an architectural firm to evaluate whether the existing structure could be used for either a fraternity/sorority house or market rate apartments. (Hr'g Tr. at 202-04, R.R. at 310a.) Based on the firm's findings, the University determined that conversion of the Property into residential use was not economically feasible. (Hr'g Tr. at 209, R.R. at 311a.) The University also solicited interest from users within the University, such as academic departments or research centers, which resulted in no interest being expressed. (Hr'g Tr. at 209-10, R.R. at 311a-12a.) At the same time, the University's in-house real estate broker employed direct marketing efforts to developers the University worked with in the past. (Hr'g Tr. at 211-12, R.R. at 312a.) From 2003-06 there was no interest in the Property from developers. (FOF ¶ 48.) In fact, the University had to convince developers to look at the Property and some did so only as a favor to the University. (Hr'g. Tr. at 211-13, R.R. at 312a.)
The University changed course in 2006 and began to solicit proposals from developers in connection with a "long-term ground lease" deal. (Hr'g Tr. at 214-15, R.R. at 313a.) This solicitation led to a proposal for an eleven-story hotel, which was subsequently abandoned by the University during the zoning process due to community opposition. (FOF ¶¶ 50-51.) The University once again solicited proposals for a long-term ground lease from nineteen developers in 2010, this time with the added requirement that the Property be redeveloped into graduate student housing. (FOF ¶ 51.) Five proposals were received, three of which proposed demolition of the Property. (FOF ¶ 51.) Of the two proposals that did not require demolition, one required a "significant public subsidy" and the other was a proposal for a "seven-story adaptive re-use scheme." (FOF ¶ 52.) The seven-story project, however, was strongly opposed by the Objectors and a local community organization, Spruce Hill Community Association, and was ultimately abandoned. (FOF ¶¶ 52-53.)
The University explained a ground-lease deal as "conveying all the rights and benefits of ownership to a developer, except for the ground, itself." (Hr'g Tr. at 215, R.R. at 313a.)
After almost ten years of failing to find a feasible adapted use for the Property, the University believed that the only practical solution remaining was demolition of the Property and the subsequent construction of a five-story apartment building. (Hr'g Tr. at 232-33, R.R. at 317a.) On March 7, 2012, Applicants submitted the Application requesting permission to demolish the Property with an accompanying affidavit to the Historical Commission. (FOF ¶ 1.) The Application was referred to the Historical Commission's Committee on Financial Hardship and the Architectural Committee. (FOF ¶¶ 13, 16.) Both committees held open meetings and heard arguments from some of the Objectors. (FOF ¶¶ 14, 16; Meeting Minutes of Architectural Committee of the Historical Commission, April 24, 2012, R.R. at 613a-23a; Meeting Minutes of the Financial Hardship Committee, April 24, 2012, R.R. 624a-45a.) The committees recommended the Application be granted and forwarded the Application to the Historical Commission for its consideration. (FOF ¶¶ 15-17.)
In addition to review by the two committees, the Historical Commission added an additional level of scrutiny in this case by hiring Margaret Sowell, an independent real estate expert. The executive director of a prominent historical preservation group in Philadelphia recommended that the Historical Commission hire Sowell to provide it with advice. (FOF ¶¶ 21-23.) Sowell issued three reports to aid the Historical Commission in its decision. (Reports of Real Estate Strategies, Inc., R.R. at 706a-36a.) The Historical Commission then held a public meeting on the issue on May 11, 2012. After hearing arguments, the Historical Commission voted:
1. to find that the [A]pplicant[s] [have] demonstrated that the sale of the [P]roperty is impracticable, that commercial rental cannot provide a reasonable rate of return, and that other potential uses of the [P]roperty are foreclosed;
2. to find that the building's required retention would result in a financial hardship for the [P]roperty owner; and,(FOF ¶ 6.)
3. to approve the demolition, pursuant to Section 14-2007(7)(j) of the [H]istoric [P]reservation [O]rdinance, provided no demolition is undertaken until all prerequisite approvals for the building permit are obtained and the building permit has been issued for the new construction.
On May 29, 2012, Objectors appealed the Historical Commission's decision to the Board. Objectors Kurmlavage and Constellar Corporation are the owners of properties that abut the subject Property and Objector Woodland Terrace Homeowners' Association is a homeowners' association with members that live in the area adjacent to the Property. (Trial Ct. Op. at 2; Bylaws for the Woodland Terrace Homeowners' Association at § 1, R.R. at 1486a.) On July 16, 2012, the University filed a motion to quash Objectors' appeal due to lack of standing. (University's Motion to Quash, R.R. 1552a.) The Board held ten hearings between July 2012 and February 2013, including three focused exclusively on the issue of standing. (FOF ¶¶ 9, 10.) In support of their Application, Applicants presented the testimonies of (1) Jonathan Farnham, Executive Director of the Historical Commission; (2) Paul Sehnert, Director of Real Estate for the University; (3) James Hoolehan, an expert in construction cost estimating; (4) David Hollenberg, an architect at the University and member of the Historical Commission's Architectural Committee; and (5) Jonathan Weiss, a developer with Azalea Gardens. (FOF ¶¶ 21, 42, 59, 62, 67.) Sowell also testified before the Board as an independent expert for the Historical Commission.
The Board issued its decision on February 26, 2013, where two members voted to affirm the decision and two voted to sustain the appeal. (FOF ¶ 11.) The legal effect of a tie was to deny the appeal and let the Historical Commission's decision stand. See Giant Food Stores, Inc. v. Zoning Hearing Board of Whitehall Township, 501 A.2d 353, 355 (Pa. Cmwlth. 1985) (stating that "a tie vote of an administrative body constitutes a refusal of action requested from it").
The prevailing members of the Board found that all Objectors had standing to bring the appeal. (FOF ¶ 10.) The prevailing members also found that all the testimony and documentary evidence presented by Applicants' witnesses were credible, and adopted the testimony within their findings of fact. (FOF ¶¶ 34, 41, 58, 61, 66, 71, 75.) Thereafter, the Board set forth the following conclusions of law:
1. The only issue before the Board is whether the Historical Commission's decision to approve the demolition of the historic building on the Property based on financial hardship should be affirmed.
2. The Historical Commission has the power and duty to review and act upon all applications for permits to demolish historic buildings. (see Section 14-2007(4)(d) of the Historic Preservation Ordinance) Moreover, no permit shall be issued for the demolition of an historic building unless the Historical Commission finds that the building cannot be used for any purpose for which it is or may be reasonably adapted. (see Section 14-2007(7)(j) of the Historic Preservation Ordinance) In order to show that a building cannot be used for any purpose for which it is or may be reasonably adapted, the owner must demonstrate that the sale of the property is impracticable, that commercial rental cannot provide a reasonable rate of return and that other potential uses of the property are foreclosed. (see Section 14-2007(7)(j) of the Historic Preservation Ordinance)
3. In the instant case, the Applicant[s] [have] the responsibility to submit an affidavit to the Historical Commission which included the information set forth in Section 14-2007(7)(f) of the Historic Preservation Ordinance. The two members of the Board who voted City affirmed find that the Historical Commission properly determined that the Application was complete.(Board Decision, Conclusions of Law (COL) ¶¶ 1-9.)
4. The two members of the Board who voted City affirmed recognize that the Historical Commission is a body comprised of experts in the field of historic preservation and other officials and that it regularly interprets the Historic Preservation Ordinance and its Rules and Regulations.
5. The two members of the Board who voted City affirmed conclude that the Historical Commission made a reasonable and informed judgment in approving the Application because there was sufficient testimony and documentation to support the Applicant[s'] claim of financial hardship.
6. The two members of the Board who voted City affirmed conclude that in approving the Application the Historical Commission properly considered, interpreted and applied the provisions of the Historic Preservation Ordinance and its own Rules and Regulations.
7. The two members of the Board who voted City affirmed have considered all testimony and the entire record. Based on this evidence and upon giving due discretion and deference to the decision of the Historical Commission, the two members of the Board voted to affirm the Historical Commission's approval of the Application. Additionally, the two members of the Board who voted City affirmed conclude that the record before it contains substantial evidence to affirm the decision of the Historical Commission.
8. The two members of the Board who voted City affirmed conclude that the Historical Commission's decision to approve the Application to demolish the historic building on the Property was not plainly erroneous and was consistent with the Historic Preservation Ordinance and its own Rules and Regulations.
9. The City should be affirmed.
The two members of the Board who voted to sustain the appeal disagreed with the Board's conclusion that Applicants satisfied the Historical Commission's Rules and Regulations. (Conclusions of Law of the Two Board Members Who Voted Appeal Sustained ¶¶ 16-20.) Specifically, the two members who voted to sustain the appeal concluded that, because Applicants admitted that the Property was never listed for sale, Applicants did not make a good faith effort to sell the Property and the Historical Commission's decision to permit the demolition for financial hardship is inconsistent with the Historical Commission's regulations. (Conclusions of Law of the Two Board Members Who Voted Appeal Sustained ¶ 17.) The two members who voted to sustain the appeal also concluded that the Historical Commission's conclusions were not supported by substantial evidence. (Conclusions of Law of the Two Board Members Who Voted Appeal Sustained ¶ 20.)
Objectors appealed the Board's decision to the trial court on March 21, 2013. (Trial Ct. Op. at 13.) On March 29, 2013, Applicants filed a praecipe to intervene and oral argument was held on April 8, 2014, though no new evidence was presented. (Trial Ct. Op. at 13.) The trial court affirmed the Board's decision by Order of April 9, 2014. This appeal followed.
When reviewing an appeal from a trial court order affirming or denying a decision of the Board, and where the trial court takes no new evidence, this [c]ourt must affirm the Board's decision unless the decision violated the appellant's constitutional rights, the decision was not in accordance with law, the proceedings before the Board violated the practices and procedures of local agencies, or any necessary findings of fact made by the Board [were] not supported by substantial evidence.
II. DISCUSSION
By raising issues of standing and judicial estoppel, Applicants and the City raise two threshold questions which shall be addressed prior to reaching the merits of Objectors' appeal.
The trial court's decisions on standing and judicial estoppel are questions of law and reviewed by the Court under a plenary standard. Hoffman Mining Company, Inc. v. Zoning Hearing Board of Adams Township, 958 A.2d 602, 608 (Pa. Cmwlth. 2008).
A. Standing
Applicants and the City contend that none of the Objectors have standing because demolition of the Property, which is vacant and in a state of serious disrepair, will not cause them harm. They contend that the harm that any Objectors would face is no greater than that of any member of the general public.
"The core concept" of standing is that a person or entity that "is not adversely affected in any way by the matter he seeks to challenge is not 'aggrieved' thereby and has no standing to obtain a judicial resolution of his challenge." William Penn Parking Garage, Inc. v. City of Pittsburgh, 346 A.2d 269, 280 (Pa. 1975). Because this case comes from Philadelphia, the standing provisions contained in Section 17.1 of the First Class City Home Rule Act (Home Rule Act) apply. The Supreme Court, in Spahn v. Zoning Board of Adjustment, 977 A.2d 1132 (Pa. 2009), interpreted Section 17.1 of the Home Rule Act as providing standing in challenges to decisions of "board[s] or commission[s] created to regulate development within the city" to "two classes of persons and entities - the governing body and 'any aggrieved person.'" Id. at 1149. An aggrieved person under the Home Rule Act means a person who "has a substantial, direct and immediate interest in the claim sought to be litigated." Id. (citing William Penn, 346 A.2d at 280).
Act of April 21, 1949, P.L. 665, as amended, added by Section 2 of the Act of November 30, 2004, P.L. 1523, 53 P.S. § 13131.1. Section 17.1 provides:
In addition to any aggrieved person, the governing body vested with legislative powers under any charter adopted pursuant to this act shall have standing to appeal any decision of a zoning hearing board or other board or commission created to regulate development within the city. As used in this section, the term "aggrieved person" does not include taxpayers of the city that are not detrimentally harmed by the decision of the zoning hearing board or other board or commission created to regulate development.
It is long established that a property owner need not establish pecuniary or financial loss if he owns property abutting the property at issue in a zoning case. Aquaro v. Zoning Board of Adjustment of the City of Philadelphia, 673 A.2d 1055, 1059 (Pa. Cmwlth. 1996); see also Society Created to Reduce Urban Blight (SCRUB) v. Zoning Hearing Board of Adjustment of the City of Philadelphia, 951 A.2d 398, 404 (Pa. Cmwlth. 2008) (stating "[i]t is well-established that an adjoining property owner, who testifies in opposition to a zoning application before the zoning board, has sufficient interest in the adjudication to have standing to appeal the board's decision to the trial court"). Objector Kurmlavage owns 4003 Baltimore Avenue and Objector Constellar Corporation owns 4001 Baltimore Avenue, both of which abut the Property. (Hr'g Tr. at 66-67, August 7, 2012, R.R. at 40a-41a; Hr'g Tr. at 4-5, September 18, 2012, R.R. at 75a.) Because both Kurmlavage and Constellar Corporation own property that abuts the Property, it is presumed that a decision related to the Property will have an impact on both property owners and, as such, they have standing to bring this appeal.
Because we find that Constellar Corporation and Kurmlavage have standing, we need not assess whether Woodland Terrace Homeowners' Association has standing.
B. Judicial Estoppel
Applicants' estoppel argument is rooted in a 2009 hearing before the City's Zoning Board of Adjustment (ZBA) addressing the University's abandoned attempt to construct an eleven-story hotel on the Property. The issue at the 2009 ZBA hearing was whether the University's request for rescission of the Property's historical designation should be granted. (ZBA Hr'g Tr. at 10, February 19, 2009, R.R. at 1568a.) Objectors' expert at the ZBA hearing opined that rescission was not appropriate because the University failed to meet the applicable test. (ZBA Hr'g Tr. at 13, R.R. at 1568a.) Specifically, the expert stated, in response to a question on cross examination, that the University should have submitted a financial hardship application to demolish the Property, and that in his opinion such an application would be granted. (ZBA Hr'g Tr. at 13, R.R. at 1568a.) Because Applicants now bring a financial hardship application as recommended by Objectors' expert, Applicants argue that Objectors should be judicially estopped from opposing the Application.
"[T]he purpose of the doctrine of judicial estoppel is to uphold the integrity of the courts by preventing parties from abusing the judicial process by changing positions as the moment requires." Gross v. City of Pittsburgh, 686 A.2d 864, 867 (Pa. Cmwlth. 1996). As a general rule, a party may be judicially estopped when (1) the party asserts a position inconsistent with his or her assertion in a previous action; and (2) his or her contention in the previous action was "successfully maintained." Trowbridge v. The Scranton Artificial Limb Company, 747 A.2d 862, 864 (Pa. 2000).
Applicants argue that Objectors prevailed in the previous litigation even though the University abandoned the project prior to the ZBA deciding the matter. Applicants contend that the requirement that a contention be successfully maintained does not mean Objectors won their previous case. All that is required, Applicants argue, is that Objectors received the remedy sought and reaped the benefit of the proceeding.
We conclude that Objectors are not judicially estopped from bringing this appeal. The University abandoned the proposal in 2009 prior to Objectors' contention being "successfully maintained." (FOF ¶ 51); See Associated Hospital Service of Philadelphia v. Pustilnik, 439 A.2d 1149, 1151 (Pa. 1981) (concluding that appellant did not "successfully maintain" his claim because there was a settlement prior to adjudication). Applicants cite a footnote to In re Adoption of S.A.J., 838 A.2d 616, 620 n.3 (Pa. 2003), to argue the "successfully maintained" requirement is not strictly necessary. In that footnote, the Supreme Court stated:
Whether successful maintenance of the prior inconsistent position of litigant is strictly necessary to implicate judicial estoppel in every case, or whether success should instead be treated as a factor favoring the doctrine's application, is the subject of some uncertainty . . . While some prior decisions of this Court appear to indicate that it is always a requirement, see, e.g., Associated Hosp. Svc. of Phila. v. Pustilnik, . . . 439 A.2d 1149, 1151 ([Pa.] 1981) ("[A]s a general proposition, a party to an action is estopped from assuming a position inconsistent with his assertion in a previous action, if his contention was successfully maintained." (internal quotation marks omitted)), others seem to suggest that a broader application of the doctrine may be appropriate. See, e.g., Sunbeam Corp. v. Liberty Mut. Ins. Co., . . . 781 A.2d 1189, 1192 ([Pa.] 2001) (noting that regulatory estoppel (a form of judicial estoppel) was applicable whether or not the Pennsylvania Insurance Department relied upon the insurance company's prior inconsistent position); In re Pivirotto's Estate, . . . 97 A. 80 ([Pa.] 1916) (applying judicial estoppel to the wife of a decedent because she helped her children contest her husband's will, although the will was never avoided). Because we ultimately conclude, infra, that Appellant prevailed in the earlier proceedings, we need not definitively resolve this question here.Id. at 620 n.3.
Notwithstanding the uncertainty caused by the Supreme Court's decision to not resolve the issue in In re Adoption of S.A.J., we are bound to follow precedent and not apply judicial estoppel when a party unilaterally abandoned its previous effort. Associated Hospital Service, 439 A.2d at 1151. Even if "successfully maintain" is only a factor, the fact that the University unilaterally abandoned the project is significant. Accordingly, Objectors are not judicially estopped from bringing this appeal.
Having addressed Applicants' standing and judicial estoppel arguments, we now turn to the merits of Objectors' appeal.
C. The Financial Hardship Application
The Application was based on a claim of financial hardship; thus, Section 2007(j) of Philadelphia's Historic Preservation Ordinance (Ordinance), § 14-2007(7)(j), applied. At the time this controversy arose Section 14-2007(7)(j) stated:
No permit shall be issued for the demolition of an historic building, structure, site or object, or of a building, structure, site or object located within an historic district which contributes, in the [Historical] Commission's opinion, to the character of the district, unless the [Historical] Commission finds that issuance of the permit is necessary in the public interest, or unless the [Historical] Commission finds that the building, structure, site or object cannot be used for any purpose for which it is or may be reasonably adapted. In order to show that [the] building, structure, site or object cannot be used for any purpose for which it is or may be reasonably adapted, the owner must demonstrate that the sale of the property is impracticable, that commercial rental cannot provide a reasonable rate of return and that other potential uses of the property are foreclosed.(Ordinance § 14-2007(7)(j), R.R. 507a (emphasis added).) The Historical Commission's regulations implementing the Ordinance then in effect explained:
To substantiate a claim of financial hardship to justify a demolition, the applicant must demonstrate that the sale of the property is impracticable, that commercial rental cannot provide a reasonable rate of return, and that other potential uses of the property are foreclosed. The applicant has an affirmative obligation in good faith to attempt the sale of the property, to seek tenants for it, and to explore potential reuses for it.(Historical Commission Rules & Regulations § 9.4, R.R. at 561a-62a (emphasis added).) The Historical Commission's regulations provided flexibility to non-profit entities, such as the University, recognizing
that the provisions of Section 14-2007 of the [Ordinance] and other sections of these Rules & Regulations may not all have applicability to a property owned and used by a non-profit organization. No single set of measures can encompass the highly variegated types and contexts of buildings held by non-profit organizations. The economics of a building in the middle of a college campus may differ from that of a church, hospital, museum, or child care center.(Historical Commission Rules & Regulations § 10.1, R.R. 565a.)
Section 14-2007(7)(j) was repealed and reenacted after the initiation of this action as Section 14-1005(6)(d). The two provisions are nearly identical. Section 14-1005(6)(d) provides:
No building permit shall be issued for the demolition of a historic building, structure, site, or object, or of a building, structure, site, or object located within a historic district that contributes, in the Historical Commission's opinion, to the character of the district, unless the Historical Commission finds that issuance of the building permit is necessary in the public interest, or unless the Historical Commission finds that the building, structure, site, or object cannot be used for any purpose for which it is or may be reasonably adapted. In order to show that [the] building, structure, site, or object cannot be used for any purpose for which it is or may be reasonably adapted, the owner must demonstrate that the sale of the property is impracticable, that commercial rental cannot provide a reasonable rate of return, and that other potential uses of the property are foreclosed.
Objectors contend that the Board did not require Applicants to meet their good faith obligation to attempt a sale of the Property as required by Section 9.4 of the Historical Commission's regulations. Applicants and the City argue that the Historical Commission reasonably interpreted and applied its regulation as being satisfied, under these facts, because the Property was exposed to the real estate market in good faith for over a decade through a variety of means, including, most recently, soliciting a long-term ground lessee.
In Turchi v. Philadelphia Board of License and Inspection Review, 20 A.3d 586 (Pa. Cmwlth. 2011), we held that "the Historical Commission's reasonable interpretations of the . . . Ordinance are entitled to deference and that these interpretations 'become[ ] of controlling weight unless [they are] plainly erroneous or inconsistent' with the . . . Ordinance.'" Id. at 594 (quoting Department of Public Welfare v. Forbes Health System, 422 A.2d 480, 482 (Pa. 1980)). Although the Board may disagree with the Historical Commission's understanding of the Ordinance and the associated regulations, the Historical Commission's interpretations should not be disturbed in the absence of plain error. Id.
The Minutes of the Historical Commission's May 11, 2012 meeting show that the interpretation and application of its regulations in Section 9.4 were considered by the Historical Commission. (Meeting Minutes of Historical Commission at 27, May 11, 2012, R.R. at 601a.) The Historical Commission was presented with evidence of the University's marketing efforts for over ten years, including its direct outreach to the real estate development market, its efforts to find adaptive reuses for the Property, and its financial analysis. Objectors' counsel argued that an attempt to secure a ground lease was insufficient to satisfy Section 9.4 of the Historical Commission's regulations. (Meeting Minutes of Historical Commission at 26-28, May 11, 2012, R.R. at 600a-02a.) After the Historical Commission heard an exchange between Objectors' counsel and its Executive Director, Dr. Farnham, on the issue of whether Applicants demonstrated that the sale was impracticable, the Historical Commission, by a vote of seven to two, found "that the applicant has demonstrated that the sale of the property is impracticable." (Meeting Minutes of the Historical Commission at 27-29, May 11, 2012, R.R. at 601a-03a.)
We agree that the regulation does not require the Property to be listed for sale with a third party broker if the facts establish that such a listing would be futile. The Historical Commission concluded that the good faith attempt to sell requirement was satisfied by the efforts made by Applicants in this case. Cognizant of both the deference we give to the Historical Commission's interpretations of its regulations and the liberal standards applied to non-profits in Section 10.1 of the Historical Commission's regulations, we agree that the Historical Commission's application and interpretation of the Ordinance and its regulations based on its knowledge and experience was not erroneous. Accordingly, the Board did not commit an error of law by accepting the Historical Commission's interpretation.
We note that Dr. Farnham testified regarding a prior Historical Commission decision where Section 9.4 was also interpreted not to require an applicant to actually list a property for sale where it would be futile and a financial hardship application was granted. (Hr'g Tr. at 36-37, December 17, 2012, R.R. at 268a.)
Objectors next contend that, even if the Historical Commission's interpretation of Section 10.1 of its regulations is correct, the Board abused its discretion because the evidence shows that the University failed to demonstrate that the Property could not be used for any purpose for which it is or may be reasonably adapted. To this end, Objectors first argue that the evidence shows that the University only pursued options it favored and chose to not pursue all alternatives. The focus, Objectors argue, should be on whether any owner could use the Property in a profitable manner, and not whether the potential reuse fits within the University's vision for the Property.
A local agency abuses its discretion "only if its findings are not supported by substantial evidence." Valley View Civic Association v. Zoning Board of Adjustment, 462 A.2d 637, 640 (Pa. 1983). Substantial evidence is "such relevant evidence of record which a reasonable person might accept as adequate to support a conclusion." Mulberry Market, Inc. v. City of Philadelphia, Board of License & Inspection Review, 735 A.2d 761, 767 (Pa. Cmwlth. 1999).
It is true that the University only solicited proposals from developers it knew so that any development would align with the University's interests. (Hr'g Tr. at 97, January 15, 2013, R.R. at 396a.) However, the Board heard this argument and concluded, based on the evidence presented, that any prospective buyer would be faced with the same situation as the University. (FOF ¶¶ 54-56.) The Property was in a state of serious disrepair and salvaging the entity was cost prohibitive. (Hr'g Tr. at 16-20, R.R. at 375a-76a.) Although it is conceivable that a buyer willing to spend unlimited funds could adapt or reuse the Property, the regulations only require owners of historic properties to do what is reasonable. See Ordinance § 14-2007(7)(j) (providing, "[n]o permit shall be issued for the demolition of an historic building, structure, site or object, or of a building, structure, site or object located within an historic district . . . unless the [Historical] Commission finds that the building, structure, site or object cannot be used for any purpose for which it is or may be reasonably adapted") (emphasis added).
Substantial evidence also supports the Board's finding that alternative uses for the Property were foreclosed. Sowell, the independent expert hired by the Historical Commission, testified that "there is not a scenario that . . . yields an adequate financial return on investment to make a prudent investment out of the [P]roperty and save the mansion." (Hr'g Tr. at 134, December 17, 2012, R.R. at 293a.) According to Sowell's report to the Historical Commission, the University could expect a return on its investment of (1) .91 percent if the Property was converted into apartments, (Addendum to Report of Real Estate Strategies, Inc. at Attachment A, R.R. at 734a); (2) 1.9 percent if ground leased at the level of $20,000 per year, (Addendum to Report of Real Estate Strategies, Inc. at Attachment B, R.R. at 735a); and (3) 2.83 percent if converted and rented as a commercial office, (Addendum to Report of Real Estate Strategies, Inc. at Attachment C, R.R. at 736a). The Board also relied on the testimony of Sehnert, the University's real estate expert, wherein he opined that a seven percent cap rate and an eleven percent cash on cash return represented the lowest rates of return a third party developer would expect from this Property. (Hr'g Tr. at 207, R.R. at 311a.) The testimonies of Sehnert and Sowell were corroborated by Hoolehan, testifying as Applicants' construction cost expert. Hoolehan opined that the lowest possible price for responsible historic rehabilitation is $200 per square foot and that this project would be a "total gut job" and cost $207 per square foot. (Hr'g Tr. at 14-15, 17, 20, January 15, 2013, R.R. at 375a-76a.) With regard to the University's marketing efforts, the Board relied on testimony from Sehnert concerning (1) the lack of interest from University departments to use the Property, (Hr'g Tr. at 209-10, R.R. at 311a-12a); (2) the proposals received between 2003 and 2006 and his opinion that the only response that was feasible was opposed by community members, (Hr'g Tr. at 218-23, R.R. at 312a-15a); and (3) the University's failed efforts in 2010 to find a developer, soliciting proposals for a long-term ground lease, (Hr'g Tr. at 223-33, R.R. at 315a-17a).
Objectors next argue that the Property was not sufficiently marketed to warrant a finding that Applicants made a good faith attempt to sell the Property. Objectors point to the fact that the 2006 solicitation was only a half-page long and was not posted publicly or marketed widely. Objectors also note that the 2010 solicitation for a ground lease had a response time of only two weeks.
We conclude that substantial evidence supports the finding that the Property was marketed in good faith. Of particular relevance are the testimonies of Sehnert and Hollenberg explaining how the Property was marketed since 2003, and the placement of the 2010 solicitation into evidence. (FOF ¶¶ 48-51; 2010 Statement of Interest, R.R. at 810a-17a.) These testimonies show that Applicants conducted extensive marketing and did not arrive at the decision to apply for the demolition permit lightly. Hollenberg testified that, when he first became involved with the Property in 2006, he was eager to save the Property and have it adaptively reused. (Hr'g Tr. at 76, 80, January 15, 2013, R.R. at 390a-91a.) Hollenberg stated that he has taught a graduate program on historic preservation for the University for 24 years and approached the demolition with "great sadness and gravity." (Hr'g. Tr. at 74-76, 79; R.R. at 390a-91a.) Likewise, Sehnert's testimony supports a finding that the Property was marketed in good faith. According to Sehnert:
Between the time of 2003 and 2006 we were continuously marketing this project to developers and partners of ours . . . There was more or less a continuous marketing, but we had two bands of process, between 2003 and 2006, and then subsequently, in 2010. And each of these was a solicitation and a reach out to developers to say: Here's the [P]roperty. Tell us what you would do with it. And we didn't impose any restrictions on it, whatsoever, other than to say: You tell us what makes sense to do here.(Hr'g Tr. at 211, December 17, 2012, R.R. at 312a.) The University's marketing efforts resulted in multiple concrete proposals. (Hr'g Tr. at 137-41, August 7, 2012, R.R. at 58a-59a.) Notwithstanding the fact that all proposals except the proposal currently under review proved to be infeasible, the Board's finding that the Property was marketed in good faith was supported by substantial evidence.
Accordingly, the Board did not abuse its discretion in upholding the Historical Commission's approval of the permit because the record contains evidence that is sufficient to convince a reasonable person that the Property "cannot be used for any purpose for which it is or may be reasonably adapted." (Historical Commission Rules & Regulations § 9.4, R.R. at 561a-62a.)
In Turchi, this Court stated that "the Board's duty was to 'determine if the [Historical Commission's] actions can be sustained or supported by evidence taken by' the Board." Turchi, 20 A.3d at 595 (quoting Department of Environmental Protection v. North American Refractories Co., 791 A.2d 461, 466 (Pa. Cmwlth. 2002)).
D. Takings Clause
As a final matter, Objectors argue that the trial court erred by affirming the Board's decision when Applicants failed to demonstrate that failure to grant the Application would amount to an unlawful taking without compensation. Objectors argue that because the requirements of the Ordinance were derived from takings law, a property owner seeking approval to demolish a historically preserved property cannot, as a matter of law, claim financial hardship unless the applicant first establishes that failing to grant the application would amount to an unconstitutional taking without compensation. We disagree.
Both the constitutions of this Commonwealth and of the United States protect citizens from deprivations of property without just compensation. Pa. Const. art. I, § 10; U.S. Const. amend. V, XIV. Pennsylvania courts construe the texts of the two provisions as essentially identical and have "continually turned to federal precedent for guidance in its 'taking' jurisprudence." United Artists' Theater Circuit, Inc. v. City of Philadelphia, 635 A.2d 612, 616 (Pa. 1993). --------
The United States Supreme Court, in Penn Central Transportation Company v. City of New York, 438 U.S. 104 (1978), affirmed the rights of cities to enact reasonable land-use restrictions "to enhance the quality of life by preserving the character and desirable aesthetic features of a city." Id. at 129. In determining the reasonableness of the restrictions, courts look at the economic impact of the regulation, the character of the government action, and the interests that would be promoted by the regulation. Id. at 124-25. When the interference is of great magnitude, "'there must be an exercise of eminent domain and compensation to sustain [it].'" Id. at 136 (quoting Pennsylvania Coal Company v. Mahon, 260 U.S. 393, 413 (1922)).
The Pennsylvania Supreme Court and this Court have applied the above takings analysis to multiple situations involving the demolition of properties protected by historic preservation regulations. See, e.g., City of Pittsburgh v. Weinberg, 676 A.2d 207, 211 (Pa. 1996); Park Home v. City of Williamsport, 680 A.2d 835, 837 (Pa. 1996); United Artists' Theater Circuit, Inc. v. City of Philadelphia, 635 A.2d 612, 620 (Pa. 1993); First Presbyterian Church of York v. City Council of the City of York, 360 A.2d 257, 261 (Pa. Cmwlth. 1976). In fact, the requirements of Section 14-2007(7)(j) of the Ordinance mirrors the requirements for establishing an unconstitutional taking established by this Court in First Presbyterian Church of York. In that case, we adopted the Fifth Circuit Court of Appeals approach of finding an unconstitutional taking in the context of a historic preservation ordinance upon a showing "'that the sale of the property was impracticable, that commercial rental could not provide a reasonable rate of return, or that other potential use of the property was foreclosed.'" First Presbyterian Church of York, 360 A.2d at 261 (quoting Maher v. City of New Orleans, 516 F.2d 1051, 1066 (5th Cir. 1975)).
Although Objectors are correct that takings jurisprudence can be implicated in cases addressing Section 14-2007(7) of the Ordinance, Objectors are incorrect that a finding of a constitutional violation is a condition precedent to awarding a financial hardship application. Objectors conflate the question of whether the decision to not allow demolition of an historic property is a taking with the question of what an owner of an historic property must demonstrate as a prerequisite to receiving a demolition permit. These are two distinct questions. Even if Section 14-2007(7) of the Ordinance was developed to prevent unlawful takings, it does not follow that financial hardship applications must be denied unless denying the application would amount to an unlawful taking. Our review of the relevant case law demonstrates that unconstitutional taking arguments in this context are properly employed by property owners, such as Applicants, seeking to demolish an historic property after a local agency denied the relief sought. See Park Home, 680 A.2d at 836 (rejecting a property owner's argument that an unconstitutional taking occurred after being denied a permit to demolish its property); City of Pittsburgh, 676 A.2d at 212 (rejecting property owners' challenge to the Pittsburgh Historic Review Commission's decision to deny a demolition permit because the property owners did not meet their burden of proving that it was impracticable or impossible to sell their property); First Presbyterian Church of York, 360 A.2d at 261 (holding that the taking clause was not violated by the City's decision to not award a demolition permit because the property owner did not establish that the property could not be reasonably adapted). Here, Applicants do not argue that an unconstitutional taking has occurred; they simply contend that the requirements necessary to have their financial hardship Application granted are met. Because Applicants do not argue that their property was unlawfully taken, we need not address Objectors' takings argument any further.
For the foregoing reasons, the trial court's Order is affirmed.
/s/ _________
RENÉE COHN JUBELIRER, Judge Judge Leadbetter did not participate in the decision in this case. ORDER
NOW, April 22, 2015, the Order of the Court of Common Pleas of Philadelphia County, entered in the above-captioned matter, is AFFIRMED.
/s/ _________
RENÉE COHN JUBELIRER, Judge
Siloam v. City of Philadelphia, Board of License and Inspection Review, 79 A.3d 1257, 1260 n.3 (Pa. Cmwlth. 2013) (internal quotations omitted). We have construed the requirement that the agency decision be "in accordance with law" to mean that an "agency's decision must not represent a manifest and flagrant abuse of discretion or a purely arbitrary execution of its duties or functions as set forth in the case law prior to the enactment of the Administrative Agency Law [2 Pa. C.S. §§ 501-508, 701-704]." Leckey v. Lower Southampton Township Zoning Hearing Board, 864 A.2d 593, 596 (Pa. Cmwlth. 2004); see also, Slawek v. State Board of Medical Education and Licensure, 586 A.2d 362, 365 n.4 (Pa. 1991) (stating that an agency's decision is not in accordance with the law if "the agency decision represents a manifest and flagrant abuse of discretion or a purely arbitrary execution of the agency's duties or functions" (internal quotations omitted)). Although our review of all questions of law is plenary, the interpretations of statutory language by the administrative agency charged with the law's implementation are given great deference. Smith v. Zoning Hearing Board of Huntingdon Borough, 734 A.2d 55, 57 (Pa. Cmwlth. 1999).