The bankruptcy lottery: Part 1, An illegal exaction

July 7, 2015 | AIG, Bailouts, Bankruptcy, Chapter 11, Credit default swap, Federal Reserve, Geithner, Illegal extractions, Insurance, Law, Lehman Weekend, Speculation, Takings clause, TARP, US News | No comments 24 views

greeks_celebrate_no

We won … or did we?

Pre-post update: Greece referendum

As I wrote this over the weekend, the Greeks were emphatically voting No to the ECB’s ‘last best’ financial extension offer, plunging the EU into its own new ‘Lehman Redux Week.’  Though the Greek drama will consume the financial markets this week, events will happen at a crazy pace, no one will really know anything, and armchair speculation will be worse than informed speculation.  So I’ll wait before posting until something emerges that approximates a direction. 

Then I’ll claim I knew it all along.

greece_votes_no

By: David A. Smith

The morning of September 15 was clear and sunny, with the fresh warmth of a full-summer day; the flowers were blossoming profusely and the grass was richly green.

– Shirley Jackson, The Lottery

In the New York Times (June 16, 2015) reporting that I’ll use as source material for this post about AIG, author Andrew Ross Sorkin of the New York Times, though deeply familiar with the cut-and-thrust of the 2008 financial crisis, nevertheless gets the wrong end of the stick:

For years, critics of the bailouts during the financial crisis argued that the rescue efforts weren’t harsh enough.  The chief executives of failing institutions should have lost their jobs. Shareholders should have suffered more pain. Taxpayers should have received substantial compensation for the risk they took.

That is curious if revealing opener for what should be a news story:

In a stunning ruling, Judge Thomas C. Wheeler of the United States Court of Federal Claims [The only court where a private entity can sue the Federal government – Ed.] said on Monday that those terms were too “draconian.” In other words, he suggested taxpayers the Department of Justice should have offered AIG a more generous non-punitive deal.  [Inaccurate editorializing struck through and accurate words substituted. – Ed.]

greenberg_testifying

Do I look like a villain?

Seeing AIG as a villain of the piece, author Sorkin fails to recognize that the government must turn square corners even with alleged villains:

shirley_jackson

“I have always loved to use fear, to take it and comprehend it and make it work and consolidate a situation where I was afraid and take it whole and work from there.” – Shirley Jackson

In so doing, he misses what’s really important about the AIG case:

michoacan_vigilantes

We represent justice around these parts

The big public-policy questions at stake in AIG

1. Fiduciary duty.  When a government wields power against a private entity, does it have a fiduciary duty to that entity?

2. Vigilante financing.  If a government financial entity thinks a private entity is ‘guilty but essential,’ is it justified in financially punishing the entity that it reluctantly saves?

3. “The lottery”.  Can a moral government consciously sacrifice one private entity to protect the larger financial ecosystem?

I believe these issues were unquestionably in the back-of-mind thinking of Messrs. Geithner, Bernanke, and Paulson on Lehman Weekend, and that how they were answered lies at the heart of Maurice Greenberg’s fury at the government, and why he will never settle the case, but will litigate it to the Supreme Court.

Much better exposition is found, as seems usual when it comes to complicated recapitalization cases, in the U. S. Court of Federal Claims opinion, and in this case the executive summary suffices:

judge_thomas_c_wheeler

Writing more clearly than the New York Times: Thomas C. Wheeler

On the weekend of September 13-14, 2008, known in the financial world as “Lehman Weekend” because of the impending failure of Lehman Brothers, US Government officials feared that the nation’s and the world’s economies were on the brink of a monumental collapse even larger than the Great Depression of the 1930s.

Lehman Weekend, as I will call it, was a global catastrophe narrowly averted, and though the passage of seven years dims many a memory, for some of us the events are still clear. 

matrix_agent

That was close

Bobby Martin had already stuffed his pockets full of stones, and the other boys soon followed his example, selecting the smoothest and roundest stones.

– Shirley Jackson, The Lottery

Recalling them scares me all over again – and reminds me that, in times of great duress, people take actions they ordinarily would not, in the name of expediency.

The main issues in the case are:

1. Exceeding legal authority?  Whether the Federal Reserve Bank of New York possessed the legal authority to acquire a borrower’s equity when making a loan under Section 13(3) of the Federal Reserve Act, 12 USC. § 343 (2006); and

2. Uncompensated taking?  Whether there could legally be a taking without just compensation of AIG’s equity under the Fifth Amendment where AIG’s Board of Directors voted on September 16, 2008 to accept the Government’s proposed terms.

It is entirely possible that the government’s actions both worked (in large) and were illegal/ immoral (in small) because they were overkill.

overkill_dude

Seriously, dude

If Starr prevails on either or both of these questions of liability, then:

3. Damages from government action.  The Court must also determine what damages should be awarded to the plaintiff shareholders.

Other subsidiary issues exist in varying degrees of importance, but the issues stated above are the focus of the case.

[As I’ll be extensively referencing those three issues (legal authority, uncompensated taking, and damages), I’ve added some formatting to the above paragraph. – Ed.]

Sources used in or relevant to this post

AHI blog post: Anatomy of a Coup (April 28, 2008; mumble font)

Insurance Journal (October 19, 2014; sepia font)

The New York Times (June 16, 2015)

Starr International v. United States (June 15, 2015; pdf; blue font)

As I’ve previously documented, during TARP the government did in fact recapitalize – in some cases, forcibly recapitalize – many of America’s major commercial banks (and even, under coercion, some of its investment banks like Godman Sachs), and on terms considerably less draconian than those it crammed on AIG. 

All that [Shareholder pain, government profit for risk taken] did come to pass in one case –

Actually, the government made money across the board in TARP; as I recall, the only entity where the government hasn’t made money was its politically motivated bailout of GM.

ford_tough

Tough luck, Ford

– the bailout of the American International Group, the large insurer and symbol of the crisis.

aig_logo

Symbol?  I would have said the crisis symbol was Fannie Mae, the biggest and baddest bailout of them all.

frank_raines

Don’t I look trustworthy?

Yet on Monday, a judge in Washington decided that the government’s actions were too severe, and the rescue was illegal.

That too is inaccurate; Judge Wheeler ruled illegal not the fact of the recapitalization, but unilaterally imposed terms – but I’ll let the judge frame it for himself:

Plaintiff Starr International Company, Inc. (“Starr”) challenges the Government’s financial rescue and takeover of American International Group, Inc. (“AIG”) that began on September 16, 2008. Before the takeover, Starr was one of the largest shareholders of AIG common stock. Starr alleges in its own right and on behalf of other AIG shareholders that the Government’s actions in acquiring control of AIG:

Constituted (x) a taking without just compensation and (y) an illegal exaction.

Both in violation of the Fifth Amendment to the US Constitution.

In plain language, the plaintiff (Starr), as principal shareholder of AIG, asserted that stole AIG’s economic value by dictating the terms of new capital, with many provisions much more severe than imposed on any other TARP recipient (to say nothing of the sweetheart giveaway the Administration delivered to the union pension beneficiaries in GM):

Under the current plan [May 27, 2009] GM’s union retirees will receive 39% of the restructured company and $10 billion in cash in exchange for $20 billion in claims. Bondholders, however, receive a mere 10% for $27 billion in claims in the form of stock (and no cash).

Further, AIG’s principal shareholder quantified its damages:

The controlling shareholder of Starr is Maurice R. Greenberg, formerly AIG’s Chief Executive Officer until 2005, and one of the key architects of AIG’s international insurance business.  Starr claims damages in excess of $40 billion.

Though forty billion is enough to say grace over, it’s not even the most important thing about AIG:

grace_1918

For these damages we are about to recover

The judge’s decision could have far-reaching consequences should another financial crisis occur — and if history is any guide, one will.  

And that, though Mr. Sorkin may not have recognized it, is precisely why the Lottery questions – fiduciary duty, vigilante financing, and high ecosystemic purpose – must be properly answered.

Soon the men began to gather, surveying their own children, speaking of planting and rain, tractors and taxes. They stood together, away from the pile of stones in the corner, and their jokes were quiet and they smiled rather than laughed.

– Shirley Jackson, The Lottery

That’s why this Court of Claims ruling, and the eventual Supreme Court appeal that will surely follow (probably not from the government, but from AIG) will likewise be so important.  One must treat fairly with the devil, as James Blish wrote in The Triumph of Time, there is no good alternative.

Pre-post update addendum: Greece referendum

Mr. Tsipras is an elected leader; those with whom he and his government are negotiating are not; they are technocratic servants of elected leaders (e.g. Chancellor Merkel).  His referendum call has given him a political trump card which he will flourish and play at every opportunity. 

And he’s shown he’s canny; forcing out incendiary finance minister Yanos Varoufakis is a simple sop to the creditors, akin to compelling a change of CFO; it makes no difference in the overall negotiations and lets whoever comes in now say the same things, without the interpersonal baggage.

[Continued tomorrow in Part 2.]

We will fight them on the beaches: Part 5, I have had a wonderful sail

July 6, 2015 | Accessibility, Beaches, Easement, East Hampton, Eminent domain, Homeowners associations, Homeownership, Private property, Public property, State law, Title, Title registry, Tragedy of the commons | No comments 103 views

[Continued from yesterday’s Part 4 and the preceding Part 1, Part 2, and Part 3.]

Pre-post update: Greece referendum

Over the weekend, the Greeks emphatically voted No to the ECB’s ‘last best’ financial extension offer, plunging the EU into its own new ‘Lehman Redux Week.’  Though the Greek drama will consume the financial markets this week, events will happen at a crazy pace, no one will really know anything, and armchair speculation will be worse than informed speculation.  So I’ll wait before posting until something emerges that approximates a direction. 

Then I’ll claim I knew it all along.

By: David A. Smith

By now, we’ve seen that the landowners’ four-decade strategy has put them in an excellent position: they own all the rights of access for a 4,000-foot stretch of land fronting Napeague Beach in East Hampton, and they’ve had a New York State judge rule those rights may well include the right to prohibit SUVs, cars, or even people from crossing their land to get to the public beach beyond.

napeague_beach_stairs

Whose fence, whose dunes, whose stairs?

Sources used in this post

New York Times (October 18, 1998; deep blue sea font)

New York Sun (July 19, 2007; olive-green font)

27 East (April 1, 2011; gray-blue font)

East Hampton Star (September 17, 2014; wheat font)

Judge Garguilo’s ruling (June 2, 2015; lavender font)

Crain’s New York Business (12 June 2015; black font)

East Hampton Trustees web site; dark blue font

For this, the plaintiffs have been legally and politically resisted by the town, occasionally vilified in town meetings, even as they shelled out money both to buy the rights and then to litigate them.

Now they are, as was once said in another context, in a position of advantage. 

gandhi_south_africa

“Immigration was not an issue on which we fought”

What will they do with it?

7. The case will be litigated unless it’s settled

That section heading is more than a tautology: some cases are filed as tactical maneuvers, intending never to be tried up.  This one is bound for court, because until Judge Garguilo’s decision, the town had been turning a deaf ear to the plaintiffs’ complaints.

bruyere_deaf_ear

In choosing their lawyer, the plaintiffs were shrewd: Stephen Angel is both local and extremely expert.

stephen_angel

Always on the side of the Angel’s?  Attorney Stephen

Mr. Angel has made a specialty of protecting private property rights against regulatory takings and other government encroachments:

Steve’s litigation practice covers a broad range of areas, including actions against government (zoning, wetlands, beach rights, riparian rights, and regulatory takings), contract disputes (representing both owners and contractors), real estate title matters (ownership, easements, boundary disputes, and adverse possession), and estate litigation (contested probates, contested accountings, and other Surrogate’s Court proceedings).  He has been involved in several actions that have resulted in groundbreaking decisions, including cases on easements, regulatory takings, refunds of municipal fees, and brokerage commissions.

Steve has also been heavily involved in wetland proceedings ever since the State’s wetland regulations went into effect in the 1970s.  In one of those proceedings, Steve took a landowner through the complicated administrative and judicial process of proving that the wetland regulations amounted to a “regulatory taking,” or inverse condemnation, of the property.  That case, which resulted in a multi-million-dollar payment by the State to the owner, was the first reported case of its kind in New York to have been upheld on appeal.  Armed with that experience, Steve has helped similar landowners settle their claims with the State.

He’s also from time to time acted as Village Attorney for Westhampton.

angel_village_attorney

Wishing the public would pipe down: Stephen Angel

The town then got itself a very good eminent domain attorney, though he hails from the bit city:

Said attorney Michael Rikon, special counsel [Meaning, hired for a single purpose – Ed.] to the Town of East Hampton –

Like Mr. Angel, Mr. Rikon is a specialist in eminent domain:

Mr. Rikon is a frequent lecturer on the Law of Eminent Domain. He is the New York State designated eminent domain attorney for Owners’ Counsel of America.

ardizzone_halloran_rikonJoseph Ardizzone (in costume), City Councilman Dan Halloran (c.) and Willets Point United attorney Michael Rikon rallied on Thursday [April 13, 2012] in support of a bill in Congress that would ban federal funds from going to certain eminent domain projects.

– “As far as the town is concerned in this particular area in Napeague, the trustees have the right to control and manage that beach,”

Does ‘control and manage’ likewise impose a duty to maintain?  To keep the public order?  To preserve the beach against a fleet of trucks?

“The plaintiffs have been complaining that their property has been taken for over twenty years, but even if that’s true, there is a three-year statute of limitations,” said Mr. Rikon.

The defense has tried to make this argument before in court; it was rejected [by Judge Jerry Garguilo].

Quite properly.

Moreover, the doctrine of laches has no application when plaintiffs allege a continuing wrong as they do herein with respect to the ongoing use of the subject beach area by members of the public with “beach vehicle permits” (see Capruso v Village of Kings Point, 23 NY3d 631, 992 NYS2d 469 [2014]).

Translation: Nice try, counselor.

judge_jerry_garguilo

Counselor, I certainly hope you’ve got better arguments than that

Now that the case has been certified to be ready for trial, Mr. Silverman says his side will push for one as soon as possible.

In a separate interview, Mr. Rikon, an eminent domain specialist, told The East Hampton Star that the town would pursue condemnation of the beachfront portions of all of the properties without regard for the outcome of the lawsuit.

As I’ve indicated, Mr. Rikon surely knows the town won’t execute on that, because the compensation would be staggering – and it’s well to remember that the Town is in this pickle because of:

… losing a series of land-related lawsuits between 1850 and 1880.

It’s important for government to lose these taking encroachment cases now and then, lest it become overweening and use the power of incumbency to move the goalposts on property rights – as the Town of East Hampton has been doing:

A patch of beach on the eastern side of Napeague State Park, is the subject of its own suit. In 2009, the White Sands Motel filed a complaint against the East Hampton Trustees and Town of East Hampton, claiming ownership of 220 feet of shoreline, which was also included in the Benson deed.


The East Hampton Trustees claim they own that too. Unfortunately for them, they have long since been unable to convince everyone of that. “I don’t know how you do that with property that you sold,” Mr. Silverman said. “That’s like people getting together and saying they own your house.”

The law doesn’t misremember, it records.  As it says in Revelations 20:12, “the dead were judged out of those things which were written in the books, according to their works.”

john_patmos

Lord, you’re sure you don’t want to leave yourself wiggle room?

“If you file a lawsuit to privatize the beach it’s going to be a waste of money because in the end the town will condemn the property and keep East Hampton beaches public,” said CfAR’s Mr. Taylor.  

Of course he has to say that, but surely his attorneys know better.

“We want the precedent set that the town is going to do whatever it needs to protect its beaches.”

It could try to buy the beach rights back, 130 years after it sold them.

ormond_montauk_1885

The Ormond House, Montauk, 1885

Or it could find another endgame.

8. There is a possible endgame

For East Hampton, as for the wider world, the clash of rights versus tradition, government versus property play out in real estate disputes.  And for East Hampton, as for the wider world, the parties will do well to tone down their rhetoric and remember that, at the4 end of the day, they all will be living together.  It will behoove them to find a drawn endgame.

pawn_endgame

Whose move is it?

For the time being, the status quo remains:

Until a verdict is rendered, the disputed part of the beach remains open to the public.

However, now the town and CfAR are under notice they’re losing:

Mr. Silverman says that the plaintiffs have not made any determination as to what will happen to the beach should the plaintiffs win the suit. He does point out that sitting adjacent to the disputed grounds is the 10,000 feet of beach [2 ½ times as much – Ed] of Napeague State Park, and it allows cars, charging residents and non-residents $65 for a beach-vehicle permit.

In ruling that the case may proceed to trial, Judge Garguilo gave both side a roadmap to settlement:

nyc_long_island

Bye, city, we’re heading to East Hampton!

Based on the foregoing, issues of fact remain concerning the nature of the easement, if any, on the disputed beach area and thus, with respect to the second cause of action as to whether the reservation in the Benson deed inures to the benefit of current Town inhabitants, has been terminated or is terminable by the fee owners –

Translation: If the ‘spread the netts’ easement language is to be reinterpreted, what is the new meaning?

– and whether the Trustees and Town have any right or authority pursuant to said reservation to issue beach vehicle permits or to grant anyone permission to use the subject property to drive and park their vehicles.

Translation: If ‘the easement is updated, what are its limitations?

beach_chairs_umbrella

“It’s really nice that there’s no people here.”

“What about us?”

“Oh, we don’t count.”

Time for the town to see reason:

1. Take up the maintenance obligation over the 4,000 foot strip of beach.

2. Limit access via permit (perhaps so many per day).

3. Equalize the access, parking, and permit fees across all the beaches.

4. Give the affected homeowners’ associations the equivalent of a ‘permanent Security Council seat’ to assure the property isn’t overused.

cant_we_all_just_get_along

Let’s not get too upset about it

The homeowners, for their part, might be inclined to settle on that basis, for even though they have legal right on their side, they too have to live in the town.

“I leave this to the voters who are the sailors, who will take us, and our future generations to come, on a safe voyage. I have had a wonderful sail.”

 – Captain Milton Miller’s farewell letter, 1997

napeague_lane_looking_east

Can’t we all just get along?  The access road to Napeague Beach

 

We will fight them on the beaches: Part 4, A free beach-driving permit

July 2, 2015 | Accessibility, Beaches, Easement, East Hampton, Eminent domain, Homeowners associations, Homeownership, New York, Private property, Public property, State law, Title, Title registry, Tragedy of the commons | No comments 106 views

[Continued from yesterday’s Part 3 and the preceding Part 1 and Part 2.]

By: David A. Smith

Over the last forty years, while the homeowners of Napeague have been buying beachfront rights for the strip between them and the ocean, the townspeople of East Hampton have been enjoying access to the beach as if it was a public right.

napeague_beach_sunset

Public ocean, public sky, public beach …but public access?

Sources used in this post

New York Times (October 18, 1998; deep blue sea font)

New York Sun (July 19, 2007; olive-green font)

27 East (April 1, 2011; gray-blue font)

East Hampton Star (September 17, 2014; wheat font)

Judge Garguilo’s ruling (June 2, 2015; lavender font)

Crain’s New York Business (12 June 2015; black font)

East Hampton Trustees web site; dark blue font

While that was a natural enough presumption, it was in fact incorrect, though I doubt many in East Hampton knew it until 2008, when the consortium of homeowners completed buying the last sliver of rights, and having assembled them all, began asserting them – at which point the locals, roused from their collective expectation, began asserting that the rights were no longer private because their use of the beach access had been tolerated, raising the question, Does that tolerance create a common-law right?

bathing_pavilion_east_hampton_circa_1920

East Hampton bathing pavilion, circa 1920

The question isn’t rhetorical.  Much of English common law derives from these customs mutually accepted over decades and centuries – and in New York, it appears to derive from a required ten years of ‘hostile, open, notorious, continuous and interrupted’ use:

See Weiszberger v Husarsky, 114 AD3d 731, 979 NYS2d 851 [2d Dept 2014].  “To acquire a prescriptive easement, a party must establish by clear and convincing evidence that the use of the property was hostile, open and notorious, and continuous and uninterrupted for the prescriptive period of 10 years”.

An East Hampton resident who had resided therein since 1915 [] claimed that the recreational use of the beach by the public had been continuous since the 1920’s [which] raises substantial issues of fact as to whether a prescriptive easement of the inhabitants of the Town of East Hampton currently exists.

montauk_fishing_village_1936

The fishing village of Montauk, 1936

Even a lawyer much less experienced and sharp than Mr. Angel will have no difficulty exploding the probative worth of a single affidavit by a gentleman whose memory of nine decades earlier might be colored by nostalgia [Though Captain Miller sounds like a wonderful gentleman – Ed.]

In an elegiac letter to the editor on the eve of the 1997 election, Captain Miller wrote that he had “mapped out what we must face regardless of politics. I leave this to the voters who are the sailors, who will take us, and our future generations to come, on a safe voyage.”

milton_miller

Captain Milton Miller, circa World War II

Citizens for Access Rights has been focused so far on getting the word out about the lawsuit, Mr. Taylor said.  He said he and his fellow members want East Hampton Town to preserve public access to the beach by any means possible, including using condemnation powers to claim it in the name of the public in the event a judge rules in favor of the plaintiffs.

At the moment, that threat is both theoretical and hollow: in general, inverse condemnation (as it’s known) will require compensation.

Citizens for Access Rights member Todd Brunn, who brings his two children to the Napeague beach, which is also known as Truck Beach, said the lawsuit came at a time when the town is facing large deficits and budget cuts, and is ill-equipped to defend itself.

brad_beyer_kat_brunn_todd_brunn

At a fundraiser for CfAR: Brad Beyer, Kat Brunn, and Todd Brunn (note the logoware shirt)

“Unfortunately, it just boils down to the homeowners have the money to push for this and they got the town at a time when we don’t have a lot of money in the town to fight this lawsuit,” said Mr. Brunn, who lives in East Hampton and teaches at the Montauk School.

One can sympathize with their perspective … but there’s yet another aspect to consider.

6. Ownership implies maintenance, and maintenance implies ownership

Everything I’ve read about the property owners indicates their motives are framed not by exclusion – seeking to keeping people out – but by conservatorship/ civility – maintaining a lovely beach.

OLYMPUS DIGITAL CAMERA

OLYMPUS DIGITAL CAMERA

Where did those wheel ruts come from?

The motivation for the action, property owners say, is what has become of the beach. With no restrooms or garbage cans, the dunes have become bathrooms and the sand trash-strewn.

beach_garbage_can

That won’t hold much

If true (I couldn’t find photos), which is certainly plausible, the beachfront is a ‘tragedy of the commons’ – overuse of a common resource because each user assumes that his or her use will make no difference, or being cleaned up by the environment.

The beach, nicknamed “Truck Beach,” is the only one in town that lets vehicles on it during the day.

That, at any rate, is Mr. Silverman’s stated view:

“It is not an access issue,” says Kenneth Silverman, president of one of the homeowners associations. “It is about the trucks. What we object to is the Town of East Hampton and the East Hampton Trustees asking us to host an activity that they don’t allow on other beaches, including beaches they own.”  

main_beach_permits

It’s public … sort of

Meanwhile, the town has rationed beach access:

The Town of East Hampton charges non-residents to drive on their beaches; this year’s annual fee at Truck Beach is $275.

The charge – $275 [Now $375 – Ed.] – is exclusionary by design; you wouldn’t pay it for one day’s use, and you might not pay it even for two weeks’ use.  (And the numbers are limited as well.)  It’s a hurdle to keep casual visitors off the beach, and in all the stories I’ve perused I’ve found nobody saying it’s a bad idea – especially because of this:

Residents, meanwhile, get a free beach-driving permit.  

Just like City of Boston parking, if it’s free it tends to be over-used.

It is one of the last ocean beaches where vehicles are allowed on the sand during the daytime hours in the summer. In fact, beachgoers say it is difficult to access otherwise, which makes it attractive to locals seeking an out-of-the-way spot when other beaches are crowded.

Thus we have the irony that those who demand a right of access to a privately-accessed beach are themselves fleeing from the public beach that has been overrun (in their minds) by others using the public beach.  In short: Let us in, keep ‘those people’ out.

west_hills_beach_amangasett

Do all of you bros live around here?

Meanwhile, the Town seems complicit in deflecting outsiders away from the locals’ town beaches:

The plaintiffs have questioned why the town allows driving on the Napeague beach while it is more strictly regulated on nearly all other beaches and limited to the hours before 9 am and after 6 pm during the summer.

Translation: You can drive onto our beach early, and off it late, neither of which you’re going to want to do … so why not go over to the ‘private’ beach?

Mr. Silverman said he and his neighbors would never have raised the issue of ownership if the beach had been “treated the same as other Trustee or town-owned beaches.”

The record seems clear that the plaintiffs’ beachfront has been discriminated against by rule, by permit, and by permit fee.

“The town has plenty of beachfront property alternatives where it could relocate the activity,” Mr. Silverman said.

napeague_hither_hills

Napeague Beach, Montauk Beach, and Hither Hills State Park

[Continued tomorrow in Part 5.]

We will fight them on the beaches: Part 3, The robbers or the thieves

July 1, 2015 | Accessibility, Beaches, Easement, East Hampton, Eminent domain, Homeowners associations, Homeownership, New York, Private property, Public property, State law, Title, Title registry, Tragedy of the commons | No comments 127 views

[Continued from yesterday’s Part 2 and the preceding Part 1.]

By: David A. Smith

As we saw in the two previous parts of this week-long, beach-reading post, the beachfront whose rights of use are now in dispute has a long history and its ownership, and the division of rights of that ownership, can be traced to two critical dates: 1686, when the Town of East Hampton gained standing, and 1885, when that same town sold a 4,000-foot strip of land to a development tycoon.

brooklyn_union_gas

The energy and profit source for buying East Hampton

Sources used in this post

New York Times (October 18, 1998; deep blue sea font)

New York Sun (July 19, 2007; olive-green font)

27 East (April 1, 2011; gray-blue font)

East Hampton Star (September 17, 2014; wheat font)

Judge Garguilo’s ruling (June 2, 2015; lavender font)

Crain’s New York Business (12 June 2015; black font)

East Hampton Trustees web site; dark blue font

From that point on, the land was subdivided and re-subdivided as it was developed, until starting 41 years ago, the homeowners landward of the beachfront realized those rights were worth buying, and started spending money to do so:

montauk_camping

Nice beach – or is it?

An investment manager from Manhattan who purchased an oceanfront home in East Hampton 15 years ago [That is, in 1992 – Ed.], Marc Healie, says that during the week the view from his balcony is one of the world’s most beautiful vistas. On weekends, he says, it’s a far different story.

In front of Mr. Healie’s multimillion-dollar home in the village of Amagansett, a large swath of prime beach real estate is being overwhelmed by trucks and SUVs that drivers are parking bumper-to-bumper along the water, often staking out spots for the entire weekend, and turning the beach into a makeshift parking lot. The popular tailgate beach scene is fueling a quarrel between New Yorkers with weekend homes and the trustees of the town who control the beaches over who has a right to have access to the waterfront.

“They’re blasting the radios in their cars while sitting on the beach,” Mr. Healie said. “I hear it 100 feet away when I’m trying to enjoy the peace and quiet on my own property.”

helicopters_east_hampton

And the newest nuisance …

To be sure, those who now live along the beach are much richer than those who used to live there.

(A member of one of the homeowners associations that is a plaintiff in the case is Cindi Crain, who is on the board of Crain Communications, Inc, which owns Crain’s New York Business.)

cindi_crain_virgin_bush_safaris

Not often in East Hampton: Cindi Crain of Virgin Bush Safaris, “a company where exclusivity, style, active adventures and connection with the bush are paramount.”

Most people drive trucks onto the beach from Marine Boulevard. The nearest legal parking area is at the end of Napeague Lane, which Mr. Taylor said is about a quarter-mile from the beach.

That’s only a five-minute walk, which seems little enough hardship to have to endure, especially if it keeps trucks off the beach. 

Members of the group [Citizens for Access Rights] say that even disallowing beach driving at the site would effectively block it off to locals, because driving is the only feasible way to get there.

The eminently quotable bayman Stuart Vorpahl was ready with an opinion:

“It’s taken on an ‘us’ versus ‘them’ quality,” the East Hampton town historian, Stuart Vorpahl, said in an interview.

stuart_vorpahl_pointing

“As it clearly states in the patent …”

It’s certainly become contentious; the East Hampton Star is full of articles on the subject, with escalating rhetoric:

“The largest jewel in the crown of East Hampton may be stolen from us, the citizens of East Hampton,” said Betty Mazur to the board at the (April 14, 2011) meeting, referring to the ability for residents to traverse all of the town’s waterfront stretches.

betty_mazur_east_hampton

Speaking out against having the crown jewel stolen: Betty Mazur

 “I’m very nervous about it, because I’m not sure that we’re going to be able to stop the robbers or the thieves — I’m talking about the group of landowners on Napeague who are looking to control a [long] stretch of our incredible beach, and that of course is the jewel in the crown.”

moriarty_jewels

You mean they’re not mine?

“I don’t much appreciate the invictus or the slander and libel that we’ve heard here tonight, and I take it very, very seriously,” Mr. Silverman said to the board, apparently referring to Ms. Mazur’s comment that a jewel in the crown of East Hampton “may be stolen.”

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Not appreciating the slander: Kenneth Silverman

5. ‘Custom’ does not necessarily grant rights

“The beach is not a private resource,” said Mr. Vorpahl, “and they’re trying to turn it into one.”

To be pedantic, the beach is unquestionably public, but the beachfront is private, and the question is whether the ‘spread the netts on the adjacent sands’ easement includes spreading picnic baskets, folding chairs, and trailers.

To be decided at trial is whether the easement described in the Benson deed has been expanded through the years to include non-fishing activities, such as swimming and bonfires.

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Is this fishing?  The Long Island Beach Buggy Association

I don’t see how it could be (fishing is fishing, not sunbathing); nor could Judge Garguilo, and he had plenty of New York State precedent to cite:

The nature and extent of use of an easement may be enlarged or changed (see Tamburo v Murphy, 72 Misc 2d 120, 339 NYS2d 693 [Sup Ct, Cayuga County 1970], affd 40 AD2d 94 7, 340 NYS2d 881 [4th Dept 1972]).

Nevertheless, the subject easement may not be enlarged to include uses completely foreign to the grant, such as recreational purposes, including picnicking, sunbathing, boating and bathing (see H.H. Apartments, Inc. v Beachcliff Realty Corp., 8 AD2d 966, 190 NYS2d 861 [2d Dept 1959], affd 8 NY2d 760, 201 NYS2d 777 [1960]).

I can also understand how the locals feel a special need to preserve their access to this beach – for a couple of decades the Town of East Hampton has been chiseling away at these same beach-access rights:

Twenty or thirty years ago, said Ken Silverman, the nearby beach at Napeague State Park was a haven for locals, but that changed after the state stopped accepting town vehicle permits there.

The trucks thus migrated to Napeague’s beach:

napeague_beach_bugs

Those black bugs are trucks and SUVs

The litigation dates to 2009, when a number of homeowners’ associations and individuals, as well as the owners of the White Sands Motel, banded together to sue the town and the trustees, whose ownership of the beach on behalf of the public has been assumed for more than 300 years.

[Though the subordinate clause is false, I’ve retained it and bold-faced it as a reminder that journalism is often sloppy and superficial; thus, while the blog is predicated on desk-based research using available sources, the sources themselves can be unreliable, so judicious discretion is allowed in interpreting or challenging the reporting. – Ed.]

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I see the marks of the urban truckbuck …

In judging the litigation, it’s noteworthy that in addition to the beachfronts being private, the property owners have been demanding that so long as public accessibility is being taken for granted, the Town of East Hampton should manage it:

The lawsuit followed years of complaints about the use of portions of the shoreline by four-wheel-drive vehicles.

Technology + Urbanization = Ecosystemic stress

stress_begin

More people coming?

In an affidavit, Kenneth Silverman, the president of the Dunes at Napeague Property Owners Association, said vehicle traffic on the beach has increased dramatically over the last 20 years, with as many as 150 to 200 parked there in recent summers, and as many as 300 to 600 passing near his house on summer days to access the beach.

That would be quite a disruption.

[The vehicles] load and unload beachgoers and their wares on summer weekends. This, the plaintiffs argue, goes well beyond the fishermen’s waiver.

Stress finds a political expression:

The Seaview at Amagansett group has contended that the trustees and town have “created a de facto parking lot and bathing beach on the subject property.”  

The plaintiffs’ lawyer, Mr. Angel of Esseks, Hefter and Angel of Riverhead, argued that the Benson deed did not cover these recreational uses.

As we’ve seen, ‘spread the netts on the adjacent sands’ is fairly clearly not swimming/ sunbathing.

An affidavit included in the court papers from the late Milton Miller, a bayman who died in 2012 at 97, countered that people had sunbathed, swum, and picnicked there since at least the 1920s.

Perhaps they had; does the tolerance of these activities create a common-law right? 

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What do you mean I don’t have the right to be here?  Ditch Plain Beach, Montauk

[Continued tomorrow in Part 4.]

We will fight them on the beaches: Part 2, Spread the nets on the adjacent sands

June 30, 2015 | Accessibility, Beaches, Easement, East Hampton, Eminent domain, Homeowners associations, Homeownership, New York, Private property, Public property, State law, Title, Title registry, Tragedy of the commons | No comments 137 views

[Continued from yesterday’s Part 1.]

By: David A. Smith

Such is the nature of land title that words written long ago can have enduring meaning,) – and as we saw in Part 1 of this post, about a stretch of photogenic beach in East Hampton/ Montauk, New York, such is the nature of America that land and title issues were being adjudicated long before we had a country, with consequences that are still sources of tension today, as the town itself was created by royal decree:

The patent was in part an effort to soothe East Enders who believed their land was part of the independent colony of Connecticut, not the crown colony of New York.

goody_garlick_east_hampton

Goodwoman (Goody) Garlick, tried for witchcraft in East Hampton, NY, 1657

By vesting in these individuals rights over land for benefit of the public, King James II thus set them up as a pre-urban government:

Sources used in this post

New York Times (October 18, 1998; deep blue sea font)

New York Sun (July 19, 2007; olive-green font)

27 East (April 1, 2011; gray-blue font)

East Hampton Star (September 17, 2014; wheat font)

Judge Garguilo’s ruling (June 2, 2015; lavender font)

Crain’s New York Business (12 June 2015; black font)

East Hampton Trustees web site; dark blue font

Though the granting sovereign was deposed shortly thereafter, the sovereignty overthrown a century after that, and the town of East Hampton governed by a new form, that same patent (as it’s called) remains effective today:

The Trustees of the Freeholders and Commonalty of the town of East Hampton represent the original government of East Hampton. The Trustee positions were created and granted sole authority over the Town of East Hampton, by King James II through the Dongan Patent dated December 9, 1686.

It also defined the governance of the government: by election.

Although the Nichols Patent had defined the boundaries for the Town of East Hampton in 1666, the Dongan Patent is one of the earliest of the New World documents to provide for a representative government by elected officials in North America.

As the original governing body of East Hampton, the Trustees managed and made allotments of the Town’s “common lands.”

john_mulford_house_1680_east_hampton

John Mulford’s 1680 House, East Hampton, NY

Even today, 328+ years later, that form of governance continues to apply, at least to certain of East Hampton’s lands:

Since their creation in 1686, the Town Trustees have continuously functioned as an autonomous governing body and represent an important historic link to the earliest roots of our democratic Nation.

[Apparently (I’m not going to research it) the trustees operate in parallel with town government (‘autonomous governing body’), an anachronism that may have contributed to the curious sales and resulting fact pattern here. – Ed.]

As custodians of public lands, the trustees have had the authority to sell it – and, for reasons that will appear a little later on, that they did:

In 1882, those trustees sold 1,000 acres to developer Arthur Benson.

fowler_to_benson_signature

“Relinquish all his right title”

Gilded Age tycoon Mr. Benson developed Bensonhurst in Brooklyn –

Brooklyn_neighborhoods_map

Northeast of Lower New York Bay, bordered by Bath Beach, Dyker Heights, Borough Park, and Gravesend

– founded the Brooklyn Gas Company, and owned all of Montauk –11,500 acres (18 square miles) – which he had bought at auction.

Part of that parcel was 4,000 feet of beach between what is now Napeague Lane and the western border of Napeague State Park, which Benson could have as long as fishermen still had the right to work it.

Mr. Benson’s ownership was thus subject to an easement, which remains in force 125 years later and whose terms became an issue:

However, the court found that the 1882 deed to roughly 1,000 acres in which the trustees sold the area to Arthur W. Benson, a 19th-century land speculator and founder of the Brooklyn Gas Light company, reserved certain rights to the townspeople as a whole that continue to the present.

These assurances included landing fishing boats and the right to “spread the netts on the adjacent sands. . . .” The Benson agreement, Justice Garguilo wrote, remains binding to this day.

Many such ‘traditional use’ easements exist in the history of American land aggregation – Eskimo whaling rights come to mind – and are contractually respected.

eskimo_whaling_hunt

After the successful hunt

Indeed, such rights are still claimed in East Hampton (New York Times, October 18, 1998):

Stuart Vorpahl lives in a world where local fishermen can take what they please from the water without interference, with no permits or licenses, no regulations, disregarding quotas and size limitations.

This world, he insists, is the East End of Long Island.

stuart_vorpahl

Is Vorpahl’s word a vorpal sword?

Fighting a recent charge that he was fishing without a license, Mr. Vorpahl, 58 [in 1998 – Ed.], a lifelong East Hampton bayman and commercial fisherman, is setting out to prove he has a legal right to do as he pleases to make his living.  

The Dongan Patent, issued in 1686 by Thomas Dongan, then the Governor-in-Chief of the Province of New York, granted ”freeholders and inhabitants” of East Hampton the right to ”enjoy without hindrance” the ”fishing, hawking, hunting and fowling” within its borders forever, subject only to the administration of ”one corporate body to be called by the name of trustees.” East Hampton has been electing a Board of Trustees ever since. Mr. Vorpahl himself served on the board for 10 years.

”I abide by the Trustees’ permits,” Mr. Vorpahl said. ”The Federal and state licenses are out of the loop. As far as I’m concerned they’re Johnny-come-latelys.”

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Not too stodgy to know political theater: the banner in Mr. Vorpahl’s boat

Mr. Vorpahl’s main antagonist is the state Department of Environmental Conservation, not the Town of East Hampton. The Board of Trustees ”does not even recognize the D.E.C.,” said James McCaffrey, the deputy town clerk and a longtime board member who served with Mr. Vorpahl. He said that ”the stupid general public accepted fishing licenses and regulations” though the patents make it clear that town inhabitants don’t have to abide by them.

Mr. Vorpahl has spent more than two decades fighting to maintain his Dongan Patent rights, which he and others still fish in a traditional way.

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Bonackers fishing off Montauk

While the Trustees retained beach access rights on other pieces of land they sold, this agreement allowed them only to land fishing boats at the spot, the plaintiffs argue.  [Emphasis added.]

Though of course, as society changes through urbanization and technology, what constitutes a ‘traditional use’ is expansively reinterpreted, especially if that expansion occurs steadily, over the years and decades, without being challenge:

“Any settlement or any ruling that keeps the locals off that beach during the summer when everybody wants to enjoy it is really unacceptable to our group, and will not have the support and the backing of our group,” said Tim Taylor, an East Hampton land surveyor whose family history stretches back 13 generations in East Hampton.

4. Beach front is typically owned, bought, and sold

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The Long island Railroad ends in Montauk

Ever since the Civil War and the rise of railroad travel (if not earlier), the East End of Long Island has been enjoyed as a vacation spot.

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East Hampton 1873: note the oceanfront bathing houses and lifeboat houses

Where there is tourism, there are rises in land values, and when these happen, so rise the lawsuits:

Mr. Silverman said the Trustees sold the beach to Mr. Benson to raise money after losing a series of land-related lawsuits between 1850 and 1880.

While this is a small detail, I think it’s relevant: when the Trustees sold the land in 1885, they knew what they were selling – access rights – and to whom – a tycoon and land developer.  The trustees’ heirs in governance can’t claim their predecessors were bamboozled.

Since 1882, individual tracts of the beach [Probably beachfront – Ed.] have changed hands between private owners 155 times.  

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Ocean Avenue, East Hampton, 1880s

In 1973, some of it was bought by the first of the homeowners associations.  

In 2008, the fifth association acquired the last of it, and within a year, the group of five sued the town and its trustees, contending that they were the rightful owners of all 4,000 feet.

The homeowners associations’ actions call to mind Robert A. Heinlein’s legalistic tour de force, The man Who Sold the Moon, in which entrepreneur Delos D. Harriman buys all global rights to the Moon by buying the fractional interest of every nation of which the moon passes, using the old ad coelum et ad inferos legal definition that the owner of a parcel owns it to infinite sky (coelum) and the center of the earth (hell, inferos). 

“We have a chain of title from Arthur Benson in 1882 to our plaintiffs in 2015,” said Stephen Angel, attorney for the plaintiffs.

Hence, if he owns the fractional share of every country over which the Moon passes, under human law he owns the Moon.

napeague_lane_east_hampton

To reach the public beach, you have to cross private land (including, one presumes, the end of Napeague Lane)

By methodically buying all the access rights along that 4,000-foot strip, including the rights covering the access on Napeague Lane, the plaintiffs have assembled a legal chain link fence that they claim gives them the right to block access across their land.

“This is not an issue of private property owners trying to privatize something,” said Ken Silverman, a lead plaintiff. “The beaches were privatized 129 years ago when the Trustees sold them.”

Of course, with rising urbanization has come rising premium value for beachfront property, and that creates conflict between locals, weekenders, and vacationers; and class-based friction between old salts, old money, and new money.

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Napeague Clam Bar

Those fighting for continued access to the beach describe it as the last refuge for locals in the summer, where they can park trucks laden with families, surfboards, coolers and grills and enjoy a half-day off from work.

On the weekends, quiet enjoyment can take on a whole new meaning:

[Continued tomorrow in Part 3.]