MTA claimed that compensation for trade fixtures in building taken for transit project would constitute improper windfall payment. Three restaurant tenants in a three-story building at 194 Broadway in Lower Manhattan sought compensation for their trade fixtures after the Metropolitan Transportation Authority acquired the property through eminent domain for its Fulton Street Transit Center project. The three restaurants were separately incorporated, but were owned by the same individual who owned the building. 196 Bway TGI Inc., 196 Bway KFC Inc., and 196 Bway Food Court Inc. leased space in the building owned by DLR Properties LLC. Dennis Riese was the sole principal of DLR Properties and sole voting shareholder of the restaurant corporations 

The MTA acquired 194 Broadway and four adjacent properties in March 2006. The MTA calculated the owners’ compensation for the takings by evaluating each property separately. The owners challenged, arguing that the properties highest and best use would be to demolish the assemblage of buildings and replace them with a high-rise condominium. A lower court agreed and the First Department affirmed. As a result, Riese/DLR Properties’ compensation for 194 Broadway increased from approximately $24 million to $35 million.

The MTA then sought to dismiss the restaurant tenants’ trade fixture claims. The MTA asked a lower court to ignore the separate corporate existences of DLR Properties and the restaurant corporations, and to consider Riese the owner of all the entities. According to the MTA, because Riese received the higher compensation for 194 Broadway, awarding Riese compensation for the restaurant trade fixtures would result in an improper windfall.

Justice Martin Shulman refused to dismiss the claims. Justice Shulman agreed that a property owner compensated under a highest and best use that contemplated the property’s demolition, would not also be entitled to compensation for any trade fixtures he owned. Based on the principles of corporate law, however, Justice Shulman found that Riese/DLR did not own the fixtures. According to Justice Shulman, the restaurants existed as legitimate corporations independent of Riese/ DLR. The restaurants had their own officers and employees, filed separate tax returns, and never shared income or commingled assets with Riese or DLR. As such, the tenants were entitled to seek compensation for the fixtures. Justice Shulman ordered the MTA and the tenants to meet in February to discuss the eventual disposition of the trade fixture claims.

In the Matter of Metropolitan Transportation Authority, Index No. 400467/06 (N.Y. Sup. Ct. Jan. 26, 2012) (Shulman, J.).