New Castle News

July 31, 2013

City loses latest round in McGaffic case

John K. Manna
New Castle News

NEW CASTLE — Pennsylvania Commonwealth Court has reversed a lower court ruling concerning the disposition of a downtown New Castle property.

In a 4-3 decision last week, the court ruled the plaintiffs have standing to recover payment for a breach of contract regarding the former Centennial Building at the corner of East Washington and Mill streets.

Senior Judge Michael J. Wherry had ruled in December 2011 that the plaintiffs — Robert W. McGaffic and George Love — had not presented sufficient evidence to “confer standing upon them.” McGaffic and Love are the prior owners of the building. The case originated in 1978 with the plaintiffs filing suit.

Wherry, therefore, dismissed their claim that the city of New Castle had breached a contract relating to a 1977 “closeout agreement” between the city and the New Castle Redevelopment Authority.

“We’re absolutely delighted,” said attorney Jonathan Solomon, who represents McGaffic.

“I think it shows that the appellate court wants to see that justice is done. The point is that the local government has taken private property and used it to their benefit.”

The building is now part of the Cascade Center at the Riverplex where Refresh Dental has its corporate headquarters.

Attorney Samuel Kamin, the city’s counsel, said he is preparing a petition to the Pennsylvania Supreme Court for allowance of an appeal. The Supreme Court has the discretion of whether to consider an appeal.

“We feel very confident the Supreme Court is going to take this appeal and accept the opinion of the three (Commonwealth Court) dissenters,” Kamin said.

“Commonwealth Court overruled and contravened existing Pennsylvania law in five or six areas,” he said, adding the appeal is being prepared on that basis.

In 1994, a board of viewers valued the building at $184,000 as of April 12, 1973. With accruing interest over the years, the judgment has increased to $2,373,343 as of May 29, according to Solomon.

Wherry issued his ruling after presiding over a trial in March 2011 and after hearing arguments from both sides in December of that year. At the hearing, attorneys argued over whether McGaffic and Love, as third-party beneficiaries, have legal standing to enforce the closeout agreement.

The agreement states that the city would assume debts and liabilities of the redevelopment authority.

After the federal government changed programs and began allocating money directly to the city rather than the redevelopment authority, the two parties entered into the closeout agreement.

The plaintiffs argue they are owed compensation for the property that was included in an urban renewal program, but was never acquired by the city.

Wherry said the closeout agreement does not provide for payment of claims filed after the agreement “regarding any possible de facto takings that may have occurred.”

Writing for the Commonwealth Court majority, Judge Mary Hannah Leavitt said the agreement states any costs or obligations incurred in connection with the urban renewal program with respect to claims that are “disputed, contingent, unliquidated or unidentified” ... “shall be borne by the city.”

Leavitt said the de facto condemnation of the property was an “unidentified” “cost or obligation” that was incurred with the urban renewal program, and that it was a cost to be “borne by the city ...”

The court defines de facto taking as not a physical seizure of property, but “an interference with one of the rights of ownership that substantially deprives the owner of the beneficial use of his property.”

In the dissenting opinion, Judge Bonnie Brigance Leadbetter wrote that the closeout agreement “appears on its face” to cover properties intended to be condemned and taken “and not those that became the subject of de facto taking claims after the agreement was executed.”

She cited another court decision, which concluded that courts considering government contracts must “apply a more stringent test to determine whether a third party qualifies for beneficiary status.”