NEW YORK Oct 14 (Reuters) - New York's top court on Wednesday heard oral arguments in a lawsuit that seeks to block a multi-billion-dollar project in Brooklyn and could determine the state's right to seize private land for public use.
The Court of Appeals is expected to rule as soon as mid- to late December on the lawsuit over the state's use of eminent domain for the Atlantic Yards project, which combines a basketball arena with offices, shops and 5,000 apartments.
Eminent domain is the power of a government to seize privately owned land for a public purpose after paying compensation. In the past, it has been used to clear land for roads, utilities, hospitals, or to replace slum housing. The ruling will be closely watched by the New York real estate industry.
Brooklyn landowners and grass roots groups sued the state to prevent it from taking their land, claiming the state abused its eminent domain authority so that developer Forest City Ratner (FCEa.N) can build an arena for the Nets basketball team and 16 towers of offices, shops and apartments.
The judges pressed for answers on Wednesday on whether New York can seize homes that are not blighted or not in areas that are economically depressed, and whether the state was subsidizing market-rate housing and misusing powers reserved for replacing slums with low-income apartments.
Developer Bruce Ratner's project would be built over the state-owned Long Island Rail Road's rail yards, and the lawyer for the landowners, Matthew Brinckerhoff, argued that the state wanted to seize the land simply because it had not been developed to the maximum allowed under zoning laws.
"What they're saying is the below-grade rail yard is unsightly, the property is underutilized," he said.
A lawyer representing the state agency using eminent domain to take the land, the Empire State Development Corporation, said the agency made a "rational determination" in concluding that the entire 22-acre site was blighted.
The lawyer, Philip Karmel, was repeatedly questioned about whether only the southern part of the site was blighted, with one judge asking whether the site was "gerry-mandered" to fit the developer's objectives.
Karmel cited as a precedent the condemnation of 13 city blocks, where small businesses were located, to build the World Trade Center in Lower Manhattan.
Asked why the term "blight" was not used for the project until 2005 -- a few years after it was proposed -- Karmel replied that it previously was targeted for urban renewal.
Judges also grilled attorneys for both sides over whether time limits barred the suit because it was first filed in a U.S. court that ruled for the state.
Ratner must start building the arena before the end of 2009 or he will lose out on $700 million of low-cost tax-free debt. For details, please see [ID:nN09352497].
If the Court of Appeals rules in his favor, Ratner still faces another suit over whether the state mass transit agency sold the site for too low a price. See [ID:nN13196644].
Ratner last month sold an 80 percent share in the National Basketball Association team, which now plays in New Jersey, to Russia's richest man, Mikhail Prokhorov, in a more than $200 million deal. See [ID:nN23409216].
A federal court had rejected the property owners' argument that the state could not take their land under eminent domain. A mid-level appeals court ruled for the state.
But the plaintiffs, a group that include businesses, say the state constitution gives them more protection than the U.S. constitution.
The U.S. Supreme Court in 2005 ruled that the city of New London, Connecticut, could seize land to spur economic development. But since then a number of states, counties, cities and towns, responding to public outrage, have tried to limit the power. (Additional reporting by Ciara Linnane; Editing by Leslie Adler)