This is the third installment of a five part series discussing the lawsuit seeking to prohibit the use of New York State funds in the construction of the Buffalo Bills’ new stadium. (Part I can be found here; Part II can be found here.) As the third segment of the series, this article will provide a summary of how New York courts have interpreted New York’s constitutional prohibition on gifts and loans. This article only covers the legal history from 1971 to 1994. Part IV will continue this history from 1994 until the present.
- New York courts permit the use of public funds in publicly owned sports-related projects primarily occupied and used by professional sports teams.
- Murphy v. Erie County:
In 1971, the New York Court of Appeals heard Murphy v. Erie County, a case in which Frances Murphy, a New York taxpayer, challenged the validity of the Buffalo Bills’ stadium project under the state constitution’s gift and loan provision. [1] After the state legislature empowered Erie County to enter into a contract and indebtedness for a stadium, Erie County issued an initial bond of $50,000,000 to finance the construction of a domed stadium in Lancaster. [2] Erie County then negotiated with a company that built domed stadiums. The company gave the County a proposal in which it would donate the land for the stadium in return for the rights to lease the stadium. [3] In response, the Erie County Legislature authorized the County Executive to sign a contract in which the company would receive $63.75 million dollars offset by the tax revenues generated by the stadium over the course of a forty year lease.[4]
Here, the plaintiffs sought judgment (1) enjoining the county from spending money or property on the stadium, from permitting the stadium to be operated by a noncounty employee and from executing the contract; and (2) declaring null and void the resolutions authorizing the building of the stadium and the execution of the agreements. [5] To evaluate the plaintiffs’ claims, the Court of Appeals first examined the legislation that provided Erie County the authority to enter into negotiations for a new stadium. It concluded that the state legislature provided Erie County with the broadest possible latitude in operating the stadium. As such, “it was perfectly reasonable for the [C]ounty to conclude not only that it needed professional help in the complex running of a multi-million dollar, multi-purpose public arena but that it should arrange to employ the only company with experience in the field either as lessee or manager.” [6]
The court then considered the plaintiffs’ next argument, that the terms of the agreement turned the construction of a stadium from a public affair into one in which a private company will benefit. [7] The Court of Appeals held that the plaintiffs’ argument misconceived the purpose of having a stadium. A stadium served a public—and not a private—interest because it is designed to “furnish, or foster, or promote among, or provide for the benefit of, the people of the county of Erie, recreation, entertainment, amusement, education, enlightenment, cultural enrichment.” [8] The Court of Appeals concluded that the constitutional prohibition on gifts and loan was not implicated because the main purpose of the stadium project was to provide the people of Erie County with a public benefit. [9] Any benefits obtained by a private company would therefore be incidental.
Eventually, the County breached the agreement with the company and constructed the current stadium in OrchardPark for $20,000,000 – a significantly lower price than the estimated cost of the domed stadium. [10] Due to the breach, the company sought and recovered a multimillion dollar verdict at trial for prospective lost profits that it otherwise would have earned while managing the stadium during the twenty–year lease of the proposed domed stadium. [11] The Fourth Department, however, reduced the amount of damages awarded to the company, and the company appealed. [12] Upon hearing the controversy, the Court of Appeals concluded that most of the company’s projected profits rested on assumptions, speculation, and conjecture to establish projections of profitability of the entertainment venue over the life of the lease. [13] The court based its decision upon precedent, noting that New York has “long recognized the inherent uncertainties of predicting profits in the entertainment field in general.” [14] Therefore, the County was only liable for breach of contract for direct losses that could be attributed to the operation of a football venue if it had been developed.
In a separate suit, the company lost in its attempt to win damages for the loss of anticipated appreciation in the value of the land the company owned on the periphery of the proposed stadium. [15] The company had intended to develop the land around the stadium into a larger entertainment district. Similar to the previous suit, the Court of Appeals rejected the company’s suit, saying that it lacked any concrete evidence to support a determination that the parties agreed that Erie County would be liable for the loss of appreciated property around the proposed stadium site. [16]
The next installation of this series will summarize the last twenty-five years of caselaw involving efforts to void public projects based on accusations that they violate New York’s gifts and loans constitutional prohibition. Stay tuned to see how this will affect the construction of the Buffalo Bills new stadium!
[1] See Murphy v. Erie County, 28 N.Y.2d 80, 84 (1971).
[2] See id. at 84.
[3] See id. at 84.
[4] See id.
[5] See id.
[6] See Murphy v. Erie County, 28 N.Y.2d 80, 84 (1971).
[7] See id. at 87.
[8] See id.
[9] See id.
[10] See Kenford Co. v. County of Erie, 67 N.Y.2d 257, 259 (1986).
[11] See id. at 260.
[12] See id.
[13] See id. at 262.
[14] See id. at 262 (citing Broadway Photoplay Co. v. World Film Corp., 225 NY 104, 110 (1919)).
[15] See Kenford Co. v. County of Erie, 73 N.Y.2d 312, 315 (1989).
[16] See id. (“Although the County was aware that Kenford had acquired and intended to further acquire peripheral lands, this knowledge, in and of itself, is insufficient, as a matter of law, to impose liability on the County for the loss of anticipated appreciation in the value of those lands since the County never contemplated at the time of the contract’s execution that it assumed legal responsibility for these damages upon a breach of the contract.”).
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