If this isn't inverse condemnation, what is?

In 100 Paterson Realty LLC v. Hoboken, the Appellate Division addressed the standard for determining whether an inverse condemnation has taken place: whether the threat of condemnation has had such a substantial effect as to destroy all beneficial use and enjoyment of an individual’s property. Washington Mkt. Enters. v. City of Trenton, 68 N.J. 107,122 (1975).

In an inverse condemnation action, a property owner seeks compensation for a de facto taking of his or her property by a government entity with eminent domain powers. A claim of inverse condemnation may result from a direct, physical taking of or interference with property, or arise from a regulatory taking. A claim may also arise from accidental property damage or the abandonment of plans to condemn the property. However, not every impairment of value establishes a taking. To constitute a compensable taking, the property owner must be deprived of all beneficial use of the property. Government “plans” do not ordinarily constitute a taking of property. Danforth v. United States. The mere plotting and planning in anticipation of condemnation without any actual physical appropriations or interference also do not constitute a taking. Kingston East Realty Co. v. State, 133 N.J. Super. 234, 239 (App. Div. 1975).

The plaintiff alleged inverse condemnation and tortious interference with prospective economic advantage against the City of Hoboken. The plaintiff argued that the threatened acquisition of property for use as parkland by eminent domain during land use proceedings was a taking warranting payment of just compensation. The trial court held that a taking had not occurred and the Appellate Division affirmed.

The property consisted of approximately 6000 square feet of land which contained a 3000 square foot commercial building. Plaintiff acquired the property in 2006 for $2 million with the intention to develop it as a residential project. The residential zoning designation permitted the development. The plaintiff submitted a number of applications to the Hoboken zoning board over a period of two years. However, all of plaintiff’s application were voluntarily withdrawn as a result of (1) “push back” by the board, (2) the adoption of a resolution supporting acquisition of the property for use as “open space” or parkland, and (3) the introduction of an ordinance which would rezone the property for “open space.” This was a flaw in the legal strategy of the plaintiff that ultimately lead the court to find that the threat of condemnation did not deprive the plaintiff of all beneficial use of his property. Hoboken’s actions did not pose a legal impediment to the use or development of the property for a significant period of time such that it constituted a taking. Littman v. Gimello, 115 N.J. 154, 164-65, cert. denied, 493 U.S. 934 (1989).

In 2008, the plaintiff filed an action for inverse condemnation. In 2009, the parties entered into an agreement staying the litigation as a result of Hoboken’s indication that “open space” ordinance had been “tabled permanently.” The stay contemplated a negotiated acquisition of the property by Hoboken, but in 2010, the plaintiff was advised that an offer would not be forthcoming due to financial constraints. The plaintiff reinstated his lawsuit and filed an application with the planning board for a project that did not require any variances.

The planning board then adopted a report which continued to designate the property as possible parkland and reiterated Hoboken’s intention to purchase it. The report did not change the zoning designation of the property, but the plaintiff withdrew his application. He stated that Hoboken’s commitment to create new parkland and its hostility toward his development applications rendered continued attempts to develop the property “fruitless.”

As a practical matter, the plaintiff was unable to pursue a project for which a third party had executed a letter of intent in 2007 as a result of the cloud of condemnation. As a result, he argued hypothetically that he would not be able to secure financing to develop any projects on the property as a result of Hoboken’s actions. The plaintiff argued that it was clear that a reasonable developer would not assume such a risk.

Yet, the trial court held and the Appellate Division affirmed that “[w]hile the city’s actions may have resulted in the plaintiff’s inability to develop the projects he was proposing, they do not otherwise deprive him of the beneficial use of the property.”

The court also held that the lack of financing and the discouragement of prospective purchasers due to financing concerns possibly resulting from Hoboken’s actions did not constitute a taking. The plaintiff’s alleged lost economic opportunities occasioned by the Hoboken’s actions were not compensable.

Although Hoboken engaged in a pattern of conduct that made it clear that it desired to purchase the plaintiff’s property for use as parkland, including a number of property designations, negotiations, and reports which occasioned considerable uncertainty and delay, because they did not result in an actual rezoning of the property, neither a temporary nor a complete de facto taking of the property occurred. The plaintiff was not deprived of all beneficial use of the property by the parkland designation because he was still able to make use of the property within the constraints of Hoboken’s regulations and because the six or seven month period of delay was not significant.

The standard for every inverse condemnation is stringent given that it requires the denial of all beneficial use of the property in question. This did not occur here, although it is difficult to see what “use” is left to the property owner other than paying taxes.


Edvie M. Castro contributed to this blog post.