Highlands Act Upheld: eminent domain by regulatory taking denied

In a 35-page opinion issued Friday, August 10, 2007, and approved for publication, the Appellate Division of the New Jersey Superior Court upheld the validity of the Highlands Water Protection and Planning Act., N.J.S.A. 13:20-1 et seq. , and its impact on a 93-acre tract of land in Washington Township in Morris County.

The Highlands Act was signed into law in August 2004 by former Governor James E. McGreevey.  The law supercedes local municipalities with regard to land use planning in the Highlands region of northwest New Jersey, covering aproximately 800,000 acres in portions of Morris, Sussex, Passaic, Bergen, Warren, Hunterdon and Somerset Counties.

The case, OFP, LLC v. State of New Jersey, concerned a 93-acre tract of undeveloped land owned by OFP, LLC, located in Washington Township, Morris County. The land is located within the preservation area of the Highlands region (N.J.S.A. 13:20-7(b), (c)). In December 1999, the Washington Township planning board granted OFP's predecesor in title preliminary major subdivision approval to subdivide the property into 26 residential lots.  One critical permit, needed by OFP for potable water supply to the development tract, was pending and incomplete as of the date the Highlands Act was introduced in the Legislature, March 29, 2004. The permit was issued May 14, 2004, and afterward, the Legislature enacted the Highlands Act and the Governor signed the bill into law on August 10, 2004. A provision in the Highlands Act, N.J.S.A. 13:28, required all approvals from DEP to be in place before the Act was introduced. Since this was not the case, OFP's proposed subdivision was subject to the Highlands Act permitting review program, pursuant to N.J.S.A. 13:20-33.

Plaintiff OFP sent several letters to DEP protesting the applicability of the Act to their subdivision. Plaintiff did not, in the opinion of the court, exhaust their administrative remedies, whereby they could plead hardship under the Act, but rather plaintiff filed suit which the trial court dismissed and the Appellate Division affirmed. The clear message in the text of the opinion and the case law analysis by Judge Stephen Skillman is that exhaustion of administrative remedies is a prerequisite to filing a suit.

There is an interesting discussion in the text of the opinion concerning regulatory takings:

OFP's primary challenge to the constitutionality of the Highlands Act is that enactment of this legislation resulted in a taking of its property.

It is now firmly established that governmental actions that do not involve governmental occupancy or encroachment upon private land may "still affect and limit its use to such an extent that a taking occurs." Palazzolo v. Rhode Island, 533 U.S. 606, 617, 121 S. Ct. 2448, 2457, 150 L. Ed. 2d 592, 607 (2001). "In Justice Holmes' well known . . . formulation, 'while property may be regulated to a certain extent, if a regulation goes too far, it will be ecognized as a taking.'" Ibid. (quoting Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415, 43 S. Ct. 158, 160, 67 L. Ed. 322, 326 (1922)).

It is thus clear that "a regulation which 'denies all economically beneficial or productive use of land' will require compensation under the Taking Clause [of the Fifth Amendment]." Ibid. (quoting Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015, 112 S. Ct. 2886, 2893, 120 L. Ed. 2d 798, 813 (1992)); accord Gardner v. New Jersey Pinelands Comm'n, 125 N.J. 193, 205 (1991). It is less clear whether a taking occurs "[w]here a regulation places limitations on land that fall short of eliminating all economically beneficial use[.]" Palazzolo, supra, 533 U.S. at 617, 121 S. Ct. at 2457, 150 L. Ed. 2d at 607. In that situation, the determination whether there has been a taking "depend[s] on a complex of factors including the regulation's economic effect on the landowner, the extent to which the regulation interferes with reasonable investmentbacked expectations, and the character of the government action." Ibid.; see also Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg'l Planning Agency, 535 U.S. 302, 122 S. Ct. 1465, 152 L. Ed. 2d 517 (2002).

Critical to the Appellate Court's affirmance of the dismissal of OFP's complaint was the fact that OFP did not give the DEP and the Highlands Commission an opportunity to consider whether OFP would qualify for a hardship waiver under the law. Presumably, plaintiffs will avail themselves of the court's invitation to pursue a hardship waiver. 

According to today's Star Ledger, the plaintiffs were considering filing a federal lawsuit. This does not seem to be the prudent course of action, and a federal suit would be subject to dismissal under the U.S. Supreme Court's ruling in San Remo Hotel v. City of San Francisco (2005).

Laws providing for regional control of large tracts of land in New Jersey have been uniformly upheld by the courts. The first such law established the Hackensack Meadowlands Development Commission in 1970 and gave it superceding zoning control over the Hackensack Meadowlands district. Later on, another regional commission was established for the Pinelands area of New Jersey in 1979. Both of these laws were unsuccessfully challenged in court at the time of their adoption. The difficulty that property owners are having with the Highlands Act is that there must be a denial of all beneficial use and enjoyment in order to meet the standard for a regulatory taking. This standard is not met in most cases. See my blog post of June 2005 on regulatory takings and the U.S. Supreme Court ruling in Lingle v. Chevron.