The concept of using eminent domain to assist homeowners in danger of foreclosure was first introduced in San Bernardino, California when the County explored the idea of addressing negative equity by using private equity to help current borrowers in foreclosure blighted neighborhoods. The controversial plan was for municipalities to use the power of eminent domain to circumvent mortgage contracts, acquire loans from bondholders, write them down, and give them back to the bondholders. The proposal was abandoned by the County and two of its cities because of the unquantifiable risk that it introduced to the market and the lack of public support. The level of risk involved, the possible cost of implementing such a plan, pushback from the mortgage industry, and the threat of serious litigation have proven significant impediments to cause a number of cities to reject the idea of using eminent domain as a cure-all to the woes of the housing market.
Officials of other cities still find the possibilities of the plan appealing in theory, if not in practice.
]]> “It's designed to prevent foreclosures, keep people in their homes, stabilize our neighborhoods and give our local economy a chance to recover,” said Gayle McLaughlin, mayor of Richmond California.Richmond has adopted a plan to use eminent domain to seize underwater mortgages, but has yet to actually use the power. The city’s hesitation may be attributable to a forewarning of future litigation as a law suit that was preemptively filed by Bank of New York Mellon and Wilmington Trust Co. was dismissed by the court in September as premature. See Order Granting Motion to Dismiss, Bank of New York Mellon v. Richmond, California (Nov. 6, 2013). The Federal Housing Finance Agency has also threatened legal action against cities that use eminent domain in this way. FHFA has called it “a clear threat to the safe and sound operations” of the mortgage industry. The Mortgage Bankers Association, asset managers as well as groups representing banks, real-estate agents, and builders have also objected to the plan, saying it would deter investments in mortgages and damage communities by having a chilling effect on the extension of credit to prospective homeowners. The financial industry views eminent domain as a slippery slope because it penalizes those who save and invest, and violates the rights of investors who may not receive the fair market value of the mortgage.
Undeterred, officials and activists in Irvington, Newark, and other cities are championing the use of eminent domain to seize underwater mortgages as “friendly condemnations” and using incentives to persuade homeowners to agree to the use of the power of eminent domain to prevent foreclosures in the struggling cities. Activists insist that New Jersey is in a state of crisis. While foreclosure rates are falling in other parts of the country, New Jersey is on track for another 50,000 filings before the end of 2014. More than 50 percent of Newark and Elizabeth mortgages are underwater, trailing only Hartford, Connecticut among cities with more than 100,000 residents. Paterson is fourth at 49 percent, just ahead of Detroit. Jersey City ranks 32nd in the nation according to the report “Underwater America” completed by a team of urban planners and sociologists from numerous academic institutions.
Although the New Jersey American Civil Liberties Union has traditionally been wary of the use of the power of eminent domain, executive director Udi Ofer has voiced support for the proposal and his belief that the use of eminent domain to purchase underwater mortgages would be permitted under New Jersey law. The ACLU joined officials from Newark, Irvington, and other cities in requesting that U.S. Attorney General Eric Holder investigate possible retribution from the Securities Industry and Financial Markets Association (SIFMA) and other major banks against communities that choose to use “eminent domain” to seize mortgages in foreclosure.The Home Defenders League has also announced its support for the proposal. Members of the Irvington NAACP have stated that their hope that “Eminent domain can work for Irvington” is spurred by the fact that an estimated 1,775 homes in Irvington have been foreclosed upon since 2008, leading the city to spend revenue maintaining and policing vacant and abandoned properties. Facing similar problems, Chicago, Illinois and Yonkers, New York are also debating the idea.
In March, Irvington council members approved a resolution which brings the issue before the Planning Board for identification of properties in potential foreclosure in areas in need of redevelopment. Authorities estimate that approximately 200 underwater mortgages will meet the criteria to be taken by the township. In May, the Newark Municipal Council unanimously approved a resolution in support of the city purchasing underwater mortgages. It has been estimated that approximately 1,200 homeowners in Newark will be saved from foreclosure if action is taken. However, there is no assurance that these mortgages will be paid and it is unclear whose money will be at work when the mortgages are purchased.
Attorneys are weighing in the legal aspects of the concept. New York Attorney General Eric Schneiderman has warned, “I think [it] should be a vehicle of necessity, and it’s controversial whenever you use it... You have to be careful about balancing all the interests.” He has one problem with the plan to acquire properties to save properties from foreclosure - it runs afoul of the law. On the other hand, Alexander Shalom, Senior Staff Attorney ACLU of New Jersey, stated,
“There are legal concerns and we want to be measured to make sure that we are not overlooking any of them but don’t want banks to scare cities away from fully considering these options. So there are legal concerns but those are in the details not in the big picture about whether eminent domain can be sued to seize a mortgage.” The ACLU of New Jersey and the Brooklyn-based Center for Popular Democracy filed suit on January 5, 2014 against the FHFA demanding that it disclose details about its relationship with banks and other financial institutions.
The debate and ensuing litigation may continue indefinitely. As legal research continues, municipalities will undoubtedly be advised of the possible unconstitutionality of the use of eminent domain to seize underwater mortgages given the public purpose mandate. Even under Kelo v. City of New London, in which the U.S. Supreme Court found that it was appropriate to use the power of eminent domain for economic development, the proposal to seize underwater mortgages may violate the requirement that a taking be for a public purpose because only certain homeowners will benefit.
Assuming that the government has the authority to take a mortgage for a public purpose under the power of eminent domain, the proposal as it stands is still not practical. In New Jersey, if property is acquired by eminent domain, the owner must receive just compensation at the fair market value of the property. Fair market value has been defined as the amount that a willing buyer and seller would pay for the property in an arms-length transaction. The fair market value of the underwater mortgages to be taken will be the present value of the amount that remains due on the mortgage. Municipalities will then be responsible for compensating lenders for a value greater than that of the home securing the mortgage. The resulting financial loss will undoubtedly be passed along to tax payers. This would be completely unacceptable for today’s cash-strapped municipalities.
If a municipality does decide to risk litigation with lenders by implementing a plan and seizing underwater mortgages, the matter will likely take years to reach the Supreme Court for resolution. In our opinion, this type of litigation will cause unnecessary exposure to the municipalities, because the takings would not meet the threshold of public purpose justifying condemnation.
Edvie M. Castro and William J. Ward contributed to this article.
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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.
The United States Constitution, Article 5 states, “No person shall be...deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.” The New Jersey Constitution, Article 1, Section 20 states, “Private property shall not be taken for public use without just compensation. Individuals or private corporations shall not be authorized to take private property for public use without just compensation first made to the owners.” The process for awarding just compensation is set out in N.J.S.A. 20:3-1, et. seq. The statute requires the government to appraise the property to be taken and offer the owner fair market value plus any damages to the remaining parcel. The statute prescribes that any land taken be utilized for a public purpose.
The assurance of just compensation is crucial because private land owners in shore towns will forfeit all rights under perpetual easements. The individuals will retain title to the portion of the property taken subject to the easement. The land owners remain responsible for the land and must meet the typical obligations of landownership, including payment of property taxes, but they will have been deprived of virtually all beneficial use of the taken portion of their land.
]]> The guarantee that the land will be used for a public purpose is equally significant. Land owners fear that local leaders will use their land to build boardwalks, public access parking, or public restrooms to attract more beachgoers to the New Jersey Shore where tourism is a $40 billion industry. Provision of the exact terms of the taking pursuant to the statute will prevent any misinterpretation of the rights being acquired.The present beach replenishment project to be overseen by the Army Corps of Engineers is fully funded by the Federal and State Government. The state is picking up the tab for $8 million, while the federal government is paying the rest. U.S. Rep. Frank Pallone (D-Long Branch) announced the awarding of the final contract for the $18.3 million beach replenishment project spanning the shore from Asbury Park to Avon-by-the-Sea in September. The contract is the last of four awarded to cover the stretch between Sea Bright and Manasquan. Contractors will build a continuous 48-foot high wall by driving steel sheets 32-feet into the ground. Approximately 16 feet of steel will rise above the ground. As the steel sheets will be embedded in makeshift dunes about 10 feet high, the municipalities will be responsible for covering the estimated 6 feet of steel that will protrude. Project experts estimate that replenishment projects will have to be undertaken every three years, with a portion of the cost covered by the municipalities. It is unclear how the state or local municipalities will fund concealment of the steel revetment when the dunes erode again.
There is no indication of any forward thinking on the part of local leaders in this regard or about the consequences of tidal flooding. Stewart Farrell, director of New Jersey’s Richard Stockton College Coastal Research Center, attributes half of the damage in Long Beach Island caused by Hurricane Sandy to tidal flooding. The bay side of the island is only protected by a bulk head that is four feet high. It was easily overcome by Hurricane Sandy’s 12 foot storm surge. Yet, residents of the island still await information about protection from storm surges along the bay side.
According to the article “N.J. bureaucrats are stonewalling Hurricane Sandy victims: Editorial” published in the Star Ledger, Governor Christie refuses to address these issues and others vital to the livelihood of the shore. The article states that he is stonewalling Hurricane Sandy victims. Meanwhile, a Newsweek article describes the governor's masterful sarcastic performance where easement “hold-outs” are the punchline:
"Let me just tell you how I feel about this. Some of you may like it; some of you may not. But here’s the bottom line. There are going to be homeowners up and down the shore who again don’t want to sign these easements and have these dunes built. Who don’t want the dunes to block their view.” Someone in the audience lets out a decidedly unsympathetic “awww.” That seems to be the governor’s cue. “We had people lose their lives in the storm!” he shouts. “We had people lose everything they owned in this storm—to protect your view.” He stares down at his mike for a second, then looks up to deliver the punchline.
“Sorry.”
The crowd roars. It’s a masterful performance – a concerto of sarcasm and umbrage – and Christie concludes with a flourish. “ These people need to know I’m going to do everything I can do,” he says, “to make sure these dunes get built.”
The governor’s words are full of disdain. As recently as September, he remarked, “We can no longer be held back from completing these critical projects by a small number of owners who are selfishly concerned about their view while putting large swaths of homes and businesses around them at risk.”
Mayor Joseph H. Mancini of Long Beach Township has a similar attitude toward those who refuse to voluntarily forfeit their land. “At the town meeting, I told people to contact the people who didn’t sign easements and ask them to come get their sand. Their sand is in your living room,” said Mancini.
Governor Christie, Mayor Mancini, and Mayor Jonathan S. Oldham of Harvey Cedars, among others, seek to circumvent the relevant Constitutional provisions by citing to the time-sensitive nature of the beach replenishment and by preying upon residents’ perception of the prospective and, yet, imminent danger should another storm occur. The consequential shaming of “hold outs” is based upon the dissemination of information that is purposefully and severely limited. Elected officials failed to publicize the fact that commencement of the condemnation process through a few simple steps would provide the government with the right to immediate and exclusive possession of the property in question. The government may then move forward with the beach replenishment project even though just compensation is yet to be determined.
Yet, in lieu of initiating a process that may have already given the government possession of the properties was it commenced in a timely manner, community leaders continue to paint a picture of recalcitrant residents subjecting an entire community to unnecessary risks and dangers in the interest of additional financial gain. The effect of the lies and bullying, and the strain on the community is evidenced by the recent settlement in the matter of Borough of Harvey Cedars v. Karan. In its July 8, 2013 opinion, the Supreme Court of New Jersey made clear that the Karans were entitled to “just compensation” for the taking of a portion of their property for the beach replenishment. It held that a property’s fair market value should be used as a benchmark in computing just compensation in a partial takings case. The Court expounded that non-speculative, reasonably calculable benefits that increase the property’s value at the time of the taking should be considered in determining just compensation, regardless of whether those benefits are enjoyed to a lesser or greater degree by others in the community. A new trial was required because the Borough was prohibited from presenting evidence of such benefits. Despite the court’s holding, the Karans quickly surrendered to political, community, and media pressure and accepted a reported settlement of one dollar ($1.00) as compensation for the taking of 3,400 square feet of land, approximately one-fourth of the size of their oceanfront lot.
Many see the Karans’ settlement as political fodder for the governor’s campaign to take action against easement “hold outs” without employment of the power of eminent domain. Harvey Cedars Mayor Jonathan Oldham said the decision to settle for one dollar sends a message to easement “holdouts” that shore protection is of utmost importance. “This is good for the rest of the island and it’s good for New Jersey and it’s good for Harvey Cedars as well,” Oldham said. “It certainly verifies that our position was right all along.”
But the recent entry of Executive Order No. 140 and the adoption of ordinances to commence condemnation proceedings in Mantoloking and Toms River are indicative of the need for appraisals, offers, property descriptions, maps with metes and bounds, and construction plans to be provided to the citizens whose properties are being taken. Toms River Council President George Wittmann called the ordinance, which was unanimously approved, “the most important ordinance…that we’re going to pass this year.” By the time properties are appraised, monetary offers are sent to the owners, and negotiations take place, it will likely be January before the towns obtain the easements. Either by negotiation or condemnation, residents should anticipate a start date for the project in the first quarter of 2014.
Edvie M. Castro contributed to this blog post.
]]>When the state or a municipality exercises the power of eminent domain, the determination sought through court action is the amount of just compensation, the value of the property evaluated in light of its highest and best use, which is ordinarily calculated in accordance with current zoning ordinances. However, if there is a reasonable probability that a zoning change will be granted, valuation may include an assessment of a change in the permitted use of the property, or a premium. In State by Highway Commissioner v. Gorga and State by Commissioner of Transportation v. Caoili, the Court held that a determination of reasonable probability of a zoning change must be made by the judge before the evidence is presented to the jury. The Supreme Court reiterated the gatekeeping duty addressed in both Caoili and Gorga:
The court must act as a gatekeeper to assess whether there exists sufficient evidence of a reasonable probability of a zoning change to permit an alternate use for a property taken under eminent domain to be considered when valuing property for just compensation.
In this case, the Supreme Court found that the trial judge did not perform his gatekeeping function at the proper juncture. He did not consider the record or conduct a preliminary N.J.R.E. 104 hearing before allowing the jury to consider the reasonable probability of a zoning change. Instead he deferred any decision regarding the defendant’s experts’ opinions that a change in zoning was reasonably probable until the trial was in progress. The Supreme Court remanded the case after finding that the expert’s opinions lacked a proper basis, and were speculative and conclusory. It also specifically held that the court’s gatekeeping function is to be exercised prior to the jury’s deliberation on compensation.
]]> In further clarification of Caoili, the Supreme Court stated that it is only after the trial court has first determined that the evidence is of a quality to allow for consideration of the reasonable probability of a zoning change that the jury may be permitted to assess a premium based on the change. The Supreme Court refined its analysis by confirming that not every condemnation action involving a possible zoning change requires a N.J.R.E. 104 plenary hearing prior to trial. It clarified that the trial court should first determine whether it can render its determination as to reasonable probability on the papers alone. If the issue cannot be resolved by review of the record, then it should be heard and decided prior to trial. The Supreme Court emphasized the requirement that the trial court render its determination based on the standard that would govern the particular zoning change, and criticized the trial court for failing to engage in the analysis. In a dissenting opinion, Justice Barry T. Albin, joined by Chief Justice Stuart opined that the majority failed to give proper deference to the trial court’s evidentiary rulings and to the factual findings made by the jury.The ramifications of the Supreme Court’s discussion of its gatekeeping functions are clear. It is likely that trial judges will increase their scrutiny of expert testimony prior to trial to ensure that all relevant criteria is met regarding variance approval before allowing the jury to consider evidence of the reasonable probability of a zoning change. Though a N.J.R.E. 104 hearing is not required, trial judges will now hear argument if the issue of probability cannot be resolved on the papers.
The Supreme Court also elucidated the details of the analytical process once the issue reaches the jury. During the actual determination of a just compensation award that takes into account a premium based on the reasonable probability of a zoning change, the court stated:
The jury first must value the property in its current condition, considering the zoning at the time of taking , which establishes base value. And, second, the jury may consider the probability of the future zoning change or variance approval in determining the premium a buyer and seller would fix to the property. That premium is added to the base value and includes an assessment of the risk of the change occurring or being approved. (citations omitted.)
Under Caoili, property can be valued by either valuing the land as if the zoning change had taken place and then discounting the value to reflect the likelihood of the change and risk involved, or by valuing the land under the existing land-use restrictions and then adding value to reflect the likelihood of change. The method for determination of value is generally left to the judgment of the appraiser. It is unclear whether the Supreme Court intended to change the law in this regard or if it simply found it unnecessary to delineate the valuation process in detail. We anticipate that the court may require the preparation of two appraisal reports: the first, an appraisal of the property as presently zoned, and the second, an appraisal of the property as rezoned. The difference, with a discount for some uncertainty in the zoning process, should reflect the premium that a willing buyer would pay for the property in anticipation of the rezoning.
Edvie M. Castro contributed to this blog entry.
We now conclude that when a public project requires the partial taking of property, `just compensation’ to the owner must be based on a consideration of all relevant, reasonably calculable, and non-conjectural factors that either decrease or increase the value of the remaining property. In a partial-takings case, homeowners are entitled to the fair market value of their loss, not to a windfall, not to a pay out that disregards the home’s enhanced value resulting from a public project. To calculate that loss, we must look to the difference between the fair market value of the property before the partial taking and after the taking. In determining damages, the trial court did not permit the jury to consider that the dune would likely spare the Karans’ home from total destruction in certain fierce storms and from other damage in lesser storms. A formula – as used by the trial court and Appellate Division – that does not permit consideration of the quantifiable benefits of a public project that increase the value of the remaining property in a partial-takings case will lead to a compensation award that does not reflect the owner’s true loss. Compensation in a partial takings case must be `just’ to both the landowner and the public. United States v. Commodities Trading Corp., 339 U.S. 121, 123, 70 S. Ct. 547, 549, 93 L. Ed. 707, 712 (1950). A fair market value approach best achieves that goal.
Because that approach was not followed in this case, we reverse the judgment of the Appellate Division and remand for a new trial.
]]> In changing the rule on benefits that apply to beach replenishment easements, the Court has also changed the law with respect to all partial takings that may occur for any railroads, highway widenings, and utility easements. The Court in these partial taking cases will now have to conduct a Rule 104 hearing to determine whether there is adequate proof of benefits to present to the jury to offset the damages that occur as a result of partial takings. The Court has said that the standard for determining compensation will be the value before the taking as established by real estate testimony and the value after the taking, taking into consideration all factors which would be considered in the marketplace by the willing buyer and willing seller. At page 44 in the slip opinion issued today, the Court said:
Speculative or conjectural benefits conferred on a property owner whose land is partially taken by a public project should not offset a condemnation award because such benefits would not factor into a calculation of fair market value. On the other hand, reasonably calculable benefits – regardless of whether those benefits are enjoyed to some lesser or greater degree by others in the community – that increase the value of property at the time of the taking should be discounted from the condemnation award.
However, any future benefit, by its nature, is speculative or conjectural. What absolute assurances do the Karans or any other beachfront homeowner have that a dune will preserve their house in the next storm?
Although not discussed by the New Jersey Supreme Court, this decision will also effect the long-standing "project influence rule," which states that increases or decreases in market value, which have occurred as a result of the project should not be considered by a jury. See Jersey City Redevelopment Agency v. Kugler, 58 NJ 374 (1971). This will be a virtual Pandora's box of issues for trial judges and assuredly will result in more appeals.
]]>The central question on this appeal is whether public construction of an enormous oceanfront beach dune, for which plaintiff condemned an easement on defendants' land, conferred a special benefit on defendants' beach front property in Harvey Cedars. The dune is one part of a line of dunes, created by the Army Corps of Engineers (Corps), that will eventually run the length of the ocean side of Long Beach Island (LBI).The formerly-spectacular ocean view from defendants' house is now partially blocked by the twenty-two-foot high dune, which occupies one-third of their land. However, their house is now safer from storm damage because the dune was constructed. Judge E. David Millard concluded that construction of the dune did not confer a special benefit on the property. Instead, he found that the only benefit conferred was the general benefit for which the dune was constructed, i.e., to protect the island and its inhabitants from the destructive impact of hurricanes and nor’easters. We find no legal error in that ruling, which is consistent with established case law.
Peter Wegener of Bathgate Wegener in Lakewood represents the Karans and Lawrence Shapiro of Ansell, Grimm and Aaron represents Harvey Cedars. The ruling on the case will affect many of the beach replenishment cases not yet filed on Long Beach Island. Funding for the project comes primarily from the U.S. Army Corps of Engineers, the federal agency in charge of beach replenishment projects. Smaller portions are paid by the NJDEP and the smallest portion by the Borough of Harvey Cedars. Nevertheless, in true Cassandra fashion, Mayor Oldman of Harvey Cedars and Attorney Shapiro opined that these projects will not happen if the verdict is allowed to stand. Mr. Shapiro would like to change the law regarding the general benefits. As reported in the Asbury Park Press, Mayor Oldman said, “I don’t think the lower courts looked at it correctly....For us and the Army Corps of Engineers, this has a lot to do with the beach replenishment and the future of it.’’
See our previous blog entry Court upholds eminent domain award for beach replenishment project for related information.
]]>By William J. Ward and Winifred E. Campbell
Yesterday the Appellate Division unanimously dismissed a condemnation complaint filed by the Essex County Vocational-Technical Schools Board of Education (ECVS) for the acquisition by eminent domain of property owned by New United Corporation, consisting of 7.5 acres adjacent to Interstate 280, which was the former site of the United Hospital facility in Newark. Download New United Corporation v. Essex County Vocational-Technical School Board of Education.
The court ruling was based on the condemnor’s failure to engage in bona fide negotiations as required by N.J.S.A. 20:3-6, et al., of the Eminent Domain Act. The ECVS used its power of eminent domain with the intent to construct a county-wide regional school that would consolidate several existing technical and vocations schools in surrounding communities. In overturning the condemnation, the court stated, “[t]he record reveals nothing that remotely resembles bona fide negotiations by the Board of Education.”
The Eminent Domain Act requires the condemnor to engage in “bona fide negotiations” with a condemnee before commencing an eminent domain action. N.J.S.A. 20:3-6. This provision “encourage[s] public entities to acquire property without litigation…saving both the public and the condemnee the expense and delay of court action.” Township of W. Orange v. 769 Assocs., LLC, 198 N.J. 529 (2009). A cornerstone to protecting the Constitutional rights of property owners is the requirement that government entities seeking to exercise their power of eminent domain deal “forthrightly and fairly” with property owners. Jersey City Redevelopment Agency v. Costello, 252 N.J. Super. 247, 257 (App. Dic.), certif.. den. 126 N.J. 332 (1991).
]]> In this matter, the ECVS made an offer to New United on August 31, 2010. Pursuant to the Eminent Domain Act, New United had 14 days in which to respond to the Board’s offer before the Board could file a complaint in condemnation. N.J.S.A. 20:3-6. New United responded twice to the Board’s offer, on Sept 2, 2010 and on September 8, 2010. In each response, New United requested additional information from the Board as to the basis for its offer. In addition, New United provided evidence of a recent appraisal for the property and evidence of rental income that had not been considered in the Board’s offer. The Board made no reply to New United’s attempts to negotiate and instead filed a condemnation complaint.The ECVS’s failure to comply with the Eminent Domain Act’s pre-litigation requirements is fatal. The Appellate Division remanded the matter to the trial court for final judgment dismissing the complaint without prejudice. This decision emphasizes the importance of government candor and fairness in protecting the landowner’s Fifth Amendment rights.
Pursuant to N.J.S.A. 20:3-26(b) the property owner will be entitled to attorneys’ fees and costs incurred in contesting the eminent domain action in both the law and appellate division. R.2:11-4. See our prior blog post, Property owners get counsel fees on abandonment of condemnation (April 4, 2009). In addition, the property owners may claim damages pursuant to N.J.S.A. 20:3-24.
This decision represents a major setback for Essex County. The County had originally purchased a portion of the site as the intended relocation of the Essex County Hospital in Cedar Grove for $6.5 million. The relocation of the hospital never occurred, the County allowed its investment to deteriorate from lack of maintenance, and it changed its agenda. New United Corp. alleged that this change in direction by the County was a direct result of multiple law suits and court orders obligating the County to repair and maintain its portion of the site. In addition, the County deposited its estimated compensation of $4.8 million in the Superior Court Trust Funds for the acquisition in the eminent domain proceeding. Thus, the County has made a total investment of $11.3 million in this project with nothing to show for it.
William J. Ward, Esq. argued the case on behalf of First Steps Services for Children, Inc. and Winifred Campbell, Esq. assisted in writing the appellate brief.
]]>Sackett v. U.S.Environmental Protection Agency
Supreme Court of the United States No. 10–1062.
Argued January 9, 2012—Decided March 21, 2012
Last week the United States Supreme Court handed a decisive win to property owners battling to protect their due process rights against baseless environmental regulation. In Sackett v. EPA, the Sacketts were denied their due process rights when they attempted to challenge the Environmental Protection Agency’s (EPA) determination that the Sackett property was encumbered with wetlands. Download Sackett v. EPA.
The Sacketts purchased a 0.63 acre lot in a residential, platted subdivision in Idaho intending to build a house. All permits were granted by the local municipality and gravel was laid in preparation for building the foundation of the home. Without warning, evidence, or explanation, the EPA issued the Sacketts a “compliance order,” demanding construction stop and the land be returned to its pre-gravel condition. According to their attorneys at the Pacific Legal Foundation, the Sacketts were told by the EPA that it controlled the land because the land is “wetlands.” Failure to comply with the EPA’s order racked up fines of $75,000 a day.
]]> The question before the Supreme Court was whether the Sacketts could get judicial review of the EPA’s compliance order as a final agency decision without first applying for a wetlands development permit and being rejected. The Sacketts argued the compliance order was a final agency decision and requiring a property owner to go through the permit process before challenging the wetlands designation denied due process. For example, it was estimated the Sacketts could wait years for a permit, incurring more than $200,000 in expenses all the while incurring EPA fines, all to develop a lot that only cost $23,000. (see Pacific Legal Foundation Talking Points.) It was argued that such an interpretation would require property owners who challenge the EPA to pay huge sums to gain access to the Courts. The EPA argued the Clean Water Act, 33 U.S.C. §1251, et seq., precludes judicial review of a compliance order. It further argued that allowing judicial review would greatly hinder the EPA’s ability to enforce the Clean Water Act.The Supreme Court held the Sacketts may institute a civil action under the Administrative Procedure Act (APA), 5 U.S.C. §706(2)(A). The APA provides for judicial review of “final agency action for which there is no other adequate remedy in a court.” 5 U.S.C. §704. The EPA’s compliance order is a “final agency action.” Moreover, applying for a wetlands permit and then filing suit under the APA when the permit is denied does not provide an adequate remedy for the EPA’s action. Remanded.
Winifred E. Campbell is an associate with Carlin & Ward, P.C.
Yesterday the New Jersey Appellate Division affirmed a jury award in the amount of $375,000 for the acquisition of an easement in order to construct a dune in conjunction with a beach replenishment project. Download the decision.
In 1973, Harvey and Phyllis Karan built their “dream house” on the New Jersey shore in Harvey Cedars. Their home was uniquely situated with sweeping views of the beach, shoreline, and ocean. The Borough of Harvey Cedars, as part of a large-scale beach replenishment project in 2008, used eminent domain to take numerous easements from beach-front property owners to construct an enormous dune.
Harvey Cedars offered the Karans $300 for the taking, arguing any loss of views was de minimus and that they would receive a “special benefit” due to the added protection against beach erosion and future storm damage. The Karans argued the loss of view was so significant it reduced the value of their property by $500,000.
]]> The trial court heard arguments on whether the dune project constituted a “general benefit” versus a “special benefit.” General benefits are benefits that all property owners share in common with respect to a project. These benefits may not be deducted from a property owner’s just compensation.In contrast, a special benefit is one that cannot be shared by the general public and can serve as an offset that lowers the amount of just compensation owed to a property owner. See Village of Ridgewood v. Sreel Inv. Corp., 28 N.J. 121, 131-32 (1958).
The trial court in Karan held that the project constituted a general benefit and prevented Harvey Cedars from presenting evidence to the contrary. The Appellate Division affirmed, holding that “the protection offered to defendants’ property by the dune construction is a classic example of a ‘general benefit’” and no offset is warranted. The court continued, “while defendants’ property may be benefited in somewhat greater degree than its inland neighbors” such a fact is not a legally cognizable “special benefit” for purposes of valuation in a condemnation case.
Harvey Cedars has 20 days to file notice in order to petition the New Jersey Supreme Court for certification on this critical issue. For now, yesterday’s ruling stands as another victory for property owners in their fight to be adequately compensated for the taking of their property.
See our previous blog post on Harvey Cedars beach replenishment cases.
See Appeals panel awards Ocean County couple $375K in sand dune replenishment dispute published Tuesday, March 27, 2012, in The Star-Ledger.
Scott A. Heiart, Esq. is a partner with Carlin & Ward, P.C. in Florham Park, New Jersey.
]]>The United States House of Representatives passed with bi-partisan support H.R. 1433, The Private Property Rights Protection Act, on February 29, 2012. The bill aims to bar the federal government from using eminent domain for economic development. The bill would also withhold federal development funding to states that take private property for economic development. The bill is now being considered by the Senate.
The proposed Private Property Rights Protection Act is in response to the 2005 U.S. Supreme Court decision in Kelo v. City of New London. In Kelo, the Court upheld the condemnation of private property for transfer to other private owners to support “economic development.” The Kelo decision was met with outrage across the country. Frequently, the use of condemnation for economic development benefits wealthy developers at the expense of the poor and politically weak.
]]> Many states have responded to Kelo by passing laws that thwart the profitability of taking private property for economic development. For example, Mississippi passed legislation in 2011 that restricted the transfer of condemned property to another private owner for ten years after condemnation.New Jersey has been slow to respond to Kelo. The state’s strongest reaction may be seen in Gallenthin Realty Dev., Inc. v. Borough of Paulsboro, where the New Jersey Supreme Court reined in the definition of “blighted” property. Too frequently, municipalities were deeming property as “blighted” because it was not being used in an optimal manner. See our previous blog post, Reversal of Blight: Eminent Domain and Redevelopment.
It remains to be seen whether the Senate will choose to send a strong message in response to the Kelo decision by passing The Private Property Rights Protection Act.
Winifred E. Campbell, Esq. is an associate at Carlin & Ward licensed to practice in New Jersey and and Pennsylvania.
]]>In a rare example of a case meeting the stringent standard for inverse condemnation, the Appellate Division, in a ruling issued October 25, 2011, reversed the trial court and found the circumstances of that case constituted a taking in Ciaglia v. West Long Branch Zoning Board of Adjustment. The standard, which is a deprivation or substantially all of the beneficial use of the property, was met in this instance. The case was remanded to the trial court for the institution of an eminent domain case.
The court, in a per curiam unpublished opinion, discussed the detailed factual background of the property, which resulted in a conveyance to the plaintiff of a lot which did not meet current municipal standard. The judges called for a “heightened sensitivity on the part of local land use agents…in order to avoid regulatory takings that would be funded by the municipal treasury. “ (p. 18)
On two occasions, the plaintiff, Joseph Ciaglia, attempted to get approval of variances in order to build a single family home on the lot and was denied. In these circumstances, the court found that there had been a regulatory taking and that Ciaglia was entitled to compensation. The court followed and felt it was bound by the precedent set in the Moroney case. See Maroney v. Mayor and Council of Borough of Old Tappan, 268 NJ Super 458 (App. Div. 1993), cert denied, 136 NJ 295 (1994). In the Maroney case, the plaintiff had not exhausted his administrative rights to seek variance relief regarding the lot in question in that case. Here, Ciaglia had on two occasions sought variance approval and been denied; accordingly, the court remanded the case to the law division for the institution of condemnation proceedings.
]]> The plaintiff in this action was represented by Peter Wegener of the firm of Bathgate and Wegener. Because of his successful resolution of the litigation, he will be entitled to counsel fees and costs pursuant to the Eminent Domain Act of 1971, N.J.S.A. 20:3-26b.Based upon our review, we are satisfied that Ciaglia was entitled to substantially the same remedy awarded in Moroney. That is, a judgment requiring the Borough to commence procedures pursuant to the Eminent Domain Act of 1971 (the Act), N.J.S.A. 20:3-1 to -50 leading to its acquisition of Lot 20. We leave it to the Law Division to decide whether to appoint commissioners sua sponte, see Moroney, supra, 268 N.J. Super. at 461, or to oblige the Borough to follow some or all of the procedural minutiae of the Act.12 See, e.g., 769 Assocs., LLC, supra, 198 N.J. at 537.
The appeal was argued on September 21, 2011, before Judges Graves, J.N. Harris, and Koblitz.
On February 11, 2011, the Fordham Urban Law Journal presented a continuing legal education conference at the Fordham University School of Law entitled, “Taking New York: The Opportunities, Challenges, and Dangers posed by the Use of Eminent Domain in New York.” Many attorneys and non-attorneys from the eminent domain field spoke about various aspects of the challenges which have arisen in this area of the law in recent years.
One of the key issues discussed during the conference was the differing definitions of “blight” in each state, which is a major factor in determining whether a government may appropriate property by way of its eminent domain powers. Professor Lynn Blais of the University of Texas School of Law pointed out that while most states have enacted legislation limiting the use of eminent domain to take property for economic development or to be transferred to a private entity, such legislation has, at the same time, provided for an exception to this limitation in the case of “blight.” In other words, an eminent domain taking of property for non-public purposes can take place if a showing can be made that such a taking is necessary for the eradication of “blight” on the property. The following questions then arise: how is the concept of “blight” to be defined by the state legislature or constitution, and how is much judicial review of that definition can be exercised by the courts? The varying approaches to this issue by different states can be seen in the New York State Court of Appeals in Kaur v. New York State Urban Dev. Corp., 933 N.E.2d 721, 892 N.Y.S.2d 8 (2010), and the New Jersey Supreme Court in Gallenthin v. Paulsboro, 191 N.J. 344, 924 A.2d 447 (2007).
]]> Professor Ilya Somin of the George Mason University School of Law, who filed an amicus curiae brief on behalf of the property owners in the Kaur case, explained the reasoning behind the decision by the New York State Court of Appeals in this case. The New York State Constitution endows the legislature with the power to eliminate “insanitary” or “substandard” conditions found in real property by clearing, replanning, reconstructing, and rehabilitating such areas. N.Y. Const., Art. XVIII, Sec. 1. The controversy in the Kaur decision lies less in this clause of the state constitution than in the court’s interpretation of its power to review a determination of blight. In Kaur, the court authorized the use of the state’s eminent domain powers to allow redevelopment and expansion by Columbia University in the West Harlem neighborhood of Manhattan by holding that a finding of blight should be judicially overturned “only where there is no room for reasonable difference of opinion as to whether an area is blighted.” 933 N.E.2d at 730 (emphasis in original). Under this judicial standard, Professor Somin pointed out that since, as a practical matter, the Kaur court’s standard for overturning a blight determination is virtually impossible to meet, the court effectively held that no finding of blight in an eminent domain case can be judicially overruled. Professor Paula Franzese of the Seton Hall University School of Law added that since the Court of Appeals has given such “blind deference” to the legislature, the New York judiciary has effectively abdicated its role in eminent domain cases.The contrasting New Jersey approach to determining blight in eminent domain cases was expounded upon by Vice Dean Ronald K. Chen of the Rutgers University School of Law. Like the New York Constitution, the ”Blighted Areas Clause” of the New Jersey Constitution provides that the clearance and redevelopment of blighted areas is a public purpose which triggers the eminent domain powers of the government. N.J. State Constitution, Art. VIII, Sec. 1 and 3. Unlike the New York State Court of Appeals in Kaur, the New Jersey Supreme Court in Gallenthin did not grant “blind deference” to the Borough of Paulsboro’s designation of a 60 acre parcel of undeveloped wetlands as “blighted.” Instead, the Gallenthin court held that the government may not designate private property for redevelopment unless there is “substantial evidence” that the property meets the definition of “blighted area,” which the court defined as one that is characterized by “deterioration or stagnation that has a decadent effect on surrounding property.” 924 A. 2d at 460. Clearly, an undeveloped wetlands parcel would not meet the court’s definition of “blighted.” The impact of the decision is that the New Jersey judiciary has the power to overrule a finding of “blight” by the legislature or an administrative agency in an eminent domain case.
In short, the Fordham Law Eminent Domain Conference highlighted the distinction between the hands-off approach to eminent domain cases by the New York Court of Appeals and the more interventionist philosophy of the New Jersey Supreme Court. The long-term effect of this distinction is that, post-Kaur, New York property owners will be essentially powerless to challenge a blight designation by the legislature or other administrative agencies, no matter how egregiously inaccurate such a designation may be. New Jersey property owners, on the other hand, may still hope to seek judicial relief from an unjust determination of blight as a result of the Gallenthin decision.
Janice Dooner Lynch, Esq., guest blogger, is a graduate of Princeton University and Fordham University School of Law and is currently in private practice in New York.
Ed. comment - Neither the New York or New Jersey Legislatures have modified their respective eminent domain statutes as of the posting of this blog, although 43 states, according to the Institute for Justice, have modified their eminent domain procedures post Kelo. See our related blog posts on Kaur and Gallenthin. - William J. Ward, Esq.
The New Jersey Supreme Court issued a unanimous 7-0 opinion written by Justice Jaynee LaVecchia remanding Klumpp v. Borough of Avalon to the trial court to consider compensation for a beach replenishment taking which occurred first in 1965. Download the eminent domain decision here.
The Klumpps had built an ocean front home in 1961, which was destroyed by the famous nor’easter storm of 1962. After the home was destroyed, the Borough of Avalon appropriated the property for beach replenishment. No compensation was offered to the Klumpps. The Klumpps continued to be the record owner on the tax maps of Avalon and paid taxes. In 1995, the Klumpps sought permits to rebuild. By this time, Avalon no longer permitted access to the Klumpps property off the local road 75th Street. In addition, the Borough in 1995-96 denied Klumpp building permits and access permits thereby rendering the property useless. The Appellate Division found there had been both a physical taking in 1965 and a regulatory taking circa 1995 both denying the Klumpps all beneficial use and enjoyment of their property. See our previous blog post of August 6, 2009, Inverse condemnation at the beach. At no time did the Borough of Avalon offer any form of compensation to the Klumpps. The Supreme Court agreed with the Appellate Division and found there had been both a regulatory and physical taking of Klumpps property without compensation, contrary to the New Jersey Constitution, Article I ¶20 and the 5th and 14th amendments of the U.S. Constitution.
The critical ruling by the court in favor of Klumpp was the Supreme Court’s rejection of the statute of limitations argument set forth by the Borough of Avalon. The Court related the critical taking events to 1995-1996, when the Klumpps were denied building permits by Avalon. In remanding the matter to the trial court for consideration of inverse condemnation and just compensation, several interesting legal issues will come into play.
What is the date of valuation? N.J.S.A. 20:3-30(a)-(c) provides for a date of valuation to be the earliest of three events:
a) date of entry
b) date of interference with use and enjoyment of the property
c) date of the filing of the complaint
Because this is an inverse condemnation under N.JS.A. 20:3-26(b) the owners are due counsel fees and costs. See Township of West Orange v. 769 Associates and our blog post on April 9, 2009.
In addition, there is a large interest component to compensation. N.J.S.A. 20:3-31 provides for the payment of interest from the date of taking to the date of payment. Depending on the date of value selected by the court, the interest would be calculated from that date to the date of payment. Case law provides for annual compound interest. See Borough of Wildwood Crest v. Smith 235 NJ Super 404 (App.Div 1988). The interest rate is set by Rule 4:42-11(a)(iii) and varies from year to year. Current market value of a beach front lot is estimated to be in excess of $2 million by the Klumpps. Depending on the date of valuation, interest and the calculation of attorney’s fees and costs they will be amply compensated but probably not in excess of $2 million.
Related links:
New Jersey Law Journal (June 24, 2010): Court Stops Sands of Time to Allow Suit Over 1960s Beach Land Taking
Press of Atlantic City (June 23, 2010): Edward and Nancy Klumpp can seek compensation for beach lot taken by Avalon in 1962, state Supreme Court decides
New Jersey Digital Legal Library: New Jersey Supreme Court Oral Arguments in Klumpp v. Avalon (March 22, 2010)
]]>Fox Five News, Good Day New York segment, Eminent Domain Battle with Rosanna Scotto (May 21, 2010).
]]>"In recent years there has been an increase in legal challenges to the law when 'blight' is used as the primary reason by the state for a takeover...'The eminent domain process is subject to abuse. Where the controversy comes in is in redevelopment projects under the Local Redevelopment Housing Law (in NJ) that says certain areas of a city are blighted,' Ward told co-host Rosanna Scotto."
The unanimous panel remanded the Broadway Corridor cases back to the trial judge, Monmouth County Assignment Judge Lawrence Lawson. Instead of dismissing the eminent domain complaints, the court is fashioning a remedy which is not supported by the law.
Here the court arrived at a conclusion similar to the decision in City of Long Branch v. Anzalone, and City of Long Branch v. Brower, which both involved the MTOTSA neighborhood. The appellate panel, led by one of the judges who heard the Anzalone case and two who did not, invited Long Branch to revisit the blight issue and attempt to meet “the substantial, credible evidence” standard for proof of blight. Here the court wrote in its opinion:
However, our courts have cautioned that the "substantial evidence" standard requires "a record that contains more than a bland recitation of applicable statutory criteria and a declaration that those criteria are met." Gallenthin, supra, 191 N.J. at 373. That standard similarly prohibits a municipality from exercising eminent domain on findings that are "supported by only the net opinion of an expert." Ibid. Instead of simply describing the physical and financial status of the properties to be taken, the municipality or its expert must perform "an analysis of the statutory criteria as [they] applied to each of the properties in the designated" redevelopment area, and of how each property's condition reflected or contributed to the area's blight. ERETC, supra, 381 N.J. Super. at 279-80.
The city will not be able to prove blight under this standard. Why not dismiss outright? That’s the law.
Contrary to popular opinion, the decision written by Justice Zazzali in Gallenthin v. Paulsboro did not establish new law. It reiterated what has always been the law: Blight must be established by substantial, credible evidence. A mere recitation of the statutory criteria found in N.J.S.A 40A:12A-5 (a-h) is not enough. Blight must be proven. This is not a novel idea. What is apparent in the case law is that municipalities and their selected developers were blighting properties indiscriminately without the requisite proof. The clear message in Gallenthin was that this practice would no longer be tolerated by the state’s highest court, and the lower courts have fallen in line.
This does not mean that redevelopment is dead, but it does means that eminent domain abuse, as practiced by some municipalities on behalf of politically connected developers, will not be tolerated. Municipalities will have to be more creative in their redevelopment efforts. This will force real negotiations for acquisition of properties.
Keeping the case alive only gives the city of Long Branch leverage to negotiate fees and costs. Per N.J.S.A. 20:3-26 (6) See our blog on West Orange v. 769 Associates (April 9, 2009). Then when a number is agreed upon, Long Branch will dismiss the cases. The statute only pays for attorneys’ fees and costs. The ancillary damages to property owners such as Gopal Panday, who lost his business in the process, and the Lighthouse Mission and Rev. Kevin Brown, who has since moved from Long Branch, remain uncompensated. They will not be able to regain what was lost here.
LINKS
City of Long Branch v. Anzalone eminent domain settlement agreement (September 18, 2009)
Long Branch case reversed, remanded (August 7, 2008)
N.J. Supreme Court clarifies 'blight' meaning in Gallenthin eminent domain case (June 13, 2007)
Kelo anniversary, the eminent domain abuse saga continues (June 23, 2006)
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