As reported by our Owners Counsel colleague, Mike Rikon, the New York Appellate Division reversed a Supreme Court ruling that had dismissed a regulatory takings claims in Blue Is. Dev., LLC v Town of Hempstead, 2015 N.Y. App. Div. LEXIS 6363, 2015 NY Slip Op 06488 (N.Y. App. Div. 2d Dep’t Aug. 12, 2015).  The property owner purchased a property with the intention of developing 172 waterfront condominium units.  A use variance was granted by the municipality, but there was a condition attached to the approval requiring the owner to sell all the units as condos, but permitted the subsequent owner to rent the units.  The property owner petitioned the municipality to relax the restrictive covenant and the Town modified the subject covenant in a resolution dated July 13, 2010, to provide that Blue Island “was permitted to lease up to 17 of the 172 units for a period of five years after the issuance of the certificate of occupancy or until the delivery of title to the 155th unit, whichever occurred first. In 2013, Blue Island sought a further modification allowing it to sell 32 units and maintain the remaining 140 as rentals. In a resolution dated November 12, 2013, the Town denied this application without explanation.”

The property owner filed suit challenging the restrictive covenant on two bases: 1) the covenant was beyond the authority of the municipality because it was a regulating the owners ability to alienate the land, not the owners use of the land; and 2) that the covenant effectuated an unconstitutional taking based on a denial of development.  The Appellate Court found both challenges had merit and should not have been dismissed by summary motion practice:

“Here, Blue Island’s complaint alleged both that the restrictive covenant did not advance any legitimate municipal interest and that the covenant denied it an economically viable use of the land. Whether Blue Island can ultimately demonstrate that the denial of a modification to the restrictive covenant effects a taking, it has stated a claim, and the Town has not pointed to any documentary evidence defeating that claim. Accordingly, upon reargument, the Supreme Court should have adhered to its prior determination denying that branch of the Town’s motion which was to dismiss the unconstitutional taking cause of action.”

We’ll keep our eyes on Bulldozers at Your Doorstep to see what happens.

Property tax issues arise commonly when a property designated for redevelopment fails to become a reality as originally proposed.  In Seaboard Landing, LLC (“Seaboard”) v. Borough of Penns Grove (“Borough”), the Borough envisioned a redevelopment plan to revive a struggling commercial area along the waterfront on the Delaware River.  In 2003, the Borough issued final site plan approvals to 10-acres of vacant waterfront land (the “subject property”) owned at the time by Fenwick Commons, LLC.  The redevelopment plan which was later known as “The Riverwalk at Penns Grove” was designed to be a 191,000 square-foot, riverfront entertainment center with retail, dining, hotel and marina facilities overlooking the Delaware River.  To that end, the Borough rezoned the waterfront area, created marina districts, and sought necessary funding for the project by obtaining grants and loans from the State and the adoption of bond ordinances.  Today, a 30 feet by 770 feet walkway along the Delaware River and a bulkhead is the only visible achievement of “The Riverwalk at Penns Grove.”  The project came to a halt after the construction of the bulkhead and walkway in 2007, and the 10-acre vacant waterfront lot remains deserted to this day.  In 2007, Fenwick Commons, LLC sold the property to the plaintiff in the present matter, Seaboard Landing, LLC.

Penns GroveThe issue at trial was the Borough’s omitted added assessments on the subject property for tax years 2007 and 2008, as well as the assessments for tax years 2011, and 2012.  Following the construction of the walkway and bulkhead in 2007, the Borough’s tax assessor placed an omitted added assessment prorated for the last two months of tax year 2007 ($208,333), and for the entire tax year of 2008 ($1,250,000).  When the average ratio is applied to the added assessment, the implied equalized value of the two-month prorated assessment for 2007 is $343,162, and $2,314,815 for the entire 2008 tax year.  A municipal-wide revaluation was undertaken in tax year 2009 which assessed the subject property at $3,363,100 which was the valuation challenged by Seaboard for tax years 2011, and 2012.

At trial, Seaboard and the Borough both presented expert testimony from a licensed real estate appraiser.  Both experts concluded that the subject property was over-assessed on all of the relevant valuation dates.  Seaboard’s expert relied on the cost approach and concluded that the true market value of the subject property was $876,000 as of October 1, 2011, the valuation date for tax year 2012.  Seaboard’s expert, however, provided no detailed analysis to find the true market value for purposes of the omitted added assessments for tax years 2007, and 2008 or for tax year 2011.  Instead, Seaboard’s expert testified that the value conclusion reached for tax year 2012 was the same for all prior years under appeal.  Meanwhile, the Borough’s expert applied the sales approach and concluded that the subject property had a true market value of $2,420,000 for the relevant valuation dates after the completion of the walkway and bulkhead, and a value of $1,820,000 for tax years 2011, and 2012.

The Tax Court judge rejected the net opinion of Seaboard’s expert that his value conclusion for tax year 2012 would apply to the prior years.  The court noted that the expert made no substantive analysis in his report to sustain such a finding.  Moreover, the expert’s own opinion contradicted his time adjustments to the comparable sales prices he used for tax year 2012 since the adjustments were based on market fluctuations.  The court also did not find the expert credible given that he opined that the bulkhead and walkway, which was constructed in 2007, depreciated 75% in value in just five years.

Nevertheless, the Tax Court reduced the challenged assessments for the tax years under appeal.  The court found that the sales approach utilized by the Borough’s expert was credible and more applicable for purposes of valuing vacant land.  However, the court found that the Borough’s expert gave too much weight to one sale and further misapplied that value to 12.12 acres when in fact it should have been 10.542 acres.  After correcting the adjustments and re-applying it to the correct acreage determined by the court, the added assessment prorated for tax year 2007 was reduced to $68,880, as well as tax year 2008 which was reduced to $314,300.  The assessments for tax years 2011 and 2012 were also reduced from $3,363,100 down to $1,460,000 and $1,475,000, respectively.

Rarely will a municipality prepare an appraisal report that concludes a value significantly much lower than the assessed value and take it to trial.  The failed redevelopment plan may have left a bitter taste with the Borough given that Seaboard had not made any repayments to the Borough for obtaining loans to build the bulkhead and walkway, and retreated on its intentions to redevelop the property.  However, there may yet be some hope for the Borough as the property was recently foreclosed, and a new owner and the Borough are discussing future plans to redevelop the waterfront property.

Here is an excellent recent article on the propriety of attempting to use eminent domain to “take” underwater mortgages in various places around the country.  Entitled “Eminent Domain for UnderwaterMortgageUnderwater Mortgages: Already on the Way to the Bottom of the Sea of Bad Ideas” , our Owners Counsel of America colleague Dwight Merriam summarizes what’s wrong with this idea, as we have done before on several occasions.

Thanks to Dwight for the excellent read, and also to our colleague Robert Thomas for his heads up and his own succinct summary (and Sonny & Cher video) on topic!

One way to imagine being on the island of St Thomas is to read an opinion of the Supreme Court of the Virgin Islands.  This “vacation” is work related because it is a condemnation case. The case is Beachside Associates, LLC v. Virgin Islands Water and Power Authority and was published on June 30, 2015.

The Water Authority filed its condemnation case to acquire certain utility easements over property owned by Beachside Associates on St. Thomas.  The lower court issued an order authorizing the taking and provided for further proceedings to determine just compensation, and the property owner filed a notice of appeal.  The Water Authority moved to dismiss, arguing that the appellate court had no jurisdiction because the appeal was interlocutory.  The Owner did not dispute that the appeal was interlocutory but nonetheless asked the court to hear the appeal because the issue of the right to take was “finally” determined.  The Supreme Court disagreed and dismissed the appeal.  The Court reasoned that the issue was statutory, and the Virgin Islands  code mimicked the Federal code which authorized the immediate transfer of the easement at any time “before judgment”.  Moreover, the United States Supreme Court has already interpreted the statute to mean that there is no right to interlocutory appeals to question the authority of a quick take.

Back on the mainland, under New Jersey’s Eminent Domain Act, there are two final judgments in every condemnation action.  The first is when the Court initially authorizes the taking of private property for public use.  An immediate appeal of right is available to the property owner to challenge that ruling on substantive or procedural grounds.  The second final judgment issues after just compensation is determined.

Back to work!

The U.S. Supreme Court (“SCOTUS”) recently delivered its decision in Horne v. Dept. of Agriculture on the issue of the reserve requirement for raisins under the Agricultural Marketing Agreement Act of 1937 (“AMA”).  Our fellow Owners Counsel colleagues from New York and California, Michael Rikon and Robert Thomas, have kept a close watch on the case and offered a great summary which can be read here and here.

The AMA authorizes the Secretary of Agriculture to promulgate “marketing orders” which help maintain stable markets for a particular agricultural product.  The Raisin Administrative Committee was established to set forth the required allocation of raisins to the Government, free of charge.  Once the raisins are seized by the Government, they may be sold in non-competitive markets, dated, or disposed of in a way consistent with the program, and any profits that are left over after deducting the Government’s expenses is distributed back to the raisin growers (profits are rarely ever left over however).  Relevant to the present case, the Raisin Committee directed raisin growers to set aside 47% of its crop to be allocated to the Government in 2002-2003, and 30% in 2003-2004.  The Hornes, who are raisin handlers and growers, refused to meet the reserve requirement (the Government actually sent trucks to Hornes’ facility one morning to pick up the allocated raisins and the Hornes refused entry).  Needless to say, the Government fined the Hornes the market value of the missing raisins as well as additional civil penalty.

SCOTUS ultimately agreed with the Hornes that the Government’s reserve requirement of raisins was a physical appropriation of personal property which was a “clear physical taking.”  Citing to the Magna Carta (which recently celebrated its 800th birthday in June), SCOTUS reiterated the long-standing principle of just compensation for takings in private property.  SCOTUS noted the historical context of the clause by stating that the “colonists brought the principals of Magna Carta with them to the New world, including that charter’s protection against uncompensated takings of personal property.”  The Takings Clause was “probably adopted in response to the “arbitrary and oppressive mode of obtaining supplies for the army, and other public uses, by impressment, as was too frequently practised during the revolutionary war, without any compensation whatsoever.” Blackstone’s Commentaries, Editor’s App. 305-306 (1803).  SCOTUS found “nothing in this history [which] suggests that personal property was any less protected against physical appropriate than real property.”

The Government contended that raisins are “fungible goods whose value is derived from revenue from their sale” and thus the raisin reserve requirement was not a taking because the raisin growers retain the most important property interest (i.e. the net proceeds).  SCOTUS however was not persuaded.  The Government cannot “avoid the categorical duty to pay just compensation for a physical taking of property by reserving to the property owner a contingent interest in a portion of the value of the property, set at the government’s discretion.”  “The fact that the growers retain a contingent interest of indeterminate value does not mean there has been no physical taking, particularly since the value of the interest depends on the discretion of the taker, and may be worthless. . .”

The Government further claimed that there was no taking here because raisin growers voluntarily participate in the raisin market.  The Government suggested that the raisin growers can either “plant different crops,” or “sell their rain-variety grapes as table grapes or for use in juice or wine.”  SCOTUS flat-out rejected the Government’s argument as a matter of law.  Furthermore, SCOTUS did not deem the reserve requirement to be a voluntary exchange in light of the Government required reserve requirement of 47% for one year, and 30% in the year thereafter.  “Selling produce in interstate commerce, although certainly subject to reasonable government regulation, is similarly not a special governmental benefit that the Government may hold hostage, to be ransomed by the waiver of constitutional protection.”

As is the case for any takings under the Fifth Amendment, the Government must pay just compensation.  In the instant matter, measuring just compensation was easily determined by SCOTUS given that the Government had already calculated that amount when it fined the Hornes the fair market value of the raisins when they failed to meet the reserve requirement.  “The Government cannot now disavow that valuation.”

Justice Breyer, joined by Justice Ginsburg and Justice Kagan, dissented the majority’s rejection of the Government’s request for a remand to determine just compensation.  In the dissent, Justice Breyer noted that the purpose of the reserve requirement is to maintain stability in the prices of raisins, and, in part, may enhance the price of the raisins on the open market.  Similar to a partial taking of real property, Justice Breyer argued that the Court should have remanded the case to determine the set off between the value of the raisins taken and the value of any benefits conferred by the reserve requirement.  If “the value of the raisins taken exceed the value of the benefit conferred,” the reserve requirement would be a taking without just compensation.  However, if “the benefit might equal or exceed the value of the raisins taken,” in which case the reserve requirement does not effect a taking without just compensation.

Given the Government’s regulations on various other agricultural products, what sort of fall-out may this decision have on other Government price-support programs?  After fighting the Government for more than a decade, the U.S. Supreme Court’s decision was a victory for plaintiffs.  Raisin growers will no longer have to abide by the reserve requirements and raisin consumers can also rejoice in the fact that the SCOTUS has deemed raisins as a “healthy snack.”  Unfortunately, the Government’s raisin reserve is sure to dry up now.

Two recent decisions in New Jersey once again addressed good faith negotiations that are required of condemning authorities prior to commencing condemnation litigation.  In County of Morris v. Randolph Town Center Assocs., L.P., the property owner appealed the lower’s court’s decision arguing that the condemning authority failed to fully disclose certain aspects of the project in its appraisal, and also violated the duty to negotiate in good faith.  A copy of the Appellate Division’s decision in Randolph may be found here.

Similarly, in County of Bergen v. Rosemarie Arnold (available here), defendant Rosemarie Arnold (“Arnold”) alleged that the County’s (“Bergen”) “take it or leave it” offer failed to constitute as a bona fide negotiation, and thus Bergen was abusing its power of eminent domain.  Nevertheless, the trial court in Arnold and the Appellate Division in Randolph each concluded that the condemning authorities fully complied with the requirements of bona fide negotiations, and thus were entitled to duly exercise its’ power of eminent domain. 

In Randolph, the County of Morris (“Morris”) proposed to take an easement on a strip of undeveloped land for road widening and drainage.  Morris gave notice to Randolph of the proposed taking and thereafter forwarded its constructions plans to Randolph.  Morris conducted an inspection of the property conducted, which Randolph declined to attend.  Morris thereafter completed its appraisal, and made its offer of compensation to the property owner. 

Meanwhile, in Arnold, Bergen initially sought a temporary easement of one year for use of Arnold’s property during the reconstruction of a bridge nearby.  Arnold alleged that despite having not entered into any agreement for the temporary easement, Bergen entered onto her property to proceed with the project, and during the process damaged her property.  In response to Arnold’s complaints, Bergen requested and later received from Arnold an invoice of the damages claimed.  Thereafter, Bergen offered to compensate her for the damages and also made an offer for three (3) permanent easements.  It was determined by Bergen after the project that permanent easements were necessary for ongoing maintenance and repairs of the bridge in the future. 

The negotiation processes in both cases were different.  In Randolph, the property owner waited nearly five (5) months to respond directly to Morris’ initial offer for the easement.  When Randolph did respond, it initially provided a memorandum that addressed concerns about the impact of the proposed taking on the remainder of the property and, after consideration, Morris concluded that the proposals by Randolph were not feasible due to pre-existing requirements on the land set forth by the NJDEP.  In the end, a compromise between Morris and Randolph could not be reached and Morris thereafter proceeded with the condemnation action.

In determining whether a condemning authority satisfied the good faith negotiation requirement of N.J.S.A. 20:3-6, the Appellate Division in Randolph stated that the analysis was “a context-sensitive inquiry.”  Comparing the facts here to prior cases such as County of Morris v. Weiner, the Appellate Division examined the actions of both parties during the negotiation process.  Unlike in Wiener, the facts of Randolph demonstrated Morris’ diligence and willingness to negotiate a settlement with Randolph.  The Appellate Division in Weiner rejected the condemnor’s actions of an “offer on a take-it-or-leave-it basis,” and stated that to require nothing more than an offer and a time period for acceptance or rejection “would simply eviscerate the bona fide negotiations requirement from the statute.”  Here, the Appellate Division found that Randolph “was generally unresponsive to the County’s advances,” while Morris complied promptly with Randolph’s’ requests and provided articulated reasons for rejecting Randolph’s counteroffers.  The court went further stating that Randolph did not even address the material issue (i.e. valuation) but “instead raised concerns about the underlying construction, which could have been raised at the planning stage of the project.”  In light of these facts, the Appellate Division concluded that Morris satisfied the bona fide negotiation requirement and affirmed the lower court’s ruling.  

In contrast to Randolph, prompt communications went back and forth between the two parties in Arnold.  In response to Bergen’s offer, Arnold twice timely requested an opportunity to hire an independent appraiser, and twice requested an explanation as to Bergen’s necessity of the easements. The rift between the parties was the fact that Arnold was not satisfied by Bergen’s explanation with respect to its necessity for the easements. Although Bergen responded and explained its position, Arnold contended that the explanation given was insufficient.  Two months after their last correspondence to this effect, Bergen filed a condemnation action.

The trial court in Arnold likewise concluded that Bergen “entered into and maintained bona fide negotiations.”  Similar to the findings of the Appellate Division in Randolph, the trial court here indicated that Arnold failed to provide any evidence of value to counter Bergen’s offer, and concluded that although Arnold had the right to retain her own appraiser, “she does not have the right to enjoin [Bergen] from initiating a condemnation action indefinitely while she contemplates getting an independent appraisal.”  In addition, the court deemed Arnold’s continued refusal to accept Bergen’s explanation of the necessity of the easements even after Bergen “proffered a rational, competent response” as an indication of “[d]efendant’s failure to cooperate.”  In light of the court’s determination that Bergen engaged satisfactorily in bona fide negotiations, the court found that Bergen did not act in bad faith in its institution and litigation of the condemnation action.  

Going forward, are these two decisions a sign of courts shifting the burden to the condemnees during the negotiation process once an offer is made by the condemnor?  Or were the facts of these cases sufficient to hold that the condemnors did enough to engage in bona fide negotiations?  Where should the line be drawn in the future?  

McKirdy & Riskin’s Harry J. Riskin and Thomas Olson served as counsel to the property owner in the County of Morris v. Weiner case cited above.

The Federal Circuit of Appeals issued its opinion in Lost Tree Village Corp. v. United States, a regulatory takings case, on June 1, 2015.  Our Owners’ Counsel colleague Robert Thomas beat us to the punch (of course), and provided an excellent case synopsis in his Inverse Condemnation blog, available here.  In brief, the Court of Claims held that the government’s denial of a permit to fill 4.99 acres of wetlands constituted a per se regulatory taking under Lucas v South Carolina Coastal Commission, 505 U.S. 1003 (1992), and that there was a regulatory taking under Penn Central v. New York City, 438 U.S. 104 (1978).  The Circuit Court affirmed the Lucas Taking, and found that it was unnecessary to reach the trial court’s alternate holding.

The U.S. Army Corps of Engineers denied the permit application in 2004, and the owner sued alleging that the property was worth $4.8 million with a permit and $25,000 without a permit.  The government did not genuinely dispute the owner’s valuation, but argued that the relevant parcel included other lands owned by Lost Tree, which argument was successful before the Circuit Court ruled on the first appeal that the relevant parcel was the 4.99 parcel.  On remand, the trial court found that the permit denial resulted in a loss in value of of 99.4%.  The question presented was thus “whether residual value from non-economic uses precludes application of Lucas and requires application of Penn Central’s balancing test.”  The Circuit Court agreed with the government that “a Lucas taking is rare” but concluded that Lost Tree was an example of the breed, however rare.  The Court also rejected the government’s argument that sale – even for nominal consideration – was an economic use that precluded application of Lucas’ per se taking doctrine.

In affirming, the Circuit Court also relied on (and perhaps resurrected) Loveladies Harbor, Inc. v. United States, 28 F. 3rd 1171 (Fed Cir. 1994) a case which concerned Bayfront property on Long Beach Island.  There, the Federal Court also found a categorical Lucas taking of 12.5 acres of Barnegat Bayfront property caused by the Army Corps (and DEP’s) denial of a fill permit.

We’ll keep an eye out for the petition for certiorari.

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