Updating our recent entry on the Property Reserve case (here), the California Supreme Court has decided to review the Appellate Court’s finding that the Water Resource Board’s preliminary entry constituted a taking under California’s law of the eminent domain.  The appellate court ruling meant that the State was going to have to pay just compensation to thousands of property owners in order to conduct invasive preliminary testing on the viability of a tunnel to transport fresh water from Northern California to the arid South.  The California Supreme Court limited review to the following questions:

(1) Do the geological testing activities proposed by the Department of Water Resources constitute a taking? (2) Do the environmental testing activities set forth in the February 22, 2011, entry order constitute a taking? (3) If so, do the precondemnation entry statutes (Code Civ. Proc., §§ 1245.010-1245.060) provide a constitutionally valid eminent domain proceeding for the taking?

Full text of the Order is available here.

Looking forward to the briefs and decision.

As reported by the Washington Post here, a bill that would have increased the annual “tax credit” budget for production companies filming in Maryland (like Netflix’s House of Cards and HBO’s Veep) from $15M to $18.5M failed to pass last week in Maryland’s General Assembly. House of Cards Cast(2) The fate of House of Cards filming in Maryland remains uncertain, but there was no talk of eminent domain this time around (maybe the Legislators figured out that if they took “House of Cards” they would actually have to pay just compensation for what they took.  That might just break the budget). Our prior blog on topic is here.

On March 10, 2014, the United States Supreme Court issued its almost unanimous (8-1) decision in Brandt Revocable Trust v United States.  The question presented is detailed in our prior blog here, but simply stated, the government argued that it owned the ground underneath an abandoned railroad right-of-way that permitted it to continue the Medicine Bow Rail-Trail across private property owned by Brandt without payment of just compensation.

The core question was whether the 1875 Railroad Right of Way Act granted easements or limited fee interests to railroad companies to spur America’s growth west-ward.  The answer, disappointing to rails to trails advocates, was that the original grant was only an easement.  Therefore when the railroad right-of-way was abandoned, the underlying land returned to the fee owner, here Brandt.  Thus, in order to reopen that portion of the Medicine Bow Rail-Trail, the government would have to utilize its eminent domain power to acquire the private property along with the constitutional duty to pay just compensation.

It will be interesting to see whether the government actually condemns private property to create new trails and/or legitimize existing trails, or whether property owners will claim that creation of a trail was a temporary taking requiring payment of compensation.

More information about this case is available on the Inverse Condemnation Blog by our Owners’ Counsel of America colleague, Robert Thomas, who submitted an amicus curiae brief in the Brandt matter.

Hudson County Assignment Judge Peter Bariso recently rejected a property owner’s argument that the date of value should be a date earlier than the commencement of condemnation action on August 23, 2012.  City of Hoboken v. Ponte Equities, Inc. (Docket No. HUD-L-4095-12).  The property owner argued that the date of value should have been June 11, 2008, the date the City of Hoboken allegedly took action that substantially affected the owners’ use and enjoyment of the property consistent with N.J.S.A. 20:3-30, which requires the court to set the date of value as the “earliest” of four possible dates.  On that date, the City introduced an ordinance(Dr-366), and adopted two resolutions.  That ordinance recommended rezoning certain properties to open and recreational space, including Ponte’s property.  Dr-366 was never adopted.

Resolution 08-206 was a “Resolution Supporting Acquisition of Block 11 for Open Space,” and recommended that the zoning board of adjustment post-pone all pending variance applications for properties within Block 11 or identified in Ordinance Dr-366.

Resolution 08-207 authorized retention of an appraiser to value several properties to be used in support of a future City application to obtain Open Space Trust Funds to acquire the properties appraised, including Ponte’s.  The City’s 2009 appraisal valued the Ponte property at $10,070,000 for residential development.

On March 16, 2011, the City adopted the 2010 Master-Plan Re-Examination Report, which recommended park use for the subject.  The City re-appraised the subject in 2011 at $2,350,000 for continued use as a public parking lot.   The City offered Ponte this amount to acquire the property.  Upon rejection a condemnation complaint was filed on August 23, 2012.

Ultimately a bench trial was held in January of 2014 to determine the appropriate date of value.  The owner presented two expert witnesses; a professional planner and an appraiser.  The court was critical of the planner because he did not provide any factual support for his opinion that a variance application to build residential on the subject property as of the date of complaint (2012) was any less likely than as of the earlier date (2008).  The court also criticized the appraiser for failing to bring any examples of variance denials after the June 2008 municipal actions, and also for failing to offer an opinion on whether the municipal action affected the property value other than to generally agree with the City’s appraisal valuation for residential ($10M) and parking ($2.3M).

Without recounting the entirety of the opinion, the Court found the lack of factual foundation for the experts’ opinions fatal.   Since the planners and the appraisers “testimony lacked any factual basis, they constitute net opinions for failing to meet the threshold requirements of N.J.R.E. 702 and N.J.R.E. 703. Consequently, Hoboken’s motion in limine to exclude Ponte’s experts’ testimony is granted. As a result, Ponte has failed to offer sufficient evidence to find June 11, 2008 as the appropriate valuation date pursuant to N.J.S.A. 20:3-30(c).” [Slip op. at 27].

The apparent lack of factual support for the property owner’s contentions might ultimately assist in determining just compensation because there is an argument that a buyer and seller would take into consideration the probability of a variance to build residential as of the date of the commencement of the action.

A copy of the court’s opinion in this matter is available here.

While not our prototypical condemnation case, a trial judge in Ocean County aptly reversed a local zoning board in Jerman v. Tp. of Manchester (Docket No. OCN-L-1844-13).  If affirmed the zoning board’s denial of a bulk variance that would have zoned the property into inutility; that is, it would have rendered the property valueless and would thereby give rise to a claim for an unconstitutional taking of private property without payment of just compensation.

Jerman applied to the zoning board for a variance to construct a single-family residence on an undersized lot.  Before applying, Jerman unsuccessfully attempted to purchase portions of neighboring lots to cure the bulk deficiency and offered to sell the lot to the neighbors.  Hence, all other criteria having been satisfied, the bulk variance should have been granted.  Had the judge on appeal not reversed the decision, the property owner could have filed suit against the municipality for a taking, i.e. an inverse condemnation action.

The municipality should be thanking the judge for saving it the time and expense of defending the inverse, which it was bound to lose.  And in that event, the municipality would have been on the hook for all of the property owners’ expenses, including attorneys’ fees.

In a two-judge unpublished opinion (full text here), a New Jersey appeals court reviewed a property owner’s claim that the City’s tactic – of threatening acquisition by eminent domain during land use proceedings – was a taking of private property warranting payment of just compensation. (100 Paterson Realty, LLC v. City of Hoboken, Docket No. A-1016-12T2).  The trial court found no taking, and the Appellate Division agreed.

The property consisted of 6,000 s.f. of land area containing a 3,000 s.f. commercial building.  The property was zoned R3 and would permit residential development.  The property was identified as potential open space/parkland in the 2004 Master Plan.  Appellant purchased the property in 2006 for $2M with knowledge of the zoning and the master plan notation.

Later in 2006, Appellant submitted an application to the Zoning Board of Adjustment for approval of 14 residential units.  That application was withdrawn due to “push back” from the public.

In late 2007, Appellant submitted a second application to the Zoning Board, which called for a mixed-use development (retail/commercial museum use with residential), which requirement “multiple variances.”  A hearing on the application was scheduled for June 17, 2008.  However, on June 11, 2008, the City Council took several actions inimical to the property owners pending application.  The Council passed a resolution that authorized acquisition of the property for open space, and also passed a resolution authorizing appraisal of the property (a statutory predicate to exercise of eminent domain).  Then, the Council introduced an Ordinance to change the zoning of the property from R3 to “Open Space.”  One of the resolutions asked the Zoning Board to “postpone consideration of all applications” then pending.  Therefore, the June 17, 2008 Zoning Board hearing was adjourned without date.

In October 2008, Appellant’s partner on the Museum venture withdrew due to altered circumstances.  Appellant sued the City in November 2008 alleging that the City’s actions affected a taking of private property for which compensation was due, i.e. filed an inverse condemnation action.  The City responded by advising that the Open Space ordinance had been “tabled permanently” and that the pending application could proceed without delay.

The parties agreed to stay the litigation and discussions ensued.  The City obtained an appraisal of the property at $2.1M, but in January 2010 advised that acquisition was not possible due to funding issues.

In January 2011, plaintiff filed an “as of right” plan for development of 9 residential units, which meant that the Planning Board would be required to approve the plan as drawn.  In March of 2011, Planning Board adopted a Master Plan Reexamination Report that continued to recommend the subject for parkland.  In August of 2011, Appellant voluntarily withdrew the “as of right” plan because the threatened acquisition and “parkland” designation frustrated his ability to obtaining financing, and rendered development of the property “fruitless”.

The dormant inverse case was revived and the case proceeded to trial.  The owner presented two witnesses to advance his theory.  The trial judge rejected the owner’s claims, finding that the commercial building was rented during the entire episode and that while the City’s actions may have impacted the owner’s ability to develop the property as he wanted, it did not deprive the owner of all beneficial use of the property.

The Appellate Division echoed the trial court’s findings and also underscored the fact that the owner voluntarily withdrew his “as of right” residential development.  The Court also held – as a matter of law – that the owner’s claims that the City’s action frustrated his ability to finance the project were not compensable. (“Lost economic opportunities allegedly occasioned by pre-taking government activity do not constitute a compensable “taking” under either the United States or New Jersey Constitutions.”) (Slip op. at 13).

That final aspect of the decision is inconsistent with regulatory takings jurisprudence.  If government action has an economic impact and frustrates an owner’s reasonable investment-backed expectations, the government action is a taking requiring payment of just compensation under the New Jersey, and United States, Constitution.  However, it appears that the as of right application should not have been withdrawn and that was the final nail in the coffin for this property owner.

The New Jersey Supreme Court recently considered whether it was proper, at a trial to determine just compensation, to allow a jury to hear evidence regarding the likelihood of a zoning approval without having the trial court first determine, outside of the jury’s presence, that there was a reasonable probability of such approval.  The issue arose when the Borough of Saddle River acquired a property which lay in an office zone and a residential zone.  The property owner, through its experts, sought to argue that it would be entitled to a “c” variance to develop a larger percentage of the property than the local zoning laws permitted.  The Borough disagreed and filed a motion before trial to exclude the evidence, but the trial court denied the motion by deferring its decision until the information was presented at trial.

At trial, the property owner’s experts testified that the highest and best use of the property would be a 10,000 square foot bank building, and that there was a reasonable likelihood that the application would be entitled to a bulk variance.  Prior to jury deliberation, the Borough renewed its motion to strike the testimony of East Allendale’s experts which the trial court denied by finding that a reasonable probability of a potential zoning change existed based on the testimony.  On appeal, the Borough argued that although the experts were permitted to present the arguments that they would have set before the Board in favor of the bulk variance, they did not address the positive and negative criteria under the Municipal Land Use Law (MLUL), N.J.S.A. 40:55D-1 to -163, which would have been required for Board approval.  The Appellate Division affirmed the trial court’s decision, concluding that there was sufficient evidence of a reasonable probability of a zoning change and that the jury could consider that evidence.  Borough of Saddle River v. 66 East Allendale, LLC, 424 N.J. Super. 516 (App. Div. 2012).  The New Jersey Supreme Court granted certification to hear the Borough’s appeal.

The Supreme Court, in a 3-2 decision, reversed the Appellate Division and trial court.  It noted that, although potential zoning approvals and changes can be considered in eminent domain trials because they may have an impact upon the fair market value of a property, such considerations must first be addressed as part of a two-step process under State by Commissioner of Transportation v. Caoili, 135 N.J. 252 (1994).  According to Caoili, the court must first act as a “gatekeeper” to determine whether there is sufficient evidence to show a “reasonable probability” of a zoning change.  The jury is then permitted to consider the weight of the evidence in determining just compensation.

The Court’s majority here found that the trial court’s failure to hold a pretrial hearing on the reasonable probability of a zoning change was at odds with Caoili’s gatekeeper function because it permitted the jury to hear potentially speculative testimony on the likelihood that a bulk variance would be granted. Significantly, the Court did recognize that not every condemnation action involving a future zoning change or approval would require an N.J.R.E. 104 plenary hearing prior to trial, but further held that the trial court here should have first determined whether it could render its determination on the papers alone, and then could have held an evidentiary hearing to resolve the issues raised if the issue could not be resolved on the parties’ written submissions.

Justice Albin, joined by the Chief Justice, filed a dissent stating that he would have affirmed.  In strong language, he stated that “the majority is not entitled to its own facts. The majority’s decision cannot be reconciled with the record. Nor can it be reconciled with the deferential standard of review that cautions this Court against substituting its judgment for evidentiary rulings made by the trial court and factual determinations made by the jury.”  Justice Albin seemed to be chiding the majority as he outlined the extensive testimony provided at trial in support of the reasonable probability that a “c” variance would have been granted for the property owner’s bank plan.

A copy of the Court’s opinion in Borough of Saddle River v. 66 East Allendale, LLC, __ N.J. __ (2013) can be found here.

For more on evidence issues in condemnation cases, please see the following blog posts:

Karan and Dune Replenishment: Where Do We Go From Here?

Real Estate Tax Appeal Evidence: Admissible in Eminent Domain Case?

Expert’s “Gut Feeling” on Costs Survives Dismissal Claim

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