Karan property (photo courtesy of ctpost.com)

Karan property (photo courtesy of ctpost.com)

Last week, the New Jersey Supreme Court threw its hat into the ring in the controversy between New Jersey’s municipalities and beachfront property owners regarding the construction or replenishment of sand dunes to protect the shore from future storms.  This dispute has been going on for years, but has become front page news since Superstorm Sandy, which confirmed that areas protected by properly engineered dunes fared much better than unprotected areas.  But the debate is not, and should not be, about whether the dunes are needed to protect the Shore, at least for the foreseeable future.  Rather, the debate has focused on who should pay for the dunes, and whether those who paid a premium for their beachfront properties should be forced to bear the unconstitutional result of having their property taken without receiving just compensation.

In Borough of Harvey Cedars v. Karan, 425 N.J. Super. 155 (App. Div. 2012), rev’d and rem’d, ___ N.J. ___ (2013), the Supreme Court reversed a $375,000 condemnation award awarded by an Ocean County jury for damages caused to an oceanfront home on Long Beach Island for the loss of the ocean view from the property caused by a 22-foot high dune erected as part of the U.S. Army Corps. of Engineers replenishment project.  The Court clarified the rules for determining just compensation in partial taking cases, and remanded the case for a new trial.

At stake in Karan was an oceanfront home which had previously enjoyed pristine beach, shoreline and ocean views. As a result of the project, these views were virtually eliminated, leaving the property with views of the ocean only, and only from the highest floor of the home.  The owners did not challenge the right to condemn and the parties agreed that the home was worth approximately $1.9 million “before” the taking.  The Borough offered Mr. and Mrs. Karan $300 based upon its appraisal which contended that the loss of view was de minimus, while the Karans’ appraiser concluded that the damages resulting from the loss of view totaled $500,000.

Before trial, the owner sought to limit the testimony of the Borough’s appraiser regarding his theory that the property realized a “special benefit”, in the form of storm protection, from the dune construction. At an evidentiary hearing before the trial court, the Borough introduced evidence that the dune provided Karan greater storm protection than inland properties, but conceded that the dune would benefit all of the island’s properties.  On this basis, the trial judge held that the benefits to the Karan property were “general benefits”, i.e., those which affected the whole community or neighborhood, and not special benefits unique to the property taken.  As a result, the jury was not allowed to hear evidence about the storm protection benefits and returned its $375,000 damage award.

On appeal, the Appellate Division affirmed the trial court, holding that the benefits of the dune project which the Karan property enjoyed in common with other property owners were general benefits which could not be considered to offset or otherwise affect a compensation award.       Significantly, the appellate court also commented on a practical just compensation issue that will have to be addressed on remand and in future cases:

“[the condemnor] did not present any expert testimony that a prospective buyer would be willing to pay the same price for a house with a largely-obstructed view of the ocean as for a house with a magnificent panoramic view, because the former house was safer from storm damage.”

Last year — before Superstorm Sandy — the New Jersey Supreme Court granted certification to hear the Karan case.  After Sandy, the Court also granted several parties, including the State of New Jersey and several public interest groups, leave to file briefs as amici curiae.  In May of this year, the Court heard oral argument, during which the Justices revealed their clear distaste for the special benefits doctrine which has been recognized by New Jersey courts for more than 100 years.

In reversing the decisions below, the Court eviscerated the special benefits doctrine as outdated:

“Today, the terms special and general benefits do more to obscure than illuminate the basic principles governing the computation of just compensation in eminent domain cases.. . . . We find that the Appellate Division’s use of the general-benefits doctrine in this case is at odds with contemporary principles of just-compensation jurisprudence. . . . The historical reasons that gave rise to the development of the doctrine of general and special benefits no longer have resonance today”. [Karan, __ N.J.__, Slip Op. at 40-44.]

The Karan Court therefore created a new formula for determining just compensation in partial takings cases, holding that a jury may be allowed to consider the benefits accorded to a property as an offset to the damages caused to the remaining property by the partial taking.  But it cautioned that consideration should not be given to speculative or conjectural benefits:

“[W]hen 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”. [Karan, __ N.J.__, Slip Op. at 44-45.]

As anticipated, interested public officials were very pleased with the decision, and media reports overwhelmingly suggested that the decision would lead beachfront property owners, who had formerly refused to donate their private property for dune construction, to now change their minds and succumb to the public and political pressures which had previously portrayed them as rich, “greedy” villains who were looking for a windfall at the public’s expense.  Some even suggested that the decision represented a directive from the Court’s that the loss of an ocean view was somehow non-compensable.

While the euphoric reaction of many would suggest that the more than 1,000 beachfront property owners along the Jersey Shore labeled as “holdouts” would now instantly reverse course and agree to donate their property, this has not occurred.  While there are apparently very few who are opposed to the dune replenishment project itself, perhaps the holdouts recognize these very simple truths about the project as it affects them and their properties:

  • Privately owned oceanfront property in New Jersey is owned to the high-tide line
  • The dunes are being placed on that private property, not public property, thereby creating a taking of that private property via eminent domain
  • The act of using/pumping sand from the ocean floor onto the private beaches (known legally as “avulsion”) provides the public the right to use the affected areas under the “public trust” doctrine, thereby depriving the owner of the private beach that had previously placed a premium on the value of the property
  • The new dunes will deprive some of the beachfront owners of direct access from their homes onto the beaches they adjoin
  • The new dunes will deprive some of the beachfront owners, in whole or in part, of ocean and beach views
  • Some of the beachfront owners already have, and have historically maintained, their own dunes which meet the engineering specifications of the dunes now being built by the government
  • Some of the beachfront owners have opposed these preliminary efforts because the language in the easements proposed does not clearly delineate the rights which would be acquired and have asked for clarification thereof
  • Regardless of the types of damages caused to the properties in question, the owners are entitled, as a matter of constitutional right, to just compensation for the taking of their properties which compensation does normally include damages for loss of view, privacy and access

With these basic facts in mind, the only thing that Karan does to alter the legal landscape is to give the government the right to present evidence – provided it is not speculative and is “reasonably calculable” – that the project provides a benefit to the property which can be used to offset the damages caused to the property by the taking.  In other words, until there is reliable  evidence that the dunes provide a quantifiable benefit to the homes in question – a benefit which can be proven by market data, not conjecture – condemning agencies may find themselves in exactly the same position they were in before, suggesting that the owners are entitled to nothing.  What can be proven is that the private real estate market places a premium on not only ocean views, but also the exclusivity that private beaches afford to those fortunate enough to own them.  To the extent that these real and tangible benefits are impaired or destroyed by a taking such as one for dune construction, the cost of acquisition will undoubtedly continue to be significant.  And until the condemning authorities recognize that beachfront property owners are entitled to the constitutional guarantee of just compensation, just like everybody else in this country, they may continue to be disappointed and even unsuccessful in their efforts.

What the Karan decision may portend for other types of future partial takings cases is unknown.  On the one hand, it virtually assures that the litigation of partial takings matters in the trial court will be more difficult and burdensome to manage, as condemning authorities are likely to now take the position that the project for which a portion of a property is taken will provide some benefit to that property which can be used to offset the damages that the taking creates.  However, these agencies would be prudent to bear in mind that the stated purpose of dune takings is to provide a benefit to the property in question (storm protection) while most other takings cannot claim the same benefit and purpose.  Regardless of the purpose of these future takings, unless and until the benefit can be proven, as a reasonably calculable sum by objective market data, the mandate of the Karan Court will not necessarily lead to lower condemnation awards.

This morning, the New Jersey Supreme Court has issued its much-anticipated decision in the dune replenishment case, Borough of Harvey Cedars v. Karan, which was argued this May.

A copy of the decision is available here.

This opinion is hot off the press and we are reading it now, but the Court has reversed the decisions below, which barred introduction of evidence about the potential storm protection benefits that construction of a sand dune would have upon oceanfront property as “special benefits”.  The case has been remanded for a new trial.

Under this new decision, a trial court would now allow certain evidence of benefits provided.  As the Court held, juries determining just compensation should use a “straightforward fair market value approach”, considering any “non-speculative, quantifiable benefits” capable of “reasonable calculation” at the time of the taking.”

We’ll need to digest this one and will report further, but our preliminary impression is that the Court, while well-intentioned, may have opened the door to many more motions in limine and made the management of a just compensation trial more onerous.  Practitioners in the field have, for many years, contended that the “benefits” provided by a particular project are ordinarily speculative and not capable of reasonable calculation.  Without quantifiable market support, the holding in Karan would not appear to endorse admission of such evidence, but we anticipate that government agencies in New Jersey and elsewhere may now try to use this decision to bolster arguments in favor of otherwise inadmissible evidence.

Stay tuned.

On June 25, 2013, the a New Jersey appellate court reversed a trial court decision in State v. Shalom Money Street and remanded for trial.  The primary issue on appeal was whether the Superior Court had the authority to reinstate a condemnation commissioners’ award where both parties appealed the award for a jury trial de novo.  The answer on appeal was a clear “no”.

The Appellate Court correctly noted that the filing of an appeal for a trial de novo “renders the commissioners’ award nugatory.”  In reversing, the Appellate Court distinguished the two cases relied upon by the trial court because they both involved a situation where only one party appealed the award and then withdrew the appeal.  In that situation, the Commissioners’ Award becomes a final judgment because there is no longer any challenge to the award.

Finally, the Appellate Court found an abuse of discretion in denying an adjournment request where “the trial court’s decision to bar both expert reports stripped both parties of their ability to present a case as to the just compensation to be awarded.” This portion of the decision underscores the importance of the experts’ reports in eminent domain trials, as it is very common for the valuation expert to be the only witness presented by a party, and the preclusion of the expert’s testimony may be tantamount to a summary judgment in many cases.

Yesterday, the United States Supreme Court granted certiorari in Mt Holly Gardens v. Mt Holly Gardens Citizens. 

The case background is set forth in our prior blogs, but, the property owners (through counsel South Jersey Legal Services) argue that the redevelopment of the Mount Holly Gardens violates the Constitution because the government  relocation of residents after demolition of their garden apartments has a ‘disparate impact’ on minorities in violation of the Fair Housing Act and the Constitution.

We’ll keep you up to date on briefing and calendaring.

http://njcondemnationlaw.com/2012/10/24/mount-holly-residents-praying-for-supreme-relief/

http://njcondemnationlaw.com/2011/01/24/751/

http://njcondemnationlaw.com/2011/09/15/mt-holly-gardens-residents-live-to-fight-another-day/

http://njcondemnationlaw.com/2011/06/01/mt-holly-gardens-project-on-hannity-show/

http://njcondemnationlaw.com/2011/05/17/mt-holly-gardens-stay-pending-appeal-continues/

The U.S. House judiciary subcommittee on Constitution and Civil Justice recently passed a bill (H.R. 1944) that is designed to protect private property from eminent domain takings by creating a federal bar to transfers from government to private entities for economic redevelopment. The press release is available here.

The bill is entitled the Private Property Rights Protection Act of 2013 and may be read in full here.  The primary provision of the Act reads:  “No State or political subdivision of a State shall exercise its power of eminent domain, or allow the exercise of such power by any person or entity to which such power has been delegated, over property to be used for economic development or over property that is used for economic development within 7 years after that exercise, if that State or political subdivision receives Federal economic development funds during any fiscal year in which the property is so used or intended to be used.”

The proposed legislation also creates a private right of action for alleged violations, bars sovereign immunity as a defense, permits award of attorneys’ fees and costs, and shifts the burden to the government to show that the taking was not for economic development by clear and convincing evidence.

The Judiciary Committee chair and the main sponsor of the bill lauded its merits:

Chairman Goodlatte: “Private ownership of property is vital to our freedom and prosperity, and is one of the most fundamental principles embedded in the U.S. Constitution; however, the 2005 Supreme Court decision issued in the Kelo vs. City of New London case jeopardizes the protection of private property from government seizure guaranteed by the Constitution. The Private Property Rights Protection Act will help to limit the negative impact of this damaging Supreme Court decision.

Congressman Sensenbrenner: “American citizens have a fundamental right to use their property for whatever lawful purpose they choose. Congress should protect private property rights and reform the use and abuse of eminent domain. As a result of Kelo v. City of New London, farmers in Wisconsin are particularly vulnerable because farmland is less valuable than residential or commercial property. This bill would restore the rights the Supreme Court took away and provide Americans with the means to protect their private property from inappropriate claims of eminent domain.”

As we all know from our Schoolhouse Rock days, this “Bill” has a long way to go before becoming a law – but, we’ll keep you posted.

As reported by WatchDog.org, the Missouri Supreme Court recently rejected the Southeast Missouri Port Authority’s attempt to use eminent domain to take private property for use in connection with interstate transmission of North Dakota crude oil. (A copy of the opinion is here).  The government intended to take undeveloped Mississippi River water-front property from Velma Jackson and Alicia Seabaugh, and then lease it to a private company who intended to construct a tank farm on the property.

Missouri, along with many other States, revised its eminent domain laws after the infamous City of New London v. Suzette Kelo case (see one of our blogs on that story here) to limit the use of eminent domain for “economic development.”  The Missouri Supreme Court found that the proposed taking was prohibited by the new post-Kelo legislation barring takings for “solely economic development purposes.”

Certainly a win for property rights advocates!

 

Yesterday, the New Jersey State Assembly unanimously approved legislation that codifies important redevelopment case-law, and provides municipalities with an option to undertake local redevelopment projects without using eminent domain.   The bill, A-3615, sponsored by Assemblymen Coutinho, Bucco and Munoz, has a Senate companion, S-2447, and shares some of the provisions which had been included in earlier legislative efforts that failed to pass two years ago.

A-3615 codifies Gallenthin Realty Development Inc. v. Paulsboro, 191 N.J. 344 (2007), in which the New Jersey Supreme Court scrutinized the then-common use of municipalities in New Jersey of a standard in the Local Redevelopment and Housing Law, N.J.SA. 40A:12A-5(e) — a “stagnant or not fully productive condition”  to justify that an area was blighted, or “in need of redevelopment”.   The legislation also codifies Harrison Redevelopment Agency v. DeRose, 398 N.J. Super. 361 (App. Div. 2008), in which an appeals court held adequate written notice of condemnation for redevelopment needs to be provided during the redevelopment planning process.

The other significant provision in this legislation  is that local governments will be given an option as to whether they will be empowered to use eminent domain to acquire properties in redevelopment areas.  If signed into law, this bill could help to spur redevelopment in certain areas without having to threaten the property rights of the existing owners.

The New Jersey Law Journal reported on the bill today in this article.  We also covered some earlier committee activity on this bill in this NJ Condemnation Law blog post.

Stay tuned for more on this legislative development.

McKirdy & Riskin’s Rich DeAngelis, Ed McKirdy and Tony DellaPelle served as counsel to the property owners in the DeRose case referenced above.   In addition, DellaPelle serves on the Redevelopment Committee of the New Jersey Builders’ Association, which was a proponent of the current legislation.

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