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 Underwater 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.
July 23, 2015
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July 13, 2015
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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.
June 15, 2015
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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.
June 8, 2015
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Last week, a New Jersey Superior Court judge granted a landowner’s summary judgment motion to dismiss the Township of Lakewood’s (“Township”) condemnation actions. In Tp. of Lakewood v. Garzo, the Township instituted four condemnation actions after designating areas as being “in need of” redevelopment. The Township initially believed that it had owned the subject properties for more than forty years by virtue of a foreclosure judgment issued in 1973 (no property taxes were paid on the subject properties for over 40 years). In July 2014, the Township adopted an ordinance authorizing the Township to move forward with the condemnation proceedings. By August 2014, the Township hired an expert to appraise the subject properties and the reports were finalized by October 1, 2014. The Township proceeded to file its condemnation actions with the court on December 5, 2014.
While proceeding with its plan, the Township failed to notice that a recent deed was recorded on October 7, 2014 naming the pro se defendant in the present matter, Kenneth Garzo, as the current owner of the subject properties. The Township did not provide the appraisal report to Garzo nor engage in any communication or negotiation with him because the Township was blind to this recent development. As a result, Garzo filed a summary judgment to dismiss the condemnation actions for failing to provide him the opportunity to accompany the appraiser during the inspection of the properties, and for not receiving an offer in writing prior to the December 5, 2014 commencement date of the complaints. In addition, Garzo argued that the Township failed to comply with the bona fide negotiations requirement of N.J.S.A. 20:3-6 before a condemnation action is instituted. In response, the Township argued that Garzo’s interpretation of the statute was misguided. Contrary to Garzo’s understanding of the statute, the Township claimed that N.J.S.A. 20:3-6 permits the court to waive the negotiation requirement if the holder of title is “unknown, resides out-of-state, or for other good cause.” Given that Garzo resides in California, the Township thus argued that the statute permits the court to dispense with the negotiation requirement.
The court was not persuaded by the Township’s argument. The court’s decision to dispense with the negotiations requirement is entirely discretionary as the statute clearly indicates that the court “may dispense with the necessity of such negotiations if the title holder resides out-of-state.” The court’s decision to decline exercising its discretion to dispense with the negotiation requirements was due, in part, to the Township’s neglect to notice the recorded deed prior to filing its complaint. The Township’s reliance solely on the tax rolls for verifying and confirming the current owners of the properties was simply inexcusable by the court. Moreover, Garzo may have resided in California but after recognizing the condemnation action filed against the properties, he expressed willingness to negotiate with the Township making the bona fide negotiation requirement all the more important.
This was certainly not the first time a condemning authority failed to comply with N.J.S.A. 20:3-6. In Borough of Rockaway v. Donofrio, a 1982 Appellate Division decision, the condemning authority made a monetary offer to the landowner but, among other things, failed to permit the owner to accompany the condemnor’s appraiser and also failed fully disclose the purpose and critical details of the proposed partial taking. The Appellate Division set precedent by dismissing the condemnation action “for [the Borough’s] failure to honor the statute.”
Given what is at stake, one would expect the condemning authority to be more careful and diligent in their efforts in identifying the owners of the properties. The Township of Lakewood certainly fell short and now heads back to square one.
A copy of the court’s opinion in Garzo may be found here.
March 6, 2015
Property owners have won a battle in a long simmering dispute in New York over pending real estate tax appeals. The case was reported in the BuffaloNews.com. In short, eight property owners with pending tax appeals against the City refused to let the City’s appraiser in their homes in connection with the preparation of the City’s appraisal reports. The City countered that they could not make a fair assessment of property value without an interior inspection. The intermediate appellate court agreed with the property owners reasoning that they were entitled to protection under the Fourth Amendment’s guarantee of privacy.
According to the appellate court, “the city failed to show that its interest in interior inspections outweighed the homeowners’ Fourth Amendment right to privacy, the appellate court ruled.” (BuffaloNews.com). The question that immediately comes to my mind, if the cases proceed to a trial, do the property owners get to undermine the City’s appraiser’s testimony based on his failure to conduct an interior inspection?
Apparently all the owners just wanted the cases, which have been pending for six years, to get resolved. But, the City has vowed an appeal to New York’s highest court, so it does not seem like the end is in sight.
December 8, 2014
Comments Off on Federal Judge Restrains Government Action On Dune Project in Margate
Yesterday, a United States District Court judge restrained the U.S. Army Corps and NJDEP from any further action towards their joint Little Egg Inlet to Barnegat Inlet Storm Damage Reduction Project pending further hearings to be held in two weeks time. The City of Margate, which owns the beach west of the State’s public trust area, does not want to be saddled with the DEP/Army Corps dune project, and filed a complaint in federal court alleging that the governmental entities had violated federal and State law when they attempted to “take” part of the municipalities ocean-front property without complying with the Eminent Domain Act. The federal judge initially agreed and has issued an order temporarily restraining the federal and state agencies from acting in furtherance of the project.
Another hearing has been set for December 17th in the action.
We’ll keep you posted.
Related news coverage of the case:
November 4, 2014
Comments Off on Ocean County Court: Challenge to Redevelopment Plan Ordinance Premature
Ocean County Assignment Judge Vincent Grasso dismissed a declaratory judgment action filed by a redeveloper against the Township of Ocean finding that the redeveloper had to exhaust its administrative remedies before coming to the Court for relief. Alternatively, it appears that the redeveloper was seeking to partially invalidate or revise an ordinance that had been adopted two and half years earlier. Obviously, out of time. See Del Corp. Enterprises I, LLC v. Township of Ocean (Oct. 9, 2014, opinion here)
The redeveloper, Del Corp., was working with the Township in connection with the designation of tract of land as “in need of redevelopment” under the Local Redevelopment & Housing Law (NJSA 40A:12A-1 et seq). Once designated, the redevelopment plan would call for a residential housing development called the Tradewinds at Waretown consisting of 115 market rate units and 29 affordable units. The project received site plan approval from the planning board in 2011, subject to the Township enacting an ordinance adopting a redevelopment plan. Said ordinance was adopted in February of 2012, and provided “[o]f the 144 dwelling units, 115 units are to be for-sale condominium units and 29 units are to be affordable rental units.” Del Corp did not object to the Ordinance.
Two years later, Del Corp. has contracted to sell the project to a third-party. However, the third-party will not finalize the transaction with the “for sale” requirement contained in the ordinance. The third-party wants to be free to sell or rent the market units. Hence, Del Corp’s declaratory judgment action, which the Court found premature:
“Del Corp’s brief states “[i]f the terms of the ordinance are enforced by the Township and the developer is not permitted to rent out the market rate units, the contract purchaser will terminate the contract.” Because Del Corp has not demonstrated that it has applied to build apartment units contrary to the Redevelopment Plan and the Township is enforcing the terms of the Ordinance, the court concludes that Del Corp seeks a declaratory judgment here to discern the rights upon facts that are “future, contingent, and uncertain.” (Slip op. at 7).
Even if it were ripe, the Court found that Del Corp had not exhausted its administrative remedies, namely asking the Township to amend the redevelopment plan to exclude the “for sale” requirement. If aggrieved by the outcome, Del Corp would then be able to seek redress before the Courts.