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.

A California appellate court recently declared its pre-condemnation entry statute unconstitutional. Property Reserve, Inc. v. Dep’t of Water Resources (JCCP No. 4594, March 13, 2014).  While we are not going to recount all the details of the comprehensive opinion here, the State was seeking access to private property pre-condemnation in connection with a proposed tunnel project for delivery of water from the North to the South in order to study the geological and environmental conditions of the properties within the proposed tunnel route.  The State sought court approval of the preliminary entries.

The trial court granted the State preliminary entry for environmental testing on set terms, and denied preliminary entry for geological testing on the grounds that those activities would result in the permanent physical occupation of private property, i.e. a taking of private property which could only be accomplished by commencement of a condemnation action.

With respect to the environmental studies, much like the New Jersey statute which applies to preliminary entry, the California statute allows a potential condemnor to “enter upon property to make photographs, studies, surveys, examinations, tests, soundings, borings, samplings or appraisals or to engage in similar activities reasonably related to acquisition….” Cf. N.J.S.A. 20:3-16.  Unlike the trial court, the California Appellate Court found that the “entry order for environmental activities authorizes a taking of a property interest in the nature of a temporary easement that must be acquired in a condemnation suit” and therefore reversed the Order authorizing preliminary entry.

The appellate court explained its findings by use of a four-part balancing test: 1) The degree to which the invasions are intended; 2) the character of the invasions; 3) the amount of time the invasions will last; and 4) the economic impact of the invasion.  After employing the test, the court concluded, “all the factors weigh in favor of a finding of a temporary taking.  The invasion and its consequences are intended by the State similar to a direct condemnation for a temporary easement.  The invasion is a physical invasion, “a government intrusion of an unusually serious character.” (quoting Loretto v. Teleprompter, 458 U.S. 419 (1982).

In New Jersey, the preliminary entry statute automatically provides the property owner with a right to claim damages if a condemning agency does not commence a condemnation action within two years after the preliminary entry.

It’s extremely likely that the State will seek review from the California Supreme Court.  But in the meantime, think twice next time a condemnor seeks to gain preliminary entry onto your client’s property.

A Kentucky court recently stopped a utility company from utilizing eminent domain to build an underground gas pipeline to transport natural gas liquids through the Commonwealth.  The case, Kentuckians United to Restrain Eminent Domain, Inc. v. Bluegrass Pipeline Company, LLC (Civil Action No. 13-CI-1492),  involved the challenge by plaintiff, a non-profit agency formed for the purpose of protecting Kentucky residents from“the threat of and attempts to exercise eminent domain by entities not in public service to Kentuckians,” to the efforts of the Bluegrass Pipeline Company to use eminent domain powers to construct a new 24-inch gas pipeline, which would transport the liquids from shale reserves in Pennsylvania, West Virginia and Ohio to the Gulf Coast.

Plaintiff’s declaratory judgment action sought a ruling on whether Bluegrass in fact had the power of eminent domain under Kentucky law.  Under Chapter 278 of the Kentucky Revised Statutes (“KRS”), a Public Service Commission is dedicated to regulating utilities, and only regulated entities that adhere to the requirements of the statute are “in public service” and authorized to use eminent domain. The statute provides: “Any corporation or partnership organized for the purpose of … operating oil or gas well or pipeline for transporting or delivering oil or gas, including oil and gas products, in public service, may… condemn the lands and material or the use and occupation of the lands.”

The plaintiff argued that Bluegrass was not in public service, was not regulated by the Public Service Commission and did not serve Kentucky customers or producers because it was an interstate operation.  It further contended that the natural gas liquids that would be transported through the pipeline were neither “oil or gas” nor “oil or gas products” as required by KRS 278.502.

Bluegrass opposed the motion, suggesting that there were genuine issues of material facts in play, and that its products were “oil, gas, or oil and gas products” under KRS 278.502.  It also contended that it was acting “in public service” because, as a common carrier, it would “furnish services to the public, potentially including manufacturers and producers in Kentucky.”

The Circuit Court concluded that Bluegrass lacked the power of eminent domain under Kentucky Law. The court noted that Chapter 278 of the Kentucky laws was enacted to protect consumers “against costly and unnecessary capital construction.”  It found that Bluegrass sought to benefit from the rights conferred on regulated utilities without subjecting itself to the responsibilities, duties, and regulatory oversight imposed by the KRS.

While this decision is not surprising, as it merely affirms that the power of eminent domain should only be wielded sparingly and that the statutory authority empowering condemning agencies to use condemnation powers should be scrutinized carefully, it has gotten the attention of many around the country, as utility companies have been undertaking efforts to increase and upgrade service and those efforts have involved the use of eminent domain in increasing frequency.  Bluegrass is said to be likely to appeal, so this one may be one to watch.

A copy of the Circuit Court’s opinion is available here.

See discussion on the case from our Owners Counsel of America colleagues Robert Thomas, in his Inverse Condemnation Blog, and Michael Rikon, in his Bulldozers at Your Doorstep Blog.

Here is a sampling of some of the media reports on the Bluegrass case:

 

 

 

The latest in a long-running dispute between the U.S. Army Corps of Engineers and lake-front property owners in Michigan, whose beaches have allegedly been washed away because of jetties installed by the Army Corps long ago, is a ruling from the United States Circuit Court of Appeals for the Federal Circuit that the takings’ claims are not barred by the statute of limitations. Banks v United States, Docket 2012-567 (Fed Cir. Jan. 28, 2014).

“Appellants are landowners along approximately four and one-half miles of the eastern shore of Lake Michigan, south of the jetties. This shoreline is eroding naturally, but Appellants allege the jetties block the flow of sand and sediment from the river and the lakeshore north of their properties. Specifically, they argue that the structures interrupt the natural littoral drift within the lake, leading to increased erosion on their properties, amounting to an unlawful taking under the Fifth Amendment.” [slip op. at 3].

Given the fact that the Army Corps’ work constructing harbor jetties on Lake Michigan began in the 1800s, it is no wonder that the United States argues that the property owners’ claims were barred by the statute of limitations.  But, the most recent project began in 1950 and was not completed until 1989, and the affect of that project was not discovered by the property owners until an impact report issued in 1999, which is when this litigation commenced.  The circuit court specifically held that the claims did not accrue until 1999.

That said, in light of the proposed wave of dune replenishment projects scheduled to commence along the Jersey Shore, it will be interesting to see how the Lake Michigan property owners’ claims fare on remand.

We’ll keep you posted.

Taking Underwater Mortgages: Condemned to Failure?

Check out this post from our own Anthony DellaPelle which was just published in the American Bar Associations “In Limine” Blog.  This story comes close to home to us in New Jersey as the cities of Newark and Irvington are currently studying the feasibility of using eminent domain to take underwater mortgages.

The first case is In re: Petition for Referendum to Repeal Ordinance 2354-12 of the Tp. of West Orange.  The certified question: “Was plaintiffs’ action challenging the municipal redevelopment ordinance time barred and, if not, was the ordinance invalid because of the municipality’s failure to submit an application for approval of the issuance of bonds to the Local Finance Board in the Department of Community Affairs?”

The appellate division issued its Per Curiam opinion July 23, 2013, affirming the trial court’s determination that the suit was barred for two reasons: 1) the suit was  not timely filed; and 2) the Local Redevelopment and Housing Law expressly exempted redevelopment ordinances from referendum (N.J.S.A. 40A:12A-28).

The second case is Grabowsky v. Tp. of Montclair, and the certified question:  “Were these municipal officials disqualified from voting on this redevelopment ordinance because of their membership in a church located on property that is next to the site to be redeveloped?”

On this issue, the Appellate Division found that there was no conflict of interest sufficient to invalidate the municipal ordinance adopting an amended redevelopment plan as a matter of law:

“The critical and undisputed fact, ignored by plaintiff, is that the Church was neither an applicant nor an objector in the matter under review. Indeed, it took no position on the matter at all. The facts here plainly fall outside the general rule that “[w]here a board member is a member of a church or other organization which is either an applicant or objector, the member must be disqualified[,]” Cox & Koenig, Current N.J. Zoning & Land Use Administration 67 (emphasis added).

Although plaintiff has argued that the Church will benefit from the redevelopment project because, e.g., there are “obvious financial benefits to the Unitarian Church in having immobile, elderly neighbors next door,” we agree with the trial court that such interests are far too speculative for consideration in determining whether Fried and Lewis had a disqualifying conflict of interest. Similarly, we agree that Fried’s comment that his elderly mother could potentially reside in the facility fails to show that Fried pre-judged the issue, requiring his disqualification. See Kramer v. Bd. of Adjustment, 45 N.J. 268, 282-83, 212 A.2d 153 (1965). We therefore conclude that the alleged conflict of interest does not provide a ground for the invalidation of the Ordinance as a matter of law.” [Slip op. at 10-11].

It will be interesting to see where the Supreme Court goes with these two cases.

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.

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