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.

English: Ocean City, NJ, November 17, 2009 -- ...

Ocean City, NJ, November 17, 2009 — Damaged dunes from Tropical Depression Ida and nor’easter in Ocean City. (Photo credit: Wikipedia)

On October 28, 2013, the Superior Court of N.J., Appellate Division published an opinion in back to back appeals captioned Petrozzi v. City of Ocean City .  Both cases had their nascence long before Sandy casts its long shadow on New Jersey beaches and property owners.  Having no dune protection in place, in 1989, Ocean City reached out to the owners of the ocean-front property and asked whether they would agree to provide easements to the City to allow access to their private property and to build sand dunes for storm protection.  The property owners agreed with one significant proviso — the dunes would not block the property owners’ ocean views.  The City agreed to maintain the dunes so that they would never be higher than “three feet above the average elevation of the bulkhead.”  Therefore, the property owners gave a portion of their property rights to the City in exchange for the City’s promise to forever maintain the dunes at the agreed-upon elevation.

Most of the owners conveyed their private property to the City for the public good in 1991, before the Coastal Areas Facilities Review Act (CAFRA) was amended in 1994  to require DEP permission to maintain/reduce dune elevations.  Some of the owners did not make the conveyance until after 1994.

Due to natural accretion, the dune elevation steadily increased over the years.  In or about 2002, affected property owners demanded that the City sculpt the dunes back to the agreed-upon elevation.  However, CAFRA now required DEP permission, which the City sought in 2002.

In May of 2005, DEP denied the City’s requested permit.  Contemporaneous with the denial, several property owners sued to enforce the easement agreement.  At trial, the Superior Court dismissed all but four of the plaintiff’s claims reasoning that the 1994 amendments to CAFRA rendered the City’s ability to perform legally impossible.  The four plaintiffs excluded from that ruling were those that entered into the agreements after the CAFRA amendments, therefore impossibility was not a valid defense because the City knew they needed  a permit to perform.  As to those four plaintiffs, the judge presided over a trial on compensation for loss of view, loss of ocean breezes, and loss of access.  The judge found in favor of the property owners and awarded $70,000 to the first floor owners, and $35,000 to the second floor owners as compensation for their loss of view.

The Appellate Court held:  [T]he fact remains plaintiffs surrendered their right to compensation in reliance on Ocean City’s promise to protect their ocean views. Absent that reliance, Ocean City would have had to pay plaintiffs for depriving them of their views. If Ocean City may retain the benefit of this bargain despite its failure to perform its promise — even if performance was impracticable — without consequence, the municipality would reap a windfall at plaintiffs’ expense and plaintiffs would have given “something for nothing.”” (Slip op. at 19).

The appeals panel remanded the case back to trial, where the trial court is to value the “loss of, or interference with, their ocean views due to the accretive effects. But offset against the burdens suffered by plaintiffs are the potential gains conferred by the partial consideration performed by Ocean City to date, namely the non-speculative, reasonably calculable benefits arising from the municipality’s dune project. These may include the added wave/storm surge protection afforded by the accretive effect of the dunes. See Borough of Harvey Cedars v. Karan, 214 N.J. 384, 416 (2013).” (Slip. op at 20).

As the court noted, “In the first place, it is beyond question that plaintiffs suffered a loss of ocean view, that such a loss has value, and that the loss is compensable.”  This conclusion was consistent with a 1999 Appellate Division opinion in City of Ocean City v. Maffucci, where the court affirmed the compensability of a loss of ocean view caused by a taking of a dune easement.  But because the appellate panel disagreed with the trial judge’s valuation methodology, it ordered a new trial.

However, the Petrozzi court also confirmed that the compensation determination on remand must also abide by the ruling in Borough of Harvey Cedars v. Karan that “the quantifiable decrease in the value of their property — loss of view — should [be] set off by any quantifiable increase in its value — storm-protection benefits[.]” 214 N.J. at 418.

All in all, this latest opinion should serve to dispel some of the hype that followed this summer’s decision by the New Jersey Supreme Court in Karan.  While Karan prescribed a specific formula to be used in valuing dune replenishment easements, unlike much of the media coverage on the case, it did not conclude that the loss of ocean views is non-compensable.  Karan merely requires that any “reasonably calculable” benefit provided by the dunes be taken into account as an offset to the damage in value that the dunes have been proved to cause to oceanfront properties.

With approximately 1,000 new dune easement cases reported to remain along the Jersey Shore in the newest wave of dune replenishment cases, the recent Petrozzi case is instructive.

We’ll keep you posted.

See also the NJ.com article captioned: Ruling Gives Oceanfront Homeowners Compensation for Lost Ocean Views.

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