“The State may not put so potent a Hobbesian stick into the Lockean bundle.” Palazzolo v. Rhode Island, 533 U.S. 606, 627 (2001).  That was the United States Supreme Court’s response thirteen years ago to Rhode Island’s argument that property owners could claim no loss from legislation shaping and defining property rights enacted prior to acquiring title.  In Palazzolo, the Court examined whether Rhode Island’s denial of a request to fill a tidal salt marsh exacted a taking of private property without just compensation.  Explaining further, “[w]ere we to accept the State’s rule, the post-enactment transfer of title would absolve the State of its obligation to defend any action restricting land use, no matter how extreme or unreasonable.   A State would be allowed, in effect, to put an expiration date on the Takings Clause.   This ought not to be the rule.   Future generations, too, have a right to challenge unreasonable limitations on the use and value of land.”

Which brings us to the present.  This month, a panel of the Superior Court of New Jersey, Appellate Division upheld the dismissal of a complaint alleging a regulatory taking due to DEP’s refusal to grant a permit that would have allowed the property owner to fill his tidelands property in Atlantic City.  Scot Netherlands, Inc. v State, Dep’t of Environmental Protection  (Docket A-5156-11T3)(April 7, 2014, unpublished).  The moving rationale behind the decision was that the owner was aware of the regulation at the time of acquisition and therefore could not have had any reasonable investment backed expectation at the time of acquisition.  The ruling is directly contrary to the Palazzolo holding.

In March of 2007, 30 years after acquiring the property, the owner submitted an application to fill about 18 acres of wetlands in order to develop the property with a parking lot.  The application was denied in June of 2007.  Property owner appealed the agency decision and appeared before the Office of Administrative Law.  The parties stipulated that DEP regulations prohibited the proposed development.  Permit denial affirmed.

Instead of focusing on “whether an existing, general law can limit all economic use of property” and (i.e., whether the owner was left with any economically beneficial use without a permit), the trial court essentially criticized the owner for purchasing the property with notice of the regulation and therefore cannot now claim when the regulation was enforced against him to his extreme disadvantage.  The Appellate Division endorsed that rationale.  In addition, and significantly, the court found that the owner did have a beneficial use of the property – a billboard which produced rent for the owner, making the property worth approximately $200,000.  We wonder whether this fact, or the court’s apparent ignorance of holding in Palazzolo, led to its ruling.

A copy of the Scot Netherlands v. NJDEP opinion is available here.

Returning to Palazzolo:  “The Takings Clause is not so quixotic.   A blanket rule that purchasers with notice have no compensation right when a claim becomes ripe is too blunt an instrument to accord with the duty to compensate for what is taken.” (at 628).

 

 

 

 

 

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.

Big Win For Property Rights in US Supreme Court 

Yesterday, the United State Supreme Court issued a decision which has caused property rights advocates and developers to rejoice, and is likely to become a historic property rights precedent for years to come.  The 5-4 decision in Koontz v. St. Johns River Water Mgmt District, No. 11-1447 (copy available here) limits the type and scope of “exactions” that can be placed by local government upon developers in exchange for land development permits and approvals.

The Koontz case involves a 15 acre property near Orlando, Florida, which the owner tried to develop for nearly 20 years.  The property consisted mostly of freshwater wetlands.  The owner sought to develop a portion of the property by dredging and filling it to construct a building and parking lot but, under Florida law, these activities required a “special permit” that local land-use agencies could condition upon mitigation efforts by the owner to offset any environmental damage that the development would cause.  Koontz had offered to permanently conserve the rest of his land from development in exchange for the permit to develop 3.7 acres.  The St. Johns River Water Management District objected to the as insufficient, instead proposing that Koontz he develop only one acre and conserve the rest, or that he pay for other wetlands mitigation efforts several miles away. Koontz turned down both options and sued instead, the litigation lasted more than 10 years, outliving Koontz who passed away during the process.

While the Florida trial court had awarded Koontz more than $300,000 in damages for the inability to use his property, the Florida Supreme Court reversed, finding that there was no “taking” of property, since only money was demanded.

The United States Supreme Court, by a 5-4 vote, held it was irrelevant that no real property was “taken” and that monetary exactions are subject to the same “essential nexus” and “rough proportionality” requirements set forth in the famous US Supreme Court cases  Nollan and Dolan , which standards have long been applied to property exactions and require that government can’t demand some concession from a property owner that is either unrelated to the harm caused, or disproportionate to it.  The Court also held that a property owner need not accept the government permit in order to challenge it.

Justice Samuel Alito authored the opinion and wrote:

“It makes no difference that no property was actually taken in this case. Extortionate demands for property in the land-use permitting context run afoul of the Takings Clause not because they take property but because they impermissibly burden the right not to have property taken without just compensation.”

So the Fifth Amendment rises once again in Koontz.

Where it leads us will be very interesting as the opinion has already generated comment from various property rights advocates lauding it as a milestone, and criticism from environmental and planning concerns who are worried that Koontz will deprive local governments of the ability to insure that the costs of new development are fairly borne by the developers and users of that development.

More on this decision and its impacts is available on the Inverse Condemnation blog of our Owners Counsel of America colleague, Robert Thomas, who filed an amicus brief on behalf of Owners Counsel in the US Supreme Court case.  Robert is also leading an American Bar Association webinar next month to update practitioners on Koontz and its implications.

 

As you know from our December 2012 blog, the United States Supreme Court found that an Army Corps flooding program, which damaged a hardwood forest managed by the Arkansas Game & Fish Commission, may constitute a taking of private property.  Therefore, the Court upheld the property owner’s inverse condemnation claim, reversed the Fifth Court’s decision and remanded the matter to the Federal Court of Claims to adjudicate constitutional “just compensation.”

The parties have now submitted their briefs on remand.  Our Owners’ Counsel colleague, Robert H. Thomas, Esq. has them available on his blog. Click here for the property owner’s brief, and here for the government’s brief.   The government argues that it “did not take a flowage easement” and “at most, there was a modest, unforeseeable, and incremental increase in flooding.” (Db1).  The property owner argues that the Corp’s induced flooding resulted in “catastrophic mortality” of several different tree species. (Pb8).

We’ll keep you posted.

 

The following quote is attributed to President Ronald Reagan:

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One example of government assistance post-Hurricane Sandy was the removal of an entire house because it was allegedly in the right of way:

Ortley Beach home removed

Well, photographic and video evidence proved that the house was not in the right-of-way, but the State removed and demolished it anyway.

Another example, a local government unit in LBI decided that sand removed from the right-of-way was best deposited on a private property owner’s front yard.  It cost the small homeowner thousands of dollars to remove the sand from his front yard and then the government refused to reimburse the property owner for his removal costs.

Finally, a clear example of government failure can be found in its dune replenishment policy.  In 1999, thirteen years before Sandy struck, the United States Army Corps of Engineers came up with a plan to protect all private property owners from a tidal surge.  That plan was not fully implemented before October 29, 2012.  Part of the problem is that plan implementation was left up to local government, and various local government agencies had varied levels of interest, participation, and results with the plan.

Now, those local politicians are looking for a scapegoat.  Private citizens who happen to own beachfront property are in the cross-hairs.  The politicians have cried foul because of the property owner’s refusal to give-up their private property for the public good and the news agencies have trumpeted the cries almost on a daily basis:

NJ.com today – Tom’s River Homeowners Slow to Give Up Land Needed to Rebuild Protective Dunes;

NJ.com Dec. 2, 2012 – N.J. Shore Towns Near Showdown With Dune-Building Foes.

In mid-December, the Town of Mantoloking wrote to all beach-front property owner demanding that they donate their property by signing an easement before year’s end  (Merry Christmas!).  This practice has been followed by other municipalities in Monmouth and Ocean Counties, as they rush to build and replenish sand dunes before the next big storm hits.

Two of the most fundamental rights found in the bundle of rights known as “property” are the right to “exclusive possession” and the “right to security” defined as “immunity from expropriation.” (“Expropriation” is a synonym for “eminent domain”). See Denise R Johnson, Reflections on the Bundle of Rights, Vermont Law Review (2007).  Neither of those rights would be honored if the public forced private property owners to donate their property for the public good, i.e. without payment of just compensation.

Ms. Johnson’s article references Lucas v. South Carolina Coast Commission, 505 U.S. 1003 (1992).   That case examined the effect of the State’s adoption of  the Beachfront Management Act in 1988.  The South Carolina legislation created the Coastal Commission to manage its shoreline due to the regularity of hurricane strikes along its barrier islands and shoreline.  The Commission determined that Mr. Lucas, a beachfront property owner, would not be able to build a residence upon his land.  Lucas sued the Commission, and won at the trial level – a jury awarded $1.2 million for the taking, but he ultimately lost in State Court.  The United States Supreme Court reversed, holding “when the owner of real property has been called upon to sacrifice all economically beneficial uses in the name of the common good… he has suffered a taking.”

Perhaps our State should look at South Carolina’s Beachfront Management Act as a guide on how to rebuild after Sandy.  Regardless of whether a State or regional commission is created in New Jersey to manage coastal development, a serious, informed analysis of the issues and possible solutions must be undertaken on a statewide level, rather than continuing a piecemeal, hodgepodge and hurried set of “band-aid” responses.

We questioned the wisdom of the continuing these past practices which have proven problematic at best in our recent Op-Ed in the Asbury Park Press (“Don’t Vilify the Greedy“).  While legislators have recently suggested various “solutions”, unfortunately the pressures of getting the Jersey Shore “ready” for this coming summer is apparently standing in the way of a better, sustainable plan for coastal development which Sandy has given us an opportunity to create.

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Photo courtesy:  www.agfc.com

Today, the United States Supreme Court issued its unanimous decision in the case of Arkansas Game and Fish Commission v. United States (No.11-597).  The Court concluded in a ruling favorable to the property owner “that recurrent floodings, even if of finite duration, are not categorically exempt from Takings Clause liability.” (Slip op. at 2).

Plaintiff, Arkansas Game and Fish Commission owns 23,000 acres of land in northeast Arkansas along the banks of the Black River.  The property is “forested with multiple hardwood timber species that support a variety of wildlife habitats.”  Defendant, United States, owns the Clearwater Dam located about 115 miles upstream of the property.  The dam is operated by the Army Corps of Engineers.  The Corps’ water release policy is set forth in a Water Control Manual adopted contemporaneous with the construction of the dam in 1948.

In 1993, the Corps approved a deviation from the water release policy.  The property owner objected because the “revised water-release plan adversely impacted the property by inducing annual flooding.”  Nonetheless, the Corps implemented the deviation over the ensuing six years.  In 2005, the property owner sued, claiming that the resultant flooding of its downstream property resulted in a taking of private property without payment of constitutional just compensation as mandated by the Fifth Amendment.

The case was tried in the Federal Court of Claims.  The Court of Claims found that the flooding was foreseeable, and that the property was severely impacted.  The property owner “had been deprived of the customary use of the [property] as a forest and wildlife preserve, as the bottomland hardwood forest turned, over time, into a headwater swamp.”  The Fifth Circuit reversed ruling that the taking had to be permanent in nature to be compensable.

The Supreme Court reversed and remanded.  The Court’s holding was straight-forward and plain:  “We rule today, simply and only, that government induced flooding temporary in duration gains no automatic exemption from Takings Clause inspection.”  Part of the Court’s decision was based on the long-standing rationale that the “Takings Clause is designed to bar Government from forcing some people to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.”

The Court summarized its own review of takings clause jurisprudence by noting that “we have rejected the argument that government action must be permanent to qualify as a taking.”   Therefore, “because government-induced flooding can constitute a taking of property, and because a taking need not be permanent to be compensable, our precedent indicates that government-induced flooding of limited duration may be compensable.” (Slip op. at 9).

The impact of this decision is yet unknown but has already been the subject of much media coverage in a matter of hours.  More on this decision is available  from our Owners’ Counsel colleague, Robert Thomas, in his Inverse Condemnation blog post today.

On Friday May 18, 2012, a New Jersey appellate court affirmed – and published – the trial court’s decision in Dock Street Seafood, Inc. v. City of Wildwood, ___ N.J. Super. ___ (Law Div. Docket No. L-17056-06).  Plaintiff/appellant owns a vacant parcel of property located at 600 West Baker Ave in Wildwood, N.J. adjacent to its seafood business property on West Montgomery Avenue.  The Baker Ave property was designated “in need of redevelopment” in 2002.  A redevelopment plan was adopted shortly thereafter, and a redeveloper was named – K. Hovnanian.

The property owner never challenged the in need of redevelopment designation.

At some point thereafter,  K. Hovnanian made an offer to purchase the Baker Avenue property for $660,000.  The offer was rejected.  K. Hovnanian backed out of the deal when the market turned in 2007.

The property owner was interested in developing the property itself, but never submitted an application because City officials consistently stated that they would not permit private development within the redevelopment area.  Therefore, in 2006, the property owner filed a lawsuit alleging that the City’s actions resulted in a “taking” of private property without payment of just compensation, i.e. filed an “inverse condemnation” suit.

A Law Division judge tried the case and dismissed the property owner’s takings claim.  The trial judge reasoned that the property owner failed to exhaust administrative remedies by not filing an application for development before filing the lawsuit.  The property owner argued that such efforts would have been futile given municipal officials’ insistent statements that they would not permit private development within the redevelopment area.

The Appellate Division affirmed based upon the opinion below.

While we have yet to learn whether the owner will be submitting its own development plan to “exhaust” its administrative remedies, this opinion appears to have been made based upon the trial court’s factual determination as to whether the administrative remedy of approvals was really available or, whether (as suggested by the owner) those efforts would have been futile.  Not much in the way of new law, which makes it somewhat surprising that the case was approved for publication, but nonetheless, score one for the municipality in this case.

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