New Jersey Legislature Introduces Bill to Address Loss of Business, and Resolution Proposing a Constitutional Amendment to Limit Takings

The New Jersey State Legislature introduced two proposed bills on February 4, 2010, to address compensation and “public purpose” issues.  SCR63 would amend Article VIII, Section III, paragraph 1, of the New Jersey Constitution, to remove “[t]he clearance, replanning, development or redevelopment of blighted areas” as a public purpose, while more narrowly defining a public purpose as “utility and transportation corridors, educational facilities, airports, correctional facilities, solid waste handling facilities, landfills, sewage treatment facilities, storm water management facilities, in-patient health facilities, and recreational facilities.”  Following the adoption of the Constitutional amendment, blight designations would remain a public purpose limited to declarations that an area is designated in need of rehabilitation.  The Legislature’s adoption of SCR63 would only be the first step toward amending the State’s Constitution.  The amendment would then be submitted to the public by ballot for a vote during a general election.

 Senate Bill No. 1042  would amend and add new language to both the Local Redevelopment and Housing Law (LRHL) and the Eminent Domain Act of 1971.  In addressing the LRHL, S1042 seeks to provide adequate notice to “affected property owners and the general public of a municipality’s interest in starting or adopting a redevelopment program by requiring a municipality with a website to post notice of related hearings, plans, and ordinances for public review.  It also requires municipalities to permit certain people to present witness testimony, and to review and discuss alternative remedies to a redevelopment or rehabilitation plan.  S1042 also prohibits certain municipal officials from accepting election fund donations as part of “pay-to-play” deals.

 A small section of this proposed legislation addressing the Eminent Domain Act, specifically N.J.S.A. 20:3-6 and 29.1, addresses one of the most troublesome aspects of the eminent domain process – the level of just compensation a business should be entitled to when a condemnation action interferes with the business’s operations.  S1042 would amend subsections 6 and 29.1 to “compensate the condemnee for any loss of income resulting from the interference of the condemnation proceeding with the conduct of business in an amount determined in a manner consistent with the assessment of business income coverage in the insurance industry, separate and apart from compensation for the fair market value of the property.”  This important amendment would clarify that an operating business is entitled to compensation for a loss of income related to a condemnor’s actions as well as any real property that is being condemned. 

 McKirdy & Riskin addressed this issue recently when it represented the owners of the Palace Car Wash in State v. Arifee  .   There, a temporary taking deprived the business of any income while roadwork in front of the business being was completed.  Historically, condemnors have argued that businesses are only entitled to the value of the property actually being taken business losses are too speculative to measure.  S1042 would codify the holding in Arifee while also providing a standard method to value the business’s loss. 

 The property owners in State v. Arifee, Mohammed and Jawed Arifee and the Palace Car Wash, were represented by McKirdy & Riskin’s Edward McKirdy, Anthony Della Pelle and Joseph Grather at trial and on the appeal.  The Appellate Division’s opinion can be read here , while more can be read about the case on our New Jersey Condemnation Law Blog here.   

The author wishes to acknowledge the assistance of Cory K. Kestner, Esq., of McKirdy & Riskin, PA, in the preparation of this article.

 

Trial Court Permits Redevelopment Challenge in West Windsor Despite Timeliness Objection

 Mercer County Assignment Judge Linda R. Feinberg issued an opinion finding that the notice requirements in Harrison Redevelopment Agency v. DeRose, 398 N.J. Super. 361 (App. Div. 2008), applied to a redevelopment study adopted by the Township of West Windsor for its Princeton Junction Redevelopment Area.  In IC/L-A Washington Road v. Twp. of West Windsor, MER-L-1131-09, (Law Div. January 15, 2010), the plaintiff challenged a redevelopment study that had been adopted in December 2005, and a redevelopment plan that was later adopted in May 2009. 

Plaintiff’s eight count complaint included claims that the redevelopment plan unconstitutionally limited residential development, violated COAH requirements, lacked evidence supporting the designation of the property as an area in need of redevelopment, incorporated unlawful fiscal zoning considerations, and failed to provide adequate notice.  Plaintiff thereafter filed a motion for summary judgment to invalidate the in need designation and redevelopment plan as violative of DeRose and Gallenthin v. Paulsboro, 191 N.J. 344 (2007).  Defendants responded and additionally filed a motion to dismiss, or alternatively for summary judgment, claiming that plaintiff’s action was filed out of time, or should be barred because plaintiff actively participated in the redevelopment plan hearings.

Plaintiff first argued that the forty-five day statute of limitations should be expanded because its claims are novel and important constitutional questions, and involve a significant public interest.  The court rejected defendants’ argument that plaintiff should be estopped from raising a claim because plaintiff actively participated in the formation of the redevelopment plan, and that DeRose only applies once a condemnation has commenced.  The court found that plaintiff’s participation did “not dilute the serious prevailing constitutional issues raised by the approved Redevelopment Study and subsequent Redevelopment Plan.”  Additionally, the court stated that it is desirable to resolve notice and in need designation issues before condemnation proceedings are commenced.

The court also agreed with plaintiff’s arguments regarding the redevelopment study’s reliance on an “underutilization” standard under N.J.S.A. 40:A12-5(e).  The court noted that every property in the redevelopment zone was summarily marked as “smart growth inconsistency”, and half of the properties were simply marked “underutilized.”  This, the court found, was similar to the designations provided in Gallenthin, and supported the conclusion that the redevelopment study was insufficient.

Finally, the court found that the notice provided to plaintiff and the other property owners did not satisfy the basic elements of due process.  The court relied on the DeRose court’s requirement that notice of an in need designation required identifying the relevant statutory requirements and the implications of a blight designation.  The court found that the “equities thus weigh in favor of allowing plaintiff to proceed with its claim and challenge the in need designation based on the allegedly insufficient Redevelopment Study.”

The judge found the remaining issues to be moot until the in need designation was resolved.  Because the parties had failed to provide the necessary transcripts for the court to rule on the merits of the designation, the court required the planning board attorney to provide transcripts and exhibits from all proceedings.  The parties would then be provided an opportunity to submit supplemental briefs before the matter is scheduled for oral argument.

Read more about the DeRose case, in which the property owners were represented by McKirdy & Riskin’s Richard DeAngelis, Edward McKirdy and Anthony Della Pelle, on our New Jersey Condemnation Law Blog.  

The author wishes to acknowledge the assistance of Cory K. Kestner, Esq., of McKirdy & Riskin, PA, in the preparation of this article.

 

McKirdy & Riskin Attorneys on Faculty of ALI-ABA Eminent Domain Seminar

McKirdy & Riskin’s Edward McKirdy and Anthony Della Pelle will be serving on the faculty of two of the best national CLE programs about eminent domain law, ALI-ABA’s “Eminent Domain and Land Valuation Litigation,” and “Condemnation 101: How To Prepare and Present an Eminent Domain Case,” being held concurrently at the Westin Kierland Resort in Scottsdale, Arizona on February 3, 4 and 5, 2010. The first course is designed for attorneys with  experience in eminent domain matters, while the second is an introduction (or refresher) to the basic concepts and techniques in a condemnation case. 

At the Eminent Domain and Land Valuation conference, Mr. Della Pelle will be moderating a panel discussing the role of the media in eminent domain matters, while Mr. McKirdy will be presenting a session analyzing property owners’ rights to compensation for business losses and goodwill.  At the Condemnation 101 conference, Mr. Della Pelle will serve on a panel on the  selection of eminent domain experts, and Mr. McKirdy’s panel will discuss ethical issues in eminent domain practice.  These are excellent programs, and  registration discounts are available. More information about “Eminent Domain and Land Valuation Litigation” is available here, and about “Condemnation 101″ here.

 

State takes keys to Pearl Restaurant in Somers Point – pressofAtlanticCity.com : Latest News

State takes keys to Pearl Restaurant in Somers Point – pressofAtlanticCity.com : Latest News

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Discounted Jury Verdict Upheld on Appeal

A New Jersey appellate court recently rejected a property owner’s claim that it was deprived of just compensation because the jury verdict reflected a discount for the cost of environmental remediation on its property.  New Jersey Schools Construction Corporation v. Warminster Investments Corporation, et als., Docket No. A-5319-07T15319-07T1.  Warminster, the property owner, argued that the jury undervalued its property because the trial judge permitted the jury to consider the cost of lead and asbestos removal, excluded rental value evidence for cell towers on the property, and permitted the condemnor’s expert to testify that Warminster would not receive a parking variance for its proposed use.  The Appellate Division rejected Warminster’s arguments, affirmed the trial court’s decision, and upheld the jury verdict.

 Warminster’s vacant, four-story, industrial building was a pre-existing, non-conforming use in a residential zone in the Town of West New York, and several cellular phone companies leased space on the building for their cell towers.  The condemnor planned to erect a public school on the property.  Warminster argued that the highest and best use of the property was a hypothetical 90-unit residential building and a parking variance, while the condemnor advocated a 75-unit building.

 Warminster’s three experts conceded at trial that they had not considered lead and asbestos removal costs, while NJSCC’s expert testified, over Warminster’s objection, that remediation would cost $1,106,230.  Warminster argued on appeal that the testimony should have been barred under Housing Auth. of New Brunswick v. Suydam Investors, LLC, 177 N.J. 2, 23-24 (2003), because the property should be valued as if remediated.  The Appellate Division disagreed by noting that asbestos and lead were contaminants and not a discharge.  The Appellate Division analogized the situation to the removal of tires and other garbage from the site, rather than a substance like oil that had been discharged into the soil.  Thus, the “double-take” at issue in Suydam was not implicated here.

 The trial judge excluded evidence of the cell tower leases and testimony related to their value because Warminster’s experts had failed to address a municipal ordinance which ordinance prohibited cell towers in residential districts unless they were located on municipal property, but did recognize the existence of towers like Warminster’s that pre-existed the ordinance.  These were permitted to continue under the ordinance “absent any enlargement or structural modification or the addition of any structure. . . .”  Reconstruction required a conditional use permit or variance, and structures not on municipal property were considered principal, not accessory, uses.  The Appellate Division agreed with the trial judge that Warminster’s expert planner lacked knowledge of the ordinance and therefore had no factual basis to testify about the likelihood of a variance being granted.  Further, Warminster’s appraiser had relied on the planner’s report which assumed the cell tower was a permitted use, and was therefore based on unsupported conclusions.

 Warminster additionally argued the trial court should have barred NJSCC’s testimony that approval of Warminster’s 90-unit project as speculative, although Warminster’s experts conceded that Warminster’s 2004 plan for 75-units had been criticized by Town officials for violating parking requirements.  The Appellate Division found the jury had sufficient evidence to conclude that Warminster’s proposal was speculative and unproven, while NJSCC’s proposal was more probable and feasible.

 The Appellate Division’s holding may further impact the way properties are valued during condemnation proceedings.  An article from the New Jersey Law Journal by Thomas M. Olson and Anthony F. Della Pelle from the law firm McKirdy & Riskin, PA on valuation considerations following the Suydam case and its progeny can be found in the New Jersey Condemnation Law Blog here.

The author wishes to acknowledge the assistance of Cory K. Kestner, Esq., of McKirdy & Riskin, PA, in the preparation of this article.

 

Camden Property Owners Succeed in Having Properties Removed from Redevelopment Area

 The Camden City Council amended its Lanning Square Redevelopment Plan during a special meeting on December 29, 2009, to remove two blocks from the property acquisition list.  The amendments were part of a settlement agreement with two of the parties involved in litigation that began in 2008 after the redevelopment plan was announced.  The Camden Redevelopment Agency said it is working to potentially avoid taking property in other contested areas, although the remaining lawsuits are scheduled to be heard together in Superior Court in Camden on February 22, 2010.  More information about the removal of the certain properties and the remaining litigation can be found in the Courier Post here.

McKirdy & Riskin, P.A.’s  Jack Buonocore represented one of the successful property owners in this matter, Carmel Realty, whose interests in the area include a Valu-Plus store, nail salon and restaurant.

 

Long Branch to Protect Owners from Eminent Domain

 

     Following a settlement agreement that permitted homeowners in the MTOTSA section of Long Branch to remain in their homes (read about it here), the Long Branch City Council is expected to revise the area’s zoning laws to grandfather the use of the remaining homes under the previous code while requiring new construction to follow the redevelopment plan’s guidelines.  An additional resolution prohibiting the use of eminent domain in the Beachfront South area will be introduced January 12, 2010, when the zoning ordinance is expected to be adopted, but the Council members are at odds about whether to limit eminent domain or to prohibit its use altogether.

     The City will also now permit property owners in the ”Beachfront South” redevelopment area to act as redevelopers on their own lots, or to assemble properties with two or three neighbors for larger projects.

      The recent City of Long Branch ordinance and potential redevelopment was the subject of an article by Carol Gorga Williams of Asbury Park Press which is available here.

 

Dueling Supreme Courts to Decide Beach Replenishment Takings Issues Heard on Same Day

     The United States Supreme Court and New Jersey Supreme Court heard oral arguments on the same day this week  in cases focusing on the issue of where a beachfront property owner’s rights end, and the public’s rights begin, when the government decides to replenish beaches with public funds.

     The United States Supreme Court, in Stop the Beach Nourishment v. Florida,  reviewed whether the Florida Supreme Court’s interpretation of case law and state legislation constituted a judicial taking of private property without just compensation. The Florida high court opinion is available here.  The petitioner’s argument could be restated as whether a beachfront owner has a right to remain a beachfront home or can be relegated to a beach view home with water access rights. Under the Florida statute the state could pump sand from one area to another to combat erosion and to protect ocean-front property. An Erosion Control Line (ECL) was then established where the Mean High Water Line (MHWL) existed, and any land seaward of the ECL would thereafter belong to the public. At issue was an upland owners’ right to have his property touching the water versus merely having an easement to access the water below the ECL on the replenished beach, and the right to restrict use of the property upland of the ECL. The Florida Supreme Court upheld the statute that created the ECL to replace the MHWL as the property owner’s new property line after a beach replenishment instead of the following the established common law rule that an upland owner owned to the MHWL.

     Some of the Supreme Court  justices appeared sympathetic to the property owners’ situation and interpretation of the law. Justice Scalia noted that beachfront homes are more valuable than beach view homes, while Justice Alito argued that a beachfront owner would be powerless if the state decided to create an enlarged beach to attract spring break partygoers.  Other justices appeared less sympathetic by noting that no permanent structures could be located on the newly created beach, and that the owners’ access rights remain unchanged under the statute. Justice Stevens’ lack of participation is believed to be based on the fact the he lives in Florida. A decision is expected Spring of 2010.

News stories on the Florida case are available from CNN; The Wall Street Journal; The New York Times ; and The Miami Herald

     On the same day that the Florida case was argued in Washington, the New Jersey Supreme Court heard arguments in City of Long Branch v. Liu, which also involved a beach replenishment program, but presented a different factual scenario from the Florida case. In Long Branch, the Lius sought separate compensation for the replenished beach placed between the MHWL and the upland property taken through eminent domain for redevelopment. The trial court and Appellate Division ruled that the Lius, as the upland property owners, were not entitled to compensation for land that was created by the publicly funded beach replenishment because it was created as public property, and were justly compensated for the upland property taken for redevelopment purposes based upon a jury verdict obtained at trial. The Appellate Division opinion is available here. 

     During the argument, Supreme Court Justices Albin and Rivera-Soto questioned why the public should not be entitled to benefit when public funds are used to replenish beaches. The Lius argued that New Jersey law has always recognized the MHWL as a beachfront owner’s property line, and upland owners were entitled to accretion under the holding in Wildwood Crest v. Masciarella, 51 N.J. 352 (1968), and noted that the current property owner’s tax assessment includes the replenished area.  One issue that the parties and the justices failed to raise is what happens to the beachfront owner’s long-recognized right of accretion when a beach is replenished and the static ECL becomes the new property line.  The New Jersey Supreme Court opinion is anticipated early next year.

The author wishes to acknowledge the assistance of Cory K. Kestner, Esq., of McKirdy & Riskin, PA, in the preparation of this article.

 

New Jersey Supreme Court Considers Tenants’ Rights to Notice in Redevelopment Challenge

The New Jersey Supreme Court heard oral arguments this week in a case regarding the rights of commercial tenants to notice under the provisions of New Jersey’s Local Redevelopment and Housing Law.  Iron Mountain Information Management, Inc. v. City of Newark (A-100-08).    The issue presented to the Court was framed: “When property is targeted for redevelopment pursuant to the Local Redevelopment and Housing Law, N.J.S.A. 40A:12A-1 to -49, is a commercial tenant with an option to purchase and right of first refusal in its lease agreement entitled to the same notice as the property owner?”  The Appellate Division held that long-term lessee Iron Mountain Document Systems, Inc. was not entitled to notice when the building it occupied was taken through eminent domain.  Specifically, the Appellate Division found the Legislature had contemplated notice issues for lessees, and lessees were provided adequate due process under the statutory law.

On appeal to the Supreme Court, the tenant Iron Mountain argued that it was entitled  to notice under the enhanced notice requirements found necessary in Harrison Redevelopment Agency v DeRose, 398 N.J. Super. 361 (App. Div. 2008), because of their unique status as a tenant with an option to purchase.  Read more about the DeRose case, in which the property owners were represented by McKirdy & Riskin’s Richard DeAngelis, Edward McKirdy and Anthony Della Pelle, on our New Jersey Condemnation Law Blog here. 

Iron Mountain claimed that its status gave it an ownership right which required notice under the Due Process Clause of the United States’ Constitution, and the statutory notice requirements of the Local Redevelopment and Housing Law (LRHL) should not be strictly construed when it would deny due process under New Jersey case law.

Iron Mountain raised several issues unrelated to the notice question certified by the Court.  Iron Mountain claimed its property was not blighted, the City failed to visit the property before designating the property as blighted, and the blight designation would not stand up under the New Jersey Supreme Court’s holding in Gallenthin Realty v. Borough of Paulsboro.   Iron Mountain also claimed that the land deals underlying the redevelopment plan were improper because they took property from one private owner to benefit another private owner.

The Court focused on the potential burden to municipalities to provide actual notice to tenants when a single building may have one hundred tenants and, significantly, inquired whether Iron Mountain had filed a copy of its lease with the tax assessor or records office.  Multiple justices inquired what Iron Mountain knew about the redevelopment plan, and when they knew it since no formal certifications had been made to any court.

Respondent City of Newark argued that Iron Mountain has never formally certified that it did not have notice of the redevelopment plan hearings or blight designation.  Newark then argued that the Appellate Division correctly determined that Iron Mountain was not entitled to notice under the LRHL, and Iron Mountain was only entitled now to compensation for its interests, and not an opportunity to reargue the blight designation.

The Court asked Newark if it knew Iron Mountain was a tenant when the notices were originally sent to property owners in the redevelopment area, and would it not have been easier to provide notice up front than argue all the way to the Supreme Court.  Newark affirmed that it knew about Iron Mountain, but argued that notice should be provided as required by statute and not on an ad hoc basis.  The Court then advised that it would take the matter under consideration.

The Supreme Court’s opinion is not likely to be released until next year.  The full text of the Appellate Division’s opinion in the Iron Mountain case can be found here.

The author wishes to acknowledge the assistance of Cory K. Kestner, Esq., of McKirdy & Riskin, PA, in the preparation of this article.

 

NY Court of Appeals Deals Blow to Property Owners In Atlantic Yards Case

Associated Press Photo - Atlantic Yards, c. 2008

     Within weeks of Pfizer abandoning the redevelopment project made infamous in Kelo v. City of New London, New York’s highest Court refused to overturn lower courts’ decisions that the area surrounding Brooklyn’s Atlantic Yards project is blighted.  Read the opinion here.  Amid calls for eminent domain reform, the project will now move forward by selling bonds to fund the building of a professional sports arena – the future home of the New Jersey Nets basketball team – and sixteen high rise buildings housing both commercial and residential units.

 The Court’s Decision

     The blight designation was first challenged in federal court, but that claim was dismissed.   The New York State claim averred that the taking was not for a public use but to benefit a private party, and that the taking failed to conform to the standards enumerated by the New York Constitution.   The property owners, and several public interest groups, claimed that the taking was not for a public purpose, the subject area’s condition did not rise to the level of blight, and that the land could only be used for low-income housing under New York’s Constitution.  In rejecting the first argument, the 6-1 opinion of the Court confirmed that the removal of urban blight is a proper, and, indeed, constitutionally sanctioned, predicate for the exercise of the power of eminent domain.    

     The Court also refused to interfere with what qualifies as blight, even though it recognized that the bar may now be set too low as to what constitutes “blight.”  However, the Court held that any such limitation upon the sovereign power of eminent domain as it has come to be defined in the urban renewal context is a matter for the Legislature, not the courts.  The Court identified the only situation where it could interfere with a legislative blight determination – where the physical conditions of an area are such that it would be “irrational and baseless” to call it substandard or insanitary, but held that those conditions did not exist in Atlantic Yards.   Finally, the majority refused to read the New York Constitution as requiring all removed blight to be replaced with low-income housing. 

     One high court Justice concurred with the majority’s result, but for different reasons.  He would have permitted the Atlantic Yards project to move forward because he concluded that the lawsuit — which was commenced more than 18 months after the New York State Urban Development d/b/a Empire State Development Corporation (ESDC) published its determination and findings — was time-barred and jurisdictionally deficient.

       Another Justice dissented with the majority.  He concluded that the majority was much too deferential to the “self-serving determination by Empire State Development Corporation (ESDC) that petitioners live in a ‘blighted’ area,” and that the record failed to support ESDC’s blight determination. 

 Calls for Reform

      Kelo v. City of New London ignited a firestorm of reform across the United States.  The issue was raised again in New Jersey two years later when the New Jersey Supreme Court rejected a city’s blight designation in Gallenthin Realty v. Borough of Paulsboro.  Recent press following release of the Atlantic Yards project opinion have had varied discussion on the need for eminent domain reform:

The Wall Street Journal

The New York Times

The Star-Ledger

The Daily Record

The Philadelphia Inquirer

The Atlantic Yards Report Blog

     Although the majority of states enacted some type of eminent domain reform following Kelo v. City of New London, New York and New Jersey have failed to enact any reforms to date.  New Jersey currently has legislation pending under bills S-559/A-1492 that includes a tighter definition of blight and tighter notice and public hearing requirements, places time limits on  acquisition of properties for redevelopment purposes, and requires that just compensation for takings be based on the highest value of the property, either at the time of taking or the time of the adoption of the redevelopment plan, based on the uses permitted under the redevelopment plan.  But the proposed legislation has stalled.    No eminent domain reform legislation is known to be currently pending in New York.

The author wishes to acknowledge the assistance of Cory K. Kestner, Esq., of McKirdy & Riskin, PA, in the preparation of this article.