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SUPREME COURT OF NEW JERSEY CONSIDERS TRIO OF EMINENT DOMAIN CASES

6/28/2013

In the 2012-2013 Court Term, the Supreme Court of New Jersey considered three cases, each involving issues relating to the exercise of eminent domain.  The decisions in these cases will have impacts on the right to utilize condemnation and the relevant issues to be decided when setting the just compensation purchase price.  The three cases are: Borough of Saddle River v. 66 East Allendale, LLC, 424 N.J. Super. 516 (App. Div. 2012) (argued April 17, 2013); Borough of Harvey Cedars v. Karan, 425 N.J. Super. 155 (App. Div. 2012) (argued May 13, 2013); and Norfolk Southern Railway Co. v. Intermodal Properties, LLC, 424 N.J. Super. 106 (App. Div. 2012) (argued May 14, 2013).

Waters, McPherson, McNeill represents the Appellant Intermodal Properties, LLC in the final case.  Eric D. McCullough argued the case on behalf of Intermodal Properties.

This article addresses the three Appellate Division decisions.  Each case will be updated once the Supreme Court has rendered its decisions.

 A.            Determination of Highest and Best Use

A property owner is guaranteed to receive “just compensation” for property taken by the government under the power of eminent domain.  It is well-settled that “just compensation” is measured by considering the highest and best use of the property.  The owner is therefore entitled to receive fair market value for the land to be taken.  A critical consideration when appraising the property for condemnation purposes is the zoning.  The highest and best use would require examination of what is legally permitted.  When considering the zoning, the property owner may present evidence that the highest and best use could be improved by obtaining a variance or a zoning amendment.  See, State, by Commissioner of Transportation v. Caoili, 135 N.J. 252 (1994).

In Saddle River, the land was “split-zoned,” with approximately one-third zoned for office development and the balance zoned as residential.  The property owner presented evidence that a buyer would pay more for the property due to the “reasonable probability” that it could get a variance to construct a 10,000 square foot bank building with parking, thus exceeding 30% lot coverage.  Saddle River disputed that the Board of Adjustment would approve a variance.

Prior to trial, Saddle River moved to bar the owner’s experts’ opinions, or alternatively to conduct an evidentiary hearing prior to trial to allow the court to determine whether the owner had satisfied Caoili.  Under Caoili, the trial court is to act as a :gatekeeper” to determine what evidence the jury should be allowed to consider when determining the just compensation award.  The trial court denied the motion.  At trial, the owner’s experts opined that the Board of Adjustment would approve a variance, and that the fair market value of the property, with the probability of getting the variance, was $5,250,000.  Saddle River’s experts disagreed, and believed the property was worth $1,325,000.  The jury returned a verdict in favor of the owner for $5,250,000.

Saddle River’s primary contention on appeal was that the trial Judge committed error by not holding a hearing prior to commencement of trial to determine whether the owner had met the threshold under Caoili to present evidence of the likelihood of a zoning variance.    Instead, the jury heard the testimony of the experts concerning the possibility of getting a variance.  At the close of the owner’s case, Saddle River moved to strike the experts’ testimony, which was denied.  Acting as the “gatekeeper,” the trial Judge found sufficient evidence for the jury to consider the variance issue.

The Appellate Division upheld the trial Judge’s exercise of discretion in finding sufficient evidence a variance was likely.  That evidence included prior consideration by Saddle River of increasing maximum lot coverage, the fact all “office” zoned property in the borough exceeded 30% coverage, the location of the property, absence of any harm to neighboring lots if the lot coverage variance was granted.  The trial court considered the fact a request for a variance by the owner was unsuccessful, but accepted “political circumstances” contributed to that result.

Owners facing condemnation actions should consider not only the existing use of the property, but whether existing zoning or potential variances or rezoning would increase the highest and best use.  Condemnors, too, should be prepared to address this issue.

The Supreme Court’s anticipated decision will help clarify the proofs necessary and the court procedures for raising these issues in condemnation proceedings.

 B.            Special Benefits Doctrine

In Borough of Harvey Cedars v. Karan, 425 N.J. Super. 155 (App. Div. 2012), the Appellate Division reexamined the Special Benefits Doctrine.  The Special Benefits Doctrine requires that in cases where there is a partial taking of property (taking less than the entire piece of property), in addition to considering the value of the land to be acquired and the damages to the remaining property caused by the taking, the compensation paid to the property owner must consider whether the taking will confer a “special benefit” on the owner.  A special benefit is contrasted with a general benefit—one that provides a benefit to the owner and public alike.

The dispute in Borough of Harvey Cedars concerned a partial taking to construct a sand dune.  The subject property is used as a single-family home and had an unobstructed view of the Atlantic Ocean.  The Borough intended to condemn approximately one-third of the property for the purpose of building a twenty-two foot high sand dune as part of a larger Army Corps of Engineers project.  It was undisputed the sand dune would partially block the view of the ocean; however, it would also provide protection to the homeowner in the event of a storm surge.

In pre-trial hearings, the Borough presented a civil engineer to explain how the proposed sand dune would confer a special benefit on the property owner.  The engineer stated that homes protected by sand dunes were far less likely to be damaged or destroyed than homes without sand dunes.  The engineer admitted, however, that the sand dune was intended to protect the entire island, and that the sand dune would only afford protection if other dunes were built across the island.  The trial court ruled there was no public benefit.

The Appellate Division affirmed.  The Court explained that a special benefit must be “particular to the property that is the subject of the condemnation and not the type of benefit that was the object of the project.”  Relying on older cases, the Court offered examples: Constructing a railroad across the owner’s land does not confer a special benefit because the owner and the public beefit similarly.  Also, condemning property to convert a dead end street to a through street did not bestow a special benefit on the owner because the community at-large would benefit.  However, using the railroad example, if the construction of the railroad resulted in unique benefits to the owner, such as draining of a swamp, there would be a special benefit that would have to be factored into the condemnation award.

The Appellate Division was convinced the sand dune was a general benefit because all property owners would be protected.  Protecting property owners from storm damage was the “object of the dune,” and the fact the beachfront owner may receive a greater degree of protection did not convert the dune to a special benefit.

The Appellate Division also upheld the trial court’s ruling that whether a special benefit exists is a question of law to be decided by the court, and the financial impact of a special benefit would be left to the jury.

Following Hurricane Sandy, the question of special benefits conferred by construction of sand dunes will become an important issue for the State, municipalities, and property owners.  The anticipated decision of the Supreme Court is expected to settle the issue of whether an owner receives a special benefit from the sand dune raised adjacent to the property, and how that special benefit will impact the purchase price.

 C.            Public Utility Condemnation

The third and final case presented to the Supreme Court was Norfolk Southern Railway Co. v. Intermodal Properties, LLC, 424 N.J. Super. 105 (App. Div. 2012).  Unlike the other two recent cases, Norfolk Southern does not involve valuation issues, but rather the circumstances of when a public utility has the right to use eminent domain to acquire property for public utility purposes.  In New Jersey, public utilities such as water companies, electric companies, and cable companies have the right to use condemnation powers to purchase easements or fee ownership interests in private property.  Utilities must demonstrate that the proposed use is for a public utility purpose.

Norfolk Southern involves a condemnation action brought by a railroad.  Railroads are utilities vested with condemnation authority.  Unlike public agencies with condemnation authority, a public utility condemnor must first file a petition with a State Agency for permission to institute eminent domain proceedings.  Most utilities file the petition to condemn with the Board of Public Utilities; railroads, however, file their petitions with the Department of Transportation.  N.J.S.A. 48:12-35.1.  Once the State Agency approves the petition, the public utility may file a condemnation action in the Superior Court.  The property owner must contest the right to take by appealing the State Agency’s decision to the Appellate Division of the Superior Court.

In Norfolk Southern, the railroad requested permission to exercise eminent domain to acquire a six-acre site in Secaucus, New Jersey.  The railroad argued it had to purchase the subject land, owned by Intermodal Properties, in order to expand its intermodal freight yard.  After a contested case hearing, the DOT approved the right to take.

The case before the Supreme Court involved the interpretation of two statutes—once of which defines the circumstances of when all utilities may condemn, and the other relates only to railroads.

The first statute, N.J.S.A. 48:3-17.7, requires that all utilities must demonstrate that the proposed taking “is reasonably necessary for the service, accommodation, convenience or safety of the public,” and “that the taking of such land or other property therein is not incompatible with the public interest….”  The owner, Intermodal Properties, sought to introduce evidence that the taking of the property by Norfolk Southern was not compatible with the public interest.  The land is across the street from New Jersey Transit’s Secaucus Junction, and Intermodal Properties intended to demonstrate it would be in the public interest to allow it to build a commuter and bus parking facility.  Intermodal Properties planned to support that contention by the fact that in 2008, the New Jersey Meadowlands Commission rezoned the property specifically to allow a parking facility.

The Appellate Division upheld the exclusion of the evidence of a competing use and the rezoning at the contested case hearing.  The Appellate Division concluded that the Prior Public Use Doctrine applied.  The Prior Public Use Doctrine holds that a condemnor cannot condemn the property of another entity with condemnation powers, absent express statutory authority, where the property is used for a public purpose.  Thus, for example, a municipality was barred from condemning property held by a railroad because the railroad had plans to expand its operations onto that parcel.  Tp. of Weehawken v. Erie Railroad Co., 20 N.J. 572, 581 (1956).  The Appellate Division found that Intermodal Properties did not use its land for a public purpose, and therefore could not present testimony or evidence that the parking deck use was more consistent with the public interest than Norfolk Southern’ s planned use.

The second statute addressed in the appeal is N.J.S.A. 48:12-35.1.  That statute defines when a railroad specifically can condemn.  The relevant section of the statute relates to the limitation that a railroad may only condemn “property adjoining such rights-of-way as exigencies of business may demand for the erection or expansion of freight and passenger depots and all other railroad purposes….”  When the issue of the interpretation of the phrase “exigencies of business” arose, Intermodal Properties proposed a definition that included a sense of urgent or current or foreseeable need.  Norfolk Southern explained the “exigencies of business” related to growth projections indicating a doubling in freight in the United States over the next twenty years and a proposed project called the Crescent Corridor.

The Appellate Division interpreted “exigencies of business” to mean “that a railroad may take private property by the exercise of eminent domain as the needs of its business may reasonably demand.”  The appeals court believed that interpretation was consistent with the ordinary meaning of the term “exigency” and allowed sufficient flexibility to railroads, whose projects often require long-term planning.

It is expected the Supreme Court will resolve the circumstances of when a private property owner may contest a taking action by a utility based on arguments the public would be better served by having the land used for some other purpose, and the limits of a railroad’s ability to use long-term projections and plans to use condemnation in the present.

For more information or with any questions please contact Eric D. McCullough at (201) 330-8712 or edm@lawwmm.com.