If you were a municipality that had to take action and condemn private property for the public good to avert disaster, before you got to court you would be particularly pleased to be able to say, "See, I told you so," pointing to an avoided calamity. When one New Jersey beachfront community, the Borough of Harvey Cedars, took such action, the longed-for serendipity avoided both the trial and intermediate appellate courts. But then fortune smiled and the Borough enjoyed a favorable result before the New Jersey Supreme Court in Borough of Harvey Cedars v. Karan, [enhanced version available to lexis.com subscribers], decided just this month and setting the stage for condemnation actions up and down the New Jersey coast (and potentially elsewhere).
In 1973 the Karans acquired a beachfront home on a small lot (11,868 sq. ft.) in Harvey Cedars. It’s a lovely three-story home, the kind of place where one can sit on the porch on the second story and watch the children playing on the beach. Except that is, if there is a 22-foot dune between the home and the water. In that case, to see the little ones one would need to climb up to the third floor. One might, then, be a little incensed if the Borough came and offered $300 for a quarter of the property to put up such a dune. And the fact that the dune would protect the home from the ravages of a rising and violent ocean, such as that delivered by Superstorm Sandy, might not ameliorate the unjustness of it all.
That story is pretty much what happened to the Karans. With funding from the New Jersey Department of Environmental Protection and the U.S. Army Corps of Engineers, the Borough planned to construct a $25 million, 22-foot-high sand dune along its shoreline; it would be placed on private property where necessary by way of an easement. Such a barrier, it was hoped, would protect local homes and businesses from future storm surges. Many beachfront homeowners saw the benefit of a protective dune and voluntarily accepted the easement. Others, including the Karans, did not. The asserted benefits did not sit well with Harvey Karan, who argued that, in nearly four decades of owning the home, he had not seen “a lick of water” reach its living quarters. We note that this was not a particularly surprising result as the living quarters were on the second and third floor. In any event, in November 2008, the Borough moved to acquire a portion of the Karans’ property by eminent domain. Unsurprisingly, the Karans rejected the Borough’s offer of $300 “just compensation” and took legal action.
In an evidentiary proceeding, the Karans moved to prevent the Borough’s appraiser, Donald M. Mollier, Ph.D., from testifying that the dune’s storm protection increased the value of their home—thus decreasing the amount of compensation to which they were entitled. Instead, they maintained that the project provided “general benefits” to all Harvey Cedar residents, ones that could not be taken into account when determining compensation. Relying on prior New Jersey precedent, Sullivan v North Hudson County Railroad Co., 51 N.J.L. 518 (E. & A. 1889) [enhanced version available to lexis.com subscribers], the court supported this view, instructing the jury: “the Borough is not entitled to any credit nor should the amount of just compensation to the Karans be reduced by virtue of any general benefit which they may receive along with other property owners in the Borough as a result of the dune and beach replenishment project.”
The jury returned an award to the Karans of $375,000, for the taking of a quarter of their lot and the loss of their view. In early 2012 the Appellate Division affirmed, reasoning "that the advantage accruing to the Karans from the newly constructed dune was not a special benefit but rather 'a classic example of a general benefit,' which cannot be used to offset the loss from a partial taking."
The Borough persisted nonetheless and filed an appeal to the New Jersey Supreme Court. And then came Sandy with its unprecedented devastation up and down the Shore. Over 100 killed, sixty-two billion dollars in damage (much of it uninsured) in the New York-New Jersey metropolitan area. Places like Mantoloking, without a protective dune, were shredded. Places like Harvey Cedars came through relatively unscathed. Hmmmm. Maybe there's something to the protective dune idea.
The Jersey Shore Partnership thought so and filed a motion seeking leave to be allowed to submit out of time a brief amicus curiae, which the Court granted. Rather than get caught up in an analysis of general and specific benefits, the Partnership took a different tack. Lead counsel, Dave Apy, crafted an argument based on the modern method of any condemnation award: fair market value. (Full disclosure: Mr. Apy mentored me as a younger associate; he has a knack for cutting through legal clutter.) Rather than staying "mired in technical, nonsensical arguments" over general and special benefits, the courts should look to a simple test: "whether the benefits, however characterized, are ascertainable and directly enhance the remaining property." The other amicus, the New Jersey Department of Environmental Protection, likewise advocated for a fair market value approach.
The New Jersey Supreme Court bought the Partnership's and the NJDEP's argument. In its ruling, it cited a wide body of case law, dating back to the Magna Carta, and supporting the notion that when private property is taken, the State must pay just compensation. In a complete taking, just compensation is measured by fair market value. The Court saw no reason not to apply the same concept to a partial taking. After laying out the history that led to Sullivan (the basis for the trial court's decision), the Court turned to Mangles v. Hudson County Board of Chosen Freeholders, 55 N.J.L. 88 (Sup. Ct. 1892) [enhanced version available to lexis.com subscribers], decided only a few years after Sullivan and by the same judge. "'Just compensation' could not 'be ascertained without considering all the proximate effects of the taking." Id. at 92. "'Any benefit arising from the taking and public use of the property 'which admits of reasonable computation may enter into the award.'" Id.
The remainder of the Court's opinion in Karan bolsters the position of fair market value. It concludes that the general/special benefit distinction "is at odds with contemporary principles of just-compensation jurisprudence."
Thus, there would be a new trial, where “the Borough will have the opportunity to present evidence of any non-speculative, reasonably calculable benefits that inured to the advantage of the Karans’ property at the time of the taking.” "In short, the quantifiable decrease in the value of their property -- loss of view -- should have been set off by any quantifiable increase in its value."
Justice Holmes said in The Common Law, "The life of the law has not been logic; it has been experience." In Karan, logic required that Sullivan’s hoary general and special benefit distinction would carry the day, as it did before the trial court and the Appellate Division. Experience (bearing the nom de guerre Sandy), however, led to a different result.
J. Wylie Donald, a partner at McCarter & English, LLP, counsels and litigates for clients on insurance coverage, environmental and products liability matters. Mr. Donald co-chairs the firm's Climate Change and Renewable Energy Practice. He draws on his substantial environmental experience, his prior non-legal technical work, and his deep involvement in risk management to assist clients in understanding and controlling the coming regulatory and non-regulatory impacts of climate change. He has tried cases and argued appeals in the state courts in New Jersey and Maryland, conducted private arbitrations and mediations, and argued motions in federal courts across the nation.
Read more at Climate Lawyers Blog by McCarter & English, LLP.
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