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East Cape May Associates v. State

July 25, 2001


On appeal from the Superior Court of New Jersey, Law Division, Cape May County, Docket No. L-1217-92.

Before Judges Havey, Wefing and Cuff.

The opinion of the court was delivered by: Havey, P.J.A.D.

As amended September 4, 2001.


Argued May 14, 2001

This is the second chapter of an inverse condemnation case involving a claim of regulatory taking arising from enforcement of the Freshwater Wetlands Protection Act (FWPA), N.J.S.A. 13:9B- 1 to -30. N.J.S.A. 13:9B-22b (§ 22b) provides:

If the court determines that the issuance, modification, or denial of a freshwater wetlands permit by the department pursuant to this act constitutes a taking of property without just compensation, the court shall give the department the option of compensating the property owner for the full amount of the lost value, condemning the affected property pursuant to the provisions of the "Eminent Domain Act of 1971," P.L. 1971, c. 361 (C.20:3-1 et seq.), or modifying its action or inaction concerning the property so as to minimize the detrimental effect to the value of the property. [Emphasis added.]

The central issue raised by this appeal is whether rule making is necessary before the DEP avails itself of the amelioration opportunity under § 22b to modify its actions "so as to minimize the detrimental effect to the value of the property." We are also called upon to review the trial court's determination that the "denominator" in the taking fraction was the 100-acre tract owned by plaintiff, East Cape May Associates (ECM).

ECM , a limited partnership, owns a 100 acre undeveloped tract located on the east side of Pittsburgh Avenue in the City of Cape May. A contiguous 100-acre tract on the west side of Pittsburgh Avenue is or has been owned or developed by ECM's principals and an affiliated partnership. The DEP has designated most of the 100-acre eastern tract as being of "exceptional resource value" which subjects the property to heightened protection against development. See N.J.S.A. 13:9B-7, -10c. On July 23, 1990, ECM's principals, Philip Robinson and Thomas Brodesser, applied for a CAFRA permit (Coastal Area Facility Review Act, N.J.S.A. 13:19-1 to -21) to construct 366 single- family residential units on the eastern 100 acres. The property was conveyed by Robinson and Brodesser to ECM on December 20, 1990, for $10. By letter dated June 26, 1990, the DEP's regional supervisor indicated to ECM that its CAFRA application would probably be denied due to the quality and extent of wetlands on the property, citing CAFRA standards governing special areas, endangered species and habitats, storm water runoff, and other pertinent regulations.

On January 24, 1991, the DEP denied the CAFRA permit. In response, ECM filed the present action seeking compensation for the regulatory taking of the eastern tract, citing the DEP's denial of ECM's CAFRA permit. ECM claims that there has been both a permanent and temporary taking in violation of the State and federal constitutions.

In East Cape May Assocs. v. State, Dep't of Envtl. Prot., 300 N.J. Super. 325 (App. Div. 1997) (East Cape May I), we reversed an order for summary judgment in favor of ECM which declared that there had been a regulatory taking of its property. We agreed with the trial court that the pertinent DEP regulations affecting ECM's property indicate that "unless those regulations are relaxed in significant respects, no application for any economically meaningful development of that property will be granted." Id. at 338. We added:

If the property currently owned by East Cape May [the 100-acre easterly tract] represents the full extent of the property which we should consider to determine the taking issue, and if those regulations will not be relaxed pursuant to N.J.S.A. 13:9B-22b, the State's regulatory scheme so "excessively interferes with property rights and interests" that they leave East Cape May without "viable, economically-beneficial uses of [its] land" and therefore have effected a constitutional taking. See Gardner v. New Jersey Pinelands Comm'n, supra, 125 N.J. at 210-16, 593 A.2d 251, and cases cited therein. [Ibid. ]

However, we remanded with direction that the trial court address the "denominator" argument raised by the State; that is, that the entire 200 acres owned by ECM or its principals, situate on both the east and west side of Pittsburgh Avenue, must be considered in determining whether there has been a taking. Id. at 353-54. We directed that, upon resolution of the "denominator" issue, "[a]t the option of the DEP, an opportunity should be afforded it to work with East Cape May to formulate an acceptable development plan pursuant to N.J.S.A. 13:9B-22b." Id. at 354. In that respect we interpreted § 22b as requiring "the DEP and the developer to confer about the realistic prospects for development whenever the agency has taken a position which, reasonably interpreted, would impose limits on the utilization of property so draconian that they would amount to a constitutional taking." Id. at 341.

On remand, the DEP undertook an analysis of pertinent regulations affecting ECM's property with the goal of presenting a plan of development acceptable to ECM. During the remand hearing, Richard Kropp, Director of Land Use Programs for the DEP, testified it was his goal to draft a proposal that would both protect the environmental resource, and, at the same time, permit ECM an economically viable use of its property. Kropp considered the physical attributes of the site, local zoning laws and other State and federal regulations. He did not consider ECM's investment in the property. Under Kropp's supervision, the DEP staff divided and ranked the eastern tract, which is entirely wetlands and wetlands barriers, into four areas of habitat priority. The DEP then retained a professional planner, Carl Hintz, to determine where best to place potential development so that it would have the least impact on the most valuable habitat.

Hintz testified as an expert in the fields of planning, wetlands, and landscape architecture that he considered the habitat value of the site, the proximity of the development to the ocean and existing development, and the zoning of the site. Ultimately, Hintz developed three proposals of twenty, forty and sixty-four units. The sixty-four unit plan groups most of the proposed residential units in the southeast corner of the tract. The remaining eight units were separated and placed on block 1163, west of the other proposed units. It was the DEP's view that this plan saved a large continuous area of habitat and preserved the more valuable habitats and minimized the "edge" between development and natural habitat. Hintz testified that there was a strong market for the type of development he proposed.

The DEP presented the twenty and forty-unit proposals to ECM. On February 25, 1998, after the DEP proposed the forty-unit plan, Kropp and several Deputy Attorneys General met with the attorneys for ECM. ECM advised the DEP that the forty-unit offer did not match its investment in the eastern tract. Thus, the meeting ended without agreement. Shortly before trial, the DEP offered the sixty-four unit plan. ECM rejected this proposal as well.

ECM presented testimony indicating that it had incurred aggregate costs associated with the eastern 100-acre tract of $1,712,181.50, in additional to litigation costs associated with the tract totaling $1,339,209.40.*fn1 ECM's certified public accountant testified that, adjusting the total costs to present day value, ECM had expended $5,482,073.95.

The State's appraisal expert, George W. Powell, testified that, assuming ECM could obtain the necessary permits for the development of 366 units, the Army Corps of Engineers (Corps) would probably only permit the development of 183 homes which, Powell concluded, was the highest and best use of the eastern tract. Applying the income and comparison sales approaches, Powell valued the property at $4,500,000, including the probable costs of litigation against the Corps and costs of mitigation requirements the Corps might impose. Powell testified that the market value of the property based on the sixty-four building lots proposed by the DEP, was $4,382,300.

ECM's appraisal expert, Richard E. Hall, applied the cash- flow discounted method of appraisal. According to Hall, assuming that the property had received approvals for a 366 unit subdivision, it had a value of $28,860,000.

The testimony presented regarding the "denominator" issue was as follows. In 1954, Robinson bought the bulk of the western 100 acres from the City for a purchase price of $6,283. At about the same time the City sold the eastern tract to Morris Soble who in turn sold the property to Robinson in October 1954 for a payment of $20,000, with the promise that if Robinson "ever made any money with the ground" he would pay Soble an additional $20,000. Additional tracts were purchased by Robinson on the western side of Pittsburgh Avenue in 1954 through 1957. From approximately 1941, the easterly tract was zoned exclusively for residential use. The zoning west of Pittsburgh Avenue permitted hotels, boarding houses, rooming houses as well as apartments.

From 1956 through 1965, Robinson did nothing to develop any part of the land. However, in May 1965, he and Brodesser formed Cape May Greene, Inc. (Greene). Robinson agreed to sell lots to Greene one block at a time. It was planned that Greene would construct approximately 1,000 residential homes on the west side and 2,000 homes on the east side of Pittsburgh Avenue. In 1965 or 1966, the City zoned the west side of Pittsburgh Avenue as R-4 (multi-family residences) and the east side as R-2 (single-family residences).

In 1965, the City and Greene entered into a "working agreement" for the purpose of encouraging large-scale development.*fn2 The City agreed to provide water and sewer mains. A second "working agreement" was entered into in 1969. From 1965 until 1973, Greene built and sold 395 units on the western tract. In 1971, Robinson sold a portion of the eastern tract to the United States Coast Guard for $210,000.

In 1972, the City reneged on the working agreements with Greene. Litigation ensued resulting in an order declaring that the working agreements were valid and enforceable.

In 1974, after the enactment of CAFRA, Robinson transferred the balance of the western tract and the entire eastern tract to Greene for $1. Thereafter, in 1974, 1975 and 1979, Greene obtained exemptions from the CAFRA permit requirements, see N.J.S.A. 13:19-5, allowing an exemption for facilities upon which construction was in progress before the effective date of the statute. However, in 1979, the DEP informed Greene that a CAFRA permit would be required before it developed the balance of the western tract, approximately fifty acres.

In 1980, Robinson moved to Canada. Brodesser continued building on the western tract through a new corporation in which he was the sole stockholder, Village Greene Homes, Inc. (Village). Under the scheme, Greene transferred individual lots to Village. Village in turn sold the approved lots to homeowners.

Robinson testified that he and Brodesser never addressed the question of developing the eastern tract until 1979. He stated that he never considered the eastern and western tracts as a "unified, integrated, single parcel . . . ." In 1981, the City rezoned the eastern tract to low density residential, planned unit development. In 1986, Greene filed a subdivision application to build ninety-six quad units on the eastern tract. Additional litigation ensued regarding the 1965 and 1969 "working agreements." In 1987, Judge Gibson ruled that the working agreements encompassed the lands on both sides of Pittsburgh Avenue and therefore the City had an obligation to provide the infrastructure for development on the eastern tract.

In 1986, Greene transferred the entire eastern tract and nine lots in the western tract to Robinson and Brodesser for $1. Greene was thereafter dissolved. The FWPA was enacted in 1987, effective July 1, 1988. In 1988, the DEP cited Robinson and Brodesser for filling and site preparation of certain lots on the eastern tract without a CAFRA permit. The DEP filed a complaint in the Chancery Division seeking to enjoin Robinson and Brodesser from further filling, clearing, site preparation or building on the lots. One of the defenses Robinson and Brodesser advanced was that the eastern tract was exempt from CAFRA because it was part of the larger tract on which construction had already begun. Judge Gibson held that the eastern tract was not part of the larger tract for purposes of defining, under CAFRA, a "facility" under construction and therefore the eastern tract was subject to CAFRA. In so ruling, Judge Gibson relied on the fact that Robinson and Brodesser had made no attempt to develop the eastern tract until the mid-1980's, well after the passage of CAFRA.

During litigation with the DEP, Robinson and Brodesser in December 1988, filed a CAFRA application to construct ninety-six units on the eastern tract. The DEP advised that because of the extent of wetlands on the eastern tract and the presence of threatened and endangered species, it was "not likely" that it would approve the ninety-six unit project. In the meantime, the City granted Robinson and Brodesser preliminary major subdivision approval for 366 single family homes on the eastern tract. In July 1990, Robinson and Brodesser filed a formal CAFRA permit application for the 366-unit residential development. The DEP issued a preliminary analysis stating that it was likely the Director would deny the application. However, it requested additional information which Robinson and Brodesser refused to provide.

By deed dated December 20, 1990, Robinson and Brodesser transferred title to the eastern tract to ECM for the stated consideration of $10. ECM is a Florida limited partnership of which Robinson and Brodesser are the general partners.

On January 24, 1991, the DEP denied Robinson's and Brodesser's CAFRA permit because: (1) the applicants failed to comply with many DEP regulations; (2) the applicants failed to provide necessary information requested by the agency; (3) the applicants intended filling wetlands that constitute ninety percent of the site; (4) the upland areas of the tract were encompassed within wetlands buffer zones, where development was prohibited unless the applicants met certain defined conditions; and (5) the tract was the home of threatened and endangered species. In July 1991, the City rezoned the property to residential, cluster/preserved wetlands. The Mayor testified that the City opposed any development on the eastern tract.

After an extensive bench trial, the trial judge determined that the relevant denominator of the taking fraction was the property to the east of Pittsburgh Avenue. The court considered the "questions" we deemed relevant in deciding the denominator question, see East Cape May I, supra, 300 N.J. Super. at 353-54, and found, based on the evidence, that the 100-acre eastern tract must be deemed the denominator because: (1) the tracts to the east and west side of Pittsburgh Avenue were not purchased at the same time from the same grantors; (2) the tracts were not contiguous; (3) there was a break in the development on the western tract, during which Robinson did not participate; (4) the initial acquisition costs were borne by Robinson alone; (5) the tracts were never involved in any common permit application or development plan; (6) the tracts were never included in the same development application; (7) the tracts have always been zoned differently; and (8) at the time the tracts were acquired there were no development restrictions.

The trial court was not persuaded by the State's argument that because Robinson and Brodesser referred to the entire 200 acres in the working agreements with the City, the tracts should be considered one property for the purposes of the taking analysis. The court concluded that this single fact did not outweigh ...

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