On certification to the Superior Court, Appellate Division.
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
The issue in this appeal is whether the Department of Environmental Protection (DEP) regulation restricting construction in the Hackensack River floodway effects a taking of property by restricting Ronald Mansoldo from constructing two single family homes on his property and, if so, the extent to which Mansoldo should be compensated.
The subject property is a vacant tract of land designated as Block 906, Lots 16-19 on the New Milford tax map. The property is adjacent to the Hackensack River and mostly within the Hackensack River floodway. Frances Mansoldo purchased the property in 1975. In 1982, the DEP adopted a regulation that severely restricts construction in the Hackensack River floodway. See N.J.A.C. 7:13-7.1. In 1993, Ronald Mansoldo, the son of Frances Mansoldo, sought to construct two single-family homes on the property, which is a permitted use under the New Milford zoning regulations. Because the construction would require the placement of fill into the floodway, Mansoldo was obligated to apply for a Stream Encroachment Permit with the DEP under the Flood Hazard Area Control Act Rules, N.J.A.C. 7:13-1.1 to 7.1. In 1994, the DEP denied the application on the basis that the erection of "new structures" or the "addition of any fill" into a floodway is prohibited under N.J.A.C. 7:13-2.2. Instead, the property could only be used for a parkland, open space, or a parking lot.
The DEP also denied Mansoldo's petition for a hardship waiver under N.J.A.C. 7:13-4.8. Mansoldo appealed that decision and the matter was transmitted to the Office of Administrative Law. The Administrative Law Judge (ALJ) found that Mansoldo had not created the hardship and that he had done nothing to cause the conditions for which the hardship waiver was sought. However, because Mansoldo failed to prove that this was an exceptional circumstance and that the application would not pose a threat to the environment, the ALJ granted the DEP's motion for summary decision and dismissed Mansoldo's appeal. The Commissioner of the DEP adopted the ALJ's decision without modification.
Mansoldo filed a complaint in the Law Division, arguing that the floodway regulations had resulted in an inverse condemnation of his property. Notwithstanding the conclusion that as a result of the DEP regulation Mansoldo had, through no fault of his own, no economically viable use of the land, the court held that the State was required to compensate Mansoldo, but only for the value of the property's permitted uses as a parkland, open space, or a parking lot. Both parties moved for reconsideration. Relying on Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), Mansoldo argued that if the court determined that a taking had occurred, then full compensation must be given. The State maintained that if the property does have value, then a taking did not occur. The trial court denied both motions for reconsideration.
Mansoldo appealed to the Appellate Division, arguing that the trial court had improperly limited his compensation to the value of the land as a parkland, open space, or a parking lot. The State, though now conceding that a taking had occurred, asked the panel to affirm the trial court's determination that compensation be limited to the value of the land's permitted uses. The Appellate Division considered whether even the permitted uses were deemed not viable under the regulations and determined that the measure of value was the permitted uses as a parkland, open space or a parking lot.
The Supreme Court granted Mansoldo's petition for certification. The Court permitted the Association of State Floodplain Managers, Inc., to submit a brief as amicus curiae.
HELD: The lower courts did not follow applicable standards of law and erroneously relied on a factual record developed in a related administrative hearing. The Appellate Division decision is reversed and the matter is remanded to the trial court for further proceedings consistent with this opinion.
1. Under the Fifth and Fourteenth Amendments to the United States Constitution and Article I, Paragraph 26 of the New Jersey Constitution, property owners must be paid just compensation for governmental takings. However, the question whether a taking has occurred becomes more complicated when it involves government regulation of a property. If the regulation does not deny all economically beneficial use under Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), then the determination whether the regulation otherwise constitutes a compensable taking is governed by the standards set forth in Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978). In Penn Central, the Court explained that there are "several factors" for evaluating regulatory takings claims, the most important of which are the "economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations [and] the character of the governmental action." 438 U.S. at 124. (Pp. 9-12)
2. In this matter, the lower courts failed to properly apply the case law. If the DEP regulation does deny all economically beneficial or productive use of Mansoldo's property, then the State must provide just compensation unless background principles of this State's property and nuisance law prohibit Mansoldo's intended use. On the other hand, if the DEP regulation does not deny all economically beneficial or productive use of the land, then Penn Central factors must be applied to resolve the issue. Because the trial court and Appellate Division did not follow that framework, the case must be remanded. Further, although collateral estoppel applies to the final decisions of administrative agencies, the doctrine does not apply in this situation. (Pp. 12-15)
3. On remand, the court first must determine whether the DEP regulation denies all economically beneficial use of the property and therefore effects a taking under Lucas. In doing so, the court should conduct its own factual inquiry and not rely on the ALJ findings. If the court finds that the DEP regulation denied Mansoldo all economically beneficial use of his property, then the State is required to pay just compensation unless the court determines that background principles of property and nuisance law preclude Mansoldo"s intended use of the property. Finally, if the court concludes that the DEP regulation does not deny Mansoldo all economically beneficial use of his land, then it must determine whether there was a compensable taking under the factors set forth in Penn Central. (Pp. 15-16)
The Appellate Division decision is REVERSED and the matter is REMANDED to the trial court for further proceedings consistent with this opinion.
CHIEF JUSTICE PORITZ and JUSTICES LONG, LaVECCHIA, ALBIN, WALLACE, and RIVERA-SOTO join in ...