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OFP, L.L.C. v. State

December 9, 2008


On certification to the Superior Court, Appellate Division, whose opinion is reported at 395 N.J. Super. 571 (2007).


(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).

(NOTE: The Court wrote no full opinion in this case. Rather, the Court's affirmance of the judgment of the Appellate Division is based substantially on the reasons expressed in Judge Skillman's opinion below.)

This appeal involves a constitutional challenge to the Highlands Water Protection and Planning Act (the Highlands Act), N.J.S.A. 13:20-1 to -35.

The Highlands Act provides for the regulation of development and land use planning in the Highlands Region, consisting of nearly 800,000 acres in eighty-eight municipalities located in parts of seven counties in north and central New Jersey. The Highlands Act creates two areas within the Region: a preservation area, in which further development is strictly regulated, and a planning area, in which development consistent with the Act's goals is encouraged. The Act delegates responsibility to the Department of Environmental Protection (DEP) to establish a Highlands permitting review program for all major development in the preservation area.

Plaintiff, OFP, L.L.C. (OFP), is the owner of a ninety-three acre tract of undeveloped land in Washington Township, Morris County. The tract is located within the preservation area of the Highlands Act. In December 1999, OFP's predecessor in title was granted preliminary major subdivision approval to subdivide the property into twenty-six lots for residential development. In February 2004, OFP applied to the DEP for a potable water supply permit to construct a water works. The application was still pending when the bill that became the Highlands Act was introduced in the Legislature in March 29, 2004. DEP issued the permit on May 14, 2004. The Governor signed the Highlands Act into law on August 10, 2004.

The Highlands Act only exempts from its provisions a major Highlands development project that obtained preliminary subdivision approval and required approvals from the DEP before the Act was introduced in the Legislature on March 29, 2004. Therefore, OFP's proposed subdivision is subject to the Highlands permitting review program because OFP did not obtain a potable water supply permit until after the Act was introduced.

OFP's counsel sent a letter to the Commissioner of the DEP on October 18, 2004, requesting a meeting to discuss the Highland Act's application to the OFP project and the potential for an exemption from the Act. A supervisor environmental specialist advised counsel by phone that the DEP had not yet received an application from OFP for a "Highlands Applicability Determination." On December 14, 2004, Counsel sent another letter to DEP asserting that the environmental specialist had advised him that there was no statutory exemption available for OFP's subdivision, and therefore, the property is subject to the Highlands Act. The letter stated that OFP had an investment-backed expectation of developing the property and was left with no choice but to challenge the legality of the Act as it applies to OFP's project. The letter concluded that in view of the supervising environmental specialist's expression of opinion that the subdivision was not exempt from the Act, OFP had "exhausted administrative remedies and will proceed with our legal remedies."

Before DEP had responded to the December 14th letter, OFP filed this action challenging the constitutionality of the Highlands Act as applied to its property. The complaint asserted that the Act operates as a bar to development as otherwise permitted by law and results in a taking of OFP's property without compensation in violation of the United States and New Jersey Constitutions. Based on the alleged retroactive application of the Act to OFP's subdivision approval, the complaint also asserted that the Act violates the equal protection and due process guarantees of the United States and New Jersey Constitutions.

The trial court rejected OFP's challenges to the constitutionality of the Highlands Act and dismissed its complaint. The court noted that the Act provides protection to property owners through an administrative process that includes provisions for hardship waivers. In light of the availability of this process, the court dismissed the constitutional challenge "on the procedural grounds of failure to exhaust administrative remedies." The court also concluded that the limited retroactive application of the Act to projects that received administrative approvals during the intervening period between the Act's introduction and its final enactment did not violate OFP's due process and equal protection rights. OFP appealed.

The Appellate Division affirmed in a unanimous, published opinion written by Judge Skillman. OFP, L.L.C. v. State, 395 N.J. Super. 571 (App. Div. 2007). The Appellate Division noted that the determination whether there has been a taking depends on a complex of factors including the economic effect on the landowner and the extent to which the government action interferes with reasonable investment-backed expectations. The court further explained that because the determination depends on a complex of factors, the agency responsible for the regulation must arrive at a final, definitive position regarding how the regulation at issue will be applied to the particular land in question before a court can decide whether a taking has occurred. The Appellate Division cited to New Jersey precedent that requires the exhaustion of available administrative remedies before a landowner may maintain a regulatory taking claim.

The Appellate Division pointed out that the Highlands Act establishes an administrative procedure for determination of any claim that its regulatory provisions have resulted in a taking. The Act requires the DEP to establish a "Highlands permitting review program" for the coordinated review of major development in the preservation area based on rules and regulations adopted by the DEP. It further provides that the permitting review program "shall include" a provision to "allow for a waiver of any provision of the Highlands permitting review on a case-by-case basis in order to avoid the taking of property without just compensation." N.J.S.A. 13:20-33(b)(3). To implement this provision, the DEP has adopted a detailed regulation that governs review of an application for a hardship waiver to avoid the taking of property without just compensation. N.J.A.C. 7:38-6.8.

The Appellate Division rejected OFP's argument that its letters to the DEP constituted an application for a hardship waiver under the statute. The court pointed out that none of the letters cite the waiver statute, and also that they were sent prior to the DEP's adoption of the regulation implementing the provision. The Appellate Division also rejected OFP's claim that the requirements of the regulation are unreasonably onerous, noting that there was no record on which to determine how the DEP would have applied the regulation in considering an application by OFP. Nor was the Appellate Division persuaded by OFP's claim that DEP's failure to adopt a transfer of development rights program in accordance with the Act relieved OFP of the obligation to apply for a hardship waiver. The court concluded that even without implementation of a transfer of development rights program, the remedy of a hardship waiver application is sufficient on its face to prevent a regulatory taking of OFP's property. It construed the statutory waiver provision as a directive to DEP to grant hardship waivers from the regulations governing development on as broad a basis as is required to avoid any taking without just compensation.

OFP also argued on appeal that the retroactive application of the Highlands Act to its proposed subdivision, which received its final environmental approval during the interim period between the bill's introduction and enactment into law, violates the United States and New Jersey Constitutions and results in a "manifest injustice." The Appellate Division rejected this argument, finding that there was a rational basis for the limited retroactive application of the Act - to prevent a rush to obtain development approvals while the Act proceeded through the legislative process. In addition, the Appellate Division held that there was no manifest injustice in the retroactive application, noting that OFP's interests in ...

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