On appeal from the Department of Environmental Protection, 0103-02-0046.
The opinion of the court was delivered by: Parrillo, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Parrillo, Lihotz and Messano.
This matter concerns the parameters of an administrative agency's discretion to settle a third-party permit challenge. Appellants Albert and Barbara Dragon (Dragons) are objectors to a settlement agreement between their next-door neighbor, respondent Edward W. Kelly, Jr. (Kelly), and the New Jersey Department of Environmental Protection (DEP), which authorized Kelly to tear down and reconstruct his oceanfront home -- expanding its size, height and footprint -- without a permit otherwise required under the Coastal Area Facility Review Act (CAFRA), N.J.S.A. 13:19-1 to -21, and its Coastal High Hazard Areas Rule (Coastal Rule), N.J.A.C. 7:7E-3.18. The Dragons appeal from the DEP's final decision upholding the settlement agreement, essentially arguing that the agency exceeded its authority under CAFRA by bypassing substantive CAFRA regulations and issuing approval in lieu of a permit. We agree.
Some background is in order. Kelly owns a 1950's oceanfront two-story single-family home with a 1944-square-foot footprint at 408 30th Street South in Brigantine, the most easterly lot on the block, and encroaching more oceanward than any of its neighbors. The entire lot, with ninety feet of ocean frontage and ninety-three feet deep, is located in the CAFRA Coastal High Hazard Area and the Federal Emergency Management Agency's "V10" Zone. The eastern, most oceanward portion of Kelly's lot consists of a thirty-foot by ninety-foot strip of vegetated dunes. A wooden timbered structure encased by timber pilings affixed with galvanized hardware, which appellants label a "bulkhead," separates this oceanward portion from the rest of Kelly's lot. Undeveloped land with vegetated dunes borders the lot to the north, south and east. There are no other houses or commercial buildings within 100 feet to the north and south of the lot. A public alleyway to the beach runs along the lot's southern boundary.
Since 1991, the Dragons owned the adjacent lot immediately west of Kelly's lot on the upland or non-water side, located at 404 30th Street South. Originally, the two properties had been under common ownership with Kelly's house being the only structure on the parcel. In 1981, the parcel was subdivided, and in 1988, a predecessor-in-title to appellants constructed what was to become the Dragons' house. Both lots have municipal sewer service.
In his first CAFRA permit application submitted in 2002 to DEP through its Land Use Regulation Program (LURP), Kelly requested a coastal general permit to demolish his existing house and build a new one, enlarging the height to three stories, or thirty-five feet, and increasing the house's footprint from 1944 to 3480 square feet. He also proposed extending the footprint nine feet closer to his oceanfront lot line and eleven feet closer to the west lot line he shared with the Dragons (the original footprint was sixteen feet from appellants' lot). The setbacks on the north and south sides would be increased to twenty and ten feet, respectively.
The Dragons objected. DEP advised Kelly that his application would not likely be approved because there were no buildings within 100 feet of each of his north and south lot lines to qualify for exemption from the development ban of N.J.A.C. 7:7E-3.18. DEP, however, offered other options: (1) obtain a permit-by-rule under N.J.A.C. 7:7-7.2(a)(7) for voluntary reconstruction within the same footprint; (2) obtain a coastal general permit under N.J.A.C. 7:7-7.7 for reconstruction "landward of the existing footprint" with no enlargement of the footprint size and with no disturbance of any dune; or (3) obtain a coastal general permit under N.J.A.C. 7:7-7.7 for reconstruction "landward" and laterally north or south of the existing footprint with no enlargement of the footprint size and with no disturbance of any dune. Kelly could also obtain a permit-by-rule under N.J.A.C. 7:7-7.2(a)(1) for expansion, but not reconstruction, of his existing home up to 400 square feet on the non-water sides. Consequently, Kelly withdrew his application.
In 2004, Kelly submitted a second permit application with a similar proposal, this time increasing the footprint from 1944 to 2521 square feet. The Dragons again objected, citing destruction of scenic views, an inaccurate site plan, and the inappropriateness of a general permit for footprint enlargement. They argued that DEP should require a CAFRA individual permit for Kelly's project.
As a threshold matter, DEP found that Kelly had met the requirements to apply for a coastal general permit set forth in N.J.A.C. 7:7-7.9, which governs the waterward expansion or reconstruction (with or without expansion) of a single family home, and that Kelly did not need to apply for a CAFRA individual permit.*fn1 Nevertheless, DEP denied the permit because Kelly's property was entirely located within a coastal high hazard area and did not meet one of the exceptions to complying with the Coastal Rule, namely that a house or building be located within 100 feet of each of its northerly and southerly lot lines that run roughly perpendicular to the mean high water line. N.J.A.C. 7:7E-7.2(e)4(i)(3), (f)4(i)(3)*fn2 ; N.J.A.C. 7:7-7.9(f)(l)iii. On this score, DEP's Coastal Rule prohibits residential development in coastal high hazard areas unless all of the "infill development" standards in N.J.A.C. 7:7E-7.2(e) or (f) are satisfied. N.J.A.C. 7:7E-3.18(b). One of the criteria in both N.J.A.C. 7:7E-7.2(e) and (f) is that the development site had a house or commercial building within 100 feet of each of its lot lines running perpendicular to the mean high water line "measured outward from each lot line, along a line generally parallel to the mean high water line." N.J.A.C. 7:7E-7.2(e)4(i)(3) and (f)4(i)(3). Thus, Kelly's project was "not approvable" and could not be constructed.*fn3
Kelly appealed, requesting an adjudicatory hearing before the Office of Administrative Law (OAL) or, in the alternative, requesting that the matter be referred to DEP's Office of Dispute Resolution.*fn4 Opting for the latter, DEP sent the matter for mediation and on September 30, 2004, DEP and Kelly reached an amicable resolution memorialized in a document entitled, "Mediation & Settlement Agreement In Lieu of a Permit" (settlement agreement or agreement), which allowed the reconstruction and expansion of the footprint of the existing single family dwelling on the Kelly property, subject to several conditions. Specifically, the agreement required Kelly: (1) to modify the proposed project "in a manner satisfactory to the Department and consistent with the Rules on Coastal Zone Management . . . and the Coastal Permit Program Rules"; (2) to submit a revised site plan with a revised landscape plan "that represents an enhancement to the existing dune system"; (3) to offer and record a DEP-approved deed restriction "to prevent future encroachment waterward of the existing dune development restriction line"; (4) to obtain all other necessary local, state and federal permits; and (5) to allow DEP personnel access to the site as necessary for conducting compliance inspections.
DEP then published notice of the proposed settlement and solicited comments from interested parties. The Dragons filed objections and a separate appeal with DEP, contesting the agreement and requesting a hearing. Without responding to the hearing request, and after considering the Dragons' objection, DEP issued a "Letter of Authorization" (LOA) authorizing "the reconstruction and expansion of the footprint of [Kelly's] existing single family dwelling." Actually, the LOA approved Kelly's newly revised site plan, calling for the existing 1944- square-foot footprint to be increased to 2967 square feet, which was larger than proposed in Kelly's application, and showing no setback from the so-called wooden "bulkhead" structure and a five-foot setback from the Dragons' lot. The LOA expressly stated that it was "in lieu of a Coastal General Permit, pursuant to the rules on Coastal Zone Management."
After the Dragons filed a notice of appeal challenging the LOA and DEP's failure to respond to their hearing request, the Commissioner issued an order granting their request for an adjudicatory hearing. On DEP's motion, we dismissed the appeal and the matter thereafter proceeded in the OAL where both DEP and the Dragons cross-moved for summary decision.*fn5 Following argument, the Administrative Law Judge (ALJ) set aside the settlement agreement and LOA as invalid and ultra vires, concluding that DEP, through its mediation process, waived the infill development rule without any express statutory or regulatory authority. In reaching his conclusion, the ALJ relied on SMB Assocs. v. New Jersey Dep't of Envtl. Prot., 264 N.J. Super. 38, 54-55 (App. Div. 1993), aff'd, 137 N.J. 58 (1994), in which we concluded that waiver of a regulation could not be granted in the absence of a rule authorizing a waiver, and to do so would violate the rulemaking principles of Metromedia, Inc. v. Dir., Div. of Taxation, 97 N.J. 313 (1994).*fn6
In her final decision, the Commissioner adopted that part of the ALJ's initial decision finding that Kelly had properly applied for a coastal general permit as opposed to an individual permit. However, she rejected the ALJ's conclusion that the settlement agreement and LOA were invalid. Although the Commissioner acknowledged that Kelly failed to meet the third criteria for issuance of a coastal general permit, N.J.A.C. 7:7E-7.2(f)4(i)(3), she nevertheless found a "litigation risk" inherent in the denial of a permit, and therefore concluded that the settlement was a fair and reasonable exercise of DEP's discretion to resolve litigation, comported with the best interest of the environment, and was consistent with the purposes of CAFRA.
On appeal, the Dragons contend that the settlement agreement and LOA are ultra vires, arbitrary and capricious because they impermissibly allowed DEP to waive Kelly's compliance with the agency's substantive CAFRA regulations, specifically N.J.A.C. 7:7E-3.18(b), during its permitting process. Appellants also claim that DEP should have made Kelly apply for a coastal individual permit, instead of a coastal general permit, and that a remand is required for disposition of a bulkhead issue. We conclude that CAFRA does not give DEP either the express or implied power to authorize ...