On appeal from the Superior Court of New Jersey, Law Division, Essex County, L-782-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges R. B. Coleman and Sabatino.
Plaintiff, State of New Jersey, Commissioner of Transportation, appeals a final order entered by the Law Division on May 30, 2008, dismissing the State's complaint whereby it sought to use its power of eminent domain to temporarily acquire defendants' property. The issue before the Law Division was whether the State's failure to consider consequential business losses in its offer of compensation equated to a failure to conduct bona fide negotiations for the temporary taking. We affirm the Law Division's order.
We accept the following findings of fact from the Order to Show Cause proceedings conducted on May 1, 2008, before Judge Patricia K. Costello.
The State is planning a construction and repair project on the Bloomfield Avenue Bridge in Montclair Township. Defendants own and operate a nearby commercial business, the Palace Car Wash, located at 4-10 Bloomfield Avenue. The Commissioner of Transportation, on behalf of the State, seeks to acquire an easement consisting of the right to close defendants' driveway to all commercial traffic for a period of nine months, plus any additional time the State may require for the completion of the construction project.
Defendants Mohammed and Jawed Arifee purchased the subject property and existing car wash business on March 7, 2007. According to the HUD-1 closing statement executed by the parties at closing, the amount due to seller was $2,851,260.83. This price included a loan from the previous owner for $1,600,000. The parties allocated the value to the buyer as follows: $650,000 attributable to the contract sales price; $650,000 attributable to land and buildings; $650,000 to machinery; $400,000 to goodwill; and $500,000 to business. It is alleged that prior to the sale, the car wash serviced roughly 90,000 automobiles per year, generating between $1,080,000 and $1,260,000 of gross income annually. This income also included contracts with local police departments for auto detailing. Subsequent to purchasing the property, defendants made several physical improvements to the land and equipment.
On March 15, 2007, fifteen days after defendants closed on the property, the State's appraiser, Integrity Appraisal Group, met with defendants and inspected the car wash. The State appraised the market value of defendants fee simple, using a sales and comparison approach, at $1,700,000. The State then used that base number to calculate a Fair Market Rent and came up with a monthly rental value of $18,974 a month, or, $227,684 per year.*fn1 The State's appraisal purportedly included the rental value of onsite equipment, real estate taxes, insurance, and minimal utilities. On June 4, 2007, the State mailed defendants an "offer package" which included an offer letter, the State's appraisal for the property, and a parcel map. What the State's offer did not include was compensation for any of the lost business profit the car wash would normally generate. Nor did the State take into consideration the defendants' financing structure which would allegedly cause them to have a negative cash flow during the period the State occupied the property.
Defendants rejected the State's offer, claiming that they would incur debt and their expenses would accrue as a result of the closure. The State and counsel for defendants subsequently entered limited negotiations from June through October but could not agree on just compensation for the temporary taking of the business. On October 16, 2007, the State's negotiator submitted the case for condemnation.
On January 31, 2008, the State filed its Verified Complaint which sought temporary condemnation of defendants' property. On February 7, 2008, the court entered an Order to Show Cause.
Oral argument was heard on May 1, 2008, and on May 30, 2008, judgment was entered dismissing the State's complaint. Judge Costello issued her written opinion on the same date. On appeal, the State argued: (1) the trial court erroneously held that just compensation can encompass consequential business losses, and (2) the trial court's ruling that the State did not engage in bona fide negotiations was erroneous and should be reversed. We address each in turn.
The State first contends that lost business revenue is not to be a factor considered in determining just compensation for a taking. Rather, it urges, lost profit and good will are an incidental non-compensable item peculiar to the owner.
An owner of private property which is taken for public use is guaranteed just compensation by both the Federal and State Constitutions, and by New Jersey's Eminent Domain Act. U.S. Const. amend. V; N.J. Const. art. I, par. 20 (1947); N.J.S.A. 20:3-1 to 50. Ordinarily, however, in permanent takings, compensation is not considered for such incidental losses as "destruction of good will, expense of moving to a new location, profits lost because of business interruption, or inability to relocate." State by State Highway Comm'r v. Gallant, 42 N.J. 583, 587 (1964). Denial of incidental losses is ordinarily judicially justified based upon the presumption that these losses "are too difficult, remote and uncertain to measure accurately and their allowance might well result in unfounded and exaggerated awards which could exceed the constitutionally established norm." Ibid. In permanent takings, compensation is, therefore, limited to fair market value of the property. State by Comm'r of Transp. v. Silver, 92 N.J. 507, 513 (1983).
Defendants concede that in a permanent taking of a fee simple estate, goodwill and business losses are generally not compensable. In temporary takings, however, defendants contend different factors must be considered when determining just compensation to the deprived property owner. To support this proposition, defendants rely predominately on Kimball Laundry Co. v. United States, 338 U.S. 1, 9-10, 69 S.Ct. 1434, 93 L.Ed. 1765 (1949). Despite the straightforward principles established by the Supreme Court in Kimball, it is a case often selectively quoted. For this reason, we discuss the Court's holding in Kimball at length.
In Kimball, a privately owned and operated laundry plant was taken over by the government temporarily for the exclusive purpose of servicing the laundering needs of Army personnel during World War II. 338 U.S. at 3. The plant was commandeered by the military for a definite term to be extended from year to year at the election of the government. Ibid. The plant facility was large and equipped with state-of-the-art equipment. Ibid. Throughout the duration of government occupation of ...