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Dock St. Seafood, Inc., and Mikalu, LLC.,*Fn1 v. City of Wildwood and K. Hovnanian Shore Acquisitions

March 30, 2011

DOCK ST. SEAFOOD, INC., AND MIKALU, LLC.,*FN1 PLAINTIFFS,
v.
CITY OF WILDWOOD AND K. HOVNANIAN SHORE ACQUISITIONS, LLC, *FN2 DEFENDANTS.



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

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE COMMITTEE ON OPINIONS

Civil Action

OPINION

APPROVED FOR PUBLICATION

WINKELSTEIN, J.A.D. (retired and temporarily assigned on recall).

This is an inverse condemnation action that came before the court for trial on February 14 and February 15, 2011. Plaintiff, Dock Street Seafood, Inc. (Dock Street), is a property owner in the City of Wildwood's (the city) redevelopment area. Plaintiff, through its principal, Richard A. Hoff, claims that the city mishandled the redevelopment project, imposing an eight year moratorium on private development in the redevelopment area. Plaintiff argues that as a result, it lost the potential sale of its land, and seeks a judgment that the city has inversely condemned the property. The city refutes plaintiff's allegations, and asserts that neither the redevelopment plan itself nor any action taken by the city to implement the plan implicitly or explicitly prohibited plaintiff from selling or otherwise developing its property. Consequently, the city argues that plaintiff has not proved that the city's actions have inversely taken plaintiff's property. Based on the trial evidence, I agree with the city and, accordingly, for the reasons that follow, enter judgment in favor of the city and dismiss plaintiff's complaint.

I.

Plaintiff owns block 100, lots 30 -- 40, known as 600 West Baker Avenue, located in the city's Bayside Redevelopment area (the redevelopment area). Plaintiff also owns seven adjacent lots, block 100, lots 14 -- 20, known as 601 West Montgomery Avenue; this property is not in the redevelopment area. Plaintiff purchased the Montgomery Avenue property in 1981 and the Baker Avenue property sometime in 1991. Plaintiff paid between $73,000 and $78,000 for the Baker Avenue property.

On the Montgomery Avenue property, Dock Street operated a seafood business. Included on the property was a large freezer used in conjunction with its business. Plaintiff purchased the Baker Avenue property to serve as a buffer between the restaurant and the neighboring properties and because the property seemed to be a "good investment at the time."

On June 14, 2002, the Wildwood City Commission (the city commission) adopted resolution 209-6-02, which created the Bayside Redevelopment area and designated it as an "area in need of redevelopment" pursuant to N.J.S.A. 40A:12A-5. On September 25, 2002, by ordinance 575-02, the city adopted the "Bayside Area Redevelopment Plan (the redevelopment plan or the plan)," which set forth a conceptual plan for the redevelopment of the redevelopment area. Approximately seventy-eight percent of the redevelopment area was owned by the city and/or New Jersey Transit. A substantial portion of the area owned by the city consists of land that was formerly the site of the city's landfill. There are nineteen private properties included in the redevelopment area, including the Dock Street properties on Baker Avenue.

The redevelopment plan calls for the city to enter into an agreement with a qualified developer, or developers, to carry out the plan. The plan provides that the city could consider applications from more than one redeveloper. Section 12 of the plan, sub-section (a), captioned "Implementation, Approval Procedures and Other Requirements," provides that the city may solicit qualified developers, and sign a redevelopment agreement detailing the redeveloper's and the city's responsibilities. The plan includes the following provision:

In considering whether and/or on what circumstances to enter into a redeveloper agreement with more than one party, the City or Redevelopment Agency, charged with the responsibility to achieve implementation of the Redevelopment Plan, will require that the development is coordinated in terms of architecture and other design and landscaping requirements, and/or guidelines, to insure consistent appearance of the project, and to maximize the success of the marketability of the project, and can be expected to be operated and maintained in a uniform manner.

The City may consider applications for redeveloper designation by local property owners who seek to undertake responsibility to implement the development on the property they presently own, where it is possible under the terms of this Plan to do so. Criteria for evaluating proposed redevelopment plans on specific properties and the eligibility of properties in general, shall be established to insure the uniform appearance and marketability of the entire redevelopment area.

According to the testimony of Louis Ferrara, the city's director of development, after the city solicited proposals from multiple developers it selected the proposal from K. Hovnanian Shore Acquisitions, LLC (Hovnanian), naming it the developer. In furtherance of that selection, on October 18, 2003, the city commission adopted resolution 363-10-03, which authorized the city to enter into a memorandum of understanding (MOU) with Hovnanian. The MOU was not a redevelopment agreement, but it provided an outline for the negotiation of a redevelopment agreement that would set forth a schedule for the acquisition of property and completion of the redevelopment area. The MOU was considered a starting point, not the ultimate redevelopment agreement, between the city and Hovnanian. The MOU provided in part: "this MOU shall remain in full force and effect until the execution of the redevelopment agreement, which shall incorporate the terms and conditions of the MOU." The MOU said that the parties were to use their best good faith efforts to execute the redevelopment agreement by February 2, 2004.

The MOU gave Hovnanian the opportunity to determine which, if any, of the privately owned properties in the redevelopment area would be included in the redevelopment project. The MOU further provided that Hovnanian would seek to acquire any privately owned properties it wanted to include in the plan by voluntary negotiations with the property owners, as the city did not intend to exercise its powers of eminent domain to acquire private property for the project. The MOU said that the city would not be compelled to condemn a property even if Hovnanian's negotiations for the property failed.

The MOU provided an outline for the redevelopment area. The project site was to include, "but not be limited to, the closure of the former landfill and remediation of any contamination on the Project Site, funding the relocation and construction of a new Public Works Facility, the construction of two hundred twenty (220) residential homes, a public walkway and fishing piers, the construction and/or repair of necessary bulkheading[.]"

In 2004 and 2005, the city and Hovnanian continued to negotiate the potential redevelopment agreement. In a contract dated September 14, 2005, the city agreed to convey to Hovnanian the city's property in the redevelopment area for $2.5 million. Although the MOU said that the city could unilaterally terminate the MOU if a redevelopment agreement was not executed by May 1, 2004, the city chose not to terminate the agreement, and on September 15, 2006, the city and Hovnanian entered into an amendment to the MOU.

The city and Hovnanian never executed a redevelopment agreement. The execution of the agreement was delayed by environmental and engineering issues and the decline in the housing market both nationally and in southern New Jersey. Ultimately, on November 21, 2007, Hovnanian's attorney wrote a letter to the city's mayor, Ernest Troiano, informing the city that Hovnanian withdrew and terminated its designation as redeveloper. The letter explained why Hovnanian terminated the agreement. It said: significant environmental and engineering issues have made pursuit of this development decreasingly feasible in economic terms. Unfortunately, the state of the housing market (not only in South Jersey, but ...


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