July 26, 2011
STATE OF NEW JERSEY, BY THE COMMISSIONER OF TRANSPORTATION, PLAINTIFF-APPELLANT,
DVJ RENTAL, INC., A NEW JERSEY CORPORATION; PNC BANK, NATIONAL ASSOCIATION, A SUCCESSOR TO UNITED TRUST BANK, AND FURTHER SUCCESSOR TO RARITAN SAVINGS BANK, BY VARIOUS MERGERS; STATE OF NEW JERSEY; TOWNSHIP OF HILLSBOROUGH, IN THE COUNTY OF SOMERSET, A MUNICIPAL CORPORATION OF NEW JERSEY, DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-1667-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued: February 9, 2011 -
Before Judges Cuff, Fisher, and Simonelli.
In this condemnation appeal, a jury awarded $900,000 as just compensation for property taken by the State of New Jersey for a roadway improvement project. On appeal, the State argues that the trial judge erred in denying its motion in limine to strike the opinion of the property owner's expert that a zoning change was reasonably probable. We affirm.
After defendant DVJ Rentals, Inc. (DVJ) rejected the offer by the State of New Jersey to acquire 2.622 acres of a 17.463 acre parcel in Hillsborough, Somerset County, as part of the Route 206 Bypass Improvement Project, plaintiff State of New Jersey filed a declaration of taking, deposited $36,200 with the court as just compensation, and filed a complaint in condemnation. The court entered an order for Final Judgment and the Appointment of Commissioners. The Commissioners fixed the fair market value of the taken property at $300,000. Both the State and DVJ sought a jury trial to establish just compensation.
The property that is the subject of this taking is located at 176 Steinmetz Road in Hillsborough. It is composed of two separate lots identified as Lot 14, a 9.983 acre parcel in the R-Residential district, and Lot 22, a 17.463 acre parcel in the general industrial district. The lots are adjacent to each other and access to Lot 22 is through Lot 14. The property is irregularly shaped and slopes toward a stream which runs along the southern portion of the property line.
The State took a total of 2.622 acres from Lot 22 comprised of 2.436 acres in fee simple and two utility easements totaling 0.186 acres. The taking divided Lot 22 into two portions creating an eastern and western remainder. The western remainder cannot be accessed through Lot 14. Lot 14 is not affected by the taking.
The State produced an expert who opined that the value of Lot 22 was limited because it was landlocked. Therefore, its highest and best use was as open and undeveloped land. The State expert valued the taken property at $40,000 and found no damage to the remainder that required compensation.
By contrast, DVJ's expert professional planner opined that Lot 22 could be rezoned from general industrial to high-density residential. The DVJ expert noted that Lot 14 was already zoned residential, and there was a reasonable possibility that the property would be rezoned to allow higher density residential development because the property is adjacent to a proposed transit village. The DVJ expert appraiser valued the property taken at $3,400,000.
Prior to trial, both parties moved in limine to exclude each other's experts. The State maintained that the value assigned to the taken property was based on mere speculation that the property would be rezoned to allow high-density residential use consistent with its proximity to a proposed transit village.
The record of the in limine motion included the transcript of the Commissioners' hearing and the reports of the experts retained by the State and DVJ. The Commissioners received testimony from James C. Ford, John A. Madden, Jr., E.J. Flaherty, Peter Steck, and Louis Izenberg. Notably, Madden, a professional planner offered by the State, testified that the property owner would probably receive a use variance to develop Lot 22. The following exchange occurred:
Q. So just to clarify the record, it's now your belief, even though it's not in the report, if the applicant went before the zoning board, they would have good chance of obtaining zoning relief, either a variance or a some type of zone change; is that your testimony?
A. My testimony is that right now the property under the zoning without a variance cannot be used. In other words, they would also have to allow relief for the property from that condition that you cannot access the property for nonresidential use through the residential zone, either relief they would have to obtain. Otherwise, there would be no way for the property to gain access, . . .
Q. Correct. In your opinion, as a professional planner who's testified that you've represented applicants before the zoning board for getting a D variance, is it your opinion that the applicant in this case would have undue hardship and be able to obtain the necessary variances to have access to be able to develop Lot 22?
Interestingly, Madden's opinion coincided with that of Steck, the professional planner retained by DVJ.
In addition, the motion record included the reports of the various experts. Steck opined that the highest and best use for Lot 22 was high-density residential use. His 2005 opinion was supported by various public documents, including the Township master plan, various public documents related to reactivation of the West Trenton rail line, and a letter from the Hillsborough planner to Steck. In his May 6, 2009 letter, the Township planner stated that the Township council was prepared to implement the transit village recommendation of the 2005 Master Plan, when the transportation projects were "at an appropriate level of readiness." Based on Steck's opinion regarding highest and best use, Louis Izenberg, the appraiser retained by DVJ, opined that the value of the taken property and the damage to the remainder was $3,400,000.
Judge Edward M. Coleman held that an evidentiary hearing was not required, and further held that an examination of the reports by defendant's experts demonstrated a reasonable belief as to the value of the property. The judge noted that the reasonableness of the expert's reliance on certain items, such as the master plan and proposed transportation improvements, could be addressed during cross-examination, and ultimately, the jury would resolve the issue of value.
The State argues that the trial judge failed in his role as gatekeeper by allowing admission of highly speculative valuation evidence. It contends that the trial judge should have stricken Steck's testimony because he did not confine his analysis to the condition of the property at the time of the partial taking. DVJ responds that the jury is allowed to consider all reasonable uses of the property, not just the current use, in determining the fair market value of the property taken by the State. DVJ argues that in certain circumstances a jury can consider the effects of an anticipated variance or zoning change, and Steck's testimony was based on public documents in effect at the time of the taking.
We afford substantial deference to the evidentiary rulings of a trial judge. Benevenga v. Digregorio, 325 N.J. Super. 27, 32 (App. Div. 1999), certif. denied, 163 N.J. 79 (2000). The discretion of a trial judge is not without limits. Here, the Supreme Court has provided substantial guidance on the issue of the admissibility of valuation opinions based on future predictions, such as an amendment to a zoning ordinance or the grant of a variance.
A central factor in the determination of fair market value of condemned property is the highest and best use of the property. State v. Caoili, 135 N.J. 252, 260 (1994) (citing State v. Silver, 92 N.J. 507, 513 (1983)). The uses to which the property may be put is a critical factor in determining highest and best use. As such, property owners often argue that future zoning changes are a valid factor in the determination of highest and best use of the property and ultimately its value. Id. at 261. The Supreme Court has considered the issue twice in State v. Gorga, 26 N.J. 113 (1958) and Caoili, supra, 135 N.J. 252.
In Gorga, the Court considered whether the prospect of an amendment to the zoning ordinance was a relevant factor in the determination of fair market value. 26 N.J. at 116. Chief Justice Weintraub recognized that many factors, including the probable or possible use to which property may be put, may influence the price a willing purchaser will pay a willing seller for real property. Ibid. He also recognized that rules must govern the admission of such evidence to prevent unbridled speculation. Ibid.
The Court also reiterated that "[i]t is generally agreed that if as of the date of taking there is a reasonable probability of a change in the zoning ordinance in the near future, the influence of that circumstance upon the market value as of that date may be shown." Ibid. In the first instance, whether there is evidence of such probability must be resolved by the trial judge. Id. at 117. If the judge concludes the evidence warrants submission to the jury, the jury must be instructed that they may consider whether the parties to a voluntary sale of real estate would have afforded weight to this issue, and if so, the influence of this factor on the fair market value of the property. Ibid.
In Caoili, the Court addressed the standard of proof applicable to evidence of a potential zoning change to condemned property. 135 N.J. at 255. There, the property taken by the State abutted a highway. Id. at 256. The property taken by the State contained two single-family homes and the property was located in a residential zone. Ibid. Several commercial establishments, including a gas station, bank and bus garage, were located nearby. Ibid. In support of their argument that the fair market value of the property should be higher than offered by the State, the property owner's expert opined that the owners could obtain a use variance to allow commercial uses on the property, and used commercially zoned properties as comparable properties to formulate his opinion of the fair market value of the taken property. Id. at 257. The Court held that zoning restrictions are a material factor in determining fair market value. Id. at 260. If, however, the trial judge makes a threshold determination that the alteration in the zoning, whether by amendment to the ordinance or variance, is reasonably probable in the near future, id. at 264, then the jury considers whether "the reasonable belief by a buyer and seller engaged in voluntary negotiations over the fair market value of property that a change may occur" will impact the value of the property "regardless of the degree of probability." Id. at 264-65. Finally, the Court held:
[I]n determining the fair market value of condemned property as a basis for just compensation, the jury may consider a potential zoning change affecting the use of the property provided the court is satisfied that the evidence is sufficient to warrant a determination that such a change is reasonably probable. If evidence meets that level of proof, it may be considered in fixing just compensation in light of the weight and effect that reasonable buyers and sellers would give to such evidence in their determination of the fair market value of the property. [Id. at 265.]
Here, the trial judge performed the threshold determination required of him. He determined that the property owner had, through its expert, assembled sufficient evidence to conclude that a change in zoning was reasonably probable and the jury should be allowed to assess the influence of that change on the market value of the property. Steck, the property owner's expert planner, opined that there was a reasonable probability that a zoning change would occur to the property. This opinion was in two parts. First, he opined that there was a reasonable probability that the zoning of Lot 22, the landlocked interior portion of the taken property, would be changed to match the residential zoning of Lot 14, the contiguous parcel that fronted Steinmetz Road. Second, Steck opined that there was a reasonable probability that the entire parcel, Lots 14 and 22, would be rezoned to allow high-density residential development due to its proximity to the proposed rail station and its location within a transit village. In formulating his opinion, Steck relied on the Hillsborough Master Plan and other public documents discussing not only the state highway improvements that required the taking of DVJ's property but also significant anticipated passenger rail improvements in the area.
The State argues the trial judge failed his gatekeeper function because the evidence proffered by the property owner was of insufficient weight to pass the threshold inquiry. In the course of its argument, the State minimizes the weight ordinary persons engaged in buying and selling real property would accord to a Master Plan. We do not view a county or municipal master plan as the toothless tiger advanced by the State.
N.J.S.A. 40:55D-28 governs the preparation, adoption and amendment of a master plan. The purpose of the master plan is "to guide the use of lands within a municipality in a manner which protects public health and safety and promotes the general welfare." N.J.S.A. 40:55D-28a. To that end, the master plan should generally contain a report and land use or development proposals, with supporting maps, diagrams and text, that address at least "(1) [a] statement of objectives, principles, assumptions, policies and standards upon which the constituent proposals for the physical, economic and social development of the municipality are based;" and (2) a land use plan element that accounts for and explains the relationship to the statement of objectives identified in the report and other master plan elements that must be addressed when appropriate. N.J.S.A. 40:55D-28b(1), (2). These other master plan elements include a housing plan, a circulation plan showing the location and types of transportation facilities to permit the efficient movement of people and goods in and through the municipality, a utility service plan, a community facilities plan, a recreation plan, a conservation plan, an economic plan, an historic preservation plan, a recycling plan, a farmland preservation plan, a development transfer plan, an educational facilities plan, and a green buildings and environmental sustainability plan. N.J.S.A. 40:55D-28b(3) to (16). A master plan must also consider and "include a specific policy statement" that addresses its relationship to the master plans of contiguous municipalities, the county master plan, and the State Development and Redevelopment Plan. N.J.S.A. 40:55D-28d. The appendices to the master plan, including maps, must be specific to allow the municipal governing body, the zoning board, and the planning board to determine how the master plan treats various lots and parcels. See Witt v. Borough of Maywood, 328 N.J. Super. 432, 445-46 (Law Div. 1998), aff'd o.b., 328 N.J. Super. 343 (App. Div. 2000).
A master plan must be reviewed every six years. N.J.S.A. 40:55D-89. If the governing body adopts an amendment to the zone plan at variance with the master plan, a majority of the fully authorized membership must vote in favor of the amendment and must explain the reasons for the variance. N.J.S.A. 40:55D-62a. Although the housing plan element of a master plan is optional, a zoning ordinance may not be adopted by a municipal governing body unless the master plan contains this element. Ibid. Moreover, most use variances must be consistent with the master plan. Medici v. BPR Co., 107 N.J. 1, 21 (1987). Thus, although a master plan does not have the effect of a zoning ordinance, it serves as the basis for a zoning ordinance, Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 381 (1995).
Moreover, the State's argument ignores the testimony of Madden, the State's professional planner. He noted that Lot 22 was zoned for light industrial uses but was landlocked and undevelopable as zoned. He explained that this parcel did not front on a street and the only access to it was through Lot 14, a parcel restricted to residential use by the zoning ordinance. He remarked that the zoning ordinance prevented access to an industrial zone through a residential zone. Therefore, he conceded that the zoning board would likely grant a variance to allow access to Lot 22 through Lot 14 to allow development for either residential or industrial purposes, and there was a reasonable probability that Lot 14 and the eastern remainder of Lot 22 could be developed as a single unit for residential purposes.
In short, we are satisfied that Judge Coleman performed his obligation to determine in the first instance whether the property owner marshaled sufficient evidence of a reasonable probability of a zoning change. We, therefore, hold that the trial judge did not err in admitting the testimony of the property owner's expert.*fn1
The State also contends that the property owner used comparable sales that were vastly dissimilar to the subject property. It argues that the judge should not have admitted these comparable sales as a matter of law. It insists that the speculative nature of the evidence requires a new trial.
Although couched in terms of a challenge to an evidentiary ruling, the tenor of this argument is that the verdict was against the weight of the evidence. DVJ argues a weight of the evidence argument is barred due to the State's failure to file a motion for a new trial. The State did not file a motion for a new trial. R. 2:10-1. To the extent that this argument is considered an argument that the verdict is against the weight of the evidence, it is barred. Nevertheless, we address the merits of the argument.*fn2
At trial, DVJ produced Steck. He testified that a reasonable possibility existed for a zoning change to permit high-density residential development. Steck testified that he conducted a physical inspection of the property and the area in which it is located. He studied the Hillsborough Master Plan, including a 2005 amendment. He reviewed a publication issued by the State Department of Transportation (DOT) entitled Transit Friendly Land Use, A Handbook for New Jersey Communities. Steck also spoke to the Township planner and reviewed the development ordinance. He reviewed the 2006 planning evaluation of the State's planner, a 2007 DOT conceptual plan for the bypass, and a subsequent 2008 letter from the State's planner.
Steck described in detail a type of development known as a Transit-Oriented Village District (transit village). The transit village is a mixed-use development containing retail and residential uses close to a train station. Other modes of transportation, including bus and light rail, may be linked to such villages.
Steck testified that the Hillsborough Master Plan was amended in 2005. As amended, it articulates the following goal:
[to] encourag[e] the transfer of growth from the surrounding undeveloped open space and rural areas to the Town Center . . . . At the core of this Town Center is a "Main Street" plan that prepares for the eventual by-pass realignment of Route 206 and anticipates the future activation of the West Trenton passenger rail service.
The Amended Master Plan contemplates a new Town Center that would be serviced by improved roads and reactivating passenger service on a rail line that then carried only freight. The proposed transit village would encompass large portions of the subject property because most of the property lies within a half-mile of the proposed location of the train station. Steck explained that New Jersey Transit recommends that any property within a half-mile of a proposed train station is eligible for transit village designation.
Steck also testified that reactivation of the West Trenton passenger line was the subject of a July 2007 design study commissioned by the Somerset County Planning Board. The purpose of the study was to guide municipalities in the county in developing their communities to be receptive to reactivated rail service.
Steck based his opinion in part on the probability that Hillsborough and the surrounding area would be serviced by a passenger rail line in the near future. He noted the proposed location of the train station and its proximity to DVJ's property. In fact, portions of the property would lie between the station and the current Town Center. He also noted that Hillsborough was aware that development of a transit village would justify and necessitate rezoning Lots 14 and 22. As to whether rezoning was a reasonable possibility, Steck stated an owner of this property in my opinion would be confident that this area has consistently been planned for a higher-density development, and in my opinion a 22-unit per acre density is one that's responsive to that policy and the taking essentially removes, conservatively 3.1 acres or 68 dwelling units from the capability of development.
This confidence would be supported by reference to public documents anticipating this change.
Although Steck's valuation concentrated on the likelihood the property would be rezoned for high-density residential use, he also described the current zoning and opined that there was also a reasonable likelihood that Lot 22, the interior lot, would be rezoned for residential use to match the current zoning of Lot 14 and that the State's valuation made no allowance for the western portion of the remainder parcel of Lot 22.
Having determined that the property owner met the threshold requirement that there was a reasonable probability of a zone change, the jury performed its role in evaluating what influence this change would have on the fair market value of the taken property. Caoili, supra, 135 N.J. at 265. It was for the jury to determine the weight to be accorded to this testimony and ultimately what influence a zoning change would have on the fair market value of the property at the time of taking. Ibid. It must also be acknowledged that the State's basic litigation position was undermined by one of its own experts by the time the jury received this case. We discern no reason to disturb this judgment.