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Howmichael Company, A New Jersey Corporation, and v. the Township of Bernards

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


August 24, 2012

HOWMICHAEL COMPANY, A NEW JERSEY CORPORATION, AND
ONE TWELVE CORPORATION, A NEW JERSEY CORPORATION, PLAINTIFFS-APPELLANTS,
v.
THE TOWNSHIP OF BERNARDS, A MUNICIPAL CORPORATION OF THE STATE OF NEW JERSEY, AND THE TOWNSHIP OF BERNARDS BOARD OF ADJUSTMENT, DEFENDANTS-RESPONDENTS.

On appeal from the Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-0930-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 14, 2012

Before Judges Sapp-Peterson and Ostrer.

Plaintiffs, Howmichael Company and One Twelve Corporation (collectively "plaintiffs"), appeal from two orders issued by Judge Fred H. Kumpf: (1) the June 10, 2011 order granting summary judgment to defendants, the Township of Bernards (Township) and the Township Board of Adjustment (Board), dismissing plaintiffs' inverse condemnation claim (count two) and denying plaintiffs' cross-motion for summary judgment; and (2) the August 17, 2011 order dismissing plaintiffs' action in lieu of prerogative writs (count one).

I.

Plaintiffs own two properties located on the northerly side of Somerville Road in the Township that were part of thirty-four acres of land purchased by Howmichael on January 16, 1963, by its principal, David Mandelbaum, a real estate investor and attorney. One month prior to Howmichael's acquisition, the State had initiated efforts to acquire the property. Within weeks after purchasing the property, David Mandelbaum corresponded with the State inquiring what, if any, impact construction of Interstate Route 78 would have upon the property. He also indicated in the letter he did not have any knowledge of the proposed highway construction before contracting to purchase the property.

Negotiations with the State continued for the next two years. In the interim, Howmichael transferred 8.79 acres of the property to One Twelve on February 1, 1965. In July 1965, the State purchased 7.811 acres from plaintiffs and the following year, on August 23, 1966, the State purchased an additional 0.043 acres. The combined acreage purchased by the State left plaintiffs with two contiguous lots (Lot 1, owned by Howmichael, and Lot 2, owned by One Twelve) consisting of just over one acre of land, situated in an area surrounded by public rights-of-way. Both lots were also located in the R-1 Residential Zone.

In 1998, plaintiffs approached the Township regarding whether the Township was interested in purchasing the two lots. The Township was not interested, but suggested plaintiffs consider donating the property to the Township.

On March 29, 2006, plaintiffs filed an application with the Board for six variances to construct a 4000-square-foot, single-family house on the two lots: (1) a variance for a pre-existing lot area of 1.037 acres, whereas the minimum required lot area in the R-1 Residential Zone is three acres*fn1 ; (2) a variance for a pre-existing lot width of 256.5 feet and a proposed lot width of 216.5 feet, whereas the minimum required lot widths for a corner lot are 312.5 feet and 250 feet; (3) three variances for proposed front-yard setbacks on the west, east, and south sides of the property of 73.8 feet, 74.9 feet, and 39.2 feet, respectively, whereas the minimum required front-yard setback is 100 feet; and (4) a variance for an improvable lot area of zero square feet, whereas the minimum required improvable lot area is 25,000 square feet.*fn2

The Board conducted hearings after which, by a vote of four to two, it denied the application, citing concerns for the size of the home, the proximity of the home to the roadway, the mountainous and rocky terrain of the property, and the blasting required in order to build the house. Plaintiffs initiated an action in lieu of prerogative writs.

Judge Anthony F. Picheca, Jr., conducted a plenary hearing. At its conclusion, he found that the "record currently before [him] is not completely adequate as to the issues that should be addressed for the conclusion to have been made that was made denying this application[.]" He remanded the matter to the Board for further proceedings. He specifically directed the Board to address whether plaintiffs' hardship was self-created, thereby precluding satisfaction of the "positive criteria" for a c(1) variance, N.J.S.A. 40:55D-70c(1), under the Municipal Land Use Law (MLUL), N.J.S.A. 40:55D-1 to -163.

During the remand proceedings, the Board considered testimony from David Schley, the Board planner and engineer; Craig Villa, a professional engineer; Peter Streletz, a Pennsylvania-licensed builder; Michael Mandelbaum, Howmichael's vice-president; David Mandelbaum; Adrian Humbert, a professional planner; and Eileen Napolitano, a resident of Somerville Road. The Board also considered numerous exhibits, including letters dated between 1963 and 1965 regarding the purchase of the land by the State and eleven additional letters dated from December 1962 through August 16, 1966. Upon completion of the proceedings, the Board, by a vote of seven to zero, denied the application. In its resolution memorializing its findings, the Board found:

Applicants have failed to introduce any testimonial or documentary evidence to support their contention that they were, in essence, forced by the State to be "stuck" with the subject lots. The only witness offered by the Applicants as possibly possessing knowledge of any facts relevant to this issue, David Mandelbaum, testified that he had no independent recollection of the facts and circumstances surrounding the subject transactions, which took place during the 1960[]s. Moreover, none of the documentary evidence introduced by the Applicants or otherwise submitted to the Board indicated, let alone demonstrated, that the Applicants had no choice but to be "stuck" with the subject undersized lots. In fact, certain of the documentary evidence indicated that the converse was true, that is, that the Applicants did have at least some control over whether the State would acquire the subject lots along with the balance of the property. Board members and the public were deprived [of] the opportunity to present such documentary evidence to David Mandelbaum for the purpose of refreshing his recollection of events.

. . . [T]he applicable provisions of the Eminent Domain Act, and the apparent practice and procedure by the State Highway Department in pre-condemnation proceedings, further suggest that the Applicants did have the ability, if not the right, to require that the State Highway Department acquire the subject grossly undersized lots along with the balance of the property acquired by it.

The Board also found that the "Applicants were sophisticated real estate investors," which the Board reasoned belied their contention that "they were without the ability to negotiate to have the State acquire either or both of the subject lots along with the balance of the property." The Board specifically noted the documentary evidence revealing that David Mandelbaum had extensive negotiations with the Department of Transportation, as result of which he "successfully negotiated a higher fair market value for the property and agreed to a settlement rather than proceeding through condemnation, a route he advised the Department of Transportation he would pursue if the Department did not accept his counter[-]demand."

This evidence led the Board to conclude that "David Mandelbaum had bargaining power at least equal to that of the Department." Further, the Board considered the fact that as a result of the construction of Route 78, Old Somerville Road was realigned, resulting in Lots 1 and 2 being re-zoned from a residential zone to a commercial zone.*fn3 The Board inferred that it was "likely that the Applicants viewed the subject property as being valuable to them for future development because of its[] designation as commercial property and its[] proximity to Route 78." The Board viewed this evidence as "further suggest[ing] the likelihood that the Applicants consciously chose to retain the subject undersized lots rather than have the State acquire them."

Additionally, the Board noted that documents obtained pursuant to an Open Public Records Act (OPRA), N.J.S.A. 47:1A-1 to -13, request, disclosed that other property owners impacted by the construction of Route 78 were compensated for their remaining tracts of land in "partial acquisition scenarios." As such, the Board found it "implausible that the Department of Transportation would have purchased Lot 3, the approximately 20,000 square foot tip of the remainder parcel, yet left the two remaining undersized lots to the Applicants, unless the Applicants consciously chose to retain these lots."

Finally, the Board noted that it was the "Applicants" who refused to subject David Mandelbaum to continued questioning. As a result, the Board drew an adverse inference that his "continued testimony on cross-examination would contradict the Applicants' contention that the hardship was not self-created."

The Board next considered whether the requested variance relief could be granted "without substantial detriment to the public good and without substantially impairing the intent and purpose of the zone plan and the zoning ordinance." In that regard, the Board found the testimony of its planner more persuasive than the contrary evidence presented and found: (1) the plans reflected a substantially higher elevation of the proposed house in comparison to neighboring properties that "would have a significant visual impact from the streetscape and also would be visible from Route 78"; (2) the absence of any natural buffers "behind which the Applicants could locate the proposed dwelling so as to screen it from the street"; and (3) the absence of sufficient setback, without "increas[ing] the front-yard setback deviation from the Somerville Road stub on the opposite (east) side[,]" which would enable placement.

When the matter returned to the Law Division, Judge Kumpf presided over the continuation of the proceedings and, at its conclusion, issued his July 30, 2010 written opinion upholding the Board's actions. In doing so, the judge agreed that an adverse inference must be drawn from plaintiffs' failure to produce David Mandelbaum for further questioning on the issue of the self-created hardship. He concluded plaintiffs failed to meet their burden "of proving that plaintiffs did not negotiate to keep the remnant parcel and that the State would not have acquired the subject interior lots along with the balance of the surrounding [nine] acres of property."

Judge Kumpf noted whether the undersized lots resulted from a self-created hardship was at the heart of the case and was the primary reason for the remand. He referenced Judge Picheca's oral remand opinion in which Judge Picheca made clear to the parties that the central issue to be resolved during the remand was "'whether this [sale] was really arm's length, whether there was a hammer over anyone's head, whether this property owner really had any input or any ability to have input in negotiating . . . what the ultimate configuration of this property in question would be.'" Judge Kumpf found that against this remand mandate, plaintiffs "failed to introduce any testimonial or documentary evidence on this point and, therefore, failed to sustain their burden of proving whether the alleged hardship was self-created, which precluded the satisfaction of the positive criteria required by [c(1)] variances."

The judge next considered the Board's findings related to the negative criteria, noting that with the exception of the Board's finding that the site has a substantially higher elevation and rocky terrain, which would cause "sheeting" from water run-offs, plaintiffs did not dispute any of the other facts cited by the Board related to the negative criteria. The judge found the "Board's analysis of the negative criteria was not arbitrary, capricious, or unreasonable." Recognizing the Board's peculiar knowledge of local conditions, Judge Kumpf concluded the Board's "decision must be accorded wide latitude in the exercise of its delegated discretion." The judge issued an order dated August 17, 2010, dismissing count one of plaintiffs' complaint with prejudice, leaving only the inverse condemnation claim (count two) for disposition.

On March 4, 2011, defendants filed a motion for summary judgment seeking dismissal of count two. Defendants argued plaintiffs failed to exhaust administrative remedies, the claim of inverse condemnation was not sustainable because plaintiffs' claimed hardship was self-created, and in light of the court's earlier findings on this issue, the law of the case precluded plaintiffs from re-litigating this issue.

Plaintiffs opposed the motion and crossed-moved for summary judgment on the issue of defendants' liability. Plaintiffs contended the denial of its variance application precluded all economically beneficial uses of the properties, there was no evidence before the Board to suggest they had any control over what portions of the land would be purchased by the State, and the sales were made in lieu of condemnation. Plaintiffs additionally argued that contrary to defendants' contentions, they exhausted their administrative remedies by vigorously seeking approval of their variance application.

In his June 10, 2011 statement of reasons accompanying the order of dismissal of the same date, Judge Kumpf preliminarily addressed defendants' law of the case argument on the issue of the self-created hardship. Citing In re Issuance of Access Conforming Lot Permit No. A-17-N-N040-2007, 417 N.J. Super. 115, 125-26 (App. Div. 2010), the judge noted that the law of the case doctrine is a discretionary rule of practice. The judge found the self-created hardship evidence he considered in upholding the Board's action in denying the variance was the same evidence being presented for purposes of summary judgment and that "there is no newly developed basis in fact, law, or context that requires the court [to] revisit or reconsider the finding of self-created hardship, nor is such a result mandated by the interests of justice or other compelling circumstances."

Judge Kumpf then noted that proving inverse condemnation requires a higher standard of proof, clear and convincing evidence, rather than the preponderance of the evidence standard necessary to demonstrate the Board's denial of the variance was arbitrary, capricious or unreasonable. He reasoned that because plaintiffs failed to present sufficient evidence demonstrating the claimed undue hardship was not self-created in their variance application, these same proofs would be equally deficient to prove inverse condemnation. Judge Kumpf additionally found that "even if this court were not to use the law of the case, the record available is utterly insufficient to convince a reasonable finder of fact by clear and convincing evidence that the property here was taken as the result of a governmental exercise of authority." The present appeal followed.

On appeal, plaintiffs present the following points for our consideration:

POINT I

THE BOARD DOES NOT HAVE UNFETTEERED DISCRETIONARY POWER THAT IS BEYOND MEANINGFUL JUDICIAL REVIEW.

POINT II

THE BOARD ERRED IN FINDING THAT PLAINTIFFS WERE DISQUALIFIED BY WAY OF A SELF-CREATED HARDSHIP.

A. LEGAL STANDARD

B. BOARD'S FINDINGS

C. CONCLUSION

POINT III

THE BOARD ERRED IN FINDING THAT PLAINTIFFS DID NOT MEET THE NEGATIVE CRITERIA.

POINT IV

PLAINTIFFS MET THEIR BURDEN OF PROOF AS TO THE ISOLATED LOT.

POINT V

A PROPERTY OWNER MAY RECOVER DAMAGES THROUGH AN INVERSE CONDEMNATION ACTION WHERE A REGULATORY SCHEME HAS CAUSED A SUBSTANTIAL DESTRUCTION IN VALUE TO THE BENEFICIAL USE OF HIS OR HER PROPERTY.

POINT VI

SHOULD THE BOARD'S DENIAL BE AFFIRMED, THE TOWNSHIP SHOULD BE HELD LIABLE TO THE PLAINTIFFS FOR INVERSE CONDEMNATION.

POINT VII

THE PLAINTIFFS DID NOT CREATE THEIR OWN HARDSHIP AND ARE THEREFORE NOT BARRED FROM SEEKING INVERSE CONDEMNATION.

POINT VIII

THE BOARD'S RELIANCE BELOW UPON THE LAW OF THE CASE DOCTRINE WAS MISPLACED.

POINT IX

THE PLAINTIFFS DID NOT FAIL TO EXHAUST THEIR ADMINISTRATIVE REMEDIES BY DISCONTINUING DAVID MANDELBAUM'S TESTIMONY.

We have considered the points raised in light of the record and applicable legal principles and conclude the arguments advanced are without sufficient merit to warrant lengthy discussion in a written opinion. R. 2:11-3(e)(1)(E). We affirm substantially for the reasons expressed by Judge Kumpf in his well-reasoned and cogent July 30, 2010 written opinion and his June 10, 2011 statement of reasons. We add the following.

Municipal actions are entitled to a presumption of validity and so typically enjoy great deference by a reviewing court. Fanelli v. City of Trenton, 135 N.J. 582, 589 (1994) (citing Brown v. City of Newark, 113 N.J. 565, 571 (1989)). This standard imposes a heavy burden on a party challenging a municipal action and have repeatedly held that a municipal action will only be overturned upon a showing that the action in question was arbitrary, capricious or unreasonable. Bryant v. City of Atlantic City, 309 N.J. Super. 596, 610 (App. Div. 1998). That heavier burden requires the proponent of a variance that has been denied to prove that the evidence before the board was "'overwhelmingly in favor of the applicant.'" Northeast Towers, Inc. v. Zoning Bd. of Adjustment, 327 N.J. Super. 476, 494 (App. Div. 2000) (quoting Med. Realty Ass'n v. Bd. of Adjustment, 228 N.J. Super. 226, 233 (App. Div. 1988)). Furthermore, a board's denial of a variance is entitled to greater deference than a decision to grant the variance. Ibid. When faced with multiple possible courses of action, a municipal action is not considered arbitrary and capricious if the municipality acted "honestly and with due consideration" of the competing options. Ibid.

The action of a board of adjustment is presumed to have been undertaken fairly and a trial court's review of a board of adjustment's decision should not seek to weigh the wisdom of the decision, only its fairness. Park Ctr. at Route 35, Inc. v. Zoning Bd. of Adjust. of Woodbridge, 365 N.J. Super. 284, 288-89 (App. Div. 2004). As a reviewing court, we are bound by the same scope of review as the trial court and will only reverse the decision of a board of adjustment if its decision is found to be arbitrary, capricious or unreasonable. Bressman v. Gash, 131 N.J. 517, 529 (1993). Under N.J.S.A. 40:55D-70c(1) ("c(1)"), a variance may be granted in those instances where there exists "an extraordinary and exceptional situation uniquely affecting a specific piece of property . . . [and] the strict application of . . . this act would result in . . . exceptional and undue hardship upon, the developer of such property." The Board of Adjustment may grant "a variance from such strict application of such regulation so as to relieve such difficulties or hardship[.]" Ibid.

An applicant for a c(1) variance must meet two requirements: "(1) that [the applicant] will suffer exceptional or undue hardship if the variance is not granted -- the so-called positive criteria; and (2) that the variance will not result in a substantial detriment to the public good or the zoning plan --the so-called negative criteria." Nash v. Bd. of Adjust. of Morris, 96 N.J. 97, 102 (1984). "Undue hardship" in the context of a c(1) variance solely pertains to the physical conditions of the property and not to personal hardships of the property owner. Jock v. Zoning Bd. of Adjust. of Wall, 184 N.J. 562, 590 (2005). In other words, the applicant must prove "that the need for the variance is occasioned by the unique condition of the property that constitutes the basis of the claim of hardship." Lang v. Zoning Bd. of Adjust. of N. Caldwell, 160 N.J. 41, 56 (1999). Moreover, the hardship contemplated must not be self-created. Jock, supra, 184 N.J. at 591. Thus, "[i]t is appropriate to consider first the origin of the existing situation. If the property owner or his predecessors in title created the nonconforming condition, then the hardship may be deemed to be self-imposed." Commons v. Westwood Zoning Bd. of Adjust., 81 N.J. 597, 606 (1980). The applicant has the burden of establishing that the hardship was not self-created. Id. at 607.

Here, the Board found when plaintiffs failed to produce David Mandelbaum for continued questioning, they prevented the Board from confronting him with documents that could potentially refresh his recollection, as he claimed his own forty-five-year old records had done for his testimony. A Princeton University graduate and Harvard Law School-trained attorney, who the Board also found was a sophisticated real estate investor, David Mandelbaum indicated he had little recollection of negotiations and that his testimony was based upon his review of documents remaining in his files from forty-five years ago.

Notwithstanding the absence of an independent recollection of the events surrounding the negotiations and sale of the land to the State, David Mandelbaum testified in detail to other events occurring during the same 1960s timeframe, including his three terms as an assemblyman, his subsequent election to the New Jersey Senate, and his service on the Appropriations Committee. He denied that his committee assignment or elected position made him privy to any discussions related to proposals for the construction and location of Route 78. He also testified about the investment partnership he formed in the 1960s with others that took over a realty company, which they in turn built into a real estate investment company that in 2011 had ten billion dollars in assets.

The objections to David Mandelbaum's continued questioning, interjected by his son, Michael, as the Board noted in its resolution, related to:

(a) the fair market value of the property for condemnation purposes and the discrepancy, as reflected in the Department of Transportation documents, between David Mandelbaum's representation to the Department that he purchased the property at $2,500/acre and the seller Dorothy Hannibal's representation that Mr. Mandelbaum paid $250/acre; and (b) Mr. Mandelbaum's knowledge of Route 78 prior to purchasing the lots in question and his intentions regarding the property.

The Board drew an adverse inference from the plaintiffs' refusal to produce David Mandelbaum for further questioning, an inference we conclude is well-supported by the record. See State v. Clawans, 38 N.J. 162 (1962).

Additionally, as the Board noted, the Eminent Domain Act, N.J.S.A. 20:3-1 to -50, was not enacted until 1971, six years following the sale of the property to the State. However, N.J.S.A. 27:7A-4.1,*fn4 which addresses the acquisition, construction and maintenance of limited access highways such as Route 78, was in effect at the time the State purchased the property from plaintiffs. This statute vests the Commissioner of Transportation with authority to acquire an entire tract of land if, by so doing, the interests of the public will be best served even though said entire lot, block or tract is not needed for transportation purposes, but only if the portion not needed for transportation purposes is landlocked or is so situated that the cost to the State will be practically equivalent to the total value of the whole parcel of land. [Ibid. See also State by State Highway Comm'r v. Buck, 94 N.J. Super. 84 (App. Div.) certif. denied, 49 N.J. 359 (1967).]

Finally, there was documentary evidence obtained through the OPRA request demonstrating that the Commissioner had compensated other property owners for damages arising out of partial takings, leading the Board to infer that the settlement the State reached with plaintiffs included compensation for the partial taking or that plaintiffs deliberately chose to retain the undersized lots for other purposes, including commercial use in light of the re-zoning of the area to a commercial zone.

There was also ample evidence in the record to support the Board's determination that plaintiffs failed to meet their burden of proving the negative criteria, which Judge Kumpf found and with which we agree, constitutes a "separate and independent alternative basis for the denial of the bulk variance relief sought by [plaintiffs]." As Judge Kumpf observed, other than disputing the Board's finding that the elevation of the proposed dwelling was substantially higher and was comprised of rocky terrain, which raised concerns of "sheeting," plaintiffs did not dispute the absence of natural buffers behind which the proposed dwelling could be screened, the proximity of the proposed dwelling to Somerville Road, and the less than seventy-five-foot front-yard setback, which was considerably less than the front-yard setbacks of neighboring properties.

To reiterate, we approach the review of the Board's action bound by the same scope of review as the trial court, meaning that we will reverse its decision only if we conclude the Board's actions were arbitrary, capricious or unreasonable. Bressman, supra, 131 N.J. at 529. We reach no such conclusion on this record. We are satisfied the Board's factual findings were proper and the conclusions reached were legally sustainable.

II.

Likewise, we are also persuaded that the grant of summary judgment dismissing the inverse condemnation claim does not warrant reversal. Our review of a trial court's grant or denial of a motion for summary judgment is de novo. Twp. of Readington v. Solberg Aviation Co., 409 N.J. Super. 282, 302 (App. Div. 2009). Under our de novo standard of review, we employ the same standard as that of the trial court. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608, (1998). Our analysis requires that we first determine whether the moving party has demonstrated that there are no genuine disputes as to material facts, and then we decide "whether the motion judge's application of the law was correct." Atl. Mut. Ins. Co. v. Hillside Bottling Co., 387 N.J. Super. 224, 230--31 (App. Div.), certif. denied, 189 N.J. 104 (2006). In so doing, we view the evidence in the light most favorable to the non-moving party. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995). Because our review of issues of law is de novo, we accord no special deference to the motion judge's legal conclusions. Zabilowicz v. Kelsey, 200 N.J. 507, 512 (2009).

When the facts are viewed in the light most favorable to plaintiffs, we are satisfied Judge Kumpf properly concluded no reasonable trier of fact could find, by clear and convincing evidence, that plaintiffs were coerced by the State into retaining the two undersized lots. Moreover, even assuming such a fact had been established, that fact would not have been dispositive as to whether the Township effectuated a taking of the land. Whether the State forced plaintiffs to retain the undersized lots was relevant to the Board's determination of undue hardship for purposes of granting or denying the variance, but does not establish plaintiffs' entitlement to compensation from the Township based upon inverse condemnation. At the time the land was sold to the State, there already existed a two-acre minimum lot size. Thus, this is not a circumstance where the Township zoned plaintiffs' property into inutility. Consequently, the Township was entitled to summary judgment as a matter of law.

Affirmed.


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