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Jeffrey S. Chiesa, Attorney General of New Jersey,*Fn1 v. D. Lobi Enterprises

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


September 28, 2012

JEFFREY S. CHIESA, ATTORNEY GENERAL OF NEW JERSEY,*FN1 AND STATE OF NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION, PLAINTIFFS-RESPONDENTS,
v.
D. LOBI ENTERPRISES, INC. A/K/A D. LOBI, INC., T/A SURF RIDER BEACH CLUB; LBP CORPORATION T/A DONOVAN'S REEF BEACH CLUB; JNM HOLDINGSS, INC. T/A CHAPEL BEACH CLUB; RUMSON MANAGEMENT COMPANY, INC. T/A CHAPEL BEACH CLUB; NAUGHTY NORA'S, INC. T/A CHAPEL BEACH CLUB; JOHN A. AND NANCY B. MULHERN T/A CHAPEL BEACH CLUB; ROZINANTE, INC. T/A THE SANDS BEACH CLUB OF SEA BRIGHT; THE SANDS BEACH CLUB OF SEA BRIGHT; EDGEWATER BEACH, INC. T/A WATER'S EDGE BEACH CLUB; DRIFTWOOD BEACH CLUB; DRIFTWOOD CABANA CLUB T/A DRIFTWOOD BEACH CLUB; DIXIE LIME AND STONE CO. T/A DRIFTWOOD BEACH CLUB; DRIFTWOOD BEACH CLUB L.P. T/A DRIFTWOOD BEACH CLUB; DRIFTWOOD BEACH CLUB, INC. T/A DRIFTWOOD BEACH CLUB; SHIP AHOY, INC. T/A SHIP AHOY BEACH CLUB; SHIP AHOY, LLC T/A SHIP AHOY BEACH CLUB; RIVER TO OCEAN, LLC T/A SHIP AHOY BEACH CLUB; TRADE WINDS BEACH, INC. T/A TRADE WINDS BEACH CLUB; TRADE WINDS BEACH-II, INC. T/A TRADE WINDS BEACH CLUB; TRADE WINDS BEACH-III, INC. T/A TRADE WINDS BEACH CLUB; KARA HOMES, INC. AND BOROUGH OF SEA BRIGHT,
DEFENDANTS, AND SEA BRIGHT ASSOCIATES, INC. T/A SEA BRIGHT BEACH CLUB; SEA BRIGHT ASSOCIATES T/A SEA BRIGHT BEACH CLUB; DEFENDANT-APPELLANT.

On appeal from the Superior Court of New Jersey, Chancery Division, Monmouth County, Docket No. C-296-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued: February 1, 2012

Before Judges Cuff, Waugh, and St. John.

In 1993, in anticipation of a major beach replenishment project to restore rapidly eroding sand beaches along the Atlantic Ocean shoreline, Sea Bright Beach Club (the Club) granted a temporary construction easement to the State of New Jersey (the State) to enter its property "to pump, place, transport and spread sand beach fill" on its property. The Club also granted "a continuing easement for the purpose of conducting periodic beach nourishment" during the projected life of the project, and "a perpetual easement for a right of limited public access" limited to pedestrian right of transit and fishing, the latter activity subject to reasonable restrictions by the Club. Following a 2005 Supreme Court decision, Raleigh Avenue Beach Ass'n v. Atlantis Beach Club, Inc., 185 N.J. 40 (2005), in which the Court held that upland sand beach owned by a private club is required to be made available to the public under the public trust doctrine, the State filed a complaint against nine beach clubs, including the Club, and the Borough of Sea Bright seeking reformation of the 1993 Agreements.

Following mediation over a two-year period, all defendants but the Club settled. In response to cross-motions for summary judgment, the judge found that most of the Club's ocean frontage was ungranted State tidelands but denied summary judgment on the issue of remedy. Following a limited hearing, Judge Cavanagh granted summary judgment concluding the 1993 Agreement was void. Arguing that the State was equitably estopped from seeking reformation of the 1993 agreement, the Club contends the judgment should be reversed. We hold the provision granting limited public access to the dry upland beach area controlled by the Club is contrary to public interest and unenforceable. We remand for further proceedings to address the appropriate remedy.

I.

The Borough of Sea Bright (Borough) occupies a narrow 3.8 mile stretch of coastline immediately south of Sandy Hook Gateway National Recreation Area. The Atlantic Ocean borders the Borough to the east; the Shrewsbury River to the west. In 1988, Congress authorized $91 million for the Sea Bright portion of the Sandy Hook to Barnegat Inlet beach nourishment and replenishment project. Water Resources Development Act of 1988, P.L. 100-676.

Prior to construction, the Army Corps of Engineers (Army Corps) required the State to certify that it had obtained temporary construction easements for the project area and permanent public access easements for all nourished beaches. The Borough obtained easements or acquired property for most of the project area. However, nine private beach clubs, all of which were named as defendants in this complaint, refused to sign the easements.

In 1993, an Assistant Commissioner of the Department of Environmental Protection (DEP), the Borough, and the private beach clubs signed individual but identical three-party agreements (the 1993 Agreements). According to its agreement, the Club permitted temporary access to its property during the beach replenishment project and also permitted limited public access to and use of its beachfront. The 1993 Agreement provided that the public may only walk north to south, or fish during non-swimming hours, along a fifteen-foot-wide strip of dry sand along the water's edge.*fn2 The 1993 Agreement also provides that the agreement did not serve as a conveyance of State tidelands. Specifically, the 1993 Agreement provides:

"Nothing in this Agreement is intended to give [the Club] any right of ownership in lands below the Mean High Water Line; nor the right to control the use of lands below the Mean High Water [L]ine unless those lands are subject to a State Tidelands grant."

The Club occupies oceanfront property along Ocean Avenue. Its ocean frontage is 705 feet, only 80 feet of which is subject to a riparian grant from the State. Tidelands, or riparian lands, are all those lands now or formerly flowed by the mean high tide of a natural waterway. Generally, the State owns all lands naturally under tidal waters in the State oceanward of the mean high water line. Private property owners can obtain an interest in submerged tidal lands through a State tidelands conveyance.

It is undisputed that the New Jersey Constitution was amended in 1981 to provide that the State must specifically define and assert its claims to land, which had not been tidally flowed for a period of forty years, within one year of the date of adoption of the amendment. N.J. Const. art. VII, § 5, ¶ 1. On May 27, 1982, the Tidelands Resource Council (Council) approved the publication of 713 maps identifying the State's claims to riparian lands throughout the State. These maps relied on aerial photography conducted in 1977 and 1978.

The lines demarcating State ownership of riparian lands along the Atlantic Ocean are referred to as the 1977/78 Tidelands Claims Lines. On publication, the Council explained that the Claims Lines did not necessarily reflect valid riparian grants made by the State. Nevertheless, the Club does not contend it acquired a valid riparian grant to the 625 feet of ungranted tidelands.

Prior to the initial nourishment and replenishment work, erosion had eliminated the dry sand beaches in many areas in front of the clubs or narrowed the beach to a strip of dry sand in the Borough. At the Club, almost no dry sand remained except on the north end of its property where a jetty had been built.

In 1995, the Army Corps completed the first round of beach nourishment and replenishment. The dry sand beach in front of the Club expanded by approximately 250 feet. In 2003, the Army Corps returned to replenish beaches that had suffered erosion. Following this work, the width of the Club's dry sand beach had included between 200 and 500 feet of the 1995 mean high water line.

II.

In September 2006, the State filed a complaint against nine beach clubs, including the Club, and the Borough. In Count I, it sought reformation of the 1993 Agreements in light of the Raleigh Avenue ruling. In Count II, the State alleged that future enforcement of the terms of the 1993 Agreements limiting public access to the replenished beach would be contrary to the law and public policy of this State, and would unjustly enrich the clubs. In Count III, the State alleged the six beach clubs, one of which is the Club, and Kara Homes occupied renourished beach built on State-owned tidelands to the exclusion of the public and contrary to law.*fn3

The parties engaged in mediation that successfully resolved the State's claims against all defendants except the Club. The State and the Club filed cross-motions for summary judgment, which were resolved in two stages. Finding that expended dry sand area produced by beach replenishment must be considered avulsion and that 625 feet of the 705 feet of ocean frontage was ungranted tidelands, Judge Cavanagh granted partial summary judgment to the State.

Following a brief evidentiary hearing, see Rule 4:46-3(a), Judge Cavanagh granted summary judgment on Count I in favor of the State. The judge held that the 1993 Agreement was contrary to the law governing riparian lands and contrary to the public policy of this State. He also held that reformation was not the appropriate remedy. Rather, he declared the 1993 Agreement void. The judge also rejected the argument that the State was estopped from seeking to set aside the 1993 Agreement. The judge found that the beach replenishment project provided the public the benefit of enhanced shore protection. He also found the Club enjoyed the benefit "of unencumbered usage of [a] brand new beach, several hundred square feet of new beach, which adds to the protection of their beach club, as well as the seawall" for nearly twenty years.

The judge held the circumstances did not warrant an award of "any sort of back rent or fees, fines or charges" against the Club. The judge also declined to award counsel fees. He did not, however, address the access the public may enjoy. Rather, the judge stated:

Now, I do not believe that when my order is circulated to the parties in the next couple of days that it ends the situation. Frankly, there may be a need to define and refine the access pathway. Certainly there may be discussions about life guard protection, maintenance and cleanliness of the beach, the signage, facilities, et cetera. There may be a discussion on what would happen if another easement were needed at a given point in time.

I'm trying to figure out if there will a resolution here. If there isn't, I've given them the ability to come back to the Court or [send the parties to a mediator].

On appeal, the Club contends the motion judge erred by refusing to apply the doctrine of equitable estoppel to bar the State's repudiation of the 1993 Agreement. It contends the judge utilized an improper standard to determine whether equitable estoppel applied to the State. It also contends equitable factors weigh heavily in its favor, public policy considerations do not preclude application of the doctrine, and the State had the authority to enter the 1993 Agreement.

Although the Club only argues that the State is equitably estopped from seeking to set aside or modify terms of the 1993 Agreement, it implicitly contends the judge erroneously ruled that the provision limiting public access to the beachfront it controls is void. We, therefore, directly address the trial court ruling.

III.

We would be remiss if we did not comment on the procedural status of this case. The Club filed a notice of appeal from the June 30, 2010 order. This order memorializes the decision that the 1993 Agreement is void as against public policy but denies the State's request for back rent. Neither the decision nor the order address the remedy, as was done in Raleigh Avenue. See Raleigh Ave., supra, 185 N.J. at 60-62 (discussing remedy to effectuate rights of general public, including boardwalk pathway over the dunes to beach and implementation of adequate structure). The June 30, 2010 order provides:

(5) The June 10, 1993 Agreement between the State of New Jersey, [the Club], and the Borough of Sea Bright did not affect the State's ownership of the ungranted, State-owned Tidelands identified herein and conveyed no rights to [the Club] in them; thus, [the Club] shall have no right to limit public access to the ungranted, State-owned Tidelands identified herein.

The judge also ordered "the parties . . . to meet within 20 days to work out details regarding maintenance, lifeguard protection, signage, etc. If a working understanding cannot be worked out within 60 days, either party may request the matter be reopened to address these details."

The order from which the Club appeals is arguably interlocutory. Grow Co. v. Chokshi, 403 N.J. Super. 443, 457-58 (App. Div. 2008). It is the very details of access that may effectively deny public access to tidal waters. The order also does not address the vast amount of ocean frontage enjoyed by the Club that is ungranted State tidelands. Due to the procedural posture, the public interest implicated by this appeal, and because we have not been informed that the parties "worked out the details," we grant leave to appeal nunc pro tunc.

IV.

We consider the Club's argument in the context of the undisputed facts that the Club holds a riparian grant for only 80 feet of its 705 feet of oceanfront property, and the dry sand beach prior to the beach replenishment project was very narrow. We consider its argument in light of its concession, in the wake of City of Long Branch v. Lui, 203 N.J. 464 (2010), that it did not obtain title to the beach produced by the beach replenishment project. We also consider its argument in light of the nature of the public interest advanced by the State.

The centerpiece of this discussion is the public trust doctrine, which provides "that all of the land covered by tidal waters belongs to the [State] held in trust for the people to use." Raleigh Ave., supra, 185 N.J. at 51-52; Borough of Neptune City v. Borough of Avon-by-the-Sea, 61 N.J. 296, 303 (1972). As explained in Raleigh Avenue, the early understanding of the scope of the doctrine was preservation of natural water resources for navigation and fishing. 185 N.J. at 52. The Court had broadened the scope of the doctrine in 1972 in Neptune City, supra, to include public access to tidal lands for recreational uses, such as bathing, swimming and other shore activities. 61 N.J. at 306-07. In Neptune City, the oceanfront municipality owned the tidal lands to which residents of the neighboring non-oceanfront town sought access on the same basis as the residents of the oceanfront town. Id. at 299.

The Court first addressed the extent of the public interest in privately-owned dry sand beaches in Matthews v. Bay Head Improvement Ass'n, 95 N.J. 306, cert. denied, 469 U.S. 821, 105 S. Ct. 93, 83 L. Ed. 2d 39 (1984). The Court noted that the right to swim below the mean high water mark may be frustrated without a right to cross the upland dry beach. Id. at 323-24.

The Raleigh Avenue Court stated that "Matthews clearly articulates the concept already implicit in our case law that reasonable access to the sea is integral to the public trust doctrine." 185 N.J. at 53. The Raleigh Avenue Court proceeded to consider "whether use of the dry sand ancillary to use of the ocean for recreation purposes is also implicit in the rights that belong to the public under the doctrine." Ibid. Although the Raleigh Ave. Court recognized that the beach association in Matthews could be considered a quasi-public body, id. at 54, it concluded that the factors identified in Matthews for "application of the public trust doctrine to privately-owned upland sand beaches" should be applied to the privately-owned beach club in Raleigh Avenue, id. at 59-60. The Matthews factors or approach begins with the general principle that public use of the upland sands is "subject to an accommodation of the interests of the owner," and proceeds by setting forth criteria for a case-by-case consideration in respect of the appropriate level of accommodation. [Id. at 54-55 (quoting Matthews, supra, 95 N.J. at 325-26).]

The Matthews factors include

[l]ocation of the dry sand area in relation to the foreshore, extent and availability of publicly-owned upland sand area, nature and extent of the public demand, and usage of the upland sand land by the owner . . . . [Matthews, supra, 95 N.J. at 326.]

Notably, the Matthews Court acknowledged that the public right to access private beaches is "not co-extensive with the rights enjoyed in municipal beaches[.]" Ibid. The Court emphasized that "private landowners may not in all instances prevent the public from exercising its rights under the public trust doctrine. The public must be afforded reasonable access to the foreshore as well as suitable area for recreation on the dry sand." Ibid.

Applying these factors in Raleigh Avenue to the public claim of access to the privately-owned Atlantis Beach, the Court held the general public had a right to use upland dry sand of the private beach club pursuant to the public trust doctrine. 185 N.J. at 59. The Court cited the longstanding public access to and use of the beach, CAFRA permit conditions, public demand, the absence of publicly-owned beaches and the business use of the beach by the current owner. Id. at 59-60.

Of course, in this case only a small portion of the property owned by the Club is privately-held beach property to which the Matthews/Raleigh Avenue standards for access apply. Moreover, at the time the 1993 Agreements were crafted, the public trust doctrine, as it pertains to publicly-owned beach areas, was firmly established. Based on these established facts, we address not only whether the judge properly declared the 1993 Agreement void but also whether principles of equitable estoppel barred the State from seeking to set aside or modify the agreement.

Generally, parties to an agreement may contract as they wish and courts will enforce these agreements without addressing the wisdom or foolishness of the terms. Marchak v. Claridge Commons, Inc., 134 N.J. 275, 281-82 (1993); Saxon Constr. & Mgmt. Corp. v. Masterclean, Inc., 273 N.J. Super. 231, 235 (App. Div.), certif. denied, 137 N.J. 314 (1994). Sometimes, however, a court will conclude that the contract is void due to some overriding circumstance, such as lack of authority to contract or inclusion of a term that is contrary to the public interest. In the latter case, the agreement or the term may be considered void ab initio, Thompson v. City of Atlantic City, 190 N.J. 359, 383 (2007); Restatement (Second) of Contracts § 178 (1981); in the former case, the contract as a whole or the offending term may be voidable, Restatement, supra, at § 7.*fn4

A contract that "is inconsistent with the public interest or detrimental to the common good" cannot be sustained. Vasquez v. Glassboro Serv. Ass'n, 83 N.J. 86, 98 (1980). Over the years, the courts of this State have refused to enforce contracts contrary to the public policy of this State. See, e.g., Thompson, supra, 190 N.J. at 376, 383 (resolution approving settlement between city and incumbent mayor and campaign aide riddled with egregious conflict-of-interest violations void ab ignitio and rescinded); Vasquez, supra, 83 N.J. at 104-05 (employment agreement permitting self-help by employer to dispossess discharged migrant worker from camp housing); Solari Indus., Inc. v. Malady, 55 N.J. 571 (1970)

(non-competition agreement enforceable only if restrictions reasonable and not injurious to public); Driscoll v. Burlington-Bristol Bridge Co., 10 N.J. Super. 545, 575 (Ch. Div. 1950) (transactions entered into by public officials inimical to and inconsistent with public interest will be set aside subject to protection of rights of innocent third parties), modified by 8 N.J. 443, 475, cert. denied, 344 U.S. 838, 73 S. Ct. 25, 97 L. Ed. 652 (1952).

Public policy reflects the common conscience and changes in its demands with the needs and widely held feelings of the times. See Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 403 (1960). Public policy's "virtue and vigor lies in its flexibility of application, and while reported cases furnish guides, they rarely are compelling in precedent." Fid. Union Trust Co. v. Reeves, 96 N.J. Eq. 490, 493 (Ch. 1924), aff'd o.b., 98 N.J. Eq. 412 (E. & A. 1925). The sources of public policy include federal and state legislation and judicial decision. Vasquez, supra, 83 N.J. at 98. Statutes defining and declaring public and private rights develop over time and public policy often changes as the law changes; therefore, "new applications of old principles are required." Bron v. Weintraub, 42 N.J. 87, 93-94 (1964).

Applying these principles to the facts, we do not hesitate to hold that paragraph 3a of the 1993 Agreement limiting public access to the upland dry beach controlled by the Club is void as against public policy. As recounted in this opinion, the public policy of this State declares there shall be public access to tidal lands, access to the ocean, and the attendant pleasures of dry beaches by the public. Moreover, even privately-owned oceanfront properties may be required to provide access to the public to dry upland beach areas to facilitate full enjoyment of the ocean. When fashioned and executed in 1993, the law governing public access to tidal property was well-established. Certainly, after the Raleigh Avenue ruling, both parties to the 1993 Agreement should have recognized that the limited public access to the 80 feet of oceanfront tidal property the Club owned might be questionable and the limited public access to the remainder was wholly untenable.

Furthermore, we can discern no other circumstances, legal or equitable, that may override the fundamental public policy right of public access to tidal land. Here, the Club has severely limited public access to a substantial swath of tidal property it does not own. It has also received the substantial benefit of a greatly enhanced dry beach area. This expanded dry sand frontage adds not only to the enjoyment of the ocean but also to the enjoyment of the Club's facilities. To be sure, beach replenishment serves the greater public good of flood protection, but its direct benefit to the Club is almost incalculable.

The record does not permit a determination whether the 1993 Agreement was void ab initio. N.J.S.A. 12:6A-1 authorizes the DEP to engage in various projects to further beach protection. The authority to enter agreements to facilitate projects to promote beach protection is implicit in this provision. Indeed, in State of New Jersey v. Atlantic City, 23 N.J. 337, 341 (1957), the Court recognized the authority of the DEP to supervise and control not only beach protection projects but also the distribution and utilization of project funds. The 1993 Agreement sought to do just that. In fact, it clearly stated that nothing in the 1993 Agreement bestowed title on riparian lands owned by the State. To be sure, the limited access provision was contrary to State law assuming the Assistant Deputy Commissioner knew the extent of the Club's riparian grants. However, the record does not permit us to assess his knowledge at that time. The record does reveal, however, that the Assistant Commissioner was intimately involved in the development of the 1993 Agreement and the project in its entirety and had the authority to execute agreements to permit the beach nourishment project to proceed.

Having determined that the portion of the 1993 Agreement limiting access to eighty percent of the ungranted tidelands is void as contrary to public policy, we address the Club's arguments that the State is equitably estopped in light of the specific facts of this case. As suggested by our prior discussion, we hold that the State is not barred from seeking to avoid the limitations of public access contained in the 1993 Agreement.

Equitable estoppel means "'that one may, by voluntary conduct, be precluded from taking a course of action that would work injustice and wrong to one who with good reason and in good faith has relied upon such conduct.'" Petersen v. Twp. of Raritan, 418 N.J. Super. 125, 137 (App. Div. 2011) (quoting Middletown Twp. Policemen's Benevolent Ass'n Local No. 124 v. Twp. of Middletown, 162 N.J. 361, 367 (2000)). "The essential elements of equitable estoppel are a knowing and intentional misrepresentation by the party sought to be estopped under circumstances in which the misrepresentation would probably induce reliance, and reliance by the party seeking estoppel to his or her detriment." O'Malley v. Dep't of Energy, 109 N.J. 309, 317 (1987) (citing Horsemen's Benevolent & Protective Ass'n v. Atl. City Racing Ass'n, 98 N.J. 445, 456 (1985)).

Equitable estoppel is not applied against the State to the same extent it is applied against private parties. O'Neill v. State Highway Dep't of N.J., 50 N.J. 307, 319 (1967). In fact, it is rarely invoked by the State. If application of equitable estoppel will prejudice essential governmental functions, it will not be applied. Sellers v. Bd. of the Police & Firemen's Ret. Sys., 399 N.J. Super. 51, 58 (App. Div. 2008) (citing Middletown Twp. PBA, supra, 162 N.J. at 367). The doctrine can be applied "'in very compelling circumstances, where the interests of justice, morality and common fairness dictate that course.'" Ibid. (quoting Maltese v. Twp. of N. Brunswick, 353 N.J. Super. 226, 244-45 (App. Div. 2002)).

Judge Cavanagh relied on three primary factors to deny the Club's equitable estoppel claim: the express provision denying any transfer of title within the 1993 Agreement, the high burden for applying equitable estoppel against the State in tidelands cases, and the lack of detrimental reliance by the Club. We agree.

Reasonable reliance is a critical element of equitable estoppel. See Petersen, supra, 418 N.J. Super. at 137. Admittedly, if the Club had obtained a riparian grant for the remainder of the oceanfront, the limited access conceded to it in the 1993 Agreement may have been consistent with the Matthews/Raleigh Avenue standards. The record before Judge Cavanagh demonstrates that acquisition of a large area of privately-owned beachfront by the municipality permitted substantial access to the beach and ocean. Matthews, supra, 95 N.J. at 326. Here, however, the Club never acquired the requisite riparian grants, and paragraph (5) in the 1993 Agreement put the Club on notice that compliance with the Council's procedures was required before any conveyance or control could be delivered.*fn5 By focusing on the necessity of the Council procedures and the high protection afforded to State ownership of tideland properties, Judge Cavanagh recognized the interference that the invocation of equitable estoppel would pose to the essential government functions of protecting beaches and providing public access to tideland properties.

We have identified no factor or circumstance to disturb Judge Cavanagh's decision that equitable estoppel principles barred the State from seeking to void the portion of the 1993 Agreement limiting access to the majority of beachfront property controlled by the Club. We recognize that the Club undertook certain improvements in reliance on this 1993 Agreement. However, as discussed earlier in this opinion, the Club has obtained many benefits from the project, including a greatly expanded dry beach area, many years of almost exclusive enjoyment of a limited natural resource, and protection of the physical assets of the Club, all of which were obtained at public expense. Any detriment incurred by the Club does not outweigh the significant public interest invested in tidal lands and the circumstance that the Club has been permitted to exclude significant members of the public from property it does not own.

We affirm the June 30, 2010 order and remand for further proceedings as may be necessary to formulate an appropriate remedy. We do not retain jurisdiction.


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