Opinion
DOCKET NO. A-5744-13T2
05-05-2016
BOROUGH OF HARVEY CEDARS, Plaintiff-Respondent, v. NEW IMPER REALTY CORP., Defendant-Appellant, and ATLANTIC CITY ELECTRIC COMPANY, STATE OF NEW JERSEY, BUREAU OF HOUSING INSPECTION, Defendants.
Peter H. Wegener argued the cause for appellant (Bathgate, Wegener & Wolf, attorneys; Mr. Wegener, of counsel and on the briefs). Lawrence H. Shapiro argued the cause for respondent (Ansell Grimm & Aaron, P.C., attorneys; Mr. Shapiro, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Hoffman, Leone and Whipple. On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-1408-09. Peter H. Wegener argued the cause for appellant (Bathgate, Wegener & Wolf, attorneys; Mr. Wegener, of counsel and on the briefs). Lawrence H. Shapiro argued the cause for respondent (Ansell Grimm & Aaron, P.C., attorneys; Mr. Shapiro, on the brief). PER CURIAM
In this condemnation case, a panel of commissioners awarded $7,500 to defendant New Imper Realty Corp (New Imper) as just compensation for an easement taken by plaintiff Borough of Harvey Cedars (the Borough) for a beach restoration project. Both sides appealed the award and the matter was scheduled for trial. After the trial court granted the Borough's motion to bar the reports and testimony of New Imper's experts, the parties entered into a stipulated order of final judgment, whereby they agreed to an award of $8,873.29, but preserved New Imper's right to appeal the trial court's order barring its experts. For the reasons that follow, we affirm.
I.
On April 16, 2009, the Borough filed a complaint exercising its power of eminent domain in order to acquire an easement interest, permitting the construction of a sand dune, over the eastern half of an oceanfront lot owned by New Imper. On August 19, 2009, the court entered an order for judgment, confirming that the Borough had "duly exercised its powers of eminent domain," and appointed commissioners to determine the value of just compensation owed to New Imper.
The property that is the subject of this taking is Block 24, Lot 6 in Harvey Cedars: a vacant 12,000-square-foot oceanfront lot. It once contained a beachfront home, which was destroyed by a storm in 1962. Ever since, the lot has consisted entirely of sand and dunes.
We previously acknowledged the history of serious storm damage to Long Beach Island (LBI), and the role of dunes in protecting the island. McGovern v. Borough of Harvey Cedars, 401 N.J. Super. 136, 146-47 (App. Div. 2008).
In 1965, the Borough adopted Ordinance No. 65-2, which established a north-to-south demarcation line (the building line) and prohibited all construction east of the building line. Approximately ninety-five percent of New Imper's oceanfront lot is located east of the building line. As a result, in order to build anything on the oceanfront lot, New Imper or any future owner would need to obtain a variance from the Borough. New Imper's planning expert conceded in his report that New Imper "may well be denied the necessary variances and waivers to permit the development of the subject property . . . ." According to the planning expert, upon variance denial, Ordinance No. 65-2 would "deprive[] the owner of all or substantially all economically beneficial use" of the oceanfront lot.
The parties' experts offered different estimates regarding the percentage of the lot that lies east of the building line. While the Borough's experts approximated that ninety-five percent of the lot lies east of the building line, New Imper's experts approximated that only eighty-five percent of the lot lies east of the line. This dispute, however, is not material for purposes of deciding this appeal.
In 2005, the New Jersey Department of Environmental Protection (DEP) and the Department of the Army entered into an agreement to complete the "Barnegat Inlet to Little Egg Inlet, Long Beach Island, NJ, Shore Protection Project." The DEP and Army Corp of Engineers planned to construct sand dunes along the beachfront that would prevent the flow of seawater inland. This construction could not take place, however, unless each participating municipality acquired permanent easements for certain oceanfront lots that were owned by private parties. After New Imper refused to voluntarily grant an easement to the Borough, on July, 15, 2008, the Borough adopted Ordinance No. 2008-10, authorizing the use of eminent domain to acquire easements from New Imper and the owners of fifteen other oceanfront lots.
To formulate his opinion on the just compensation owed to New Imper, the Borough's appraisal expert, Donald Moliver, estimated the value of the oceanfront lot both before and after the easement. Applying the "sales comparison approach," Moliver concluded that the highest and best use of the oceanfront property was to assemble it with an adjacent lot on its western border. This use of the property would render its value at $32,000 prior to the imposition of the easement. Moliver stated that the potential to assemble the oceanfront lot with an adjacent parcel remained the same, even with the easement in place. Thus, as the post-easement value of the lot remained at $32,000, Moliver determined that $100 would represent just compensation for the easement.
In contrast, New Imper's appraisal expert, Jon Brody, valued the just compensation for the easement at $343,000. The key distinction between the estimates of the two appraisal experts concerned the oceanfront lot's highest and best use prior to the easement. Although Brody's report indicated that he determined the value of the subject property by employing "the market data sales approach," he opined that the highest and best use of the oceanfront lot prior to the easement was to sell the lot to a "speculator," who would bring an inverse condemnation lawsuit against the Borough. According to Brody, Ordinance No. 65-2 would provide the basis for such a lawsuit, because it essentially stripped the oceanfront lot of substantially all economically beneficial use. Considering the potential monetary gain from such a lawsuit, Brody estimated the value of the oceanfront lot at $375,000 prior to the easement. Brody further indicated that he agreed with Moliver's opinion that $32,000 represents the post-easement value of the lot. As a result, he concluded that $343,000 would represent just compensation for the easement.
Following a period of discovery, the Borough filed a motion in limine, seeking to preclude the opinions of Brody and New Imper's planning expert as net opinions barred by N.J.R.E. 703. The trial court adjourned the motion, and stayed the case pending the Supreme Court's decision in another condemnation case brought by the Borough, Borough of Harvey Cedars v. Karan, 214 N.J. 384 (2013). Following the Supreme Court's decision in Karan, the Borough re-filed its motion in limine, which was heard on May 23, 2014.
Notably, New Imper did not submit any updated, modified, or revised expert reports following the Karan decision, despite the trial court permitting the parties to submit such updates in light of Karan's impact on partial-taking condemnation cases.
The Borough argued that New Imper's experts improperly attempted to "shoehorn" an inverse condemnation analysis into an affirmative condemnation case. Additionally, the Borough argued that no evidence had been presented to support the assertion of New Imper's planning expert that Ordinance No. 65-02 deprived the oceanfront lot of substantially all economically beneficial use.
Following oral argument, the trial judge agreed with the Borough, holding that the opinions proffered by New Imper's experts were inadmissible net opinions. Citing to the four-prong test in Cnty. of Monmouth v. Hilton, 334 N.J. Super. 582, 588 (App. Div. 2000), certif. denied, 167 N.J. 633 (2001), the judge determined that New Imper failed to provide any evidence to substantiate its suggested highest and best use for the oceanfront lot. Notably, the judge rejected New Imper's inverse-condemnation theory, stating that,
Any expert valuation based on the possibility that a hypothetical future buyer will purchase the Property to bring an unlikely inverse condemnation proceeding is too speculative to be admitted as an expert valuation under N.J.R.E. 702. Quite simply, [New Imper] has attempted to transform the present proceedings into an inverse condemnation action, due to the unlikelihood of obtaining a variance, without establishing any of the prerequisites for an inverse condemnation action[.]
Accordingly, on May 28, 2014, the trial judge entered an order granting plaintiff's motion in limine and barring New Imper's proposed expert opinions. When the parties convened for trial on June 2, 2014, New Imper requested an adjournment so that its experts could revisit their reports in light of the trial judge's evidentiary ruling. After the judge denied this request, the parties entered into the stipulated order of final judgment, agreeing, in pertinent part, that New Imper was entitled to a total of $8,873.29: $7,500 in just compensation for the taking, plus interest and costs.
New Imper filed this appeal on August 12, 2014, arguing that the trial court erred in granting the Borough's motion in limine and striking the opinions of Brody and New Imper's planning expert as net opinions.
II.
We begin our analysis by setting forth our standard of review. We ordinarily defer to a trial court's evidentiary rulings and review them for an abuse of discretion. Brenman v. Demello, 191 N.J. 18, 31 (2007). Stated differently, we will not disturb a trial court's evidentiary rulings unless they are "so wide off the mark that a manifest denial of justice resulted." Ibid. (quoting Green v. N.J. Mfrs. Ins. Co., 160 N.J. 480, 492 (1999)). However, despite the deference we afford to the trial court's evidentiary decisions, we still review questions of law de novo. See Toll Bros. v. Twp. of W. Windsor, 173 N.J. 502, 549 (2002).
An expert's conclusions must "be founded in 'facts or data'" and those facts must "be 'reasonably relied upon by [other] experts in the field.'" Harte v. Hand, 433 N.J. Super. 457, 464 (App. Div. 2013) (quoting N.J.R.E. 703). Thus, an expert must "'give the why and wherefore' that supports the opinion, 'rather than a mere conclusion.'" Pomerantz Paper Corp. v. New Comm. Corp., 207 N.J. 344, 372 (2011) (quoting Polzo v. Cnty. of Essex, 196 N.J. 569, 583 (2008). "The net opinion rule is succinctly defined as 'a prohibition against speculative testimony.'" Harte, supra, 433 N.J. Super. at 465 (quoting Grzanka v. Pfiefer, 301 N.J. Super. 563, 580 (App. Div. 1997), certif. denied, 154 N.J. 607 (1998)).
We next address the relevant legal framework for the determination of just compensation. Private property may be taken for public use only upon the payment of "just compensation." N.J. Const. art. I, ¶ 20. Just compensation, in its most general terms, means the fair market value as of the date of the taking. See State v. Silver, 92 N.J. 507, 514 (1983) (explaining that fair market value is "the value that would be assigned to the acquired property by knowledgeable parties freely negotiating for its sale under normal market conditions based on all surrounding circumstances at the time of the taking").
When determining fair market value, the inquiry is not limited to the actual use of the property on the date of the taking but is, rather, based on its highest and best use. See, e.g., Ford Motor Co. v. Twp. of Edison, 127 N.J. 290, 301 (1992); State by Comm'r of Transp. v. Hope Road Assocs., 266 N.J. Super. 633, 641 (App. Div. 1993), modified, 136 N.J. 27 (1994). "Highest and best use" is defined as "'the use that at the time of appraisal is the most profitable, likely use' or alternatively, 'the available use and program of future utilization that produces the highest present land value[,]'" provided that "use has as a prerequisite a probability of achievement." Ford Motor Co., supra, 127 N.J. at 300-01 (quoting Inmar Associates, Inc. v. Twp. of Edison, 2 N.J. Tax 59, 64-65 (Tax 1980)).
In the case of a partial taking, a property owner "is entitled to be compensated not only for the value of the [interest in] land taken but also for any diminution in the value of [the] remaining land which may be attributed to the taking." Ridgewood v. Sreel Investment Corp., 28 N.J. 121, 125 (1958) (citations omitted); see also N.J.S.A. 20:3-29 (stating that a condemnee is "entitled to compensation for the [condemned] property and damages, if any, to any remaining property"). For example, if the highest and best use of a parcel is to operate a shopping center, and a government entity takes land from the parcel that had been proposed as the shopping center's parking lot, the remaining land may suffer a loss in value beyond the per-square-foot cost of the land being condemned. See Sreel, supra, 28 N.J. at 128; cf. South Orange v. Alden, 71 N.J. 362, 366-68 (1976) (concluding that damage to property owner was mitigated when the public entity replaced a private parking lot with a public lot).
In Hilton, supra, 334 N.J. Super. at 588, we adopted a four-prong test, routinely employed by the Tax Court in assessment determinations, to determine a property's highest and best use. A highest and best use is one that is (1) legally permissible, (2) physically possible, (3) financially feasible, and (4) maximally productive. See, e.g., Entenmann's Inc. v. Totowa Borough, 18 N.J. Tax 540, 546 (Tax 2000), aff'd, 21 N.J. Tax 182 (App. Div. 2003); Schimpf v. Little Egg Harbor Twp., 14 N.J. Tax 338, 343-344 (Tax 1994); Chesterfield Assocs. v. Edison Twp., 13 N.J. Tax 195, 210 n.6 (Tax 1993), aff'd, 14 N.J. Tax 181 (App. Div. 1994); United Jersey Bk. v. Lincoln Park Bor., 11 N.J. Tax 549, 557 (Tax 1991). Thus, highest and best use is determined not only by the applicable legal and physical constraints, but "by competitive forces within the market where the property is located." Schimpf, supra, 14 N.J. Tax at 344.
Only prong one of the Hilton test is relevant to this appeal. The trial judge found that, in light of Ordinance 65-02, New Imper's theory of the best and highest use for its oceanfront property was not legally permissible. The judge rejected New Imper's inverse condemnation theory, concluding that the expert opinions regarding a potential inverse condemnation action were speculative, and that such a claim was not yet ripe. We agree.
New Imper's planning expert opined that, if the Borough were to deny New Imper's application for a variance to Ordinance 65-2, then the ordinance would effectively deprive the oceanfront property of substantially all beneficial economic use. This opinion, however, is inherently speculative. The record is unclear whether or not the Borough would deny such an application. New Imper has never applied for a variance, nor has it attempted to develop the land following the storm in 1962. During oral argument, counsel for New Imper conceded that an inverse condemnation claim would not be ripe until such an application had been considered, and subsequently denied by the Borough. We agree. As an inverse condemnation claim was not yet ripe, expert reports that are predicated on such a claim can only speculate regarding the success of that claim. Therefore, the trial judge correctly barred the reports as net opinions.
Moreover, if the Borough were to grant the variances required to build on New Imper's lot, the record is unclear as to whether New Imper would be able to develop the property even then, due to restrictions imposed by applicable state regulations, including those issued pursuant to the Coastal Area Facility Review Act, N.J.S.A. 13:19-1 to -21.
New Imper's counsel argued that the failure to seek a variance means there is no statute of limitations problem for an inverse condemnation action, even though forty-nine years have passed since the enactment of the 1965 ordinance. We are not so sure. See Klumpp v. Borough of Avalon, 202 N.J. 390, 409 (2010) (applying the six-year statute of limitations period to an inverse condemnation claim, and providing the claim accrues on the date the landowner becomes aware or, through the exercise of reasonable diligence, should have become aware, that it had been deprived of all reasonably beneficial use). The possibility that an inverse condemnation action could be barred by the statute of limitations makes New Imper's expert opinions even more speculative.
The speculative nature of New Imper's inverse condemnation theory is demonstrated by considering the effect of a variance application. Any theory of just compensation for the easement interest necessarily relies on an important premise: that there is some reasonable likelihood that the Borough would grant an application for a variance from Ordinance No. 65-02, along with other necessary bulk variances. Without at least some reasonable likelihood that the required variance applications would be granted, the oceanfront lot would have only minimal value prior to the easement. However, if the oceanfront lot had only minimal value prior to the easement, then the easement would have little or no impact on the fair market value of the lot, and New Imper would be entitled to little or no just compensation for the easement.
On the other hand, if New Imper would succeed in obtaining the variances required to build on the lot, then Ordinance No. 65-02 would not deprive the oceanfront lot of all reasonably beneficial economic use. See Orleans Builders & Developers v. Byrne, 186 N.J. Super. 432, 446 (App. Div.) ("Under general principles a property owner is barred from any claim to a right of inverse condemnation unless deprived of all or substantially all of the beneficial use of . . . his property . . . ." (citations omitted)), certif. denied, 91 N.J. 528 (1982).
Thus, New Imper's theory depends entirely on the premise that a party in an actual condemnation case can argue that a prior governmental action gave rise to a potential inverse condemnation action that can be used to set the highest and best use, even though that use is currently legally impermissible. New Imper's briefs fail to disclose any published precedent supporting such a theory, and its counsel conceded he was unaware of any such case. The absence of any legal precedent makes New Imper's expert opinions even more speculative. Because it seeks to combine condemnation and inverse condemnation actions without any precedential authority to do so, New Imper's inverse condemnation theory is legally incompatible with its request for just compensation. We hold that a potential inverse condemnation claim cannot logically serve as the basis for compensation in an affirmative takings case. New Imper's arguments regarding the remaining Hilton prongs lack sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
We express no opinion on the viability of any future inverse condemnation lawsuit. --------
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION