EAST CAPE MAY ASSOC. v. STATE, DEP

• Decision Date: 25 July 2001
• Citation: 343 N.J. Super. 110,777 A.2d 1015
• Parties: EAST CAPE MAY ASSOCIATES, a Florida limited partnership, Plaintiff-Respondent/Cross-Appellant, v. STATE of New Jersey, DEPARTMENT OF ENVIRONMENTAL PROTECTION, and Robert Shinn, Defendants-Appellants/Cross-Respondents.
• Court: New Jersey Superior Court

777 A.2d 1015

343 N.J. Super. 110

EAST CAPE MAY ASSOCIATES, a Florida limited partnership, Plaintiff-Respondent/Cross-Appellant, v. STATE of New Jersey, DEPARTMENT OF ENVIRONMENTAL PROTECTION, and Robert Shinn, Defendants-Appellants/Cross-Respondents.

Superior Court of New Jersey, Appellate Division.

Argued May 14, 2001.

Decided July 25, 2001.

Rachel Horowitz, Deputy Attorney General, argued the cause for appellants/cross-respondents (John J. Farmer, Jr., Attorney General, attorney; Mary C. Jacobson, Assistant Attorney General, of counsel; Ms. Horowitz, on the brief).

Steven P. Perskie, Atlantic City, argued the cause for respondent/cross-appellant (Fox, Rothschild, O'Brien & Frankel, attorneys; Mr. Perskie, of counsel and on the brief with Kathryn D. Portner).

Edward Lloyd, Newark, Rutgers Environmental Law Clinic, attorney for amicus curiae New Jersey Conservation Foundation (John D. Echeverria and John T. Zeidler, of counsel; Mr. Lloyd, on the brief).

Gordon N. Litwin, Newark, argued the cause for amicus curiae, The American Littoral Society, the City of Cape May, and the Cottagers' Association of Cape May, Inc. (Ansell Zaro Grimm & Aaron, attorneys; Mr. Litwin, of counsel; Andrew J. Provence, on the brief).

Before Judges HAVEY, WEFING and CUFF. The opinion of the court was delivered by HAVEY, P.J.A.D

This is the second chapter of an inverse condemnation case involving a claim of regulatory taking arising from enforcement of the Freshwater Wetlands Protection Act (FWPA), N.J.S.A. 13:9B-1 to -30. N.J.S.A. 13:9B-22b (§ 22b) provides:

If the court determines that the issuance, modification, or denial of a freshwater wetlands permit by the department pursuant to this act constitutes a taking of property without just compensation, the court shall give the department the option of compensating the property owner for the full amount of the lost value, condemning the affected property pursuant to the provisions of the "Eminent Domain Act of 1971," P.L. 1971, c. 361 (C.20:3-1 et seq.), or modifying its action or inaction concerning the property so as to minimize the detrimental effect to the value of the property.

[Emphasis added.]

The central issue raised by this appeal is whether rule making is necessary before the DEP avails itself of the amelioration opportunity under § 22b to modify its actions "so as to minimize the detrimental effect to the value of the property." We are also called upon to review the trial court's determination that the "denominator" in the taking fraction was the 100-acre tract owned by plaintiff, East Cape May Associates (ECM).

ECM, a limited partnership, owns a 100 acre undeveloped tract located on the east side of Pittsburgh Avenue in the City of Cape May. A contiguous 100-acre tract on the west side of Pittsburgh Avenue is or has been owned or developed by ECM's principals and an affiliated partnership. The DEP has designated most of the 100-acre eastern tract as being of "exceptional resource value" which subjects the property to heightened protection against development. See N.J.S.A. 13:9B-7, -10c. On July 23, 1990, ECM's principals, Philip Robinson and Thomas Brodesser, applied for a CAFRA permit (Coastal Area Facility Review Act, N.J.S.A. 13:19-1 to -21) to construct 366 single-family residential units on the eastern 100 acres. The property was conveyed by Robinson and Brodesser to ECM on December 20, 1990, for $10. By letter dated June 26, 1990, the DEP's regional supervisor indicated to ECM that its CAFRA application would probably be denied due to the quality and extent of wetlands on the property, citing CAFRA standards governing special areas, endangered species and habitats, storm water runoff, and other pertinent regulations.

On January 24, 1991, the DEP denied the CAFRA permit. In response, ECM filed the present action seeking compensation for the regulatory taking of the eastern tract, citing the DEP's denial of ECM's CAFRA permit. ECM claims that there has been both a permanent and temporary taking in violation of the State and federal constitutions.

In East Cape May Assocs. v. State, Dep't of Envtl. Prot., 300 N.J.Super. 325, 693 A.2d 114 (App.Div.1997) (East Cape May I), we reversed an order for summary judgment in favor of ECM which declared that there had been a regulatory taking of its property. We agreed with the trial court that the pertinent DEP regulations affecting ECM's property indicate that "unless those regulations are relaxed in significant respects, no application for any economically meaningful development of that property will be granted." Id. at 338, 693 A.2d 114. We added:

If the property currently owned by East Cape May [the 100-acre easterly tract] represents the full extent of the property which we should consider to determine the taking issue, and if those regulations will not be relaxed pursuant to N.J.S.A. 13:9B-22b, the State's regulatory scheme so "excessively interferes with property rights and interests" that they leave East Cape May without "viable, economically-beneficial uses of [its] land" and therefore have effected a constitutional taking. See Gardner v. New Jersey Pinelands Comm'n, supra, 125 N.J. at 210-16, 593 A.2d 251, and cases cited therein.

[Ibid.]

However, we remanded with direction that the trial court address the "denominator" argument raised by the State; that is, that the entire 200 acres owned by ECM or its principals, situate on both the east and west side of Pittsburgh Avenue, must be considered in determining whether there has been a taking. Id. at 353-54, 693 A.2d 114. We directed that, upon resolution of the "denominator" issue, "[a]t the option of the DEP, an opportunity should be afforded it to work with East Cape May to formulate an acceptable development plan pursuant to N.J.S.A. 13:9B-22b." Id. at 354, 693 A.2d 114. In that respect we interpreted § 22b as requiring "the DEP and the developer to confer about the realistic prospects for development whenever the agency has taken a position which, reasonably interpreted, would impose limits on the utilization of property so draconian that they would amount to a constitutional taking." Id. at 341, 693 A.2d 114.

On remand, the DEP undertook an analysis of pertinent regulations affecting ECM's property with the goal of presenting a plan of development acceptable to ECM. During the remand hearing, Richard Kropp, Director of Land Use Programs for the DEP, testified it was his goal to draft a proposal that would both protect the environmental resource, and, at the same time, permit ECM an economically viable use of its property. Kropp considered the physical attributes of the site, local zoning laws and other State and federal regulations. He did not consider ECM's investment in the property. Under Kropp's supervision, the DEP staff divided and ranked the eastern tract, which is entirely wetlands and wetlands barriers, into four areas of habitat priority. The DEP then retained a professional planner, Carl Hintz, to determine where best to place potential development so that it would have the least impact on the most valuable habitat.

Hintz testified as an expert in the fields of planning, wetlands, and landscape architecture that he considered the habitat value of the site, the proximity of the development to the ocean and existing development, and the zoning of the site. Ultimately, Hintz developed three proposals of twenty, forty and sixty-four units. The sixty-four unit plan groups most of the proposed residential units in the southeast corner of the tract. The remaining eight units were separated and placed on block 1163, west of the other proposed units. It was the DEP's view that this plan saved a large continuous area of habitat and preserved the more valuable habitats and minimized the "edge" between development and natural habitat. Hintz testified that there was a strong market for the type of development he proposed.

The DEP presented the twenty and forty-unit proposals to ECM. On February 25, 1998, after the DEP proposed the forty-unit plan, Kropp and several Deputy Attorneys General met with the attorneys for ECM. ECM advised the DEP that the forty-unit offer did not match its investment in the eastern tract. Thus, the meeting ended without agreement. Shortly before trial, the DEP offered the sixty-four unit plan. ECM rejected this proposal as well.

ECM presented testimony indicating that it had incurred aggregate costs associated with the eastern 100-acre tract of $1,712,181.50, in additional to litigation costs associated with the tract totaling $1,339,209.40.¹ ECM's certified public accountant testified that, adjusting the total costs to present day value, ECM had expended $5,482,073.95.

The State's appraisal expert, George W. Powell, testified that, assuming ECM could obtain the necessary permits for the development of 366 units, the Army Corps of Engineers (Corps) would probably only permit the development of 183 homes which, Powell concluded, was the highest and best use of the eastern tract. Applying the income and comparison sales approaches, Powell valued the property at $4,500,000, including the probable costs of litigation against the Corps and costs of mitigation requirements the Corps might impose. Powell testified that the market value of the property based on the sixty-four building lots proposed by the DEP, was $4,382,300.

ECM's appraisal expert, Richard E. Hall, applied the cash-flow discounted method of appraisal. According to Hall, assuming that the property had received approvals for a 366 unit subdivision, it had a value of $28,860,000.

The testimony presented regarding the "denominator" issue was as follows. In 1954, Robinson bought the bulk of the western 100 acres from the City for a purchase price of $6,283. At about the same time the City sold the eastern tract to Morris Soble who in turn sold the property to Robinson in October 1954 for a payment of $20,000, with the promise that if Robinson "ever made any...