Borough of Saddle River v. 66 E. Allendale, LLC

• Decision Date: 21 October 2013
• Parties: BOROUGH OF SADDLE RIVER, Plaintiff–Appellant, v. 66 EAST ALLENDALE, LLC, Defendant–Respondent.
• Court: New Jersey Supreme Court

216 N.J. 115

77 A.3d 1161

BOROUGH OF SADDLE RIVER, Plaintiff–Appellant,

v.66 EAST ALLENDALE, LLC, Defendant–Respondent.

Supreme Court of New Jersey.

Argued April 29, 2013.

Decided Oct. 21, 2013.

Robert J. Kipnees argued the cause for appellant (Lowenstein Sandler, attorneys; Mr. Kipnees and Natalie J. Kraner, Roseland, on the briefs).

Peter H. Wegener, Lakewood, argued the cause for respondent (Bathgate, Wegener & Wolf, attorneys).

Matthew Weng submitted a brief on behalf of amicus curiae New Jersey State League of Municipalities.

Justice LaVECCHIA delivered the opinion of the Court.

In this appeal, we review an appellate judgment that affirmed a $5.25 million condemnation award for defendant 66 East Allendale, LLC (East Allendale) against plaintiff Borough of Saddle River (Borough). For the reasons that follow, we reverse that judgment and remand for a new trial on just compensation.

In a condemnation action the determination sought is the amount of just compensation. Just compensation is a function of the value of the property in light of its highest and best use, which is ordinarily evaluated in accordance with current zoning ordinances. Certain circumstances may permit valuation to include an assessment of a change in the permitted use of a property, but only if there is a reasonable probability that a zoning change would be granted. As our decisions in State by Highway Commissioner v. Gorga, 26 N.J. 113, 138 A.2d 833 (1958), and State by Commissioner of Transportation v. Caoili, 135 N.J. 252, 639 A.2d 275 (1994), make plain, however, the jury in a condemnation action may not speculate about such a change in a property's use. If valuation of a property based on another use is to be considered by a jury, the determination of reasonable probability of a zoning change must be made by the judge before the evidence is presentedto the jury, and it must be made clearly to enable appellate review.

In this matter, the jury was allowed to hear evidence about the probability of a zoning change that should have been ruled on by the judge both in advance and outside of the jury's presence. Only if the court first determined that there was a reasonable probability that a zoning change would have been approved based on the standards governing such approval should the evidence have been presented to the jury for its consideration in connection with the jury's evaluation of just compensation. The evidence that the jury heard on the likelihood of the zoning change in issue here was not assessed properly in accordance with that standard, and the quality of the evidence that the jury was allowed to consider undermined the soundness of the jury's property valuation determination. The errors necessitate a new trial on the issue of just compensation.

I.

A.

The Borough initiated this condemnation action to acquire East Allendale's property located at 66 East Allendale Road. The property is split-zoned; the majority of the property is in a residential zone, and the remainder of the property is in an office zone. When the parties could not agree on the just compensation owed to East Allendale, the Borough commenced condemnation proceedings.

In fixing the fair market value of the property, the parties agreed that a bank building would be the property's highest and best use. However, they disputed the size of the bank that would have been approved under the Borough's zoning ordinance. East Allendale proposed the development of a 10,000 square foot bank and office building with an adjacent parking lot. The Borough proposed a 3,312 square foot bank branch with an adjacent parking lot.

In respect of the approvals necessary for the project as proposed by East Allendale, the parties further agreed that East Allendale was entitled to a use variance to permit development of a parking lot in the portion of the property that is within the residential zone. Their dispute devolved into a sharp disagreement on the intensity of use proposed by East Allendale. Specifically, the parties dispute whether a bulk variance would have been granted to permit a 10,000 square foot bank building that would entail 42 percent of improved lot coverage, which would have exceeded the ordinance requirement of no more than 30 percent improved lot coverage.

With that brief overview of the underlying dispute, we turn to the relevant background about this property and the critical aspects of the condemnation proceedings.

B.

East Allendale purchased the 2.13 acre parcel of land located at 66 East Allendale Road in the Borough ¹ in December 2002, for $900,000, intending to develop the property. The property is split-zoned with approximately one-third of the land in the office zone (O–1) and two-thirds of the land in the residential zone (R–1). During the pendency of the condemnation proceedings,the zoning requirements remained unchanged.

The O–1 zone permitted banks, offices, and other public uses. The Borough's O–1 zoning ordinance restricted improved lot coverage to 30 percent of the lot's total area, required a minimum lot size of 10,000 square feet, and imposed parking requirements of one parking space for every 75 square feet of bank space and one parking space for every 250 square feet of office space. The R–1 zone required a lot size of two acres and generally permitted single-family residences.

In October 2004, East Allendale, in conjunction with a development plan in which it was involved, submitted an application to the Borough's Zoning Board of Adjustment (Board) for a permit to build a 10,000 square foot bank office and building, and an adjacent parking lot on the property. Within its permit application, East Allendale sought a use variance, pursuant to N.J.S.A. 40:55D–70(d)(1), to use a portion of the R–1 part of the property as a parking lot. See N.J.S.A. 40:55D–70 (recognizing board of adjustment's authority to hear applications for variances in connection with permit applications). David Hals, a professional engineer and planner, prepared the site plan. The site plan proposed a 10,000 square foot, two-story bank and office building requiring a minimum of 57 parking spaces as the property's “highest and best use.” The plan required approval of a use variance to allow parking in the R–1 zone and a bulk variance, authorized pursuant to N.J.S.A. 40:55D–70(c)(2), in the O–1 zone to allow 42 percent improved lot coverage. The Borough conceded that, pursuant to the holding in AMG Associates v. Township of Springfield, 65 N.J. 101, 113–14, 319 A.2d 705 (1974), the local zoning board likely would grant a use variance to permit construction of parking on the R–1 portion of the property due to the lot's split zoning (residential and commercial).²

The Board denied the permit because the proposed improved lot coverage in the O–1 part of the property exceeded the maximum of 30 percent of improved lot coverage. At the hearing, facing critical Board questioning and opposition by several concerned citizens, East Allendale withdrew its application for a use variance prior to final action by the Board.

On November 8, 2006, the Borough exercised its power of eminent domain pursuant to N.J.S.A. 20:3–1 to –50 in order to acquire the subject property for use as a public park. The Borough filed a verified complaint in the Superior Court, Law Division, see N.J.S.A. 20:3–8, and submitted an appraisal stating the land's market value was $1,050,000. East Allendale filed an answer challenging the Borough's exercise of eminent domain and demanding a jury trial.

The parties attempted to resolve the matter themselves as well as through mediation. A partial settlement was reached, and on March 6, 2009, the court entered an Order for Judgment and Appointing Commissioners, concluding that the Borough duly exercised its power of eminent domain. The court appointed three commissioners to determine the compensation owed to East Allendale, and it entered a Consent Order to Withdraw Funds on Deposit, whereby $1,050,000 previously paid to the clerk of the court by the Borough was paid to East Allendale.

The commissioners completed their appraisals, and the court entered an order on December 18, 2009, determining the just compensation for the taking to be $1,593,625. East Allendale filed a Notice of Appeal on December 23, 2009; the Borough filed a Notice of Cross–Appeal on December 31, 2009, and demanded a jury trial.

C.

Prior to trial, the Borough filed a motion in limine seeking an order to strike the reports of East Allendale's expert witnesses as inadmissible net opinions because in the reports the experts' opinions on the reasonable probability of a zoning change lacked a proper foundation.³ Specifically, the Borough's argument focused on the requirements for deviation from ordinance requirements set forth in the Municipal Land Use Law (MLUL), N.J.S.A. 40:55D–1 to –163. Submitted with the motion were the reports as well as the deposition testimony of East Allendale's expert witnesses, David Hals, Peter Steck, Shergoh Alkilani, and Jon Brody. In the alternative, the Borough requested that the court perform its gatekeeping duty by conducting a preliminary Rule 104 hearing outside the presence of the jury to assess whether there was a reasonable probability of a zoning change for the property. See Caoili, supra, 135 N.J. at 252, 639 A.2d 275. East Allendale filed its own motion in limine to bar the report of the Borough's appraisal expert.

The trial court denied the Borough's motions, as well as East Allendale's, determining to defer until trial any decision on whether the reports of East Allendale's experts constituted net opinions about whether there was a reasonable probability of a zoning change. The court expressed its view that the defense could “build a proper foundation which [would] not make those opinions net opinions” and, therefore, concluded that the testimony would be heard and objections considered at trial.

Considering the Borough's alternative application...