Court Opinion

ID: 9700326
Source: CourtListenerOpinion
Date Created: 2023-08-25 21:20:50.709714+00
Date Added: 2024-06-11T18:21:07.239633
License: Public Domain

O’HERN, J.,
dissenting.
This case is more about failed intentions than evil ones. The Appellate Division concluded that a July 29, 1988 letter from the Township evidencing interest in a property was only a preliminary step in the condemnation process and not an event that substantially interfered with the use and enjoyment of the property. The Court has instead determined that the letter, though followed by years of negotiation, revealed an interest in acquiring the property so strong as substantially to interfere with the owner’s rights. The Court has held, in effect, that the date for valuation of a property under condemnation should be the earliest date when a public body demonstrates a firm interest in acquiring a properly. I agree with the Appellate Division and therefore dissent.
I
This is the third claim by Princeton Manor Associates (PMA) that the precondemnation activities of the Township of West Windsor had substantially interfered with its property rights. The two others were dismissed with prejudice. This claim for an earlier date of taking also should be dismissed. A federal action *139was dismissed on statute of limitations grounds and is not particularly instructive. A prior state court action, which alleged a substantive agreement between the parties on the value of the property long after July 1988, and a substantial interference with PMA’s property rights, was dismissed with prejudice in April 1992.
We need not debate what res judicata, effect should be given to those determinations. Those prior proceedings amply illustrate that this entire situation is simply the result of a long drawn-out process in which the Township attempted, in good faith, to acquire this fifty-acre parcel of land. At no point until actual condemnation did the Township substantially interfere with PMA’s use and enjoyment of the property.
There are several indicia of the Township’s good faith. First, despite PMA’s contention that the July 1988 letter had substantially interfered with the use and occupancy of its property, the March 1989 Green Acres Certification of Fair Market Value specifically recited that the highest and best use of the property was as residential property. There was no suggestion in that certification that there would be any negative effect on the property’s value because the property had been designated as a community park, or even because the Township had indicated its intent to acquire the property. Had the Township been attempting to take advantage of PMA, it would have valued the property as undevelo-pable land. The Certification of Fair Market Value prepared by Green Acres and furnished to PMA placed the property in the second tier of a three-tier valuation system. The certification noted that “the second tier is made up of properties placed under contract of sale contingent upon approvals for development which produces values in the mid range.” The certification did not value the property as raw land, the lowest tier. Nor did it value the property as having received preliminary or final approval, a determination that would reflect the highest tier value. Thus, if the July 1988 letter had substantially interfered with the best use *140and enjoyment of the land (as residential property), that conclusion was not reflected in what the Township was willing to pay.
Unfortunately for them, the property owners decided to make a counter-offer that would have allowed them to sell part of the property and to construct 115 town homes on a retained portion of the property. The Township offered to pay over $3 million for the fifty acres. This offer in turn provoked another response from the Township that would have permitted PMA to construct forty-eight homes on thirteen acres to be retained. PMA responded that it wished to build sixty homes on thirteen acres and sell the remaining thirty-seven acres for $1,250,000. Although the Township was willing to draft a resolution to put this to the planning process, the proposed zoning ordinance to permit the development was defeated. In addition, PMA had insisted upon an upset price of $3.5 million if the proposal fell through. (This was later reduced to $3.3 million.) The Township responded with a closed-session offer to purchase the property for $3.2 million in October 1990. A bond ordinance intended to finance the purchase failed two months later. Still, the developers continued to negotiate for more money and now sought, in addition to a $3.3 million purchase price, two years of rent at approximately $350,000 a year.
Again there was a new offer. In August 1991, the Township offered to acquire thirteen acres for $586,000 in consideration for the dismissal of the pending litigation between the parties, in which PMA had asserted a de facto taking. PMA counter-offered to sell thirteen acres for $800,000 if PMA could build thirty units on the remainder. The Township again counter-offered. In January 1992, the Township offered to purchase the entire fifty acres, but this time for $2,250,000. After several more months of exchange, the Township purchased the thirteen acres for $700,000. PMA’s inverse condemnation action was dismissed with prejudice. Finally, in March 1993, the Township authorized the acquisition of the remaining thirty-seven acres. When PMA refused what turned out to be the final offer of $1,210,000 for the remaining *141property in May 1993, the Township commenced the present condemnation action.
Throughout this tangled scenario of offer, counter-offer, reply offer and reply to reply offer, I am simply unable to find the kind of obstructive governmental action that “substantially affects” the use and enjoyment of the property. N.J.S.A 20:3-30. It was a failed bargaining process, nothing more.
II
The issue posed by this case is but one aspect of the larger problem posed by government precondemnation activities. For this analysis, I essentially restate a recent summary of the law. See S. Cary Gaylord & Lorena Hart Ludovici, Condemnation Blight, C730 ALI-ABA 189 (1992). Condemnation blight is a term
“applied somewhat imprecisely to the detrimental conditions that befall land slated for public acquisition. Either the project is undesirable and depresses values for some distance around its proposed boundaries, or, whatever the nature of the project, the affected land will surely be taken (or so the market believes) and hence, becomes virtually useless to the private sector of the market.”
|jCondemnation Blight, supra, C730 ALI-ABA at 191 (quoting Kanner, Developments in Eminent Domain: A Candle in the Dark Comer of the Law, 52 J. Urban L. 862, 891-92 (1975)).]
Usually, the signs of condemnation blight are apparent.
When rental property is involved, tenants vacate the premises either because of public announcements of the planned project or because government agencies directly notify tenants that condemnation is imminent and recommend that they leave. The vacant buildings fail to generate enough revenue to cover mortgage payments or property taxes thus exposing landowners to possible foreclosure. In addition, the empty buildings invite vandalism which hastens the physical deterioration of the area. Often the premises are in such a state of deterioration that buildings are boarded up and eventually tom down____
Vacant and residential properties are also vulnerable to the impact of condemnation blight. Ordinances may be passed which prohibit any new construction or development of the property which substantially impairs the value and marketability of vacant land. Residential property is affected by a decrease in dty services such as street cleaning and refuse collection resulting in a slum appearance to the neighborhood. Police protection may be decreased, thus encouraging vandalism. In addition, piecemeal condemnation of various neighboring lands adds to the general deterioration of the whole neighborhood____ As a final blow to landown*142ers, sometimes the governmental agency decides, after a period of years, that it does not need to condemn the parcel and allows the owner to remain in possession of his once valuable and now virtually worthless property. See Washington Market Enters. v. City of Trenton, 68 N.J. 107, 343 A.2d 408 (1975).
[Id. at 191-92 (citations omitted).]
The effect of precondemnation activities is most stark in the context of developed rental properties. Because the delay between the initial actions and the actual taking can be substantial, in the interim the values of and interest in the property can plummet. Unease about the future has an impact upon a wide range of residential and business choices. “Tenants tend to move out, and new ones are hard to come by. This not only causes the landlord to lose rents but can lead to ... foreclosure---- Businesses also move out when they can to avoid the economic trauma of being displaced by the condemnation when it eventually comes.” Gideon Kanner, Condemnation Blight and Inverse Condemnation, SB14 ALI-ABA 377, 382 (1996). A property owner confronted with such devastating consequences may institute an inverse condemnation action against the condemning authority to recover damages incurred for the loss of land value caused by the precon-demnation activities. Condemnation Blight, supra, C730 ALI-ABA at 195. The New Jersey Eminent Domain Revision Commission also expressed its concerns over the type of situations in which precondemnation activities could have devastating effect upon rental properties.
During [the precondemnation] period, the tenants, advised of the proposed taking, vacate. Vandalism occurs. Only speculators will purchase. In business areas, re-rentals are limited to tenants at greatly reduced rents. No one will equip or establish a new business in the area Tenants will vacate a large percentage of the properly, and the income collected from the occupied portion [will be] rarely sufficient to pay carrying charges.
[Report of Eminent Domain Revision Commission 25 (1965).]
In New Jersey, a compensable taking exists when the threat of condemnation has had such a substantial effect as to destroy the beneficial use that a landowner has made of the property. Washington Mkt., supra, 68 N.J. at 122, 343 A.2d 408. In deciding whether a compensable taking claim arising out of precondemnation activities has been established, our courts weigh the following *143factors: (1) extraordinary delay or other unreasonable conduct on the part of the condemning authority; (2) the imminence of condemnation; and (3) the severity of the injury and hardship to the property owner. Littman v. Gimello, 115 N.J. 154, 167-68, 557 A.2d 314 (1989). Balanced against these factors is the public interest in being informed of government activities, and in the benefits of the cautious and deliberate administration of the condemnation process. Id. at 168, 557 A.2d 314.
Initially, PMA sought the remedy of an inverse condemnation action. As noted from the procedural history cited by the majority, ante at 120, 695 A.2d at 1348, PMA instituted such an action in Superior Court in January 1991 for these precondemnation activities. That complaint was dismissed with prejudice. It is clear to me that that adjudication was on the merits, establishing that there was no taking as a result of the precondemnation activities. The case should have ended there.
As an alternative remedy to an inverse condemnation action, the property owner may wait until an eminent domain action is filed to present a claim for compensation by answer or counterclaim. Once the action is filed, the owner may seek an earlier date of valuation, from which to determine just compensation, or the owner instead may attempt to recover the lost value of the property as an element of damages caused by the cloud of blight hovering over the property.
Many jurisdictions now allow compensation based on the value of the property at the time of taking “as if it had not been subjected to the debilitating effect of the condemnation.” Condemnation Blight, supra, C730 ALI-ABA at 208; see City of Cleveland v. Carcione, 118 Ohio App. 525, 190 N.E.2d 52 (1963) (determining jury should consider evidence of value from period prior to condemnor’s actions); Huntington Urban Renewal Auth. v. Commercial Adjunct Co., 161 W.Va. 360, 242 S.E.2d 562 (1978) (allowing owner to introduce evidence of precondemnation value to demonstrate decline in property value resulting from condemnor’s actions).
*144Other courts have recognized that an award of compensation as of the time of formal taking may be unreasonable and unjust. In response, they have been willing to measure compensation at a date prior to a de facto taking. The Washington Supreme Court has adopted a four-part test to determine the date of valuation: (1) the marketability must be substantially impaired; (2) the condemning authority must have evidenced an unequivocal intention to take the property; (3) the special use of the land by the owner must be acquiring or holding the property for the subsequent development and sale; and (4) the owner must have taken active steps to accomplish this purpose. Lange v. State, 86 Wash.2d 585, 547 P.2d 282, 288 (1976). In such circumstances, compensation is measured at the time of the de facto taking.
The South Dakota Supreme Court considered the standards for evaluating a de facto taking. In City of Brookings v. Mills, 412 N.W.2d 497 (S.D.1987), the property owner claimed the city had effectively taken the property by delaying condemnation for over four years. The owner alleged that even prior to the condemnation, the City would have denied a permit based on its plans. The South Dakota court identified the elements of a de facto taking: (1) proof of direct and substantial government action; (2) causation; and (3) result. Id at 500. To establish causation, the plaintiff must show that the actions of the condemning authority substantially contributed to and accelerated the decline in value of the plaintiffs property. Id. at 502. In PMA’s case, the decline in value was due to general market conditions rather than the threat of condemnation. Causation does not include voluntary judgment decisions made by the owners themselves. Id. at 503. PMA’s decision not to subdivide the land meets that definition. The kind of causation that results in a de facto taking is usually obvious. For example, In re Elmwood Park Project Section 1, Group B reviewed a twelve-year pattern of deliberate actions (such as eliminating public services) by the municipality to encourage the residents to move and concluded that “[i]f an area has been made a wasteland by the condemning authority, the property owner *145should not be obliged to suffer the reduced value of [the] property.” 376 Mich. 311, 136 N.W.2d 896, 900 (1965).
New Jersey law provides that the date of taking will be the earliest of the following events: (1) the date possession of the property being condemned is taken by the condemnor in whole or in part; (2) the date of the commencement of the action; (3) the date on which action is taken by the condemnor which substantially affects the use and enjoyment of the property by the con-demnee; or (4) the date of a declaration of blight. N.J.S.A. 20:3-30. New Jersey Sports and Exposition Authority v. Giant Realty Associates, 143 N.J.Super. 338, 362 A.2d 1312 (Law Div.1976), represents an interpretation of the law that is consistent with nationwide precedent. The court reasoned that “[a] substantial effect upon the use and enjoyment of property is occasioned when the condemnor takes action that directly, unequivocally, and immediately stimulates an upward or downward fluctuation of value and which is directly attributable to future condemnation.” Id. at 353, 362 A.2d 1312. No conduct of West Windsor “stimulated” the fluctuation in properly values. The decline in property values in New Jersey was part of a nationwide trend.
In PMA’s case, the Appellate Division correctly found that the July 1988 letter was nothing more than a “preliminary step to a potential future condemnation.” The court also found that the Township’s master plan made it “crystal clear” to PMA that their land was potentially subject to condemnation long before the July letter. West Windsor v. Nierenberg, 285 N.J.Super. 436, 450-51, 667 A.2d 362 (App.Div.1995). That the letter did not substantially affect the value is evident from the Green Acres Certification, which valued the property as it stood potentially capable of development.
The majority seems to wish to benefit property owners by giving to them a more flexible method of determining a valuation date. The thesis of the majority will come back to haunt property owners in a rising real estate market. Dating the valuation from the earlier date of interest will cause owners to lose properly *146value by the time the property is actually transferred to the public body.
The New York Court of Appeals once observed in similar circumstances:
We simply have a manifestation of an intent to condemn and such, even considering the protracted delay attending the final appropriation, cannot cast the municipality in liability upon the theory of a “taking” for there was no appropriation of the property in its accepted legal sense____
Moreover, strong public policy considerations prohibit a finding of a De facto taking in the instant case. To hold the date of the Announcement of the impending condemnation, whether directly to the condemnee or by the news media, constitutes a De facto taking at that time, would be to impose an “oppressive” and "unwarranted” burden upon the condemning authority. At the very least, it would serve to penalize the condemnor for providing appropriate advance notice to a property owner. And to so impede the actions of the municipality in preparing and publicizing plans for the good of the community, would be to encourage a converse policy of secrecy which would but raise (greater) havoc with an owner’s rights,
[City of Buffalo v. J.W. Clement Co., 28 N.Y.2d 241, 321 N.Y.S.2d 345, 269 N.E.2d 895, 903-04 (1971) (internal quotations and citations omitted).]
So too here, rather than to discourage a policy of secrecy, the Court instead discourages municipalities from informing property owners about possible plans to acquire their property. All the evidence in this case shows that the negotiating process was open and above board. The minutes of the confidential sessions of the governing body demonstrate full and frank discussions of the acquisition. It is not easy to spend three million dollars of the municipal taxpayers’ money for the acquisition of property. (Green Acres funds were insufficient to pay for the acquisition.) Despite the best of intentions, the Township had many problems in persuading the voters that the acquisition and proposed zoning changes were in the public interest. That it wanted to acquire the land is not enough to demonstrate a substantial interference with the use and enjoyment of the property. Cf. Washington Market, supra, 68 N.J. at 123-24, 343 A.2d 408 (remanding for showing of substantial destruction of value as a result of condemnor’s actions). This is not a case in which the Township Committee directed the Planning Board not to issue permits for the property. Nor is it a situation of a developed rental property.
*147Defendants knew from the beginning that this property had been designated for park purposes. Yvette Nierenberg is not the “proverbial little old lady” who lives on a farm and is hounded by public officials. See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 318, 100 S.Ct. 559, 571, 62 L.Ed.2d 490, 515 (1980) (Blackmun, J., concurring). Yvette Nierenberg entered a sophisticated land transaction with an experienced developer. The PMA partners, knowing of its designation as a park, said to themselves, “Let’s try to develop the land.” They entered a sale contingent upon subdivision approvals. They also entered a sale contingent upon condemnation. The contract between Nierenberg and Kramer expressly provided for what would happen in the event of a condemnation. Kramer could either pull out of the transaction or continue with the transaction and have the partnership receive, after closing the deal, any award resulting from condemnation of the property. If Mrs. Nierenberg had not entered this relationship with Mr. Kramer, she would never have had the benefit of the second-tier valuation assigned to the property. By entering the contract, she achieved her basic goal and demonstrated that this land was more than raw land. Foresight is never as accurate as hindsight,. The PMA partners should not be able to burden the taxpayers of West Windsor with the risk of a declining real estate market that they took when they turned down a $3,000,000 offer.
For the foregoing reasons, I would affirm the decision of the Appellate Division.
Chief Justice PORITZ and Justice HANDLER join in this opinion.
Far reversed and remandment — Justices POLLOCK, GARIBALDI, STEIN and COLEMAN — 4.
Far affirmance — Chief Justice PORITZ, and Justices HANDLER and O’HERN-3.