In a case that will have a ripple effect on many partial taking cases to come, one must wonder whether the timing of Hurricane Sandy had an impact on the New Jersey Supreme Court’s decision to overrule two lower court decisions that barred the introduction of any evidence that tended to show that sand dunes actually increased the value of property located on the beach. The two lower courts decided the legal issue before Hurricane Sandy, but the New Jersey Supreme Court did not render a decision until July 8, 2013, well after the storm and its damages where known. Did the storm bolster the government’s argument that the dunes provide enhanced protection for the homes on the beach since the property in question survived the storm? Or was the Court able to rely solely on the record and divest itself of the horrors of Hurricane Sandy? I believe the Court was not swayed by Hurricane Sandy and did a thorough job on analyzing the history of the “general / specially benefit” paradigm and how it should be applied in New Jersey. However, the decision may leave property owners with no money at the end of hotly contested eminent domain cases.
In the Harvey Cedars case, the government used the power of eminent domain to acquire an easement along certain ocean-front properties in order to build sand dunes. The dunes were part of a $25 million beach replenishment project. As required by law, Harvey Cedars offered a certain property owner what it believed was just compensation for the taking - $300. The property owner rejected the offer and retained an appraiser who opined that the loss of the view of the ocean will cause the home to depreciate by 25%, or about $500,000. After hearing testimony, a jury awarded the property owner $375,000.
However, prior to trail, the trial court had to decide whether the government was permitted to offer testimony that shows how the dunes benefitted the property owner. At a hearing, the government offered testimony from an expert who opined as to the risk of storm damage with and without the dune project. The property owner objected to the testimony arguing that, under New Jersey law, if the benefits are shared by the larger community, the benefits are “general benefits” and cannot be used to offset the decrease in value arising from the taking of the property. Only “special benefits”, those that increase the value of a particular tract, can be used to offset damages. The trial court agreed with the property owner and disallowed the testimony, and the Appellate Division affirmed.
The New Jersey Supreme Court reversed the lower courts and sent the case back for a new trial. In making its decision, the Court reviewed the history of the general benefit / special benefit dichotomy and found it was time to move away from these terms since they cloud the real issue. In summarizing the decision, the New Jersey Supreme Court stated:
The Appellate Division’s use of the general-benefits doctrine is at odds with contemporary principles of just-compensation jurisprudence. Using fair market value as the benchmark in calculating compensation is the best way to ensure that the award is just. Speculative benefits should not be considered because they are irrelevant to a fair market value calculation. In contrast, reasonably calculable benefits that increase the value of the property should be considered, whether or not they are enjoyed by others in the community. Although the jury found that the Karans’ property decreased in value because the dune obstructed their view, a buyer would likely also consider the value provided by the dune in shielding the property from destruction. The charge prohibiting the jury from weighing this benefit because it was held in common with other community property owners distorted the fair-market valuation by withholding a key consideration. The Borough should have been permitted to present evidence of non-speculative, reasonably calculable benefits arising from the dune project, and the jury should have been charged that determination of just compensation required calculation of the fair market value of the Karans’ property immediately before and after the taking and construction of the dune.
It is important to note that the Borough must still offer admissible evidence to show show how much the property will be worth with the dunes in place, and the evidence cannot be speculative.
This case will have an impact on all types of condemnation cases. I believe the cost to prosecute or defend a condemnation case will increase since both the government and private property owners will now be forced to retain additional experts to address the benefits issue. In addition to hiring additional experts, the parties may have extensive pre-trial hearings to determine whether the benefits are “speculative”. Finally, property owners can end up receiving no money for the taking of their property, which can be a very frustrating ordeal, especially when the property owner opposes the entire project.
To read the full Supreme Court decision, click here.