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East Cape May Associates v. State of New Jersey

300 N.J. Super. 325, 693 A.2d 114 (App. Div. 1997)

CONDEMNATION; REGULATORY TAKINGS —This is a regulatory taking case. State law allows an agency to modify a regulatory decision if such a decision would require the state to pay “taking” compensation. Here, the Court tells us that the agency’s action is not final (and the owner has not exhausted its administrative remedies) until the “modification” process has taken place. The owner prevailed, however, because the Court opined that to wait would be futile under the facts presented.

A developer owned 100 acres of undeveloped land that was home to many endangered species and was designated by statute as having “exceptional resource value.” As such, the land received heightened protection against development and many applications to develop the property were denied by the relevant state regulatory agencies. The developer sought to have the property formally condemned and paid for by the state of New Jersey, arguing that because it appeared that permission would never be granted to develop the property, it became the subject of a regulatory taking. The state argued that the developer had not yet exhausted its administrative remedies, but the trial court disagreed, indicating there were no grounds on which to conclude that development would be permitted in the foreseeable future. The state also tried to rely on a statute that allows it to modify the denial of a permit if doing so will avoid a court ruling that the state must pay compensation because of regulatory action. The state argued that until it had the opportunity to modify its decision, no taking had occurred. In granting summary judgment, the trial court ruled that even though the state may decide to relinquish the property, it has taken the land at least temporarily, and should pay compensation for the amount of time the land was not suitable for development. The state appealed.

The Appellate Division first turned to the U.S. Supreme Court and its 1992 holding that a regulation which prohibits all beneficial or productive use of land is a taking for which just compensation is constitutionally required. Other federal cases have held that a regulatory taking exists if there is denial of any economically viable use of the property as a result of regulatory action.
The Appellate Court disagreed with the lower court that a taking had already occurred, since the state could still modify its initial decision to deny development of the property. The Appellate Court construed the applicable statute to mean that the administrative process leading to the issuance or denial of a development permit is not complete until the state decides whether or not to modify its decision. In other words, the lower court seemed to divide the process into two parts: the decision whether to grant a permit; and the decision whether or not to modify its decision. The Appellate Division, on the other hand, found these decisions to be part of one process. Accordingly, the Court held that a taking had not yet occurred and the developer would not ordinarily be entitled to compensation at this stage.

However, the Appellate Court also held that, in this case, it would not be necessary for the developer to exhaust all administrative remedies before appealing to the courts since such efforts appeared futile. The Appellate Court even stated that unless the relevant environmental regulations were relaxed, it was highly unlikely that an application for development would be granted. The state further argued that the developer had not been deprived of all beneficial use of the property, but only suffered a diminution in value, since it would have been allowed to develop some of the land (5%-10% of its 100 acre tract). The Appellate Division remanded the matter to the trial court to address the question of how to calculate the total amount of land to be used in any formula for determining the percentage of land affected by regulatory action.


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