Doin’ The Dunes: What Will They Cost? - Part III

On June 13, I posted the first blog, in what has now become a series, initially called “Doin’ The Dunes: What Will They Cost?”, exploring the way in which New Jersey’s three branches of government intended to treat compensation for the easement agreements for the construction of dunes – New Jersey’s response to climate changes (e.g., Superstorm Sandy).  At the time, the New Jersey courts had determined that the landowner would be compensated for a partial obstruction of the ocean view without any reduction for the benefit received from the dune’s protection (called a “general”, not “special” benefit). 

On July 19, I posted the second blog, which described the New Jersey Supreme Court’s unanimous decision in Borough of Harvey Cedars v. Karan, 214 N.J. 384 (2013) to reverse the prior precedents and recognize that dunes did confer storm protection as a “special benefit” to the subject landowner which would reduce the otherwise compensable amount for that portion of the award for the partial loss of the ocean view.  Since the lower courts had not calculated the amount of the special benefit, the Court remanded the case to the trial court for a determination of the amount of the “special benefit” and its resultant reduction of the amount of the takings claim.  (The case was reported to have settled with the Karans’ receiving $1.00 for the partial loss of ocean view and the parties “acknowledgement that municipalities cannot enact or enforce laws or regulations that would interfere with the state’s plans to build dunes as part of flood mitigation effort.” (Phila Inquirer, PP A-1, A-9 (Nov 9, 2013)).

In the aftermath of Karan, the Appellate Division had an opportunity to revisit the issue (of the amount of compensation to be paid for the dune’s reduction of ocean view) in Petrozzi v. City of Ocean City, argued on September 9 and decided on October 28, 2013.  Although the facts in the Petrozzi case are critical to the decision, the Court was asked to determine whether a municipality’s failure to maintain a 3 foot above sea level elevation of the dunes justified the payment of additional compensation.  In this case, Ocean City had obtained easement agreements with a number of its residents in which the City obligated itself to maintain the 3 foot elevation.  Subsequent legislation in New Jersey, administered by the New Jersey Department of Environmental Protection (NJDEP), required municipalities to obtain a Coastal Areas Facilities Review Act (CAFRA) permit for the maintenance of dunes.  Several of the plaintiffs, who signed agreements with Ocean City before the law changed, asked the trial court to determine whether the impossibility of the City to perform the maintenance (NJDEP having denied the City’s permit application) constituted “reasonable unforeseen circumstances beyond its control”, such as to relieve it of its duty to maintain the 3 foot elevation level but make no further payments for the additional partial loss of ocean view (due to the dunes exceeding the 3 foot “cap”).  (City of Ocean City v. New Jersey Department of Environmental Protection, A-5199-06 (App. Div. September 26, 2008).  Ocean City argued that it was relieved of its maintenance obligation without having to make any further payment; the plaintiffs disagreed and filed suit. 

The Court acknowledged the general rule that where one party was excused from performing a contract due to unforeseen circumstances that made performance impracticable, the other party would generally be excused from its performance.  In this case, however, since the plaintiffs had given up their rights to additional compensation for partial loss of ocean view, in reliance upon the City’s promise to protect their ocean views above the 3 foot level, they argued that were it not for this reliance, Ocean City would have had to pay plaintiffs additional money for the additional partial loss of ocean view (i.e., above the 3 foot elevation). 

The Court agreed with the plaintiffs and remanded the case to the trial court to determine the additional compensation to be paid; however, citing Karan as precedent, it acknowledged that any such amount needed to be reduced by the “special benefit” conferred by the additional storm protection provided by the increased elevation of the dune. 

In its conclusion, the Court, referring to “the admonition in [Karan] that the quantifiable decrease in the value of their property – loss of view – should [be] set off by any quantifiable increase in its value – storm protection benefits.”  The bottom line is that the special benefit principle upheld in Karan is now the “law” in New Jersey.