On July 8, 2013, at the intersection of environmental and eminent domain law, the New Jersey Supreme Court issued its long-anticipated decision in Borough of Harvey Cedars v. Karan, ____ N.J. ____ (2013). The backdrop of this case was a beach restoration and storm protection project on Long Beach Island funded by federal, state, and local governments. This massive public project began as early as the mid-2000s, years before Superstorm Sandy devastated the Jersey Shore, and was carried out by the U.S. Army Corps of Engineers and the New Jersey Department of Environmental Protection. Dunes, which are typically situated parallel to the shoreline directly inland from the beach, offer vital protection to Long Beach Island’s residents from beach erosion and storms, such as Sandy, that threaten homes and businesses with significant damage and destruction.

Long Beach Island’s particular project incorporated three main parts. The first involved the pumping of massive amounts of sand onto the beach to extend the shoreline seaward by 200 feet. Another involved beach nourishment every seven years over a period of fifty years to battle beach erosion. The final part of the project calls for the construction of dunes along the entire length of the island sufficient to hold back storm related waves capable of significant destruction of homes and businesses.

The dune construction project required securing easements on properties bordering the ocean. The responsibility of securing the easements was assigned to the specific municipalities, such as the Borough of Harvey Cedars in this particular situation. Harvey Cedars was required to secure 82 perpetual easements over portions of private beachfront properties for dune construction. The Borough was able to secure 66 of those easements by consent. One of the properties that the Borough sought Court involvement was owned by the Defendants in this matter, Harvey and Phyllis Karan.

The Karans own a three story single family beachfront home that occupies 11,868 square feet in Harvey Cedars. The top floors of the home offered a panoramic view of the beach and ocean. Ultimately, in November 2008, the Borough filed an action in Superior Court to acquire an easement over approximately one quarter of the Karans’ property nearest to the ocean for construction of a 22 feet high and 30 feet wide dune that was ultimately built to replace an existing 16 feet high dune.

The Borough offered just compensation in the amount of $300 to the Karans on the basis that the Karans would substantially benefit from the dune construction as it would significantly protect their home from severe storms. Specifically, at the Rule 104 hearing, the Borough’s expert testified that without the newly constructed dune, over a 30 year period, the chance of a storm causing catastrophic damage to Karan’s beachfront home was 56%. However, with the dune, the Karans’ home would likely be spared for 200 years or more. The Karans argued that because the project benefited all the residents of the Borough to some degree these general benefits were not admissible as an offset against the loss in value caused by the partial taking. Following the Rule 104 hearing, the Trial Court found that, despite the fact that the dune would benefit the Karans more than members of the community without beachfront property, the storm protection benefits were inadmissible general benefits shared by the entire community. Following trial, the jury awarded the Karans $375,000.00.

In a published opinion, Borough of Harvey Cedars v. Karan, 425 N.J. Super. 155 (App. Div. 2012), the Appellate Division affirmed the Trial Court’s decision by echoing the reasoning set forth in New Jersey Turnpike Authority v. Herrontown Woods, Inc., 145 N.J. Super. 279 (App. Div. 1976), which disallowed the consideration of calculable benefits of a taking solely because they were enjoyed by both the injured property owner and others within the community. Interestingly, the Appellate Division’s decision in Herrontown Woods was at odds with a landmark Supreme Court decision entitled Mangles v. Hudson County Board of Chosen Freeholders, 55 N.J.L. 88 (Sup. Ct. 1892), which held that any reasonably calculable benefit may be considered in just compensation determinations, but not speculative benefits, or those that are uncertain or may arise in the indefinite future.

Ultimately, in reversing the Appellate Division’s decision, the Supreme Court held that “when a public project requires the partial taking of property, “just compensation” to the owner must be based on a consideration of all relevant, reasonably calculable, and non-conjectural factors that either decrease or increase the value of the remaining property.” Slip Opinion at 3. In so holding, the Court noted that homeowners are not entitled to a “windfall.” Id. In other words, the homeowner is not entitled to a pay out that disregards the home’s enhanced value resulting from a public project. See id. The Court streamlined the test for just compensation by holding that to calculate the loss, “we must look to the difference between fair market value of the property before the partial taking and after the taking.” Id. at 3-4. In holding that the fair market approach best achieves the goal of what is fair just compensation to the landowner and the public, the Court remand the case for a new trial.

This decision likely comes as a great relief to numerous municipalities throughout the Jersey Shore in light of the significant dune restoration projects that are ongoing following Superstorm Sandy.

Lieberman Blecher & Sinkevich P.C. often assists clients with environmental issues that arise in the context of eminent domain proceedings throughout the State of New Jersey. Our attorneys are highly experienced in areas of land use, real estate, redevelopment, and regulatory permitting, compliance, and enforcement. We have also assisted many residents and business owners in their efforts to recover and rebuild after Superstorm Sandy.