In Dune Construction Dispute, N.J. Supreme Court Holds that “Just Compensation” in Partial-Takings Cases Must Be Reduced by Value of All Reasonably Calculable Benefits

When the Borough of Harvey Cedars took a portion of the beachfront property of Harvey and Phyllis Karan to allow the Army Corps of Engineers to construct a protective dune, the Karans lost their view of the ocean, and a court awarded them $375,000 as compensation for the drop in the value of their $1.7 million home. In a momentous decision with important ramifications for shore protection efforts and for a much broader category of eminent domain cases, the New Jersey Supreme Court held that “just compensation” for the Karans should also have reflected the quantifiable benefits that they received as a result of the improved flood protection provided by the dune.

The Court’s decision in Borough of Harvey Cedars v. Karan seeks to clarify a particularly thorny area of the law of eminent domain by giving courts an easier way of identifying what sorts of benefits they may consider when determining the effect of a public project on property values in so-called “partial takings” cases. In the Karans’ case, the Borough took an easement over a portion of their property as part of a massive beach-restoration and storm-protection project on Long Beach Island funded by federal, state, and local governments. The Borough was obligated to acquire easements over portions of eighty-two properties to permit the construction of a large dune — twenty-two feet high near the Karans’ property — that would stretch along the entire length of the island. The Karans were among sixteen landowners who did not consent to the Borough’s acquisition of an easement. They rejected the Borough’s offer of $300 and, after the Borough instituted an eminent domain action, rejected the amount awarded by a panel of disinterested commissioners.

Had the Borough taken the Karans’ entire property, the issue of compensation, while controversial, would have been fairly straightforward: what is the fair market value of the property at the time of the taking? In this case, however, the Karans would retain much of their property, including their three-story beachfront home. Here the valuation question becomes more difficult, for the Karans would be entitled to the value of the property directly taken plus any diminution in the value of their remaining property caused by the dune project.

The Karans argued that the value of their home was drastically reduced as a result of the obstruction by the dune of their ocean view, and both sides offered expert testimony on the magnitude of that reduction, if any. The Borough was also prepared to present testimony on the countervailing increase in the value of the property because of the enhanced protection from storms and flooding that the dune provided. The Trial Court, however, barred that testimony, holding that better flood protection was a “general” benefit of the project, shared by many different property owners, and thus could not be considered in the valuation process. The jury, left to consider only the testimony about the effects of the loss of view on the property’s value, awarded the Karans $375,000. The Appellate Division affirmed.

A unanimous Supreme Court reversed, holding that the Appellate Division, continuing a trend that had plagued New Jersey courts for many decades, misread relevant precedents in drawing a distinction between “general” and “special” benefits. Writing for the Court, Justice Albin reached back to cases from the mid-nineteenth century to trace the history of the general/special distinction, and concluded that the terms were a sort of short-hand for another distinction, between benefits that are conjectural, uncertain and incapable of present estimation, and those that are non-conjectural and reasonably calculable at the time of the taking. The key case, said Justice Albin, was Mangles v. Hudson County Board of Chosen Freeholders, a decision from the “old” Supreme Court in 1892. The fact that many uncertain benefits are also “general,” i.e , shared by many people, such as a town-wide increase in business activity as a result of a new road, had led some courts to bar consideration of all shared benefits, even if they were certain to occur and admitted of reasonable estimation. Better to scrap the general/special distinction, wrote Justice Albin, and bring New Jersey’s partial-takings jurisprudence into line with its total-takings jurisprudence. In both contexts, the valuation process should incorporate all considerations that a willing buyer and a willing seller would weigh. For the Karans, that meant that the Trial Court should have permitted testimony about the benefits their property would reap as a result of the dune project, for they were both non-conjectural and reasonably calculable — even though they would be shared, in a greater or lesser degree, by other landowners.

For the parties, the story is far from over: the Court remanded the case to the Trial Court for a new trial. For other New Jersey municipalities and property owners, Borough of Harvey Cedars v. Karans contains some important lessons. First, and most immediately, the decision paves the way for dune-construction and other shore protection efforts, which may have been prohibitively expensive in many areas under the Appellate Division’s ruling. More generally, offers and awards to property owners in future partial-takings cases, on the beach or elsewhere, may drop as government officials and courts feel free to count more benefits to that portion the property that remains in private hands. And for the attorneys who advise them, the decision stands as a reminder to consider all relevant authority, no matter how old.