How a Case Reversed a 100+ Year Precedent and Cleared the Way for Cost-Effective Shore Protections

Posted on February 25th, 2020

The impact of the ‘Karan’ decision has and will continue to ripple through New Jersey courts for years to come.

For decades, towns along the coastlines of America have faced a never-ending battle against beach erosion and the damage caused by both major, as well as the cumulative effect of smaller, storms. These storms impact beaches, beachfront, and inland properties and infrastructure. The changes in our climate only will serve to exacerbate these issues.

In New Jersey, shore communities have struggled with the cost of stop-gap replenishment projects and dune building in an effort to protect infrastructure and some of their most valuable assets, beachfront property. Of note, tourists spent $7.4 billion in Monmouth and Ocean Counties alone, in 2018. Asbury Park Press (May 9, 2019).

The federal government has recognized the need to protect and preserve the oceanfront. As a result, the U.S. Army Corps of Engineers undertook a study and developed a plan to replenish, protect, and re-nourish the entire New Jersey coastline. The effort was broken into sections and in 1999, together with the N.J. Department of Environmental Projection, the Army Corps began a comprehensive, multi-million-dollar storm damage reduction and beach replenishment project (Project) on the 18-mile long barrier island of Long Beach Island (LBI), located in southern Ocean County.

The Project consisted of three phases. First, the eroding shoreline would be expanded by pumping approximately 11 million cubic yards of sand into the Project area. Second, a periodic nourishment cycle would contribute an additional two million cubic yards of sand every seven years for the next 50 years. Finally, a dune would be constructed with a top elevation of 22 feet above sea level and a 30- 40-foot-wide berm (depending on specific location), at an elevation of eight (8) feet above sea level.

The total estimated cost of the Project was over $200 million, which costs would be borne proportionately by the federal, state, county, and local governments. Under federal law, local municipalities would be responsible for acquiring the necessary easements within their respective territories. In Harvey Cedars, a total of 82 easements from private property owners were required.

The required perpetual easements would be over the eastern-most portions of private beachfront property which consisted entirely of sand and dune. Starting in October 2005, the Borough was able to acquire a majority of easements for little or no compensation without resorting to eminent domain. However, 16 easements were not able to be acquired amicably, including form Harvey and Phyllis Karan.

The Karans owned an 11,868 square foot, beachfront lot with a single-family home. The house was built in 1973 and is anchored on pilings. It has three stories, with the upper two stories encompassing the family’s living space, both of which open onto exterior decks, which, prior to the Project, had provided panoramic views of the beach and ocean.

Unable to obtain the remaining easements voluntarily, the Borough excised its power of eminent domain. At trial, the Borough sought to introduce evidence of the positive impact of the Project, i.e., special benefits the Karans received which would offset the damages the Karans claimed to have suffered from the partial taking. “Special benefits” was the standard in New Jersey law at the time for a condemnor introducing evidence to offset the damage the partial taking caused on the remaining property. Special benefits required a condemnor to demonstrate that the condemned property received a special benefit from the project which was different and distinct from general benefits received by other properties impacted by the project.

At the hearing, the Borough presented expert reports, which established that absent the Project, the Karans’ property was at a significantly greater risk of being damaged or destroyed by a large single storm as well as the cumulative effect of smaller storms. Based on historical and scientific data, the expert reports demonstrated that over a 30-year period, the risk of damage to the Karans’ property without the Project was 56%, whereas the risk of damage to non-beachfront properties located to the immediate west of the Karans’ property was only 37% or less. With the Project, the risk of damage to the Karans’ property would be reduced to less than 1%. Thus, the Borough argued that the Karans’ beachfront property, which is at a significantly greater risk of being damaged or destroyed by a major storm as well as the cumulative impact of recurring, non-major storm events, would receive a significantly greater, special benefit from the Project than that received by other non-beachfront properties. The trial court held that as a matter of law, the Borough’s evidence did not qualify as special benefits and therefore was inadmissible. The trial court based its reasoning on the fact that the benefits of the Project were shared—although in varying degrees—by the larger community of Harvey Cedars.

Accordingly, at trial, the jury was not permitted to hear evidence of the special benefits the Project bestowed upon the Karans and only heard the negative impact of the 22-foot dune on the remaining property which the Karans claimed was an obstruction and alteration of their ocean view. Ultimately, the jury determined that the fair and just compensation to which the Karans were entitled was $375,000. The Appellate Court affirmed the trial court’s holding. On June 8, 2012, only months before Super Storm Sandy, the New Jersey Supreme Court granted Certification.

The New Jersey Supreme Court reversed the lower courts’ holdings, vacated the $375,000 award, and remanded the matter for a new trial. In recognizing that the Karans are entitled to “just compensation” for the taking of a portion of their property for the Project, the court emphasized that the issue at bar was how to calculate that just compensation, “when the taking of a portion of the property for a public project may lessen in part and enhance in part the value of the remaining property.” Borough of Harvey Cedars v. Karan, No. A-4555-10T3, 2013 WL 3368225, at *1 (N.J. July 8, 2013). The court concluded that property owners such as the Karans should not be entitled to a “windfall” or “pay out that disregards the home’s enhanced value resulting from a public project.” Id. Rather, in determining the proper award of just compensation, there must be “a consideration of all relevant, reasonably calculable, and non-conjectural factors that either decrease or increase the value of the remaining property.” Id. In other words, the court did away with the old special benefit standard and in a major shift of New Jersey law, ruled that any credible, reliable evidence of impact on property value is to be considered by a jury. Specifically, the court directed:

[J]ust compensation should be based on non-conjectural and quantifiable benefits, benefits that are capable of reasonable calculation at the time of the taking. Speculative benefits projected into the indefinite future should not be considered. Benefits that both a willing buyer and a willing seller would agree enhance the value of the property should be considered in determining just compensation, whether those benefits are categorized as special or general.

Id. at *15 (internal citations omitted).

The court noted that the Karans uniquely benefitted from the Project’s implementation in Harvey Cedars. While recognizing that the benefits of the Project extended not just to the Karans, the court emphasized that “clearly the properties most vulnerable to dramatic ocean surges and larger storms are the frontline properties, such as the Karans.’” Id. at *16. Accordingly, “the Karans benefitted to a greater degree than their westward neighbors.” Id. The court directed that, “reasonably calculable benefits—regardless of whether those benefits are enjoyed to some lesser or greater degree by others in the community—that increase the value of property at the time of the taking should be discounted from the condemnation award.” Id. Upon remand, the Karans accepted a settlement of $25,000, the vast majority of which was to cover legal fees.

The impact of the Karan decision has and will continue to ripple through New Jersey courts for years to come. The decision had an immediate impact on the willingness of property owners to give easements faced with the diminished likelihood of large awards. The ability of shore towns to acquire easements for shore protection projects became less costly. The Karan ruling, in combination with the devastation wrought by Sandy, particularly in unprotected areas, allowed the entire New Jersey coast to be replenished and protected.

The Karan decision brought fairness to the playing field in partial takings cases, making the submission of evidence on behalf of a condemning authority more realistic and simpler to accomplish and, ironically, allowing the completion of the Army Corps’ project along the entire New Jersey Coast—a project that preserves the view of the Karans and similarly situated property owners.

Lawrence H. Shapiro (lhs@ansellgrimm.com) is a shareholder and co-chair of Ansell Grimm & Aaron’s commercial litigation practice. He argued before the New Jersey Supreme Court in ‘Borough of Harvey Cedars’, discussed here.

Joshua S. Bauchner (jb@ansellgrimm.com) is a shareholder at the firm and co-chair of the commercial litigation practice, chair of its cannabis law practice and a member of the firm’s community association, bankruptcy and franchise practices.

Reprinted with permission from the November 8, 2019 edition of the New York Law Journal © 2019 ALM Media Properties, LLC. All rights reserved.

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