NJ Transit v. Franco – Property Owner Verdict Overturned on Appeal

by: Joseph Grather
1 Nov 2016

On October 19, 2016, almost seven years after a condemnation action was commenced, the Appellate Division published an opinion reversing an $8,150,000 jury verdict in favor of the property owners from 2013.  The pre-condemnation offer of compensation was $934,500.  The trial judge also ordered that $1,967,865 be escrowed in the Superior Court Trust Fund to cover potential environmental clean-up and remediation costs associated with the property’s alleged highest and best use for residential development.

The case involved a total taking of property by New Jersey Transit for the since-abandoned rail tunnel (“ARC” Tunnel) to Manhattan.  Complicating matters, the Franco property straddled the borders of three different municipalities; Weehawken, Union City, and Hoboken. While the valuation analysis was somewhat complicated, the appellate court focused on what turned out to be a fatal flaw in the owner’s case — the assumption that the development concept proffered would not need an approval to use the Weehawken parcel as an access-road or cul-de-sac for the residential buildings within the other municipalities.  The property owner’s theory was that the Francos could dedicate that land to Weehawken for use as a public right-of-way.  Right-of-way dedication law in many respects is straight-forward:  owner dedicates; and municipality formally accepts dedication by official act of governing body.  Acceptance will never be presumed by a Court.   Yet, in this case the property owner failed to present any evidence that Weehawken would have accepted the dedication, or any evidence that the site plan would have received variance approval for use of the parcel as a public right-of-way, which was not a permitted use.  The appellate court noted several other hurdles that would confront the owner in proving the case on remand.

The foregoing analysis resulted in a reversal of the verdict and a remand for a new trial.

The second part of the opinion dealt with the owner’s cross-appeal, which challenged the $1,967,865 environmental escrow.  The owner lost this argument too.  The appellate court ruled that the trial court property applied the standards set forth in Housing Auth. v. Suydam Investors, 177 N.J. 2 (2003) in establishing the escrow.  The opinion appears to resolve an issue that had been left open by the Suydam Court; e.g. if the government’s use was for open space; and the highest and best use in the condemnation was for residential, what use should determine the proper amount of escrow for the cleanup cost?  Franco held that the escrow amount should be based on the highest and best use – here residential – even though N.J. Transit’s use (exhaust venting) was more akin to an industrial use.  Transit originally estimated $158,254 in clean-up costs based on an industrial use; or about $1,800,000 less than the cost for an unrestricted residential use.  The appellate court reasoned that the money was placed in escrow and that “once the response costs were determined” any “surplus” would be paid to the owner.

Under this decision, condemnation practitioners should be concerned that the Suydam Court’s warning of “frivolous or exaggerated cleanup costs” may become the norm and not the exception in future cases.

NJ.Com article on the case is available here.