Property Owner’s Second Bite at the Apple Not So Tasty as the First

by: Joseph Grather
15 May 2017

A New Jersey appellate court just affirmed the denial of property owner’s challenge to a condemnation premised on a failure of pre-complaint bona fide negotiations. Montclair v Cerino 2017 a0753-15.

The Township of Montclair had previously commenced a condemnation action to acquire a property along Valley Road that was used by the property owner to store automobiles.  The subject property is adjacent to the municipal building and the purpose of the taking was to expand the municipal building property including additional parking, etc.  The first action was dismissed without prejudice because the property owner claimed that the storage lot shared a unity of use and ownership with two other properties improved with facilities catering to sales of new and used automobiles.  One in Montclair limited to sales of used exotic cars, and the other was in Verona, which was a Chrysler-Jeep-Dodge franchise.  The property owner argued that the condemnor had to take into consideration the integrated use of the three properties and needed to consider damages caused to the remainder suffered as a consequence of the partial taking and that’s its failure to do so rendered the condemnor’s offer of $475,000 invalid.  The trial court agreed, and dismissed the first action without prejudice.

Thereafter, the Township commissioned a new appraisal, which specifically analyzed the operations and use of the three properties.  “On December 5, 2014, the Township obtained a revised appraisal report that took into account the integration and severance damage claims raised by defendants in the prior
action.” (slip op. at 6-7).  The new appraisal opined that there were no damages to the remainder, and that the subject property was not functionally integrated with the improved used car dealership in Montclair. Ultimately, the appraisal concluded at the same value ($475,000) as in the first action, and the condemnor made a pre-complaint offer equal to the appraised value.

The property owner took issue with the appraisals factual and valuation findings.  That the three properties were not integrated, and that there were no damages to the remainder.  Thereafter, the condemnor filed a new complaint, and the property owner filed an answer which again raised a “bona fide negotiations” defense.  The trial court rejected the property owner’s claims and entered an Order authorizing the taking.

The Appellate Division affirmed, holding:

“We conclude the Township followed the proper procedure under N.J.S.A. 20:3-6, tendered a reasonable offer based on its appraiser’s findings, and provided all necessary information to defendants including the methodology used to value the subject property. The appraisal met the standards set forth in the law,
in that it explained its method of valuation and specifically considered and rejected defendants’ position that the subject property formed a unity of use with the Montclair property, and that the Verona property will sustain severance or consequential damages from the taking of the subject property.” (slip op. at 16).

The appellate court reasoned that the property owner’s objections questioned the valuation methodology and quantification of damages, which “is not a valid basis to deny entry of a judgment for condemnation.”  The property owner will be able to argue before the commissioners and a jury that the taking of the Valley Road property caused damages to the remainder properties in Montclair and Verona.  That the condemnor’s appraisal made contrary findings does not render the appraisal invalid as a matter of law.

The property owner also argued that the doctrine of collateral estoppel precluded re-litigation of the “integration” issue.  In short, both trial and appellate courts rejected this argument because the issue was not fully litigated in the prior action (i.e. action was dismissed because condemnor utterly failed to consider the functional integration of the three properties contrary to established law).

While the recent appellate opinion recognizes that the condemning authority considered the possible impact of the taking of one parcel on another parcel, it might have been at odds with recognized case law in New Jersey that holds that all issues relating to the scope of the taking need to be resolved by the court before the matter proceeds to compensation hearings before court-appointed commissioners.   See.e.g., State v. Orenstein, 124 N.J. Super. 295 (App. Div. 1973).   However, the court specifically reserved for the property owner the right to make a claim for damages to its other parcel, thereby (apparently) providing the owner with the opportunity to consider and conduct valuation determinations about property in addition to the property measured by the condemnor’s appraisal.