Newsletter Archive

Issue #72, Winter 2008

Inverse Condemnation: Mansoldo v. State

When the State or other governmental agency acts in a fashion which has the effect of denying the owner of property the beneficial use thereof, it is sometimes said that an inverse condemnation has occurred. Pinkowski v. Twp. Of Montclair, 299 N.J. Super. 557 (App. Div.1997). For example, a landowner may believe that overly- burdensome environmental or land use regulations have rendered his property unusable. The owner may then file suit to recover damages, on the theory that the government's action has resulted in an uncompensated regulatory taking of his land. See, e.g., Griffith v. D.E.P., 340 N.J. Super. 596 (App. Div. 2001); East Cape May Assocs. v. D.E.P., 300 N.J. Super. 325 (App. Div. 1997); United Savings Bank   v. D.E.P', 360 N.J. Super. 520 (App. Div. 2003). The United States Supreme Court has suggested that, under some circumstances, excessive governmental regulation may constitute a taking, for which the landowner is entitled to compensation under the Fifth Amendment to the United States Constitution (". . .nor shall private property be taken for public use, without just compensation"). See Lucas v. So. Carolina Coastal Council, 505 U.S. 1003 (1992).

New Jersey courts have generally taken a dim view of so-called regulatory taking arguments. See, e.g., Gardner v. Pinelands Comm'll, 125 N.J. 193 (1991) (upholding regulation imposed under Pinelands Protection Act). However, a more recent decision, Mansoldo v. State, 187 N.J. 5O (2006), suggests that the court may be reconsidering its outlook. In Mansoldo, the New Jersey Department of Environmental Protection ["DEP"] promulgated regulations which severely restricted development in river floodways. A landowner aggrieved by the DEP regulations filed an inverse condemnation action, contending that the DEP regulations resulted in an uncompensated taking. The Law Division entered judgment requiring DEP to compensate the plaintiff only for the value of the property's permitted use as parkland, etc. In other words, the trial court determined the value of the land based on the extremely limited uses which were permitted by DEP's regulations. The Appellate Division affirmed.

The Supreme Court granted certification, and, in a unanimous opinion written by Justice Zazzali, reversed the courts below and remanded for further proceedings. The court held that the Law Division was required to determine if the DEP regulations deprived the plaintiff of all economically beneficial or productive use of his property. It also found that the trial court was not collaterally estopped by the administrative law judge's findings from determining if DEP regulations had denied the landowner all such use of the property. The opinion noted that:

Under the Fifth and Fourteenth Amendments to the United States Constitution, and Article I, paragraph 20 of the New Jersey Constitution, property owners must be paid just compensation for governmental takings. ... In the prototypical takings situation, the determination that a taking has occurred is clear because the government physically appropriates the property from the current owner in favor of itself. However, the question whether a taking has occurred becomes more complicated when it involves government regulation of a property. As Justice Holmes stated, "while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking". [Citation omitted.] ... One example of a governmental regulation that has been held to go "too far" is "where [the] regulation denies all economically beneficial or productive use of [the] land". Lucas, supra (emphasis added). [187 N.J. at 58.]

What if the regulation does not does not deny all economically beneficial use under the Lucas doctrine? In that case, "the determination whether the regulation other- wise constitutes a compensable taking is governed by the standards set forth in Penn Central Trans. Co. v. New York City, 438 U.S. 104 (1978)". 187 N.J. at 59. Since the Law and Appellate Divisions failed to apply properly the standards set forth above, the Supreme Court directed that the cause be remanded to the trial court for further proceedings consistent with its decision.

Does the holding in Mansoldo v. State mark a dramatic shift in New Jersey's attitude toward regulatory takings? On its face, the decision demonstrates heightened sensitivity to landowners affected by burdensome governmental regulation. However, it remains to be seen what damages will be awarded to the property owner following the remand. It is possible that the Law Division will merely pay lip service to the criteria articulated by the Supreme Court, while failing to provide the plaintiff with adequate relief. It should be noted that, owing to its nature, inverse condemnation is beyond the scope of title insurance. See, e.g., ALTA Owner's Policy (1992), Exclusion No. 1.

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