Article

Redevelopment in the Wake of the Supreme Court’s Gallenthin Opinion
by Thomas F. Carroll, III

Overview of the Gallenthin Case

The plaintiff in Gallenthin owns 63 acres of land located in Paulsboro. The land is described as “largely vacant wetlands.” Paulsboro designated the land as property “in need of redevelopment” pursuant to Section 5(e) of the Local Redevelopment and Housing Law (LRHL). Paulsboro took the position that the land was “not fully productive” entitling the Borough to designate the land as “in need of redevelopment,” a finding which, if sustained, would have enabled Paulsboro’s acquisition of the land through eminent domain (condemnation) pursuant to Section 8 of the LRHL.

The plaintiff property owner filed suit contesting the designation of its land as being “in need of redevelopment.” The trial court and Appellate Division upheld the municipality’s designation. However, the New Jersey Supreme Court reversed and held that, because the New Jersey Constitution allows only governmental redevelopment of “blighted areas,” Section 5(e) of the LRHL cannot be read to allow designation of property as “in need of redevelopment” solely because the land is “not fully productive.” To designate lands for redevelopment under that statutory subsection, a municipality must further find that lands proposed for redevelopment are “areas that, as a whole, are stagnant and unproductive because of issues of title, diversity of ownership, or other similar conditions.”

Indeed, the Gallenthin property was largely vacant, environmentally constrained land that was used only for harvesting a wild reed (phragmites), open space, and the occasional depositing of river dredge spoils. The Borough nevertheless included the land in a larger redevelopment area known as the “BP/Dow Redevelopment Area.” The local finding that the Gallenthin property was “in need of redevelopment” due to it being “not fully productive” was supported by sketchy planners’ testimony. However, the lower courts ruled that the Borough’s findings in this regard were supported by substantial evidence. The Supreme Court then agreed to hear a further appeal, and numerous parties were granted leave to appear as amicus curiae (friends of the court), including the New Jersey Builders Association, represented by Hill Wallack LLP, and the New Jersey Public Advocate.

Specifics of the Gallenthin Court’s Rulings

The Supreme Court disagreed with the central premises underlying the proposed redevelopment of the Gallenthin property. The Borough contended that the redevelopment designation was justified under the Constitution and the LRHL because the statute allows for such a designation where the land in question is “stagnant or not fully productive.” The first issue confronted by the Supreme Court was whether the Borough’s broad reading of Section 5(e) of the LRHL was consistent with the state Constitution’s provision limiting the use of eminent domain for redevelopment to “blighted areas.” The Court ruled that such a reading of the statute did not comport with the Constitution, since such a reading would mean that nearly all land in the state could be deemed “blighted” and, hence, eligible for redevelopment and condemnation.

The Gallenthin Court then noted that Section 5 of the LRHL contains eight statutory subsections providing the various bases for declaring land to be “in need of redevelopment,” and the Court concluded that it was not consistent with the Legislature’s intent to construe the Section 5(e) “stagnant or not fully productive” language so broadly that it would render the other seven subsections meaningless “surplussage.” The Court therefore ruled that Section 5(e) can be used to find that property is in “need of redevelopment” only where the property has become “stagnant because of issues of title, diversity of ownership, or other similar conditions.”;

The Court concluded that, because the Borough did nothing but state that the Gallenthin property was not optimally utilized, with no municipal findings asserting that there were title issues or similar impediments to purely private development, the Borough’s finding that the land was “in need of redevelopment” could not stand. The Court also noted that, although the law allows municipalities to include non-blighted parcels within a redevelopment area if necessary for rehabilitation of a larger blighted area, there was no evidence that this was the case with respect to the Gallenthin parcel.

The Court invalidated the Borough’s finding that the Gallenthin property was “in need of redevelopment” without prejudice to a possible future effort by Paulsboro to find that the property is in “need of redevelopment” based on some legitimate statutory grounds. Further, the Court noted, for guidance of municipalities and courts, that “net opinions” of planners will not justify a redevelopment decision. In other words, merely chanting the Section 5 statutory criteria will not suffice—there must be a record, and specific findings pursuant to the statute as specifically applied to the land in question, allowing reviewing courts to find that any given land is susceptible to redevelopment and eminent domain.

Post-Gallenthin Cases

There have already been a number of appellate opinions applying the Gallenthin case to other municipal redevelopment decisions. For example, in the unpublished case of Citizens Action v.Tp. of Mount Holly, a case involving subsections (a), (d) and (e) of Section 5 of the LRHL, the Appellate Division upheld a redevelopment designation even though the Gallenthin Court held that reviewing courts must more carefully scrutinize the evidence put forth by a municipality.

On the other hand, in the unpublished case of HJB Associates, Inc. v. Council of the Borough of Belmar, the Appellate Division reversed a municipality’s determination that the land there at issue was “in need of redevelopment.” In addition to subsections (a) and (e), that case involved interpretation of Section 5(d) of the LRHL, which essentially allows for a redevelopment designation where, due to dilapidation, faulty layout, or the like, the land is “detrimental to the safety, health, morals, or welfare of the community.” Citing the Gallenthin case, the Appellate Division invalidated the redevelopment designation of the plaintiff’s property in the HJB case.

In another unpublished opinion released by the Appellate Division, in the case of LBK Associates, LLC v. Borough of Lodi, the court affirmed a trial court’s invalidation of a local redevelopment designation. Referring to the Gallenthin opinion, the Appellate Division in the LBK case ruled that there was an absence of substantial evidence justifying the municipal findings pursuant to Section 5 of the LRHL. Although it invalidated the municipal actions, the court did note that the municipality was free to begin the process anew, evaluating the subject properties pursuant to the standards of the LRHL as interpreted in Gallenthin.

In the reported case of Vineland Construction Co.v.Tp.of Pennsauken, there was no dispute over the issue of whether the plaintiff’s property was eligible for redevelopment. However, the plaintiff did contest the proposition that only the master redeveloper chosen by the town could develop any of the lands within the designated area in need of redevelopment. Two of the three Appellate Division judges hearing the appeal ruled that the municipality’s choice of the master redeveloper was lawful, and that it was also lawful for the municipality to decide that only the master redeveloper (not the plaintiff property owner) could develop the land pursuant to the redevelopment plan. However, one Appellate Division judge dissented, in a most interesting opinion. That judge would have held that, given the opinion in Gallenthin and the United States Supreme Court’s opinion in Kelo v. City of New London, it was unlawful for the municipality to prevent the plaintiff property owner from developing its land pursuant to the redevelopment plan. The dissenting judge noted that there was no reason, under the facts of this case, why the plaintiff’s land could not be developed by someone other than the designated master redeveloper.

Finally, in an unreported opinion in the case of Arborwood I, II, III Condominium Association, Inc. v. Borough of Lindenwold, the Appellate Division applied Gallenthin and remanded a redevelopment case to the trial court for the trial court to determine the extent to which there may or may not be substantial evidence supporting the local finding that the land in question can be designated as “in need of redevelopment.”

What Happens Now?

The Gallenthin case has clearly altered the redevelopment landscape. No longer can municipalities designate lands as “in need of redevelopment” simply because such lands are not optimally utilized. Gallenthin confirms that, to designate land for redevelopment under Section 5(e) of the LRHL, land must not only be stagnant and unproductive, it must be in that state because of some specific “issues of title, diversity of ownership, or other similar conditions.” The Gallenthin case also holds that, regardless of which Section 5 subsection is relied upon when designating land as in need of redevelopment, the New Jersey Constitution requires that the land be within a “blighted area” (or, at a minimum, be a non- blighted parcel that is instrumental to redevelopment of an area that is blighted).

The Gallenthin case also makes it clear that those wishing to engage in redevelopment must pay much closer attention to putting together a record at the local level providing substantial evidence that the specific LRHL statutory redevelopment criteria have been met. This requires more than chanting the statutory redevelopment criteria—there must be reports and testimony at the local level justifying a finding that, as applied to the facts of the matter, the statutory criteria are satisfied.

In sum, while Gallenthin does not invalidate the redevelopment statutes or explicitly announce any other earth- shattering change in the law, that case provides a new analytical framework for those seeking to advance, or oppose, redevelopment decisions and the use of eminent domain that often accompanies redevelopment decisions. The appellate decisions issued in the wake of Gallenthin confirm that the lessons of Gallenthin are not to be taken lightly, as the courts will not hesitate to invalidate redevelopment decisions, and prevent the use of eminent domain, if there is not strict adherence to the LRHL and the Constitution. Those involved in such redevelopment matters are well-advised to proceed accordingly.

Thomas F. Carroll, III, is a partner of Hill Wallack LLP, and a member of the firm’s Land Use Division. He also serves on the NJBA’s Land Use and Planning Committee. A past-Chair of the Board of Directors of the New Jersey State Bar Association’s Land Use Law Section, he concentrates his practice in the development application process and the litigation required in the course of land development.