July 7, 2010

The dealings of the Borough of Avalon with Edward and Nancy Klumpp sound like every property owner’s nightmare. After a major storm, the town occupied their beachfront property, constructed a dune through it, and fenced the dune off from the street and the beach. The town took these actions without giving them any written notice, and without offering them any compensation. In successive steps, the town closed the only street giving access to their property and then rezoned the property to prohibit any use of the land except enhancement of the dunes and beach.

All the while, the municipality insisted that it had not “taken” the property, that the Klumpps were the owners, and that they must continue to pay property taxes. When, after more than 40 years, the Klumpps brought suit to assert their rights to the property, the town reversed its position, claimed that it had taken ownership of the property 40 years earlier, and took the position that the Klumpps were now barred by the passage of time from seeking just compensation for the town’s appropriation of their property.

The Supreme Court’s New Klumpp Decision

Reversing decisions by the lower courts, the Supreme Court of New Jersey has recently ruled that, under these circumstances, a town cannot assert successive inconsistent legal positions to secure an advantage at the expense of a property owner. It cannot “skirt its responsibility to answer for its actions” in this manner.

In its decision in Klumpp v. Avalon, the Supreme Court concluded that Avalon’s legal position technically was correct. It held that claims of unlawful taking without just compensation, sometimes referred to as “inverse condemnation” actions, must be brought within six years of the governmental taking, at least when they result from some “physical” action by the government. Viewed under that standard, the Klumpps were more than 30 years late in bringing their claim. Had Avalon cut square corners in its dealings with them, they would have no rights at this late date.

Nonetheless, the Court concluded that the Klumpps were entitled to seek just compensation resulting from Avalon’s taking. It held that Avalon must satisfy a standard of “justice and fairness.” Under that standard, the town may not benefit from a series of shifts in legal posture that, in the end, inequitably deprive the Klumpps both of their property and their opportunity to secure compensation, regardless of whether each of the steps along the way may have been legally defensible.

The Implications of the Klumpp Case

This is a potentially important precedent for property owners in their dealings with local government. First, the case clearly reaffirms that a property owner can seek just compensation in an inverse condemnation action when the government “takes” private property through some means other than eminent domain proceedings.

The second important lesson from Klumpp concerns the time limitations for bringing an inverse condemnation action, i.e., a suit seeking just compensation because the government has “taken” property through some means other than eminent domain proceedings. Although Klumpp involved “physical” governmental acts such as fencing off the land, more typical is the scenario where government deprives a property owner of any beneficial use of land through land use restrictions such as zoning or state regulations.

The Klumpp Court held that a six year statute of limitations applies to inverse condemnation suits such as the case filed by the Klumpps, at least where a “physical” taking has occurred. The Court in Klumpp did not address the question of whether a six year statute of limitations would be applied to inverse condemnation claims based solely upon land use regulations, nor did it address the question of when the limitations period begins to run in such cases of regulatory takings. United States Supreme Court opinions suggest that such cases cannot be brought at all until after a property owner “exhausts administrative remedies,” such as seeking a waiver or variance from the oppressive regulations.

It is therefore possible that, if confronted with the issue, New Jersey courts would rule that the six year limitation does not apply to inverse condemnation cases based solely on harmful land use regulations, or that the period does not begin to run until all administrative remedies are exhausted.

Conclusion

It would be wise to bring all inverse condemnation suits – even those soley based upon land use/environmental laws that “take” land through excessive regulation – within six years of the adoption of such regulations. If that is simply not feasible, consideration can still be given to filing such suits thereafter based upon the notions discussed above. The very concept that property owners are entitled to “justice and fairness” is a concept that is all too rare in our jurisprudence when dealing with property rights, and the Klumpp case provides some welcome news in that regard.

Property owners facing the inability to develop their land with any profitable use – whether due to land use regulations, some physical governmental act, or a combination of the two – are well-advised to explore the facts with experience counsel at their earliest opportunity, examine the statute of limitations issues, and sue the government for just compensation when appropriate.

Stephen M. Eisdorfer is a partner of Hill Wallack LLP and member of the firm’s Land Use Division. A recent member of the Board of Directors of the New Jersey State Bar Association’s Land Use Section, he concentrates his practice in land use matters, including applications, Mount Laurel litigation and litigation involving the civil rights statutes.

Thomas F. Carroll, III is a partner of Hill Wallack LLP and is partner-in-charge of the Land Use Division which encompasses the Land Use Litigation and Land Use & Environmental Applications Practice Groups. He has significant experience in the land development application and permitting process, as well as the litigation of land use matters at the trial level and in the appellate courts.

Hill Wallack LLP is a leading law firm in central New Jersey and eastern Pennsylvania, with offices in Princeton and Atlantic City, NJ and Yardley, PA. The firm has built a reputation for comprehensive problem-solving and aggressive advocacy. The firm has broad-based commercial capabilities and deep experience in a number of industry sectors, including community associations. With extensive government experience, Hill Wallack LLP represents businesses and public entities in many areas in which public and private interests intersect. Our attorneys are called upon to tackle some of the toughest legal and business challenges. We do more than advise on the law—we create real-world solutions.