Cross-Appellant, v. Cross-Respondent. (2011)

Defendant, the State of New Jersey Department of Transportation (the DOT), appeals from a January 7, 2010 judgment of the Law Division awarding damages to plaintiff, a high-end used automobile dealership, for a taking of its premises.   The DOT argues the court erred as a matter of law in determining a taking had occurred, and further erred by not following the proper procedure to award just compensation.   Plaintiff cross-appeals, arguing the court erred in not crediting its evidence regarding lost inventory and lost profits.   We reverse and remand.

I.

On May 11, 2007, plaintiff filed a complaint against the DOT alleging negligence, tortious interference with economic advantage, and violations of the constitutional right to acquire, possess, and protect property under Article I, paragraph l of the State Constitution.   The DOT filed an answer, asserting general denials and nineteen separate defenses.

On February 28, 2008, plaintiff moved to strike the DOT's answer for failure to comply with discovery, which was denied on March 14, 2008 because of plaintiff's failure to comply with the court rules.   After correcting the deficiencies, plaintiff renewed its motion.   The court granted plaintiff's motion by order of April ll, 2008, striking the DOT's answer without prejudice.

On August 21, 2008, plaintiff moved to convert the dismissal order to one dismissing the answer with prejudice and for the entry of a judgment of liability in its favor against the DOT. The DOT opposed the motion, claiming discovery had been provided.   Following oral argument on September 12, 2008, the Law Division judge granted plaintiff's motion, striking the DOT's answer with prejudice.   He then informed plaintiff that his “next step” would be to move to enter a default and conduct a proof hearing, which plaintiff's counsel confirmed was his understanding of the court rules.   However, on the same date, the court signed the order submitted by plaintiff, which not only struck the DOT's answer with prejudice, but also entered a “judgment of liability” in favor of plaintiff against the DOT.

A bench trial commenced before another judge on October 6, 2009.   The DOT renewed its objection to a damages-only trial due to the lack of a factual basis for a finding of liability.¹  The court responded that liability was not at issue based on prior orders and this was a damages-only trial.   Testimony concluded the next day.   The court rendered its decision on the record on November 6 and December l7, 2009, characterizing the proceeding before it as a “proof hearing” and finding the case was, “in effect,” a condemnation proceeding.   Accordingly, the court concluded the DOT was responsible for the value of the temporary taking of the premises and consequential business losses.   The court awarded plaintiff compensatory damages in the principal amount of $1,074,695.83, memorialized in a final judgment of January 7, 2010.   The DOT appealed and plaintiff cross-appealed.

II.

Starting around 2002, the DOT decided to widen or otherwise improve a portion of Route 21 in Newark, known also as McCarter Highway.   The dealership, a lessee of premises located at 974 McCarter Highway, relocated its business to 1225 McCarter Highway after the DOT condemned the first property.   It leased the property for a year and a related entity of plaintiff's purchased it in the spring of 2003 and leased it to plaintiff.²  Prior to the closing, the seller told Andrade the DOT had permanently acquired a strip along the property's Route 2l frontage for the widening of the highway and a parallel strip for a temporary easement to be used for construction staging.   Andrade was initially informed by letter from the DOT that the anticipated time for the project was three months;  the contractor actually occupied the temporary easement for about four to four and one-half years, until sometime in late 2006 or early 2007.

Andrade testified about the DOT's activities, which he claimed caused a significant reduction in visits from potential customers and a drop in sales.   For example, construction vehicles and materials blocked the entrance to the dealership, obstructing customer visibility.   The paving also changed the height of the highway and made access difficult from the primary entrance off of Route 21.   Signs were posted on the property listing it for sale or lease, some of which were obstructed by the DOT equipment.   The dealership closed its doors on October 22, 2005, and the property remained vacant through the end of 2006.   In January 2007, after the DOT vacated the easement, Deluxe Auto Sales began leasing a portion of the property for its own used car business.   Plaintiff re-opened its business on the property, using a side entrance off Spring Street.

Andrade testified that the rent and carrying charges (mortgage, taxes, insurance and maintenance) on the property for the fourteen months it was vacant and not income-producing totaled $350,000 ($25,000 per month).   He also explained that its fifty-four vehicle inventory was sold at auction in November 2005 at a loss, and submitted documentation of its lost profits of $514,765.

Plaintiff also presented an accountant, Henry Fuentes, who was qualified as an expert in business valuation, to testify as to the value of its business at the time of its closure in 2005.   Fuentes concluded the damages sustained by plaintiff due to the loss of its business ranged from $2,700,000 to $3,100,000, in addition to damages for lost profits in liquidation of inventory.   Accordingly, plaintiff requested compensatory damages in the range of $3,564,765 to $3,964,765.

The court found too speculative plaintiff's claimed lost profits on liquidated inventory.   It concluded the DOT was responsible for $1,074,695.83 in damages as a result of its “temporary taking,” consisting of:  (l) $462,000 in carrying charges, calculated at $25,000 per month for the fourteen months from November 2005 to the end of 2006,³ plus $9,000 per month representing the mitigated differential between the carrying charges and the $16,000 per month rent received from Deluxe Auto Sales for 2007 and the first six months of 2008, and (2) $612,695.83 in loss of business damages.

III.

The DOT first challenges the procedural posture of the case, as inverse condemnation was not pled by plaintiff and no factual findings were made by the court as to liability.   It further argues its construction activities did not satisfy the established criteria for a “taking” of plaintiff's property, requiring reversal of the court's decision.   The DOT alternatively argues that if a taking were established, the court failed to follow the procedures in the Eminent Domain Act of l971 (the Eminent Domain Act), N.J.S.A. 20:3-l to -50, in determining the amount of plaintiff's compensation, also requiring a reversal.

As a general matter, we should not disturb the trial court's factual findings and legal conclusions “unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice․”  Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (l974) (citation and internal quotation marks omitted).   We are not required to defer to a “trial court's interpretation of the law and the legal consequences that flow from established facts.”  Manalapan Realty v. Manalapan Twp. Comm., 140 N.J. 366, 378 (l995).

Contrary to plaintiff's assertion, the DOT is not barred from raising the procedural issue because it was raised in the trial court.   See Nieder v. Royal Indem.   Ins. Co., 62 N.J. 229, 234 (l973) (holding issues not raised at trial are deemed waived on appeal unless they “go to jurisdiction of the trial court or concern matters of great public interest” (citation and quotation marks omitted)).   The DOT noted on several occasions that condemnation was not pled and it continuously objected to the perfunctory determination of liability.

Plaintiff's complaint was grounded in negligence, tortious interference and its right to possess property under the New Jersey Constitution.   It alleged the State's construction staging activities in the temporary easement area:

created noise, debris, and inconvenient access to the Property.   The use of the construction easement area obscured access to the driveway to the Property․

․

The delayed construction blocked visual observations of the property and the entire stock of automobiles to passers by on Route 2l for weeks at a time.   The incomplete work to the road and the construction easement area made it very difficult for potential customers to determine how to enter the site.

․

FIRST COUNT

(Negligence)

․

As a result of the failure of the DOT [to properly schedule, supervise, and control work on the project,] the plaintiff has incurred damages including, but not limited to, lost profits as a result of lost automobile sales and lost profits on the inventory that it auctioned off in order to mitigate its damages upon closing the business.

․

SECOND COUNT

(Tortious Interference with Economic Advantage)

By engaging in the conduct set forth above the DOT without justification intentionally interfered with plaintiff's economic advantage with customers and potential customers.

[Same causation language and damage demand as First Count]

THIRD COUNT

(Violation of Constitutional Rights)

The improper actions of the defendant have proximately caused the violation of plaintiff's right to acquire, possess, and protect property under Article I, paragraph 1 of the New Jersey Constitution [⁴ ] and therefore have caused the plaintiff to suffer damages.

Plaintiff did not assert a State or Federal Constitutional “taking” claim, either temporary, permanent, or by inverse condemnation.   See Mansoldo v. State, 187 N.J. 50, 58 (2006) (holding that under Article I, paragraph 20 of the New Jersey Constitution,⁵ and the Fifth and Fourteenth Amendments to the United States Constitution, “property owners must be paid just compensation for governmental takings”);  see also Pheasant Bridge Corp. v. Twp. of Warren, 169 N.J. 282, 296 (2001) (noting the coextensive protections afforded by the New Jersey Constitution and the takings clause of the Fifth Amendment of the United States Constitution requiring just compensation), cert. denied, 535 U.S. 1077, 122 S.Ct. 1959, 152 L. Ed.2d 1020 (2002).   Nor did it claim the DOT physically entered its property or that access to its property was completely blocked.   Nevertheless, the court sua sponte converted what had been pled as a tort case into an inverse condemnation action.   The court found the DOT's activities constituted a “long, temporary” taking “based on four and a half years of the construction.”   It then concluded the DOT was required to compensate plaintiff for the value of the temporary taking, consisting of carrying charges and “consequential business losses” resulting from the temporary taking.

We discern several problems with the way this case was handled.   We do not find an abuse of discretion in the ruling of the first judge to suppress the DOT's answer and defenses with prejudice for discovery violations.   However, neither judge made any findings and conclusions on liability, proceeding directly to a damages trial.   The automatic entry of a judgment of liability was error.   In Chakravarti v. Pegasus Consulting Group., Inc., 393 N.J.Super. 203, 210 (App.Div.2007), a Law Against Discrimination case, we held that after a defendant failed to comply with discovery, it was still entitled to a proof hearing on liability and damages, although the degree of participation the defendant was entitled to have and what proofs were necessary were within the court's discretion.   We explained, “[e]ven though a defendant who has defaulted has relinquished the right to present affirmative proofs in the matter, the right to challenge a plaintiff's showings in a proof hearing by way of cross-examination and argument should not ordinarily be precluded.”   Id. at 210-ll.   See also, Jugan v. Pollen, 253 N.J.Super. 123, 128 (App.Div.l992) (after defendant's answer was stricken, the court conducted a trial on liability and damages), certif. denied, 138 N.J. 271 (1994);  Johnson v. Johnson, 92 N.J.Super. 457, 464-65 (App.Div.l966) (where the defendant's answer was stricken for failure to comply with discovery, the court required the plaintiff to prove her case on damages and liability, subject only to cross-examination by the defendant's counsel).   In Chakravarti, supra, we concluded the trial judge presiding over the proof hearing correctly afforded the defendant every opportunity to challenge the plaintiff's damages proofs, “and even went so far as to evaluate [the] plaintiff's showings on liability in light of [the] defendant's cross-examination.”  393 N.J.Super. at 211.   Furthermore, the “judge's findings and conclusions on liability were well supported by the record [and][h]is determination that [the] plaintiff had made a prima facie case for unlawful discrimination was in keeping with prevailing legal standards.”  Ibid.

Here, the DOT was foreclosed of its ability to demonstrate through cross-examination and argument that plaintiff had not made a prima facie case of negligence, tortious interference with economic advantage, or violation of the constitutional right to acquire, possess and protect property.  “In order to sustain a common law cause of action in negligence, a plaintiff must prove four core elements:  ‘(1) [a] duty of care, (2)[a] breach of [that] duty, (3) proximate cause, and (4) actual damages[.]’ ”  Polzo v. Cnty. of Essex, 196 N.J. 569, 584 (2008) (alterations in original) (quoting Weinberg v. Dinger, 106 N.J. 469, 484 (1987)).   The negligence claim in plaintiff's complaint would probably also be cognizable under a nuisance theory.   The elements of nuisance require “the invasion is either (a) intentional and unreasonable, or (b) unintentional and otherwise actionable under the rules controlling liability for negligent or reckless conduct, or for abnormally dangerous conditions or activities.”  Birchwood Lakes Colony Club v. Medford Lakes, 90 N.J. 582, 592 (1982) (quoting Restatement (Second) of Torts, § 822 (1979)).   A public entity may be held liable for private nuisance.  Id. at 593.

To sustain a cause of action for “interference with economic advantage,” a plaintiff must demonstrate:  (l) it was in “pursuit” of business;  (2) “the interference was done intentionally and with ‘malice,’ ” i.e., “the harm was inflicted intentionally and without justification or excuse”;  (3) “the interference caused the loss of the prospective gain”;  and (4) the injury caused damage.  Printing Mart-Morristown v. Sharp Elecs.   Corp., 116 N.J. 739, 75l (1989) (citation omitted).

Article I, paragraph l of the New Jersey Constitution has been construed by the Supreme Court “to embrace the fundamental guarantee of due process,” protecting persons from arbitrary government action.  Jamgochian v. State Parole Bd., 196 N.J. 222, 239 (2008).   See, e.g., Chase Manhattan Bank v. Josephson, 135 N.J. 209, 233-34 (1994) (analyzing whether the New Jersey Anti-Eviction Act, N.J.S.A. 2A:18-61.1 to -61.12, infringes upon rights of property owners);  Gardner v. N.J. Pinelands Comm'n, 125 N.J. 193, 219-20 (1991) (addressing whether the New Jersey Pinelands comprehensive management plan violated due process under Article 1, paragraph 1 of the State Constitution);  New Brunswick Sav. Bank v. Markouski, 123 N.J. 402, 422-23 (1991) (holding a judgment lien is a property interest subject to due process safeguards);  Harrison Redevelopment Agency v. DeRose, 398 N.J.Super. 361, 391-92 (App.Div.) (noting due process guarantees in context of blight designation pursuant to Article VIII, section 3, paragraph 1 of the State Constitution), certif. denied, 196 N.J. 87 (2008);  OFP, L.L.C. v. State, 395 N.J.Super. 571, 591-92 (App.Div.2007) (noting Article I, paragraph 1 of the State Constitution in assessing constitutionality of the Highlands Water Protection and Planning Act, N.J.S.A. 13:20-1 to -35, as retroactive legislation), aff'd, 197 N.J. 418 (2008).

Furthermore, the trial judge did not assess the damages in the context of the causes of action asserted in plaintiff's complaint.   If plaintiff had demonstrated negligence by the DOT, its damages would then be those causally related to the DOT's actions.   The Supreme Court has analyzed general allegations of negligence resulting in economic losses as follows:

[A] defendant owes a duty of care to take reasonable measures to avoid the risk of causing economic damages, aside from physical injury, to particular plaintiffs or plaintiffs comprising an identifiable class with respect to whom defendant knows or has reason to know are likely to suffer such damages from its conduct.   A defendant failing to adhere to this duty of care may be found liable [in negligence] for such economic damages proximately caused by its breach of duty.

[People Express Airlines, Inc. v. Consol.   Rail Corp., 100 N.J. 246, 263 (1985).]

If plaintiff had demonstrated it “risk[ed] governmental exposure to a ‘grievous loss,’ ” it would be entitled to resulting damages for violation of its due process protections.   See Jamgochian, supra, 196 N.J. at 239 (citation and quotation omitted).

To compound the error, the trial judge did not make plaintiff try the case it brought against the DOT. Rather, perfunctorily concluding “if it looks like a duck, walks like a duck and quacks like a duck, it would be a duck,” the judge converted the case to a condemnation and proceeded to determine damages as if a temporary taking had been demonstrated.

It is well settled that not every impairment in value establishes a taking.   Karam v. Dep't of Envtl.   Prot., 308 N.J.Super. 225, 235 (App.Div.l998), aff'd, 157 N.J. 187, cert. denied, 528 U.S. 814, 120 S.Ct. 51, 145 L. Ed.2d 45 (1999).   A constitutional taking may occur by a physical taking, in which the government takes title to or authorizes a physical appropriation of private property, or by a “regulatory taking, through which a government regulation deprives the property owner of all economically viable use of” its land.  Klumpp v. Borough of Avalon, 202 N.J. 390, 405 (2010).   By either method, the takings clause requires the government to compensate the property owner.  Ibid.

“In an inverse condemnation action, a landowner is seeking compensation for a de facto taking of his or her property.”  Greenway Dev. Co. v. Borough of Paramus, 163 N.J. 546, 553 (2000).   A property owner must be “deprived of all or substantially all of the beneficial use of the totality of his property” in order to bring a claim for inverse condemnation.  Ibid. (citation and quotation marks omitted).

Where the government “seizes property without first bringing a condemnation proceeding, the burden shifts to the individual to bring an action to compel condemnation, known as ‘inverse condemnation.’ ”  Klumpp, supra, 202 N.J. at 406.   The Eminent Domain Act governs all condemnation cases, N.J.S.A. 20:3-4, including cases for inverse condemnation.  Schiavone Const.   Co. v. Hackensack Meadowlands Dev. Comm'n, 98 N.J. 258, 265 (l985).   Thus, once the court concludes a taking has occurred, it must follow the statutorily-mandated procedures under the Eminent Domain Act, including the appointment of three commissioners to preside at a hearing for the purpose of determining the amount of compensation to be paid.   See N.J.S.A. 20:3-12(b).  That did not occur in this case.

We remand to permit plaintiff the opportunity, if it so chooses, to move to amend its complaint and add a claim for inverse condemnation.   See Klumpp, supra, 202 N.J. at 394-95 (holding the relief ordinarily available to a property owner from a governmental taking accomplished without adherence to the requirements of the Eminent Domain Act is to pursue an inverse condemnation action within the six-year statute of limitations period available under N.J.S.A. 2A:14-1).   If a taking is found, the matter would proceed as a condemnation case under the Eminent Domain Act. If plaintiff chooses to advance the case as pled, i.e., tort and a violation of due process, the court will first determine whether plaintiff has established liability and, if it has, proceed to a determination of the resulting damages.   In either case, the DOT's participation shall be limited by its relinquishment of the right to present affirmative proofs as a result of the September 12, 2008 order striking its answer and defenses.

Reversed and remanded.

FOOTNOTES

FN1. On September 30, 2009, the DOT orally requested an adjournment of the trial from a third judge so it could move to vacate the “with prejudice” order and extend discovery.   Among other arguments, the DOT's attorney expressed concern that the case was proceeding on a damages-only trial as if summary judgment had been entered with regard to liability.   He noted that if a default were entered and a proof hearing held, plaintiff would have to make a prima facie case for liability.   The adjournment request was denied..  FN1. On September 30, 2009, the DOT orally requested an adjournment of the trial from a third judge so it could move to vacate the “with prejudice” order and extend discovery.   Among other arguments, the DOT's attorney expressed concern that the case was proceeding on a damages-only trial as if summary judgment had been entered with regard to liability.   He noted that if a default were entered and a proof hearing held, plaintiff would have to make a prima facie case for liability.   The adjournment request was denied.

FN2. The property was titled in the name of Spring Enterprises, LLC, an entity wholly owned by Carlos Andrade, plaintiff's sole owner and president.   Plaintiff leased the property from Spring, LLC..  FN2. The property was titled in the name of Spring Enterprises, LLC, an entity wholly owned by Carlos Andrade, plaintiff's sole owner and president.   Plaintiff leased the property from Spring, LLC.

FN3. The judge incorrectly calculated this figure at $300,000 rather than $350,000, thus the correct total is $512,000, not $462,000..  FN3. The judge incorrectly calculated this figure at $300,000 rather than $350,000, thus the correct total is $512,000, not $462,000.

FN4. Article 1, paragraph 1 of the New Jersey Constitution provides “[a]ll persons are by nature free and independent, and have certain natural and unalienable rights, among which are those of enjoying and defending life and liberty, of acquiring, possessing, and protecting property, and of pursuing and obtaining safety and happiness.”.  FN4. Article 1, paragraph 1 of the New Jersey Constitution provides “[a]ll persons are by nature free and independent, and have certain natural and unalienable rights, among which are those of enjoying and defending life and liberty, of acquiring, possessing, and protecting property, and of pursuing and obtaining safety and happiness.”

FN5. Article I, section 20 of the State Constitution, titled “Exercise of eminent domain” provides:  “[p]rivate property shall not be taken for public use without just compensation.   Individuals or private corporations shall not be authorized to take private property for public use without just compensation first made to the owners.”.  FN5. Article I, section 20 of the State Constitution, titled “Exercise of eminent domain” provides:  “[p]rivate property shall not be taken for public use without just compensation.   Individuals or private corporations shall not be authorized to take private property for public use without just compensation first made to the owners.”

PER CURIAM