Borough of Saddle River v. 66 East Allendale, LLC (070525) , 216 N.J. 115 ( 2013 )

SYLLABUS
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized).
Borough of Saddle River v. 66 East Allendale, LLC (A-126-11) (070525)
Argued April 29, 2013 -- Decided October 21, 2013
LaVECCHIA, J., writing for a majority of the Court.
In this appeal, the Court considers whether, in a trial on just compensation, it was proper to allow the jury
to hear evidence on the likelihood of a zoning change without the trial court first determining outside of the jury’s
presence that there was a reasonable probability of a zoning change.
East Allendale, LLC (East Allendale) owned a 2.13 acre parcel of land in the Borough of Saddle River
(Borough). Part of the property was located in the office zone (O-1), which restricts improved lot coverage to 30
percent of the lot’s total area. In 2004, East Allendale submitted an application to the Borough’s Zoning Board of
Adjustment (Board) for a permit to build a 10,000 square foot bank building and parking lot on the property. The
site plan required approval of a bulk variance, pursuant to N.J.S.A. 40:55D-70(c)(2), to allow 42 percent improved
lot coverage in the O-1 zone. The Board initially denied the permit and East Allendale subsequently withdrew its
application in the face of critical questioning prior to the Board’s final action. On November 8, 2006, the Borough
filed a complaint exercising its power of eminent domain in order to acquire the subject property for use as a public
park. After the parties agreed that the Borough duly exercised its power of eminent domain, the court appointed
three commissioners to determine the just compensation owed to East Allendale. The commissioners completed
their appraisals and the court entered an order determining the just compensation for the taking to be $1,593,625.
The parties appealed and demanded a jury trial. Just compensation was the sole trial issue.
Prior to trial, the Borough filed a motion in limine seeking to strike the reports of East Allendale’s expert
witnesses as inadmissible net opinions on the reasonable probability of a zoning change for the property. In the
alternative, the Borough requested that the court perform its gatekeeping function pursuant to State by
Commissioner of Transportation v. Caoili, 135 N.J. 252 (1994), and conduct a preliminary N.J.R.E. 104 hearing
outside the presence of the jury to assess whether there was a reasonable probability of a zoning change. The trial
court denied the Borough’s motion. The court deferred until trial any decision on whether East Allendale’s experts’
reports constituted net opinions. The court did not regard Caoili as requiring it to have a pretrial hearing and found
that it could satisfy its gatekeeper function during trial through voir dire of witnesses, N.J.R.E. 104 hearings prior to
witnesses taking the stand, and jury instructions.
At trial, East Allendale’s experts testified that that highest and best use of the property would be a 10,000
square foot bank building, which was the subject of East Allendale’s 2004 application, and that there was a
reasonable likelihood that the application would be entitled to a bulk variance for the use in excess of the O-1 zone
requirements. Although the experts were permitted to present the arguments that they would have set before the
Board in favor of the bulk variance, they did not address the positive and negative criteria under the Municipal Land
Use Law (MLUL), N.J.S.A. 40:55D-1 to -163, which would have been required for Board approval. Based on the
experts’ opinion that there was a reasonable probability that a bulk variance would be granted, East Allendale’s
appraiser testified that the property had a fair market value of $5,250,000. The Borough’s experts proposed a site
plan that provided for a 3,312 square foot bank, which did not require a bulk variance and was appraised to have a
$1,325,000 fair market value. Prior to jury deliberation, the Borough renewed its motion to strike the testimony of
East Allendale’s experts. The trial court denied the motion. The court found a reasonable probability of a potential
zoning change and that the jury may consider the possibility of a zoning change when determining the property’s
value. The jury returned a verdict for just compensation in the amount of $5,250,000.
The Appellate Division affirmed. The panel concluded that there was sufficient evidence of a reasonable
probability of a zoning change and that the jury could consider that evidence. Borough of Saddle River v. 66 East
Allendale, LLC, 424 N.J. Super. 516 (App. Div. 2012). The panel found that Caoili does not require the judge to
conduct a pretrial hearing in every case and that the judge did not abuse his discretion in performing his required
gatekeeping function before closing arguments, instead of before the jury heard the evidence. The panel also
determined that there was a sufficient objective foundation for the experts’ opinions that the zoning board would
likely grant a bulk variance. The Court granted the Borough’s petition for certification. 211 N.J. 274 (2012).
HELD: The jury heard evidence about the probability of a zoning change that should have been ruled on by the judge
in advance and outside of the jury’s presence. A new trial on just compensation is required because the jury was
allowed to hear speculative evidence that undermined the soundness of its property valuation determination.
1. The Eminent Domain Act of 1971, N.J.S.A. 20:3-1 to -50, requires the state or one of its municipalities to pay the
property owner just compensation for the taking of private property. Just compensation is the fair market value of
the property as of the date of the taking in light of its highest and best use. The highest and best use is the use that
produces the highest value, provided the use can be legally and physically achieved. Therefore, zoning restrictions
are material factors in determining a property’s fair market value. In State by Highway Commissioner v. Gorga, 26
N.J. 113 (1958), the Court concluded that a potential amendment to a zoning ordinance may affect the value of the
property. The Court cautioned, however, that a court must first determine whether there is evidence of the
probability of the zoning change before submitting the issue to the jury. In Caoili, the Court established a two-step
process for evaluating potential zoning changes. First, as a gatekeeping function, the court must determine whether
there is sufficient evidence to support the conclusion that a zoning change is “reasonably probable.” After that
determination is made, the jury determines whether a premium should be added to the value of the property based on
the probability of the future zoning change. (pp. 27-33)
2. The goal of Caoili’s gatekeeping function was to avoid having the jury hear and consider speculative evidence
that a zoning change was reasonably probable when assessing just compensation. Only when the trial court first
determines that evidence is of a sufficient quality to allow the jury to consider the probability of a zoning change
should the jury be permitted to assess a premium based on that zoning change. In this case, the trial court’s failure
to hold a pretrial hearing on the reasonable probability of a zoning change was at odds with Caoili and permitted the
jury to hear speculative testimony on the likelihood that a bulk variance would be granted. Every condemnation
action involving a future zoning change does not require an N.J.R.E. 104 plenary hearing prior to trial. The trial
court should first determine whether it can render its determination on the papers alone. If the issue cannot be
resolved on the basis of paper submissions, such as in this case, then the issue should be heard and resolved prior to
trial. (pp. 33-37)
3. The trial court must render its determination that there is a reasonable probability of a zoning change based on the
standard that would govern the particular zoning change under consideration – here, whether or not the Board would
grant a bulk variance. The expert testimony in this record was insufficient to support the reasonable probability of a
zoning change because it did not address all the criteria that the Board would have to find in order to grant a bulk
variance. In particular, East Allendale’s experts failed to address the positive and negative criteria that the Board
would have had to consider before granting a bulk variance. Furthermore, East Allendale’s appraisal analysis relied
on the experts’ opinions that a bulk variance would likely be granted. Therefore, East Allendale’s experts’ opinions
lacked a proper foundation for their conclusions that zoning change was reasonably probable. (pp. 37-40)
The judgment of the Appellate Division is REVERSED, and the matter is REMANDED for a new trial on
just compensation.
JUSTICE ALBIN, DISSENTING, joined by CHIEF JUSTICE RABNER, expresses the view that the
majority has failed to give proper deference to the trial court’s evidentiary rulings and to the factfindings of the jury.
JUSTICES HOENS and PATTERSON join in JUSTICE LaVECCHIA’s opinion. JUSTICE ALBIN
filed a separate, dissenting opinion, in which CHIEF JUSTICE RABNER joins. JUDGES RODRÌGUEZ and
CUFF (both temporarily assigned) did not participate.
2
SUPREME COURT OF NEW JERSEY
A-126 September Term 2011
070525
BOROUGH OF SADDLE RIVER,
Plaintiff-Appellant,
v.
66 EAST ALLENDALE, LLC,
Defendant-Respondent.
Argued April 29, 2013 – Decided October 21, 2013
On certification to the Superior Court,
Appellate Division, whose opinion is
reported at 424 N.J. Super. 516 (2012).
Robert J. Kipnees argued the cause for
appellant (Lowenstein Sandler, attorneys;
Mr. Kipnees and Natalie J. Kraner, on the
briefs).
Peter H. Wegener argued the cause for
respondent (Bathgate, Wegener & Wolf,
attorneys).
Matthew Weng submitted a brief on behalf of
amicus curiae New Jersey State League of
Municipalities.
JUSTICE LaVECCHIA delivered the opinion of the Court.
In this appeal, we review an appellate judgment that
affirmed a $5.25 million condemnation award for defendant 66
East Allendale, LLC (East Allendale) against plaintiff Borough
of Saddle River (Borough). For the reasons that follow, we
1
reverse that judgment and remand for a new trial on just
compensation.
In a condemnation action the determination sought is the
amount of just compensation. Just compensation is a function of
the value of the property in light of its highest and best use,
which is ordinarily evaluated in accordance with current zoning
ordinances. Certain circumstances may permit valuation to
include an assessment of a change in the permitted use of a
property, but only if there is a reasonable probability that a
zoning change would be granted. As our decisions in State by
Highway Commissioner v. Gorga, 26 N.J. 113 (1958), and State by
Commissioner of Transportation v. Caoili, 135 N.J. 252 (1994),
make plain, however, the jury in a condemnation action may not
speculate about such a change in a property’s use. If valuation
of a property based on another use is to be considered by a
jury, the determination of reasonable probability of a zoning
change must be made by the judge before the evidence is
presented to the jury, and it must be made clearly to enable
appellate review.
In this matter, the jury was allowed to hear evidence about
the probability of a zoning change that should have been ruled
on by the judge both in advance and outside of the jury’s
presence. Only if the court first determined that there was a
reasonable probability that a zoning change would have been
2
approved based on the standards governing such approval should
the evidence have been presented to the jury for its
consideration in connection with the jury’s evaluation of just
compensation. The evidence that the jury heard on the
likelihood of the zoning change in issue here was not assessed
properly in accordance with that standard, and the quality of
the evidence that the jury was allowed to consider undermined
the soundness of the jury’s property valuation determination.
The errors necessitate a new trial on the issue of just
compensation.
I.
A.
The Borough initiated this condemnation action to acquire
East Allendale’s property located at 66 East Allendale Road.
The property is split-zoned; the majority of the property is in
a residential zone, and the remainder of the property is in an
office zone. When the parties could not agree on the just
compensation owed to East Allendale, the Borough commenced
condemnation proceedings.
In fixing the fair market value of the property, the
parties agreed that a bank building would be the property’s
highest and best use. However, they disputed the size of the
bank that would have been approved under the Borough’s zoning
ordinance. East Allendale proposed the development of a 10,000
3
square foot bank and office building with an adjacent parking
lot. The Borough proposed a 3,312 square foot bank branch with
an adjacent parking lot.
In respect of the approvals necessary for the project as
proposed by East Allendale, the parties further agreed that East
Allendale was entitled to a use variance to permit development
of a parking lot in the portion of the property that is within
the residential zone. Their dispute devolved into a sharp
disagreement on the intensity of use proposed by East Allendale.
Specifically, the parties dispute whether a bulk variance would
have been granted to permit a 10,000 square foot bank building
that would entail 42 percent of improved lot coverage, which
would have exceeded the ordinance requirement of no more than 30
percent improved lot coverage.
With that brief overview of the underlying dispute, we turn
to the relevant background about this property and the critical
aspects of the condemnation proceedings.
B.
East Allendale purchased the 2.13 acre parcel of land
located at 66 East Allendale Road in the Borough1 in December
1
The Borough of Saddle River is a residential community in
Bergen County. Nearly 98 percent of the Borough is zoned for
residential use. According to the Borough’s 2003 Master Plan
Reexamination Report, it is a “residential community with
business development limited to that necessary to serve the
daily needs and convenience of local residents.” One of the
4
2002, for $900,000, intending to develop the property. The
property is split-zoned with approximately one-third of the land
in the office zone (O-1) and two-thirds of the land in the
residential zone (R-1). During the pendency of the condemnation
proceedings, the zoning requirements remained unchanged.
The O-1 zone permitted banks, offices, and other public
uses. The Borough’s O-1 zoning ordinance restricted improved
lot coverage to 30 percent of the lot’s total area, required a
minimum lot size of 10,000 square feet, and imposed parking
requirements of one parking space for every 75 square feet of
bank space and one parking space for every 250 square feet of
office space. The R-1 zone required a lot size of two acres and
generally permitted single-family residences.
In October 2004, East Allendale, in conjunction with a
development plan in which it was involved, submitted an
application to the Borough’s Zoning Board of Adjustment (Board)
for a permit to build a 10,000 square foot bank office and
building, and an adjacent parking lot on the property. Within
its permit application, East Allendale sought a use variance,
pursuant to N.J.S.A. 40:55D-70(d)(1), to use a portion of the R-
1 part of the property as a parking lot. See N.J.S.A. 40:55D-70
(recognizing board of adjustment’s authority to hear
Borough’s primary objectives is to preserve the environment,
which is reflected in municipal zoning ordinances.
5
applications for variances in connection with permit
applications). David Hals, a professional engineer and planner,
prepared the site plan. The site plan proposed a 10,000 square
foot, two-story bank and office building requiring a minimum of
57 parking spaces as the property’s “highest and best use.” The
plan required approval of a use variance to allow parking in the
R-1 zone and a bulk variance, authorized pursuant to N.J.S.A.
40:55D-70(c)(2), in the O-1 zone to allow 42 percent improved
lot coverage. The Borough conceded that, pursuant to the
holding in AMG Associates v. Township of Springfield, 65 N.J.
101, 113-14 (1974), the local zoning board likely would grant a
use variance to permit construction of parking on the R-1
portion of the property due to the lot’s split zoning
(residential and commercial).2
The Board denied the permit because the proposed improved
lot coverage in the O-1 part of the property exceeded the
maximum of 30 percent of improved lot coverage. At the hearing,
facing critical Board questioning and opposition by several
concerned citizens, East Allendale withdrew its application for
a use variance prior to final action by the Board.
On November 8, 2006, the Borough exercised its power of
eminent domain pursuant to N.J.S.A. 20:3-1 to -50 in order to
2
Thus, the only issue in this appeal concerns the bulk
variance required in order to permit 42 percent improved lot
coverage contrary to O-1 zone requirements.
6
acquire the subject property for use as a public park. The
Borough filed a verified complaint in the Superior Court, Law
Division, see N.J.S.A. 20:3-8, and submitted an appraisal
stating the land’s market value was $1,050,000. East Allendale
filed an answer challenging the Borough’s exercise of eminent
domain and demanding a jury trial.
The parties attempted to resolve the matter themselves as
well as through mediation. A partial settlement was reached,
and on March 6, 2009, the court entered an Order for Judgment
and Appointing Commissioners, concluding that the Borough duly
exercised its power of eminent domain. The court appointed
three commissioners to determine the compensation owed to East
Allendale, and it entered a Consent Order to Withdraw Funds on
Deposit, whereby $1,050,000 previously paid to the clerk of the
court by the Borough was paid to East Allendale.
The commissioners completed their appraisals, and the court
entered an order on December 18, 2009, determining the just
compensation for the taking to be $1,593,625. East Allendale
filed a Notice of Appeal on December 23, 2009; the Borough filed
a Notice of Cross-Appeal on December 31, 2009, and demanded a
jury trial.
C.
Prior to trial, the Borough filed a motion in limine
seeking an order to strike the reports of East Allendale’s
7
expert witnesses as inadmissible net opinions because in the
reports the experts’ opinions on the reasonable probability of a
zoning change lacked a proper foundation.3 Specifically, the
Borough’s argument focused on the requirements for deviation
from ordinance requirements set forth in the Municipal Land Use
Law (MLUL), N.J.S.A. 40:55D-1 to -163. Submitted with the
motion were the reports as well as the deposition testimony of
East Allendale’s expert witnesses, David Hals, Peter Steck,
Shergoh Alkilani, and Jon Brody. In the alternative, the
Borough requested that the court perform its gatekeeping duty by
conducting a preliminary Rule 104 hearing outside the presence
of the jury to assess whether there was a reasonable probability
of a zoning change for the property. See Caoili, supra, 135
N.J. at 252. East Allendale filed its own motion in limine to
bar the report of the Borough’s appraisal expert.
The trial court denied the Borough’s motions, as well as
East Allendale’s, determining to defer until trial any decision
on whether the reports of East Allendale’s experts constituted
net opinions about whether there was a reasonable probability of
3
The opinions were characterized by the Borough as net opinions.
See Pomerantz Paper Corp. v. New Cmty. Corp., 207 N.J. 344, 372
(2011) (explaining that “net opinion” is “an expert’s bare
opinion that has no support in factual evidence or similar data”
(citations omitted)). An expert must provide the “‘why and
wherefore’ that supports the opinion, ‘rather than a mere
conclusion.’” Ibid. (quoting Polzo v. Cnty. of Essex, 196 N.J.
569, 583 (2008)).
8
a zoning change. The court expressed its view that the defense
could “build a proper foundation which [would] not make those
opinions net opinions” and, therefore, concluded that the
testimony would be heard and objections considered at trial.
Considering the Borough’s alternative application for a
Rule 104 hearing to be conducted pretrial, the court determined
that such a hearing would be inefficient in terms of both time
and money, and would not serve the interest of justice. The
court stated that it could not rule based on the briefs because
it could not “weigh testimony,” could not “decide on
credibility,” and could not “weigh the import of expert
opinions.” The court did not regard Caoili as requiring it, “as
gatekeeper, to have an expansive hearing prior to trial in order
to fully vet these issues.” Rather, the court determined that
N.J.R.E. 611 permitted the court to determine the most
“efficient use of [his] time, the Court’s time, counsel’s [sic]
time, the parties’ time, and the jury’s time in terms of time
and expense,” explaining that a “three, four, five, six, seven-
day evidential hearing” would incur “undue expense and time and
money for all the parties.” The court explained that the
gatekeeper function could be performed during trial because the
court could voir dire witnesses regarding qualifications and
could conduct a Rule 104 hearing prior to a witness taking the
stand. Further, the court expressed the view that jurors would
9
be capable of hearing information and putting it aside if the
court instructed them to do so.
Pretrial, East Allendale also sought the court’s
authorization to present testimony at trial that the zoning
ordinance requiring 30 percent improved lot coverage in the O-1
zone was invalid, claiming that the ordinance “makes no rational
sense whatsoever, is not reasonably related to any zoning
purpose and has never been enforced against anyone in the
history of the town.” East Allendale contended that there was
“[n]o reasonable likelihood that this ordinance could be
enforced to deny a land use application by a prospective
purchaser in this case.” However, the court refused to hold
that, as a matter of law, the ordinance was invalid, explaining
that this was not an action in lieu of prerogative writs and
therefore the validity of the ordinance was not before the
court.
D.
The trial began on October 18, 2010, and ended on November
3, 2010. The sole issue for determination was the just
compensation due East Allendale. To supplement the stipulation
that the highest and best use of the property would be a bank,
East Allendale’s expert Shergoh Alkilani, a retail and bank
developer, had prepared a feasibility report showing the
suitability of the property as a bank site. Alkilani testified
10
in accordance with that report that the property was a prime
location for a bank and further explained how the demographics
and income growth in the Borough supported not a simple bank
branch but a bank headquarters in the location. East
Allendale’s other experts then testified about three proposed
options for that form of bank building.
1.
East Allendale’s first proposal was the 10,000 square foot
bank building, which was the subject of East Allendale’s 2004
application to the Board, developed by David Hals. This
building would house a 2,000 square foot bank and have 8,000
square feet for offices. The entire building would be located
on the O-1 portion of the property. A proposed parking lot
would be located on the R-1 portion of the property, and as
noted earlier, the parties agreed that a use variance for the
parking lot would have been granted under AMG. However, this
application also would have required a bulk variance, pursuant
to N.J.S.A. 40:55D-70(c), for a total improved lot coverage that
constituted 42 percent, instead of the 30 percent improved lot
coverage permitted under the Borough’s requirements for O-1
zoned property. East Allendale presented evidence that a “c-2”
11
or “flexible” bulk variance4 would have been granted for this
proposed use.
Notwithstanding that the 2004 application had been
withdrawn in the face of citizen opposition and critical
questioning when it had been before the Board, Hals opined at
the condemnation proceeding that there was a reasonable
likelihood that the application would be entitled to both a use
variance for placement of the parking in the R-1 zone of the lot
and a bulk variance for the intensity of the use in excess of
the requirements of the O-1 zone. Hals opined that it would not
be possible to construct a usable bank/office building that met
all of the ordinance requirements, including the 30 percent
improved lot coverage and the front and side yard setbacks.
Hals presented the Borough’s ordinance changes, which showed
that the improved lot coverage in the O-1 office zone and B-1
4
See N.J.S.A. 40:55-70(c)(2) (requiring that application in
respect of property demonstrates that “purposes of [MLUL] would
be advanced by a deviation from . . . ordinance requirements and
the benefits of the deviation would substantially outweigh any
detriment”). Thus, this variance approval required the party
requesting the variance to prove both positive and negative
criteria: there must be a benefit to the community from
granting the variance that outweighs the detriment to the zoning
plan, and the purposes of the MLUL must be advanced. See Medici
v. BPR Co., 107 N.J. 1, 22-24 (1987); see also TSI E. Brunswick,
LLC v. Zoning Bd. Of Adjustment of E. Brunswick, 215 N.J. 26(2013) (noting same and addressing quality of proof issues).
The purposes of the MLUL include the provision of “adequate
light, air and open space,” the provision of certain uses to
serve the needs of the community, advancing the aesthetics of
the development, and safeguarding the environment. See
generally N.J.S.A. 40:55D-2.
12
business zone previously had permitted 75 percent of improved
lot coverage and he highlighted the ordinance revision that, in
1987, established the O-1 zone’s current 30 percent improved lot
coverage limitation. Additionally, Hals testified about
commercial development in the Borough and represented that none
of the commercial properties complied with the existing 30
percent improved lot coverage requirement. That current
“noncompliance” –- concededly existing as a result of property
improvement previously approved under prior versions of the
zoning ordinance -- was asserted to be inconsistent with the
objectives of the MLUL.
Throughout Hals’s testimony, the Borough objected to his
opinions on the basis that they lacked a foundation. The
objections were not successful and the testimony was admitted.
The judge conducted an N.J.R.E. 104 hearing, outside the
presence of the jury, specifically to determine whether Hals’s
testimony analyzing other municipalities’ zoning ordinances was
relevant to whether the Borough would have granted a bulk
variance in this case. The court permitted Hals to testify that
he would have made a c-2 bulk variance application and to
present the arguments that he would have set before the Board,
including his argument that ordinances in other municipalities
made it reasonable for the Board to grant a bulk variance in
this case.
13
Before the jury, Hals testified to the information allowed
by the court’s ruling described above and, further, that the
variance would be granted by the Board because the application
would advance the purposes of the MLUL: the application would
be consistent with other commercial property layouts in town;
the layout is aesthetically pleasing; the landscaping would
promote adequate light, air, and open space; there is no
overbuilding of the property by using 42 percent improved lot
coverage; and the site plan is sensitive to the surrounding
residential areas. Beyond that, Hals did not further address
how the granting of the bulk variance for this specific property
would provide a positive benefit to the community from a zoning
perspective. Nor did he specifically address how the variance
could be granted without impairing the intent and purpose of the
zone plan and ordinance (the negative criteria), which is what
the Board would have been required to conclude in order to grant
the variance. Hals pointed to earlier approvals granted when
the Borough had more lax standards in place, which does not
address the current intent and purpose of the zone plan and
ordinance. He also noted actions taken in other towns in
respect of improved lot coverage but that is ordinarily not
relevant to the instant town’s zone plan. Nevertheless, based
on that analysis, Hals opined that the “c-2” flexible bulk
14
variance for the improved lot coverage had a reasonable
probability of being granted.
Peter Steck, a professional planning expert who reviewed
Hals’s 2004 plan, also opined that the property would justify a
use variance, pursuant to AMG, for parking, as well as a bulk
variance allowing either for a reduction in the required number
of parking spaces or to permit the 42 percent lot coverage. In
his opinion, it would be possible to obtain a bulk variance to
reduce the number of parking spaces required for the building
because other municipalities required less parking for banks.5
He ultimately opined that there was a reasonable probability
that a 10,000 square foot bank building could be approved with
variances.
Additionally, Conrad Caruso, a former Borough mayor and
Planning Board member, and an investor in the proposed new bank,
testified about the 2004 application. He asserted that the
application was withdrawn because it was not in the best
interests of the bank’s investors and that, as a result, he had
discussed a leasing option with East Allendale and its
5
Steck opined that either a hardship bulk variance, see N.J.S.A.
40:55D-70(c)(1), or a flexible bulk variance had a reasonable
probability of being granted, although East Allendale’s
application was premised on a flexible variance. He opined that
either would be consistent with the MLUL in terms of
demonstrating the required positive and negative criteria and
would achieve the MLUL’s purposes, essentially for the same
reasons as those stated by Hals.
15
investors. During cross-examination of Caruso, the judge
conducted an N.J.R.E. 104 hearing, outside the presence of the
jury, regarding prior statements made by then-Mayor Caruso in a
local newspaper article regarding the reasons for withdrawing
the 2004 application. The judge permitted the testimony, and
Caruso admitted, on cross-examination before the jury, that he
had made prior statements regarding a potential smaller bank on
the property because the community and Board would not permit a
building of the size requested in the 2004 application.
Jon Brody, an expert real estate appraiser and consultant,
prepared an appraisal report that was based on Hals’s report of
the 2004 site plan provisions, the location of the property, the
demographics, and the zoning provisions. He agreed that the
highest and best use of the property was a bank. Outside the
presence of the jury, the court conducted an N.J.R.E. 104
hearing, heard argument from the parties, and concluded that
Brody could testify that, based on his review of Hals’s opinion
and his experience as an appraiser, there was a reasonable
probability that the variance would be granted. However, the
court prohibited Brody from explaining why the variance would
have been approved because he was not a professional planner and
thus not qualified as an expert to make that assessment.
Nevertheless, Brody subsequently opined that the bulk variance
would have been approved.
16
Brody discussed the comparable sales and adjustments he
used to determine the fair market value of the property at the
time of the Borough’s taking. His appraisal compared four
properties purchased for the purpose of a bank, as well as three
leases. One property in Norwood sold for $2,650,000. A second
property, located in Hackensack, was purchased by Commerce Bank
for $2,300,000. A third property in Elmwood Park sold for
$1,862,500. The fourth comparable involved property located in
Garfield that sold for $3,000,000. Brody adjusted those sales
downward by 15 percent for the risk of approvals and made
additional adjustments for time, location, and characteristics
of the property. The comparables that involved leases adjusted
to a sale price for comparison purposes included an East
Rutherford property, with a sale price of $2,648,000, property
in Paramus, with a sale price of $2,940,000, and property
located in Hackensack and leased to Mariners Bank, with a sale
price of $2,268,000.
Finally, Brody used three methods to determine the value of
East Allendale’s property. A square-foot-of-land analysis
resulted in a valuation of $5,567,000; a floor-ratio analysis
resulted in a valuation of $5,180,000; and a lease analysis
resulted in a valuation calculated to be $5,050,000. From those
analyses, Brody concluded that the property had a fair market
value of $5,250,000 as of November 8, 2006.
17
2.
East Allendale’s second proposal included a 10,000 square
foot bank building with parking underneath the building. In
this plan the building proposed would straddle the two zones,
which altered the variances that would be required. According
to Hals, this layout would not have required a bulk variance
because it would conform to the 30 percent improved lot coverage
requirement and would only require a use variance. However,
Hals opined that the 2004 site plan was a better zoning
alternative.
3.
The final site plan proposed by East Allendale was
developed in 2006 by Geof Mulford, a principal investor of the
66 East Allendale property. This plan envisioned a subdivision
of the property for a 6,000 square foot bank building on the O-1
portion of the lot and a residence located on the R-1 portion of
the lot. This plan necessitated at least three variances.
Mulford testified that these plans were abandoned. He did not
seek approval for them because the Borough voted to obtain the
funding to acquire East Allendale’s property. Mulford stated
that he believed both the 2004 plan and the 2006 plan would have
been approved and would have given him the same return.
Hals conceded that this third plan would have required
numerous variances but nevertheless opined that the plan had a
18
reasonable probability of being approved, although he gave no
specific explanation as to how this plan would have met the
positive and negative criteria.
4.
The Borough’s experts proposed a site plan that provided
for a 3,312 square foot bank branch. Martin Spence, the Borough
Engineer, and Richard Preiss, a professional planner, developed
the plan for the property together. Spence testified that the
only required variance would have been a use variance to allow
the parking lot to be built in the R-1 zone, and the Borough
conceded that a use variance would have been granted pursuant to
AMG. A bulk variance under the Borough’s plan would have been
unnecessary because the improved lot coverage was below 30
percent. Preiss, an expert in municipal planning, testified
that the 3,312 square foot bank branch was a reasonable use of
the property because it placed the bank building in the O-1
zone, would meet the improved lot coverage limitation, and
permitted the parking in the R-1 zone as a reasonable use with
the least detrimental impact on the residential portion of the
property as permitted by AMG.
Hugh McGuire, an expert in real estate appraisal, supported
the findings and conclusions in Preiss’ report. Based on his
experience appraising other bank branches, McGuire concluded
that the highest and best use of the property was a single-story
19
bank branch. McGuire discussed in detail four comparable sales
that he used to determine the fair market of East Allendale’s
property, all of which had approvals in place at the time of
sale.6 He then subtracted 25 percent from the sales prices of
those comparables to adjust for the fact that each involved a
contract of sale with all land use approvals for the intended
use in place as opposed to the situation involving East
Allendale’s property. He also made time adjustments for market
conditions, location adjustments, and riparian buffer
adjustments because a portion of the property was unusable due
to the flowing waters nearby. After applying the adjustments
and reviewing the dollar per square foot for each comparable,
McGuire determined that East Allendale’s property’s fair market
value was $400 per square foot and, accordingly, the 3,312
square foot bank building would have a fair market value of
$1,325,000.
The Borough’s witnesses also criticized East Allendale’s
proposed plans. Spence pointed out several items that were
missing from the East Allendale application, including a
drainage plan, a traffic impact study, and a lighting design.
More importantly for purposes of this appeal, Spence disputed
the opinion of Hals that the 2004 site plan had a reasonable
probability of achieving approval for the bulk variance that it
6
We note that two of these comparable sales were used by Brody.
20
needed. Preiss opined that East Allendale’s plan went beyond
the reasonable use of the property, that a bulk variance would
not have the least detrimental impact on the zoning plan, and
that, in fact, the variance would cause a substantial detriment
to the zoning plan, therefore failing to satisfy the negative
criteria. He further opined that an office building in the O-1
zone and a residential dwelling in the R-1 zone would be
feasible, but that a bank branch in the O-1 zone under this type
of plan would not be a viable option due to its small size and
lack of a drive-through. Alternatively, he opined that a bank
branch in the O-1 zone, encroaching into the R-1 zone, along
with a residence on the R-1 zone (essentially Mulford’s 2006
plan) would not reasonably have been approved.
5.
On November 3, 2010, prior to jury deliberation, the
Borough renewed its motion to strike the testimony of East
Allendale’s experts, Steck, Hals, and Brody. The court denied
the application, stating:
I find that there’s enough of a –- of a
finding of a reasonable probability of a
potential zoning change, as I understand the
law in Caoili.
I simply point briefly to the prior –-
the revisit to the zoning change that was
proffered. The weights of that, the
political issues behind that by the planner
is well before this jury. Nevertheless, it
was considered –- this potential zoning
21
change was considered by the Borough at
least once.
Secondly, the Court also points out as
I’m permitted to do that although the
evidence as to other zoning changes during
the pendency of the issues involving the
plaintiff and defendant were brought before
the town officials and they considered
zoning changes. Although that’s not
evidential for this jury purposes and in
fact would be inappropriate because they
were in the context of settlement
discussions and it would be highly improper
for the reasons I’ve articulated to have the
jury hear that. Nevertheless, I can
consider those type of non evidentiary
issues from my gate –- my threshold
findings, as I do in any rulings on
evidence.
And that there are also indications
that this Borough has made zoning changes to
office portions of their zoning and the
issues of the –- the commercial zone and the
office zone and the preexisting use and the
difficulties of the split zoning and for all
those issues I reject the plaintiff’s motion
to strike the testimony of those various
experts and that issue will be presented to
the jury for their consideration. That is,
they may consider the possibility of a
zoning change, which would, therefore,
impact the value of the property.
After the court instructed the jury on the law, the jury
returned a verdict for East Allendale for just compensation in
the amount of $5,250,000.
The Borough filed a Motion for a New Trial or, in the
alternative, Remittitur on November 23, 2010. The Borough
argued that the court erred by permitting “defendant’s expert
22
testimony on the probability of the grant of the variance.”
Specifically, the Borough took issue with the testimony of Hals
and Steck, which contributed to the appraisal testimony of
Brody. The Borough claimed that Steck and Hals did not address
both the positive and negative criteria as required by the MLUL
to show that it was reasonably probable that the bulk variance
would have been granted. The Borough asserted that the error
resulted from the trial court’s failure to perform properly its
gatekeeping function as required by Caoili.
The court denied the Borough’s motion, noting that its
arguments were presented and argued pretrial and during trial.
The court reiterated its conclusion that the opinions of Hals
and Steck were not net opinions. Rather, in the court’s view,
they provided evidentiary support that a zoning change was
probable and that it was reasonable for Brody to rely on those
opinions for his appraisal. The court also asserted that it
performed its gatekeeping function under Caoili to determine
that the bulk variance would have been reasonably granted. The
court entered an order denying the Borough’s motion on January
7, 2011, and entered final judgment for East Allendale in the
amount of $5,250,000 the same day. An appeal and cross-appeal
were timely filed with the Appellate Division.
E.
23
On appeal, the parties reiterated arguments raised in the
motion for a new trial and throughout the trial, including
whether the court properly performed its gatekeeping function
and whether the opinion testimony should have been admitted into
evidence before the jury. The Borough first argued the trial
court failed to perform its gatekeeping function properly to
determine whether, as a matter of law, there was a reasonable
probability of variance approval before submitting the issue to
the jury. Second, the Borough asserted that as a result of the
court’s failure to treat the reasonable probability of approval
inquiry as a question of law, the court charged the jury with an
unclear and misleading instruction -- one that allowed the jury
to determine as issues of fact what change would have been
permitted and what a reasonable Board would approve. Third, the
Borough argued that the court should have barred East
Allendale’s appraisal testimony because Brody used a flawed and
improper methodology and based his appraisal on net opinions.
East Allendale contended that there was no fatal flaw in the
trial court’s procedural handling of the case and that the
expert testimony was properly admitted.
The Appellate Division rejected the Borough’s arguments
that the jury should not have heard the evidence about the
reasonable probability of a zoning change, concluding that there
was sufficient evidence of a reasonable probability of a zoning
24
change and that the jury could consider that evidence. Borough
of Saddle River v. 66 E. Allendale, LLC, 424 N.J. Super. 516,
522 (App. Div. 2012). The panel stated that although it was
“preferable [for the court] to make the threshold determination
before the trial begins,” given that the pretrial hearing could
have been seven days, the judge did not abuse his discretion in
concluding that the evidence met the reasonable probability
requirement before closing arguments. Ibid.
Further, the panel concluded that the case law did not
support the standard of proof urged by the Borough in which the
trial judge must screen out unreliable evidence as part of the
gatekeeping function. Id. at 530. Prior to commencing trial,
the trial judge determined that the court’s authority under
N.J.R.E. 611 provided him the ability to determine how most
efficiently to manage the proceedings. Id. at 531-33.
Ultimately, the “judge did not abuse his discretion in deciding
that the evidence was sufficient to warrant a determination by
the jury that a zoning change was reasonably probable.” Id. at
534. In this case, the panel concluded that “the evidence was
therefore not unduly speculative or potentially unreliable.”
Id. at 535 (citation omitted).
The panel also rejected the argument about erroneous jury
instructions, which allowed the jury to consider the reasonable
probability of the zoning board’s approval of the bulk variance.
25
Id. at 536. Related to that argument, the panel explained that
Caoili does not require the judge to conduct a pretrial hearing
in every case, although the panel recognized that Caoili had
been interpreted to require “the judge [to] make a threshold
determination as to whether the prospective zoning change is
reasonably probable in the near future.” Ibid. (quotation marks
and citation omitted). However, due to the trial court’s
estimate about the length of time the pretrial hearing would
have taken in this case, the panel declined to find that the
judge abused his discretion in performing his required
gatekeeping function before closing arguments, instead of before
the jury heard the evidence. Ibid. The panel stated that “[a]s
with any other evidence inappropriate for the jury room, the
judge may instruct the jury to disregard proofs that fail to
meet the threshold standard of sufficiency.” Ibid. (citations
omitted).
With respect to the Borough’s objections that the expert
testimony was based on net opinions, the panel determined that
there existed a “sufficient objective foundation for Hals’s
conclusion that the zoning board would likely grant a variance
for the improved lot coverage.” Id. at 538. Further, because
there was a sufficient foundation for Hals’s opinion, the panel
determined that there was a sufficient foundation for Steck’s
26
opinion and that there existed a proper basis for Brody’s
appraisal. Id. at 538-39.7
We granted the Borough’s petition for certification. 211
N.J. 274 (2012). We also granted leave to the New Jersey State
League of Municipalities to appear as amicus curiae.
II.
A.
As this Court recently stated,
[t]he right to “just compensation” when the
government takes property for a public use
is one of the essential guarantees of both
the United States and New Jersey
Constitutions. U.S. Const. amend. V (“[N]or
shall private property be taken for public
use, without just compensation.”); N.J.
Const. art. I, ¶ 20 (“Private property shall
not be taken for public use without just
compensation.”). This fundamental right is
of ancient origin, predating the founding of
our Republic, and is found even in the text
of the Magna Carta. Magna Carta ch. 28
(1215), reprinted in The Anglo-American
Legal Heritage 84 (Daniel R. Coquillette, 2d
ed. 2004) (“No constable or other bailiff of
ours shall take grain or other chattels of
any one without immediate payment therefor
in money . . . .”).
[Borough of Harvey Cedars v. Karan, ___ N.J.
214 N.J. 384, 402 (2013) (citation and
footnote omitted).]
7
The panel also considered East Allendale’s cross-appeal on
whether compound interest should have been awarded on the
judgment, id. at 539, and found no abuse of discretion in the
trial court’s determination to apply a simple rate of interest,
id. at 542. That issue is not before us.
27
In implementing constitutional requirements governing the
taking of private property for government’s use, the Eminent
Domain Act of 1971, N.J.S.A. 20:3-1 to -50, requires the state
or one of its municipalities to pay the property owner just
compensation for the taking of private property. Thus, when a
parcel of property is acquired through the power of eminent
domain, the landowner is entitled to receive from the state or
municipality just compensation, defined as “the fair market
value of the property as of the date of the taking, determined
by what a willing buyer and a willing seller would agree to,
neither being under any compulsion to act.” State v. Silver, 92
N.J. 507, 513 (1983); accord Caoili, supra, 135 N.J. at 260
(same). “[A]ll reasonable uses of the property bear on its fair
market value[, but] most relevant in ascertaining fair market
value is the property’s highest and best use.” Caoili, supra,
135 N.J. at 260. The highest and best use is the use that
produces the highest value, provided the use can be legally and
physically achieved. Cnty. of Monmouth v. Hilton, 334 N.J.
Super. 582, 587-88 (App. Div. 2000), certif. denied, 167 N.J.
633 (2001).
What constitutes a reasonable use of the property must be
“considered in light of any zoning restrictions that apply to
the property,” rendering zoning restrictions “material factors
in determining its fair market value.” Caoili, supra, 135 N.J.
28at 260. In two previous opinions, first Gorga and then as
reaffirmed in Caoili, this Court set forth a standard to govern
the consideration of zoning changes in respect of the future use
of a property being valued for condemnation. See id. at 261,
265. We turn to those seminal cases.
B.
The dispositive issue in Gorga, supra, concerned the fair
market value of a property on the date of the taking. 26 N.J.
at 115. The State contended that a potential amendment to a
zoning ordinance made after the date of the taking should not be
considered in determining the market value a reasonable buyer
and seller would fix to the property. Id. at 118. Our Court
concluded that a potential amendment to a zoning ordinance may
affect the value of the property and designated, as a question
of fact, whether the potential zoning change would affect the
property value. Id. at 117. However, we cautioned that a court
must first determine whether there is evidence of the
probability of the zoning change before submitting the issue to
the jury. Ibid.
Gorga explained that the permissible uses of land, under
the current applicable zoning ordinance, are critical in the
determination of the fair market value of the property. Id. at
116. The jury may consider the value of the property if it were
rezoned but only in determining the premium a willing buyer
29
would pay in addition to the value of the property under the
existing ordinance. Id. at 117. In other words, after the
judge determines that there is evidence of a probability of a
zoning change, the jury then is to decide whether the parties to
the transaction would consider the probability of the zoning
change in formulating the value of the property. Ibid. Thus,
the jury may consider the future ordinance amendment as evidence
demonstrating that at the time of the taking the zoning change
was reasonably probable and thus could affect the market value
and the setting of fair compensation. Id. at 118.
Following Gorga, we clarified its operational approach in
Caoili, supra, establishing a clear two-step process:
[I]n determining the fair market value of
condemned property as a basis for just
compensation, the jury may consider a
potential zoning change affecting the use of
the property provided the court is satisfied
that the evidence is sufficient to warrant a
determination that such a change is
reasonably probable.
[135 N.J. at 265.]
The two-step approach was explained as necessary to avoid
“unbridled speculation” on the fair market value of the
property. Id. at 264 (internal quotation marks and citation
omitted). Under Caoili’s framework, a court first must
determine whether there is sufficient evidence to support the
conclusion that a zoning change is “reasonably probable.” Id.
30
at 265. That evidence must “indicat[e] beyond a mere
possibility that a change of use is likely and, further, that
such a change would be an important factor in the valuation of
the property.” Id. at 264. The court performs this
“gatekeeping function by screening out potentially unreliable
evidence and admitting only evidence that would warrant or
support a finding that a zoning change is probable.” Ibid. In
Caoili a trial court was instructed in the future to place on
the record its basis for finding that sufficient evidence exists
of a reasonable probability of a zoning change. See ibid.8
After that determination is made, the jury determines in a
second step whether “a buyer and seller engaged in voluntary
negotiations over the fair market value of the property [would
reasonably believe] that a change may occur and will have an
impact on the value of the property.” Id. at 264-65. This
determination does not require the jury to find that the zoning
change is probable, nor to determine the degree of probability
of the zoning change. Ibid. Instead, “even though the parties
to a voluntary transaction may not believe that a zoning change
is more likely than not, their belief that there may be a change
should be taken into account if that belief is reasonable and it
8
That the process prescribed was not followed in the proceedings
in Caoili, and the deficiency was treated as a question of
harmless error in that matter, should not provide present day
courts with a refuge from adhering to the threshold gatekeeping
procedure that the Caoili Court outlined.
31
affects their assessment of the property’s value.” Id. at 265
(internal quotation marks and citation omitted). The parties’
belief “may be considered in fixing just compensation in light
of the weight and effect that reasonable buyers and sellers
would give to such evidence in their determination of the fair
market value of the property.” Ibid. This Court in Caoili
concluded that a jury could consider future variance approval
and potential subdivision of the property in the valuation
analysis. Id. at 265, 267.
Courts have applied the Caoili two-step process to evaluate
opinions as to valuation of property based on a variety of
future changes pertaining to a parcel of property. The
Appellate Division in Hilton, supra, established that a jury may
take into account the future assemblage of properties to
determine fair market value. 334 N.J. Super. at 594. The
Appellate Division also has recognized that the jury could
consider the reasonable probability of future site plan approval
when determining fair market value compensation. State by
Comm’r of Transp. v. Hope Road Assocs., 266 N.J. Super. 633,
647-48 (App. Div. 1993), modified in part, 136 N.J. 27 (1994).
The utility of a two-step process is demonstrated further
during the jury’s actual determination of a just compensation
award that takes into account a premium based on the reasonable
probability of a zoning change. See Gorga, supra, 26 N.J. at
32
117 (“At most a buyer would pay a premium for that probability
in addition to what the property is worth under the restrictions
of the existing ordinance.”); see, e.g., State by Comm’r of
Transp. v. Market Assocs., 134 N.J. Super. 282, 285 (App. Div.
1975). The jury first must value the property in its current
condition, considering the zoning at the time of the taking,
which establishes the base value. Market Assocs., supra, 134
N.J. Super. at 285. And, second, the jury may consider the
probability of the future zoning change or variance approval in
determining the premium a buyer and seller would fix to the
property. Ibid. That premium is added to the base value and
includes an assessment of the risk of the change occurring or
being approved. Ibid.
That authority guides our determination in this dispute.
III.
A.
In this instance, the Borough claims the trial proceedings
were flawed because the trial court did not bar East Allendale’s
experts’ testimony expressing opinions on the issuance of a c-2
bulk variance. To reiterate, the Borough’s argument, simply
stated, is as follows.
The Borough contends that Hals, Steck, and Brody proffered
net opinions in their reports, and as elucidated through
deposition testimony prior to trial, by concluding that a bulk
33
variance was reasonably probable to be granted. Specifically,
the Borough argues that the experts never properly addressed how
the benefits to the community and to the zoning plan would be
advanced by granting the variance from O-1 zoning requirements
and how those benefits substantially outweighed any detriments
to the zoning plan, which is what as the Zoning Board would be
required to do before granting a c-2 flexible variance. See
N.J.S.A. 40:55D-70(c)(2). The Borough contends that the reports
of those experts lacked a proper foundation for the opinions
rendered and that the trial court erred in not resolving the
evidential issue at that stage of the proceeding by striking the
reports and prohibiting the testimony. The Borough argued that
the court had a duty to perform its gatekeeping role under
Caoili to make a finding on the reasonable probability of the
issuance of a bulk variance prior to allowing the jury to hear
the experts’ testimony on valuation that was premised on the
assumption that the bulk variance was reasonably probable to be
granted by the Zoning Board. According to the Borough, if the
trial court was unwilling or unable to reach a determination on
reasonable probability based on the experts’ reports and the
deposition testimony presented pretrial by the Borough, then the
Borough alternatively contended that it was entitled to have the
issue determined through an N.J.R.E. 104 hearing where, it
34
asserted, it would have been demonstrated that East Allendale
was unable to satisfy the standard for reasonable probability.
East Allendale’s argument is simply that the trial court
did not commit an abuse of discretion in handling the
proceedings as it did, in the interests of economy and
efficiency, pursuant to its authority under N.J.R.E. 611. It
contends, further, that the experts’ opinions on the reasonable
probability of a bulk variance issuing for this property were
based on an ample and proper foundation.
B.
Both Gorga and Caoili addressed the trial court’s
gatekeeping duty to assess whether there exists sufficient
evidence of a reasonable probability of a zoning change to
permit an alternate use for a property taken under eminent
domain to be considered when valuing property for just
compensation. See Gorga, supra, 26 N.J. at 117; Caoili, supra,
135 N.J. at 264-65. Nevertheless, this appeal demonstrates the
existence of some confusion as to how and when that gatekeeping
function is to be exercised. The trial court and the Appellate
Division both believed that so long as a determination of
reasonable probability was made prior to the jury’s deliberation
on just compensation, the two-step process set forth in Gorga,
and more particularly in Caoili, would be satisfied. We cannot
agree.
35
The goal of Caoili, supra, was to avoid having the jury
hear and consider speculative evidence that a zoning change was
reasonably probable when assessing what a reasonable buyer and
seller would be willing to pay for the property. See 135 N.J.
at 264 (“The risk of unsound and speculative determinations
concerning fair market value is real when that determination is
based on evidence of a future change that is inherently vague or
tenuous because it suggests no more than the possibility of
change.”). Although typically the highest and best use of a
property is determined based on current zoning conditions, see
Gorga, supra, 26 N.J. at 116, condemnation actions may include
competing experts opining over the likelihood of obtaining a
zoning change if the court first determines that there is a
reasonable probability of such a change. For this reason, only
when the trial court has first determined that the evidence is
of a quality to allow the jury to consider the probability of a
zoning change should the jury be permitted to assess a premium
based on that zoning change, as Caoili, supra, explained. See
135 N.J. at 264-65; see also Gorga, supra, 26 N.J. at 117
(stating same). The gatekeeping function was assigned to the
judge specifically to screen the jury from hearing mere
speculation.
The trial court’s pretrial ruling in the present matter,
which left the determinations to be made at trial, simply failed
36
to satisfy the gatekeeping function that was envisioned, and
described in detail, in Caoili, supra, 135 N.J. at 264-65. If,
as the trial court here concluded, the issue could not be
resolved to the court’s satisfaction on the basis of paper
submissions, then the Borough’s request for a pretrial N.J.R.E.
104 hearing should have been granted and the issue thoroughly
heard and resolved prior to the commencement of the trial in
order that both parties’ trial strategies could be properly
focused.
That said, we do not suggest that every condemnation action
involving a future zoning change will require the trial court to
conduct an N.J.R.E. 104 plenary hearing prior to trial. The
trial court should examine the evidence proffered in support of
the reasonable probability of a zoning change and determine
whether it can render its required determination based on the
papers. However, the court must render its determination that
there exists the reasonable probability of a zoning change based
on the standard that would govern the particular zoning change
under consideration -- here the standard that would govern the
Board’s determination about whether or not to grant a c-2 bulk
variance. Neither the court nor the experts who were permitted
to opine before the jury on the Board’s issuance of a bulk
variance for the improved lot coverage in the O-1 portion of the
property engaged in that analysis completely. We cannot view
37
the existence of expert testimony in this record, even as a
whole when amplified before the jury, as sufficient for the
required threshold finding on reasonable probability that the
court should have made in this matter.
It is not sufficient for experts to opine in conclusory
fashion that such a bulk variance would have been issued in this
matter without addressing all the criteria that the Board would
have to find in order to grant the variance, particularly in
light of the fact that the identical application had been
presented previously to the Board, only to be withdrawn prior to
final Board action after the application had been subjected to
critical Board questioning and citizen opposition. Having an
expert merely repeat the statutory standard for a c-2 bulk
variance, and opine that the application would meet it, is an
insufficient showing on which a court should base a finding of
reasonable probability of the grant of a c-2 bulk variance,
under Caoili, to allow the jury to hear that testimony and
consider the change in zoning when determining just
compensation. An expert must “‘give the why and wherefore’ that
supports the opinion, ‘rather than a mere conclusion.’”
Pomerantz Paper v. New Cmty Corp., 207 N.J. 344, 372 (2011)
(quoting Polzo v. Cnty of Essex, 196 N.J. 569, 583 (2008)).
This is evidence that has a strong capacity to influence the
jury’s valuation decision. The valuation of property taken by
38
eminent domain must be based on sound evidence. The public’s
money is at stake. A property holder is entitled to just
compensation, not a windfall.
In this matter, review of the reports of Hals and Steck
submitted pretrial, and as augmented by deposition testimony
submitted in connection with the Borough’s pretrial motions,
reveals that the analyses inadequately addressed all the
considerations that a Board must consider before it may grant a
c-2 bulk variance. The MLUL sets forth positive and negative
criteria that the Board would have had to consider before the
bulk variance in respect of this property could have been
granted. See N.J.S.A. 40:55D-70(c)(2); see also TSI E.
Brunswick, LLC v. Zoning Bd. of Adjustment of E. Brunswick, 215
N.J. 26, 45-46(2013) (discussing quality of proofs necessary to
establish positive and negative criteria). Neither Halls nor
Steck addressed how granting the bulk variance permitting this
particular property a more intense use than otherwise permitted
by zoning ordinance would “actually benefit the community in
that it represents a better zoning alternative for the
property.” Kaufmann v. Planning Bd. for Twp. of Warren, 110
N.J. 551, 563 (1988). They also failed to illustrate how the
variance could “‘be granted without substantial detriment to the
public good and w[ould] not substantially impair the intent and
the purpose of the zone plan and zoning ordinance.’” See Lang
39
v. Zoning Bd. of Adjustment, 160 N.J. 41, 57 (1999) (quoting
N.J.S.A. 40:55D-70(d)). As noted earlier, all the experts
pointed to in this respect were zoning actions taken in other
towns, which ordinarily are not relevant to a particular
municipality’s zone plan, and properties in Saddle River that
were improved at a time that long preceded enactment of the
current ordinance and therefore were governed by a more lax
standard for improved lot coverage then in place. Put another
way, neither Hals nor Steck explained the “why or wherefore” as
to whether the benefits to the community “substantially
outweigh[ed] any detriment” to the zoning plan as required by
N.J.S.A. 40:55D-70(c)(2). See Pomerantz Paper, supra, 207 N.J.
at 372.9 Furthermore, Brody’s opinion on valuation relied on
Hals’s opinion in respect of the probability of the bulk
variance being granted. Therefore, Brody’s opinion provided no
separate support on that issue. Due to the failure to address
these essential components of a bulk variance application, the
opinions expressed by Hals, Steck, and Brody lacked a proper
foundation for their conclusions and, thus, their opinions
provide an inadequate basis for the finding of a reasonable
9
The Appellate Division relied on Hals’s conclusions in his 2010
report; however, those conclusory statements fail to address,
analyze, and compare the positive and negative criteria outlined
in the standard articulated by the Legislature in N.J.S.A.
40:55D-70(c)(2).
40
probability of a zoning change that the trial court is required
to make in fulfilling its gatekeeper function under Caoili.
The Borough had requested a pretrial hearing as an
alternative to the striking of the experts’ reports prior to
trial in the event that the trial court did not agree that the
reports contained opinions that lacked a proper foundation for
the conclusions reached therein. The court rejected that
application, estimating that a pretrial hearing on the experts’
opinions would be too time-consuming,10 and opted instead to
allow for enhancement of the testimony at trial where an
appropriate foundation might be established. The experts’
testimony did not cure the deficiency in the required analysis
for reasonable probability of issuance of a c-2 bulk variance
for the property.
Thus, the result of the court’s deferral was to permit the
jury to hear speculative testimony about the reasonable
probability of a zoning change authorizing a c-2 bulk variance
for the property. That result was at odds with the careful two-
step approach established in Caoili, which took pains to avoid
having the jury hear such evidence unless and until the trial
court has performed its gatekeeping role and has made a valid
10
In fact, a Rule 104 pretrial hearing would only have been
necessitated for Hals’s and Steck’s opinions that a reasonable
probability existed for the issuance of a bulk variance because
that is the threshold issue for which the court is responsible
under Caoili.
41
finding as to reasonable probability of the zoning change. The
court’s determination must use correct standards for the zoning
change involved, rest on a sound evidential foundation, and be
explained on the record to facilitate appellate review.
Because of the procedures followed in this matter, the
condemnation award in this matter cannot stand. A new trial on
just compensation is required.
IV.
The judgment of the Appellate Division is reversed, and the
matter is remanded for a new trial on just compensation.
JUSTICES HOENS and PATTERSON join in JUSTICE LaVECCHIA’s
opinion. JUSTICE ALBIN filed a separate, dissenting opinion, in
which CHIEF JUSTICE RABNER joins. JUDGES RODRIGUEZ and CUFF
(both temporarily assigned) did not participate.
42
SUPREME COURT OF NEW JERSEY
A-126 September Term 2011
070525
BOROUGH OF SADDLE RIVER,
Plaintiff-Appellant,
v.
66 EAST ALLENDALE, LLC,
Defendant-Respondent.
JUSTICE ALBIN, dissenting.
By ignoring the record, the majority overthrows a damages
award rendered by a jury in a condemnation case after a ten-day
trial. Although the majority and dissent have different
opinions about this case, the majority is not entitled to its
own facts. The majority’s decision cannot be reconciled with
the record. Nor can it be reconciled with the deferential
standard of review that cautions this Court against substituting
its judgment for evidentiary rulings made by the trial court and
factual determinations made by the jury.
The Borough of Saddle River (Borough) took property of 66
East Allendale, LLC (East Allendale) through its power of
eminent domain. East Allendale was entitled to just
compensation for the taking based on the highest and best use of
the property. East Allendale presented expert testimony that
the highest and best use of the property was the construction of
1
a 10,000-square-foot bank. Because construction of a bank
required a bulk variance, East Allendale also presented expert
testimony that it was reasonably probable that the zoning board
of adjustment would have granted such a variance. In contrast,
the Borough offered expert testimony that a bulk variance would
not have been granted.
Based on the record, which included hearing all of the
expert testimony, the trial judge performed his gatekeeping role
and made thorough and careful evidentiary findings. He
concluded that a reasonable probability existed that the zoning
board would have granted a bulk variance. It was for the jury
to determine whether a bulk variance would have been granted and
the fair market value of the property taken by the Borough.
After considering the expert testimony of both sides, the jury
returned an award in favor of East Allendale in the amount of
$5.25 million.
In a thoughtful and well-reasoned opinion by Judge
Fasciale, and joined by Judges Rodríguez and Sabatino, the
Appellate Division affirmed the trial judge’s rulings and the
jury’s award. Borough of Saddle River v. 66 E. Allendale, LLC,
424 N.J. Super. 516 (App. Div. 2012). In reversing the jury,
the trial judge, and the Appellate Division, the majority states
that there was not a foundational basis for East Allendale’s
expert testimony. But to reach that conclusion the majority has
2
to turn a blind eye to the meticulously detailed testimony of
East Allendale’s experts. I dissent because the majority has
failed to give proper deference to the trial court’s evidentiary
rulings and, more importantly, to the factfindings of the jury.
This Court should not be the decisive juror.
Because the majority’s errors flow from its failure to give
East Allendale the benefit of a fair and faithful reading of the
record, it is to the record that I turn.
I.
East Allendale owned a 2.13-acre tract of property in the
Borough of Saddle River on which it had been attempting to
construct a bank. Saddle River, a community zoned 98%
residential, acquired the property through eminent domain for
the purpose of developing a park.
East Allendale’s property straddled the Borough’s office
and residential zones, with one-third of the lot in the office
zone and two-thirds in the residential zone. The Borough’s
ordinances contained an improved-lot-coverage maximum, which
required buildings and accompanying parking lots constructed in
the office zone to occupy no more than 30% of a lot’s total
surface area. East Allendale, however, claimed that the highest
and best use of the property would be the construction of a
3
10,000-square-foot bank building that, with the parking lot,
would cover 42% of the lot’s surface area.
The parties did not dispute that the construction of a bank
would be the highest and best use of the property. Indeed, one
of East Allendale’s experts, a retail and bank developer,
testified that the property was located in a prime spot for a
bank. The Borough also conceded that the zoning board would
have granted East Allendale a use variance to allow parking in
that portion of the lot zoned residential.
The battle lines between the parties were drawn over
whether the zoning board of adjustment would have granted a bulk
variance for East Allendale’s proposed construction of a bank.
So long as the trial judge was persuaded that the grant of a
bulk variance was reasonably probable, then the impact of a
potential variance on the fair market value of the property was
for the jury’s ultimate determination. See State by Comm’r of
Transp. v. Caoili, 135 N.J. 252, 265 (1994) (“[T]he jury may
consider a potential zoning change affecting the use of the
property provided the court is satisfied that the evidence is
sufficient to warrant a determination that such a change is
reasonably probable.”). The trial judge determined that East
Allendale met its evidentiary burden. That the judge made his
ruling after hearing the trial testimony of East Allendale’s
experts clearly would not be a reason for throwing out the
4
jury’s verdict. The judge exercised caution in not rendering a
decision until after hearing the experts’ testimony.
Boiled down to its essence, the question is whether East
Allendale’s experts gave a foundation for their conclusions. An
expert witness must “give the why and wherefore that supports
the opinion,” and not present a mere conclusion. Pomerantz
Paper Corp. v. New Cmty. Corp., 207 N.J. 344, 372 (2011)
(citations omitted). East Allendale’s experts did just that --
they did not give “bare opinion[s] that ha[ve] no support in
factual evidence or similar data.” See ibid.
East Allendale, through its experts, merely had to
establish that there was a reasonable probability that the
variance would have been granted. See Caoili, supra, 135 N.J.
at 265; State by Highway Comm’r v. Gorga, 26 N.J. 113, 116
(1958). For the grant of a bulk variance, as with any variance,
an applicant must satisfy “positive” and “negative” criteria
under N.J.S.A. 40:55D-70c(2) of the Municipal Land Use Law
(MLUL). See Smart SMR, Inc. v. Borough of Fair Lawn Bd. of
Adjustment, 152 N.J. 309, 323 (1998). In order to establish
that it was reasonably probable that the zoning board would
grant the bulk variance, East Allendale had to address the
positive criteria -- that (1) the MLUL’s purposes “would be
advanced by a deviation from the zoning ordinance” and that (2)
“the benefits of the deviation would substantially outweigh any
5
detriment,” N.J.S.A. 40:55D-70c(2), and the negative criteria --
that a variance (3) could be “granted without substantial
detriment to the public good” and (4) “[would] not substantially
impair the intent and the purpose of the zone plan and zoning
ordinance,” N.J.S.A. 40:55D-70. See Kaufmann v. Planning Bd.
for Twp. of Warren, 110 N.J. 551, 553 (1988).
The experts, through their trial testimony and pretrial
reports, presented opinions not only based on an extensive
factual record, but also firmly anchored in the law.
A.
East Allendale offered as experts David Hals, a
professional engineer and planner with degrees in applied
science and civil engineering, and Peter Steck, a professional
planning consultant with degrees in civil engineering and city
and regional planning. In their reports and testimony, they
expressed their expert opinions that there was a reasonable
probability that the zoning board of adjustment would have
granted a bulk variance for the construction of a bank
(comprising 7.11% lot coverage) and a parking lot (comprising
34.89% lot coverage). Jon P. Brody, a certified general
appraiser, also testified that, based on Hals’s proposed plan,
there was a reasonable probability that a variance would have
been granted. Brody concluded that the market value of East
6
Allendale’s property under Hals’s proposed plan was $5,250,000
as of November 8, 2006.
East Allendale’s experts addressed each of the positive
and negative criteria in considering whether a bulk variance was
reasonably probable.1
1.
East Allendale proposed replacing an aging gas station and
constructing a modern bank building. Hals explained in detail,
in his report and testimony, that the substitution of a bank
building for a decrepit gas station was a benefit to the
community because a bank was more consistent with the commercial
character of the area, and thus a more “appropriate development
of the land.” Thus, the bulk variance “would encourage the
appropriate use or development of land” and “promote a desirable
visual environment through good civic design.” See Kaufmann,
supra, 110 N.J. at 562-63 (noting that c(2) “purpose”
requirement may be met by advancing “specific purposes of zoning
set forth in the MLUL”). Additionally, according to Hals, the
proposed parking area behind the bank would preserve open space
1
Steck also opined that it was reasonably probable that the
zoning board would have granted a variance to the parking-space
minimums set forth in the Borough’s ordinance. Under Steck’s
alternative plan, which complied with the 30% improved-lot-
coverage maximum, the zoning board would have approved a bank
building of the same size but with a smaller parking lot. It
does not appear that this alternative theory was pressed by East
Allendale.
7
and maintain sight lines, while embankments and landscaping
would promote a desirable visual environment. Hals emphasized
that a bulk variance was necessary because the existing zoning
ordinance made development of the land nearly impossible. Hals
testified that it was not practicable to construct a 10,000-
square-foot building in a zone with a 30% improved-lot-coverage
maximum.
Consistent with his expert report, Hals explained that none
of the commercial property in Saddle River complied with the 30%
improved-lot-coverage maximum. The other properties in the
office and business zones had improved-lot coverage of between
65% and 85%. Significantly, the Borough’s present 30% coverage
requirement rendered all the properties in the office and
business zones non-conforming uses. Thus, without the grant of
a bulk variance, only East Allendale’s property would be
required to comply with the coverage requirement. Hals’s report
also explained that Saddle River’s improved-lot-coverage maximum
was one-half of that permitted in the ordinances of nearby
municipalities. Therefore, restricting East Allendale to a 30%
improved-lot-coverage maximum was atypical not only in Saddle
River, but also in surrounding communities.
Steck’s report and testimony supported much of Hals’s
presentation. Steck too testified that all the uses in the
Borough’s office zone exceeded the 30% lot coverage and that a
8
failure to grant a bulk variance would not have been consistent
with the MLUL. From his viewpoint, the strict application of
the zoning ordinance would cause an “extreme hardship” because
the property otherwise could not be feasibly developed for
commercial purposes.
2.
Hals also explained that the benefits of the variance would
substantially outweigh any detriment. Hals underscored that the
benefits of a variance included development of the space with an
adequately sized building and parking area, while nonetheless
preserving 58% of the lot for landscaping, greenery, and wooden
areas. Hals also stated that East Allendale intended to place
the parking lot behind the building, thereby screening the
parking lot from view on the street. Meanwhile, any detriments,
such as light pollution and water runoff, were minimized by the
plan’s design.
Steck also concluded that the proposed bank building
conferred significant developmental benefits that outweighed any
detriments. In particular, he stated that Hals’s planned
landscaping and rainwater detention facilities would “address
what would otherwise be looked at as negative aspects.”
3.
Hals testified that the grant of a variance would not have
imposed a substantial detriment to the public good. Hals noted
9
that the proposed development, including its lot coverage, would
be consistent with the businesses in the Borough’s commercial
area. Hals maintained that the proposed improved coverage of
42% was not a “large scale development,” was not “overbuilding
the property,” and that any resulting water runoff could be
readily managed. Hals added that the plan called for adequate
screening between the street and the parking area, and between
the bank and residential areas.
Steck pointed out that the other businesses in the
Borough’s commercial area had lot coverage of over 60%, and thus
the proposed development would be consistent with the office and
business zones. He also maintained that the plan’s proposed
driveways and parking layout were designed with safety in mind.
4.
In concluding that a variance in this case would not
substantially impair the intent and purpose of the zone plan,
Hals considered the existing and past zone plans and that the
proposed bank building would be consistent with the other
commercial uses in the zone. Hals highlighted that the proposed
use was a permitted use in the office zone.
Steck concurred that the proposed bank was consistent with
the office zone and “the history of [the Borough’s] master plan
documents.” He further noted that the Borough had recognized
that, along East Allendale Road, residential use was decreasing
10
and commercial use was increasing and, on that basis, the
Borough had recommended a review of the zoning plan in that
area. Steck stressed that East Allendale’s plan would enable
“reasonable use” of its property given its location in the
Borough’s commercial area.
II.
A.
The trial judge denied the Borough’s motion to strike East
Allendale’s expert opinions. The judge concluded that the
opinions of East Allendale’s experts were grounded in the
record. In denying the Borough’s motion for a new trial, the
judge cited to the evidentiary support for his conclusion that
there was a reasonable probability that a bulk variance would
have been granted. The judge pointed out that: (1) the Borough
had granted similar variances in the past; (2) no existing
properties in the office zone complied with the 30% improved-
lot-coverage maximum, and past developments had 65-80% improved-
lot coverage; and (3) the proposed plan would conform to the
physical characteristics of the surrounding commercial
properties and not adversely impact nearby residential
properties.
B.
11
Hundreds of pages of reports, deposition testimony, and
trial testimony amply support the trial judge’s determination
that both Hals and Steck gave the “why and wherefore” of their
opinions. No fair reading of this record suggests that their
opinions were lacking in factual and legal support. Moreover,
the majority has seemingly raised the bar for obtaining a bulk
variance. If this record does not show that there was a
reasonable probability that a zoning board would or should have
granted a bulk variance, then we are unlikely ever to see such a
record. In this regard, the majority’s opinion may have
unintended consequences in typical applications for bulk
variances.
C.
Today, the majority holds that the determination of whether
a zoning variance was reasonably probable should be decided in a
pretrial hearing. Neither Gorga nor Caoili instructs trial
judges to perform the gatekeeping function before witness
testimony is presented to the jury.
Indeed, nothing in N.J.R.E. 104(a) suggests that the trial
judge could not have proceeded as he did. The judge did not
feel prepared to make the admissibility determination based on
the expert reports and deposition testimony -- the cold record.
Instead, he wanted to hear from the witnesses themselves, and,
to conserve judicial resources, he decided not to conduct a
12
multi-day dry run. In accordance with N.J.R.E. 104(a), he
permitted the expert witnesses to testify and withheld the
admissibility determination until a later time. See N.J.R.E.
104(a) (“When the . . . admissibility of evidence . . . is
subject to a condition, and the fulfillment of the condition is
in issue, that issue is to be determined by the judge.”).
Although N.J.R.E. 104(a) permits a judge to “hear and determine
such matters out of the presence or hearing of the jury,” he is
not required to do so. Judges are given broad discretion to
manage the presentation of witnesses to “avoid needless
consumption of time.” N.J.R.E. 611(a). So long as the trial
judge correctly decided the admissibility of the expert
testimony and correctly submitted to the jury the zoning
variance issue, there is no reason to overturn the jury’s
verdict.
D.
To summarize, it is not the function of this Court to
substitute its evidentiary decisions for those of the trial
court. “[W]e apply . . . [a] deferential approach to a trial
court’s decision to admit expert testimony, reviewing it against
an abuse of discretion standard.” Pomerantz Paper, supra, 207
N.J. at 371-72 (citing Kuehn v. Pub Zone, 364 N.J. Super. 301,
319-21 (App. Div. 2003), certif. denied, 178 N.J. 454 (2004));
see also Carey v. Lovett, 132 N.J. 44, 64 (1993) (“Ordinarily,
13
the competency of a witness to testify as an expert is remitted
to the sound discretion of the trial court. Absent a clear
abuse of discretion, an appellate court will not interfere with
the exercise of that discretion.”) (citing Henningsen v.
Bloomfield Motors, Inc., 32 N.J. 358, 411 (1960)).
The majority has merely substituted its judgment for that
of the trial judge, who not only had the opportunity to hear the
witnesses’ testimony, but also had the feel of the case, which
can never be conveyed by the cold record. The record clearly
supports the trial judge’s decision to admit the expert
testimony and to submit the issue concerning the zoning variance
to the jury. Even if this case were a close call, which it is
not, we would be required to defer. In my view, the majority’s
decision to reverse both the trial judge and the Appellate
Division is without foundation.
For this reason, I respectfully dissent.
CHIEF JUSTICE RABNER joins in this opinion.
14
SUPREME COURT OF NEW JERSEY
NO. A-126 SEPTEMBER TERM 2011
ON CERTIFICATION TO Appellate Division, Superior Court
BOROUGH OF SADDLE RIVER,
Plaintiff-Appellant,
v.
66 EAST ALLENDALE, LLC,
Defendant-Respondent.
DECIDED October 21, 2013
Chief Justice Rabner PRESIDING
OPINION BY Justice LaVecchia
CONCURRING/DISSENTING OPINIONS BY
DISSENTING OPINION BY Justice Albin
REVERSE AND
CHECKLIST AFFIRM
REMAND
CHIEF JUSTICE RABNER X
JUSTICE LaVECCHIA X
JUSTICE ALBIN X
JUSTICE HOENS X
JUSTICE PATTERSON X
JUDGE RODRÍGUEZ (t/a) ------------------------ --------------------
JUDGE CUFF (t/a) ------------------------ --------------------
TOTALS 3 2
1