NJ Court Reaffirms Difficulty of Asserting Damage Claims Under Substantive Due Process in Land Use Cases

June 2011Newsletters In the Zone

In Rezem Family Associates v. The Borough of Millstone, et al., the New Jersey Appellate Division reaffirmed the difficulty of pursuing substantive due process damage claims against municipal entities and individuals. The court held that to secure damages under a substantive due process claim pursuant to either the federal §1983 of the Civil Rights Act or New Jersey’s Civil Rights Act, N.J.S.A. 10:6-1 and 2, in a land use context, governmental misconduct most both “shock the conscience,” and the plaintiff must exhaust all remedies under New Jersey’s Municipal Land Use Law, N.J.S.A. 40:55D-1 et seq.

The Rezem family owned 67 acres of vacant property in the Borough of Millstone in Somerset County. The subject property was the locus of the new Amwell Road Bypass, which construction created three new parcels, all still owned by the Rezem Trust. The property had been originally zoned Light Industrial, and for a period of almost 10 years, the borough and the Rezem Trust considered various rezoning options for the parcel.

During the course of considering the rezoning, various borough officials and planners allegedly made statements that were knowingly false and advised contract purchasers of the Rezem property that the borough rezoning would not permit their proposed developments. In 2006, the borough proposed a mixed use planned development for a portion of the Rezem property, subject to the Rezem family agreeing to preserve approximately 45 acres of its property for open space.

In 2009, the Rezem family agreed to sell the entire tract to Somerset County for $6,850,000 for open space preservation. The Rezem family claimed the sale to Somerset County was essentially a “forced sale,” as no developer would consider purchasing the property due to the borough’s actions over the previous nine years in thwarting any development proposal for the property. The Rezem suit sought to recover compensatory damages based on the difference between the value of the various contracts and the amount it had received from Somerset County for the sale of the entirety of the tract, as well as punitive damages and attorney’s fees.

The borough defendants collectively filed a motion to dismiss for failure to state a claim, both on the basis for failure to exhaust available administrative remedies and for failure to assert a prima facie case for a claim of violation of substantive due process. The trial court granted the borough’s motion.

The Appellate Division upheld the trial court dismissal for failure to state a claim. In so doing, the Appellate Division agreed that New Jersey’s Civil Rights Act would apply the same “shock the conscience” standard as applicable under federal law related to land use disputes. While the trial court concluded the plaintiff alleged sufficient facts to meet the allegation of “shock the conscience” standards, the Appellate Division refused to address this aspect of the complaint.

Rather, the Appellate Division held there existed available administrative recourse for the Rezem family to pursue a challenge to borough actions through the period of time where the alleged improper activity occurred. The Appellate Division applied the same logic found in OFP v. State, 395 N.J. Super. 571, aff’d 197 N.J. 418 (2009), wherein the New Jersey Highlands Act was challenged on the basis of a Fifth Amendment takings basis. In OFP, the court sustained a motion to dismiss for failure to exhaust available remedies and required the landowners to pursue potential waivers from Highland Master Plan regulations before raising any takings claims. In this regard, the Rezem case continues to uphold the difficulty of raising any Fifth Amendment federal or New Jersey state takings claim, as all takings claims, both federal or state, require the exhaustion of all available administrative remedies from state zoning or other regulatory agency prior to asserting a taking.

The Rezem family asserted the exhaustion requirement does not apply where the allegation is a violation of substantive due process, due to official conduct that “shocks the conscience.” The Appellate Division disagreed and held that, notwithstanding the “shock the conscience” standard, the landowner/plaintiff must still exhaust available state land use prerogative writ relief. In this instance, either Rezem or its prospective buyers could have pursued a prerogative writ challenging the borough council’s actions as it relates to either the zoning change or denial of any specific site plan relief associated with development of the property. The court held that:

The alleged substantive due process violations might have been remedied through appropriate applications, followed by an action in lieu of prerogative writs to challenge any unfavorable local decisions. Nothing in plaintiff’s complaint demonstrates that judicial remedies to address the recalcitrance of Borough officials would have been futile. Rezem at Pg. 21.

In this regard, the Appellate Division reaffirmed both state and federal court reticence to transform zoning cases into civil rights litigation.

Finally, the Appellate Division dismissed claims against the individual planning defendants for misrepresentations on the basis of failure to demonstrate any reliance and/or duty owed by the municipal planning defendants to the Rezem family. As there was no showing of detrimental reliance, nor any affirmative duty on the part of the municipal defendants as it relates to the Rezem family, no claim could be raised against the Rezem family.

The Rezem decision reaffirms and strengthens the judicial reluctance to apply substantive due process protections in the land use arena. The Rezem decision leaves local landowners and developers with the primary, and for all due intent sole remedy, of prerogative writ litigation to challenge the alleged municipal misconduct. State claims must be brought to full conclusion before a substantive due process claim would be made available. The result is to effectively bar substantive due process claims, insofar as to meet a substantive due process challenge, the plaintiff must show conduct that “shocks the conscience,” which is essentially arbitrary, capricious and unreasonable. If such conduct is arbitrary, capricious and unreasonable, then under state law, the trial court would find that such action would be in violation of the Municipal Land Use Law and grant either affirmative relief or remand for further proceedings.

The Rezem case creates a virtually insurmountable bar to substantive due process claims. Civil rights protections for individual landowners are limited to invalidation of the municipal action, without any monetary damage claim. Without a recourse to monetary damage claims, municipal illegal conduct will simply continue in one form or another, through one prerogative writ action after another, until such time as the landowner or developer is either effectively bankrupt or dead. We submit this standard is too draconian as it relates to the rights of landowners to due process protection in the land use arena.

For more information, please contact Henry L. Kent-Smith at 609.896.4584 or [email protected].

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