Petrozzi v. City of Ocean City, 433 N.J. Super. 290 (App. Div. 2013). This case presented a concept of basic contract law– impossibility of performance– in an unusual setting. Judge Parrillo wrote a typically careful and comprehensive opinion for the panel that unraveled a complicated set of facts and procedural history.
Ocean City had established a dune system to protect beachfront properties. Ocean City entered into easement agreements with beachfront property owners under which the municipality would maintain the dunes and keep them at a height no greater than three feet above the average elevation of the bulkhead in the block on which respective properties were located. Over time, due to accretion of sand from the ocean, the dunes got higher than that. Property owners whose views of the ocean were being affected by the higher dunes asked the municipality to reduce the height of the dunes to the agreed-upon level. Meanwhile, however, in 1994, amendments to the Coastal Area Facility Review Act, N.J.S.A. 13:19-1 to -21 (“CAFRA”), had been adopted, and those amendments required Ocean City to apply for a CAFRA permit from the Department of Environmental Protection (“DEP”) before altering the size or height of dunes.
Ocean City applied for a CAFRA permit, but DEP denied it. The Appellate Divison affirmed that denial. Meanwhile, beachfront homeowners sued both Ocean City and DEP, alleging breach of contract, inverse condemnation, and other claims. The Law Division dismissed some of those claims on summary judgment. The rest of the case (actually, two cases) went to trial. The result of the trial was that all claims of all homeowners failed, except for the breach of contract claims of a few homeowners who had entered into easements after the 1994 CAFRA amendments. Those plaintiffs were awarded damages. The property owners who were unsuccessful appealed to the Appellate Division. Ocean City appealed as to the damge award given to the group of homeowners who prevailed at trial.
The Law Division had dismissed the claims of most of the property owners based on the doctrine of impossibility of peformance. That is, Ocean City was disabled from carrying out its dune maintenance duties under the easements because of the need for a CAFRA permit in order to perform that maintenance. Ocean City had sought that permit but was denied. The inverse condemnation claims failed because plaintiffs’ properties had not been taken, and those plaintiffs still had substantial beneficial use of their properties despite the effect of the higher dunes on plaintiffs’ ocean views. The impossibility defense did not apply, however, to properties on which easements had been entered into after the 1994 CAFRA amendments. That was because Ocean City was on notice “that it could be barred from dune adjustment.”
Judge Parrillo dealt first with the appeal of the defeated property owners. Their main argument was that Ocean City, a creature of State legislation who entered into the easements pursuant to that State-granted authority, was “in effect, the State’s alter ego and agent and, therefore, should not be alowed to assert the defense of impossibility based on what are, in essence, its own actions in rendering those contracts ineffective.” Alternatively, those plaintiffs contended that Ocean City should have been aware of the possibility that the State might deny Ocean City’s permit application. The panel rejected both arguments.
After a detailed discussion of the impossibility doctrine, Judge Parrillo ruled that “[a]lthough Ocean City, as a subdivision of the State, derived its authority to contract from the State, it does not follow that the municipality was acting as an agent of the State when it entered into the easement agreements with its oceanfront residents.” No State agency was party to or approved those easements. Ocean City acted in its own local interest in entering into them. Nor was it foreseeable that a CAFRA permit would later be required for dune maintenance to occur.
Despite those rulings, Judge Parrillo found error in the Law Division’s denial of damages to those homeowners. Even though Ocean City’s performance under the easements was excused, Ocean City could not “demand something for nothing” from the property owners. Those owners had “surrendered their right to compensation in reliance on Ocean City’s promise to protect their ocean views,” which Ocean City turned out not to be able to do. Therefore, it was an improper windfall to Ocean City to allow the municipality not to pay damages. The panel thus remanded for further proceedings to determine the amount of an equitable, restitutionary remedy for those plaintiffs. Judge Parrillo did, however, affirm the Law Division’s ruling that had rejected plaintiffs’ inverse condemnation claims.
On Ocean City’s appeal of the damage award to the few prevailing property homeowners, the panel reversed and remanded. The parties had each offered expert testimony, but the Law Division rejected the expert evidence from both sides, as it was entitled to do. Instead, applying a mode of analysis from City of Ocean City v. Maffucci, 326 N.J. Super. 1 (App. Div. 1999), the Law Division arrived at its own damage award. Judge Parrillo concluded, however, that the Law Division had not provided sufficient findings and conclusions to justify the damage award that it made. Accordingly, a remand was required.