Petrozzi v. City of Ocean City, A-1633-11T4; Appellate Division; opinion by Parrillo, P.J.A.D.; decided and approved for publication October 28, 2013. Before Judges Parrillo, Harris and Kennedy. On appeal from the Law Division, Cape May County, L-218-05. [Sat below: Judge Daryl Todd.] DDS No. 26-2-1766 [37 pp.]

These back-to-back appeals, consolidated for purposes of this opinion, concern an action brought by Ocean City beachfront property owners for breach of easement agreements obligating the township to maintain a dunes height restriction. Amendments to the Coastal Area Facility Review Act (CAFRA) in 1994 prevented Ocean City from reducing the height of the dunes by regulating dune maintenance.

In A-1677-11, the issue is whether a municipality’s failure to perform its part of easement agreements with owners of beachfront properties is due to reasonably unforeseen circumstances beyond its control so as to be relieved of its contractual duty, and, if so, whether these homeowners are nevertheless left without a remedy.

In A-1633-11, the issue is, where municipal liability has been established, what is the proper measure of damages for the loss occasioned by the municipality’s breach.

At the conclusion of the trial on liability, the Law Division dismissed the inverse-condemnation claims of all plaintiffs as well as the breach-of-contract claims of all but the four plaintiffs who had entered into easement agreements with Ocean City after the effective date—July 19, 1994—of the CAFRA amendments. Those four plaintiffs, who are respondents in A-1633-11, proceeded to a damages trial, at the conclusion of which the court awarded $70,000 to the first-floor occupants and $35,000 to the second-floor occupants.

As to liability, in dismissing the claims of the six plaintiffs who are appellants in A-1677-11, the court found that the 1994 CAFRA amendments rendered impossible Ocean City’s performance under the easement agreements predating the effective date of those amendments and, therefore, relieved the municipality of its contractual obligations. Finding performance excused and no contractual breach, the court held Ocean City was not liable to plaintiffs for damages, especially since they received the benefit of added storm protection as a result of the dune creation.

As to those four plaintiffs (respondents in A-1633-11) who executed easement agreements after the July 19, 1994, effective date of the CAFRA amendments, the court found municipal liability because Ocean City was on notice at that time that it could be barred from dune adjustment, and therefore the impossibility defense did not apply.

Held: Ocean City’s breach of easement agreements obligating the township to maintain a dunes height restriction is due to reasonably unforeseen circumstances beyond its control—the passage of CAFRA amendments regulating dune maintenance—so as to relieve Ocean City of its contractual duty. Even though Ocean City is not liable for breach of contract under the doctrine of impracticability of performance, the homeowners are not left without a remedy where they surrendered their right to compensation, through eminent domain condemnation, in reliance on Ocean City’s promise to protect their ocean views. The proper measure of restitutionary damages is limited to the harm that flows naturally only from the increased height and includes the reasonably calculable benefits arising from the municipality’s dune project as espoused in Borough of Harvey Cedars v. Karan.

In A-1677-11, the appellate panel finds that Ocean City neither caused nonperformance of its promise nor reasonably contemplated the change in the law that rendered its performance impossible or impracticable.

Ocean City had no control over the legislative enactment, which required the municipality to submit to a formal application and approval process, over which Ocean City also had no control. Not only were the CAFRA amendments and the DEP’s subsequent disapproval of Ocean City’s permit application beyond the municipality’s control, they were also not reasonably foreseeable events. Under the 1991 CAFRA regulations, no CAFRA permit was required and Ocean City was free to engage in beach maintenance activities without submitting an application to the agency. Given the mutual goals of beach replenishment and dune creation shared with the state, it was reasonable for the municipality to assume that it would be permitted to carry out the three-foot height restriction and thus fulfill its dune maintenance obligations to plaintiffs. Even after adoption of the CAFRA amendments, it was still reasonable for Ocean City to conclude that it would obtain a DEP permit, especially considering the fact that the legislation provided a waiver of the permit process for grading and excavating dunes.

Having excused Ocean City’s performance as impossible or impracticable, the trial court found no liability for damages. The appellate panel finds the court erred in concluding that because Ocean City did not breach the contract, plaintiffs are not entitled to monetary relief. The parties agreed on an exchange of performances and because of events not reasonably foreseen, Ocean City’s part of the exchange cannot now take place. Yet plaintiffs surrendered their right to compensation in reliance on Ocean City’s promise to protect their ocean views. Absent that reliance, Ocean City would have had to pay plaintiffs for depriving them of their views. Equity demands some relief for plaintiffs and, therefore, a hearing to determine a fair and just restitutionary amount is warranted.

The fixing of an appropriate restitutionary amount must consider the value of that which plaintiffs have been deprived, including loss of, or interference with, their ocean views due to the accretive effects. But offset against the burdens suffered by plaintiffs are the potential gains conferred by the partial consideration performed by Ocean City to date, namely the nonspeculative, reasonably calculable benefits arising from the municipality’s dune project. These may include the added wave/storm surge protection afforded by the accretive effect of the dunes as under Borough of Harvey Cedars v. Karan.

The appellate panel next reaches A-1633-11. Having found Ocean City liable to four plaintiffs, the judge proceeded to a bench trial to determine the amount of damages. It was agreed that ocean view has value and the deprivation or diminution of view is compensable if the market recognizes such loss. Having faulted the value approaches of both plaintiffs’ and defendants’ experts, the judge nevertheless found plaintiffs’ loss of view compensable. The judge found that the severance analysis employed in City of Ocean City v. Maffucci, an eminent domain case, was appropriate to evaluate the breach-of-contract damages because if there had been no easement agreement, there would have been condemnation by eminent domain. Although agreeing with the trial judge’s critique of the expert proofs and his adoption of the Maffucci methodology, the panel finds it is unclear as to how he otherwise arrived at the severance damages awarded. Because the trial court here failed to make specific findings as to its damages awards, the matter is remanded for further explication of its fact determinations and conclusions of law.

For appellant (A-1633-11)/respondent (A-1677-11) Ocean City — Michael P. Stanton (McCrosson & Stanton; Dorothy F. McCrosson on the brief). For appellants (A-1677-11) Mita, Scully, Tanner and Smith — Frank L. Corrado (Barry, Corrado & Grassi). For respondents (A-1633-11) Hughes and Talotta — Kenneth A. Porro (Wells, Jaworski & Liebman; Porro and Spencer J. Rothwell on the brief). For respondent (A-1677-11) New Jersey Department of Environmental Protection — Matthew T. Kelly, Deputy Attorney General (John J. Hoffman, Acting Attorney General; Melissa H. Raksa, Assistant Attorney General, of counsel).