NJ Court Rejects NJDEP's Use of Dispute Resolution Process to Avoid Statutory and Regulatory Requirements

May 8, 2009
Client Alert Newsletter May 2009

In an appeal brought under New Jersey's Coastal Area Facility Review Act ("CAFRA"), the Appellate Division of the Superior Court of New Jersey recently addressed the issue of whether an administrative agency can effectively override statutory and regulatory requirements through the dispute resolution process. The case, Dragon v. N.J. Department of Environmental Protection, found its roots in two Brigantine, NJ property owners' desire to demolish their existing home and build a new, larger, oceanfront home nine feet closer to the ocean. The property owners applied to the New Jersey Department of Environmental Protection ("NJDEP") for a coastal general permit under CAFRA for the proposed demolition and construction. NJDEP denied the application for the general permit after determining that the property in question was entirely within the coastal high hazard area, and that the proposed development did not meet any of the limited regulatory exceptions to CAFRA's general ban on development in the coastal high hazard area.

The property owners appealed NJDEP's permit denial, and the matter was transferred to the Department's office of dispute resolution. Citing a "litigation risk," NJDEP settled the homeowner's challenge through a "Mediation and Settlement Agreement In Lieu of a Permit." Arguing that it has the authority to "deviate from strict compliance with its own regulations" in order to avoid a possible adverse legal ruling, NJDEP issued a "Letter of Authorization" approving the proposed demolition and construction subject to certain conditions designed to meet several of the environmental concerns underlying the regulation's development ban. Neighboring property owners challenged the settlement agreement and Letter of Authorization, arguing that NJDEP had exceeded its authority under CAFRA by bypassing substantive regulations and issuing approval in lieu of the permit required by the regulations.

The Appellate Division agreed with the third-party challengers, holding that, given the express language of the limited exceptions to the regulatory development ban, which the proposed development clearly did not meet, NJDEP did not correctly assess its "litigation risk." More importantly, the Court stated that CAFRA does not give NJDEP the power to authorize a proposed development in the coastal region in either a settlement agreement or an authorizing letter "in lieu of" a formal permit. Because an agency may not give itself authority not legislatively delegated, the Court concluded that NJDEP could not use its settlement process to circumvent CAFRA's substantive permitting requirements and allow regulated development in a coastal region governed exclusively by CAFRA and its implementing regulations.