NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-5743-06T25743-06T2

ALBERT DRAGON and BARBARA

DRAGON,

Petitioners-Appellants,

v.

NEW JERSEY DEPARTMENT OF

ENVIRONMENTAL PROTECTION, LAND

USE REGULATION PROGRAM, and

EDWARD W. KELLY, JR.,

Respondents-Respondents.

Argued January 29, 2009 - Decided

Before Judges Parrillo, Lihotz and Messano.

On appeal from the Department of Environmental Protection, 0103-02-0046.

Stephen Hankin argued the cause for appellants (Hankin, Sandman & Palladino, attorneys; Mr.
Hankin, on the brief).

Lisa G. Daglis, Deputy Attorney General, argued the cause for respondent New Jersey Department of Environmental Protection (Anne Milgram, Attorney General, attorney; Lewis A. Scheindlin, Assistant Attorney General, of counsel; Ms. Daglis, on the brief).

John F. Spinello, Jr. argued the cause for respondent Edward W. Kelly, Jr. (K&L Gates, attorneys; Mr. Spinello, on the brief).

The opinion of the court was delivered by

PARRILLO, J.A.D.

This matter concerns the parameters of an administrative agency's discretion to settle a third-party permit challenge. Appellants Albert and Barbara Dragon (Dragons) are objectors to a settlement agreement between their next-door neighbor, respondent Edward W. Kelly, Jr. (Kelly), and the New Jersey Department of Environmental Protection (DEP), which authorized Kelly to tear down and reconstruct his oceanfront home - expanding its size, height and footprint - without a permit otherwise required under the Coastal Area Facility Review Act (CAFRA), N.J.S.A. 13:19-1 to -21, and its Coastal High Hazard Areas Rule (Coastal Rule), N.J.A.C. 7:7E-3.18. The Dragons appeal from the DEP's final decision upholding the settlement agreement, essentially arguing that the agency exceeded its authority under CAFRA by bypassing substantive CAFRA regulations and issuing approval in lieu of a permit. We agree.

Some background is in order. Kelly owns a 1950's oceanfront two-story single-family home with a 1944-square-foot footprint at 408 30th Street South in Brigantine, the most easterly lot on the block, and encroaching more oceanward than any of its neighbors. The entire lot, with ninety feet of ocean frontage and ninety-three feet deep, is located in the CAFRA Coastal High Hazard Area and the Federal Emergency Management Agency's "V10" Zone. The eastern, most oceanward portion of Kelly's lot consists of a thirty-foot by ninety-foot strip of vegetated dunes. A wooden timbered structure encased by timber pilings affixed with galvanized hardware, which appellants label a "bulkhead," separates this oceanward portion from the rest of Kelly's lot. Undeveloped land with vegetated dunes borders the lot to the north, south and east. There are no other houses or commercial buildings within 100 feet to the north and south of the lot. A public alleyway to the beach runs along the lot's southern boundary.

Since 1991, the Dragons owned the adjacent lot immediately west of Kelly's lot on the upland or non-water side, located at 404 30th Street South. Originally, the two properties had been under common ownership with Kelly's house being the only structure on the parcel. In 1981, the parcel was subdivided, and in 1988, a predecessor-in-title to appellants constructed what was to become the Dragons' house. Both lots have municipal sewer service.

In his first CAFRA permit application submitted in 2002 to DEP through its Land Use Regulation Program (LURP), Kelly requested a coastal general permit to demolish his existing house and build a new one, enlarging the height to three stories, or thirty-five feet, and increasing the house's footprint from 1944 to 3480 square feet. He also proposed extending the footprint nine feet closer to his oceanfront lot line and eleven feet closer to the west lot line he shared with the Dragons (the original footprint was sixteen feet from appellants' lot). The setbacks on the north and south sides would be increased to twenty and ten feet, respectively.

The Dragons objected. DEP advised Kelly that his application would not likely be approved because there were no buildings within 100 feet of each of his north and south lot lines to qualify for exemption from the development ban of N.J.A.C. 7:7E-3.18. DEP, however, offered other options: (1) obtain a permit-by-rule under N.J.A.C. 7:7-7.2(a)(7) for voluntary reconstruction within the same footprint; (2) obtain a coastal general permit under N.J.A.C. 7:7-7.7 for reconstruction "landward of the existing footprint" with no enlargement of the footprint size and with no disturbance of any dune; or (3) obtain a coastal general permit under N.J.A.C. 7:7-7.7 for reconstruction "landward" and laterally north or south of the existing footprint with no enlargement of the footprint size and with no disturbance of any dune. Kelly could also obtain a permit-by-rule under N.J.A.C. 7:7-7.2(a)(1) for expansion, but not reconstruction, of his existing home up to 400 square feet on the non-water sides. Consequently, Kelly withdrew his application.

In 2004, Kelly submitted a second permit application with a similar proposal, this time increasing the footprint from 1944 to 2521 square feet. The Dragons again objected, citing destruction of scenic views, an inaccurate site plan, and the inappropriateness of a general permit for footprint enlargement. They argued that DEP should require a CAFRA individual permit for Kelly's project.

As a threshold matter, DEP found that Kelly had met the requirements to apply for a coastal general permit set forth in N.J.A.C. 7:7-7.9, which governs the waterward expansion or reconstruction (with or without expansion) of a single family home, and that Kelly did not need to apply for a CAFRA individual permit. Nevertheless, DEP denied the permit because Kelly's property was entirely located within a coastal high hazard area and did not meet one of the exceptions to complying with the Coastal Rule, namely that a house or building be located within 100 feet of each of its northerly and southerly lot lines that run roughly perpendicular to the mean high water line. N.J.A.C. 7:7E-7.2(e)4(i)(3), (f)4(i)(3); N.J.A.C. 7:7-7.9(f)(l)iii. On this score, DEP's Coastal Rule prohibits residential development in coastal high hazard areas unless all of the "infill development" standards in N.J.A.C. 7:7E-7.2(e) or (f) are satisfied. N.J.A.C. 7:7E-3.18(b). One of the criteria in both N.J.A.C. 7:7E-7.2(e) and (f) is that the development site had a house or commercial building within 100 feet of each of its lot lines running perpendicular to the mean high water line "measured outward from each lot line, along a line generally parallel to the mean high water line." N.J.A.C. 7:7E-7.2(e)4(i)(3) and (f)4(i)(3). Thus, Kelly's project was "not approvable" and could not be constructed.

Kelly appealed, requesting an adjudicatory hearing before the Office of Administrative Law (OAL) or, in the alternative, requesting that the matter be referred to DEP's Office of Dispute Resolution. Opting for the latter, DEP sent the matter for mediation and on September 30, 2004, DEP and Kelly reached an amicable resolution memorialized in a document entitled, "Mediation & Settlement Agreement In Lieu of a Permit" (settlement agreement or agreement), which allowed the reconstruction and expansion of the footprint of the existing single family dwelling on the Kelly property, subject to several conditions. Specifically, the agreement required Kelly: (1) to modify the proposed project "in a manner satisfactory to the Department and consistent with the Rules on Coastal Zone Management . . . and the Coastal Permit Program Rules"; (2) to submit a revised site plan with a revised landscape plan "that represents an enhancement to the existing dune system"; (3) to offer and record a DEP-approved deed restriction "to prevent future encroachment waterward of the existing dune development restriction line"; (4)