City took former car dealership by condemnation in May 2020
OCEAN CITY — A jury has ruled in favor of Klause Enterprises in a dispute over the value of the property bordered by 16th and 17th streets and Haven and Simpson avenues that the city had taken by eminent domain.
Jerry Klause said a jury unanimously decided Oct. 17 to grant Klause Enterprises $17,860,000 for the lot. Klause had no comment other than to say he is thankful for the people who supported him.
Ocean City Public Information Officer said “because the litigation will continue, the city cannot comment at this time.”
But David Breeden of Fairness in Taxes (FIT) blamed the legal team’s missteps for letting the cost skyrocketing from the city’s initial offer of $6.545 million.
“The professionals representing the city lost every major decision in the Klause condemnation case, costing Ocean City taxpayers millions of dollars,” he said. “Despite tens of thousands of dollars of payments to the city’s legal team, the city was out maneuvered, out smarted and out performed at every step of the way during this three-year legal battle.”
He said lawyers failed to deposit the payment when the city formally took the land in May 2020.
“That failure to follow state law eventually cost taxpayers $3,000,000. This decision (by the judge) opened the financial floodgates as the new valuation date allowed the land to be valued based on taking into account the impact of COVID-19, which greatly escalated land values on the barrier islands,” he said.
Following that failure, a board of commissioners agreed with Klause’s appraiser in spring 2022 and ruled the land was worth $13,020,000, instead of the $9,900,000 city appraisal.
“The court verdict was an embarrassing defeat for the city as the jury found fully for the Klauses, and that cost the taxpayers another $4,845,000,” Breeden said.
City Council acquired the land to create a stretch of open space from the Ocean City Free Public Library to the Emil Palmer Field on the north side of 16th Street.
According to Sentinel archives, debate was intense in March 2022 after City Council approved resolutions to cover the rising cost of the property, which was home to the Ocean City Chevrolet dealership, and adjacent Palmer Center lot the city took by eminent domain.
The previous month, the cost was estimated at more than $17.1 million for both. Now the city must pay more than that for just the Klause property.
Breeden said the Palmer Development land condemnation case is schedule for February 2024.
“Based on the Klause verdict and the uninspired performance of the city’s legal team, there is a potential that the city could pay in excess of $30 million to acquire all the land of the old car dealership,” he said.
As part of the eminent domain process, commissioners were tasked with setting a price for the properties, determining that the Klause family was owed just more than $13 million for the property
The previous month, council had approved setting aside additional money for the land, making its projected purchase price $9.98 million.
Back in 2018, when the city first offered to buy the land, the purchase price agreed upon by the city and the Klause family was $9 million. That process was stopped when FIT, arguing the lots were overvalued, initiated a successful petition drive that ended up killing the deal.
A later valuation of the land put the cost at $6.9 million, which FIT pointed to as evidence the city’s initial offer was too high, but ultimately the move ended up costing taxpayers more than $10 million.
The Klause family did not agree to it, offered to have an arbitrator set the price and made plans to build homes on the site. The family argued it could make more than the $9 million by putting a housing development there, a move some saw as a means to pressure the city, which wants to keep those lots open. FIT declined the arbitration offer.
The city later moved to acquire the Klause and Palmer Center land via eminent domain, a process in which the sides try to arrive at a fair market price for the lots. The city has acquired the lots, but as part of the process, the court appoints impartial commissioners to arrive at the price.
Since the initial purchase attempt in 2018, and especially since the COVID-19 pandemic began in 2020, real estate prices have soared nationally, and especially on this barrier island.
In April 2022, commissioners Alan I. Gould and Daniel Kurkowski, both attorneys, filed in Superior Court in Cape May County their decision on the value of the Klause property.
In the notice they posted, they said they heard presentations about the value from the city’s representatives and from representatives of Klause Enterprises.
They decided the compensation to be paid by Ocean City to the Klause family for its land should be $13.02 million.
That was not the end of the story, as the findings were rejected and went to trial.
By CRAIG D. SCHENCK/Sentinel staff
Staff writer David Nahan contributed to this report.