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Tabaac v. City of Atlantic City

Decided: May 6, 1980.


Haines, J.s.c.


[174 NJSuper Page 521] In 1967 Atlantic City (city), concerned about its declining ratables and deteriorating convention business, adopted an urban renewal plan for an area adjoining its boardwalk and Convention Hall. Responsibility for execution of the plan resided in its Housing Authority and Redevelopment Agency (Housing

Authority or Authority). In April 1973 the Authority succeeded in negotiating a redevelopment contract with Atlantic City Associates, Inc., which was unable to perform the agreement by reason of financial difficulties. Nevertheless, it was considered by the parties as remaining in force; on March 4, 1977 the Authority authorized its assignment to Convention Center Hotel Associates and, on March 23, 1979, its further transfer to Playboy-Elsinore Associates (Playboy-Elsinore or Playboy). Playboy accepted a deed conveying title to the property covered by the agreement on April 24, 1979.

Playboy-Elsinore required substantial parking facilities for use in connection with the hotel-casino it intended to construct on the redevelopment tract. Space was available under a recently constructed annex to Convention Hall controlled by the city. In 1977 the city leased this space to the Authority, which subleased it to Playboy-Elsinore in 1979. The term of the lease was 50 years, the rent $35,000 a year, subject to adjustment reflecting changes in the Consumer Price Index.

On September 10, 1979 Irvin Tabaac filed suit, as a taxpayer on behalf of all the city's taxpayers, against the city, the Authority, the three transferees of the redevelopment agreement and various other participants in these transactions. Boardwalk Properties, Inc., another taxpayer, was later permitted to intervene. Many complex issues were raised; extensive discovery was undertaken and voluminous records examined. The suit posed special problems for Playboy-Elsinore, which had commenced construction of its hotel-casino project prior to the commencement of the suit, construction which continued during its pendency. On March 24, 1980, with discovery nearly complete, Playboy argued a motion for summary judgment, demanding dismissal of the action. At that time its investment in the property approached $30,000,000 and increased thereafter at the rate of $500,000 to $1,000,000 a week. The motion raised substantial questions; briefs, affidavits and exhibits filed in connection with it were voluminous. Factual differences and difficulties required its denial; consequently, no determination was made as to the substantive claims of the parties. Trial,

however, was accelerated and scheduled for April 21, 1980. The parties then reached a settlement, the terms of which were announced in open court on April 18, 1980. These terms, stated briefly, required the dismissal of all of plaintiffs' claims in consideration of Playboy's agreement to guarantee an annual rental for the parking facility of $110,000, as opposed to the rent payable under the existing lease of $35,000, plus or minus adjustments based on the Consumer Price Index. In addition, Playboy agreed to pay $10,000 a year to the Authority during the last 20 years of the lease and to pay counsel fees of $40,000 and expenses of $7,000 to plaintiff Tabaac's attorneys. A real estate appraiser, employed by plaintiffs, was allowed to apply to the court for approval of his fees of $9,600; if approved, they are to be paid from the increased portion of the rents to be received by the Authority. All rentals received above the amount fixed in the original lease to Playboy are to be used for low-income housing in the city.

It was understood that the settlement would become effective when it received my approval, to be given only if I reached the conclusion that its terms were fair to all of the City's taxpayers. An opportunity for their participation therefore became necessary, and a hearing at which they could voice objection was set for April 18, 1980. Notice of the hearing, reflecting the terms of the proposed settlement, was advertised in two Atlantic City newspapers, once in each of the two weeks preceding the hearing date. Two attorneys, representing taxpayer groups, appeared at the hearing. There were no other appearances. One group requested a modification of the settlement terms so that part of the monies otherwise allocated to low-income housing would be set aside for "moderate" income housing, depicted as a pressing need in the city. The other group appeared for the purpose of stressing the need for low-cost housing and requested additional terms of settlement establishing controls over the monies to be received which would increase the assurance that such housing would be constructed. Neither group presented any other objection to the terms of settlement. The parties, in response to these suggestions, advised the court that they were unwilling to make any changes in the conditions of settlement.

There is no reason to believe that provision for moderate-income housing is any more beneficial to the taxpayers of the city than an allocation of all settlement monies to low-income housing. Additional controls over the use of these monies by the Authority are not advisable; administrative flexibility residing in the Authority should not be hampered. It is the court's function to determine the reasonableness of the agreement, not to renegotiate the terms of settlement. Consequently, I will not require changes in the settlement agreement as a result of the suggestions made by the taxpayer groups.

In addition to the taxpayer's hearing, I have taken the testimony of experts, who provided opinions as to the value of the leasehold interest acquired by Playboy-Elsinore and the value of the rights and warrants acquired by the initial transferors of the redevelopment agreement. Further, at my request, the parties submitted affidavits, briefs, appraisals and documents providing information on the issues of attorney fees, appraisal fees, parking facility charges, title problems and real estate values. These supplemented the very extensive records and briefs previously filed.

A discussion of the issues involved in this matter is necessary in order to appreciate the problems faced by all parties and the advisability of resolving them through the settlement mechanism. They are as follows:

1. Violations of the Open Public Meetings Act

Plaintiffs have contended that the meetings of the Authority were conducted in private, were not properly advertised or otherwise noticed and were not properly recorded. The Authority has disagreed, claiming that it took no action at any private meeting and that the meetings in question were properly noticed and recorded. It also asserts its ratification of all actions and insists, in any event, that suit was started much too late. It points to the section of the Open Public Meetings Act, N.J.S.A. 10:4-15, which bars any suit claiming violation of its provisions more than 45 days after its actions have been made public. My reading of the minutes of the Authority's meetings indicates

considerable informality and raises questions about notice. There were many private meetings during which the Playboy-Elsinore transaction was discussed. However, the records do not indicate that action was taken at these meetings; they were for discussion purposes only. Further, the significant actions taken by the Authority were made public and were well-advertised more than 45 days before this suit was commenced. On the other hand, testimony might have shown that more than discussion took place at the private meetings; that there were violations of the act and that public disclosure of actions taken was inadequate. Many factual questions were involved and the outcome of this issue was not certain.

2. Timeliness of Suit -- R.4:69-6

R. 4:69-6 prohibits the commencement of an action in lieu of prerogative writ, as here, later than 45 days after the accrual of the right to relief, with certain exceptions. Defendants argue that the cause of action accrued much more than 45 days prior to the date of the complaint was filed. The argument has obvious substance; the transactions complained of were consummated on April 24, 1979; suit was filed on September 10, 1979. Plaintiffs would deny the application of the rule on the ground that the limitation period did not run until after they learned more facts than were revealed in the public announcements of the Authority. This knowledge was not obtained until its records were examined, records not readily available until after suit commenced. They also point out that the rule permits its relaxation "in the interest of justice," and claim this exception applies because important constitutional questions and significant public rights are involved, issues which require relaxation under our cases. Schack v. Trimble , 28 N.J. 40, 48 (1958). Again, nice questions were raised which could not be resolved without a full hearing.

3. Assignment of the Lease

The lease, eventually acquired by Playboy-Elsinore, was never exposed to competitive bidding. Plaintiffs argue that this was

improper, resulting in an extremely low rent, constituting a municipal gift to an individual, association or corporation, in contravention of the Constitution. N.J.Const. , (1947), Art. VIII, ยง III, pars. 2 and 3. Defendants, however, point to N.J.S.A. 40A:12-14(a), which authorizes the lease from the city to the Authority without bidding, and to N.J.S.A. 55:14A-41, which eliminates the bidding requirement in connection with a redevelopment plan. They insist that the transfer of the lease was for a public purpose, i.e. , redevelopment and removal of blight, and that the rent represented "fair use value," thus meeting the requirements of the statute. These arguments could not be resolved without a hearing. Central to the issue, however, was the question of whether the rent for the parking facility was reasonable. That question involved considerable speculation. The value of the facility depended upon the success of the hotel-casino venture, not yet licensed, far from being ready for business and far from any determination of profitability. The rent established by the lease to Playboy-Elsinore is subject to the Consumer Price Index and will increase substantially in June 1980. On the other hand, the very substantial need for parking space in Atlantic City has become obvious and the revenue potential of a parking garage is high. The lack of any public bidding and the apparent lack of any appraisal raise questions as to whether the rent was adequate.

Testimony was presented showing gross income from the rental of parking space in two garages under Convention Hall, one being the facility subleased to Playboy. In 1977 the gross revenue from both garages was $101,000 and in 1978 $105,000. Figures reflecting the separate income of each facility were not available until 1979, when Convention Hall received rents from the Playboy garage for six months in the gross amount of $20,600; it rented its second garage for the entire year 1979, receiving a gross income of $107,000. No appropriate expense figures were available, but it is apparent that these gross rentals would be reduced substantially by the cost of labor, maintenance and overhead. It was the opinion of a real estate appraisal expert that the agreed original rental of $35,000 a year was

reasonable. It was his further opinion that the $110,000 rental now proposed by ...

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