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Gallo v. Township Committee of Weehawken

Decided: September 24, 1981.

JOHN GALLO, ALAINE FINNERTY AND JAMES DOW, PLAINTIFFS,
v.
TOWNSHIP COMMITTEE OF WEEHAWKEN, WALLY LINDSLEY, MICHAEL TABAT, STEPHEN WEIL, ROBERT SOSA AND THE WEEHAWKEN MUNICIPAL PORT AUTHORITY, MICHAEL TABAT, STEPHEN WEIL, WALLY LINDSLEY, JOHN FEDERER, AND THOMSON MCKINNON SECURITIES, INC., DEFENDANTS



Castano, J.s.c.

Castano

This is an action in lieu of prerogative writs challenging a proposed $17,715,000 bond issue by the Weehawken Municipal Port Authority.

The dispute centers on a proposed real property lease between the Township of Weehawken and the Authority which is an integral part of the bond issue and which plaintiffs, three members of the township committee who voted against entering into the lease, claim is illegal. For reasons hereinafter set forth, I conclude the lease is unlawful and enjoin the Authority from issuing the bonds.

The bond issue was designed to raise the funds needed for acquisition of certain land and facilities on which the Authority plans to erect a refrigeration plant and warehouse and loading facilities which it then intends to lease to two private business concerns on a turnkey basis.

Neither the Authority nor the two business concerns, however, have the credit standing to support a bond issue of the magnitude

proposed. The township does. The proponents, apparently recognizing that direct financial backing by the municipality is precluded, shaped a circular stratagem to avoid prohibitions in the Municipal Port Authorities Law, N.J.S.A. 40:68A-29 et seq. and still get the strength of the township's credit.

The Authority was to purchase certain land and facilities for $3,000,000. It then proposed to lease the premises thus acquired to the township for a rent which each year would equal the debt service on the bonds.

The township, in turn, was to lease the same land and facilities back to the Authority for an amount which annually would equal the debt service on the bonds plus an additional sum of $350,000. The Authority then planned to sublease the premises to the two private concerns, who were to take possession after the Authority improved the premises to their specifications. Closings on all transactions were to occur at substantially the same time.

Defendants contend that since the township's obligation under the proposal is limited to the rental which accrues annually, and which, under the authorization of N.J.S.A. 40A:12-6(a) in the Local Land and Buildings Law, it may treat as an annual appropriation item in its regular budget, the arrangement cannot be regarded as a guarantee.

The proscription of municipal guarantees in the Municipal Port Authorities Law is not unique. In at least five instances in the past 35 years when the Legislature empowered a municipal authority to issue bonds, it provided specifically in the statute that the bonds were not to become a debt or liability of the municipality.

The prohibition is found in N.J.S.A. 40:11A-9 which is part of the Parking Authority Law, N.J.S.A. 40:14B-33, part of the Municipal Utilities Authorities Law, and N.J.S.A. 40:68A-51, the statute involved here. The verbiage in each instance is substantially the same. See, also, N.J.S.A. 40:55C-13 and N.J.S.A. 40:66A-49.

Two of the sections have already been interpreted by courts asked to decide whether the Legislature thereby intended to prohibit municipalities from guaranteeing authority bonds indirectly as well as directly. The section in the Municipal Port Authorities Law has never been construed.

The first statute to receive judicial attention was N.J.S.A. 40:11A-9 in De Lorenzo v. Hackensack , 9 N.J. 379, 388 ...


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