On appeal from Superior Court of New Jersey, Law Division, Hudson County.
Approved for Publication May 30, 1996.
Before Judges Petrella and Skillman. The opinion of the court was delivered by Skillman, J.A.D.
The opinion of the court was delivered by: Skillman
The opinion of the court was delivered by SKILLMAN, J.A.D.
On November 22, 1994, defendant City of Jersey City (Jersey City) adopted a resolution authorizing the bulk sale of 102 tax sale certificates having an approximate face value of $4,400,000. Pursuant to this resolution, bids for the certificates were to include a cash payment of at least 17.5% of the total lien amount and a note or other obligation of the purchaser for the remainder of the bid. The resolution further provided that the total compensation to be received by Jersey City could not fall below $3,080,000 and that the successful bidder would have the right to repurchase his/her note for not less than $25,000 plus 2.5% of the total lien amount.
In calculating the highest bid, the total value of each bid was not calculated by adding the cash and the face amount of the note together. Instead, the bidder was required to submit an amount for which he/she would be willing to buy back his/her note. This amount, plus the cash portion of the bid, represented the bid's total value for the purpose of determining the high bidder.
Plaintiff Errico submitted a bid of $880,000 cash and a $3,520,000 note, as well as a proposed purchase price for the note of $88,000, representing a total bid value of $968,000. Thus, Errico's proposed purchase price for his note fell below the minimum of $135,000 (2.5% of the total lien amount, plus $25,000) required by the ordinance. In addition, Errico submitted no interest rate or term for the note.
Remediation Financial, Inc. and Lincoln Property, N.C., Inc. (hereinafter Remediation) submitted a bid of $800,000 cash and a $2,310,000 note, as well as a proposed purchase price of $135,000 for the note, representing a total bid value of $935,000. The City Council of Jersey City voted to accept Remediation's bid, which it found to conform to the terms and conditions of the sale.
Errico subsequently filed this suit seeking a declaration that he was the high bidder and an order that Jersey City rescind the sale of the tax certificates to Remediation. After hearing argument, Judge D'Italia expressed concern over the entire bid process, particularly the indication from the evidence that the city wanted a firm commitment by the purchaser to buy back the note simultaneously with the sale. After the Judge expressed these concerns, the city's bond counsel responsible for drafting the notice of sale expressly stated that the city's intent was to have the purchaser immediately buy back the note and that the buy-back was to be an absolute condition of the sale.
After hearing further argument on a subsequent date, Judge D'Italia issued an oral opinion which concluded that Errico's bid failed to include required terms, such as the interest rate and maturity date of the note, which would ordinarily make it nonconforming, but that the note was not a material part of the particular transaction, making the omissions immaterial. The Judge further held that the whole bidding process was an improper attempt to circumvent the requirement of N.J.S.A. 54:5-113.1(b) that tax sale certificates may not be sold for less than 70% of their face value, and consequently that neither Errico, Remediation, nor any other bidder could properly be awarded the certificates. Judge D'Italia gave a detailed statement of his reasons for reaching this Conclusion:
Significantly the notice requires bidders to bid the amount they will pay to buy back their note on the date of the closing with the minimum amount of the repurchase to be $135,000.00 The transaction is structured so as to appear to give bidders an option to purchase their note at the closing. The reality, however, is that the bidders were required to bid the amount of cash for which they would buy back their notes and all parties agreed that the buy back was mandatory.
In other words the winning bidder was to be the person who submitted the highest cash plus the highest cash value for the note. The buy back of the note by the winning bidder is to occur at the closing as one single transaction. The city never contemplated keeping the note. The bidders likewise understood that this was really an all cash deal structured in two steps. The reason for the two step approach is also not disputed. The land covered by these lands is environmentally contaminated. The value of most of the parcels is apparently less than the amount of the tax liens. The city recognized that no bidder would pay either the face value of the liens nor even bid the minimum seventy percent statutory requirement given the potential liability for clean up costs. The city wants to avoid the impact of the statute by giving a deeper discount than the statute 54:5-113.1 permits without having to go through the process of reassessing each parcel. The two step structure is a device struck upon by the city to accomplish this. The bidder is required to bid cash plus a note in an amount which totals seventy percent of 4.4 million dollars as required by the statute but the bidder will then exercise the right to buy back the note at a discount.
The note principal amount is an artificial ingredient designed to pass statutory muster by presenting a total bid which facially is more than seventy percent of the face amount of the liens.
The right[,] and [in] fact as understood by all parties, the obligation of the bidder to buy back the note simultaneous with the purchase of the certificates, makes the buy back price plus the cash the true amount of consideration and that ...