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Sumo Property Management, L.L.C. v. City of Newark


July 2, 2007


On appeal from the Tax Court of New Jersey.

Per curiam.


Submitted May 23, 2007

Before Judges Lefelt, Parrillo, and Sapp-Peterson.

Plaintiff Sumo Property Management, L.L.C. (Sumo or plaintiff) appeals from the March 9, 2006 order of the Tax Court granting summary judgment to defendant City of Newark (City) and denying plaintiff's application for a five-year abatement from local property tax under applicable State law and municipal ordinance. For the following reasons, we reverse and remand.

This matter dates back to September 1994, when plaintiff acquired four separate city tax lots (Lots 26, 30, 36 and 50) on which existed a vacant former community food warehouse or "bank" containing approximately 34,000 square feet in a blighted area. The property is located in the City's I-3 Industrial District. At all relevant times, namely from 1995 to 1997, a city ordinance captioned "Five-Year Tax Exemption and Abatement", Newark Revised Ordinance (N.R.O.) 10:23-1 et seq., permitted owners of "eligible property" to apply for a five-year abatement from local property tax for "new construction" or "rehabilitation" of "commercial structures" in urban areas in blight in need of redevelopment. N.R.O. 10:23-3. The ordinance is authorized by the Five-Year Tax Abatement Law, N.J.S.A. 40A:21-1 to -21, which permits municipalities to adopt an ordinance that allows for short-term abatement from local property tax for all or some of the designated types of work and structures enumerated in the enabling statute, at the option of the municipality.

Beginning in 1994 and continuing into 1995, after receiving "conditional use approval" from the City Planning Board, plaintiff renovated and expanded the warehouse that existed on the property (Lot 30) for operation and occupation, pursuant to a lease agreement, by the Kintock Group, a for-profit private corporation whose business is to provide a variety of privatized correctional related services for federal, state and county government. The certificates of occupancy for the existing warehouse and renovations were issued on September 14, 1994, concerning the majority of the renovations and permitting Kintock to commence occupancy as tenant that day, and on September 20, 1995, concerning completion of the balance of renovations. Plaintiff did not formally apply for abatement from local property tax for these renovations, but did challenge, unsuccessfully, the 1995 and 1996 tax assessment of that building (building #1) as excessive and discriminatory.

The following year, 1996, plaintiff constructed on the same lot (Lot 30) a free-standing building containing 22,514 square feet immediately next to the existing renovated warehouse, but not physically connected to it. A certificate of occupancy for this newly constructed building was issued on April 16, 1996, and within thirty days, on May 3, 1996, plaintiff filed an application for tax abatement with the City's Office of Assessment. The application specifically described building #2, but referenced Lots 26, 30 and 36.

The next year, 1997, plaintiff constructed a second free-standing building (building #3) containing 30,363 square feet across the parking lot from the other two buildings, on Lot 26. The certificate of occupancy for this newly constructed building was issued on March 31, 1997, and again within thirty days, on April 22, 1997, plaintiff filed an application for tax abatement for this structure with the City's Office of Assessment. The application described building #3, but again referenced Lots 26, 30 and 36.

The result of all this construction was a three-structure complex containing gross building area of 87,690 square feet, which expanded the existing space by 150%, leased to Kintock, who took occupancy on or about the time of issuance of the certificates of occupancy in 1996 and 1997. Kintock utilized the three buildings and tax lots to house and operate its business of providing a spectrum of privatized corrections-related services, including but not limited to substance abuse counseling, vocational training and other rehabilitative services. Approximately 14,000 square feet of the 87,960 square feet consisted of office space. The balance of the building area consisted of dormitory-style sleeping, kitchen and dining, bathroom and shower and recreational facilities for those former inmates assigned to Kintock who were required to stay at this facility overnight.

As noted, plaintiff timely filed separate applications for the five-year tax abatement, permitted by local ordinance, for each of the two newly constructed buildings. On September 20, 1996, the City's Tax Assessor sent plaintiff a Notice of Disallowance of Claim with regard to its May 3, 1996 application on the first newly constructed building. In denying the application, the Tax Assessor opined that the construction did not qualify as either "new construction" or "rehabilitation" under the ordinance and therefore was not "eligible" property for tax abatement purposes. It appears that plaintiff's April 22, 1997 application for a tax abatement on the second newly constructed building was denied as well, in light of a letter from corporation counsel dated August 26, 1998, which summarized the reasons for disallowance as "The structure . . . does not meet the definition of 'a commercial and industrial structure' under the ordinance and 'the property does not qualify for exemption as a residential dwelling because it is not owner occupied . . .'", and "In addition, because the property is being used as a 'multiple dwelling' it is specifically excluded".

Plaintiff appealed first to the Essex County Board of Taxation, which sustained the disallowance without hearing, and then to the Tax Court.*fn1 Thereafter, on October 18, 2004, the Tax Court entered an order finding the matter "not ripe for decision. Specifically, . . . the actions by the City's Tax Assessor and corporate counsel, in denying taxpayer's application, do not constitute municipal action" or "a ruling by the . . . governing body." The Tax Court remanded the matter "to the Mayor and Council . . . for disposition of taxpayer's pending application" while retaining jurisdiction, at least for the purpose of "reopen[ing] the summary judgment motions", which were denied without prejudice. 21 N.J. Tax 522 (2004).

On remand, the City Council formally denied the abatement applications by adopting an ordinance, which found that: (1) the property was not a "commercial" structure; (2) the property was not an "eligible property" under the ordinance, and (3) that the applications for five-year abatement were untimely as far exceeding the thirty-day requirement, measured from issuance of the property's first certificate of occupancy on September 14, 1994.

Plaintiff again appealed this determination to the Tax Court and both parties thereafter filed motions for summary judgment. On March 9, 2006, the Tax Court granted summary judgment in favor of the City, dismissing plaintiff's complaints and finding that although the taxpayer's property was a "commercial structure" within the intendment of the ordinance, it was not "eligible property" because not "newly constructed" when considering the complex operates as a "single, integrated economic unit", and that, in any event, plaintiff is judicially estopped from now seeking abatements for two "new" and "separate" buildings when it originally sought abatement for the "entire" property. Again viewing the property as a unitary whole, the Tax Court also observed that plaintiff's abatement applications were untimely because filed beyond thirty days of the 1995 completion of the industrial warehouse's renovation.

On appeal, plaintiff contends the Tax Court erred in finding both the two new structures not "eligible" for tax abatement under the ordinance and its abatement applications untimely. We agree.

We note, at the outset, that "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty v. Manalapan Tp. Comm., 140 N.J. 366, 378 (1995). In this regard, the interpretation of an ordinance, like a statute, is a legal issue. Grancagnola v. Planning Bd. of Verona, 221 N.J. Super. 71, 75-76 (App. Div. 1987). We conclude that the Tax Court's interpretation of the subject ordinance was erroneous.

The enabling legislation is intended to give municipalities "the greatest flexibility possible within the constitutional limitations to address problems of deterioration and decay" through construction and rehabilitation of dwellings and commercial structures. L. 1991, c. 441, § 2. The statute is permissive and gives to implementing municipalities the flexibility to, among other things, "differentiate" as to various types of structures and "specify the eligibility of improvements, conversions, or construction, or all of these" for abatement treatment. N.J.S.A. 40A:21-4; N.J.S.A. 40A:21-2.

In reliance thereon, the City enacted N.R.O. 10:23-1 to -17 and in Section 3 designates "eligible property" for tax abatement:

[o]wners of new residential structures, owner(s) of improved residential structures, or owners of newly constructed or rehabilitated commercial structures that are located in the City of Newark are entitled to avail themselves of the opportunity to receive a five (5) year tax exemption and/or tax abatement as provided in this chapter . . . . Written application to the Tax Assessor [shall be] filed within thirty (30) days, including Saturdays and Sundays, following completion of improvements. [N.R.O. 10:23-3.]

In this case, the Tax Court properly found plaintiff's structures to be "commercial":

In any event, the focus should not be simply as to the nature and activity of the tenant operating its business of a correctional facility on the subject property, but rather should acknowledge that the activity of the owner, the Plaintiff in this case, is to operate the business of leasing the property, for profit, to a tenant who conducts his own commercial or business activity on the property. The 1994 lease between the Plaintiff landlord and the tenant, Kintock Group of Newark, Inc., makes this abundantly clear.

According to the ordinance, commercial structures are eligible for tax abatement if they are either "newly constructed" or "rehabilitated". N.R.O. 10:23-3.

While the term "newly constructed" is not separately defined in the ordinance, its meaning is otherwise plain and clear. Furthermore, the term "construction" is defined in the ordinance, which parallels the statutory definition in N.J.S.A. 40A:21-3g, as "the provision of a . . . commercial or industrial structure, or the enlargement of the volume of . . . a commercial or industrial structure by more than 30% percent."

N.R.O. 10:23-2.

Plaintiff's addition of two new separate buildings in the three-structure complex qualifies as commercial "construction" under either prong of N.R.O. 10:23-2. Viewing, on the one hand, the complex as an economic unit, the two new structures expanded existing space by 150%, well over the 30% enlargement threshold. Viewed, on the other hand, as structures separate, independent and physically unconnected to the existing renovated warehouse, the two buildings constitute construction of "commercial structures" which were "newly constructed", having been built on undeveloped land. Indisputably, the structures were "newly" built when plaintiff applied for abatement in 1996 and 1997.

See State v. Butler, 89 N.J. 220, 226 (1982). ("If a statute is clear and unambiguous on its face and admits of only one interpretation, we need delve no deeper than the act's literal terms to divine the Legislature's intent"). Furthermore, the enabling statute's goals of rehabilitating decaying areas is furthered by rendering the ordinance its plain and obvious meaning, as the construction and operation of this complex created jobs and utilized a parcel otherwise largely abandoned. See Bechler v. Parsekian, 36 N.J. 242 (1961) (the legislative goals should guide interpretation). We thus reject the contrary view of the Tax Court that "not every 'construction' is only a 'new construction'" and hold that in this instance plaintiff's property constitutes "eligible property" under the ordinance due to plaintiff having built "commercial" structures that constitute either or both "newly constructed" buildings and/or enlargement of the volume of an existing commercial structure by more than 30%.

Moreover, we discern no basis for the application of the doctrine of judicial estoppel to preclude plaintiff from asserting this position in seeking abatements for the 1996 and 1997 construction. The Tax Court grounded its application of the preclusionary doctrine on the belief that plaintiff originally sought abatement for all years and all parcels, including the existing renovated warehouse in 1995, and that it would be unfair to allow plaintiff to change course now by pursuing an incompatible theory. The Tax Court's holding, however, overlooks the undisputed fact that within thirty days of the issuance of certificates of occupancy for the two new buildings, plaintiff filed timely applications for a tax abatement on each structure. Significantly, each application specifically described the building for which an abatement was being sought and neither submission made any reference to the pre-existing warehouse renovated in 1995.

Plaintiff's position to seek tax abatements for buildings #2 and #3 has been consistent ever since. While plaintiff may have included language in its application suggesting an abatement can be obtained for certain expansions of existing property, this was likely inserted as an alternative basis for qualification or eligibility, since in addition to representing the "provision of a new commercial structure", the erection of the two new buildings could be deemed construction by means of enlarging the existing structure. In any event, plaintiff never expressly asserted a claim of wrongful denial of tax abatement in its 1995 and 1996 complaints and its general claim on this score in its complaints from 1997 on never asserted a specific theory, such as enlargement of the unitary complex.

Consequently, we see neither an inconsistency nor incompatibility of litigation theory or strategy sufficient to invoke the doctrine of judicial estoppel. See EF Operating Corp. v. American Bldgs., 993 F.2d 1046, 1050 (3d Cir.), cert. denied, 510 U.S. 868, 114 S.Ct. 193, 126 L.Ed. 2d 151 (1993); cf. Chemical NJ Holdings, Inc. v. Director, Div. of Taxation, 22 N.J. Tax 606, 612-13 (App. Div. 2004).

The purpose of the judicial estoppel doctrine is to protect "the integrity of the judicial process." Cummings v. Bahr, 295 N.J. Super. 374, 387 (App. Div. 1996). "A threat to the integrity of the judicial system sufficient to invoke the judicial estoppel doctrine only arises when a party advocates a position contrary to a position it successfully asserted" in the same or previous preceding. Kimball Int'l, Inc. v. Northfield Metal Prods., 334 N.J. Super. 596, 606 (App. Div. 2000), certif. denied, 167 N.J. 88 (2001). To be estopped, the party must have convinced another court of its position; it is not bound to a position it unsuccessfully maintained. Ibid.; City of Atlantic City v. California Ventures, LLC, 21 N.J. Tax 511, 516-19 (Tax 2004), aff'd, 23 N.J. Tax 62 (App. Div. 2006). This is so because absent judicial acceptance of the inconsistent position, there is no risk of inconsistent results. Ibid. Cf. Chemical NJ Holdings, supra, 22 N.J. Tax at 613-14.

As noted, there is no basis to apply judicial estoppel here. At no time did plaintiff prevail on an assertion, implied or otherwise, that it sought abatement for the existing building. See Kimball Int'l, Inc., supra, 334 N.J. Super. at 606; City of Atlantic City, supra, 21 N.J. Tax at 516-19. Moreover, there was no real conflict presented. Even if plaintiff sought abatement for the tax years 1995 and 1996, before the two new buildings were built, this does not render its abatement applications for the two new buildings, filed immediately after each building's completion, anything other than what they actually were -- namely applications for abatement from local property tax for the two new structures.

We are also satisfied that plaintiff's applications for abatement were timely filed under the ordinance. The two new buildings were completed on April 16, 1996 and March 31, 1997 and applications were made on May 3, 1996 and April 22, 1997, respectively. This is well within thirty days of the completion of construction as is required by the ordinance. N.R.O. 10:23-2. The Tax Court's decision to start the tolling period on the day the certificate of occupancy issued for the existing renovated warehouse is in error since, as previously noted, the abatements being sought were for buildings #2 and #3, which were completed years after.

In sum, we hold that the subject properties buildings #2 and #3 constitute commercial construction under the ordinance, satisfy all relevant qualification criteria thereunder, and are therefore eligible for abatement from local property tax, as plaintiff's applications therefor were timely filed.

Finally, in addition to ruling plaintiff ineligible for tax abatement, the Tax Court dismissed all of plaintiff's complaints in their entirety, including causes of action unrelated to abatement, without explanation. Of course, courts must provide litigants with an explanation of the decisions that they make on their claims. R. 1:7-4(a). While courts are allowed to forego an explanation in favor of adopting the rationale of one of the parties, they must do so explicitly. See Vartenissian v. Food Haulers, Inc., 193 N.J. Super. 603 (App. Div. 1984). Where the court has failed its obligation under the rule, the case should generally be remanded. See Barnett and Herenchak, Inc. v. State, Dept. of Transp., 276 N.J. Super. 465, 473 (App. Div. 1994). But see Farmingdale Realty Co. v. Bor. of Farmingdale, 55 N.J. 103, 106 (1969) (appellate courts may make findings of fact pursuant to the constitutional grant of original jurisdiction). Accordingly, as to the dismissal of plaintiff's other two (non-abatement) claims, we remand the matter for further fact findings and legal conclusions. Barnett and Herenchak, Inc., supra, 276 N.J. Super. at 473.

Reversed and remanded for proceedings consistent with this opinion, which shall include the grant of an abatement for buildings #2 and #3 for five years and a determination of value for purposes of tax assessment of all properties for all of the years under appeal, consistent with the need to abate taxes as to buildings #2 and #3 for five years each.

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