On appeal from the Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-250-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Lisa, Lihotz and King.
In this appeal, Pathmark Stores, Inc. (Pathmark) appeals from a judgment appointing condemnation commissioners. The Borough of Somerville (Somerville) initiated this condemnation action to take by eminent domain Pathmark's lease in the Landmark Shopping Center in Somerville. To justify the taking, Somerville asserted a public use arising out of its determination that the area encompassing the shopping center was in need of redevelopment, pursuant to the Local Redevelopment and Housing Law, N.J.S.A. 40A:12A-1 to -49.
In a companion appeal, Pathmark Stores, Inc. v. JSM at Somerville, LLC, No. A-5533-06T1 (App. Div. ________, 2008) (slip op. at 6-14), calendared back-to-back with this appeal, we set forth the factual background pertaining to Pathmark's lease and the redevelopment plan and activity. We issued our decision in that appeal today. We set forth in detail in that opinion the background information underlying these appeals, and we need not provide a detailed recitation here.
By way of very brief summary, we reiterate that Pathmark's shopping center lease, which commenced in 1977, extends, with renewal options, until 2018. In May 2002, JSM at Somerville, LLC (JSM) purchased the shopping center for the purpose of redevelopment. The redevelopment plan contemplated destruction of the entire shopping center except for the supermarket.
In this action, Somerville filed a complaint seeking condemnation of Pathmark's lease. Pathmark answered and moved to dismiss the complaint. It argued that Somerville acted in bad faith in only offering to compensate Pathmark for the value of its trade fixtures and a relocation fee, totaling approximately $1.6 million, and not offering to pay an additional sum reflecting the value of Pathmark's leasehold interest, calculated by comparing the below-market rent in the lease with market rents. This additional amount was estimated to be in the neighborhood of $5 million.
Judge Ciccone rejected the bad faith argument. She noted that although discovery materials revealed discussions between representatives of Somerville and JSM reflecting their awareness of the issue and the possibility that the additional sum might be due to Pathmark, and they obtained appraisals in that regard, this did not establish bad faith in the negotiations. The judge concluded that this merely indicated that Somerville "explored several possible valuation methods and settled on one that did not include the value of the leasehold interest." Therefore, the judge upheld Somerville's authority to condemn. These determinations were set forth in the judge's written decision of March 26, 2007.
However, recognizing the existence of the disputed valuation issue, the judge concluded her decision by directing the parties to brief the issue and scheduling oral argument on a later date. After receiving the briefs and hearing argument, the judge issued another written decision on June 27, 2007. She concluded that article 34(D) of Pathmark's lease applied to the condemnation of Pathmark's interest, as a result of which Pathmark was not entitled to compensation for the remaining lease term. The judge concluded her June 27, 2007 decision stating, "Attached please find an order appointing commissioners, who are hereby directed to value Pathmark's interest in a manner consistent with the lease and this opinion."
On June 27, 2007, the judge signed an order for judgment and appointing commissioners. Pathmark filed this appeal.
In its appellate brief, Pathmark raised three arguments:
(1) the condemnation of its lease violates the New Jersey Constitution; (2) the judge erred in not finding that Somerville acted in bad faith; and (3) the judge erred in finding that article 34 of the lease deprives Pathmark of the value of its leasehold interest. In their responding briefs, JSM and Somerville argued that Pathmark is precluded from challenging Somerville's redevelopment plan or the designation of the redevelopment area, including raising its constitutional challenge, because of failure to comply with the time limit of Rule 4:69-6, and pursuant to the doctrines of collateral estoppel, entire controversy, and res judicata. They also argued that Judge Ciccone did not err in finding an absence of bad faith by Somerville. Finally, they argued that the judge correctly found that article 34 of the lease deprives Pathmark of entitlement to compensation for the remaining term of the lease.
At oral argument, we were informed that Pathmark has permanently vacated the premises and will not seek re-entry. Accordingly, Pathmark's counsel acknowledged that Pathmark now abandons all arguments pertaining to Somerville's right to condemn, and pursues only its arguments pertaining to valuation. We were also informed that the condemnation commissioners have conducted a hearing and rendered an award and that the matter ...