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McMahon v. City of Newark

July 17, 2008

EDWARD R. MCMAHON, COURT-APPOINTED RECEIVER FOR ONE WASHINGTON PARK URBAN RENEWAL ASSOCIATION AND WGL ASSOCIATES, PLAINTIFF-APPELLANT,
v.
CITY OF NEWARK, CITY OF NEWARK DEPARTMENT OF FINANCE, OFFICE OF ASSESSMENT AND EVELYN E. LACCITIELLO, TAX ASSESSOR, DEFENDANTS-RESPONDENTS.



On certification to the Superior Court, Appellate Division.

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

The primary question in this appeal requires that the Court harmonize disparate provisions of the now-repealed Urban Renewal Corporation and Association Law of 1961 (Fox-Lance Law) , formerly N.J.S.A. 40:55C-40 to -76, with the comprehensive statutory appeal and review procedures for real estate tax appeals.

In March 1981, One Washington Urban Renewal Association (Entity), a New Jersey general partnership qualified as an urban renewal association under Section 3 of the Fox-Lance Law, and the City of Newark entered into a financial agreement, as defined and provided in Sections 20 through 25 of the Fox-Lance Law, to construct an office building (Project). As an incentive, the Entity would be exempt from taxation on improvements for a period of twenty (20) years and would pay a defined Annual Service Charge in lieu thereof. The parties further agreed that a breach of the financial agreement or any dispute between them would be heard either in the Superior Court or in arbitration pursuant to American Arbitration Association rules and regulations. The Entity and the City also envisioned a possible sale or other transfer of the Project. They agreed that the sale or other disposition of the Project would trigger the termination of the contracted-for tax abatement unless (1) the City consented to that transfer or (2) the transfer was in form only, from the Entity's then-existence as a general partnership to a limited partnership comprised of the same members as the Entity.

After it was developed and operating, the Project encountered financial difficulties. As a result, in 1991, the Entity filed for reorganization pursuant to Chapter 11 of the United States Bankruptcy Code. On August 2, 1996, pursuant to an earlier court-approved reorganization plan, the Bankruptcy Court ordered that the Entity transfer ownership to an Owner's Trust. Significantly, although the City was not a party to that order, it was present, through counsel, at both the hearing at which that order was entered, as well as the closing where the title transfer was effected. Yet, it neither interposed an objection to the transfer of the Project from the Entity to the Trust nor warned that such transfer might jeopardize the Project's tax abatement.

After the Project was transferred to the Trust, the City issued several added/omitted assessments to the Trust relating to the fourth quarter of the then-current fiscal year; representing a quarterly increase in the Project's real estate taxes of over one-half million dollars. An internal memorandum disclosed that the assessments were imposed because the transfer to the Trust did not have the City's approval. Efforts by plaintiff Edward R. McMahon, court-appointed receiver for the Project, and by the Newark Economic Development Corporation (NEDC) to resolve the dispute were in vain. As a result, on December 9, 1998, McMahon filed a verified complaint in the Superior Court seeking, inter alia, a declaratory judgment voiding the cancellation of the tax abatement.

The City filed its answer and affirmative defenses; it later moved to dismiss the complaint. In response to that motion, and by order dated January 18, 1999, the cause was transferred to the Tax Court. The matter lay dormant until July 2005, when the case was reassigned to a different Tax Court judge and a case management order was entered. The City then timely moved for summary judgment, claiming that the cause was properly before the Tax Court, and that the statute of limitations barred plaintiff's complaint. Plaintiff opposed that application, alleging that because, at its core, the action was one for breach of contract and not a tax appeal it was not cognizable in the Tax Court. In a written opinion dated October 21, 2005, the Tax Court granted the City's motion, concluding that plaintiff was required to file an appeal from the challenged added/omitted assessments in the manner prescribed by N.J.S.A. 54:4-63.11. The Tax Court observed that "[t]he parties.cannot divest by agreement either the County Tax Board or the Tax Court of its statutory role in reviewing the actions of an assessor that impact upon the tax liability of a taxpayer."

Plaintiff appealed and, in an unpublished opinion, the Appellate Division affirmed. The Appellate Division concluded that the proper procedural avenue plaintiff should have pursued was a tax appeal and that the complaint was filed more than a year past the tax appeal filing deadlines imposed by N.J.S.A. 54:4-63.11 and N.J.S.A. 54:4-63.39. The Appellate Division found this to be a "fatal jurisdictional defect."

The Supreme Court granted plaintiff's petition for certification.

HELD: When a taxpayer and a municipality have agreed in a detailed, arm's length writing that their disputes are to be resolved in a forum other than the Tax Court, the forum selection agreement will take precedence and its terms must be honored. Because plaintiff was entitled to have his case heard in the Superior Court in the first instance, the Tax Court lacked jurisdiction to determine the controversy.

1. Taxation of real property in New Jersey is of constitutional dimension and a comprehensive statutory scheme seeks to implement the constitutional mandate for "uniform rules" and "the same standard of value." The county board of taxation sets the tax rate fo r each municipality, based in part on the assessments provided by all tax assessors in the county. A slightly different process applies when improvements are added to real property or when improvements previously omitted are included in an existing assessment. Appeals from added assessments are taken either to the county board of taxation and then to the Tax Court or, in certain limited instances, directly to the Tax Court. Judicial review of tax assessments, added assessments and omitted assessments is also part of the comprehensive statutory framework. The Tax Court is a court of limited jurisdiction and its jurisdiction is defined by statute. N.J.S.A. 2B:13-2.1. It is against this comprehensive mosaic of procedural safeguards -- one with which continuing strict and unerring compliance must be observed -- that the Court gauges plaintiff's contest of the City's added/omitted assessments arising from the City's rejection of the contractually agreed upon tax abatement for the Project. (Pp. 18-22)

2. If plaintiff's complaint had addressed the quantum or methodology applied in respect of the added/omitted assessments issued by the City's tax assessor, his complaint would have fallen squarely within the band of cases subject to the established tax appeal process. In that instance, because plaintiff did not file a timely tax appeal, plaintiff's complaint would have been time-barred and the Tax Court would have lacked jurisdiction to hear the cause. Plaintiff's complaint, however, did not challenge the amounts of the added/omitted assessments issued by the City's tax assessor or the manner in which those amounts were determined. Instead, plaintiff's challenge directly addressed the City's unilateral determination that, by transferring the Project from the Entity to the Trust, the financial agreement between the Entity and the City had been breached. At its core, this is a contract and estoppel case, nothing more. The nature of plaintiff's challenge does not speak to the issues uniquely cognizable within the tax appeal process, but to the more fundamental question of whether the tax assessor had the authority to determine unilaterally that the bargained-for tax abatement was no longer operative. Paragraph 7 of the financial agreement plainly sets forth that such dispute is cognizable in the Superior Court or, failing Superior Court jurisdiction, arbitration under the rules of the American Arbitration Association. The Court envisions no reason these obviously sophisticated parties should not be bound by the covenants into which they freely and voluntarily entered. The Court will enforce that bargain. (Pp. 22-27)

The judgment of the Appellate Division is VACATED and the cause is REMANDED to the Law Division for consideration of plaintiff's complaint ab initio in accordance with the principles to which we have adverted.

CHIEF JUSTICE RABNER and JUSTICES LONG, LaVECCHIA, ALBIN, and WALLACE join in JUSTICE RIVERA-SOTO's opinion. JUSTICE HOENS did not participate.

The opinion of the court was delivered by: Justice Rivera-soto

Argued March 26, 2008

The primary question in this appeal requires that we harmonize disparate provisions of the now-repealed Urban Renewal Corporation and Association Law of 1961 (Fox-Lance Law),*fn1 formerly N.J.S.A. 40:55C-40 to -76, with the comprehensive statutory appeal and review procedures for real estate tax appeals.

Specifically, in this appeal the taxpayer and the municipality had agreed that, in order to encourage a significant urban renewal project, the taxpayer would be exempt from real estate taxes and would pay a defined annual service charge in lieu thereof. More to the point, the taxpayer and the municipality had agreed that any dispute between them would be heard either in the Superior Court or in arbitration. The municipality later asserted that the taxpayer had lost its exemption, and the municipality's tax assessor issued an added/omitted assessment for the property. Faced with that dispute, and instead of filing a tax appeal to the Tax Court within the time period allowed by law, N.J.S.A. 54:4-63.11, the taxpayer filed an action in the Superior Court seeking declaratory and injunctive relief. Although that lawsuit eventually was transferred to the Tax Court, the transfer occurred too late to invoke the Tax Court's appellate jurisdiction and, hence, the taxpayer was deemed bound by the added assessment.

Because the timely filing of a tax appeal is jurisdictional, an untimely tax appeal is not cognizable and the tardy taxpayer is bound by the assessment as issued. However, when, as here, a taxpayer and the municipality have agreed in a detailed, arm's-length writing that their disputes are to be resolved in a different forum, the forum selection agreement will take precedence and its terms must be honored.

I.

In March 1981, One Washington Urban Renewal Association (Entity), a New Jersey general partnership qualified as an urban renewal association under Section 3 of the Fox-Lance Law, N.J.S.A. 40:55C-44.1, and the City of Newark entered into a financial agreement, as defined and provided in Sections 20 through 25 of the Fox-Lance Law, N.J.S.A. 40:55C-59 to -64. That financial agreement concerned the construction of an urban renewal project consisting of a seventeen-story office building (Project).*fn2 In respect of the incentives allowed for the development of the Project, Paragraph 3 of the financial agreement provided that

[t]he Project to be constructed by the Entity shall be exempt from taxation[] on improvement(s) in accordance with the provisions of the [Fox-Lance Law] and in the manner provided by this [financial a]greement, for a period of not more than twenty (20) years from the date of execution of this [financial a]greement, or earlier at the end of fifteen (15) years of operation of said Project, and only so long as the Entity and its Project remain subject to the provisions of the [Fox-Lance Law] and complies with this [financial a]greement. [(Emphasis supplied; internal quotation marks omitted).]

In Paragraph 4(a) of the financial agreement, the parties further agreed that, in lieu of its contractually exempted real estate tax obligations, "the Entity shall make payment to the City of an Annual Service Charge for municipal service supplied to said Project of a sum equal to 2% of the total Project cost[.]" They also covenanted that "in no event shall such payment together with the taxes on the land, in any year after the first occupancy of the Project[,] be less than the total taxes (agreed to be $70,402.22)[] assessed on all the real property in the area covered by the Project[.]" In addition, they contracted that "[t]he agreed minimum annual ...


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