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Schnegelberger v. James


July 24, 2008


On appeal from the Superior Court of New Jersey, Law Division, Essex County, L-000732-03.

Per curiam.


Submitted October 29, 2007

Before Judges Stern, A. A. Rodríguez and C. S. Fisher.

David Schnegelberger, Florence Schnegelberger, William Stewart, Anna Stewart, Archibald Williams, Burnell Williams and Migdalia Perez (plaintiffs) are a group of residential property taxpayers in Newark. They commenced this action in lieu of prerogative writs (mandamus) "on behalf of themselves and as representatives of a class consisting of [Newark] residential property taxpayers[,] against the City of Newark, its former Mayor Sharpe James, the Municipal Council (collectively "Newark") and the New Jersey Department of Community Affairs (DCA).*fn1 Plaintiffs alleged that Newark collected approximately $180 million in parking and payroll taxes beginning in October 1, 2000, pursuant to the Revaluation Relief Act of 1999, N.J.S.A. 54:1-35.51 to -35.55 (1999 Act), repealed by L. 2004, c. 181, § 1, eff. Dec. 22, 2006. It is undisputed that the 1999 Act imposes a restriction or limitation on the revenues collected, i.e., they are to be "used for the sole purpose of funding revaluation relief" abatements. N.J.S.A. 54:1-35.54. The 1999 Act further provides that:

The procedures and safeguards to implement the requirement that funds be used for the sole purpose of funding revaluation relief shall be as the Director of the Division of Local Government Services in the Department of Community Affairs shall prescribe. [Ibid.]

Plaintiffs alleged that Newark did not use the taxes collected according to the restrictions outlined in the 1999 Act. Therefore, plaintiffs sought: (1) an accounting of the funds collected by Newark; (2) payment of the parking and payroll taxes collected into an escrow fund administered by the court; and (3) attorneys fees and costs.

The Law Division judge initially granted Plaintiffs' motion for "partial summary judgment on liability" and denied defendants' "cross-motions . . . to dismiss the complaint for failure to state a claim." This ruling was memorialized in two oral opinions and an October 15, 2004 order. The judge found, as a matter of law, that the 1999 Act required Newark to use its parking and payroll tax revenue for the sole purpose of revaluation relief. Thus, Newark was ordered "to place in escrow parking and payroll tax receipts subsequent to October 15, 2004[.]"

Newark moved unsuccessfully for a stay in the trial court. The DCA and Newark moved for leave to appeal. We denied these motions.*fn2

Thereafter, an unanticipated development occurred which impacted this lawsuit: on December 22, 2004, the Legislature repealed the 1999 Act in its entirety, retroactive to September 1999. L. 2004, c. 181, § 3, eff. Sept. 21, 1999. The Legislature also repealed the cross referencing provisions of the Local Tax Authorization Act (Local Tax Act), N.J.S.A. 40:48C-1 to -41. This provision is found at N.J.S.A. 40:48C-8. Curiously, the repeal legislation was introduced by two state senators who happened to be Newark Mayor Sharpe James, a named defendant in this action, and Deputy Mayor Ronald Rice.

DCA and Newark moved in the trial court to dismiss the action based on the repealer. Plaintiffs opposed the motion and responded with a challenge to the constitutionality and retroactive enforceability of the repealer. The judge rejected plaintiffs' challenge, and based on the repealer, dismissed the complaint with prejudice as to all defendants.

Plaintiffs appeal to us, raising several constitutional challenges. We reject them all and affirm the dismissal of the complaint. However, our analysis is not based on the repeal of the 1999 Act. In fact, we conclude that the repealer is irrelevant to this suit against Newark.

Statutory Authority

Plaintiffs' first contention on appeal is that Newark and the DCA "confiscated property protected by the takings clause." Specifically, plaintiffs argue that Newark stole and spent the revaluation relief payments that, pursuant to the 1999 Act, should have been paid by Newark to eligible taxpayers before the repealer statute was enacted. As support for their argument, Plaintiffs argue: (1) "Newark unlawfully confiscated the taX abatements belonging to plaintiffs;" and (2) "the repealer's retroactive application effects a taking by the State." We disagree.

The core of plaintiffs' complaint is that Newark collected additional taxes, authorized by the Legislature pursuant to the 1999 Act, but with the restriction that the funds only be used for property tax revaluation relief. However, Newark allocated the funds to its general operating budget, and the DCA did not exercise its oversight responsibility to prevent Newark's actions.*fn3 These contentions are premised on an inaccurate premise: that Newark collected parking and payroll taxes pursuant to the 1999 Act. In fact, these taxes were collected long before the 1999 Act was enacted, pursuant to the Local Tax Act, which was enacted in 1970. Ibid. The Local Tax Act imposes no restriction on a municipality with respect to the revenues generated. For nearly thirty years, Newark collected and relied on this special tax revenue for general municipal purposes. Ibid. Therefore, Newark did not contravene any statutes by using the parking and payroll tax proceeds as general revenue.

The 1999 Act and its predecessor, the Revaluation Relief Act of 1993, N.J.S.A. 54:1-35.39 & -33.50 ("1993 Act"), were intended to aid municipalities to cope with extreme property tax increases resulting from property revaluations. According to the Legislative findings, the 1999 Act was enacted in anticipation of the difficulties that Newark might encounter in the implementation of its first municipal-wide revaluation since 1961. See Essex County Bd. of Taxation v. City of Newark, 340 N.J. Super. 432, 449 (App. Div.), certif. denied, 170 N.J. 387 (2001). Newark had previously defied a series of court orders requiring it to conduct the revaluation. Ibid.

At the time the 1999 Act was adopted, Newark was collecting parking and payroll taxes pursuant to the Local Tax Act, which was set to expire on December 31, 1999. Farmer, supra, 329 N.J. Super. at 32. Newark's authority to collect payroll and parking was ultimately extended to December 31, 2004, by adoption of the 1999 amendment to the Local Tax Act. See id. at 30 n.4; see also N.J.S.A. 40:48C-8; N.J.S.A. 40:48C-19. Simultaneously, with the repeal of the 1999 Act, the Legislature repealed the sunset provisions of the parking and payroll taxes. The amended statute now permits Newark to collect these taxes in perpetuity.

In providing Newark with a means to mitigate the impact of tax increases due to the revaluation, the Legislature did not compel acceptance of this statutory relief. Rather, the Legislature left Newark with the option of accepting or rejecting the relief.

Newark chose not to accept the benefits, and concomitant restrictions of the 1999 Act, which required the governing body to adopt an ordinance. Newark did not adopt an ordinance and it missed the April 15, 2000 deadline for conducting a revaluation management analysis. Thus, Newark never became subject to the 1999 Act. We have no view on the wisdom of that decision. That is a political issue, which the courts cannot review. See Baker v. Carr, 369 U.S. 186, 210, 82 S.Ct. 691, 706, 7 L.Ed. 2d 663, 682 (1962).

Moreover, we note that the Legislature recognized that Newark was not bound by the 1999 Act. According to the Legislative Fiscal Estimate:

The purpose of the [1999 Act] was to encourage . . . Newark to undertake a revaluation by authorizing [it] to phase in the impact of the revaluation.

Newark has undertaken a revaluation and implemented it during 2003 without using the phase-in provisions. [Legislative Fiscal Estimate to S. 2037, 211th Leg., [First Reprint] (N.J. 2004).]

The "Takings" Argument The Retroactivity and Manifest Injustice Claims Given our conclusion that the 1999 Act was not the authority on which Newark relied to collect parking and payroll taxes, we need not further address the constitutional challenge that Newark "stole" or "unlawfully confiscated" property belonging to its taxpayers. However, we note that the Takings Clause of the New Jersey Constitution, N.J. Const. art. I, P20, and the Fifth Amendment to the United States Constitution, U.S. Const. amend. V, both require compensation from a governmental taking of private property only when the government has actually appropriated an individual's private property for its own use. Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 223-25, 106 S.Ct. 1018, 1025-26, 89 L.Ed. 2d 166, 177-79 (1986). Moreover, the United States Supreme Court has held that:

A "taking" may more readily be found when the interference with property can be characterized as a physical invasion by government . . . than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good. [Penn Cent. Transp. Co. v. New York City, 438 U.S. 105, 124, 98 S.Ct. 2646, 2659, 57 L.Ed. 2d 631, 648 (1978).]

Here, the repealer of the 1999 Act eliminated a statutory authority to tax. It does not authorize appropriation or interference with private property. Therefore, even if the 1999 Act applied to the facts of this case, it is only to the extent that it may adjust economic benefits. It does not implicate the Takings Clause. See Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 16, 96 S.Ct. 2882, 2893, 49 L.Ed. 2d 752, 1767 (1976).

This case is also distinguishable from Ettor v. Tacoma, 228 U.S. 148, 33 S.Ct. 428, 57 L.Ed. 2d 773 (1913), on which plaintiffs rely. Ettor involved "a vested property right" to compensation, protected by a statute that was subsequently repealed. Id. at 155, 33 S.Ct. at 430, 57 L.Ed. 2d at 777-78. Therefore, even if the 1999 Act applied here, its repeal does not constitute a taking within the meaning of the Federal or New Jersey Constitutions.

Similarly, we need not address the contention that "the retroactive application of the repealer is invalid because it is without rational basis[,]" or that "the repealer is invalid because it results in manifest injustice to the plaintiff class." Once again, we emphasize that Newark's collection of parking and payroll taxes since 1970 was authorized by the Local Tax Law, not the 1999 Act. Therefore, the latter's repeal is irrelevant to this case. Nonetheless, we note that the Legislature's intent to apply the statute retroactively is explicit in the statute itself. See Nobrega v. Edison Glen Assocs., 167 N.J. 520, 536 (2001) (holding that statutes apply retroactively when the Legislature has explicitly or implicitly expressed its intent); Twiss v. State, 124 N.J. 461, 467 (1991) (same).

Moreover, all legislative enactments are entitled to a presumption of constitutional validity. Short v. Short, 372 N.J. Super. 333, 338 (App. Div. 2004) (citing NYT Cable TV v. Homestead At Mansfield, Inc., 111 N.J. 21, 26 (1988)), certif. denied, 182 N.J. 429 (2005). The burden of overcoming this presumption is on plaintiffs. Velmohos v. Maren Eng'g Corp., 83 N.J. 282, 295 (1980), vacated and remanded, 455 U.S. 985, 102 S.Ct. 1605, 71 L.Ed. 2d 844 (1982); Harvey v. Bd. of Chosen Freeholders, 30 N.J. 381, 388 (1959); Reingold v. Harper, 6 N.J. 182, 196 (1951).

Lastly, we must accord the Legislature a high degree of deference concerning taxing, budgeting, economic and social issues. Edgewater Inv. Assocs. v. Borough of Edgewater, 103 N.J. 227, 235-36 (1986); Reingold, supra, 6 N.J. at 193-94. The Supreme Court noted in Edgewater:

[T]he strong deference accorded legislation in the field of . . . economic policy is no less applicable when that legislation is applied retroactively. Provided that the retroactive application of a statute is supported by a legitimate legislative purpose furthered by rational means, judgments about the wisdom of such legislation remain within the exclusive province of the legislature and executive braches . . . .

[Edgewater, supra, 103 N.J. at 238 (citing Pension Benefit Guar. Corp. v. R. A. Gray & Co., 467 U.S. 717, 729, 104 S.Ct. 2709, 2718, 81 L.Ed. 2d 601, 611 (1984)).] Affirmed.

STERN, P.J.A.D. (concurring).

While I appreciate the majority's traditional effort to avoid constitutional issues, I find it appropriate and necessary to add the following in light of the issues raised on this appeal and the fundamental premise that Newark collected taxes subject to the "Revaluation Relief Act of 1999" ("the 1999 Act").*fn4

Plaintiffs challenge "both the constitutionality and the retroactive enforceability of [L. 2004, c. 281]," which repealed portions of the Act.*fn5 Their challenge is understandable in light of the fact that, prior to adoption of the repealer, the Law Division had held that the City of Newark was "authorized to collect" "parking and payroll taxes for the sole purpose of using the proceeds for revaluation relief" and was "not authorized to collect these taxes for any purposes they wished," as it had done previously, thereby granting "partial summary judgment on liability" to plaintiffs.

Plaintiffs sought to enforce N.J.S.A. 54:1-35.51 to -35.55, the "Revaluation Relief Act of 1999," L. 1999, c. 216, §§ 1-2, 10-12, to compel Newark to pay into court "an amount equal to the parking and payroll taxes" imposed since 1999 and to use the money collected for the sole purpose of providing "revaluation relief." However, by L. 2004, c. 181, § 1, N.J.S.A. 54:1-35.51 to -35.55 was repealed and the repealer was expressly made retroactive to September 21, 1999, the effective date of the 1999 Act, L. 2004, c. 181 § 3.*fn6 N.J.S.A. 54:1-35.54 (L. 1999, C. 216, § 11), had provided:

All monies received by the City of Newark pursuant to a tax imposed pursuant to section 10 of P.L. 1999, c. 216 (C.54:1-35.53) shall be used for the sole purpose of funding revaluation relief abatements. The procedures and safeguards to implement the requirement that funds be used for the sole purpose of funding revaluation relief shall be as the Director of the Division of Local Government Services in the Department of Community Affairs shall prescribe.

Judge Rachel N. Davidson found that the retroactive repealer was constitutional. On this appeal plaintiffs argue the collected taxes should have been spent only as required by the "Revaluation Relief Act of 1993" and the "Revaluation Relief Act of 1999" before the repealer statute was enacted; that the taxes could not be "confiscated" and retroactively otherwise expended; that "the retroactive application of the repealer is invalid because it was without rational basis"; and that "the repealer [was] invalid because it results in manifest injustice to the plaintiff class." Plaintiffs ask that we hold that the collected taxes must be used exclusively for revaluation relief and property tax abatements.

Defendants argue the repealer was to save the City economically; that plaintiffs were "entitled" to no rights under the 1999 Act and thus there was no "taking"; and that there was a "rational basis" for the retroactive repealer which "creates no inequity." The City defendants also assert that, even when there is "deleterious and irrevocable reliance, the statute will be upheld, if the private reliance is outweighed by the public interest."

As plaintiffs develop, there were no legislative findings or any declaration of any kind of a "public need for the repeal," see L. 2004, c. 181, and I will accept, for present purposes, their assertion that the repealer "was adopted solely as a political accommodation to Newark's leaders," the mayor being a member of the Senate. But the statement of the Senate Community and Urban Affairs Committee makes clear that the bill as amended was designed to repeal "sunset" provisions of the parking and payroll taxes, N.J.S.A. 40:48C-8 and -19, and provisions of the 1999 Act, which were "specific to the City of Newark," designed "to encourage the City of Newark to undertake a revaluation" by "phas[ing] in the impact of the revaluation." Repeal of the 1999 Act was said to eliminate that legislation which "constrain[ed] the ability of the City of Newark to take a more responsive approach to the budget process." A committee amendment retained "the provision of law that limits authorization to impose the employer payroll tax to the City of Newark while freeing Newark from constraints on appropriating revenues derived therefrom and eliminating the sunset provision for the tax." The statement also made clear that the new Act would be "retroactive to September 21, 1999, the effective date of the 'Revaluation Relief Act of 1999,'" while eliminating the "sunset provision" and continuing the authorization to impose the parking and employer payroll tax in the City of Newark for which authorization was set to expire in December 2004.

Moreover, the fiscal note of the Office of Legislative Services, dated December 21, 2004 (one day before the repealer was enacted), echoed the Committee statement, and expressly added that the retroactivity provision "validates the collection and general use of those taxes by the city, from September 21, 1999 to the present, in effect holding Newark harmless from using the funds to provide 'revaluation relief abatements' pursuant to P.L. 1999, c. 216 (C 54:1-35.51 et seq.), the 'Revaluation Relief Act of 1999.'"

Despite the need to use the taxes under the 1999 Act for property tax relief, the funds were used as part of the general treasury. Judge Davidson ultimately concluded that the retroactive repealer did not constitute a "taking" of the plaintiff's property, because the 1999 legislation was not enacted to benefit them, but to maintain "the stability and viability of . . . neighborhoods and communities, while requiring the governing body of the City of Newark to conduct and implement a revaluation." According to the judge, [t]his finding by the Legislature was based on a prediction of the havoc revaluation was expected to cause, which, as plaintiffs recognize, was a position advocated by Newark. The repealing legislation was enacted after the fact, almost two years after the revaluation actually took place. The Legislature clearly concluded, based on the facts "on the ground," that, in the aftermath of the revaluation, the feared fiscal shock with the resulting harm to Newark did not occur and that the "very existence of the largest urban center in the State" has been preserved without revaluation relief. The other goal of the Revaluation Relief Act, to require Newark "to conduct and implement a revaluation" had also been met. If anything, the legislation that was passed after the outcome of revaluation was known could be considered more "rational" than legislation passed based on Newark's dire predictions.

The judge also believed that there was a rational basis for the retroactive repealer, and that it was therefore constitutional, as plaintiffs had no "entitlement" and "no vested right" to the collected taxes or their use for property tax relief:

Plaintiffs also argue that their rights "vested" by virtue of the court's earlier decision in this matter. However, plaintiffs ignore the fact that the court ruled on liability only and not on a remedy. This court never awarded the proceeds of the payroll and parking taxes to the plaintiffs in this case. Had the court done so, plaintiff would have a much better argument that their rights vested. Not only did the court not reach that issue because the Legislature intervened before the remedy could be discussed, but it is by no means clear that without such intervention the court would have awarded money to plaintiffs. As was expressed several times in court, a good argument could be made that the taxes that were collected without authority should be returned, in some equitable fashion, to those who paid them and not to the plaintiffs. Plaintiffs have never prevailed in showing that they were entitled to the proceeds of these improperly collected taxes.

The issue before us is not whether we like what the elected officials of the City of Newark (or even the State) did, or even if it was fair to the taxpayers. The issue is only whether it was constitutional under the rational basis test. While I note that the persons who paid the taxes were wronged by its collection and application for an improper use prior to the repealer, Judge Davidson never held the real property owners were to obtain the benefit of any remedy. She never held the tax collected had to be used for tax abatements, or that plaintiffs had any vested right in the use of the tax proceeds. Moreover, there can be no question that N.J.S.A. 54:1-35.51 to -35.54 was expressly repealed effective as of the date of its enactment, see L. 2004, c. 181, § 3, and the legislative history as to the purpose of the repealer could not be clearer. Hence, the Legislature repealed, effective the very date of its adoption, the necessary allocation of the taxes.

It is not for a court to upset the legislative process or conduct of our elected officials, when the resulting legislation provides for "retroactive application" of a statute which embodies "a rational legislative purpose," OFP, L.L.C. v. State, 395 N.J. Super. 571, 591-92 (App. Div.), certif. granted, 193 N.J. 277 (2007) - here to eliminate Newark's fiscal problems - when the funds are not taken from taxpayers who had some vested claim to them. And that is so, sad as it may seem, even when they are lawfully collected only for a specific purpose. We have a right to hold public officials to their word and legal obligations on election day, but the polestar for judges of a third branch of government can be no more than to decide what the constitution requires.

In sum, I simply find no constitutional violation of plaintiff's rights. See also Oberhand v. Director, Div. of Tax., 193 N.J. 558, 572-73 (2008) (no retroactivity where reliance on prior law and no adverse impact on state revenues); Nobrega v. Edison Glen Assoc., 167 N.J. 520, 543-47 (2001) (using rational basis and manifest injustice test with respect to retroactivity).

While not disagreeing with the court's opinion on "The 'Takings' Argument," I would affirm the judgment substantially for the reasons stated by Judge Davidson in her letter of August 12, 2005, as supplemented herein.

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