November 10, 2009
CRUSADER SERVICING CORPORATION, PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
GODWIN AVENUE URBAN RENEWAL LIMITED PARTNERSHIP, DEFENDANT/THIRD-PARTY PLAINTIFF-RESPONDENT/ CROSS-RESPONDENT, AND THE MAYOR OF THE CITY OF PATERSON AND THE CLERK OF THE CITY OF PATERSON, DEFENDANTS/THIRD-PARTY DEFENDANTS-APPELLANTS, AND SSGA AFFORDABLE HOUSING MORTGAGE FUND, STATE OF NEW JERSEY, SELECTIVE INSURANCE OF AMERICA, GAETA RECYCLING COMPANY, INC. AND RICKY C. PENNISI I/D/B/A SUPERIOR INTERIORS AND DANNICO, INC., DEFENDANTS.
On appeal from the Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. F-20684-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 20, 2009
Before Judges Rodríguez, Payne and Waugh.
Plaintiff, Crusader Servicing Corporation (Crusader), the holder of Tax Sale Certificates for property located in Paterson, sued for foreclosure of the property. The property owner, Godwin Avenue Urban Renewal Limited Partnership (Godwin), which had developed the property as affordable housing, filed a third-party claim against the City of Paterson in order to challenge the validity of the Tax Sale Certificates and the underlying tax assessments. Godwin alleged that it owed no taxes because it had obtained from Paterson a tax abatement with payments in lieu of taxes (PILOT) pursuant to the Long Term Tax Exemption Law, N.J.S.A. 40A:20-1 to -22. N.J.S.A. 40A:20-5.1 permits a "non profit corporation organized for the purpose of development, construction and operating a qualified subsidized housing project" to "qualify as an urban renewal entity" and to apply for a tax abatement or "long term tax exemption." During the period of the exemption, the urban renewal entity pays no taxes. Instead, it makes PILOT payments, which are based on a percentage of the gross annual revenues. N.J.S.A. 40A:20-12.
A necessary component of an application for a tax abatement is a Finance Agreement between the urban renewal entity and a municipality, prepared in accordance with N.J.S.A. 40A:20-9. The Finance Agreement must be authorized by the municipal governing body.
Here, Robert Padula, a general contractor, formed Godwin in 1997, for the purpose of redeveloping the property located at 200 Godwin Avenue. Padula constructed forty-nine large apartments consisting of one, two and three bedroom units, which were considered affordable housing with rent restrictions. Godwin applied for a tax abatement. In conjunction with this application it: (1) created a not for profit corporation called the Paterson Urban Renewal Corporation (PURC), which was owned by Godwin and Boston Capital Corp. (Boston Capital); and (2) prepared and submitted the Financing Agreement. Padula was the registered agent for PURC.
By Resolution No. 97-308 dated April 22, 1997, Paterson approved the Financing Agreement for a thirty-year tax abatement to PURC. However, the Agreement was not finalized or executed prior to the commencement of this case. At the core of this litigation is the failure of Paterson officials to follow up on Resolution No. 97-308 by insuring that these essential steps were taken.
Charles Parmelli, the tax assessor for Paterson since 1971, wrote in an internal memorandum dated March 1998 to Susan E. Champion, then corporation counsel for Paterson, that there was no record of the Financial Agreement for Godwin's long-term tax abatement in connection with the Godwin Avenue property. Parmelli reported that as a result he could not proceed to set up a schedule for payments in lieu of taxes. He reiterated this concern in a memorandum to Paterson's Director of the Department of Community Development. There was no response.
In September 2000, Charles Scannella, Paterson's chief internal auditor, wrote to Frank Covello, the assistant corporation counsel, to request a meeting to "establish abatement-billing start dates" for the Godwin project. Scannella testified that he had never put an abatement into effect without a Financial Agreement in place, and he never saw a fully-signed Financial Agreement for the Godwin project. Although he received copies of the 2002 and 2003 financial statements for Godwin, he never billed Godwin for the PILOT program because he "didn't have a signed abatement agreement." According to Scannella, Covello told him "it would be forthcoming."
Padula called Scannella at some point to see if he "got the audits that [he] needed to calculate the abatement." When Scannella told him that he had not, Padula said he would make sure to get him the audits and tax returns. Scannella did not tell Padula that they were "sitting tight awaiting a signed [Financial Agreement]," because it "didn't dawn on [him] to ask [Padula] that." Scannella admitted that by 2002, he had sufficient information to start billing the PILOT payments for the Godwin project.
In a November 2, 2000 letter, Godwin's then counsel, Laurie Rush-Masuret, asked Covello to "please finalize the draft of the Financial Agreement for the tax PILOT program" and that "[t]his should be done expeditiously as the matter has been pending since 1997." In February 2001, Covello faxed a proposed Financial Agreement to Rush-Masuret. She made hand-written changes and forwarded the document to Padula on February 27, 2001, who delivered it to the City Counsel's office. However, Covello, who left the position of assistant corporate counsel very soon thereafter, did not follow up.
In the interim, the Tax Assessor sent tax bills to PURC. These taxes were not paid. On June 28, 2001, Crusader purchased a Tax Sale Certificate in the amount of $7,219.31 for the 2001 real estate taxes and 2001 sewer usage charges for the property. The following year, Crusader purchased a Tax Sale Certificate in the amount of $73,970.53 for the 2002 real estate taxes and sewer charges. The year after that, Crusader purchased a Tax Sale Certificate in the amount of $258,643.31 for the 2003 real estate taxes and sewer charges for the property.
In a memorandum to the Mayor dated December 5, 2002, Parmelli detailed the history of the property since the resolution "allowing" the thirty-year tax abatement in 1997. This memorandum noted that a Financial Agreement was produced on February 20, 2000, but "not signed by City or Developer," and that there were several requests for meetings or for a status report on the Financial Agreement during 2000 and 2001.
In December 2004, Crusader filed a complaint for foreclosure of the three Tax Sale Certificates. Godwin filed an answer, separate defenses, a cross-claim against Paterson and a third-party complaint against the Mayor and Clerk of the City of Paterson. Paterson answered the cross-claim.
By order dated January 30, 2006, Judge Margaret Mary McVeigh enjoined Paterson from selling any future tax sale liens on the subject property. The matter proceeded to trial.
The judge ruled that she would handle the case in two phases. The first phase would be the foreclosure issues, and the second phase would be the legal remedy.
At trial, Paterson argued that the court should not grant Godwin relief because: (1) the resolution approved a PILOT for PURC, not Godwin, and Godwin failed to seek permission for the transfer of the project to it or request a new resolution; (2) Godwin never filed a property tax appeal; and (3) the PILOT was invalid because there was never an executed Financial Agreement between Paterson and Godwin.
The Judge's Decision
Following a nine-day trial, Judge McVeigh entered an order denying Crusader the relief requested in its complaint and granting in part the relief request in Godwin's third-party complaint. She ordered as follows: (1) the PILOT and Financial Agreement as approved by Paterson on or about April 22, 1997 shall be considered effective as of March 2001; (2) the 2001, 2002 and 2003 Tax Sale Certificates sold by Paterson are void and Paterson shall refund the amounts paid by Crusader "together with interest at the statutory rate;*fn1 " (3) Godwin shall pay all PILOT amounts and all of the interest due on the PILOT through the date of the Judgment; and (4) Godwin shall pay all taxes due and owing through February 2001, and all sewer charges from 2000 to the date of the judgment, including interest and penalties.
The judge also issued a letter opinion on the same date. The judge set forth the undisputed facts, including the passage of the April 22, 1997 resolution granting participation in a PILOT program with the attached unsigned Financial Agreement. The judge found as undisputed fact that such an affordable housing project could not be built without a PILOT agreement. Starting in 2000 or 2001, when the parties became aware that there "was a problem in effectuating the PILOT," there were inconsistencies in the testimony of witnesses creating questions of fact.
The judge noted that N.J.S.A. 40A:20-9, which details the form and contents of the Financial Agreements required for PILOT programs, requires that amendments or modifications to the document after approval, be made by mutual consent of the municipality and the entity, and be subject to approval by resolution.
The judge estopped Paterson "from arguing that Godwin's claims be denied for failing to comply with the statutory modification requirements" because "[t]here was a meeting of the minds that the approved 1997 approval resolution was for the Godwin property and everyone acted in accordance with that belief."
The judge also found Paterson's argument that Godwin failed to file a tax appeal to be a "red herring" because "the approved PILOT provides [Godwin] no grounds for appeal." Although it was undisputed that "various representatives" of Paterson advised Padula to file a tax appeal and that no tax appeal was filed, the judge instead found dispositive N.J.S.A. 54:3-21(b), which states that a taxpayer may not appeal an assessment based on a financial agreement subject to the "Long Term Tax Exemption Law."
The judge recognized that Godwin had the burden to prove its entitlement to the exemption and that Godwin must also overcome the presumption of validity of the three Tax Sale Certificates. However, the judge ruled that "there is no viable reason to sustain Paterson's position requesting the court to void the resolution of the City of Paterson Council's approving the PILOT for the Godwin Property."
Specifically, the judge found that Paterson passed a resolution approving the PILOT for the Godwin property, and the proposed Financial Agreement "was a part of the documentation approved by the [City Council]." Paterson approved a mortgage for the construction by Godwin, subordinated its mortgage to the Affordable Housing Mortgage Fund for additional funding; and issued a certificate of occupancy to Godwin thereby allowing tenants to move in. The judge found that these actions evidenced "the understanding that the entity that owned the Godwin project was [Godwin] and not [PURC]. The judge found that "[f]or all intents and purposes, the Godwin project took on a life of its own." The judge credited Padula's testimony that he was not concerned because he had similar delays with the PILOT for another project. Because no witness from Paterson testified that Padula was told to just sign, the judge found that the PILOT was effective as of March 2001.
The judge detailed additional facts supporting her ruling, including the following: (1) Godwin paid outstanding taxes accrued during construction, and tax bills from 2001 and 2002 showed zero taxes due; (2) Godwin's attorney asked for and received a copy of the Financial Agreement from Covello in 2001, the attorney made "minor corrections" and then Padula delivered the Agreement to the City Counsel's office "to find out what needed to be done next"; (3) Paterson's representatives assured Boston Capital, an investor in the project, that they would figure out the problem with regard to the PILOT program; (4) internal documents from Paterson from 1998 through 2006 demonstrated "Paterson knew something needed to be done" for the Godwin PILOT and Paterson "made a decision that the property would go on the tax rolls as an added/omitted assessment at full taxation;" and (5) Paterson had "all of the documentation necessary to bill the PILOT . . . absent the executed financial agreement" but did not bill for the PILOT payments.
In sum, the judge concluded that she had "no choice but to estop the City from arguing that the PILOT was ineffective because the financial statement was never executed." "When all that was missing was a signature, it is the height of irresponsibility for a government entity to fail to respond not just to an applicant but to their attorney." In fact, the judge thought that Paterson's actions were "unconscionable" and "egregious," that Paterson led Godwin and Padula on "for years," and then inappropriately allowed the sale of the Tax Sale Certificates and foreclosure of the same "for immediate budget relief." The judge acknowledged that Godwin "did not fully comply with the statutory requirements," but "has provided sufficient proofs that it is nonetheless entitled to a tax exemption and that there is a compelling justification for this Court to void the sale of tax certificates."
The Appeal By Paterson
Paterson appealed.*fn2 We ordered that, pending appeal, paragraph 2b of the August 15, 2008 order requiring Paterson to refund to Crusader the amount paid plus interest for the Tax Sale Certificates, be stayed. The order provided that if paragraph 2b were ultimately reversed, Paterson would be required to repay to Godwin, with interest, any payments made by Godwin for PILOT amounts pursuant to paragraph 2c of the order.
On appeal, Paterson contends that the trial court's decision should be reversed because: (a) Godwin cannot invoke estoppel to frustrate an essential government function, thus precluding the grant of a tax exemption for the subject property; (b) Godwin cannot invoke promissory estoppel to get around its failure to appeal the added/omitted assessment or file tax appeals, thus precluding the grant of a tax exemption for the subject property; (c) Godwin's failure to comply with the strict requirements of the Long Term Tax Exemption Law precludes the grant of a tax exemption for the subject property; (d) Godwin, via its third-party complaint in lieu of prerogative writs, is not entitled to the grant of a tax exemption for the subject property for past years; (e) the transfer of title of the project precludes the grant of a tax exemption for the subject property; (f) the conclusive presumption of truth accorded to the statements contained in the subject Tax Sale Certificates precludes the grant of a tax exemption for the subject property; and (g) the doctrine of waiver and/or the doctrine of laches precludes the grant of a tax exemption for the subject property.
We reject these contentions and affirm substantially for the reasons stated by Judge McVeigh in her written opinion. From our careful review of the record, we conclude that the judgment under review "is based on findings of fact which are adequately supported by the evidence." Rule 2:11-3(e)(1)(A). We merely add that the judge, sitting in a Chancery court, reached an equitable result. The old legal maxim: "equity considers that as done, which ought to have been done," applies here.
Given our affirmance, we do not reach Paterson's alternative arguments that: (1) "the trial court made certain procedural and/or substantive evidentiary errors, requiring a reversal of the trial court's decision;" and (2) "the trial court erred when it enjoined the appellant City from selling future Tax Sale Certificates on the subject property via order, filed January 30, 2006, requiring a reversal of the same."
Paterson also contends that "in the event this Court were to hold the subject Tax Sale Certificates to be void despite the arguments, supra, the trial court's decision should be reversed because appellant City would be obligated to refund to cross-appellant Crusader the amount paid for said Certificates at the legal interest rate, not at the statutory interest rate pursuant to N.J.S.A. 54:5-43." This issue is related to the issue on the cross-appeal. Both issues will be discussed together.
The Cross-Appeal By Crusader
Crusader cross-appeals arguing that,
THE 'STATUTORY' RATE RECITED IN THE COURT'S ORDER SIMPLY REFERENCES THE VARIOUS INTEREST RATES CONTAINED IN THE TAX SALE LAW N.J.S.A. §54:5-1 [TO -137], AND DOES NOT REQUIRE PATERSON TO REFUND THE INVALID PORTION OF THE TAX SALE CERTIFICATES AT 18% INTEREST.
Although styled a cross-appeal, this is not actually a challenge to the judgment but a request for clarification of it. Godwin takes no position.
The judge ordered that: (1) Godwin shall pay taxes "calculated as due and owing through February 2001;" and (2) "the 2001, 2002 and 2003 Tax Sale Certificates are declared as void and Crusader's payment shall be returned by [Paterson] together with interest at the statutory rate." The parties dispute what the judge meant by "the statutory rate."
There are several rates mentioned in the Tax Sale Law depending on different scenarios. The "rate of redemption for which the property was sold" is mentioned in N.J.S.A. 54:5-58. This rate, which may not exceed eighteen percent, is usually stated in the Tax Sale Certificate and is permitted by N.J.S.A. 54:5-32. Caput Mortuum, LLC v. S & S Crown Services, 366 N.J. Super. 323, 336 (App. Div. 2004). This is the rate of interest that must be paid to the holder when a Tax Sale Certificate is redeemed.
N.J.S.A. 54:5-43 governs Tax Sale Certificates that are voided. The statute provides:
54:5-43. If sale set aside; tax refunded to purchaser
If the assessment itself is valid and the tax, assessment or other municipal charge, or any part thereof, is justly due, no sale shall be set aside, except on condition that the amount due shall be paid to the municipality for the use of the holder of the certificate of sale by the person applying to set it aside. If the sale shall be set aside, the municipality shall refund to the purchaser the price paid by him of the sale, with lawful interest, upon his assigning to the municipality the certificate of sale and all his interest in the tax, assessment of other charges and in the municipal lien therefor, . . .
On the other hand, we have held that if the Tax Sale Certificate is voided because the assessment is invalid, the post-judgment interest rate set forth in Rule 4:42-11(a) is the appropriate rate to be refunded to the holder, Brinkley v. Western World, Inc., 292 N.J. Super. 134, 137-38 (App. Div. 1996). The rate should be calculated in accordance with the applicable interest rate for each year as set by Rule 4:42-11(a). Ibid.
Here, there were valid and invalid tax assessments for different periods. A portion of the 2001 certificate was based on a valid assessment. From January 1, 2001 through February 2001, there was no tax abatement in place. Therefore, Godwin owed taxes for that period. Pursuant to N.J.S.A. 34:5-58, Godwin must pay both the amount of taxes owed and interest on the amount to Crusader at the rate of redemption. We construe that the order under appeal does not require Paterson to refund taxes or interest to Crusader for this period. Rather the obligation, pursuant to N.J.S.A. 54:5-43, falls upon Godwin, the entity "applying to set [the certificates] aside."*fn3
From March 1, 2001 until the end of 2003, according to the order under appeal, Godwin owed no taxes because the tax abatement was in effect. Therefore, the tax assessment was invalid. For that reason, Paterson must refund the principal amount paid plus interest at at the post-judgment interest rate, which must be calculated from the date of the sale. Brinkley, supra, 292 N.J. Super. 137.
Affirmed on the appeal and remanded on the cross-appeal for the entry of a judgment identifying the pertinent "lawful interest rate" for the invalid and valid assessment periods consistently with this opinion.