June 25, 2010
IN THE MATTER OF THE PETITION OF THE UNIVERSITY COTTAGE CLUB OF PRINCETON NEW JERSEY CORP.
FOR HISTORIC SITE CERTIFICATION PURSUANT TO N.J.S.A. 54:4-3.52, ET. SEQ.
On appeal from the New Jersey Department of Environmental Protection.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 5, 2010
Before Judges Stern, J. N. Harris and Newman.
Petitioner, University Cottage Club of Princeton (Cottage Club), appeals from the Department of Environmental Protection's (DEP) refusal to certify its historic-site tax exemption pursuant to N.J.S.A. 54:4-3.52 to -3.54 and in accordance with the remand of the Supreme Court in University Cottage Club of Princeton N.J. Corp. v. N.J. Dep't of Environmental Protection, 191 N.J. 38 (2007).
We affirm the action of the DEP based on the intervening legislation, L. 2007, c. 157, effective August 4, 2007, and retroactively applied 2004 amendments, defining public accessibility standards to obtain tax-exempt status which Cottage Club did not satisfy. The relevant facts, which are not in dispute, may be summarized as follows.
Cottage Club filed a petition with the DEP for historic site tax-exempt status pursuant to N.J.S.A. 54:4-3.52 to -3.54. After months of correspondence between Cottage Club, the DEP, and the Borough of Princeton, the then-DEP Commissioner (Commissioner) denied the application, finding that Cottage Club did not provide sufficient public access to its property to warrant a tax exemption under the statute. The Commissioner also indicated that until pending legislation to amend the statute was put into effect, he was going to deny all applications due to the public accessibility requirement in the statute. Univ. Cottage Club, supra, 191 N.J. at 47. Cottage Club appealed to this court, which affirmed the Commissioner's actions.
The Supreme Court granted certification and reversed, finding that the more rigorous requirements for tax-exempt status in the 2004 amendments, made via L. 2004, c. 183, were not intended to apply to Cottage Club, which filed its petition for tax-exempt status in 2001. Univ. Cottage Club, supra, 191 N.J. at 49-50.
Cottage Club was accessible to the public for limited hours on twelve days of a year. The 2004 amendments required a tax-exempt status seeker to be open to the public at least ninety-six days out of the year. N.J.S.A. 54:4-3.54b(a)(4); Univ. Cottage Club, supra, 191 N.J. at 58. The Supreme Court found that the DEP's rejection of the petition was arbitrary and unreasonable, pointing out that "Cottage was entitled to an adjudication based on the regulations and standards the DEP had imposed upon it and that it had satisfied, including the twelve days of public access." Univ. Cottage Club, supra, 191 N.J. at 58.
The matter was remanded by the Court to the DEP for action "consistent with the principles to which we have adverted." Ibid. While the DEP commented that it lacked sufficient information regarding Cottage Club's public accessibility, it is reasonably clear that DEP stayed its hand because of legislative activity.
Three weeks after the Court's decision, legislation was introduced in both houses, Assembly Bill No. A-4126 and Senate Bill No. S-2808, to clarify the intent and effect of the 2004 amendments. The 2007 amendments expressly changed the effective date of the 2004 act, indicating that the "2004 act is applicable to properties designated as historic sites after July 1, 1999." N.J.S.A. 54:4-3.54a1(f).
In addition to the change in time requirements, the 2007 amendments transferred jurisdiction over the granting of historic-site tax exemptions from the DEP to the Director of the New Jersey Division of Taxation in the Department of the Treasury. N.J.S.A. 54:4-3.54b. The DEP did retain the right to designate a site as historic, but could no longer grant tax-exempt status.
While this new legislation had been pending, Cottage Club sought certification from the DEP. The DEP eventually explained it was not acting on the Supreme Court's order of remand because the pending legislation would divest its jurisdiction to grant tax-exempt status.
On this appeal, Cottage Club raises the following issues for our consideration.
THE SUPREME COURT HAS ALREADY DETERMINED THAT COTTAGE CLUB IS ENTITLED TO A HISTORIC[-]SITE TAXEXEMPT CERTIFICATION AND SET FORTH THE STANDARDS APPLICABLE TO SUCH DETERMINATION.
A. On remand, DEP was obligated to certify Cottage Club's tax-exempt status and was not permitted to undertake further review.
COTTAGE CLUB IS ENTITLED TO AN ORDER COMPELLING THE COMMISSIONER TO CERTIFY ITS TAX-EXEMPT STATUS UNDER THE HISTORIC[-]SITE TAX EXEMPTION STATUTE IN ACCORDANCE WITH THE SUPREME COURT'S PRIOR RULING.
POINT III RETROACTIVE PROVISIONS OF 2007 AMENDMENTS ARE UNCONSTITUTIONAL AND MANIFESTLY UNJUST.
A. Legislation to "reverse" the Cottage Club decision violates the separation of powers clause.
B. The 2007 amendments constitute special legislation in that they were adopted to prevent exemption for Cottage Club alone and to arbitrarily preserve tax exemptions for entities certified prior to January 1, 1999.
C. Retroactive provisions of 2007 amendments are manifestly unjust.
Cottage Club contends that the Supreme Court's holding in University Cottage Club automatically entitled it to a historic-site tax exempt certification. Cottage Club asserts that the DEP was not obliged to undertake any further review, but merely certify it for tax-exempt status.
The Supreme Court has stated that
[an appellate court's] role in reviewing an administrative agency's final decision is limited. [An appellate court] will not reverse an agency's decision unless: (1) it was arbitrary, capricious, or unreasonable; (2) it violated express or implied legislative policies; (3) it offended the State or Federal Constitution; or (4) the findings on which it was based were not supported by substantial, credible evidence in the record. [Id. at 39 (internal citations omitted).]
At the beginning of its analysis of Cottage Club's assertions, the Court explained that
[t]he question . . . is whether the Commissioner's October 2003 denial of Cottage's application was valid. If it was a valid denial, Cottage Club must reapply subject to the more restrictive 2004 amendments. If the denial was not valid, Cottage Club is entitled to have its tax-exempt status evaluated based on its satisfaction of the standards in effect at the time of the administrative adjudication. [Id. at 50.]
The DEP argues that this statement issued by the Supreme Court at the beginning of its opinion "did not preclude [it] from reviewing Cottage Club's file before it certified the site as tax exempt . . . the agency is not precluded from considering additional evidence on remand and applying the correct standard to that evidence." In support of these arguments, the DEP relies on Trantino v. N.J. State Parole Board, 331 N.J. Super. 577, 606 (App. Div. 2000), aff'd in part, modified in part, 166 N.J. 113 (2001). In Trantino, this court explained that "[a]n agency's powers on remand depend upon the contents of the court's remand order, which the agency must obey precisely; to that extent the court's remand instructions become the 'law of the case.'" Ibid. (quoting Lowenstein v. Newark Bd. of Educ., 35 N.J. 94, 116-17 (1961); In re Plainfield-Union Water Co., 14 N.J. 296, 302-03 (1954)).
At the conclusion of its decision in University Cottage Club, the Court had this to say:
[a]lthough the Commissioner likely acted with good intentions, he was neither forthright nor fair when he denied Cottage's perfected and fully-processed petition. Cottage was entitled to an adjudication based on the regulations and standards the DEP had imposed upon it and that it had satisfied, including the twelve days of public access. Because the Commissioner's denial of Cottage's application was arbitrary, it cannot stand. Accordingly, Cottage is not subject to the 2004 amendments.
The judgment of the Appellate Division is reversed. The matter is remanded to the Commissioner to take action consistent with the principles to which we have adverted. [Univ. Cottage Club, supra, 191 N.J. at 58.]
DEP asserts that the Court did not issue a clear mandate for it to act in accordance with the Court's order. Furthermore, DEP contends that there was missing factual information, and that since it had a limited time to act from May 2007 until August 2007 when the amendments went into effect, it was justified in the delay of certification due to its essential additional investigation.
The bona fides of DEP's position are seriously undercut by its inaction during the timeframe from the Supreme Court's decision of May 30, 2007, and the effective date of the 2007 amendments of August 21, 2007. The record does not reflect that the DEP pursued any further investigation of Cottage Club's hours of public operation. DEP was merely content to await the passage of the legislation. If DEP questioned the scope of the Supreme Court remand, it could have moved for clarification and also brought the status of the pending legislation divesting DEP of jurisdiction to certify tax-exempt status to the Court's attention. DEP did neither.
Notwithstanding, even if DEP certified Cottage Club's tax-exempt status, the effect of the 2007 amendments was to declare such action "null and void." The challenge to the 2007 amendments is addressed hereinafter and forms the core of this appeal.
The 2007 amendments provide in pertinent part:
8. This act shall take effect immediately and shall be applicable to any historic site determined to be eligible to receive a historic[-]site real property taxation exemption after July 1, 1999, and to any historic site for which application is made for real property tax exempt statutes as an historic site after July 1, 1999.
9. Any historic[-]site real property tax exemption granted after July 1, 1999 on an historic site that is not in compliance with the provisions of section 2 of P.L. 2004, c. 183 (N.J.S.A. 54:4-3.54b) is null and void, and the owner of the historic site shall be liable for the payment of real property taxes to the taxing district for each tax year during which the historic site property was not in compliance with P.L. 2004, c. 183 (N.J.S.A. 54:4-3.54a et seq.).
[L. 2007, c. 157, § 8-9.]
Cottage Club's certification was made after July 1, 1999, and does not meet the more stringent requirements of the 2007 amendments, including the requirement that the property be open a total of ninety-six days out of the year to the public.
Cottage Club attacks the retroactive application of the 2007 amendments to July 1, 1999 certifications, claiming it has the effect of reversing the Supreme Court's decision in violation of the separation of powers under our State Constitution. It also argues that the amendments constituted special legislation in violation of N.J. Const. art. IV, § 7, ¶ 9. Lastly, Cottage Club maintains that the legislation was manifestly unfair. We address the arguments in the order raised.
The principles of separation of powers are recognized in N.J. Const. art. III, § 1, ¶ 1, which states:
The powers of the government shall be divided among three distinct branches, the legislative, executive, and judicial. No person or persons belonging to or constituting one branch shall exercise any of the powers properly belonging to either of the others, except as expressly provided in this Constitution.
Cottage Club notes that our State's courts have consistently held that "the judgment of a court of competent jurisdiction cannot be reversed, avoided, or set aside by the legislative power." Doyle v. Mayor & Common Council of Newark, 34 N.J.L. 236, 240 (Sup. Ct. 1870). Additionally, "[j]udgments within the powers vested in courts by the Judiciary Article of the Constitution may not lawfully be revised, overturned, or refused faith and credit by another Department of government."
Chicago & S. Air Lines, Inc. v. Waterman Steamship Corp., 333 U.S. 103, 113, 68 S.Ct. 431, 437, 92 L.Ed. 568, 577 (1948); see Commc'ns Workers of Am. v. Christie, ___ N.J. Super. ___, ___ (App. Div. 2010) (slip op. at 47-48).
Cottage Club cites several cases involving the attempt of the Legislature to nullify specific decisions of the courts. For example, in Nobrega v. Edison Glen Associates, 167 N.J. 520, 539 (2001), the Court explained: the implied doctrine of separation of powers prohibits retroactive legislation that mandates a rule of decision in a pending case, United States v. Klein, 13 Wall. 128, 20 L.Ed. 519 (1871), or seeks to overturn a final decision of a . . . court[,] Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 115 S.Ct. 1447, 131 L.Ed. 2d 328 (1995).
Our Supreme Court has also "performed [its] due process analysis by asking whether retroactive application would interfere with a 'vested right.'" Nobrega, supra, 167 N.J. at 539 (citing State Troopers Fraternal Ass'n of N.J. v. State, 149 N.J. 38, 54 (1997); Phillips v. Curiale, 128 N.J. 608, 620 (1992)). Here, because the issue was remanded by the Supreme Court to the agency, and the judgment for certification was not made final by the Court, Cottage Club's right to be deemed a tax-exempt property had not yet vested. Phillips, supra, 128 N.J. at 622-23 ("Until a right is reduced to judgment, new statutory provisions can constitutionally be applied when there is no final disposition of the litigation.").
The Legislature has the exclusive authority under N.J. Const. art. VIII, § 1, ¶ 2 to adopt, alter, or repeal general laws involving tax exemptions. Cf. Brick Stores, Inc. v. Bridgewater Twp., 4 N.J. Tax 412, 416 (Tax 1982) ("Exemptions from the common burden of real property taxation cannot be created by the courts[.]"). "All real property within New Jersey is subject to taxation, N.J.S.A. § 54:4-1, unless expressly exempted by the New Jersey Legislature. See N.J. Const. art. VIII, § 1, ¶ 2 (authorizing legislative tax exemptions)." Twp. Of Holmdel v. N.J. Highway Auth., 190 N.J. 74, 87 (2007).
While the legislative intent must be considered when a court is interpreting a statute or new legislative amendments, "all doubts are resolved against those seeking the benefit of a statutory exemption which in turn is based upon the fundamental principle of equality of the taxation burden." Teaneck Twp. v. Lutheran Bible Inst., 20 N.J. 86, 90 (1985). The separation of powers principle "does not foreclose legislative action where . . . public rights are involved." Atl. City Casino Ass'n v. Kimmelman, 217 N.J. Super. 277, 283 (App. Div.), remanded on other grounds, 102 N.J. 323 (1985).
These basic principles of separation of powers and the exclusive role of the Legislature under the State Constitution in creating tax exemptions for individuals and businesses strongly militate against a violation of separation of powers by the Legislature's enactment of the 2007 amendments with its explicit retroactive application. Indeed, Cottage Club was not granted tax-exempt status, and, therefore, could not rely on a certification. Moreover, the public interest in taxation, reposed in the legislative branch, overrides the unvested right of Cottage Club in the grant of its petition. To be sure, the Supreme Court did not order the DEP to issue the certificate. As a result, there was no certification of tax-exempt status granted to Cottage Club.
Cottage Club argues that the 2007 amendments to the statute constitute special legislation because they were adopted to address the Cottage Club case and situation alone, arbitrarily and retroactively repealing certifications for those properties after July 1, 1999. Cottage Club contends that this legislation lacks the "generality of application required by the constitution in taxation matters" pursuant to N.J. Const. art. IV, § 7, ¶ 9.
Our Supreme Court has explained that "[t]he New Jersey Constitution restricts the New Jersey Legislature's authority to grant tax exemptions. The Legislature may grant exemptions only by 'general laws' and must base exemptions on the property's use, not the owner's identity. N.J. Const. art. VII, § 1, ¶ 2; see also N.J. Const. art. IV, § 7, ¶ 9(6) (prohibiting special laws in respect of taxation)." Twp. Of Holmdel, supra, 190 N.J. at 87-88 (internal citations omitted).
The test to identify special legislation has also been outlined by our courts. Specifically,
[t]o determine whether legislation constitutes special legislation[,] . . . [the court] first consider[s] the purpose and object of the legislation. [The court] next appl[ies] it to the factual situation to determine whether any one thing is excluded that should be included. Lastly, [the court] determine[s] whether, as so applied, the resulting classification can be said to rest upon any rational or reasonable basis relevant to the purpose and object of the act. [Mahwah v. Bergen County Bd. Of Taxation, 98 N.J. 268, 283, cert. denied, 471 U.S. 1136, 105 S.Ct. 2677, 86 L.Ed. 2d 696 (1985).]
The determining factor for the courts is "what is excluded [from the legislation at issue], not what is included." Ibid.; see Paul Kimball Hosp., Inc. v. Brick Twp. Hosp., 86 N.J. 429, 446 (1981) ("If no one is excluded who should be encompassed, the law is general.")
The amendments, made in L. 2007, c. 157, were enacted specifically in reaction to the Supreme Court's decision in University Cottage Club. While this does not automatically constitute "special legislation," legislation is "special" if it is enacted to exclude certain individuals or entities from the benefits of a particular law, who would otherwise be included. Nevertheless, our Supreme Court in 2nd Roc-Jersey Associates v. Town of Morristown, 158 N.J. 581, 604-05 (1999), has explained that
"[t]here are well-settled rules concerning the circumstances in which statutes should be applied retroactively, where there is no clear expression of intent by the Legislature that the statute is to be prospectively applied only." Gibbons v. Gibbons, 86 N.J. 515, 522 (1981). Three situations generally warrant the retroactive application of an amendment or new statute:
(1) where the Legislature has expressed an intent that the legislation be applied retroactively; (2) where the legislation is ameliorative or curative; and (3) where the expectations of the parties warrant retroactive application.
[An] amendment qualifies under the curative exception for retroactive application . . . [if] [i]t was enacted in direct response to the Appellate Division's . . . decision to remedy what the Legislature perceived as a misapplication of the law. The amendment did not alter the act in any substantial way, but merely clarified the legislative intent behind the act. [(Internal citations omitted).]
While at least one and possibly two other entities may have been affected by the passage of the amendments, the legislation was designed so that Cottage Club would not secure tax-exempt status. The plain language of the legislation even states that "[o]f the over 35,000 properties designated as historic sites in New Jersey, only two property owners applied for real property historic[-]site tax exempt status after July 1, 1999." L. 2007, c. 157, § 1(f). One of these two properties is the Cottage Club.
Nevertheless, this legislation constitutes curative legislation which is permitted as retroactive tax legislation. The Legislature directly stated in L. 2007, c. 157, § 1(b), that "[t]he court's interpretation of intended effect of [the 2004 amendments in University Cottage Club] is contrary to the intent of the Legislature and as a result, corrective legislation removing any question regarding the intent, scope and applicability of that act is necessary and appropriate."
Furthermore, the criteria for historic-site tax exemption status was not materially changed between the 2004 and 2007 amendments; the only changes were the retroactive application and the award of jurisdiction over such matters to the Division of Taxation.
Significantly, the time of decision rule has applicability here. As our courts have consistently held,
[i]t is a well-established principle that an appellate court on direct review will apply the statute in effect at the time of its decision, at least when the [L]egislature intended that its modification be retroactive to pending cases. The purpose of the principle is to effectuate the current policy declared by the legislative body -- a policy which presumably is in the public interest. By applying the presently effective statute, a court does not undercut the legislative intent. [Kruvant v. Mayor & Council of the Twp. of Cedar Grove, 82 N.J. 435, 440 (1980).]
We are satisfied that the 2007 amendments to N.J.S.A. 54:4-3.52 to -3.54 do not constitute special legislation but are merely curative legislation clearly expressing the true intent of the Legislature.
Cottage Club lastly contends that the retroactive provisions and applicability of the 2007 amendments are manifestly unjust, which does not necessarily require a finding that the amendments were unconstitutional. In a weighing of the public interest in the law and the party's reliance on the pre-existing law, the consequences of that reliance must be taken into consideration when determining manifest injustice, according to Cottage Club.
Our Supreme Court expounded on the effect to be given to retroactive legislation in Oberhand v. Director, Division of Taxation, 193 N.J. 558 (2008). The Court put it this way:
It is a fundamental principle of jurisprudence that retroactive application of new laws involves a high risk of being unfair. There is general consensus among all people that notice or warning of the rules that are to be applied to determine their affairs should be given in advance of the actions whose effects are to be judged by them. The hackneyed maxim that everyone is held to know the law, itself a principle of dubious wisdom, nevertheless presupposes that the law is at least susceptible of being known. But this is not possible as to law which has not been made.
Nevertheless, if the Legislature expresses an intent that the statute is to be applied retroactively, the statute should be so applied. Moreover, the legislative intent may either be expressed in the language of the statute or implied in that "retroactive application may be necessary to make the statute workable or to give it the most sensible interpretation." [Id. at 570-71 (internal citations omitted).]
It has been further noted that there are two exceptions to retroactive application: (1) when it would be unconstitutional or (2) when it would result in manifest injustice. Id. at 571.
The concept of "manifest injustice" is applied sparingly and involves the weighing of "the public interest in the retroactive application of the statute against the affected party's reliance on previous law, and the consequences of that reliance." Nelson v. Bd. of Educ. of Old Bridge, 148 N.J. 358, 372 (1997). However, "[o]nce the concerns of substantive due process have been met by retroactive tax legislation, 'judgments about the wisdom of such legislation remain within the exclusive province of the legislative and executive branches . . . .'
[T]he doctrine of manifest injustice has no place in the judicial evaluation of retroactive tax laws." Oberhand v. Dir., Div. of Taxation, 388 N.J. Super. 239, 247 (App. Div. 2006) (internal citation omitted), aff'd in part, rev'd in part, 193 N.J. 558 (2008).
Cottage Club does not point to any significant reliance or harm that will be caused based on its reliance of the prior statute for tax-exempt status. Rather, it recounts that it spent years and significant resources trying to obtain the historic[-]site tax exemption under the standards set forth in the statute, prior to the adoption of the 2004 and 2007 amendments and based on the direction of the DEP and OHP [Office of Historic Preservation] officials. It spent several more years litigating the issue after the Commissioner wrongfully denied its application.
Financial expenditure in pursuit of tax-exempt status is not "so deleterious [or] irrevocable that it would be unfair to apply the statute retroactively[,]" as required by courts to issue a finding of "manifest injustice." Nobrega, supra, 167 N.J. at 545 (citing Gibbons, supra, 86 N.J. at 523-24). Parenthetically speaking, retroactive application of new legislation does not constitute "manifest injustice" simply because a party's expectations are not met. Harris v. Branin Transp., Inc., 312 N.J. Super. 38, 48 (App. Div. 1998).
A review of the public's interest shows it to be most compelling. According to the Borough of Princeton, "[i]f this [c]court does not allow Chapter 157 to apply, then this private eating club could be opened to the public for [twelve] days a year and would be subsidized by Borough taxpayers for approximately $65,000 a year and more, after the payment of $415,000 in back taxes."
The then-DEP Commissioner even addressed these concerns to Cottage Club's counsel in October 2003, stating that while "the past practice [was] that applications for tax exemption need only satisfy the minimal public access requirements . . . this guidance does not provide a sufficient degree of public accessibility to merit special dispensation from property taxation for buildings deemed historically important." The historic-site tax exemption is granted in limited circumstances -- only forty-five properties have been given such certification since the statute was originally enacted in 1962 and there are thirty-five thousand historic sites in this State.
Cottage Club's limited hours of access to the public, twelve days a year, represented a pittance to the public. Meanwhile, the taxpayers of Princeton Borough would, in effect, be helping to subsidize a private dining club at Princeton University. Manifest injustice would be visited upon the Borough were it not for the retroactive application of the 2007 Amendments.
STERN, P.J.A.D., concurring.
The primary issue before us is whether petitioner has been denied what the Supreme Court granted in its 2007 remand opinion and, in that context, the meaning of the last sentence of the Supreme Court's opinion. For sure, if the Court's last sentence included a "remand for issuance of the certificate," the certificate should have issued before the 2007 legislation was enacted. Moreover, because in 2007 the Court held that the 2004 legislation did not apply to this 2001 application and that "Cottage is not subject to the 2004 amendments," University Cottage Club of Princeton N.J. Corp. v. N.J. Dep't of Environmental Protection, 191 N.J. 38, 58 (2007), I have a problem concluding that the 2007 legislation applied, even as a "curative" clarification of the 2004 legislation. After all, the Court also held that "[b]ecause Cottage satisfied all of the relevant standards when its petition was perfected, it was entitled to tax-exempt certification." Id. at 41.
However, the Legislature can repeal a tax exemption, although, in light of the Supreme Court's holding in this case, the issue of retroactivity should be analyzed with respect to a "vested right." Nevertheless, retroactive legislation can be enacted unless it is unconstitutional or there is a "manifest injustice." Nobrega v. Edison Glen Assocs., 167 N.J. 520, 536- 37 (2001). See also, e.g., Oberhand v. Dir., Div. of Taxation, 193 N.J. 558, 570-72 (2008). Therefore, as I agree with the majority's analysis on the special legislation and separation of powers issues, I find no basis for declaring the 2007 amendments unconstitutional as applied to petitioner, even if it was entitled to the issuance of a tax-exempt certification in 2007. And as there was no reasonable reliance on an issued certificate while the litigation was on-going, I find no "manifest injustice" in the result reached by the majority.
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