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American Tower Asset Sub, LLC v. Borough of Somerdale

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


July 22, 2010

AMERICAN TOWER ASSET SUB, LLC, PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
v.
BOROUGH OF SOMERDALE, DEFENDANT-APPELLANT/CROSS-RESPONDENT.

On appeal from the Superior Court of New Jersey, Chancery Division, Camden County, Docket No. C-75-08.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued January 26, 2010

Before Judges Carchman and Ashrafi.

Defendant Borough of Somerdale (Borough) appeals from an order of the Chancery Division granting summary judgment to plaintiff American Tower Asset Sub, LLC. The motion judge declared that plaintiff's lease on certain municipal property was "binding, valid and enforceable for the remainder of its term" and also denied plaintiff's application for contractual indemnity. Plaintiff cross-appeals the denial of that relief. We affirm as to the appeal and reverse and remand as to the cross-appeal.

These are the relevant facts adduced from the record before the judge on the motion. Nextel Communications of the Mid-Atlantic, Inc., (Nextel) applied to the Borough to erect an antenna on a privately-owned water tower. Upon learning of this application, Gerald Sinclair, former Borough solicitor, asked Nextel to instead consider leasing an undeveloped site consisting of 2500 square feet owned by the Borough. The site was vacant, unproductive and located near a public works facility. What followed were a series of negotiations, public meetings and an amendment to the land-use ordinance to permit the tower at the suggested location.

On November 14, 2000, Nextel and the Borough entered into a Communications Site Lease Agreement (the lease), which was signed by Gary Passanante, Borough mayor. A communications tower was erected and has been operated on the municipal premises since 2000. The site also houses equipment, equipment shelters and various subtenants lease space on the tower. In February 2007, the lease was assigned to plaintiff. Since the inception of the lease, plaintiff has paid, and defendant accepted, market rent as well as rent increases consistent with the terms of the lease.

In September 2006, plaintiff sought to have the Borough sign a letter in order to obtain a loan. The Borough administration had changed since the inception of the lease, and for the first time, the Borough questioned the validity of its own lease. Plaintiff later requested that the Borough sign a letter of authorization (LOA) on behalf of one of its wireless customers to install communications equipment on the tower. According to plaintiff, not only did the Borough not return the LOA, but it sought an increase in rental payments as a precondition to signing the LOA. Failing in pursuit of additional rent, it challenged the bona fides of the lease.

According to defendant, the lease is invalid because it was never submitted for public bid, and the lease was never approved by the governing body. Both the Mayor and attorney were unsure whether there was an ordinance or approval by the governing body, and a search of the municipal records failed to reveal any ordinance or resolution authorizing the lease.

As we noted, the lease was, however, the subject of multiple public council and planning board meetings. Furthermore, the lease terms provide that "Lessor has full right to make and perform this Agreement[,]" and in a September 1, 2000 letter from Sinclair to Nextel, Sinclair wrote that "[t]he Borough would cooperate in every way it legally could in support of this alternate site[.]" Again, as we have noted, the Borough collected rents during the term of the lease, issued construction and building permits and approved land-use applications for the site.

In pro-actively responding to defendant's challenge to the bona fides of the lease, plaintiff filed a complaint seeking injunctive relief, specific performance, damages and related relief. The motion judge entered an order restraining defendant from declaring the lease null and void and denied defendant's motion for declaratory judgment declaring the lease void ab initio. The judge, thereafter, granted plaintiff's motion for summary judgment, declared the lease valid and enforceable, dismissed defendant's counterclaims and denied plaintiff's claim for indemnification. The appeal and cross-appeal followed.

On appeal, defendant asserts that the failure of the governing body to advertise for bids and adopt a resolution or ordinance approving the lease renders the lease ultra vires and void. On the cross-appeal, plaintiff argues that the judge erroneously denied its claim for contractual indemnification.

In assessing the rights of the parties on this appeal, we restate certain basic principles that address the responsibilities of a municipality when leasing public lands. As is apparent, many of the municipal obligations are mandated by the Legislature.

Any county or municipality may lease any real property . . . not needed for public use as set forth in the resolution or ordinance authorizing the lease, . . . and except as otherwise provided by law, all such leases shall be made in the manner provided by this section.

(a) In the case of a lease to a private person, . . . said lease shall be made to the highest bidder by open public bidding at auction or by submission of sealed bids. . . . Acceptance or rejection of the bid or bids shall be made not later than at the second regular meeting of the governing body following the completion of the bidding[.] [N.J.S.A. 40A:12-14 (emphasis added).]

The lease was subject to the public bidding process pursuant to N.J.S.A. 40A:12-14(a). See also Sellitto v. Borough of Spring Lake Heights, 284 N.J. Super. 277, 284-89 (App. Div. 1995) (noting that the lease to a private entity by a municipality must be subject to public bid under N.J.S.A. 40A:12-14(a) notwithstanding the fact that N.J.S.A. 40A:12-24 purports to allow a municipality to lease lands not needed without bid), certif. denied, 143 N.J. 324 (1996). Furthermore, the lease should have been approved by the governing body pursuant to the same statute. See also Kress v. La Villa, 335 N.J. Super. 400, 410 (App. Div. 2000) ("A public body may only act by resolution or ordinance[.]" (quoting Midtown Props. Inc. v. Twp. of Madison, 68 N.J. Super. 197, 208 (Law Div. 1961) (internal editing marks omitted)), certif. denied, 168 N.J. 289 (2001); Jersey City v. Roosevelt Stadium Marina, 210 N.J. Super. 315, 327 (App. Div. 1986), certif. denied, 110 N.J. 152 (1988).

Whether the failure to comply with mandated requirements renders void governmental action - in this case, the execution of a lease - requires an analysis as to whether the action of the municipality is ultra vires and, if so, whether a court may look beyond that finding to apply equitable defenses to such a claim.

In analyzing the issue, the Supreme Court has distinguished between various claims of ultra vires actions. The Court said:

There is a distinction between an act utterly beyond the jurisdiction of a municipal corporation and the irregular exercise of a basic power under the legislative grant in matters not in themselves jurisdictional. The former are ultra vires in the primary sense and void; the latter, ultra vires only in a secondary sense which does not preclude ratification or the application of the doctrine of estoppel in the interest of equity and essential justice. [Summer Cottagers' Ass'n v. City of Cape May, 19 N.J. 493, 504 (1955).]

See also Maltese v. Twp. of N. Brunswick, 353 N.J. Super. 226, 240 (App. Div. 2002).

Our courts have applied the distinction in various circumstances that have proven to be fact-sensitive.*fn1 In Summer Cottagers', supra, 19 N.J. at 497, 506, a land sale and conveyance without the statutorily required public notice was held ultra vires in the secondary sense. There, the City of Cape May sold unproductive and unsalable lots of land to defendants pursuant to a since-repealed statute, which authorized a municipality to sell lands not needed for public use by public sale following public advertisement thereof. However, the advertisements of the public sale were defective, and the conditions of the sale in that case "made null the statutory policy of open competition." Id. at 498-99. The Court determined that the power of the sale was within the "municipality's essential jurisdiction[,]" and because the defendants expended $100,000 to erect a motel on the lots, there was "in the particular circumstances a preclusion in equity and elemental justice against the relief demanded by [the] plaintiffs." Id. at 506.

Also, in William Scotsman, Inc. v. Garfield Bd. of Educ., 379 N.J. Super. 51, 59 (App. Div. 2005), certif. denied, 186 N.J. 241 (2006), a board of education's contract with a private party executed without the statutorily required public bid was, likewise, held ultra vires in the secondary sense. Although the contract was entered into without meeting the statutory requirements, the board of education "engaged in an 'irregular exercise' of its powers" and did not act "utterly beyond its powers." Ibid. (citing Summer Cottagers', supra, 19 N.J. at 504).

Likewise, in Maltese, supra, the mayor of North Brunswick made an agreement to grant a government employee benefits under the Superior Officers' Association collective bargaining agreement ("SOA agreement"). 353 N.J. Super. at 230. However, the council, rather than the mayor, had the authority to determine benefits, and the position occupied by the plaintiff was not covered by the SOA agreement. Id. at 231. The mayor "was without authority to bind the municipality when he promised plaintiff he would receive the benefits contained in the SOA agreement." Id. at 238. As such, "[t]he promises and representations of the mayor were ultra vires." Id. at 229. Although we never explicitly posited the decision with reference to the distinction between primary or secondary, we remanded for determinations as to whether plaintiff could obtain the benefits through the doctrine of equitable estoppel and/or ratification, implying that the failure to obtain governing body approval rendered the contract ultra vires in the secondary sense. Id. at 245 (citing Johnson v. Hosp. Serv. Plan, 25 N.J. 134, 140 (1957)); cf. Summers' Cottage, supra, 19 N.J. at 504; Gonzalez v. Bd. of Educ. of Elizabeth Sch. Dist., Union County, 325 N.J. Super. 244, 255 (App. Div. 1999), certif. denied, 163 N.J. 77 (2000).

We reached a different result in Jersey City v. Roosevelt Stadium Marina, 210 N.J. Super. 315, 328-29 (App. Div. 1986), certif. denied, 110 N.J. 152 (1988), where we held that a lease extension without the statutorily required public bid was ultra vires in the primary sense and void and therefore barred consideration of equitable defenses such as estoppel, waiver and laches. The lease extension was negotiated in the context of a settlement agreement, which was not consented to or approved by the Jersey City governing body, contrary to a statute requiring acceptance or rejection of a lease by the governing body. Thus, the failure to comply with the statute "render[ed] any purported lease extension illegal and void." Id. at 328.

Here, the failure to abide by the bidding statute as well as the failure to gain governing body approval by resolution or ordinance was ultra vires in the secondary sense. The municipality was vested with "essential jurisdiction[al]" authority to lease the land, Summer Cottagers', supra, 19 N.J. at 506, and we conclude that the municipality has engaged in an "irregular exercise" of that authority. Id. at 504. Therefore, the application of equitable defenses is available.

We are also mindful of all the underlying facts of this case, and although some of these facts go to the issue of equitable defenses raised, we consider them relevant to determine whether the conduct described is primary or secondary. Significantly, the lease was well-known and addressed at approximately six public meetings addressing zoning issues; the identification of the subject premises was at the prompting of defendant; and critically important, defendant has accepted rents without question for over six years.*fn2 We recognize the evils to be avoided by requiring public bidding and governmental action to insure that private agreements will be precluded. However, this transaction, while defective by omission of these critical conditions was, to the extent possible, transparent, widely publicized and entered into solely for the benefit of defendant. Standing alone, this may not satisfy N.J.S.A. 40A:12-14, but we conclude on the unique facts presented, the conduct described is ultra vires in the secondary sense. We now address the equitable defenses.

"The essential principle of the policy of estoppel . . . is that one may, by voluntary conduct, be precluded from taking a course of action that would work injustice and wrong to one who with good reason and in good faith has relied upon such conduct . . . ." Maltese, supra, 353 N.J. Super. at 240 (quoting Summer Cottagers', supra, 19 N.J. at 503-04). Although the doctrine of equitable estopel is "'rarely invoked against a government entity," Scotsman, supra, 379 N.J. Super. at 58 (quoting Wood v. Borough of Wildwood Crest, 319 N.J. Super. 650, 656 (App. Div. 1999)), the doctrine "may be invoked against a municipality 'where the interests of justice, morality and common fairness clearly dictate that course.'" Ibid. (quoting Middletown Twp. Policemen's Benevolent Ass'n Local No. 124 v. Twp. of Middletown, 162 N.J. 361, 367 (2000)). Accord Summer Cottagers', supra, 19 N.J. at 503-04.

In Maltese, supra, we noted that in applying the doctrine of estoppel, "the focus must be on the conduct of person or entity who had the authority to act -- here, the council. Under these circumstances, it is only action by the council that could form the basis for application of the doctrine of equitable estoppel." 353 N.J. Super. at 245. The council never approved the SOA benefits promised by the mayor, although the employee was paid for certain benefits afforded to persons covered by the SOA agreement. As noted, the case was remanded for a determination on the equitable estoppel and ratification arguments. Id. at 247.

Here, the council discussed amendment of the Borough's land use ordinance to allow Nextel to lease the Borough property and subsequently amended the land use ordinance. The lease was the subject of discussion at six public meetings, was the basis of a zoning change, and plaintiff has performed under the lease to defendant's benefit. Plaintiff paid rent, which defendant accepted, and defendant approved land use applications as well as issued construction permits, all under the belief that the lease was valid. Defendant has accepted the substantial benefits of a lease that it now attempts to disavow. And even when defendant questioned the lease, defendant demanded additional rent. Only after that demand was rejected were the bona fides of the lease question. Justice and fair dealing mandates that equitable estoppel apply.

We conclude that the motion judge correctly determined that the lease was valid, and as to that issue, we affirm.

On the cross-appeal, plaintiff argues that the judge erred by denying relief under the indemnification provision of the lease. Unfortunately, the record is devoid of any discussion as to the merits of that issue or the basis of the denial of such relief, and we are constrained to reverse and remand for further consideration of that issue. In that regard, the judge may consider whether all provisions of the lease are enforceable against the municipality. We do not decide the issue but recognize that the application of equitable principles has provided the underpinnings for enforcing the lease agreement in the first instance.

We affirm the judgment as to the validity of the lease and the injunctive relief granted therein; we reverse and remand for further proceedings as to plaintiff's right to contractual indemnification. We do not retain jurisdiction.


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