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Toll Bros., Inc., et al v. Township of Moorestown

June 27, 2011


The opinion of the court was delivered by: Hon. Joseph H. Rodriguez




Presently before the Court is a motion filed by Defendants Township of Moorestown and the Mayor and Council of the Township of Moorestown to dismiss the Complaint of Plaintiffs Toll Brothers, Inc. and Laurel Creek, L.P. pursuant to Fed. R. Civ. P. 12(b)(6) [Dkt. Entry No. 8]. The Court has considered the written submissions of the parties and heard oral argument on the motion on March 17, 2011. For the reasons stated below, Defendants' motion will be granted in part and denied in part.

I. Background

For the purpose of deciding this motion to dismiss, the facts alleged in the Complaint are accepted as true. Toll Brothers, Inc. and Laurel Creek L.P. (collectively referred to as "Toll") are real estate developers engaged in the business of developing and constructing residential and non-residential projects in the State of New Jersey. (Compl., ¶¶ 1-2.) The Township of Moorestown is a municipality in the State of New Jersey and the Mayor and Council of the Township of Moorestown are the governing body thereof (collectively referred to as "Moorestown" or "Township"). (Id. at ¶¶ 3-4.) Moorestown operates a public water system pursuant to N.J. Stat. Ann. § 40:62-1 et seq. ("Water System"). (Id. at ¶ 8.) The Moorestown water supply is derived from wells owned and operated by the township and from water received from New Jersey American Water Company ("NJAWC"). (Id. at ¶ 9.) The terms and conditions relative to the water provided by NJAWC are governed by a contract between Moorestown and NJAWC ("Water Contract"). (Id. at ¶ 12.) The water supplied to Moorestown by NJAWC is provided through an existing interconnection between the Water System and a water line owned and operated by NJAWC ("First Interconnection"). (Id. at ¶ 10.)

Toll owns a tract of land located in Moorestown, referred to as the Mews Property. (Id. at ¶¶ 6, 19, 92.) Toll seeks to construct an age-qualified residential development on the Mews Property consisting of one hundred twenty-two (122) units and related facilities and infrastructure.*fn1 (Id. at ¶ 19.) On or about May 9, 2002, Toll applied for Preliminary and Final Subdivision Approval, Preliminary and Final Major Site Plan Approval, and Minor Site Plan Approval necessary to begin construction on the Mews Property. (Id. at ¶ 21.) The Moorestown Planning Board approved the application on March 6, 2003, subject to certain conditions of approval. (Id. at ¶¶ 21, 23.) One of the conditions provided that "[Toll] shall construct any and all necessary improvements, including remedial work, to the township water system or pay a pro-rata share of the improvements as determined by the Township Engineer . . . ." ("Water Condition"). (Id. at ¶ 24.)

Moorestown's water supply requirements are governed by regulations promulgated by the New Jersey Department of Environmental Protection ("NJDEP"). NJDEP regulations require all developers to obtain an NJDEP Bureau of Safe Drinking Water ("BSDW") permit prior to connecting any development project to a township's water system. (Id. at ¶¶ 16-17.) NJDEP will not issue a BSDW permit unless provided with a firm capacity and water allocation analysis demonstrating that the servicing township has sufficient water supplies. (Id. at ¶ 18.)

Toll challenged the legality of the Water Condition in the Superior Court of New Jersey, Law Division, Burlington County. On July 26, 2004, the Superior Court invalidated the Water Condition and directed the Planning Board to revise the Water Condition to limit Toll's responsibility to its pro-rata share of off-tract improvements. (Id. at ¶ 28.) On September 2, 2004, the Planning Board revised the Water Condition such that Toll would be required to either pay its pro-rata share of the cost of any off-tract improvements necessitated by construction of the Mews Property or construct all off-tract improvements with the right to recapture any amount expended in excess of its pro-rata share ("Revised Water Condition"). (Id. at ¶ 29.)

The Planning Board conducted a hearing on October 28, 2004 to determine the scope of Toll's off-tract obligation and determined that the Mews Property required construction of a second interconnection to alleviate water pressure concerns ("Second Interconnection"). (Id. at ¶¶ 30-31.) By resolution adopted December 9, 2004, the Planning Board required Toll to construct the Second Interconnection as a condition to the issuance of any certificate of occupancy, subject to Toll's right to recapture any amounts in excess of its pro-rata share of the improvements. (Id. at ¶¶ 33-35.)

According to the report of the Township Engineer, the estimated cost of construction of the Second Interconnection was $980,000. (Id. at ¶ 36.) Toll filed a second complaint against Moorestown in Superior Court, contending that the Revised Water Condition remained unlawful. (Id. at ¶ 42.) On July 27, 2005, the Court invalidated the Revised Water Condition and remanded the issue back to the Planning Board to determine the amount of Toll's pro-rata share of the off-tract improvements. (Id. at ¶ 43.)

On August 11, 2005, the Planning Board adopted the Final Water Condition, which limited Toll's obligation for off-tract water system improvements to its pro-rata share of the Second Interconnection or such other improvements necessitated by the construction of the Mews Property and conditioned the issuance of any construction permits on such payment. (Id. at ¶ 44.) Thereafter, Toll requested that Moorestown provide Toll with its pro-rata assessment for the costs of improvements. (Id. at ¶ 52.) Moorestown responded that it could not provide the pro-rata assessment until plans were developed for the construction of the Second Interconnection. (Id. at ¶ 54.)

On January 22, 2008, Toll filed a third complaint against Moorestown in New Jersey Superior Court, in an effort to compel Moorestown to provide water service to the Mews Property ("Water Litigation"). (Id. at ¶ 57.) At that time, the parties were engaged in litigation regarding the return of the balance of a performance bond posted by Toll in connection with a prior residential project ("Bond Litigation") and litigation regarding property tax responsibilities for other Toll properties within the township ("Tax Appeals"). (Id. at ¶¶ 58-60.) On May 1, 2008, Moorestown informed the court that discussions had progressed with NJAWC and that it did not foresee any insurmountable obstacles concerning construction of the Second Interconnection and requested that the matter be placed on hold while the parties sought resolution of the matter. (Id. at ¶ 64-65.) In January 2009, Toll and Moorestown entered into a settlement agreement to resolve the pending litigation between the parties ("Settlement Agreement"). (Id. at ¶ 68.) The Agreement contained a provision that stated:

[Moorestown] has implemented a procedure whereby a proposed project, such as the Mews Project, shall be required to pay a designated fee to ensure that sufficient water is reserved for the given project at such time as an application is made by a developer for a water main extension permit. (Id. at ¶ 69.) The Settlement Agreement also provided that:

The purpose of this Agreement is to allow for an amicable settlement of the Tax Appeals and Bond Litigation. It is understood by the parties that although the Water Litigation is not settled as a result of this Agreement, the Water Litigation shall be dismissed without prejudice with the Parties preserving all rights and defenses in connection with the Water Litigation. (Compl., Ex. K, p. 4.) Following execution of the Settlement Agreement, Toll indicated to Moorestown that it was prepared to proceed with a reservation of necessary water resources for the Mews Property. (Compl., ¶ 75.) By letter dated April 16, 2010, Moorestown informed Toll that it would not purchase the additional water required to service the Mews Project due to the cost that would be incurred to comply with NJDEP requirements. (Compl., Ex. L.) Specifically, Moorestown informed Toll as follows:

Your client's projected water usage is 32,660 gpd. To satisfy that project demand, the Township must have triple that amount, or nearly 98,000 gpd of water available. Since under NJDEP's other calculations, NJDEP has determined that insufficient firm capacity exists from internal sources, Moorestown would have to purchase an additional 98,000 gpd of water from NJAWC to satisfy NJDEP requirements for [Toll's] development. At a tariff rate of $5.74 per thousand gallons, the cost to the Township to buy water for your client's development would be over $205,000 per year, each and every year. Since the Township has enough water from its own sources and the existing interconnection to satisfy [Toll's] projected uses, the additional gallons would merely represent the purchase of a "paper allocation" of water that would never be needed. Thus, the Township would be subsidizing [Toll's] development to the tune of over $205,000 per year, which it will not do. (Id.) In a letter dated August 25, 2010, Moorestown again informed Toll that it would not enter a water reservation agreement with Toll. (Compl., Ex. N.) The letter reiterated that Moorestown did not intend to enter into a water agreement with Toll due to the fact that Moorestown did not know how long it would be required to purchase additional water from NJAWC and suggested that Toll enter an agreement directly with NJAWC to provide water to the Mews Property. (Id.)

Toll filed suit against Moorestown in this Court on September 20, 2010. Toll alleges that Moorestown can simply amend the Water Contract with NJAWC by discontinuing its purchase of water at retail rates and beginning to purchase at commodity demand, which would enable Moorestown to increase its water supplies to service the Mews project without increasing the amount of money Moorestown would be obligated to pay NJAWC. (Id. at ¶¶ 83-85.) Toll claims that Moorestown has taken necessary steps to ensure that water supplies were made available to all other water users and has not denied water service to any other applicant since Toll began efforts to develop the Mews Property in 2003. (Id. at ¶ 86.) Toll alleges that Moorestown's refusal to secure sufficient water supplies is the only remaining barrier to construction of the Mews Property. (Id. at ¶¶ 87-89.) Accordingly, Toll contends that Moorestown's refusal is part of a consistent and intentional course of conduct aimed at preventing Toll from developing the Mews Project.

Toll's Complaint asserts seven claims: (1) violation of equal protection under the United States Constitution; (2) violation of equal protection under the New Jersey Constitution; (3) deprivation of substantive due process; (4) fraud; (5) breach of duty to serve; (6) breach of contract; and (7) unlawful taking under the United States Constitution and New Jersey Constitution. Moorestown now moves to dismiss all claims pursuant to Fed. R. Civ. P. 12(b)(6). The Court has jurisdiction pursuant to 28 U.S.C. § 1331 over Toll's constitutional claims. The court has supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. § 1367.

II. Standard of Review

A. Rule 12(b)(6)

A complaint should be dismissed pursuant to Rule 12(b)(6) if the alleged facts, taken as true, fail to state a claim upon which relief may be granted. Fed. R. Civ. P. 12(b)(6). Under Fed. R. Civ. P. 8(a)(2), a pleading must contain only a "short plain statement of the claim showing that the pleader is entitled to relief." A plaintiff is not required to plead evidence. Bogosian v. Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir. 1977). However, although "detailed factual allegations" are not necessary, "a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted).

When reviewing a motion to dismiss, "courts accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir.2009) (internal quotations omitted).*fn2 The question is not whether the plaintiff will ultimately prevail. Watson v. Abington Twp., 478 F.3d 144, 150 (3d Cir. 2007). Rather, to survive a motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. - - - , 129 S. Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 570).

To determine the sufficiency of a complaint, the Third Circuit has held that the Court must conduct a three-step test. Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010). First, the Court must "tak[e] note of the elements a plaintiff must plead to state a claim." Iqbal, 129 S. Ct. at 1947. Next, the Court must separate the factual allegations from the legal conclusions. Id. at 1950. While the well-pleaded facts are accepted as true, legal conclusions are not entitled to the assumption of truth. Id. Last, the ...

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