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K. Hovnanian At 77 Hudson Street Urban Renewal Company, LLC v. the City of Jersey City


July 21, 2011


On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-006119-09.

Per curiam.


Submitted May 23, 2011

Before Judges Grall and LeWinn.

K. Hovnanian at 77 Hudson Street Urban Renewal Company (Hovnanian) appeals from the July 30, 2010 order granting defendants' motion to dismiss its complaint for failure to state a cause of action pursuant to Rule 4:6-2(e). We reverse.

In March 2006, defendants approved a financial agreement granting Hovnanian, an urban renewal entity, a tax abatement pursuant to the Long Term Tax Exemption Law, N.J.S.A. 40A:20-1 to -20 (LTTEL), to "revitalize a portion of the Jersey City downtown area by constructing a 420 condominium unit development"; the project is known as "77 Hudson." Hovnanian agreed to pay Jersey City "in lieu of property taxes, an annual service charge . . . amounting to [sixteen percent] of the annual gross revenue . . . for a [twenty-]year period," pursuant to N.J.S.A. 40A:20-14.

At about the same time, defendants approved another financial agreement with Second Street Waterfront Urban Renewal, LLC (Second Street), for the construction of a "luxury condominium development" on the shore of the Hudson River under the same financial terms as Hovnanian's; this project is known as "Crystal Point." Construction on both projects began soon thereafter, and each was "nearly complete[]" in 2008.

The decline in the real estate market that year caused "devastating setbacks" to the Jersey City housing market.

Second Street applied for and received an amendment to its financial agreement on June 16, 2009; the amendment provided that instead of paying sixteen percent of gross revenues for twenty years, Second Street would pay eleven percent for the first five years, thirteen percent for the next five years, and sixteen percent for the next twenty years, thereby extending Second Street's original agreement by ten years.

Shortly thereafter, Hovnanian made "an identical application" to modify its financial agreement. On September 21, 2009, the mayor sent a letter to the municipal council recommending that Hovnanian's application be denied, stating the following reasons:

a. The decision to approve a tax abatement, including an amendment, is within the sound discretion of the governing body.

b. For projects that have already received a tax abatement and are under construction, or completed, the bar for approval of an amendment is particularly high. That is because the justification for the tax abatement (i.e., without the tax abatement any project or project of this caliber may not be constructed) is absent. d. . . . [T]here are similarities between the Crystal Point and 77 Hudson projects. Both residential condominium projects are located along the Hudson River corridor. Construction has been complete at 77 Hudson and is substantially complete at Crystal Point. However, after a careful review, . . . I cannot support the 77 Hudson . . . amendment. 77 Hudson is in the heart of Exchange [P]lace, an area with an active street life with access to various urban amenities. It is directly on the light rail. It is nearly across the street from the PATH and within easy walking distance of ferry and bus service. The area has a waterfront park and is nearly fully developed.

e. . . . Crystal Point is in an area that is clearly more remote than 77 Hudson.

Crystal Point is not as close to public transportation and is in an area that is not as developed as 77 Hudson.

The municipal council held a hearing on October 14, 2009. Hovnanian asserted that because Second Street had received an amendment, "there is a bias now in favor of [Second Street] that has not been given to 77 Hudson . . . ."

At the conclusion of the hearing, the council adopted a resolution denying Hovnanian's application for an amendment. The resolution noted that Hovnanian had already "completed construction of a forty-eight . . . story building, containing approximately 420 market rate residential condominium units, and a portion of the parking garage . . . and one or more condominium retail units" and had "already sold [thirty-six] units with the sale of an additional [thirteen] units pending." The council stated that in denying the application it had considered "the location and the number of units sold, and the Mayor's recommendation to disapprove the application."

On November 16, 2009, Hovnanian filed a complaint in lieu of prerogative writs alleging that defendants' decision was "arbitrary, unreasonable and capricious." Hovnanian also claimed that defendants had breached the covenant of good faith and fair dealing implicit in these types of agreements, and asserted claims under 42 U.S.C.A. § 1983 and under Art. VIII, § 1, ¶ 1(a) of the New Jersey Constitution. In its complaint, Hovnanian quoted extensively from the mayor's September 21, 2009 letter to the municipal council; it also appended a copy of the council's resolution as an exhibit.

In March 2010, defendants filed a motion to dismiss pursuant to Rule 4:6-2(e). At oral argument, defendants attempted to assert defenses against Hovnanian's claims, contending that those assertions were not "outside the pleadings." Hovnanian contended that defendants' arguments sounded "more like a [m]otion for [s]ummary [j]udgment than a [m]otion to [d]ismiss on the face of the complaint."

In his decision, the judge noted that defendants had addressed the merits of Hovnanian's claims, but stated that "the merits of the claim are not the appropriate focus on a motion" brought pursuant to Rule 4:46-2(e). In granting defendants' motion, the judge concluded that their actions were not subject to judicial review, adding that "[l]ike the original decision whether to grant an abatement, the decision whether to agree to an amendment is discretionary on the part of the municipality." The judge cited N.J.S.A. 40A:20-9, which provides in pertinent part that "[a]ny amendments or modifications of [a financial] agreement . . . shall be by the mutual consent of municipality and the urban renewal entity, and shall be subject to approval by ordinance of the municipal governing body upon recommendation of the mayor . . . of the municipality prior to taking effect." Because defendants were "under no obligation to grant or modify the initial abatement request[,]" the judge found that they "violated no rights, constitutional or statutory, enjoyed by Hovnanian . . . ." Therefore, the judge concluded, "[i]n the absence of any right to an amendment of its agreement with [defendants], all of the claims asserted in the complaint . . . find themselves without a legal foundation upon which relief can be granted . . . ."

On appeal, Hovnanian contends that its complaint contained legally sufficient facts to survive a motion to dismiss pursuant to Rule 4:6-2(e), and that the "discretionary and consensual nature of the tax abatement scheme under the [LTTEL] does not preclude" judicial review of "[d]iscretionary municipal actions . . . ." It also asserts that the LTTEL "is part of a larger statutory redevelopment scheme that clearly affords judicial review of municipal actions."

Our scope of review of a dismissal pursuant to Rule 4:6-2(e) "is governed by the same standard as that applied by the trial court"; we must "consider, and accept as true, the facts alleged in the complaint to ascertain whether they set forth a claim . . . upon which relief can be granted." Donato v. Moldow, 374 N.J. Super. 475, 483 (App. Div. 2005).

Here, however, the judge did not apply that standard. Rather, the judge dismissed Hovnanian's complaint on the grounds that defendants' actions were not subject to judicial review. We are satisfied that the judge's summary dismissal of the complaint on these grounds misconstrued our courts' broad powers of judicial review. Plaintiff is entitled to have the adequacy of its complaint assessed according to the "test for determining the adequacy of a pleading" set forth in Printing Mart-Morristown v. Sharp Electronics, 116 N.J. 739, 746 (1989), namely "whether a cause of action is 'suggested' by the facts." Ibid.

At the outset, we note that the judge relied upon Millennium Towers Urban Renewal, LLC v. Municipal Council., 343 N.J. Super. 367, 379 (Law Div. 2001), to support his conclusion that the LTTEL does not provide for judicial review. However, that decision did not hold that judicial review was, therefore, precluded under the statute. Rather, in a context not pertinent to this matter, that case noted that the LTTEL "is an integral part of and a means of accomplishing the goals of the Local Redevelopment and Housing Law." Ibid. Millenium Towers is the only case upon which the judge relied in determining that Hovnanian's claims were not subject to judicial review. Not only is that decision factually distinguishable, it is not binding on this court.

The LTTEL's requirement that amendments to financial agreements be "by the mutual consent of the municipality and the urban renewal entity," N.J.S.A. 40A:20-9, does not defeat Hovnanian's right to seek judicial review here. Nor does the absence of specific statutory language either (1) compelling the municipality to grant an amendment request or (2) affirmatively providing for judicial review, preclude such review, as the motion judge concluded. The issue is not whether defendants were obligated to grant Hovnanian the amendment it sought, but whether the denial of the request is subject to judicial review for an abuse of discretion. "It is the long established rule . . . that all powers delegated to municipalities must be exercised reasonably and not arbitrarily." Ebler v. City of Newark, 54 N.J. 487, 491 (1969).

We are aware that "an action by a municipal agency is entitled to a presumption of validity. The court's scope of review is restricted to a determination of whether the agency's action was so arbitrary, unreasonable, or capricious as to amount to an abuse of discretion." Comm. for Rickel Alt. v. Linder, 111 N.J. 192, 201 (1988). Nonetheless, subject to such limitations judicial review of a municipality's discretionary acts is available to determine whether "any state of facts may reasonably be conceived to justify the action." Vineland v. Twp. of Pennsauken, 395 N.J. Super. 230, 255 (App. Div. 2007), appeal dismissed, 195 N.J. 513 (2008).

"In reviewing a complaint dismissed under Rule 4:6-2(e) our inquiry is limited to examining the legal sufficiency of the facts alleged on the face of the complaint. . . . At this preliminary stage of the litigation [we are] not concerned with the ability of [Hovnanian] to prove the allegation[s] contained in the complaint." Printing Mart, supra, 116 N.J. at 746. We have not been provided with defendants' motion to dismiss (other than the notice of motion) and, therefore, are unable to discern if that motion raised any bases for dismissal other than that upon which the judge relied in his decision, namely the unavailability of judicial review. Thus, we are unable to engage in the review suggested in Printing Mart, as the motion judge has not had the opportunity to conduct such an analysis as required by Rule 4:6-2(e). We, therefore, reverse the order dismissing Hovnanian's complaint and remand for further proceedings in conformity with this opinion.

Reversed and remanded.


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