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New Jersey Citizen Action, Inc., A New Jersey Corporation v. County of Bergen


August 3, 2011


On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-6092-05.

Per curiam.


Argued March 23, 2011

Before Judges Fuentes, Ashrafi and Newman.

Plaintiffs appeal from orders dated December 1, 2009, granting summary judgment to the several defendants. We affirm.

In 2005, plaintiffs filed a declaratory judgment action challenging the validity of two loans made in 1998 by defendant Bergen County Improvement Authority ("the Improvement Authority") to a private entity, Solomon Health Group, LLC ("Solomon"). The loans were made in connection with the County's transfer to Solomon of management and operation of a County-owned hospital. In a previous appeal, we reversed the trial court's order dismissing plaintiffs' complaint for failure to state a claim upon which relief can be granted. N.J. Citizen Action, Inc. v. County of Bergen, 391 N.J. Super. 596 (App. Div.), certif. denied, 192 N.J. 597 (2007).

On remand, the parties conducted discovery and then filed cross-motions for summary judgment. By written opinion and the December 1, 2009 orders, the trial court denied plaintiffs' motion and granted defendants' joint motion for summary judgment, dismissing plaintiffs' complaint on the grounds of res judicata and the entire controversy doctrine. Plaintiffs filed this appeal, contending the court should have ruled in their favor on the merits of their claims.

Our standard of review is plenary from the trial court's orders. In reviewing a grant of summary judgment, we apply the same standard under Rule 4:46-2(c) and Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995), that governs the trial court. See Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). In this case, the facts relevant to the court's decision are not genuinely disputed. The issue is a legal one concerning whether plaintiffs can challenge the two 1998 loans seven years after the loans were publicly approved by governmental authorities and after prior litigation in which the challenge could arguably have been raised.


Private Management of the County Hospital

For approximately eighty years, the County of Bergen owned and operated Bergen Pines County Hospital in Paramus, now called Bergen Regional Medical Center. In 1997, the County adopted a so-called Repositioning Plan, selected a proposal from Solomon, and transferred management and operation of the hospital through a series of contractual transactions. Pursuant to a nineteen-year lease and operating agreement dated December 17, 1997, the County transferred its license to operate the hospital and possession of the hospital property to the Improvement Authority. By another lease and operating agreement ("LOA") also dated December 17, 1997, the Improvement Authority transferred management and operation of the hospital to Solomon for nineteen years beginning on March 1, 1998.

In addition to payment of the hospital's operating expenses, Solomon was to pay fixed annual rent of $5.2 million to the Improvement Authority after the initial year. Revenues of the hospital were to be deposited into an account of the Improvement Authority and then distributed according to terms of the LOA. The Improvement Authority was to pay Solomon $9 million per month for management services, payable in equal halves by the tenth and twentieth day of each month. Solomon would also be paid and retain all profits generated from its management of the hospital beyond the $9 million fee, but it was also responsible for any losses if expenses exceeded the hospital's income.

By resolution dated December 17, 1997, the County Board of Chosen Freeholders approved the Repositioning Plan. By resolution dated December 19, 1997, the Improvement Authority approved the execution of its LOA with Solomon. On March 15, 1998, Solomon assigned its rights and obligations under the LOA to defendant Bergen Regional Medical Center, LP ("Bergen Regional"), which was the entity that actually managed and operated the hospital.

With respect to accounts receivable for services provided to patients before private management and operation began, the LOA provided that Solomon or its designee would collect the receivables but the County would retain ownership of that asset. Section 5.3 of the LOA permitted Solomon to pledge the hospital's accounts receivable "for any line or letter of credit or other financing." Section 5.1(f) of the LOA made reference as follows to a promissory note to secure Solomon's payment of the pre-LOA accounts receivable to the Improvement Authority:

(ii) payments that are required to be made during such month to provide for repayment by the Manager of moneys received from accounts receivable existing as of the day preceding the Lease Term Commencement Date, in accordance with the terms of a promissory note to be executed by the Manager setting forth, among other things, the amounts to be repaid and the date of repayment, . . .

On March 13, 1998, Solomon executed a promissory note for the pre-LOA accounts receivable, which at that time were estimated at about $15 million. They were actually a greater amount, and audited records later established the value of the pre-LOA accounts receivable debt from Solomon to the Improvement Authority at about $27 million. By the terms of the promissory note, the due date of the loan is March 14, 2020. It is a non-interest bearing loan for the first sixteen years, until March 14, 2014, and, for the final six years, annual interest is one-half the Consumer Price Index. The promissory note also provided that "[t]he Accounts Receivable Loan shall be utilized by Solomon in its sole discretion for or with respect to the provision of Management Services at Bergen Regional Medical Center."

Thus, at the time the promissory note was executed, there were no actual County funds transferred to Solomon as part of the accounts receivable loan. The loan agreement permitted Solomon to delay for a number of years payment of the pre-LOA accounts receivable it collected to the Improvement Authority and to use the funds instead in operating the hospital.

Unlike the accounts receivable loan, $6 million in County funds were transferred to Solomon by check dated March 26, 1998, as a separate working capital loan. The same promissory note as for the accounts receivable loan also obligated Solomon to the Improvement Authority for the working capital loan. That loan was also to be "utilized by Solomon in its sole discretion for or with respect to the provision of Management Services . . . at Bergen Regional Medical Center." The loan was "non-interest bearing" until March 14, 2006. From that date until March 14, 2012, when the remaining balance of the principal was to be paid in full, the outstanding principal bears interest at an annual rate of half the Consumer Price Index.

As previously quoted, Section 5.1(f) of the LOA referenced an accounts receivable loan, but it made no reference to a working capital loan, and that loan was not otherwise mentioned in the LOA. Attorney Gary Herschman, counsel for Solomon, testified in deposition that he was involved in negotiating the working capital loan in March 1998 with Eric Wisler, counsel for the County and the Improvement Authority.*fn1 Herschman recalled that the working capital loan was the result of a change in the timing of the proposed management fee payments by the Improvement Authority to Solomon. A first supplement to the LOA, dated March 13, 1998, modified the time of the management fee payments from two payments on the tenth and twentieth of each month to one payment at the end of the month. It also modified the time for payment of additional revenues collected beyond $9 million from the tenth day of each month to the third business day of the month following receipt by the Improvement Authority.

According to Herschman, the reason the Improvement Authority sought the first supplement and the changed time of payments was so that it would have a source of cash from which to make payments to Solomon. Solomon in turn requested the working capital loan because its cash flow would now be delayed, and it needed funds to pay the expenses of operating the hospital in the initial days beginning the term of the LOA.

The Improvement Authority ratified the terms of the promissory note at a public meeting on April 20, 1998.

Prior Litigations

On December 23, 1997, the union representing the nurses at the hospital, Health Professional and Allied Employees, AFT/AFLCIO, Local 5091 ("HPAE"), filed a complaint in lieu of prerogative writs (L-11895-97) challenging the Repositioning Plan. Plaintiffs in the 1997 lawsuit were represented by Leon Savetsky of the law firm Loccke & Correia, P.A., the same attorney and the predecessor of the firm that represent plaintiffs in this case. Defendants included the County of Bergen and its Board of Chosen Freeholders, the Improvement Authority, and Solomon.

The complaint referenced the LOA and other December 1997 agreements. Count one alleged that transfer of the hospital to private management violated the Local Lands and Buildings Law, N.J.S.A. 40A:12-1 to -38, "in that the resolution authorizing the . . . leases and agreements did not set forth that . . . [the hospital] . . . its real property and business assets were not needed for public use", and the "leases and agreements . . . have been or are being entered into with a commercial, business and profit making or for-profit enterprise."

Defendants in the 1997 action moved to dismiss the HPAE complaint pursuant to Rule 4:6-2(e). New Jersey Citizen Action ("NJCA"), one of the plaintiffs in this case, appeared as amicus curiae in the 1997 litigation in opposition to defendants' motion to dismiss. By order dated February 20, 1998, the trial court converted the motion to summary judgment and dismissed the 1997 complaint with prejudice. In its oral decision, the court commented:

[O]ne argument . . . has not been directly made . . . but there's a constitutional provision that prohibits counties, along with the state, the city, and other cities, boroughs, towns, from giving any money or property or loaning its money or credit to the aid of any individuals, associations, or corporations. That's Article 8, Section 3, Paragraph 2 of the Constitution.

Nobody's really argued here that this is a gift of public facilities or public funds. Maybe that's because the Supreme Court has spoken in other contexts on that, but I've taken that into account and I've juxtaposed that, and maybe that's sort of a backdrop to the public doctrine, public purpose doctrine, public interest doctrine that's been argued here.

In April 1998, about two months after the 1997 lawsuit was dismissed with prejudice, HPAE and the American Federation of State, County and Municipal Employees ("AFSCME") filed a complaint and order to show cause (L-3980-98) regarding the hospital's employee health benefits. Among the defendants named in the 1998 litigation were the County, the Board of Chosen Freeholders, the Improvement Authority, and Solomon. Attorney Savetsky represented HPAE. No further information is available in our record concerning that litigation.

In 2002, three lawsuits were filed and subsequently consolidated under docket number L-11-03. The lawsuits pertained to the Open Public Records Act ("OPRA"), N.J.S.A. 47:1A-1 to -13, and parties included the Improvement Authority, Bergen Regional, and HPAE. The consolidated actions arose from requests made by a reporter from The Record newspaper and by representatives of HPAE for copies of the annual audited financial statements of Bergen Regional and its affiliated entities. Bergen County Improvement Auth. v. N. Jersey Media Grp., Inc., 370 N.J. Super. 504, 508-09 (App. Div.), certif. denied, 182 N.J. 143 (2004). On appeal, we affirmed the Law Division's holding that Bergen Regional was required to release the documents under the common law right of access to public records. Id. at 509-10. Our opinion made reference to the terms of the LOA and the public's right to learn information about the use of public funds. Id. at 510-12, 522-23. Plaintiffs' Connection with HPAE

As previously stated, plaintiff NJCA participated as amicus curiae in HPAE's 1997 litigation. HPAE is an "affiliate member union" of NJCA. Discovery in this litigation established that HPAE recruited the plaintiffs for this litigation, agreed to pay and has paid all expenses of the litigation, and in fact, expressly stated to NJCA that its attorneys advised against HPAE being a named plaintiff in this litigation because of potential procedural defenses that defendants might raise.

Mary Ann Milligan, a named plaintiff in this case, became treasurer of HPAE in 1987 and secretary in 1996. Milligan was a member of HPAE's Full Executive Council, whose authority was necessary for HPAE to file lawsuits in 1997. She knew about the loans challenged in this litigation when the hospital was turned over to Solomon for private management. The other two named plaintiffs were deposed and stated that their contacts in the course of this litigation have been with HPAE. They personally have minimal involvement with controlling the litigation. HPAE and its attorneys have controlled this litigation on behalf of the named plaintiffs.

Trial Court's Decision

In its written opinion of December 1, 2009, the trial court determined that plaintiffs in this case were in privity with HPAE, and that the judgment of February 20, 1998, in HPAE's 1997 litigation was res judicata barring plaintiffs' current claims. The court also ruled that plaintiffs are barred by the entire controversy doctrine, R. 4:30A, from challenging the two 1998 loans in the current litigation.


We conclude the trial court correctly barred the present litigation, although we rely in part on a ground different from that of the trial court. See Isko v. Planning Bd. of Livingston, 51 N.J. 162, 175 (1968) ("if the order of the lower tribunal is valid, the fact that it was predicated upon an incorrect basis will not stand in the way of its affirmance"); State v. Maples, 346 N.J. Super. 408, 417 (App. Div. 2002) (appeal is taken from the court's order rather than reasons for its decision).

We agree with the trial court's conclusion that res judicata and the entire controversy doctrine bar plaintiffs' challenge to the accounts receivable loan. Such a challenge could have been raised in HPAE's 1997 lawsuit asserting that the LOA and the Repositioning Plan were unlawful. However, the working capital loan did not exist at the time of the trial court's dismissal of the 1997 action on February 20, 1998. That loan had not even been negotiated at that time. The 1998 judgment against HPAE does not bar plaintiffs' current challenge to the working capital loan.

Nor does the record before us permit a determination that res judicata and the entire controversy doctrine bar the challenge to the working capital loan by virtue of the subsequent lawsuits in 1998 and 2002. See 700 Highway 33 LLC v. Pollio, ___ N.J. Super. ___ (App. Div. 2011). As we will discuss, however, plaintiffs' challenge to the working capital loan is untimely under the limitations period of Rule 4:69-6(a) pertaining to causes of action in lieu of prerogative writs to invalidate governmental action.


Plaintiffs contend that res judicata and the entire controversy do not apply to a declaratory judgment action such as they have brought to challenge the constitutionality of loans made by a governmental entity. They also contend that such preclusion principles are not applicable in cases such as this involving matters of public importance. See Parisi v. N. Bergen Municipal Port Auth., 105 N.J. 25, 33 (1987); City of Plainfield v. Public Serv. Elec. and Gas Co., 82 N.J. 245, 247, 258-59 (1980); Garvey v. Twp. of Wall, 303 N.J. Super. 93, 103-04 (App. Div. 1997).

But the Supreme Court has more recently held that res judicata and the entire controversy doctrine apply to a declaratory judgment action challenging the constitutionality of governmental actions, including a matter of high public importance. See McNeil v. Legislative Apportionment Comm'n, 177 N.J. 364, 393-400 (2003), cert. denied, 540 U.S. 1107, 124 S. Ct. 1068, 157 L. Ed. 2d 893 (2004). In McNeil, the plaintiffs challenged the legislative redistricting plan after the 2000 census. The Court stated: "The concept that a party is required to bring all possible claims in one proceeding is embodied in the closely linked concepts of res judicata and the entire controversy doctrine." Id. at 395. "Additionally, because of the potentially large number of plaintiffs with standing in public law cases, were they allowed to raise issues continually, public law claims 'would assume immortality.'" Id. at 397 (quoting Los Angeles Branch NAACP v. Los Angeles Unified Sch. Dist., 750 F.2d 731, 741 (9th Cir. 1984)).

The cases relied upon by plaintiffs do not lead to a result contrary to the holding of McNeil. In Board of Education of Township of Neptune v. Neptune Township Education Association, 293 N.J. Super. 1 (App. Div.), certif. denied, 147 N.J. 259 (1996), we held that a constitutional challenge to a statute was not barred by principles of res judicata, collateral estoppel, and the entire controversy doctrine because it had in fact been raised but not considered in a prior administrative proceeding. Id. at 8. We stated "there was . . . no adjudication to which the issue and claim preclusion arguments advanced by the [defendant] could attach." Ibid. Here, the constitutional challenge to the 1998 accounts receivable loan could have been but was not raised in the 1997 litigation. Plaintiffs cannot claim that they preserved the claim but that the court simply did not adjudicate it. Nor do we read Asbury Park Press, Inc. v. Woolley, 33 N.J. 1 (1960), as holding that res judicata and the entire controversy doctrine may not be applied in a challenge to the constitutionality of governmental actions.

For res judicata to apply,

(1) the judgment in the prior action must be valid, final, and on the merits; (2) the parties in the later action must be identical to or in privity with those in the prior action; and (3) the claim in the later action must grow out of the same transaction or occurrence as the claim in the earlier one. [Watkins v. Resorts Int'l Hotel & Casino, Inc., 124 N.J. 398, 412 (1991); accord McNeil, supra, 177 N.J. at 395.]

Related to res judicata, the entire controversy doctrine requires litigants in a civil action to raise all affirmative claims arising from a single controversy. "In determining whether successive claims constitute one controversy for purposes of the doctrine, the central consideration is whether the claims against the different parties arise from related facts or the same transaction or series of transactions." DiTrolio v. Antiles, 142 N.J. 253, 267 (1995); see also 700 Highway 33 LLC, supra, ___ N.J. Super. at ___ (slip op. at 8) (whether an action is barred by the entire controversy doctrine depends on the core set of transactional facts). Additionally, for the entire controversy doctrine to apply, the prior action must result in an adjudication on the merits. Arena v. Bor. of Jamesburg, 309 N.J. Super. 106, 111 (App. Div. 1998).

Plaintiffs contend that the trial court erred by focusing upon privity, but they have not refuted the facts upon which the court correctly found that plaintiffs in this case are in privity with HPAE, the primary plaintiff in the 1997 litigation.

The main thrust of plaintiffs' argument is that neither the accounts receivable loan nor the working capital loan existed on February 20, 1998, when the 1997 litigation was dismissed. They contend they could not have challenged the constitutionality of the loans in the 1997 action. The entire controversy doctrine does not apply to bar claims that were unknown at the time of the original action. Hillsborough Twp. Bd. of Educ. v. Faridy Thorne Frayta, P.C., 321 N.J. Super. 275, 283 (App. Div. 1999).

It is true that the promissory note for both loans was executed on March 13, 1998, and approved publicly in April 1998, after the judgment in the 1997 litigation. But Section 5.1(f) of the LOA referred to a promissory note for Solomon's obligation to turn over revenues of pre-LOA accounts receivable. It gave notice that public revenues owned by the County and the Improvement Authority would be held by Solomon and paid in amounts and at times to be set by means of a promissory note. The LOA was a matter of public record in December 1997. Plaintiffs could have challenged the constitutionality of a proposed accounts receivable loan at the same time as challenging whether the Repositioning Plan was lawful in other respects.

In addition to the public record, plaintiff Milligan testified in deposition that she knew about the loans when the hospital was transferred to private management. As we quoted previously, the trial judge recognized the potential constitutional challenge to the loan simply by reviewing the terms of the LOA. There was no reason that plaintiffs could not have recognized the issue as the trial judge did in 1998.

Because the February 20, 1998 judgment was a decision on the merits among parties in privity and the current challenge to the accounts receivable loan could have been raised as part of that action, res judicata and the entire controversy doctrine bar plaintiffs from bringing the same challenge in this case.


Plaintiffs' claims against the working capital loan are not barred by res judicata and the entire controversy doctrine but by the time limitation upon a lawsuit challenging an official action of a governmental body. Rule 4:69-6(a) sets a forty-five day limit for an action in lieu of prerogative writs against a governmental entity from the time that the cause of action accrued. Here, the governmental action occurred no later than April 20, 1998, when the Improvement Authority by resolution approved the promissory note executed by Solomon.

Plaintiffs argue that the limitations period does not apply to their complaint because it is an action brought under the Declaratory Judgment Act, N.J.S.A. 2A:16-50 to -62, which does not have a statute of limitations. While we stated in Ballantyne House Assocs. v. City of Newark, 269 N.J. Super. 322, 330 (App. Div. 1993), that a challenge to a municipal ordinance may be brought either by an action in lieu of prerogative writs or by a declaratory judgment action, plaintiffs' attack in this case is not upon an ordinance but to the County's and Improvement Authority's approval of the LOA and the loans. Those actions occurred publicly on specific dates in 1997 and 1998, and they had been implemented for more than seven years at the time that plaintiffs filed their current complaint.

Such a challenge to governmental action must be brought in an action in lieu of prerogative writs under Rule 4:69 of our court rules. See Dolan v. City of E. Orange, 287 N.J. Super. 136, 142 (App. Div. 1996). We agree with defendants that the limitations period of an action in lieu of prerogative writs cannot be avoided simply by styling a complaint as a declaratory judgment action. Were it otherwise, governmental actions could be challenged without any time limitation so long as a plaintiff could tie an action remotely to an ordinance that is related to the claim. Our decision in Ballantyne House, supra, 269 N.J. Super. at 328, 330, is distinguishable because the declaratory judgment action in that case was based on a contract between the plaintiff and the defendant city.

Under Rule 4:69-6(c), the court may enlarge the forty-five day limitation period "where it is manifest that the interest of justice so requires." That subsection of the rule applies to cases involving "(1) important and novel constitutional questions; (2) informal or ex parte determinations of legal questions by administrative officials; and (3) important public rather than private interests which require adjudication or clarification." Brunetti v. Bor. of New Milford, 68 N.J. 576, 586 (1975) (internal footnotes omitted).

We acknowledge that in Borough of Princeton v. Board of Chosen Freeholders of Mercer County, 169 N.J. 135, 152-53 (2001), the Court held that an action in lieu of prerogative writs brought many years after waste disposal contracts had been entered in violation of State law would not be barred by the limitations period of Rule 4:69-6(a). The Court discussed the continuing nature of the contracts and the public's interest in enforcement of the public bidding process. Ibid. While the reasoning of the Court might arguably apply to the accounts receivable loan in this case, which does not become due until 2020, it has less force as to the working capital loan.*fn2

The working capital loan has now almost run its course, final payment being due early in 2012. Defendants relied on that loan in reaching agreement in March 1998 to the first supplement to the LOA, by which the Improvement Authority delayed its due dates for payments to Solomon. Defendants had operated the hospital for more than seven years under those terms before plaintiffs raised their current challenge to the working capital loan. Plaintiffs have given no explanation for the lengthy delay. Had a timely and successful challenge been made in 1998, defendants may have had a right to rescind the first supplement to the LOA and either insisted on performance as agreed by the December 17, 1997 LOA, or negotiated an alternative modification of their agreement that would satisfy all legal requirements.

We agree with the views of Judge (now Justice) Hoens in a concurring opinion in Concerned Citizens of Princeton v. Mayor and Council of the Borough of Princeton, 370 N.J. Super. 429, 470-75 (App. Div.), certif. denied, 182 N.J. 139 (2004), that expansion of the limitations period should be "sparingly granted" where the governmental body has relied on the absence of challenge to its actions. Id. at 471. In Concerned Citizens, the plaintiffs delayed filing an action in lieu of prerogative writs to challenge a redevelopment plan in downtown Princeton for almost a year after resolutions were adopted by municipal authorities and about seven months after construction work had begun. Our majority opinion found no error in the trial court's decision to relax the forty-five day limitation period under Rule 4:69-6(c) because of the public interest involved in the litigation. Id. at 445-47. We then rejected the plaintiff's claims on their merits, as had the trial court. Id. at 447-70.

In her concurring opinion, Judge Hoens stated that she would have dismissed the action as untimely under the limitation period of Rule 4:69-6(a). The municipal authorities had followed correct procedures in adopting the redevelopment plan, and then proceeded to implement the plan when no timely objection was raised. Id. at 475. The purpose of the limitation period, to "give an essential measure of repose to actions taken against public bodies," id. at 474 (quoting Washington Twp. Zoning Bd. of Adj. v. Washington Twp. Planning Bd., 217 N.J. Super. 215, 225 (App. Div.), certif. denied, 108 N.J. 218 (1987), recognizes that the process of implementing governmental action often depends on the validity of prior action. Ibid.

Similarly in this case, the delay in plaintiffs' pursuit of their claims resulted in implementation of the Repositioning Plan and operation of the hospital by private management for more than seven years. In that time, Solomon has not defaulted in the performance of its obligations under the LOA. Plaintiffs have not shown how the public interest, as opposed to their private interest, is served by rescinding the agreement at this time.

Furthermore, as defendants argue, the persons who would be expected to testify in support of their defenses to plaintiffs' claims now suffer from faded memories regarding the details of the negotiations in 1998, and one important participant is too ill to testify in the current litigation. Defendants have been prejudiced in defending their agreement to make the working capital loan as a result of plaintiffs' long delay in filing their action.

Because plaintiffs did not file a timely action in lieu of prerogative writs, and the delay of seven years is unreasonable, their action to set aside the working capital loan is barred by Rule 4:69-6(a).


We add that defendants have presented strong argument on the merits of their defenses to plaintiffs' allegations. They have argued that the loan funds were used for a public purpose in the operation of the hospital and that the County and the Improvement Authority received adequate consideration for the loans. We do not decide the merits of the parties' arguments on those issues because it is not necessary that we do so. Plaintiffs' action is barred by res judicata, the entire controversy doctrine, and the limitations period of Rule 4:69-6(a).


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