August 23, 2011
TOWNSHIP OF PISCATAWAY, A MUNICIPAL CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFF-APPELLANT/CROSS-RESPONDENT,
SOUTH WASHINGTON AVENUE, L.L.C., RUTH HALPER, INDIVIDUALLY AND EXECUTRIX OF THE ESTATE OF HERBERT HALPER, LAURENCE HALPER, MARK HALPER, RUBY HALPER-ERKKILA, M.D., RONALD HALPER, BONNIE HALPER, CINDY HALPER RAIMAN AND FAITH ROST, DEFENDANTS-RESPONDENTS/ CROSS-APPELLANTS, AND HELEN HALPER, UNITED STATES OF AMERICA, STATE OF NEW JERSEY, JERSEY CENTRAL POWER & LIGHT COMPANY, TEXAS EASTERN TRANSMISSION CORPORATION, PUBLIC SERVICE ELECTRIC & GAS COMPANY, SIMON HALPER AND BELLA HALPER, DEFENDANTS.
On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-11715-99.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 23, 2011
Before Judges Grall and LeWinn.
This appeal and cross-appeal are from orders addressing statutory interest in an action commenced by the Township of Piscataway under the Eminent Domain Act, N.J.S.A. 20:3-1 to -50, in December 1999. The jury determined the property, owned by defendants South Washington Avenue, L.L.C., and members of the Harper family, had a fair market value of $17,955,000 on September 3, 2004, the date of the taking. Although, at defendants' urging, the property was valued as of the date Piscataway filed the declaration of taking, and not the date about five years earlier when the complaint was filed, defendants sought interest as of the date of the complaint. The trial court awarded compound interest at the prime rate from September 3, 2004.
The court calculated the interest and certified the order as final pursuant to Rule 4:42-2 before it had resolved Piscataway's claim that a share of the proceeds should be reserved due to contamination of the property in accordance with Housing Authority of the City of New Brunswick v. Suydam Investors, L.L.C., 177 N.J. 2, 7 (2003). Because the pending environmental claim may have an impact on the amount of compensation payable to defendants and, therefore, the interest, the order was improperly certified as final. See Housing Auth. of the City of New Brunswick v. Suydam Investors, L.L.C., 355 N.J. Super. 530, 555 (App. Div. 2002), rev'd on other grounds, 177 N.J. 2 (2003). Nevertheless, the interest of justice warrants a grant of leave to appeal from that order as if it were properly certified. R. 2:2-4.
The most significant issue raised on appeal is defendants' claim that the court erred in denying statutory interest from the date of the complaint. Although we agree that N.J.S.A. 30:3-31 requires interest as of the date of the complaint, we cannot conclude that defendants demonstrated a loss attributable to delayed payment prior to that date. Accordingly, we affirm the denial of interest for that period.
Piscataway claims the court's award of compound interest at the prime rate is excessive. Because the court did not provide findings of facts and reasons adequately explaining the award of compound interest at the prime rate, and because interest was reduced to a dollar amount before resolution of Piscataway's demand for a Suydam escrow trust, we reverse and remand for further proceedings.
The extended procedural history of the case is set forth in two prior opinions on interlocutory appeals, as are the facts pertinent to the issues in those cases. Twp. of Piscataway v. South Washington Ave., L.L.C., 400 N.J. Super. 358, 365-66, 370-76 (App. Div. 2008) (Piscataway II) (appeals by both parties following jury trial that was filed prior to the court's consideration of interest); Twp. of Piscataway v. South Washington Ave., L.L.C., No. A-2741-02 (App. Div. Mar. 19, 2004), certif. denied, 180 N.J. 457 (2004) (Piscataway I) (defendants' appeal objecting to the condemnation proceeding). The statement of the case that follows includes only what is pertinent to the issues raised here.
Piscataway filed the condemnation complaint on December 10, 1999. The property is a seventy-five-acre farm, and defendants have conducted several businesses on that farm for decades. Defendants retained legal title and were obligated to pay property taxes on the farm until September 3, 2004, when Piscataway filed its declaration of taking and deposited $4,326,000, the appraised value of the farm, with the court. N.J.S.A. 20:3-21(a), -26a(2).
Defendants retained actual possession and continued use of the farm long after the declaration of taking was filed, however. In fact, they were still occupying and using the farm when the jury trial on valuation concluded in January 2006, and they remained on the property thereafter for nearly seven months, until late July 2006. They left only after being sanctioned on July 20 for non-compliance with prior court orders directing them to vacate.
Piscataway's $4,326,000 deposit with the court was based on an appraisal of the farm's fair market value as of December 10, 1999. The condemnation commissioners later determined that the fair market value as of December 10, 1999 should have been $5,400,000.
Thereafter, defendants moved for reconsideration of the valuation date. They asserted that September 3, 2004, not December 10, 1999, is the proper date because the constitution requires a payment based on the value at the time the property is taken. See U.S. Const. amend. V; N.J. Const. art. I, ¶ 20. Defendants supported their argument with undisputed evidence that the farm's value had increased "by no less than 83% as a result of market forces" between December 10, 1999 and September 3, 2004. Piscataway II, supra, 400 N.J. Super. at 364. The trial court accepted their position. Consequently, the question of fair market value as of September 3, 2004 was tried to a jury, and the jury determined the farm was worth $17,955,000 as of that date.
The parties agree that Piscataway deposited an additional $8,574,000 with the court on February 6, 2006, bringing the total deposited to $12,900,000.*fn1 Since that date, Piscataway has succeeded in its efforts to stay additional withdrawals. Both experts subtracted the deposits, as of the date made, from the principal.
On consolidated interlocutory appeals filed by both parties after the trial, we accepted defendants' position and affirmed the order setting September 3, 2004 as the valuation date and the value assigned by the jurors. Id. at 370-76. In so doing, we reasoned that N.J.S.A. 30:3-30 could provide for more but not less compensation than the constitution requires. Id. at 373.
More than one year after we issued our decision in Piscataway II, a plenary hearing on interest was held in the trial court. The record provided on appeal does not indicate the reason for this delay.
At the hearing, each party presented expert testimony on interest and certifications and exhibits prepared by their experts addressing various interest rates. The experts agreed that no interest was due on the amounts deposited from the date of each deposit.
Although defendants remained in possession of the farm until July 2006, there was no evidence relevant to an abatement for profits defendants derived from their business use of the property prior to that date. Relevant to an abatement for fair rental value, both experts assumed that it was $71,800 per year.*fn2
Despite defendants' success in asserting that the property should be valued as of September 3, 2004 to account for inflation of value subsequent to December 10, 1999, they sought interest on the 2004 value to compensate them for their lost use of that value from December 10, 1999. This was reduced only by the amount of the deposits as of the date made and an abatement for fair rental value, which the expert reduced to account for property taxes defendants paid.
In the opinion of defendants' expert, an interest calculation based on the prime rate, the rate at which banks lend to lowest-risk borrowers, would best compensate defendants for Piscataway's delayed payment of fair market value. He reasoned that defendants were placed in the position of being Piscataway's lender and that compound interest at the prime rate would compensate defendants for assuming the role of a commercial lender, who would have the ability to invest the interest paid by the borrower. The expert acknowledged that the purpose of this interest award was to determine investment vehicles available to defendants and that it was unlikely that defendants would have been able to lend the money to others. Nevertheless, he deemed the prime rate, compounded annually, to be the "best" approximation of "something that's commercially available," and he rejected the other rates he and plaintiff's expert had discussed as an unreasonable approximation.
Piscataway's expert also assumed interest calculated from December 10, 1999. She, however, attempted to adjust for a later valuation date by deriving a value for the farm as of December 1999. She estimated that value by assigning varying weight to the parties' respective appraisals as of December 1999 based on the view she concluded that jurors took of the parties' respective fair market values as of September 3, 2004. The assumptions were not supported by the record, and, accordingly, the trial court rejected that aspect of her opinion.
Piscataway's expert also discussed various interest rates, including the prime rate; Standard and Poor's rate of return on investments in publicly traded stocks; and the cash management fund rate. She rejected the cash management fund rate on the grounds that banks pay investors at a much lower rate than they charge borrowers, and compensation for the loss defendants incurred as a consequence of delayed payment was best addressed as an investment loss. This was especially true during the extended period when defendants were in possession of the property.
The trial court concluded that interest should accrue as of September 3, 2004, and not as of the date the complaint was filed, December 10, 1999. The trial court deemed the valuation date to be the date of the commencement of the action. In addition, the court explained that because compensation was based on the farm's value in 2004, an award of interest prior to that date would result in unjust compensation. With respect to the interest rate, the court applied the prime rate, because Piscataway, a low risk investor, would likely have to pay a lender to secure a loan in the same amount and the lender would have the benefit of earning not only the interest but also the ability to generate additional income from the interest.
The court rejected Piscataway's expert's opinion that the rate stated in the court rules is appropriate given the fact that defendants were in possession of the property for much of the period. The court concluded that the rate was inappropriate because of fluctuation of interest rates during the period and the risk of non-payment defendants were required to assume. The court further reasoned that N.J.S.A. 20:3-31 addresses possession by providing abatements for profits and fair rental value.
Additionally, the court directed annual compounding of the interest. On that point, the court reasoned that defendants could have generated additional income from the accumulating interest if it had been paid.
Interest on compensation for the property taken by the government is required by statute, N.J.S.A. 20:3-31 to -32, and by the constitution when compensation is not paid at the time of the taking. State, by State Highway Comm'r v. Seaway, Inc., 46 N.J. 376, 380 (1966).
Defendants cannot assert a constitutional right to interest payable between the date of the complaint and the date of taking. The constitutional obligation begins on the date of the taking and ends when the government makes payment by depositing the value with the court. Id. at 385. Because defendants argued and prevailed on the point that the taking occurred on September 3, 2004, which we affirmed on appeal, defendants' constitutional claim for interest based on an earlier taking "is . . . inconsistent with the established record." Housing Auth. of City of Long Branch v. Valentino, 47 N.J. 265, 268 (1966).
Defendants' objections to the trial court's denial of statutory interest between the date of the complaint and date of the taking are different. N.J.S.A. 20:3-31 provides for an award of "[i]nterest as set by the court . . . from the date of the commencement of the action until the date of payment of the compensation." Our courts have consistently construed the statute to require interest from the date the complaint is filed. Casino Reinvestment Dev. Auth. v. Hauck, 317 N.J. Super. 584, 590 (App. Div. 1999), aff'd o.b., 162 N.J. 576 (2000). It applies without regard to the date of taking. See City of Jersey City v. Realty Transfer Co., 129 N.J. Super. 570, 576 (App. Div.), aff'd o.b., 67 N.J. 104 (1974). In Jersey City, this court disapproved Wayne v. Ricmin, Inc., 124 N.J. Super. 509, 515 (App. Div. 1973), a case in which the panel reasoned that the Legislature did not intend to have interest accrue before the municipality deprived the owner of its property rights. Jersey City, supra, 129 N.J. Super. at 576-77; see also Twp. of Wayne in Passaic County v. Kosoff, 73 N.J. 8, 17 (1977) (stating the "legislative purpose" was to have interest determined "at least as of the date of the complaint" and noting its earlier affirmance of Jersey City on this court's opinion).
Here, the trial court's use of a date for accrual of interest that is five years later than the filing of the complaint is in conflict with the statute as construed by the Supreme Court. Accordingly, we cannot affirm the denial of interest on the ground that the valuation date can be deemed to be the date on which Piscataway commenced this action.
There is, however, an alternative legal ground for affirming the judge's denial of interest prior to September 3, 2004. Along with its impermissible reliance on the date of the taking, the court focused on the fact that interest during this period would overcompensate defendants for Piscataway's failure to pay for the farm between the date of the complaint and the date of the declaration of taking. That consideration is relevant to an award of interest pursuant to N.J.S.A. 20:3-31.
Our courts have construed the statute as "envision[ing] a flexible approach" on "a case-by-case basis" to determine the "rate or rates of interest which will best indemnify the condemnee for the loss of use of the compensation . . . from the date on which the action for condemnation was instituted." Twp. of Wayne in Passaic County v. Cassatly, 137 N.J. Super. 464, 474 (App. Div. 1975) (emphasis added); accord Hauck, supra, 317 N.J. Super. at 592-94, aff'd o.b., 162 N.J. at 578 (approving this court's conclusion that the Eminent Domain Act establishes that interest runs from the date of the commencement of the action and not from the date of valuation). As the passage of Cassatly quoted above suggests, the interest rate need not be the same throughout the relevant period, particularly where the period is lengthy and circumstances vary. See, e.g., City of Englewood v. Exxon Mobile Corp., 406 N.J. Super. 110, 122-23 (App. Div. 2009).
Indemnification of the condemnee for the use of the funds is the measure of an appropriate interest award. Hauck, supra, 162 N.J. at 579. Stated differently, the interest awarded must be "sufficient to ensure that [the condemnee] is placed in as good a position pecuniarily as he would have occupied" if payment had not been delayed. Kirby Forest Indus., Inc. v. United States, 467 U.S. 1, 10-11, 104 S. Ct. 2187, 2194, 81 L. Ed. 2d 1, 11 (1984).
The effect of defendants' success in urging a valuation date later than the date of the complaint was to put them in the same position that they would have been if they had received cash on the date of the complaint. If defendants had used the cash on that date and purchased a farm identical in all respects to their own, on September 3, 2004, they would have obtained an identical return on that investment - the fair market value as of September 3, 2004. Thus an award of interest was not necessary to indemnify them for Piscataway's delayed payment between December 10, 1999 and September 3, 2004. Moreover, because defendants continued their occupancy and use of the farm past September 3, 2004, they did not incur any moving expense or experience any loss of profits as a consequence of not having payment on December 10, 1999. Cf. id. at 17, 104 S. Ct. at 2198, 81 L. Ed. 2d at 15 (rejecting increase in property value as a measure of adequate interest for delayed payment because of evidentiary difficulties that are not implicated here because the jurors assessed fair market value as of September 3, 2004).
For the foregoing reasons, we affirm the trial court's determination that no interest is necessary to indemnify defendants for the period between the date of the complaint and September 3, 2004.
Piscataway also argues that the order purporting to reduce interest to a specific dollar amount was improperly certified as final; claims error based on the fact that the court did not address an abatement for profits; and objects to the award of compound interest at the prime rate. We consider the questions presented in turn.
In light of Piscataway's pending environmental claim, this order was prematurely entered. In Suydam, we observed that interest on the portion of the compensation for fair market value placed in escrow trust for environmental costs cannot be computed until condemnee's responsibility for payment is determined. 355 N.J. Super. at 555. Accordingly, any interest calculation prior to final resolution of responsibility must exclude the amount held in the escrow trust. Because this was not done, we vacate the order purporting to reduce the interest to a dollar amount and remand so the court may determine if there is a need for an escrow trust and, if so, the amount. Upon determining what amount, if any, is to be placed in an escrow trust, the court will be in a position to reduce interest to a dollar amount.
There is another question relevant to interest that has not been addressed. When a condemnee has full use and occupancy of the premises, the condemnor is entitled to an abatement. New Jersey Dept. of Envtl. Prot. v. Fairweather, 298 N.J. Super. 421, 429 (App. Div. 1997). Those abatements are required by N.J.S.A. 20:3-31. Neither party opted to present evidence relevant to profits at the hearing held on the summary proceeding. N.J.S.A. 20:3-32. In this circumstance, the court must insist that the parties provide information it needs to award interest in accordance with N.J.S.A. 20:3-31.
It is well-settled that the parties must provide evidence that will permit the court to make an informed determination as to the appropriate interest rates. Cassatly, supra, 137 N.J. Super. at 474. That obligation necessarily extends to information relevant to statutorily required abatements of interest implicated in the case.
Here, defendants were in possession of the property for an extended post-complaint period and apparently continued business operations on the property. Faced with the parties' mutual failure to provide that evidence, the court should have directed them to do so. As this court has noted in the past, in directing resolution of disputes about interest in a "summary manner," N.J.S.A. 20:3-32, the Legislature did not intend to have courts fix interest without evidence. Cassatly, supra, 137 N.J. Super. at 474.
Piscataway's final claim is that the award of compound interest at the prime rate was improper. The court's written decision does not provide an adequate statement of the facts and reasons for selection of the rate. As we understand the decision, the court applied the prime rate because it determined the interest awarded at the rate specified in Rule 4:42-11 was not appropriate due to fluctuations in interest rates not captured by the rule, which is based on interest rates during the preceding year.
More is required. There is no question that courts may consider "prevailing commercial interest rates, the prime rate or rates, and the applicable legal rates of interest." Hauck, supra, 317 N.J. Super. at 594. The court's obligation, however, is not to select among those rates. It is to "select that rate or rates of interest which will best indemnify the condemnee for the loss of use of the compensation." Ibid.
This court's decision in Fairweather provides guidance. We deemed the prime rate evidential because it was "indicative of commercial rates of interest achievable during the time periods . . . and it roughly tracked the prevailing commercial interest rates for investors." 298 N.J. Super. at 428-29. That case does not suggest that the prime rate is an appropriate measure in every case. The focus, as discussed above, is not on what Piscataway saved by delayed payment but on what the defendants lost because of the delayed payment. Cf. Green v. Gen. Motors Corp., 310 N.J. Super. 507, 535 (App. Div.) (considering the fact that defendant had use of the money and plaintiff had lost his income as relevant to an award of pre-judgment interest in a tort case), certif. denied, 156 N.J. 381 (1998).
On remand, the court should reconsider the award of compound interest at the prime rate and provide a statement of the factual findings and legal conclusions that explains the determination.
To facilitate the proceedings on remand, we summarize our determinations: 1) The court's determination to deny interest for the period prior to September 3, 2004 is affirmed on the ground that defendants received a fair equivalent of the benefit they would have had if they obtained payment on December 10, 1992; 2) the order purporting to reduce interest to a dollar amount is vacated; 3) before recalculating interest the court must resolve the question of a trust escrow; and 4) before reducing interest to a dollar amount, the court must a) reconsider the award of compound interest and set forth its findings and reasons and b) consider the question of profits upon presentation of competent evidence or stipulation.
Affirmed in part; reversed in part; and remanded for further proceedings in conformity with this decision.