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Education Law Center, On Behalf of Abbott Vs Burke v. New Jersey Department of Education and

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


April 3, 2012

EDUCATION LAW CENTER, ON BEHALF OF ABBOTT VS BURKE PLAINTIFF SCHOOL CHILDREN, APPELLANT,
v.
NEW JERSEY DEPARTMENT OF EDUCATION AND
NEW JERSEY SCHOOLS DEVELOPMENT AUTHORITY, RESPONDENTS.

On appeal from the Schools Development Authority, Department of Education.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted March 14, 2012

Before Judges Axelrad, Sapp-Peterson and Ostrer.

Plaintiff Education Law Center seeks an order from this court compelling the New Jersey Schools Development Authority (SDA) to adopt by a date certain regulations governing the delegation of school facilities projects to eligible SDA school districts*fn1 as required by L. 2007, c. 137, § 24, codified at N.J.S.A. 18A:7G-13(e)(2) (Section 24). Section 24 required the SDA to adopt the regulations by August 6, 2008. As SDA has provided no justification for further delay, we grant the requested relief. Although plaintiff sought a similar order compelling action by the Department of Education (DOE), which was also required to adopt regulations, N.J.S.A. 18A:7g-13(e)(1), plaintiff's request was, the parties concede, rendered moot by DOE's adoption of regulations on April 4, 2011. 43 N.J.R. 830(a) (April 4, 2011); N.J.A.C. 6A:26-19.

I.

This action has its roots in the State's efforts to remedy inadequacies in educational facilities in poor school districts. The Educational Facilities Financing and Construction Act (EFCFA), enacted in 2000, L. 2000, c. 72, provided for the financing and construction of school facilities. N.J.S.A. 18A:7G-1 to -48. The EFCFA was responsive to the Supreme Court's decision in Abbott v. Burke, 153 N.J. 480, 519-25 (1998) directing the State to implement a school construction program in thirty-one Abbott school districts. See also Abbott v. Burke, 164 N.J. 84 (2000) (affirming State responsibility to fund facilities remediation and construction in Abbott districts).

In the wake of criticism of the management of the school construction program under the EFCFA, then-Governor Jon Corzine established an Interagency Working Group on School Construction (Working Group) to develop recommendations for reform. Exec. Order No. 3, 38 N.J.R. 1263(b) (Feb. 7, 2006). The Working Group issued three extensive reports proposing comprehensive changes in the school construction program. See Report to the Governor by the Interagency Working Group for School Construction, (March 15, 2006); Second Report to the Governor by the Interagency Working Group for School Construction, (May 17, 2006); Third Report to the Governor by the Interagency Working Group for School Construction, (Sept. 14, 2006) at http://www.njsda.gov/RP/Interagency_Working_Group.html (last visited March 26, 2012). Among the Working Group's numerous recommendations was the proposal to delegate management of school construction projects to capable local school districts:

EFCFA should also be amended to allow qualified school districts to assume full responsibility for the design and construction of school facility projects. Concomitantly, the legislation should provide for the development and adoption of criteria to evaluate a district's capability to manage all or part of a project involving a major rehabilitation or the construction of a new school. Moreover, the legislation should encompass a new initiative to assist districts, as needed, to enhance their capacity to manage such projects. [Third Report to the Governor by the Interagency Working Group for School Construction (Sept. 14, 2006), 14, at http://www.njsda.gov/RP/Interagency_Working_ Group.html (last visited March 26, 2012).]

The Working Group was convinced that delegating management authority to capable local districts would increase efficiencies and promote successful completion of school construction projects. Id. at 5, 13-14.

In response to the Working Group's recommendations, the Legislature passed comprehensive legislation that the Governor then signed into law on August 6, 2007 as L. 2007, c. 137 (Act). See N.J.S.A. 52:18A-235(g), (h) (recognizing recommendations of Working Group and stating intent to adopt them). Along with creating a new State agency to manage the school construction program and adopting numerous other changes in the EFCFA, the 2007 law authorized SDA to delegate capital maintenance projects to an SDA district and, subject to regulations, authorize the management of other projects. N.J.S.A. 18A:7G-13(a). "The development authority may also authorize [an SDA] district to undertake the design, acquisition, construction and all other appropriate actions necessary to complete any other school facilities project in accordance with the procedures established pursuant to subsection e of this section." Ibid.

Consistent with that power to delegate, the statute required both the DOE and SDA to adopt regulations pursuant to which DOE would determine whether a district was "eligible" to manage, and SDA would determine whether a district had the "capacity" to manage a school construction project:

(1) Within one year of the effective date of P.L.2007, c.137 (C.52:18A-235 et al.), the commissioner, in consultation with the development authority, shall adopt pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), rules and regulations by which the commissioner shall determine whether an SDA district is eligible to be considered by the development authority to manage a school facilities project or projects. In making the determination, the commissioner shall consider the district's fiscal integrity and operations, the district's performance in each of the five key components of school district effectiveness under the New Jersey Quality Single Accountability Continuum (NJQSAC) in accordance with section 10 of P.L.1975, c.212 (C.18A:7A-10), and other relevant factors.

(2) Within one year of the effective date of P.L.2007, c.137 (C.52:18A-235 et al.), the development authority, in consultation with the commissioner, shall adopt pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), rules and regulations by which the development authority shall determine the capacity of an SDA district, deemed eligible by the commissioner pursuant to paragraph (1) of this subsection, to manage a school facilities project or projects identified by the development authority. In making the determination, the development authority shall consider the experience of the SDA district, the size, complexity, and cost of the project, time constraints, and other relevant factors. [N.J.S.A. 18A:7G-13(e).]

As the Act, approved August 6, 2007, became effective immediately, L. 2007, c. 137, § 62, the deadline for promulgating the required regulations was August 6, 2008. However, the Administration failed to propose or promulgate regulations pursuant to the law adopted to implement its own Working Group's recommendations.

Shortly after the new Administration took office, plaintiff's executive director David G. Sciarra, alerted the Governor's Office and the Attorney General by letters on January 28, and February 23, 2010 of the past delay in adopting regulations and plaintiff's interest in ensuring that SDA and DOE comply with the statutory mandate. On April 15, 2010, Assistant Attorney General Nancy Kaplen responded to the February 23, 2010 letter to the Attorney General, stating the Attorney General had asked the Division of Law to work with DOE and SDA "so that appropriate regulations can be proposed as expeditiously as possible." Plaintiff replied on April 23, 2010 requesting a timeframe for the promulgation of the rules. On May 5, 2010, the Attorney General's office declined to offer a "definitive schedule" for the adoption of the regulations in view of other competing priorities.

On July 1, 2010 plaintiff filed the instant appeal and a motion for summary disposition, seeking an order compelling DOE and SDA to adopt regulations. We denied the motion for summary disposition on September 22, 2010. We then granted two motions by SDA and DOE to stay the appellate proceedings. By order entered November 16, 2010, we stayed the appeal to February 15, 2011, and by order entered April 25, 2011, we stayed the appeal until July 18, 2011, and provided that no further extensions would be granted.

While the appeal was pending, SDA took substantial steps toward adopting regulations but none have yet been promulgated. SDA initially published proposed new rules on October 18, 2010.

42 N.J.R. 2380. The rule proposal included seven subchapters. The first subchapter, consisting of seven sections, covered the purposes and applicability of the rules, defined terms, addressed a district's responsibilities under a grant agreement with SDA, described events of default and non-compliance, described remedies for events of default and non-compliance, and provided for termination of grant agreements. Proposed N.J.A.C. 19:34B-1.1 to -1.8. Noncompliance and events of default included: a district's failure to perform under the contract, a determination that the grant was obtained fraudulently, a failure to commence or complete the project in a reasonable time, and the district's use of funds for purposes not approved by SDA. Proposed N.J.A.C. 19:34B-1.4. SDA's remedies in the event of noncompliance or default included withholding grant disbursements, suspending the grant agreement, and terminating the agreement. Proposed N.J.A.C. 19:34B-1.5. The grant agreement could also be terminated upon the mutual agreement of the parties or if SDA determined termination served the project's best interests. Proposed N.J.A.C. 19:34B-1.6, 1.7.

Proposed subchapter 2 required an interested district to request a determination that the district possessed the capacity to manage a school facilities project. Proposed N.J.A.C. 19:34B-2.2. A district was required to include in its application information about the qualifications of the district's key personnel; the district's experience managing improvement projects and routine maintenance; a description of the routine maintenance required at the school and district level; and the experience of the district in managing and planning procurement, contract management, and budgeting over the past five years. Ibid.

The regulations also described the factors the SDA would consider in assessing the district's capacity to manage a school facilities project. Proposed N.J.A.C. 19:34B-2.3. The factors outlined included the district's capacity to administer fundamental district responsibilities regarding capital facilities; the qualification of key district personnel; the district's performance of routine maintenance; and the district's rating on the DOE's Quality Single Accountability Continuum District Performance Review for Facilities Operations. Ibid. The proposed rules also provided for training if the district were not deemed able to manage the delegable project. Proposed N.J.A.C. 19:34B-2.4(d)(3). Training programs would be available in at least the following areas: financial, accounting, and budgeting; planning; procurement and/or prequalification; evaluation of architectural plans; construction management; documentation of best practices; and governance and compliance. Ibid.

If found to have the capacity to manage, then a district would be authorized to apply for actual delegation of delegable portions of a project, subject to satisfaction of additional requirements set forth in the rules. Proposed N.J.A.C. 19:34B-2.4. The rules established a right to request reconsideration and appeal from a negative decision regarding capacity, or a denial of delegation. Proposed N.J.A.C. 19:34B-2.5.

Subchapter 3 included provisions on the execution of grant agreements. Proposed N.J.A.C. 19:34B-3.1 to -3.4. Subchapter 4 governed assignment of contracts. Proposed N.J.A.C. 19:34B-4.1 to -4.2. Subchapter 5 addressed disbursements and adjustments of the grant. Proposed N.J.A.C. 19:34B-5.1 to 5.4. Subchapter 6 covered procurement and award of contracts by districts. Proposed N.J.A.C. 19:34B-6.1 to -6.6. Lastly, subchapter 7 addressed district management of the delegated portion of a school facilities project. Proposed N.J.A.C. 19:34B-7.1 to -7.5. The public comment period on SDA's initial rule proposal closed December 17, 2010.

DOE's regulations, which were much less extensive than SDA's proposed regulations, were adopted April 4, 2011. 43 N.J.R. 830(a) (April 4, 2011). The DOE rules describe the required components of a district's application to be considered eligible to manage its own facilities projects and the benchmark indicators on the District Performance Review that must be met for a district to be eligible for consideration. N.J.A.C. 6A:26-19.3. The DOE rules also require the commissioner to notify school districts of the results of DOE's eligibility determination, allow a district to request a review of a negative eligibility finding once the district meets the benchmark indicators, and allows the commissioner to rescind a district's eligibility if the district no longer meets the requirements. N.J.A.C. 6A:26-19.4.

In support of its March 2011 motion to further stay the appeal, the deputy attorney general then handling the case certified, "The Schools Development Authority anticipates that its regulations pursuant to N.J.S.A. 18A:7G-13(e) will be published for adoption in the New Jersey Register dated July 18, 2011." However, that did not occur. Instead, SDA determined that comments to its initial proposed rule-making warranted significant changes in its proposed rules, which required re-notice and re-publication. Consequently, on September 6, 2011, SDA published "proposed substantial changes upon adoption to proposed new rules section 13.e delegation of school facilities projects." 43 N.J.R. 2288(a). In its re-publication, SDA proposed changes - some minor and some significant - to seven proposed sections of its proposed rules. See Re-proposed N.J.A.C. 19:34B-1.5, 2.3, 2.4, 2.5, 3.3, 3.4, 6.5 and 6.6.

With regard to non-compliance or events of default under a grant agreement, the re-proposed rules specified that a district that was required to take corrective action would have at least thirty days to do so. Re-proposed N.J.A.C. 19:34B-1.5(a)(1).

The new proposal also inserted deadlines and time periods governing SDA's provision of notices to districts, including notices to terminate a grant agreement. Re-proposed N.J.A.C. 19:34B-1.5(a)(2). The provision on requests for reconsideration and appeal was amplified to provide for informal hearings, and formal hearings before the Office of Administrative Law. Re-proposed N.J.A.C. 19:34B-2.5.

The re-proposed rules also addressed commenters' concerns that SDA's review and pre-approval of certain contractors might prevent a district from acting within sixty days of receipt of bids as required by public bidding law. Re-proposed N.J.A.C. 19:34B-3.3; see N.J.S.A. 18A:18A-36. The new rules "clarif[ied] the nature of the approvals required, and [] reflect the possibility that the district will be required to request an extension of the 60-day period for contract award. . . ." 43 N.J.R. 2290.

The proposed changes also clarified the respective responsibilities of SDA and a district pertaining to retention of site remediation professionals. In summary, the re-proposed rulemaking clarified:

[D]espite the Authority's engagement of a Licensed Site Remediation Professional to monitor the performance of remediation activities during the construction process, the school district, as owner of the remediated property, continues to bear responsibility for engagement of an environmental consultant . . . to perform or supervise any long-term environmental obligations, such as groundwater testing or monitoring, required to comply with environmental laws and standards.

[43 N.J.R. 2290.]

Written comments to the re-proposed regulations were due by November 5, 2011. 43 N.J.R. 2288(a). As of our writing, SDA has not published any further action.

Plaintiff filed its initial brief on September 30, 2010 and presented the following points on appeal:

THE DOE AND SDA ARE IN VIOLATION OF N.J.S.A. 18A:7G-13(e) AND SHOULD BE ORDERED SUMMARILY TO COMPLY WITH THE STATUTE'S CLEAR MANDATE

1. This Court Has Exclusive Jurisdiction To Review the DOE's and SDA's Inaction.

2. ELC Has Standing To Challenge The Inaction of the DOE and SDA.

3. The DOE and SDA Have Violated the Clear, Legislatively-Defined Deadlines in N.J.S.A. 18A:17G-13(e) to Adopt Rules and Regulations.

SDA filed its opposition brief on July 18, 2011. Plaintiff's reply brief was filed on July 29, 2011. Thus, the parties' briefing predates publication of SDA's re-proposed rules on September 6, 2011.

II.

We have exclusive jurisdiction to review a state administrative agency's inaction. See In re Mar. 22, 2002 Motion to Dismiss and Intervene in the Petition of Howell Twp., 371 N.J. Super. 167, 187 (App. Div.), certif. denied, 182 N.J. 140-41 (2004) ("Howell Twp."); In re Failure by the Dep't of Banking and Ins. to Transmit a Proposed Dental Fee Schedule, 336 N.J. Super. 253, 261 (App. Div.), certif. denied, 168 N.J. 292 (2001); ("In re Failure"); Hosp. Ctr. at Orange v. Guhl, 331 N.J. Super. 322, 329 (App. Div. 2000); The Equitable Life Mortg. and Realty Investors v. N.J. Div. of Taxation, 151 N.J. Super. 232, 238 (App. Div. 1977) ("Equitable Life"); R. 2:2-3(a)(2) (The Appellate Division has jurisdiction to "review final decisions or actions of any state administrative agency or officer. . . .").*fn2 The principle applies both to adjudicative inaction, see, e.g., Hospital Center at Orange, supra, (appeal to compel agency to decide hospitals' appeals from administrative rate determinations), and rule-making inaction, see, e.g., In re Failure, supra, (appeal to compel agency to revise dental fee schedule embodied in regulation), and Equitable Life, supra, 151 N.J. Super. at 238 (review of agency rulemaking exclusively rests with appellate court).

We recognize that an appeal to compel state agency action may be brought in the Law Division, "but only if the inaction complained of is the nonperformance of mandated ministerial obligations." Equitable Life, supra, 151 N.J. Super. at 238. See also Hosp. Ctr. at Orange, supra, 331 N.J. Super. at 329 n.2 ("There is some authority for the view that the Law Division has jurisdiction to entertain an action to compel a state agency to perform a ministerial duty.") (citing Pfleger v. State Highway Dep't, 104 N.J. Super. 289 (App. Div. 1968) and Colon v. Tedesco, 125 N.J. Super. 446 (Law Div. 1973)). However, the mandated obligation here - to devise rules - involves the exercise of significant discretion. See Equitable Life, supra, 151 N.J. Super. at 238 ("Agency rulemaking is not a ministerial function but rather a highly discretionary undertaking.").

Although we have jurisdiction to consider an appeal from agency inaction, we exercise our power to compel agency action sparingly, mindful of the general deferential standard of review of agency action, and the separation of powers. "We can overturn only those administrative determinations that are arbitrary, capricious, unreasonable, or violative of expressed or implicit legislative policies." In re Failure, supra, 336 N.J. Super. at 263. We generally defer to an agency's interpretation of its own statute. Id. at 265. We are ill- equipped to micromanage an agency's activities. Sod Farm Assocs. v. Twp. of Springfield, 366 N.J. Super. 116, 130 n.10 (App. Div. 2004); In re Failure, supra, 336 N.J. Super. at 262. Thus, we allow an agency wide discretion to decide "how best to approach legislatively assigned administrative tasks." Ibid. In so doing, we avoid intruding upon the separate powers of the Executive Branch. U.S. Trust Co. of New York v. State, 69 N.J. 253, 259 (1976) (denying mandamus to compel Port Authority of New York and New Jersey to adopt mass transit plan in part because it would intrude upon the powers of the Governors and Legislatures to control the Authority's policy-making), rev'd on other grounds, 431 U.S. 1, 97 S. Ct. 1505, 52 L. Ed. 2d 92 (1977); In re Failure, supra, 336 N.J. Super. at 261-62 (noting separation of powers concerns).

SDA argues that we should decline to grant plaintiff relief because: (1) the matter is moot, since it has commenced the rulemaking process and (2) it has not arbitrarily failed to enact regulations. We are unpersuaded.

First, the matter is not moot so long as regulations are not promulgated. "An issue is 'moot' when the decision sought in a matter, when rendered, can have no practical effect on the existing controversy." Greenfield v. N.J. Dep't of Corrs., 382 N.J. Super. 254, 257-58 (App. Div. 2006) (citation omitted).

"Consequently, if a party 'still suffers from the adverse consequences . . . caused by [a] proceeding,' an appeal from an order in that proceeding is not moot." N.J. Div. of Youth & Family Servs. v. A.P., 408 N.J. Super. 252, 261-62 (App. Div. 2009) (citation omitted), certif. denied, 201 N.J. 153 (2010). Until SDA actually adopts regulations, the legislative mandate for rule adoption has not been satisfied. Moreover, we presume the failure to finally promulgate rules has prevented the actual delegation of management authority to SDA districts - a policy adopted in the 2007 statute, in which plaintiff has an obvious interest.

Second, we conclude that the agency's significant efforts in proposing and re-proposing rules do not excuse the most recent unexplained delay in complying with the statutory mandate. In its July 2011 brief, SDA argued that delays in adoption were a consequence of the mandates of the Administration Procedures Act (APA), N.J.S.A. 52:14B-1 to -4.10. We do not question the agency's determination that its changes to its initial proposal required a second round of comments. See In re Provision of Basic Generation Servs. for Period Beginning June 1, 2008, 205 N.J. 339, 358 (2011); N.J.S.A. 52:14B-4.10; N.J.A.C. 1:30-6.3. However, SDA represented that final adoption would soon follow the end of that comment period.

"After the sixty (60) day public comment period, it is anticipated that a Notice of Adoption will be submitted for publication in the New Jersey Register." Yet, the comment period ended in November of last year, and no adoption notice has been published.

We have been presented with no justification for this additional delay. Nor is one apparent. We have not been provided with the comments that may have been submitted in response to the September 2011 re-proposal. Therefore, we shall not speculate whether those comments raised new and knotty issues that justify new and time-consuming deliberations. However, we have reviewed the substance of SDA's regulations, the issues the revisions addressed, and conclude that the scope of the changes in the re-proposed rules, although significant, were limited. Based on the record before us, including the agency's published proposals, there is no apparent basis for continued delay.

Where an agency violates the express policy of its enabling act, as SDA has done here by violating the clear deadline for promulgating a rule, an agency action may be deemed to have acted arbitrarily and capriciously. Pub. Serv. Elec. & Gas Co. v. N.J. Dep't of Envtl. Prot., 101 N.J. 95, 103 (1985) (in determining whether action is arbitrary and capricious, a court may consider "whether the agency action violates the enabling act's express or implied legislative policies"); In re Failure, supra, 336 N.J. Super. at 263. When an agency action, or in this case, inaction, is unsupported by substantial credible evidence in the record, or is accompanied by no reasonable explanation - as is the case here - then we may likewise conclude it is arbitrary, capricious, and unreasonable. Pub. Serv. Elec. & Gas Co., supra, 101 N.J. at 103 (arbitrary and capricious determination may also look to whether substantial evidence in the record supports the agency's findings upon which it based its action); Gilliland v. Bd. of Review, 298 N.J. Super. 349, 354-55 (App. Div. 1997) (deeming agency action arbitrary and capricious where no explanation is provided to support it). Consequently, our intervention is justified.

Our decision in In re Failure, supra, does not compel a different result. The plaintiff in that case sought relief in the nature of mandamus to compel the Department of Banking and Insurance to issue revised fee schedules to reflect inflation, consistent with a statutory provision requiring such revisions every two years. However, the agency's obligation to issue rulemaking was not nearly as clear as SDA's in this case. We recognized that the starting point for the two-year period in In re Failure was debatable. 336 N.J. Super. at 264-65. Moreover, intervening statutory amendments authorized the Department to contract out development of fee schedules. Id. at 265. The Department also determined, in what we viewed as a valid exercise of its discretion, to change the underlying basis for its fee schedule, which necessitated significantly more work than simply inflation-adjusting a previous schedule. Ibid. Recognizing that the agency was in the midst of revising the schedule, we concluded, "requiring that the Department complete the task or even directing completion by a specific time has the potential of interfering with the orderly workings of the Department." Id. at 262-63.

No such extenuating circumstances justify SDA's continuing delay in this case. The deadline for action indisputably was August 7, 2008. No intervening legislation has complicated SDA's rulemaking process. Moreover, SDA has not advised us of any fundamental policy deliberations that have impeded the completion of its rulemaking. Rather, we have the representations of the agency's attorneys in July 2011 that adoption was imminent.

Having concluded that it is appropriate to compel SDA to complete its rulemaking task by a date certain, we must consider what deadline to impose. Plaintiff asked us to require adoption of final rules within thirty days of the close of the most recent comment period, which would have been December 5, 2011. SDA has had almost five months to consider comments submitted in response to its publication of re-proposed rules.

If SDA fails to submit a notice of adoption of its rule proposal by April 18, 2012, its rule proposal will expire, as eighteen months will have elapsed since the publication of its original rule proposal on October 18, 2010. See N.J.S.A. 52:14B-4.10(e) (stating that a rule proposal, followed by a notice of substantial changes, shall expire eighteen months after the date of publication of the notice of proposal). If the rule proposal expires, then SDA will need to re-commence the rule-making process. However, we shall not dictate to SDA whether to adopt its current proposal, or to begin anew with a different rule. That involves a policy judgment for the agency. See Howell Twp., supra, 371 N.J. Super. at 188 (stating the court shall not "compel a specific form of agency action" but may order "a remedy for arbitrary inaction").

Therefore, SDA shall submit a notice of adoption of its current rule proposal by the April 18, 2012 deadline, or it shall publish a new rule proposal within thirty days of the filing date of this opinion, and submit a notice of adoption with respect to that new proposal within thirty days after the close of the new comment period.


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