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MEPT Journal Square Urban Renewal, LLC v. The City of Jersey City

Superior Court of New Jersey, Appellate Division

August 9, 2018

MEPT JOURNAL SQUARE URBAN RENEWAL, LLC, MEPT JOURNAL SQUARE TOWER NORTH URBAN RENEWAL, LLC, and MEPT JOURNAL SQUARE TOWER SOUTH URBAN RENEWAL, LLC, Plaintiffs-Respondents,
v.
THE CITY OF JERSEY CITY, Defendant-Appellant.

          Argued January 17, 2018

          On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-3177-15.

          Vijayant Pawar argued the cause for appellant (Pawar Gilgallon & Rudy, LLC, attorneys; Vijayant Pawar, on the brief).

          Lawrence Bluestone argued the cause for respondents (Genova Burns, LLC, attorneys; Jennifer Borek, of counsel and on the brief; Michael C. McQueeny, on the brief).

          Adam M. Gordon argued the cause for amicus curiae Fair Share Housing Center (Fair Share Housing Center, attorneys; Kevin D. Walsh and Adam M. Gordon, on the brief).

          Before Judges Fuentes, Manahan and Suter.

          OPINION

          FUENTES, P.J.A.D.

         In this appeal, this court must determine whether a municipality may condition the grant of tax abatements pursuant to the Long Term Tax Exemption Law (LTTEL), N.J.S.A. 4 0A:20-1 to -22, upon three urban renewal entities[1] making a prepayment of two million dollars, characterized as "a portion" of the Annual Service Charge the entities would pay in lieu of property taxes after the project was completed. The three urban renewal entities and the municipality agreed to this arrangement in Prepayment Agreements that were subsequently approved by the municipality's governing body in a resolution and expressly made part of the ordinance approving the tax abatements. These Prepayment Agreements predated the Financial Agreements that otherwise memorialized the terms of the tax abatements granted by the municipality.

         We are also asked to determine the validity of a provision in the Financial Agreements that required the three urban renewal entities to pay a combined $710, 769 initial contribution to the municipality's Affordable Housing Trust Fund (AHTF). However, unlike the two-million dollar prepayment required under the combined three Prepayment Agreements, the AHTF was part of the Financial Agreements and was based on a $1500 per unit basis for the two residential redevelopment projects that would construct a total of 1615 residential units, and a $1.50 per square foot basis for the commercial project, based on a gross, not leasable, square footage of 280, 385. Furthermore, the total AHTF contribution made by each entity was subject to "contingencies" that were clearly described in the Financial Agreements and included a percentage payment schedule based on the completion of each individual project.

         These issues arise in the context of a verified complaint filed in the Law Division by MEPT Journal Square Urban Renewal, LLC, MEPT Journal Square Tower North Urban Renewal, LLC, and MEPT Journal Square Tower South Urban Renewal, LLC (collectively "plaintiffs"), against the City of Jersey City (City), after these urban renewal entities decided not go forward with these redevelopment projects. Plaintiffs sought declaratory relief in the form of a judicial determination that the prepayment arrangement crafted by the parties in the Prepayment Agreements were ultra vires and void ab initio because they lacked statutory support under the LTTEL. Plaintiffs also sought injunctive relief in the form of a judgment from the Law Division compelling the City to refund the initial contributions made to the AHTF and a refund of the two million dollar prepayment. The project was never built.

         After joinder of issue, the Law Division granted plaintiffs' unopposed motion to proceed summarily, established an expedited briefing schedule, and set the matter down for oral argument and, if necessary, "limited testimony." On February 5, 2016, the trial court heard oral argument from counsel and reserved decision. In a letter-opinion dated August 16, 2016, the trial judge found the Prepayment Agreements to be "a run-around that essentially nullifies the requirement of the LTTEL, and . . . the financial agreement, that annual service charges shall not be due until substantial completion of the urban renewal project." The court declared the "prepayment agreements were void from their inception."

         With respect to the contributions plaintiffs made to the City's AHTF, the trial court concluded the Fair Housing Act (FHA), N.J.S.A. 52:27D-301 to -329, did not provide the City with the legal authority to condition the grant of tax abatements upon a redeveloper contributing to its AHTF. Relying on the Supreme Court's analysis in Holmdel Builders Ass'n v. Holmdel, 121 N.J. 550 (1990), the court concluded that the "fairness and reasonableness of imposing an AHTF contribution fund payment on [p]laintiffs evaporated when the [p]laintiffs no longer possessed, enjoyed, or consumed the land." The trial judge thus ordered the City to refund the AHTF contributions plaintiffs made in 2 009 as a condition of obtaining the tax abatements pursuant to the LTTEL.

         In a Final Order of Judgment dated October 4, 2016, the court granted judgment to plaintiffs and against the City in the amount of $2, 710, 769, based on the $2, 000, 000 prepayment and the $710, 769 AHTF contribution. On November 9, 2016, the City filed a motion for reconsideration pursuant to Rule 4:49-2. Among the arguments raised therein, the City, for the first time, claimed the trial court erred in proceeding in a summary fashion and requested "the opportunity to exchange discovery." In an order dated January 12, 2017, the trial court denied the City's motion for reconsideration as both untimely and substantively without merit.

         The City now appeals arguing the trial court erred when it interpreted the LTTEL to prohibit the prepayment plaintiffs made as a condition of obtaining the tax abatement. The City claims the Prepayment Agreements and the Financial Agreements requiring plaintiffs to contribute to the AHTF were valid, enforceable provisions negotiated by the parties under traditional principles of contract law. The City also argues the court erred when it failed to consider the arguments in its motion for reconsideration and in denying the City's request for discovery. For the first time on appeal, the City argues that plaintiffs' complaint should have been dismissed as untimely under Rule 4:69-6(a). Finally, the City argues the court misconstrued the 2008 amendments to the FHA when it granted plaintiffs' application to refund the AHTF contribution.

         As a threshold issue, plaintiffs argue the trial court correctly proceeded in a summary fashion because the issues raised in this case strictly involve matters of law. Plaintiffs further argue the trial court correctly concluded that the City did not have any authority under the LTTEL to condition the grant of a tax abatement upon the prepayment of Annual Service Charges. Thus, the court correctly declared the Prepayment Agreements were void ab initio. Plaintiffs also argue the court properly exercised its discretionary authority when it denied the City's motion for reconsideration. Plaintiffs also claim the City is procedurally barred from arguing, for the first time in its motion for reconsideration, that this cause of action is untimely under Rule 4:69-6(a). Plaintiffs argue that the rules that govern actions in lieu of prerogative writs do not apply to a complaint brought pursuant to the Declaratory Judgment Act, N.J.S.A. 2A:16-50 to -62, to determine the validity of a contract.

         On August 29, 2017, after both sides had submitted their briefs in this appeal, this court entered a sua sponte order inviting the Fair Share Housing Center (Fair Share) to participate in this appeal in an amicus curiae capacity, limited to the question of whether the City has an obligation to return to plaintiffs the $710, 769 AHTF contribution.[2] Fair Share accepted this court's request, submitted a brief limited to this issue, and participated at oral argument. Fair Share urges this court to reverse the trial court's decision ordering the City to return the AHTF contributions received by plaintiffs as a condition of a tax abatement pursuant to the LTTEL. Fair Share argues the trial court erred in relying on the FHA and the Court's decision in Holmdel to evaluate the lawfulness of the AHTF contributions.

         According to Fair Share, the Legislature decisively distinguished LTTEL trust fund contributions under N.J.S.A. 40A:12A-4.1, from a municipality's right to impose and collect development fees under N.J.S.A. 52:27D-329.2 of the FHA. Although both the parties and the trial court acknowledged the City's authority under LTTEL to impose AHTF contributions by ordinance and as a provision in the Financial Agreements, they incorrectly conflated the inapplicable FHA requirements to invalidate the AHTF contributions under LTTEL. Stated differently, plaintiffs' $710, 769 contribution to the City's AHTF as a condition of the tax abatement is expressly sanctioned by the Legislature under the LTTEL, N.J.S.A. 40A:12A-4.2.

         After considering the arguments of the parties, we affirm the trial court's decision finding no statutory support under the LTTEL for the City to condition the grant of tax abatements to plaintiffs upon the prepayment of two million dollars, characterized as a credit against the Annual Service Charge the entities would pay after the project was completed. These Prepayment Agreements are ultra vires under the LTTEL, and unenforceable as a matter of public policy.

         We reach a different conclusion with respect to the City's decision to condition the grant of these tax abatements upon plaintiffs contributing to the municipality's AHTF. We agree with the legal arguments advanced by amicus Fair Share that these contributions are expressly authorized by the Legislature under the LTTEL in N.J.S.A. 4 0A:12A-4.2, and are independent from and unrelated to the FHA. We thus reverse the order of the trial court requiring the City to refund the $710, 769 contribution plaintiffs made to the City's AHTF as a condition for receiving the tax abatements. The provisions in the Financial Agreements requiring the payment of these AHTF contributions and the municipal ordinance subsequently adopted by the City Council confirming these AHTF contributions as a material condition of the tax abatements are statutorily supported in the LTTEL.

         We recite the following facts from the record presented to the Law Division.

         I

         A

         Financial Agreements

         On May 15, 2009, plaintiffs and the City entered into three separate Financial Agreements that contained the terms and conditions of the long term tax abatements granted to plaintiffs pursuant to the LTTEL. The City granted a tax abatement for three separate projects, which were authorized by the City Council through three separate ordinances.Each ordinance was supplemented by the Financial Agreements.

         Ordinance 08-165, recognized MEPT Journal Square Tower North Urban Renewal, LLC (Tower North), as the urban renewal entity "formed and qualified to do business" under the provisions of the LTTEL, and "the owner of Unit 2," one of three units described as the Tower North of Residential Rental Building, a property located within the boundaries of the Journal Square Redevelopment Plan. One of the Recitals of the Financial Agreement corresponding to Ordinance 08-165 disclosed that Tower North planned to construct approximately 922 residential rental units in a tower approximately sixty-eight stories tall.

         Ordinance 08-166 recognized MEPT Journal Square Tower South Urban Renewal, LLC (Tower South) as an urban renewal entity and "owner of Unit three," a property located within the boundaries of the Journal Square Redevelopment Plan. The Recitals of the Financial Agreement disclosed that Tower South planned to construct approximately 693 residential rental units in a tower approximately fifty stories tall.

         Ordinance 08-164 recognized MEPT Journal Square Urban Renewal, LLC (MEPT Journal Square) as an urban renewal entity and owner of the Commercial Unit, a property located within the boundaries of the Journal Square Redevelopment Plan. The Recitals of the Financial Agreement disclosed that the Commercial Unit would have an approximately 210, 000 square-foot area, consisting of 700 parking spaces, and 70, 585 square feet of retail space, for a total of 280, 385 gross square feet in a seven story building.

         The Financial Agreements provided that these three projects "shall be construed and enforced in accordance with the laws of the State of New Jersey . . . [and] in the event of a conflict between [the financial agreements] and the [LTTEL], the [LTTEL] shall govern . . . ." They were to "remain in effect for the earlier of 35 years from the date of the adoption of [their instituting ordinances] . . . or 30 years from the date of Substantial Completion of the Project."

         Article IV of the Financial Agreement for Tower North, titled "ANNUAL SERVICE CHARGE" described the payments plaintiffs agreed to pay "in consideration of the tax exemption."[3] Plaintiffs agreed to pay an annual service charge in "an amount equal to the greater of: the Minimum Annual Service Charge or an Annual Service Charge equal to ten percent [] of the Annual Gross Revenue." The "greater of the Annual Service Charge or Minimum Annual Service Charge . . . shall be due on the first day of the month following the Substantial Completion of the Project."

         The Financial Agreements defined "Annual Service Charge" as "the amount the Entity has agreed to pay the City for municipal services supplied to the Project, which sum is in lieu of any taxes . . . ." "Minimum Annual Service Charges" are "the taxes levied against the real property in the area covered by the Project in the last full tax year in which the area was subject to taxation, which [for Tower North] the parties agree is $173, 223." The minimum annual service charge for Tower South was $121, 256, and $51, 967 for the Commercial Unit. The minimum annual service charges plaintiffs agreed to pay totaled $346, 446.00. The minimum annual service charges served as the floor for the amount of the Annual Service Charge to be paid. Plaintiffs were also required to pay a County Annual Service Charge and an Administrative Fee.

         B

         AHTF Contributions

         All three Financial Agreements also contained the following provision in Article IV, Section 4.6, titled "Affordable Housing Contribution and Remedies":

A. Contribution. The Entity shall pay the City . . . as a contribution subject to the contingencies set forth below. The sum shall be due and payable as follows:
i. 25% on or before the execution of the exemption Financial Agreement, but not later than 60 days after the adoption of the ...

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