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Gourmet Dining, LLC v. Union Township

Superior Court of New Jersey, Appellate Division

May 31, 2019

GOURMET DINING, LLC, Plaintiff-Appellant,
v.
UNION TOWNSHIP and NEW JERSEY EDUCATIONAL FACILITIES AUTHORITY, Defendants-Respondents, and KEAN UNIVERSITY, Defendant-Appellant.

          Argued April 2, 2019

          On appeal from the Tax Court of New Jersey, Docket Nos. 16504-2013 and 12334-2014.

          Robert F. Giancaterino argued the cause for appellants (Skoloff & Wolfe, PC, attorneys; David B. Wolfe, Barbara A. Schweiger and Rebecca L. Hutcheon, on the briefs).

          Robert F. Renaud argued the cause for respondent Union Township (Renaud DeAppolonio, LLC, attorneys; Robert F. Renaud and Adam J. Colicchio, on the brief).

          Jamie M. Zug, Deputy Attorney General, argued the cause for respondent New Jersey Educational Facilities Authority (Gurbir S. Grewal, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Jamie M. Zug, on the brief).

          Before Judges Yannotti, Rothstadt and Natali.

          OPINION

          YANNOTTI, P.J.A.D.

         Gourmet Dining, LLC, operates a restaurant in a building on the campus of Kean University (the University) in the Township of Union (the Township). The Tax Court held that the premises where Gourmet Dining operates the restaurant are subject to local property taxes. Gourmet Dining and the University appeal from the Tax Court's judgment affirming the assessments and the court's order denying their motion for reconsideration. For the reasons that follow, we reverse.

         I.

         In 2004, the University established a program to meet the State's need for qualified science and mathematics teachers and scientific researchers, and decided to construct a building on its campus to house the program. The University financed the construction of the building through the New Jersey Educational Facilities Authority (the Authority), an entity authorized to finance the construction of facilities by public institutions of higher education in this State. See N.J.S.A. 18A:72A-5(k). The University and the Authority entered into a Lease and Agreement, dated December 1, 2005 (the Financing Agreement).

         In the Financing Agreement, the Authority agreed to issue tax-exempt bonds and provide the proceeds from the sale of the bonds to the University for the construction of the building. To ensure repayment of the principal and interest on the bonds, the University agreed to convey title to the property to the Authority. In exchange, the Authority agreed to lease the property to the University for a period of thirty years, or until the bonds are fully paid, at which time the Authority would re-convey title to the University.

         The University constructed the building with funds provided by the Authority pursuant to the Financing Agreement. The building is known as the New Jersey Center for Science, Technology and Mathematics (NJCSTM). The NJCSTM was ready for use in September 2010. It included space for a full-scale restaurant, which is open to the public.

         In June 2010, the University's Board of Trustees (the Board) adopted a resolution, which authorized the Kean University Foundation, Inc. (the Foundation) to complete the restaurant project and engage an experienced manager to operate the restaurant. The Board's resolution stated that "a minimum of [ten] percent of the restaurant's gross revenues [shall] annually be allocated for scholarship purposes within the Foundation."

         In October 2011, the University and the Foundation entered into a Management Agreement, which granted the Foundation the "exclusive right to operate, manage and control" the restaurant for a ten-year period. The Management Agreement authorized the Foundation to subcontract its rights to a person or entity with extensive experience and expertise in the restaurant and catering business.

         That same month, the Foundation and Gourmet Dining entered into a Management Subcontract Agreement (MSA), which grants Gourmet Dining "the exclusive right to operate, manage and control" the restaurant facility in the NJCSTM for a ten-year period. The MSA designates Gourmet Dining as the "exclusive manager" of the restaurant, and states that it has responsibility for "all reasonable, necessary and advisable management and operational services[.]"

         Under the MSA, Gourmet Dining has sole responsibility for hiring employees and for all expenses related to the restaurant facility, including food costs, inventory expenses, salaries, maintenance, and normal janitorial services. In exchange for these responsibilities, Gourmet Dining agreed to pay the Foundation an annual management fee of $250, 000 for the first nine years of the Agreement, and $500, 000 for the tenth year. Gourmet Dining also agreed to pay the Foundation 12.5 percent of the gross revenues derived from the operation of the restaurant, which is called Ursino Steakhouse & Tavern (Ursino). The restaurant opened for business in October 2011.

         By letter dated August 27, 2012, the Township's Tax Assessor advised Gourmet Dining that the Township would be assessing Gourmet Dining local property taxes for the restaurant facility because it is operating the restaurant on property leased from the University and the subject property is not exempt from local property taxes. The Tax Assessor stated that Gourmet Dining would be required to pay property taxes on the "restaurant portion" of the building for 2011 and 2012.

         Gourmet Dining did not challenge the property tax assessments for 2011 or 2012, but later filed petitions of appeal with the Union County Board of Taxation (Tax Board) challenging the assessments for 2013 and 2014. The Tax Board dismissed the petitions, and Gourmet Dining filed timely complaints with the Tax Court, challenging the Tax Board's judgments.

         Thereafter, the Township filed a motion for summary judgment, arguing that Gourmet Dining was required to pay local property taxes on the portion of the NJCSTM where it operates the restaurant. Gourmet Dining filed a cross- motion for summary judgment and argued that it is exempt from local property taxes on various grounds. The University joined in the cross-motion. The Tax Court required that the University and the Authority be joined as necessary parties to the litigation.

         Thereafter, the Tax Court filed an order dated March 14, 2018, which granted the Township's motion and denied the cross-motion, for the reasons stated in a written opinion that is reported as Gourmet Dining, LLC v. Union Twp., 30 N.J. Tax 381 (Tax 2018). Gourmet Dining thereafter filed a motion for reconsideration of the ...


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