McMahon v. City of Newark

• Decision Date: 17 July 2008
• Docket Number: A-39 September Term 2007.
• Citation: 195 N.J. 526,951 A.2d 185
• Parties: Edward R. McMAHON, Court-Appointed Receiver for One Washington Park Urban Renewal Association and WGL Associates, Plaintiff-Appellant, v. CITY OF NEWARK, City of Newark Department of Finance, Office of Assessment and Evelyn E. Laccitiello, Tax Assessor, Defendants-Respondents.
• Court: New Jersey Supreme Court

951 A.2d 185

195 N.J. 526

Edward R. McMAHON, Court-Appointed Receiver for One Washington Park Urban Renewal Association and WGL Associates, Plaintiff-Appellant, v. CITY OF NEWARK, City of Newark Department of Finance, Office of Assessment and Evelyn E. Laccitiello, Tax Assessor, Defendants-Respondents.

A-39 September Term 2007.

Supreme Court of New Jersey.

Argued March 26, 2008.

Decided July 17, 2008.

Dennis J. Drasco, Roseland, argued the cause for appellant (Lum, Drasco & Positan, attorneys; Mr. Drasco and Kevin J. O'Connor, on the briefs).

John R. Lloyd, Allendale, argued the cause for respondents (Nowell Amoroso Klein Bierman, attorneys).

Justice RIVERA-SOTO delivered the opinion of the Court.

The primary question in this appeal requires that we harmonize disparate provisions of the now-repealed Urban Renewal Corporation and Association Law of 1961 (Fox-Lance Law),¹ formerly N.J.S.A. 40:55C-40 to -76, with the comprehensive statutory appeal and review procedures for real estate tax appeals.

Specifically, in this appeal the taxpayer and the municipality had agreed that, in order to encourage a significant urban renewal project, the taxpayer would be exempt from real estate taxes and would pay a defined annual service charge in lieu thereof. More to the point, the taxpayer and the municipality had agreed that any dispute between them would be heard either in the Superior Court or in arbitration. The municipality later asserted that the taxpayer had lost its exemption, and the municipality's tax assessor issued an added/omitted assessment for the property. Faced with that dispute, and instead of filing a tax appeal to the Tax Court within the time period allowed by law, N.J.S.A. 54:4-63.11, the taxpayer filed an action in the Superior Court seeking declaratory and injunctive relief. Although that lawsuit eventually was transferred to the Tax Court, the transfer occurred too late to invoke the Tax Court's appellate jurisdiction and, hence, the taxpayer was deemed bound by the added assessment.

Because the timely filing of a tax appeal is jurisdictional, an untimely tax appeal is not cognizable and the tardy taxpayer is bound by the assessment as issued. However, when, as here, a taxpayer and the municipality have agreed in a detailed, arm's-length writing that their disputes are to be resolved in a different forum, the forum selection agreement will take precedence and its terms must be honored.

I.

In March 1981, One Washington Urban Renewal Association (Entity), a New Jersey general partnership qualified as an urban renewal association under Section 3 of the Fox-Lance Law, N.J.S.A. 40:55C-44.1, and the City of Newark entered into a financial agreement, as defined and provided in Sections 20 through 25 of the Fox-Lance Law, N.J.S.A. 40:55C-59 to -64. That financial agreement concerned the construction of an urban renewal project consisting of a seventeen-story office building (Project).² In respect of the incentives allowed for the development of the Project, Paragraph 3 of the financial agreement provided that

[t]he Project to be constructed by the Entity shall be exempt from taxation[] on improvement(s) in accordance with the provisions of the [Fox-Lance Law] and in the manner provided by this [financial a]greement, for a period of not more than twenty (20) years from the date of execution of this [financial a]greement, or earlier at the end of fifteen (15) years of operation of said Project, and only so long as the Entity and its Project remain subject to the provisions of the [Fox-Lance Law] and complies with this [financial a]greement.

[(Emphasis supplied; internal quotation marks omitted).]

In Paragraph 4(a) of the financial agreement, the parties further agreed that, in lieu of its contractually exempted real estate tax obligations, "the Entity shall make payment to the City of an Annual Service Charge for municipal service supplied to said Project of a sum equal to 2% of the total Project cost[.]" They also covenanted that "in no event shall such payment together with the taxes on the land, in any year after the first occupancy of the Project[,] be less than the total taxes (agreed to be $70,402.22)[] assessed on all the real property in the area covered by the Project[.]" In addition, they contracted that "[t]he agreed minimum annual service charge shall [in] no wise be reduced through any tax appeal on land and/or building(s), during the period that this [financial a]greement shall be in force."

The parties also contemplated and addressed the resolution of disputes between them. In Paragraph 7 of the financial agreement, they agreed that

[i]n the event of a breach of the [financial a]greement by either of the parties hereto or a dispute arising between the parties in reference to the terms and provisions as set forth herein, either party may apply to the Superior Court of New Jersey by an appropriate proceeding, to settle and resolve said dispute in such fashion as will tend to accomplish the purposes of the [Fox-Lance Law]. In the event the Superior Court shall not entertain jurisdiction[,] then the parties shall submit the dispute to the American Arbitration Association in New York to be determined in accordance with its rules and regulations in such a fashion to accomplish the purposes of [the Fox-Lance Law].

The Entity and the City also envisioned a possible sale or other transfer of the Project. Thus, in Paragraph 16 of the financial agreement, they provided that, upon the sale of the Project, "the tax abatement granted hereunder shall terminate unless the City consents in writing to the sale, but such consent shall not be unreasonably withheld[.]" They agreed, however, that "a transfer of the property to a limited partnership to be formed, retaining the same general partners as the Entity shall not be deemed a re-financing, sale or other disposition for purposes of this paragraph [16]." (internal quotation marks omitted). In other words, the Entity and the City agreed that the sale or other disposition of the Project would trigger the termination of the contracted-for tax abatement unless (1) the City consented to that transfer or (2) the transfer was in form only, from the Entity's then-existence as a general partnership to a limited partnership comprised of the same members as the Entity.

After it was developed and operating, the Project encountered financial difficulties. As a result, in 1991, the Entity filed for reorganization pursuant to Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§ 1101 to 1174, a filing made in the United States Bankruptcy Court for the District of New Jersey. The plan of reorganization provided that a new lender would provide appropriate financing to make the Project viable and, as part of the financing package, the new lender required that ownership of the Project be transferred to a trust. By an order dated August 2, 1996 implementing the July 11, 1996 court-approved reorganization plan, the Bankruptcy Court provided that the Entity

may, at the request of the Lender, and subject to all liens and encumbrances, cause the [Project] to be conveyed to an Owner's Trust ... organized under the laws of State of Delaware and in which the Individual Majority Partner, the Individual Minority Partner and the Corporate Majority Partner shall have the same ownership interests as they each have in the [Entity] on the date hereof, it being the intention of this Court that such conveyance shall cause a transfer in form of ownership from the [Entity]'s current form, a New Jersey general partnership, to the ... Owner's Trust, without the written concurrence of any other party, including the Individual Majority Partner, the Individual Minority Partner, the Corporate Majority Partner, MBL [Life Assurance Corporation], [the Entity's Bankruptcy] Advisory Committee, the NEDC [Newark Economic Development Corporation]³ or any combination of the foregoing or other persons or entities.

[(Emphasis supplied).]

Significantly, although the City was not a party to that order, it was present, through counsel, at both the hearing at which that order was entered, as well as the closing where the title transfer was effected. Yet, it neither interposed an objection to the transfer of the Project from the Entity to the Trust nor warned that such transfer might jeopardize the Project's tax abatement.

After the Project was transferred to the Trust, the City issued several added/omitted assessments to the Trust relating to the fourth quarter of the then-current fiscal year; these were sent to the servicing bank for the Trust and represented a quarterly increase in the Project's real estate taxes of over one-half million dollars. According to a July 1, 1997 internal memorandum from the City's tax assessor to its corporation counsel, the tax assessor took the position that the Project had been transferred to the Trust and that because no "transfer of the tax abatement has been approved by the Newark Municipal Council, therefore, [the tax assessor was] placing [the Project] on the 1997 Added/Omitted Assessment List." The tax assessor's memorandum did not address, much less analyze, how or why that transfer had occurred.

The servicing bank for the Trust forwarded the added/omitted assessment bills to plaintiff, Edward R. McMahon, the court-appointed receiver for the Entity.⁴ After investigating the provenance of these real estate tax bills and receiving a copy of the City's July 1, 1997 memorandum, on December 24, 1997, plaintiff wrote to the executive director of the Newark Economic Development Corporation (NEDC), referenced their earlier conversations concerning these tax bills, and sought his assistance in resolving this matter. A few days later, plaintiff also forwarded to the NEDC executive director copies of selected pages of the transcript of proceedings before the Bankruptcy Court where the transfer of the Project from the Entity to the Trust was discussed. Pla...