City of Camden v. Victor Urban Renewal, LLC

• Decision Date: 29 March 2021
• Docket Number: CIVIL ACTION / CBLP ACTION DOCKET NO. CAM-L-4612-18
• Parties: CITY OF CAMDEN and the CITY OF CAMDEN REDEVELOPMENT AGENCY Plaintiffs, v. VICTOR URBAN RENEWAL, LLC; VICTOR ASSOCIATES, LP; VICTOR GP CORP.; DRANOFF PROPERTIES, INC.; CARL E. DRANOFF; and JOHN DOES 1-10 Defendants.
• Court: New Jersey Superior Court

CITY OF CAMDEN and the CITY OF CAMDEN REDEVELOPMENT AGENCYPlaintiffs, v. VICTOR URBAN RENEWAL, LLC; VICTOR ASSOCIATES, LP; VICTOR GP CORP.;DRANOFF PROPERTIES, INC.; CARL E. DRANOFF; and JOHN DOES 1-10Defendants.

CIVIL ACTION / CBLP ACTION DOCKET NO. CAM-L-4612-18

SUPERIOR COURT OF NEW JERSEY LAW DIVISION - CAMDEN COUNTY

March 29, 2021

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE COMMITTEE ON OPINIONS

OPINION

William M. Tambussi, Esquire, Mark P. Asselta, Esquire and Michael J. Watson, Esquire, Brown & Connery, LLP, Counsel for Plaintiffs

Aaron Krauss, Esquire, Thomas A. Leonard, Esquire and Philip G. Kircher, Esquire(Admitted Pro Hac Vice), Cozen O'Connor, Counsel for Defendants

STEVEN J. POLANSKY, P.J.Cv.

I.INTRODUCTION

Defendants move for summary judgment and Plaintiffs cross move for partial summary judgment pursuant to R. 4:46-2.This case involves three contracts.The first contract is a Payment in Lieu of Taxes Agreement ("PILOT") or ("Financial Agreement") between the City of Camden("City") and Victor Urban Renewal, LLC("Victor Urban Renewal") relating to the Victor Building.The second contract is a ground lease between Victor Urban Renewal and Victor Associates, L.P. ("Victor Associates").The third contract at issue is an Option Agreement ("Option") entered into between the Camden Redevelopment Authority ("CRA") and Dranoff Properties, Inc.("Dranoff Properties") granting an option to redevelop property known as Radio Lofts.

II.FACTUAL BACKGROUND

A.The PILOT Agreement and Ground Lease

Carl Dranoff("Dranoff") is a real estate developer who specializes in renovating older buildings for use as apartments, condominiums, and office space.In 1999Thomas Corcoran approached Dranoff about redeveloping the Victor Building.At that time, Corcoran was the Chief Executive Officer of Cooper's Ferry Development Association("Cooper's Ferry").Cooper's Ferry is a non-profit organization that was designated by CRA to oversee and coordinate the development of the Camden downtown waterfront area (including the Victor building) between 1999 and 2003.The CRA during the relevant period was, and still is, Camden's lead agency for redevelopment.Between 1999 and 2002 the CRA owned the Victor building (also known as the Nipper building).The Victor building had been abandoned and had not produced tax revenue for the City since 1990.

Dranoff asserts it faced challenges in securing financing for the Victor project due to poverty in the City and the uncertainty surrounding Camden's government.Dranoff, in his PILOT Application to the City, claimed that it would not be possible to redevelop the Victor building without a PILOT.Prior to entering into the PILOT agreement, Dranoff's attorney, David Lebor, Esquire, advised Dranoff that New Jersey's Long-Term Tax Exemption Law (the "LTTEL") required an "urban renewal entity" entering into a PILOT to pay any "excess profits" to the municipality.

On April 20, 2001, Lebor and his colleague Julian Rackow, Esquire wrote a memo ("the Memo") to Corcoran explaining how a financial agreement could be structured under the LTTEL that would make the Victor project financially viable.Rackow represented Dranoff and Victor Urban Renewal in connection with the Application and the proposed Financial Agreement.The memo authored by Lebor and Rackow explained that:

Concurrently, the LD [Limited Dividend] Entity would enter into a Lease Agreement with another Dranoff affiliate, which affiliate would be the developer and operator of the Project.The Lease Agreement would be a "net" Lease and provide for payments by the tenant-operator of the LD Entity of amounts not less than the payments pursuant to the Financial Agreement.Accordingly, the LD Entity's revenue would be limited to the rent payments under the lease.[DranoffEx. 1].

The Memo does not indicate the amount of expenses that would be allocated to Victor Urban Renewal, the percentage of expenses that would be allocated to Victor Urban Renewal, the total revenue projected for the Victor Project, the amount of expenses that were projected to be incurred for the Victor Project, or the total project costs projected for the Victor project under the "Ground Lease".The Memo did not attach a copy or draft of the Ground Lease nor did it reference Excess Net Profits.Norton Bonaparte, former City Administrator, does not recall receiving the Memo at any time prior to his deposition.Corcoran has no recollection of sending the Memo to Bonaparte.

Corcoran subsequently wrote to Dennis Kille, Esquire, City Attorney for Camden from 2000 to 2013, stating that Kille "need[s] to be comfortable with the legal structure proposed by Mr. Lebor[,]" and reminded Camden that "lenders will require proof that a tax agreement exists that corresponds to the number shown in the pro formas¹ for the project."[DranoffEx. 13].Corcoran testified that he did not have authority to bind the City at any time.Corcoran further testified that he does not recall being involved with City Council's approval of the project application.Dranoff testified that he did not know whether Cooper's Ferry had the legal authority to bind the City in connection with the Application or the Financial Agreement.Dranoff's attorneys did not believe Corcoran had the authority to bind the City in connection with the Application or the Financial Agreement.Camden City Council is the only entity that had the authority to approve Victor Urban Renewal's Application, and to bind the City to the terms of the Financial Agreement.Corcoran testified that he does not believe that he saw the numbers referenced in Exhibit D.²

On June 20, 2001 the CRA unanimously approved a "Resolution Authorizing the Execution of a Redevelopment Agreement with Dranoff Properties, Inc." for the Victor Building (the "CRA Victor Resolution").[DranoffEx. 2].The CRA Victor Resolution acknowledges that the limited dividend entity "intends to ground lease the Property to a New Jersey limited partnership ... [that] will develop the Property in the manner contemplated hereby."Id.On August 6, 2001, Dranoff sent an application to Camden ("Application") for a tax exemption under the LTTEL for the Victor project.[DranoffEx. 3].The Application explained that Victor Urban Renewal would enter into a ground lease of the property with Victor Associates(the "Ground Lease")"to construct the improvements of the Property."[DranoffEx. 3 at CITY 001682, ¶ 1(c)].The Application stated that "[w]ithout a tax exemption the Project will not provide sufficient income to make it economically viable which will prevent [Victor Urban Renewal] from proceeding to develop the Project."[DranoffEx. 3 at CITY001685, ¶ 1(k)].

The Application also stated:

As outlined above [Victor Urban Renewal] is entering into a Ground Lease with [Victor Associates] for the Project.Therefore, the overwhelming majority of expenses, costs and income for the construction and operation of the Project will be borne and received by [Victor Associates].Attached as Exhibit "D" is [Victor Urban Renewal's] income under the Ground Lease and the allocation of project expenses to [Victor Urban Renewal] as landlord under the Ground Lease.[DranoffEx. 3 at CITY001685, ¶ 3].

Exhibit D to the Application does not include any percentage allocation of costs to Victor Urban Renewal in connection with the Victor Project.It further does not indicate the percentage of revenue and expenses that are to be allocated between Victor Urban Renewal, Victor Associates, or Victor G.P.. Dranoff has acknowledged that the numbers in Exhibit D of the Application are only projections and estimates.Defendants' expert Marin testified that Exhibit D does not contain a methodology for allocation of expenses between Victor Urban Renewal and Victor Associates, and it is not an agreement of how the expense allocation would be handled annually.

Dranoff asserts this information put the City on notice that Victor Associates would be bearing expenses for the project.The rent payment that Victor Urban Renewal received from Victor Associates was $1,333,333, which provided for a $200,000 PILOT payment.Under the version of the LTTEL that was in effect in 2001, the annual service charge for the PILOT that an urban renewal entity owed to a municipality was a maximum of 15 percent of the urban renewal entity's annual gross revenue.N.J.S.A. § 40A:20-12(b)(1)(1992).Fifteen percent of $1,333,333 is $199,999.95.

On August 7, 2001, Rackow sent the application to Kille noting that Dranoff is "requesting the Annual Service Charge be fixed at $200,000."[DranoffEx. 16].Camden's goal for entering into a PILOT agreement was to maximize the money Camden would receive from the PILOT.[Banks-Spearman Deposition Day 1, Pg. 5, Lns. 17-22].Dr. Edward Williams served as the City's Director of Planning and Urban Development when Victor Urban Renewal submitted its Application and when the City and Victor Urban Renewal executed the August 21, 2002 Financial Agreement.Edward Williams testified that Camden's PILOT committee would "review PILOTs to ensure that the City can get the most bang for its buck,""the best deal for the City in terms of revenue."[Dr. Williams Deposition, Pg.10 Lns. 17-25].Kille designated Assistant City AttorneyMichelle Banks-Spearman, Esquire to handle the Application and Financial Agreement for the Victor project.[Banks-Spearman Dep. Day one, Pg. 41, Lns. 19-22;KilleDep. Pg. 83 Ln. 19 - Pg. 84 Ln. 12].The Application does not include a draft of the referenced Ground Lease.Caryn Connelly was employed as the Controller of Dranoff Properties on August 6, 2001.Connelly testified that a reader of the Application would not know how the Applicant, Victor Urban Renewal, was proposing to allocate expenses other than what is in Exhibits D and E of the Application.

Victor Urban Renewal attached its Certificate of Formation as Exhibit G to the Application.That certificate states "The purpose for...