Gateway Apts. v. MAYOR & TP. COUN. OF NUTLEY TP.

• Decision Date: 28 March 1985
• Docket Number: Civ. A. No. 84-2830.
• Citation: 605 F. Supp. 1161
• Parties: GATEWAY APARTMENTS, INC., Plaintiff, v. The MAYOR AND TOWNSHIP COUNCIL OF the TOWNSHIP OF NUTLEY, Township of Nutley, and Rent Leveling Board of the Township of Nutley, Defendants.
• Court: U.S. District Court — District of New Jersey

605 F. Supp. 1161

GATEWAY APARTMENTS, INC., Plaintiff, v. The MAYOR AND TOWNSHIP COUNCIL OF the TOWNSHIP OF NUTLEY, Township of Nutley, and Rent Leveling Board of the Township of Nutley, Defendants.

Civ. A. No. 84-2830.

United States District Court, D. New Jersey.

March 28, 1985.

Ribis, McCluskey, Ruane & Graham by George G. Frino, Short Hills, N.J., for plaintiff.

Anthony T. Drollas, Nutley, N.J., for Mayor and Tp. Council of Nutley and Nutley Tp.

Michael E. Cozine, Nutley, N.J., for Rent Leveling Bd. of Nutley.

OPINION

SAROKIN, District Judge.

INTRODUCTION

This matter involves a constitutional attack upon a municipal ordinance which requires landlords to share seventy-five percent of tax rebates with their tenants. The ordinance is predicated upon certain obvious realities in the world of residential landlord and tenant relations. Rents are based upon expenses, and real estate taxes make up a substantial portion of those expenses. In establishing rents and in seeking increases in rent-controlled communities, taxes are frequently relied upon in reaching that determination.

Simply stated, it is not illogical or irrational for a municipality desirous of protecting tenants' rights and maintaining reasonable rents, to require that landlords who receive tax rebates should share them with those who have contributed to their payment. The subject ordinance does just that, although in an imperfect manner. The persons who have paid are not necessarily the persons whom receive the rebate; nor are the rebates shared in the same proportion among tenants as they have been paid.

These imperfections, however, do not render the ordinance unconstitutional. What underlies it is a legitimate function of municipal power exercised in a proper manner to protect the rights of tenants. Landlords might properly argue that tenants should not be able to participate in the profits of the venture when they assume no risk as to its investment. However, to rule otherwise in this instance, would be to declare that a municipality may not require the parties who have incurred an expense to share in its reimbursement. This would result in a windfall to landlords and deny to tenants the right to participate in a refund which they in large measure created.

We have long ago recognized the need to protect tenants particularly in those communities in which housing is extremely limited. We have made landlords unwilling partners with tenants, recognizing that housing needs must be balanced with the landlord's right to make a reasonable profit. Requiring landlords to share tax refunds with the tenants who, in effect, have paid those taxes is not an unconstitutional exercise of power by the municipality and indeed, represents a rational and common sense method of distributing such refunds.

BACKGROUND

Plaintiff Gateway Apartments, Inc. brings this action challenging on several constitutional grounds, a Nutley Township ordinance which, as of the time of the filing of the Complaint, provided that whenever a landlord succeeds on a tax appeal, the benefits thereof were to be utilized to reduce the rents of the tenants to whom such landlord leased living space. Complaint, First Count ¶ 3 and Exh. B. Since that time, and indeed, since the original return date of the motion now before this court, such ordinance has been amended to reduce this so-called "pass through" to tenants from 100 percent of the tax rebate to 75 percent of such rebate. Defendant's Brief at 1. Nonetheless, plaintiff continues to press the instant motion for summary judgment on all counts of the Complaint.

Plaintiff Gateway Apartments, Inc. owns a multi-family residential dwelling in Nutley Township ("the Township"), the defendant herein. As such it is subject to defendant's rent control ordinance ("the ordinance") which regulates rent increases within the Township. See Complaint, Exh. A, § 180-2(A). The ordinance provides for annual rent increases of between five percent and six percent, depending upon whether a tenant does or does not pay for his own heat. § 180-2(C). There are, however, three exceptions to this rule. First, a landlord may obtain from the Rent Leveling Board a "hardship rental increase" of up to fifteen percent if he is not realizing a ten percent return on the fair market value of his property after taking into account income and expenses. § 180-5(A). Under the applicable formula, expenses include taxes. Such hardship rental increases are not available to any landlords as to whom there is pending "any violation of State or municipal dwelling, code enforcement, health or fire statutes, ordinances or regulations." § 180-5(A)(3). Second, a landlord may receive a rent surcharge, based upon a formula, for "any major capital improvement to or any substantial increase in the services rendered to the tenants in any multiple dwelling." § 180-5(B). Such surcharge, which may be granted upon application to the Rent Leveling Board, may not exceed fifteen percent of the annual rent. Ibid. Finally, defendant has a system of vacancy decontrol. That is, "in the event that occupancy of a dwelling unit shall be terminated solely through voluntary, uncoerced action of the tenant or by a judgment of the Essex County District Court, the landlord may increase the basic rent without regard to the limitations imposed by this chapter ...," provided that certain reporting requirements are met. § 180-6(A). Similarly, the initial rent set by a landlord is not regulated by the ordinance. § 180-10.

Plaintiff here challenges section 180-10.1 of the ordinance. That section states, in pertinent part,

In the event that a landlord perfects a successful tax appeal, the tenant shall receive seventy-five percent (75%) of all reductions as applied pro rata to the tenant's living space so leased, after deducting all reasonable expenses incurred by the landlord in perfecting the tax appeal.

After instituting an action for reduction of its 1982 and 1983 local property taxes in the Tax Court of New Jersey, on March 14, 1984, plaintiff entered into a settlement with the Township, pursuant to which a tax refund of over $70,000 was to be paid to plaintiff. See Complaint, First Count ¶ 4 and Exh. C; Plaintiff's Brief at 6; Defendant's Brief at 1. Defendant, through its Rent Leveling Board, demanded compliance with the aforesaid ordinance and, on July 17, 1984, plaintiff brought this action. It challenges the ordinance on several grounds: first, it alleges that the ordinance is unconstitutional in that it punishes, and thereby restricts, the legitimate utilization of the courts, in contravention of the due process and equal protection clauses of the fourteenth amendment. Complaint, Counts I and IV; Plaintiff's Brief at 9-15. Second, it contends that the ordinance effects a taking of its private property without just compensation, in contravention of the takings clause of the fifth amendment. Complaint, Count II; Plaintiff's Brief at 16-20. And third, it alleges that the ordinance violates the contract clause of the United States Constitution. Complaint, Count III; Plaintiff's Brief at 21-25. Defendant has answered, admitting the facts pertinent hereto, but denying the unconstitutionality of the ordinance. It responds to the instant motion briefly, by arguing that this court is bound by the recent decision of the Appellate Division of the Superior Court of New Jersey in Parsippany Hills Associates v. Rent Leveling Board of the Township of Parsippany-Troy Hills, 194 N.J.Super. 34, 476 A.2d 271 (App.Div.1984). There, the court upheld a seventy-five percent pass-through provision, such as that now in effect in Nutley, as against challenges based primarily upon the legislative intent behind the particular ordinance at issue, 194 N.J.Super. at 44-46, 476 A.2d 271, and the preemptive effect of the New Jersey Tenants' Property Tax Rebate Act, N.J.Stat.Ann. 54:4-6.2 et seq. 194 N.J.Super. at 46-51, 476 A.2d 271. Thus, although the Township urges that the dictates of comity and federalism require the court to "treat the State Court resolution of the issue in this case as definitive," Defendant's Brief at 3, the fact is that the issues here presented were not considered or decided by the Appellate Division. The court must, therefore, proceed to address the merits of the instant application, essentially without the benefit of briefing by defendant.

DISCUSSION

A. Access to the Courts

Plaintiff first contends that the ordinance here at issue punishes the taxpayer who seeks the just resolution of a legitimate tax dispute in the courts of the State of New Jersey. Thus, in this particular case, plaintiff originally claimed that it was being taxed at a disproportionately high level relative to other taxpayers in the Township. See Plaintiff's Brief at 6-7, and Plaintiff's Appendix at 3-6, 26. Because the cause of action based upon this claim has been held not to constitute a federal question, whether it seeks injunctive relief, 28 U.S.C. § 1341, declaratory relief, Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 63 S.Ct. 1070, 87 L.Ed. 1407 (1943), or damages, Fair Assessment in Real Estate Association, Inc. v. McNary, 454 U.S. 100, 113-15, 102 S.Ct. 177, 184-86, 70 L.Ed.2d 271 (1981) (including claim for unequal assessment), plaintiff's sole recourse was to the state courts. Insofar as the ordinance discourages utilization of this avenue, plaintiff argues that it is arbitrary, capricious and unreasonable, all in violation of the due process clause. Insofar as the effect of the ordinance was to create a punishment for, and with it a disincentive to, the utilization of the only courts available to adjudicate these disputes, plaintiff claims that it "violates a recognized constitutional right." Plaintiff's Brief at 12.

These arguments are meritless. Plaintiff's first argument turns on its contention that "the only conceivable purpose for enacting the ordinance is the deprivation of the economic incentive...