Helmsley v. Borough of Fort Lee

• Decision Date: 07 August 1973
• Docket Number: Civ. No. 1061-73.
• Citation: 362 F. Supp. 581
• Parties: Harry B. HELMSLEY and Alvin Schwartz, General Partners of a limited partnership, Trading as Horizon House Associates, Plaintiffs, v. BOROUGH OF FORT LEE et al., Defendants.
• Court: U.S. District Court — District of New Jersey

362 F. Supp. 581

Harry B. HELMSLEY and Alvin Schwartz, General Partners of a limited partnership, Trading as Horizon House Associates, Plaintiffs, v. BOROUGH OF FORT LEE et al., Defendants.

Civ. No. 1061-73.

United States District Court, D. New Jersey.

August 7, 1973.

COPYRIGHT MATERIAL OMITTED

Sills, Beck, Cummis, Radin & Tischman by Arthur J. Sills, Jerald Baranoff, Newark, N. J., for plaintiffs.

Fuchs & Altschul by Robert Fuchs, Jersey City, N. J., Fredric W. Altschul, for defendant, Rent Leveling Bd.

McCarter & English by Armand Pohan, Newark, N. J., for defendants, Borough of Fort Lee, Mayor and Council.

OPINION AND ORDER

LACEY, District Judge:

Plaintiffs, as owners of an apartment complex in Fort Lee, New Jersey, mount a multi-pronged constitutional assault upon that municipality's rent control ordinance.¹ They seek at this juncture preliminary relief enjoining enforcement of said ordinance. For the reasons hereinafter set forth, their application is denied.²

Plaintiffs are owners of a 1260-unit multiple dwelling complex, Horizon House, financed through the Federal Housing Administration (FHA) under the National Housing Act, 12 U.S.C. § 1702 et seq., and subject to the terms of a mortgage insurance contract issued by that agency. Defendants are public bodies and officials in Fort Lee who are charged with passage, implementation, and enforcement of the ordinance in suit. Jurisdiction of this Court is founded upon 28 U.S.C. § 1331.

In May, 1970 the FHA, pursuant to 12 U.S.C. § 1747(c), and on the basis of 1969 financial statements, approved a rent schedule for Horizon House.³ All rents presently being paid by Horizon House tenants are at or within the FHA-permitted maximum.

The challenged rent control ordinance was adopted by the defendants Mayor and Council of Fort Lee on February 2, 1972, and became effective February 9, 1972.

A brief exposition of certain provisions of the ordinance will aid in understanding the issues of this controversy. Sec. 2 of the ordinance provides that at the termination of any lease, no landlord may request or receive a percentage increase in rent which is greater than the percentage difference between the Consumer Price Index 60 days prior to the expiration of the lease and the Consumer Price Index at the date the lease was entered into with said tenant.⁴ Under Secs. 5 through 9 there is provided a procedure for landlords to obtain additional rent increases by reason of an increase in property taxes. Sec. 10 states in pertinent part, as follows:

Sec. 10. In the event that a landlord cannot meet his mortgage payments and maintenance he may appeal to the Rent Leveling Board for increased rental. The Board may grant the landlord a hardship rent increase to meet these payments. . . .

The landlord may seek additional rental for major capital improvements or services. . . .

Sec. 10 also details the procedure by which a landlord may make application for such increases.

Secs. 11 and 12 of the ordinance create the defendant Rent Leveling Board and delegate to said Board the power to hold hearings, adjudicate applications, issue and promulgate rules and regulations, and otherwise effectuate the purposes of the ordinance.

It is also provided that the powers granted to the Board "are exclusively advisory powers" and that "the action of said board shall not be deemed final until acted upon by the governing body of the Borough."

Under Sec. 13 both landlord and tenant may appeal the findings of the Rent Leveling Board to the governing body.

Sec. 15 prohibits any increases over the rent being received on February 2, 1972 "except for increases as authorized by this ordinance."

Shortly after passage of the ordinance, plaintiffs and others instituted a suit in the Superior Court of New Jersey, challenging its validity on several grounds. That court imposed temporary restraints against the enforcement of the ordinance pending formal argument. See Inganamort v. Bor. of Fort Lee, 120 N.J.Super. 286, 293, 293 A.2d 720 (Law Div. 1972). On June 26, 1972, Honorable Morris Pashman, then a Superior Court Judge and now a Justice of the New Jersey Supreme Court, dissolved the temporary restraints and in an elaborate and scholarly opinion declared the ordinance to be constitutional under the federal and state constitutions. Plaintiffs' appeal from this ruling went directly to the New Jersey Supreme Court on certification. On April 4, 1973, the Supreme Court sustained the ordinance as a valid exercise of the municipal police power and granted plaintiffs leave to pursue other and further challenges to the ordinance in the Superior Court.⁵See Inganamort v. Bor. of Fort Lee, 62 N.J. 521, 538, 303 A.2d 298 (1973). Plaintiffs then filed a notice of motion to restore the case, involving some contentions made herein as well, to the calendar of the Superior Court of New Jersey, Chancery Division, which motion was granted on July 27, 1973.

Even before the defendants' adoption of the challenged ordinance, however, plaintiffs were faced with a federal economic restraint upon Horizon House rents, namely, the Economic Stabilization Act of 1970 (Phase II). See note 5 supra. Three and five-year leases, as they expired after May, 1970, could be renewed under the FHA-approved schedule — until the commencement of Phase II, which prevented increases beyond 2½% per year, plus reimbursement of certain allowable costs. See Part III, Price Commission Regulations, CCH Economic Controls ¶ 3961 et seq.

Plaintiffs sought and obtained from Housing and Urban Development (HUD) an exemption from Phase II restraints, based upon what are referred to in the complaint as the project's "latest certified accounting statements".⁶ The HUD letter granting the exemption reads as follows:

Reference is made to your request for an exception to the Price Commission regulations regarding the captioned HUD rent controlled housing in order to implement the approved rental schedule dated May 28, 1970 as well as to maintain financial feasibility for the projects.

Based on the information submitted and the fact that the project is having financial difficulty, due to long term leases such as five years and three years, and the owner has been unable to implement the May 28, 1970 rent increases as approved, which was based on a 1969 financial statement, an exception is granted and you are authorized to implement the May 28, 1970 rent increase.

This authorization is given with the condition that the unit rent established on FHA Form 2458 Rental Schedule dated May 28, 1970 is not to be exceeded and that tenants be given a thirty day written notice by management before the rent increase may be put into effect. It is the understanding of HUD that the tenants can absorb this increase and that this will have no adverse effect on the housing market. emphasis supplied

There is nothing to indicate how HUD arrived at its "understanding" that "the tenants can absorb this increase and that this will have no adverse effect on the housing market." Indeed a finding of "no adverse effect" is irreconcilable with the state of the Fort Lee housing market, if the prefatory statement of the challenged ordinance is credited.⁷

It is against this background that plaintiffs' complaint seeks a declaratory judgment that the Fort Lee ordinance violates the federal constitution and an injunction against its enforcement, or, in the alternative, a declaratory judgment that the ordinance is inapplicable to plaintiffs.

The First Count of the complaint asserts that the assailed ordinance is unconstitutional under the Supremacy Clause. United States Constitution, Art. VI, cl. 2. The core of this contention is readily set forth by quoting the pertinent portions of the complaint:

16. Defendant, Rent Leveling Board, has commenced violation procedures against plaintiff for increases which said Board alleges are beyond those permitted by its Ordinance but which it knows and should know are explicitly permitted and approved by the FHA price schedule.

17. Hearings before the Rent Leveling Board on the aforesaid purported violations are to be held Wednesday, July 18th, 1973 . . . .

18. Federal policy as reflected in the National Housing Act and the decision of HUD that any diminution of plaintiff's rental schedules would jeopardize the solvency of plaintiff's project will be frustrated unless this Court shall declare the local law invalid or inapplicable.

19. Any reduction in rentals below that approved by the FHA will seriously impair the plaintiff's ability to meet the commitments to the Federal Government under their insured mortgage.

20. The local Ordinance is invalid and unconstitutional as applied to the plaintiff because being inconsistent with the Federal Regulations, it must fall under the Supremacy Clause of the United States Constitution (Article VI, clause 2).

21. The local Ordinance is invalid and unconstitutional because it seeks to legislate in a field already occupied and preempted by Federal legislation.

The Second Count of the complaint attacks the ordinance for its failure to provide for "a reasonable rate of return" on plaintiffs' investment, thereby taking private property without compensation "in contravention of the due process clause of the Fifth and Fourteenth Amendments . . . ." (Para. 3 of Second Count).

The complaint's Third Count asserts no constitutionally grounded claim. Instead it contends that the ordinance as originally adopted did not apply to Horizon House in that it exempted from the scope of its regulations all "buildings in which up to one-third of the occupied floor space is commercial. . . ." See Sec. 1(b) of ordinance, which did indeed thus provide. Inasmuch as all of plaintiffs' rental units in suit are undisputedly contained in buildings "where less than the requisite one-third of the occupied floor space is used for commercial purposes" (Para. 3, Third Count), plaintiffs contend that they cannot be in violation of the...