Opinion
DOCKET NO. A-4262-12T2
02-06-2015
HABITATE, LLC, Plaintiff-Appellant, v. R&R HOLDINGS, LLC, Defendant-Respondent, and STATE OF NEW JERSEY, Defendant, and RENEWABLE JERSEY, LLC, Defendant/Intervenor-Respondent.
Keith A. Bonchi argued the cause for appellant (Goldenberg, Mackler, Sayegh, Mintz, Pfeffer, Bonchi & Gill, attorneys; Mr. Bonchi, of counsel and on the briefs; Matthew S. Maisel, on the briefs). David A. Avedissian argued the cause for respondent R&R Holdings, LLC. Jack Plackter argued the cause for respondent Renewable Jersey (Fox Rothschild LLP, attorneys; Mr. Plackter, of counsel and on the brief; KellyAnne Johnson, on the brief). Rebecca J. Bertram, Bridgeton City Solicitor, argued the cause for respondent City of Bridgeton (Ms. Bertram, attorney; Ms. Bertram and Kevin A. Marshall, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Alvarez, Maven, and Carroll. On appeal from the Superior Court of New Jersey, Chancery Division, Cumberland County, Docket No. F-3397-12. Keith A. Bonchi argued the cause for appellant (Goldenberg, Mackler, Sayegh, Mintz, Pfeffer, Bonchi & Gill, attorneys; Mr. Bonchi, of counsel and on the briefs; Matthew S. Maisel, on the briefs). David A. Avedissian argued the cause for respondent R&R Holdings, LLC. Jack Plackter argued the cause for respondent Renewable Jersey (Fox Rothschild LLP, attorneys; Mr. Plackter, of counsel and on the brief; KellyAnne Johnson, on the brief). Rebecca J. Bertram, Bridgeton City Solicitor, argued the cause for respondent City of Bridgeton (Ms. Bertram, attorney; Ms. Bertram and Kevin A. Marshall, on the brief). PER CURIAM
Plaintiff Habitate, LLC, appeals Chancery Division orders permitting Renewable Jersey, LLC, to intervene in a tax sale foreclosure action and to redeem tax sale certificates for property formerly held by defendant R&R Holdings, LLC (R&R). We find that under the novel circumstances of this case, where Renewable is a developer designated by the City of Bridgeton for a redevelopment project involving the property at issue, the court's decision is legally sustainable and should be affirmed.
I
A.
On February 17, 2012, Habitate filed a tax sale foreclosure complaint on Block 132, Lot 1.02 in the City of Bridgeton. On July 12, 2012, Habitate entered a default against the lot's record owner, R&R. The foreclosure unit set November 28, 2012, as the last day possible for redemption of the tax sale certificates. On October 26, 2012, Renewable Jersey filed a motion seeking to intervene and redeem the tax sale certificates. Habitate followed with a notice of cross-motion for a constructive trust. Judge Anne McDonnell granted Renewable's motion to intervene, denied as moot R&R's motion for leave to file an answer out of time, and authorized Renewable to redeem the tax sale certificates on the property. This appeal followed.
While the appeal was pending, we granted Habitate's application for a remand to the Chancery Division in order to supplement the record based on Bridgeton's issuance of a new deed. Thereafter, although not precisely within the contours of the remand, Habitate renewed its application to reinstate the tax sale certificates, impose a constructive trust, and require Renewable to satisfy a $100,000 mortgage it had recorded against the property subsequent to its purported acquisition of fee simple interest. In her February 7, 2014 final decision, after thoughtful consideration, Judge McDonnell affirmed her earlier decision.
B.
The chain of events leading to this appeal requires some detailed explanation. Bridgeton originally acquired title to the lot in a tax sale foreclosure, then deeded the property to R&R for $15,000 in 2004. The property controls access to two other parcels in the Bridgeton Municipal Port District Redevelopment Area.
The agreement of sale between Bridgeton and R&R, whose president was listed as Robert Reyers, contained a commitment by Reyers to "create forty new full[-]time jobs at the subject property[,]" which commitment would survive closing. The agreement also absolved Bridgeton of any liability for environmental clean-up or other conditions of the property, as the premises were being sold "as is." In 2006 and 2009, Bridgeton issued two notices of unsafe structure requiring that the premises be vacated and its dilapidated warehouse buildings demolished.
Renewable suggests that there may be environmental clean-up issues associated with the lot. Habitate alleges that the property has a deep-water well worth $30,000 and a sewer connection worth $500,000. The record contains no corroboration for either claim.
In 2004, when Bridgeton conveyed to R&R, the company did not exist. Reyers, who at the time had some $194,263 in judgments against him individually, requested title in the name of "R&R" to avoid judgments attaching to the title. In at least 2006 and 2007, Reyers paid no real estate taxes, and Bridgeton sold the resulting tax certificates at a public sale. Habitate purchased one tax certificate on June 20, 2011, and on January 31, 2012, purchased an assignment of the other. Earlier in 2011, William Martin, Habitate's principal, had unsuccessfully attempted to buy the property directly from Bridgeton.
When Martin attempted to purchase the property in January 2011, the city solicitor informed his attorney that the lot was under consideration for a redevelopment agreement. The letter also discussed the possibility of a swap between that lot and another owned by Martin.
On April 19, 2011, Renewable and Bridgeton entered into the redevelopment agreement that includes the property. Renewable's principal, Ronald Rukenstein, certified that the redevelopment agreement was intended to bring in jobs and additional revenue.
In August of that year, Martin attempted to have Bridgeton add the lot to the roll of abandoned properties, thereby expediting his filing of a foreclosure action on the tax sale certificates. Again the solicitor refused on Bridgeton's behalf, indicating that the property was under an agreement of sale with Renewable. The letter indicated that Renewable was "aware" of the tax sale certificates, intended to redeem, and wished to add the properties to the Port Authority redevelopment project.
In April 2012, Habitate and Reyers entered into an agreement for Habitate to purchase the land for $10,000. Because good and marketable title could not be conveyed, the arrangement was terminated.
On April 5, 2012, Reyers formed a New Jersey corporation called "R&R Holding Comp[a]ny Limited Liability Company." A few months later, in October 2012, Renewable and R&R executed an agreement of sale which called for the purchase of the property for $55,692 ($5000 over the redemption amount). Reyers signed the agreement as vice-president, but did not disclose that R&R was unincorporated at the time of Bridgeton's 2004 deed.
In the spring of 2013, Reyers revived Claus and Reyers Company (CAR), a Delaware corporation whose charter had been revoked under Delaware law in 1996, by paying delinquent taxes and penalties. Reyers, acting as a CAR director, adopted a resolution stating that R&R was a subsidiary of CAR. The resolution was purportedly signed on March 17, 2000, but was actually signed on a form not available until 2012. Thereafter, on May 2, 2013, Reyers also signed a corporate resolution on behalf of CAR authorizing R&R, characterized as a wholly-owned subsidiary of CAR, to deed the land to Renewable.
On May 7, 2013, Bridgeton adopted a "resolution authorizing the execution of a corrective deed" at a regularly scheduled council meeting. The substance of this resolution was that Bridgeton would reconvey the lot to CAR. This reflected Bridgeton's intent for the initial conveyance, at which time CAR was allegedly doing business under the R&R name.
On May 8, 2013, without first seeking court authorization, Renewable and Reyers amended their agreement of sale, changing the seller from R&R to CAR to reflect the corrective deed. The purchase price was also increased from $50,692 to $75,320, reflecting the updated redemption cost of the tax sale certificates. When added to the $5000 Renewable agreed to pay to Reyers, the consideration specified on the deed was $80,320.
Bridgeton's May 8, 2013 conveyance to CAR tracked the recommendations made by Renewable's attorney to correct the flaw in the title, namely, that in 2004 Bridgeton had conveyed the ownership of the lot to a non-existent corporation. Upon Renewable taking title, it promptly encumbered the property with a $100,000 mortgage naming the Cumberland Empowerment Zone Corporation as mortgagee.
As a result of the restructuring of R&R into CAR and the issuance of the corrective deed, Martin filed an action in lieu of prerogative writs against Bridgeton, Renewable, Reyers, and CAR alleging various counts, including fraud. The record does not indicate the present status of that parallel litigation.
C.
Initially, Judge McDonnell allowed Renewable to intervene as of right pursuant to Rule 4:33-1. She reasoned that the agreement of sale vested Renewable with an interest in the litigation, as its interests would be impaired if it was unable to intervene and redeem the tax certificates.
Judge McDonnell also discussed, pursuant to N.J.S.A. 54:5-89.1, the rights of a third party to intervene in a tax foreclosure proceeding where the proposed intervenor "acquired the interest in the land for more than nominal value." In reliance on Simon v. Cronecker, 189 N.J. 304 (2007), the court concluded that a third-party investor was not precluded from intervening "after the filing of a foreclosure action, provided that the investor [did so in a] timely [fashion] and paid the property owner more than nominal consideration." The court also concluded that, since Habitate had offered Reyers only $10,000 and then withdrew from the agreement because of title problems, the $5000 paid by Renewable did not appear to be inappropriate. In further support of her analysis, Judge McDonnell turned to the definition in Cronecker of more-than-nominal consideration as "consideration that is not insubstantial under all the circumstances; it is an amount, given the nature of the transaction, that is not unconscionable." Id. at 335.
Most significantly, the court found that Bridgeton's interest in redeveloping the area was an equitable factor which trumped the other parties' interests. Renewable was not the type of investor described in Cronecker, but rather, was a redeveloper. The judge noted the strong public policy in favor of redevelopment of blighted areas reflected in the Local Redevelopment and Housing Law, N.J.S.A. 40A:12A-1 to -73.
The judge did not impose Habitate's requested constructive trust because, in her view, no unjust enrichment or fraud would ensue from allowing Renewable to redeem. Habitate, the holder of the tax sale certificate, would be made whole by payment of the redemption amount plus interest at either the statutory or bid rate, and a property owner has the right to contract to sell the property to a known investor. Concluding that the equities overall did not support plaintiff, she denied that application and allowed Renewable to intervene and redeem.
In her February 7, 2014 decision on the expanded record, the judge first stated that the order previously signed did not specifically require Bridgeton, Renewable, and Reyers to return to court for approval of the issuance of the corrective deed and modification of the agreement. The judge nonetheless concurred that Renewable and CAR, albeit unknowingly, violated Cronecker by failing to return to court for approval.
The court, however, reaffirmed its prior decision that no constructive trust was warranted. The amendment did not "significantly change the terms of the agreement previously approved by the court." The increase in the amount paid reflected only "additional taxes and interest" owed as a result "of the passage of time." Furthermore, the amendment to the agreement was required by Reyers's 2004 misrepresentation regarding R&R. The judge reiterated that the primary purpose of "supervision of the redemption process" was "to protect property owners from third-party investors," and that in this case it was the property owner's own conduct that required the amendment.
The judge went on to observe that the lot had been included in the redevelopment area when Bridgeton conveyed in 2004, and Bridgeton's intent to convey it to a corporate redeveloper was "apparent." Reyers's "misrepresentation to the City ought not to defeat its expressed goal of redevelopment[.]"
Judge McDonnell also reiterated that, just as was the case initially, Habitate was made whole by virtue of payment of taxes and interest. Habitate's "principal's quest to prevent redevelopment is the subject of a separate action. Fraud and other claims are best handled in that action and not as part of
The judge addressed Habitate's new argument on remand that the deed from Bridgeton to CAR was a "wild deed," a "written instrument, in the form of a deed, acknowledged and recorded wherein the named grantor, knowing he, she[,] or it has absolutely no title of any kind to the premises described therein[,] nonetheless executes the instrument." Hyland v. Kirkman, 204 N.J. Super. 345, 358 (Ch. Div. 1985). Habitate, arguing that the 2004 deed conveyed to Reyers individually, asserted that Bridgeton thus had no title it could convey in 2013, rendering the corrective deed a "wild deed."
In the judge's opinion, Bridgeton's issuance of a corrective deed satisfied the parties' express goal of correcting title problems. Bridgeton, when it contracted with Reyers in 2004, believed it was doing so with a corporate redeveloper who turned out to be non-existent, and mistakenly issued a deed to an unincorporated entity. As a result, the issuance of a corrective deed, after a resolution lawfully adopted at a public meeting and intended solely to resolve a title problem, passed good title to Renewable through a Reyers entity. Within the context of the tax sale foreclosure, the conveyance was proper. Essentially, the judge found the question of Habitate's attack on the process relevant only to the parallel litigation alleging fraud and like claims, but irrelevant to this proceeding. She again denied Habitate's requests for relief.
II
On appeal, Habitate raises seven points:
POINT ONE
THE TRIAL COURT ERRED IN RULING THAT THE 2004 DEED OF THE PROPERTY FROM THE CITY TO R&R HOLDINGS, LLC WAS INVALID.
A. THE 2004 DEED CONVEYED THE PROPERTY TO ROBERT REYERS PERSONALLY.
B. THE 2004 DEED CONVEYED THE PROPERTY TO "R&R HOLDING COMP[A]NY LIMITED LIABILITY COMPANY" UPON ITS FORMATION IN 2012.
C. THE TRIAL COURT VIOLATED MULTIPLE EQUITABLE MAXIMS IN INVALIDATING THE 2004 DEED AND IN REWARDING ROBERT REYERS FOR HIS WRONGFUL CONDUCT.
1. EQUITY LOOKS TO SUBSTANCE RATHER THAN FORM.
2. EQUITY REGARDS THAT AS DONE WHICH OUGHT TO BE DONE.
3. RENEWABLE'S INTERVENTION AND REDEMPTION IS BARRED BY THE DOCTRINE OF UNCLEAN HANDS.
POINT TWO
THE TRIAL COURT ERRED IN CONCLUDING THAT HABITATE WAS NOT ENTITLED TO A CONSTRUCTIVE TRUST.
POINT THREE
THE CITY BREACHED THE IMPLIED DUTY OF GOOD FAITH AND FAIR DEALING BY OBSTRUCTING HABITATE'S FORECLOSURE.
POINT FOUR
THE TRIAL COURT ERRED IN CONCLUDING THAT THERE WAS MORE THAN NOMINAL CONSIDERATION TO ALLOW RENEWABLE JERSEY TO INTERVENE AND REDEEM.
POINT FIVE
THE TRIAL COURT INCORRECTLY VIOLATED PLAINTIFF'S TAX SALE CERTIFICATE.
POINT SIX
THE TRIAL COURT ERRED BY FAILING TO AFFORD HABITATE ANY DISCOVERY.
POINT SEVEN
STANDARD OF REVIEW.
A.
Despite the number of points Habitate raises, the only question requiring answer is whether the trial court erred in allowing Renewable to intervene and to redeem the tax sale certificates. This accords with the holding in Cronecker, supra, 189 N.J. at 335-38.
N.J.S.A. 54:5-98 requires that redemption, after the filing of a tax foreclosure complaint, be made only "in the action." Id. at 336. After the filing of a tax foreclosure complaint, a party seeking to redeem must intervene in order for the proposed redemption and agreement of sale to undergo judicial oversight guaranteeing adequate consideration. Ibid. After entering into an agreement of sale with the record title owner, R&R, and intervening in the foreclosure, Renewable fulfilled the statute's threshold requirement. Phoenix Funding, Inc. v. Krute, 403 N.J. Super. 261, 266 (App. Div. 2008) ("The obligation to intervene is plainly stated in N.J.S.A. 54:5-98, N.J.S.A. 54:5-89.1[,] and Rule 4:64-6(b).").
The trial judge then considered whether the intervenor paid more than nominal consideration for the property owner's interest. With regard to the definition of nominal consideration the Cronecker Court adopted a
flexible, under-all-the-circumstances approach that will keep the focus on the benefit to the property owner facing forfeiture of his land. Strict mathematical equations cannot address the varying circumstances that may bear on a fair determination of the issue. The court may consider a number of factors, including but not limited to the amount received by the owner in comparison to the property's fair market value and to his equity in the property. The court may give some weight to a windfall profit to be made by the third-party. . . . In the end, more than nominal consideration under N.J.S.A. 54:5-89.1 means consideration that is not insubstantial under all the circumstances; it is an amount, given the nature of the transaction, that is not unconscionable.Reyers paid $15,000 to acquire the property "as is" in 2004. Although Habitate alleges that Reyers once entered into but failed to consummate an agreement of sale with another entity for $180,000, as Judge McDonnell pointed out, Habitate itself only offered the owner $10,000. Habitate did not offer $180,000 or anything approaching what it claimed was the true value of the land—some $530,000 based on a well and potential sewer connections. And the condition of the structures on the property resulted in municipal warnings that, because of unsafe conditions, they required demolition. Payment to Habitate of back taxes and interest came to $75,320. The record does not disclose whether other municipal taxes were due.
[Cronecker, supra, 189 N.J. at 334-35.]
Under these circumstances, we see no reason to disturb the trial judge's determination that $5000 was not nominal. The court's role is to protect distressed property owners from exploitation by investors. Cronecker, supra, 189 N.J. at 320; Phoenix Funding, supra, 403 N.J. Super. at 269. In this case the third party, a redeveloper, did not fit the profile of an exploitative investor. The property owner originally bought distressed property acquired by Bridgeton through forfeiture and committed to redevelop the property, but never did so. The proposed investor is a redeveloper acquiring the lot in order to advance a project of real benefit to Bridgeton which includes six other lots. Thus the judge's decision that consideration was more than nominal was not a mistaken assessment. Once the purchase price was found to be adequate, as required by N.J.S.A. 54:5-89.1, Renewable was entitled to redeem the tax sale certificates.
B.
A related question is whether the issuance of the corrective deed nullified Renewable's compliance with the Tax Sale Law's requirements such that its right to intervene and redeem should be rescinded. As the trial judge acknowledged, the contracting parties should have sought judicial approval before amending their contract. Their amendment violated the letter of Cronecker, but nothing in the order required R&R and Renewable to return to court for approval. The court ultimately found, however, that the amendment did not affect the essential terms of the earlier arrangement, nor did it violate Cronecker's interpretation of the statute.
In the final analysis, the title problems created by Reyers's efforts to avoid his creditors had no effect on the agreement's essential elements, the adequacy of consideration, or Renewable's right to intervene and redeem. Renewable remained the redeveloper for the area. Habitate's interest was extinguished once Renewable was initially granted the right to redeem. Habitate therefore should not be heard to object to what occurred after that point. The corrective deed's issuance does not affect the tax sale certificate litigation. Though a technical error, Renewable's conduct in amending the agreement of sale without court approval was harmless, as it did not change any party's position vis-à-vis the Tax Sale Law.
Though Habitate had reason to request a remand to apprise the court of new developments, including the fact that, when Bridgeton conveyed to R&R Holdings, the corporation did not exist, the new information should not have altered the outcome. Habitate's interest began with its purchase of the tax sale certificates and ended with its receipt of full repayment.
If, when Bridgeton conveyed to R&R, it was actually conveying to Reyers individually, the analysis vis-à-vis the Tax Sale Law is the same. Reyers failed to pay property taxes, tax sale certificates were sold, Habitate acquired them, then Renewable intervened in Habitate's foreclosure action and satisfied the court that it was paying more than nominal consideration. The court therefore approved the redemption of the tax sale certificates. If Bridgeton is correct that the deed conveyed no interest, this still does not affect Habitate's claims vis-à-vis the Tax Sale Law. If Bridgeton unwittingly retained title, selling tax sale certificates to land it actually continued to own, Habitate was nonetheless made whole by reimbursement of its purchase price for the certificates together with interest. Habitate thereby acquired nothing more than the right to obtain a fixed return on its funds.
C.
Pursuant to the statutory scheme, "the certificate holder's interest is subordinate to the property owner's right of redemption." Id. at 319-20. As the Court stated in Cronecker,
plaintiff tax certificate holders are commercial investors themselves, who are guaranteed twelve percent and fifteen percent interest if redemption occurs in their respective cases. Plaintiffs knew or should have known from the start that most tax certificate investments end not in windfall profits from foreclosure but rather in high[-]yield interest returns upon redemption.
Id. at 329.
It is technically true that, at the time the corrective deed issued and before redemption of the certificates and the real estate closing on the lot, Habitate retained a property interest. But this property interest would have been meaningful if and only if Renewable and Reyers were no longer able or willing to redeem or convey, respectively. Once the court authorized the redemption, it was of no consequence to Habitate how that redemption was accomplished in the tax sale foreclosure context, so long as the essential terms remained the same, which they did. This is not to express any opinion on Habitate's pending litigation for the harm it alleges as a result of Bridgeton's second deed to CAR to effectuate its conveyance to Renewable.
Furthermore, no constructive trust would have been appropriate. A constructive trust is imposed where, in order "[t]o protect defendants' interests," plaintiffs are "allow[ed] [] to succeed in the third-party investor's place." Cronecker, supra, 189 N.J. at 311. In this instance, because the redeveloper was the third-party investor and the redevelopment plan extended beyond this plot of land, a constructive trust would have been neither equitable, feasible, nor necessary. It certainly would have run counter to the strong public policy expressed in New Jersey's statutes which encourage the redevelopment of blighted areas. Practically speaking, no constructive trust could have been imposed, as there was no way to put Habitate in the shoes of Renewable.
The Local Redevelopment and Housing Law's purpose is the "correction and amelioration" of "conditions of deterioration in housing, commercial[,] and industrial installations, public services and facilities[,] and other physical components and supports of community life." N.J.S.A. 40A:12A-2(a). See Times of Trenton Publ'g Corp. v. Lafayette Yard Cmty. Dev. Corp., 183 N.J. 519, 528 (2005) (quoting N.J.S.A. 40A:12A-2(b) and -(c)) ("To ameliorate those 'conditions of deterioration,' the Legislature 'empowered' local governments 'to promote the advancement of community interests through programs of redevelopment, rehabilitation[,] and incentives to the expansion and improvement of commercial, industrial, residential[,] and civic facilities'" in order to "'promot[e] the physical development that will be most conducive to the social and economic improvement of the State and its several municipalities.'"); Bryant v. City of Atl. City, 309 N.J. Super. 596, 613 (App. Div. 1998) (the Law's purpose is the "redevelop[ment of] deteriorated public property which likely would not occur without private efforts").
D.
We do not specifically address Habitate's remaining points of error, as we conclude that they are subsumed by our discussion, and are individually too lacking in merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION