Opinion
DOCKET NO. C-146-14 DOCKET NO. C-147-14 DOCKET NO. C-148-14
02-08-2016
NORTH ORATON URBAN RENEWAL, L.P, Plaintiff, v. CITY OF EAST ORANGE, and BOCA ENVIRONMENTAL, INC., Defendants. and THE MARY COCOZIELLO IRREVOCABLE TRUST, Intervener.
Andrew M. Baron, Esq., for plaintiff North Oraton Urban Renewal, L.P. (Kochanski, Baron & Galfy, P.C., attorneys) John F. Casey, Esq., for defendant City of East Orange (Chiesa, Shahinian & Giantomasi, P.C, attorneys) Jerrold S. Kulback, Esq., for defendant Boca Environmental, Inc. (Archer & Greiner, P.C., attorneys) J. Barry Cocoziello, Esq., for intervener The Mary Cocoziello Irrevocable Trust (Podvey, Meanor, Catenacci, Hildner, Cocoziello & Chattman, P.C., attorneys)
NOT FOR PUBLICATION
MEMORANDUM OPINION Andrew M. Baron, Esq., for plaintiff North Oraton Urban Renewal, L.P. (Kochanski, Baron & Galfy, P.C., attorneys) John F. Casey, Esq., for defendant City of East Orange (Chiesa, Shahinian & Giantomasi, P.C, attorneys) Jerrold S. Kulback, Esq., for defendant Boca Environmental, Inc. (Archer & Greiner, P.C., attorneys) J. Barry Cocoziello, Esq., for intervener The Mary Cocoziello Irrevocable Trust (Podvey, Meanor, Catenacci, Hildner, Cocoziello & Chattman, P.C., attorneys) DeALMEIDA, P.J.T.C. (t/a)
On October 20, 2014, this court issued an Order and Judgment on Count I of the Complaints and related Counterclaims in the above-referenced matters. Those Counts and Counterclaims concern a December 1995 Financial Agreement between plaintiff North Oraton Urban Renewal, L.P. ("North Oraton") and defendant City of East Orange relating to the improvements at Block 261, Lot 50 in the City (the "subject property"). The Financial Agreement provides for a tax abatement on improvements at the subject property pursuant to the Long Term Tax Exemption Law, N.J.S.A. 40A:20-1 to -22, in connection with North Oraton's construction of low- and moderate-income housing for elderly and disabled residents. The Financial Agreement requires North Oraton to make an annual payment in lieu of taxes ("PILOT") to the city based on a percentage of gross revenues collected as rent at the subject property, with credit for any of taxes North Oraton paid on land at the subject property which is not exempt under the agreement.
A detailed recitation of what transpired between the parties after execution of the Financial Agreement is set forth in the court's October 20, 2014 written opinion and will not be repeated here. In short, neither party fulfilled its obligations under the Financial Agreement. North Oraton, for more than a decade, made none of the PILOTs required by the agreement. Nor did North Oraton provide the City with annual audited financial statements to assist in the calculation of the payments due from North Oraton. The City, on the other hand, for more than a decade, made no attempt to collect the PILOTs due under the Financial Agreement. At an evidentiary hearing, neither party adequately explained why the PILOTs were not made or how North Oraton was permitted to flout its financial obligations to the City for an extended period of time without consequence.
On or about June 14, 2005, the city's tax collector, after reading a newspaper article about the number of exempt properties in the City, unilaterally rescinded the abatement provided by the Financial Agreement and issued a delinquency notice to plaintiff indicating a delinquency, including interest, of $251,739.94. It is not clear from the record whether this amount reflects delinquent PILOTs, delinquent taxes, or a combination thereof. Nor is it clear what periods are covered by the notice, although the notice states figures for "04" and "05."
Plaintiff did not pay the delinquency, leading to the City's sale of a tax sale certificate to Fidelity Tax, LLC. The tax sale certificate ultimately was transferred to defendant Boca Environmental, Inc. ("Boca"). After the sale, the holder of the tax sale certificate made several payments of tax on the subject property to protect its investment and preserve the priority of the tax lien.
In 2007, East Orange implemented a city-wide revaluation. As part of the revaluation, the assessment on the subject property was set as follows:
| Land | $1,260,000 |
| Improvement | $ 991,300 |
| Total | $2,251,300 |
On April 27, 2007, North Oraton filed a Petition of Appeal with the Essex County Board of Taxation challenging the 2007 assessment on the subject property.
On August 27, 2007, the county board issued a Judgment affirming the assessment without prejudice to North Oraton seeking Tax Court review.
On October 9, 2007, North Oraton filed three Complaints in the Tax Court. Each Complaint contains two Counts and named the City and Fidelity Tax, LLC as defendants.
The court subsequently entered an Order substituting Boca as a defendant in place of Fidelity Tax, LLC.
Count I of each Complaint alleges that the city violated the Financial Agreement by illegally revoking the abatement for the subject property. North Oraton also alleges that the City's sale of a tax sale certificate to Fidelity Tax, LLC was invalid because the abatement on the subject property was unilaterally revoked by the City. On these Counts, North Oraton demands that the court: (1) declare the tax sale certificate null and void; (2) assign the tax sale certificate to the City and order the City to refund the lienholder; and (3) reinstate the Financial Agreement.
Count II of each Complaint alleges that the assessment on the subject property for tax years 2005, 2006 and 2007, respectively, exceeds its true market value or is otherwise invalid.
On October 26, 2007, the city filed Counterclaims in response to each of the Complaints. The Counterclaims assert that the Tax Court lacks jurisdiction over North Oraton's Complaints as they relate to tax years 2005 and 2006 due to untimely filing. In addition, the City alleges that in the event the Tax Court does have jurisdiction over those years, the assessments on the subject property should be raised. The City does not make untimely filing allegations with respect to tax year 2007, but alleges that the assessment on the subject property for that year should be raised.
In light of the holding in McMahon v. City of Newark, 195 N.J. 526 (2008), the Tax Court determined that the parties' Count I claims and counterclaims are in the nature of contractual allegations properly venued in the Superior Court. As a result, on May 29, 2014, the Hon. Stuart Rabner, C.J., issued an Order transferring these matters to the Superior Court, Chancery Division, Essex County, and temporarily assigning the undersigned to that court for resolution of all issues raised in the Complaints.
In its October 20, 2014 Opinion, the court concluded that both the City and North Oraton breached the 1995 Financial Agreement. North Oraton breached the agreement by failing over a ten-year period to make any PILOTs to the City. The City breached the agreement by unilaterally revoking the abatement at the subject property and issuing the tax sale certificate now held by Boca.
In light of these conclusions, the court ordered that the tax abatement provided in the Financial Agreement be restored commencing with the issuance of the 1995 certificate of occupancy for the improvements at the property. The court also held that the tax sale certificate held by defendant Boca with respect to the subject property was invalid when issued. See Brinkley v. Western World, Inc., 292 N.J. Super. 134 (App. Div. 1996).
Among other remedies, the court vacated the tax sale certificate held by Boca and ordered that the City refund to Boca an amount equal to: (1) the price paid to the City for the tax sale certificate, together with interest on that amount from the date paid at the rate set forth in R. 4:42-11(a), id. at 137; N.J.S.A. 54:5-43; and (2) all subsequent taxes paid to the City on the tax sale certificate together with interest on those amounts from the dates paid, at a rate to be determined by the court after further briefing by the parties.
The parties subsequently submitted briefs on the rate of interest question noted above. In addition, the City subsequently raised the question of whether the court could order that the City refund the amounts specified in the Judgment within a specified period of time. This opinion addresses those narrow issues.
Boca argues that the appropriate interest rate to be paid to it on tax payments made after issuance of the tax sale certificate should be equal to the rate of interest awarded to the City on North Oraton's delinquent PILOTs, but in no event less than the interest allowed by R. 4:42-11(a). Boca's argument is based on the premise that once the tax sale certificate is satisfied by the City's payments to Boca, North Oraton's PILOTs will be delinquent and the City will collect those payments with interest. According to Boca, the City should not be permitted to collect interest on the delinquent PILOTs at a rate that exceeds the amount of interest that the City must pay to Boca on its tax payments. According to Boca, such a windfall to the City would be inequitable in light of the fact the City had no authority to rescind the Financial Agreement or issue the tax sale certificate.
The City appears to be in agreement that Boca should receive interest on its tax payments at the same rate of interest as the City is permitted to recover from North Oraton on its delinquent PILOTs. The City argues, however, that it is entitled to recover from North Oraton both delinquent taxes on the land at the subject property that is not exempt under the Financial Agreement and delinquent PILOTs. According to the City, different rates of interest should apply to these different types of delinquencies. The City's contends that delinquent taxes on the land would be subject to interest at the rate adopted by the municipality pursuant to N.J.S.A. 54:4-67(c) for delinquent "taxes, assessments, or other municipal liens or charges, unless otherwise provided by law . . . ." The City argues, however, that any recovery it receives from North Oraton for delinquent PILOTs, while "arguably" subject to interest pursuant to N.J.S.A. 54:4-67(c), by "should have interest calculated as set forth in Rule 4:42-11."
The court concludes that Boca is entitled to receive interest at the statutory rate applicable to delinquent taxes, regardless of the interest rate that the City will recover on North Oraton's delinquent PILOTs, and taxes, if any.
The court's analysis begins with N.J.S.A. 54:5-43. That statute concerns circumstances in which a tax sale certificate is invalidated. The statute provides:
If the sale shall be set aside, the municipality shall refund to the purchaser the price paid by him on the sale, with lawful interest . . .Although the statute provides for "lawful interest" on the refund of the amount paid for an invalid tax sale certificate, it is silent with respect to the interest to be paid to the lienholder on refunded tax payments made after issuance of the invalid certificate.
[N.J.S.A. 54:5-43.]
One published opinion provides guidance. In Crusader Servicing Corp. v. City of Wildwood, 345 N.J. Super. 456 (Law Div. 2001), the city mistakenly sold a tax sale certificate with respect to real property for which delinquent taxes had been paid the business day before the certificate was sold. Id. at 458. Although the payment of taxes was deposited by the city, the City Clerk failed to take steps to stop the sale of the certificate. After the sale, the purchaser of the certificate paid the local property taxes on the property for several years in order to protect its investment. Ibid. The property owners claimed that their attempt to pay taxes on the property was rebuffed by municipal officials. After the failed attempt to pay, the property owners made no further efforts to pay taxes on the property. When the lienholder ultimately initiated foreclosure proceedings, both the City and the lienholder became aware that the certificate had been erroneously issued and was void ab initio. Id. at 459. The City conceded its obligation to refund to the lienholder the amount paid for the tax sale certificate and all taxes subsequently paid on the property by the lienholder. The parties disputed the interest rate to be applied to the refunded subsequent tax payments. Ibid.
The court reviewed the relevant provisions of the law:
The New Jersey tax sale law, N.J.S.A. 54:5-1, et seq., is a remedial statute and is liberally construed to effectuate its purpose of aiding municipalities in the collection of real estate taxes. N.J.S.A. 54:5-3. When a property owner fails to pay property taxes, the amount due and owing becomes a lien on his property and not a personal liability of the taxpayer. This lien for the amount of taxes due plus interest, penalty and costs, is a first priority lien. N.J.S.A. 54:5-9.
* * *
The plaintiff, by purchasing the tax sale certificate, is entitled to a specified rate of return on the investment together with all associated costs, such as the payment of additional taxes, etc. It is generally the expectation of a tax sale certificate purchaser that the tax sale certificate will be redeemed at a profit to the holder.
* * *
[Prior to foreclosure on the lien] the non-municipal purchaser may also remit payment for subsequent taxes due [on the subject property] and may earn interest on the subsequent payment, as well. N.J.S.A. 54:5-60. N.J.S.A. 54:4-67 and N.J.S.A. 54:5-60 control the interest rate for the subsequent payment of taxes by the certificate holder; that interest rate has a ceiling of 8% on any delinquency under $1500, and 18% on all sums over that amount and the municipality must set that rate by resolution.
* * *
This statutory rate of interest is substantial, but not without a purpose. It is designed to discourage the taxpayer from utilizing the municipality as a source of short-term low interest loans. See City of East Orange v. Palmer, 52 N.J. 329, 334, 245 A.2d 327 (1968).
[Id. at 461-462.]
The court noted that where a tax sale certificate is vacated the amount paid for the certificate is refunded with interest from the date paid at the rate set forth in R. 4:42-11(a). Id. at 463 (citing Brinkley, supra, 292 N.J. Super. at 137). The court explained, however,
It is the rate of interest to be attributed to the tax payments made after the acquisition of the certificate that produces disagreement and for which no decisional authority can be found. The City argues that the R. 4:42-11 rate should continue to control the issue. [The lienholder] maintains that the statutory rate of 8/18% should be applied to those outlays as the rate of interest for the redemption of those taxes not paid by the property owner is controlled by N.J.S.A. 54:4-67(c).
* * *
Here the certificate holder paid these taxes with the justifiable expectation of being redeemed at the statutory rate of interest. The City is not without fault here nor are the property owners. The City is at fault for placing [the lienholder] in the position of an invalid certificate holder . . . . The property owners are at fault for not timely paying their taxes or taking the time to find out what the actual situation was with respect to their tax obligations. In any event the property owners should have been fully expected to be liable for interest at the 8/18% rate on taxes unpaid for almost three years.
[Id. at 464.]
The court further explained its rationale for applying the statutory rate of interest to the tax payments made by the tax sale certificate holder after purchase of the certificate:
If the City were to reimburse [the lienholder] for property taxes paid, the taxes would be in arrears. Normally the City would be entitled either to collect statutory interest from the delinquent taxpayer or to conduct a tax certificate sale at which sale the interest would be collected. The property owners have enjoyed the use of the money through the period of their delinquency. The City has had the use of [the leinholder's] funds during this period. [The lienholder] is the only party not at fault.
* * *
The holding here is that [the lienholder] is entitled to be reimbursed at the statutory rate of interest that they relied upon in advancing the real property taxes.
[Id. at 464-465.]
The holding in Crusader is persuasive and its rationale fully applicable here. In the present case, the City beached the Financial Agreement when, contrary to the Agreement and controlling law, it unilaterally revoked the abatement on the subject property and issued a delinquency notice. North Oraton, aware that it had signed a Financial Agreement obligating it to make annuals PILOTs to the City, and to pay the taxes on the land at the subject property not exempted by the Agreement, failed to make the PILOTs or to pay taxes on the non-exempt land for more than a decade. Boca's predecessor purchased the tax sale certificate in good faith intending to profit from its investment, as contemplated by the statutory mechanism enacted to facilitate the smooth collection of revenue by municipalities and to discourage tax delinquencies by property owners. The holder of the tax certificate in order to protect its investment thereafter paid what was characterized by the City as taxes on what should have been exempt improvements and non- exempt land. The tax sale statutes encourage the payment of taxes by the lienholder to prevent further delinquencies and the issuance of subsequent tax sale certificates. It is the City's error, not any act by the lienholder, which resulted in the subsequent payment of taxes on the subject property. The municipality, therefore, should bear the cost of its error. Accord Pioneer Gun Club v. Township of Bass River, 61 N.J. Super. 104, 109 (Ch. Div. 1960) ("[B]ecause the municipality caused the invalid tax sale to be held upon an improper assessment, it should be required to pay interest upon the total amount paid at the tax sale, even though part of the price was a premium. Interest should also be paid on the refund on all taxes paid after the tax sale.").
The only meaningful distinction between the facts in Crusader and the facts in the present case is that the municipality in Crusader, after vacating the tax sale certificate, collected from the property owner delinquent property tax payments and the City in the present case, after vacating Boca's tax sale certificate, will collect from the property owner delinquent PILOTs, as well as, possibly, delinquent taxes on the non-exempt land at the subject. The court concludes that this distinction is not determinative of the rate of interest to which Boca is entitled on the refunded tax payments made after purchase of the tax sale certificate.
The question of what interest rate applies to delinquent PILOTs is not addressed by statute or published precedent. The City appears reluctantly to concede that it is entitled only to interest at the rate set in R. 4:42-11 on North Oraton's delinquent PILOTs, although the City, in passing, notes that delinquent PILOTs are arguably subject to the higher interest rate allowed by N.J.S.A. 54:4-67. Whether the City ultimately collects interest on North Oraton's delinquent PILOTs at the rate set in R. 4:42-11, or the rate adopted by the municipality pursuant to N.J.S.A. 54:4-67, Boca had a legitimate and reasonable expectation that it would, in the event its tax sale certification was invalidated, recover the interest allowed by N.J.S.A. 54:4-67 on the tax payments it made after it purchased the certificate. This expectation comports with the statutory mechanism establishing the tax sale certificate process and is integral to its effectiveness at promoting the flow of funds to taxing districts and discouraging tax delinquencies by property owners. To award Boca the interest rate set in R. 4:42-11 on the return of its subsequent tax payments would undermine the purposes of the tax sale certificate statutes by discouraging investment in tax sale certificates and subsequent tax payments by lienholders. Boca, having paid tax assessments issued by the City on the subject property, is entitled to receive the interest rate it reasonably expected its investment would generate if its certificate was subsequently vacated or satisfied.
The court acknowledges the fact that the City might ultimately be entitled to interest on North Oraton's delinquent PILOTs at the rate set in R. 4:42-11, but will have paid to Boca interest on its subsequent tax payments at the higher statutory rate. This unfortunate consequence, if it obtains, will be the result, at least in part, of the City's utter failure to collect the PILOTs to which it was entitled for more than a decade, its unilateral revocation of the exemption on the subject property contrary to the express terms of the Financial Agreement, and its issuance of tax assessments and the collection of taxes from the lienholder on property that should have been partially exempt under the Financial Agreement.
It is not clear if, and to what extent, the City will collect delinquent taxes from North Oraton on the non-exempt land at the subject property. The City and Intervener The Mary Cocoziello Irrevocable Trust, the second mortgagee on the subject property, dispute whether a portion of the land at the subject property is subject to local property taxes and, if the land is subject to tax, whether any claim the City has to collect tax delinquencies is fully or partially time barred. The court does not decide those issues in this Opinion. --------
Boca also argues that the court should direct the City to pay to Boca the amount paid for the tax sale certificate and all subsequent tax payments in no less than 60 days. N.J.S.A. 54:5-43, which is discussed above, provides that when a tax sale certificate is invalidated a municipality "shall refund to the purchaser the price paid by him on the sale, with lawful interest, upon his assigning to the municipality the certificate of sale and all his interest in the tax, assessment or other charges . . . ." It is plain that the Legislature contemplated that the holder of a tax sale certificate that has been invalidated must assign the certificate to the municipality and that the municipality must refund to the lienholder upon assignment the amount initially paid for the certificate.
No statute directly address the timing of a refund of taxes paid by a lienholder subsequent to the purchase of a tax sale certificate. Boca, arguing that N.J.S.A. 54:5-43 is silent on this material issue, urges the court to look to our tax assessment and collection statutes to discern the Legislature's intent with respect to the timing of refunds of subsequent tax payments to the holder of an invalid tax sale certificate. See Liberty Mut. Ins. Co. v. Land, 186 N.J. 163, 171 n.1 (2006)("Accordingly, even though a statute may not speak directly to the issue, cannons of construction, common sense, and public policy enable us to determine probably legislative intent."). In particular, Boca points to N.J.S.A. 54:3-27.2, which provides:
Except as required in paragraph (2) of subsection a. of section 2 of P.L. 1983, c. 137 (C:54:4-134), in the event that a taxpayer is successful in an appeal from an assessment on real property, the respective taxing district shall refund any excess taxes paid, together with interest thereon from date of payment at a rate of 5% per annum, less any amount of taxes, interest, or both, which may be applied against delinquencies pursuant to section 2 of P.L. 1983 c. 137 (C.54:4-134), within 60 days of the date of final judgment.
Boca argues that the 60-day period provided in this statute should apply here. The City counters that setting a fixed date for the payment of a Judgment is unusual and that a Judgment is a right enforceable in accordance with the court rules and case law in the ordinary course. According to the City, absent an express statutory provision requiring a refund to the lienholder in a specified period of time, Boca is in the position of any other Judgment creditor. In addition, the City contends that its finances and financial practices make payment to Boca within 60 days impossible.
The court concludes that Boca is not in the same position as an ordinary Judgment creditor. Boca is not entitled to damages from the City for an act or omission of a city official. Instead, Boca is entitled to a "refund," N.J.S.A. 54:5-43, of the amount that it paid for an invalid tax sale certificate and for tax payments it made to the City on property which, except for the City's invalid acts, should have been mostly exempt under the Financial Agreement. As Boca points out, the City has had use of Boca's money, collected through the statutory tax assessment, collection, and tax sale processes, for many years. It is not inequitable for the City to be required to refund the amount of taxes received from Boca as the result of the sale of an invalid tax sale certification in the timeframe applicable generally to the refund of taxes collected on an assessment reduced or vacated pursuant to a Judgment entered after a tax appeal.
At the court's request, Boca submitted a schedule of the taxes it paid on the subj ect property subsequent to issuance of the tax sale certificate. The City has not contested the accuracy of Boca's submission. The court, therefore, accepts the amounts on Boca's schedule as accurate.
Boca shall submit to the court under the five-day rule, R. 4:42-1(c), a Judgment in its favor on Count One of each of the Complaints: (1) specifying the sum certain paid to the City of East Orange for the tax sale certificate held by defendant Boca Environmental, Inc. with respect to Block 261, Lot 50 in the City of East Orange, Essex County, and indicating that this amount shall be subject to interest calculated pursuant to R. 4:42-11(a) from the date paid and will be refunded by the City of East Orange to Boca upon Boca's assignment of the tax sale certificate to the City; (2) specifying the sums certain in taxes paid to defendant City of East Orange on such tax sale certificate and specifying that those amounts will be refunded with interest from the date of payment calculated pursuant to the interest rate adopted by the City of East Orange pursuant to N.J.S.A. 54:4-67(c) for delinquent "taxes, assessment, or other municipal liens or charges;" and (3) specifying that said tax payments with interest shall be refunded to Boca within 60 days of the Boca's assignment of the tax sale certificate to the City of East Orange.
Boca shall also submit with the proposed Judgment its written argument in support of its request that the Judgment be marked as final pursuant to R. 4:42-2. Any party opposing the designation of the Judgment as final pursuant to R. 4:42-2 shall file written opposition within 14 days of Boca's submission.