Court Opinion

ID: 4508906
Source: CourtListenerOpinion
Date Created: 2020-02-20 15:06:21.228356+00
Date Added: 2024-06-11T08:53:05.046442
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
              APPROVAL OF THE APPELLATE DIVISION

                                   SUPERIOR COURT OF NEW JERSEY
                                   APPELLATE DIVISION
                                   DOCKET NO. A-1305-18T3

SUMMIT PLAZA ASSOCIATES,
                                        APPROVED FOR PUBLICATION
     Plaintiff-Respondent,
                                                 February 20, 2020
v.
                                            APPELLATE DIVISION

RAGEE KOLTA, MARK R.
KOLTA, SOUAD KOLTA,
and DAVID R. KOLTA,

     Defendants-Appellants.
_____________________________

           Argued November 7, 2019 – Decided February 20, 2020

           Before Judges Koblitz, Whipple and Gooden Brown.

           On appeal from the Superior Court of New Jersey,
           Law Division, Hudson County, Docket No. LT-
           007691-18.

           John V. Salierno argued the cause for appellants.

           Tracey L. Goldstein argued the cause for respondent
           (Feinstein Raiss Kelin Booker & Goldstein LLC,
           attorneys; Tracey L. Goldstein, on the brief).

     The opinion of the court was delivered by

GOODEN BROWN, J.A.D.
      This appeal requires us to determine the parameters of the federal

preemption doctrine in the context of a summary dispossess action.

Defendants, a family of four, are tenants at plaintiff landlord's multi -family

apartment building, which receives housing assistance payments for eligible

families pursuant to section 8 of the United States Housing Act of 1937, 42

U.S.C. § 1437f (Section 8), and section 524(a) of the Multifamily Assisted

Housing Reform and Affordability Act of 1997 (MAHRA), Pub. L. No. 105-

65, Tit. V, 111 Stat. 1384, as amended. Defendants received Section 8 housing

assistance payments from 1980 until 2002, when their income exceeded the

Section 8 threshold, requiring them to pay the full contract rent. In 2017, after

receiving approval from the United States Department of Housing and Urban

Development (HUD), plaintiff increased the contract rent, but defendants

refused to pay the increased amount. As a result, plaintiff filed an eviction

action under N.J.S.A. 2A:18-61.1(a), for failure to pay rent, and N.J.S.A.

2A:18-61.1(f), for failure to pay rent after a rent increase (New Jersey's Anti -

Eviction Act).

      Prior to trial, invoking preemption, plaintiff moved in limine to preclude

defendants from introducing any evidence challenging the HUD-approved rent

increase. Over defendants' objection, in an August 31, 2018 Law Division

order, the trial court granted plaintiff's motion, finding that federal regulations

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preempted New Jersey's Anti-Eviction Act. The parties later settled, and a

consent judgment was entered on October 12, 2018, rendering the underlying

legal issue moot. See Daoud v. Mohammad, 402 N.J. Super. 57, 59 (App. Div.

2008) (finding the defendant tenant's appeal from a judgment of possession

entered against him in a summary dispossess action moot because "defendant

vacated the . . . premises, which has since been re-rented"). "Ordinarily, our

interest in preserving judicial resources dictates that we not attempt to resolve

legal issues in the abstract." Zirger v. Gen. Accident Ins. Co., 144 N.J. 327,

330 (1996). However, notwithstanding its mootness, we now resolve the issue

because it "is one of substantial importance, likely to reoccur but capable of

evading review," ibid., and affirm the judge's August 31 evidentiary ruling.

                                       I.

      We summarize the relevant facts and procedural history. In December

2016, pursuant to Section 8 and MAHRA, plaintiff entered into a twenty-year

"Project-Based Section 8 Housing Assistance Payments Renewal Contract for

Mark-Up-to-Market Project" (HAP contract) with HUD and the New Jersey

Housing and Mortgage Finance Agency (NJHMFA), HUD's contract

administrator.   Under the HAP contract, the operation, management and

maintenance of plaintiff's property is subject to HUD's regulatory control. The

HAP contract authorized increased contract rents based on "capital repairs" to

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the apartments agreed to by plaintiff. A contract rent is the maximum rent

approved by HUD that a landlord is permitted to charge a Section 8 tenant,

who pays thirty percent of the tenant's household income.        The remaining

portion of the contract rent is paid directly to the landlord by HUD. Once a

tenant's income exceeds the Section 8 threshold, HUD regulations require the

tenant to pay the full contract rent without the benefit of an assistance payment

and prohibits the landlord from evicting the tenant based solely on the tenant's

financial ineligibility. Pursuant to the HAP contract, the contract rent for a

two-bedroom apartment in plaintiff's property was increased to $2700,

effective December 21, 2016.

        Defendants have lived in a two-bedroom apartment in plaintiff's property

since 1980. Based on their annual recertification, a process by which tenants

submit information to the landlord regarding household income and other

relevant information required by HUD, defendants received a Section 8

housing subsidy. However, in 2002, defendants' household income increased,

due partly to their now adult sons' employment, and they no longer qualified

for housing assistance. As a result, defendants paid the full contract rent of

$1006 from 2002 until 2017. 1 In 2017, upon receiving notice of the rent

increase authorized by the HAP contract, defendants refused to pay, prompting

1
    Plaintiff acquired ownership of the property in 2013.

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plaintiff to file an eviction action, which was ultimately resolved by way of a

consent judgment dated February 28, 2017. The February 28, 2017 judgment

reduced defendants' rent from $2700 to $1460 per month through February 28,

2018, and required defendants to "complete the recertification process,"

including "signing a new lease . . . no later than April 1, 2017."

      On March 1, 2017, defendants completed the recertification process and

reported a total annual household income of $182,819.            Defendants also

executed a one-year HUD model lease, beginning March 1, 2017, reflecting

the agreed upon monthly rent of $1460.          The lease specified that "th[e]

monthly rent [was] less than the market (unsubsidized) rent due on th[e] unit,"

and that "the amount of rent . . . may be changed during the term of [the

lease]" if "HUD or the Contract Administrator . . . determines, in accordance

with HUD procedures, that an increase in rents is needed." In the event of a

rent increase, pursuant to the lease, "[t]he landlord agree[d] to give the [t]enant

at least [thirty] days advance written notice."           "The landlord" could

"terminate" the lease based on "the [t]enant's material noncompliance with [its]

terms."

      Effective December 21, 2017, HUD approved another contract rent

increase for all 480 units on plaintiff's property.     Pertinent to this appeal,

monthly rent for all two-bedroom units was increased to $2724. The HUD

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approval letter indicated "[t]he increase [was] determined to be reasonable and

necessary for the continued viability of the property." On May 30, 2018,

plaintiff notified defendants in writing that "[b]eginning July 1, 2018," the rent

would increase from $1460 to $2724. The notice explained that the increase

"was approved by HUD for . . . two-bedroom units at the property."

Defendants were advised that "[i]f [they did] not accept and agree to th[e] rent

increase, [they] must vacate and surrender possession of the premises no later

than June 30, 2018," or face eviction proceedings. Defendants once again

refused to pay the rent increase or vacate the premises, and plaintiff filed the

summary dispossess action that is the subject of this appeal.

      Prior to trial, plaintiff moved in limine to preclude defendants from

introducing any evidence challenging the HUD-approved rent increase.             In

support, plaintiff argued that because its property was a HUD-regulated

apartment building, New Jersey law was preempted under 24 C.F.R. § 246.1

(Section 246.1) and 24 C.F.R. § 246.21 (Section 246.21) (collectively, HUD

regulations). Thus, according to plaintiff, HUD-approved rent increases were

not reviewable in summary dispossess proceedings.

      Defendants countered that the HUD regulations did not apply to them

because they no longer qualified financially to receive Section 8 assistance

payments. They asserted that because their tenancy was not controlled by the

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HUD regulations, the court must review the rent increase under the standard of

unconscionability embodied in New Jersey's Anti-Eviction Act, pursuant to

N.J.S.A.   2A:18-61.1(f),    prohibiting    eviction   when    the   increase    is

"unconscionable."    Defendants argued that even if the HUD regulations

applied, the prohibition against rent regulation specified in Section 246.1 and

Section 246.21 did not apply to N.J.S.A. 2A:18-61.1(f) because the statute was

not a rent control law. Further, defendants contended HUD failed to comply

with 24 C.F.R. § 246.22 (Section 246.22), requiring written notification to the

local board of HUD's proposed rent increase and preemption of rent regulation,

a purported prerequisite to a finding of preemption. In reply, plaintiff certified

that defendants "receive[d] the benefit of HUD involvement in the property"

even if they no longer received rent assistance payments.

      In an oral decision, the judge determined the "case law . . . support[ed]

[plaintiff's] position," and granted plaintiff's application to bar evidence of

unconscionability "because the rent increase issue [was] pre-empted" by the

HUD regulations. The judge reasoned that HUD had "to have pre-emption

control over rentals of subsidized apartments" because it is in "the public's best

interest to . . . protect the economic interest of these HUD properties."

According to the judge, "[w]e want these properties to exist and flourish so

that people will have these apartments available to them." To that end, "the

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federal government has allowed [HUD] to create this process where the rents

are set by HUD."

      The judge explained that because defendants "signed the lease," and the

"lease . . . acknowledges the fact that there[ is] a possibility . . . [a tenant]

might not get any subsidy," defendants understood and agreed that they were

subject to the HUD regulations, whether they qualified for a subsidy or not.

Further, the judge was "particularly swayed" by plaintiff's argument that

despite the fact that defendants no longer qualified for the subsidy, they

received significant benefits from their tenancy in a HUD regulated apartment,

including the HUD regulations' prohibition against eviction when the tenant no

longer qualifies for a subsidy as well as the ability to re-certify and re-qualify

for a subsidy if their financial circumstances worsened.

                                       II.

      On appeal, defendants renew their contention that N.J.S.A. 2A:18-

61.1(f) is not preempted by federal law, and assert the judge erred in ruling

otherwise and barring evidence of unconscionability as permitted under the

statute. "To be sure, 'a trial court is afforded considerable latitude regarding

the admission of evidence, and is to be reversed only if the court abused its

discretion.'" Alves v. Rosenberg, 400 N.J. Super. 553, 562 (App. Div. 2008)

(quoting State v. Nelson, 173 N.J. 417, 470 (2002)). "Discretion, however,

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means legal discretion, 'in the exercise of which the judge must take account of

the law applicable to the particular circumstances of the case and be governed

accordingly.'" Id. at 562-63 (quoting State v. Steele, 92 N.J. Super. 498, 507

(App. Div. 1966)).      "Obviously, '[i]f the trial judge misconceives the

applicable law or misapplies it . . . the exercise of legal discretion lacks a

foundation and becomes an arbitrary act.'" Id. at 563 (alterations in original)

(quoting Steele, 92 N.J. Super. at 507).      In that regard, the trial judge's

"interpretation of the law and the legal consequences that flow from

established facts are not entitled to any special deference." Manalapan Realty,

L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

      Here, we agree with the judge's determination that N.J.S.A. 2A:18-

61.1(f) is preempted by federal law under the Supremacy Clause, U.S. Const.,

art. VI, § 2. "There are several theories under which federal law will preempt

a state statute."   Franklin Tower One, L.L.C. v. N.M., 157 N.J. 602, 615

(1999).

            Congress explicitly may express its intent to preempt
            state law. Alternatively, preemption may be inferred
            where the federal legislation is so comprehensive that
            it creates the inference that Congress intended to leave
            no room for state regulation in the area.

            Preemption also may be found where state law
            actually conflicts with federal law.         Conflict
            preemption occurs in two instances: where compliance
            with both federal and state regulations is a physical

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            impossibility, or where a state law stands as an
            obstacle to the accomplishment and execution of the
            full purposes and objectives of Congress. Under
            conflict preemption analysis, a court first must
            consider the purposes of the federal law, and then
            evaluate the effect of the state law on those purposes.

            [Id. at 615-16     (citations   and   quotation   marks
            omitted).]

      "[P]re-emption is not to be lightly presumed," Cal. Fed. Sav. & Loan

Ass'n v. Guerra, 479 U.S. 272, 281 (1987), and "the historic police powers of

the States [are] not to be superseded by [federal law] unless that was the clear

and manifest purpose of Congress." Wis. Pub. Intervenor v. Mortier, 501 U.S.
597, 605 (1991) (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230

(1947)).   Thus, "[t]he party claiming preemption bears the burden of

supporting that claim by 'clear and manifest evidence.'" Franklin, 157 N.J. at

615 (quoting Pa. Med. Soc'y v. Marconis, 942 F.2d 842, 853 (3d Cir. 1991)).

      Traditionally, states have had "broad power to regulate housing

conditions in general and the landlord-tenant relationship in particular."

Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 440 (1982).

However, because "[t]he Section 8 program was enacted '[f]or the purpose of

aiding low-income families in obtaining a decent place to live and of

promoting economically mixed housing,'" public policy goals shared by the

State of New Jersey, courts have consistently recognized that "[t]he federal

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legislation and regulations explicitly contemplate that the states will work with

the federal government to implement the Section 8 program." Franklin, 157
N.J. at 608-09 (second alteration in original) (quoting 42 U.S.C. § 1437f(a)).

      Here, plaintiff is a Section 8 program participant, and has entered into a

HAP contract classified as a "subsidized insured project," governed by HUD

regulations.     Section 246.1 and Section 246.21 are the governing HUD

regulations germane to this appeal. See Glukowsky v. Equity One, Inc., 180
N.J. 49, 65 (2004) ("The regulations of a federal agency are given the same

weight and afforded the same presumptions regarding preemption as federal

statutes . . . ." (citing Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 844

(1984))).

      Section 246.1 provides in pertinent part:

               (a) . . . The regulation of rents for projects coming
               within the scope of "Subpart C—Subsidized Insured
               Projects" is preempted in its entirety by the
               promulgation of these regulations. . . .

               (b) Any state or local law, ordinance, or regulation is
               without force and effect insofar as it purports to
               regulate rents of: . . . projects coming within the scope
               of subpart C . . . . Compliance with such law,
               ordinance, or regulation shall not be required as a
               condition of, or prerequisite to, the remedy of
               eviction, and any law, ordinance, or regulation which
               purports to require such compliance is similarly
               without force and effect.

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            (c) It is the purpose of [HUD] that these regulations
            shall bar all actions of a board that would in any way
            frustrate the purpose or effect of these regulations or
            that would in any way delay, prevent or interfere with
            the implementation of any increase in rental charges
            approved by HUD.

      Additionally, Section 246.21 provides:

            [HUD] finds that it is necessary and desirable . . . to
            preserve the continued viability of [Section 8] projects
            as a housing resource for low-income families.
            [HUD] also finds that it is necessary and desirable to
            protect the substantial economic interest of the Federal
            Government in those projects. Therefore, [HUD]
            concludes that it is in the national interest to preempt,
            and it does hereby preempt, the entire field of rent
            regulation by local rent control boards, . . . or other
            authority, acting pursuant to state or local law as it
            affects projects covered by this subpart.

      Despite the explicit language in the regulations expressly preempting

state law, defendants argue that N.J.S.A. 2A:18-61.1(f) does not constitute

"rent regulation" as contemplated in the HUD regulations. Under N.J.S.A.

2A:18-61.1(f), "[n]o lessee or tenant . . . may be removed by the Superior

Court from any . . . tenement leased for residential purposes" unless a tenant

"has failed to pay rent after a valid notice to quit and notice of increase of said

rent, provided the increase in rent is not unconscionable and complies with any

and all other laws or municipal ordinances governing rent increases." N.J.S.A.

2A:18-61.1(f) (emphasis added).       See also Mayes v. Jackson Twp. Rent

Leveling Bd., 103 N.J. 362, 378 (1986) (explaining that under N.J.S.A. 2A:18-

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61.1(f), "unconscionability of rent increase is a defense to removal for cause

based upon failure to pay rent").    Defendants argue that because N.J.S.A.

2A:18-61.1(f) does not constitute regulation of rents as that phrase is used in

the HUD regulations, application of the statute as a defense to the present

eviction action is not preempted.

       In Hill Manor Apartments v. Brome, 164 N.J. Super. 295, 302 (Cty. Ct.

1978), the court rejected an identical argument and determined that the HUD

regulations at issue, which were similar to the regulations here, preempted

N.J.S.A. 2A:18-61.1(f).    In Brome, as here, the plaintiff-landlord was "a

subsidized insured project" regulated by HUD. Ibid. "[T]he applicable federal

rule provide[d] that all state and local rent regulation laws [were] superseded.

The regulation further state[d] that owners of subsidized insured projects

[were] excused from complying with state and local laws which condition the

remedy of eviction upon adherence to rent control provisions." Id. at 306-07

(footnotes omitted). When the defendant-tenants in Brome "refused to pay the

[HUD-approved] increased rents claiming that they [were] excessive and

unconscionable," the plaintiff filed actions to summarily evict them. Id. at

300.

       In holding that "well settled principles mandate[d] a finding of

preemption in th[e] case," id. at 302, the Brome court reasoned:

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            Applicable federal rules promulgated by HUD provide
            that "regulation of rents for [federally subsidized]
            projects is preempted in its entirety." A long line of
            federal and state decisions holds that local rent control
            ordinances are preempted by this and similar
            regulations. Contrary to defendants' argument, it is
            equally plain that the Supremacy Clause commands a
            similar conclusion with respect to N.J.S.A. 2A:18-
            61.1(f).

            To be sure, [New Jersey's] Anti-Eviction Act is not a
            rent control law. The statute does not purport to
            establish ceilings with respect to rental charges, nor
            does it require prior judicial or administrative
            approval with respect to such increases. N.J.S.A.
            2A:18-61.1(f) merely requires a finding that the
            increase in rents charged by the landlord is not
            "unconscionable" as a prerequisite to summary
            eviction.

            Although it is arguable that the judicial role
            contemplated by N.J.S.A. 2A:18-61.1(f) does not
            constitute "regulation" of rents as that phrase is used
            in [the HUD regulations], the preemptive command is
            implicitly set forth in the structure of the federal rule
            as well as its purpose.

            [Id. at 303-04 (footnotes omitted).]

      Focusing on the wording in the regulation, which, as here, did not

require "'[c]ompliance with [a state law or local ordinance] . . . as a condition

of or prerequisite to, the remedy of eviction,'" the Brome court found that

"[t]he language of the regulation is not vague or ambiguous," and "[t]he

obvious intent of HUD in promulgating [the regulation] was to supersede state

laws where their enforcement would impair the ability of the [f]ederal

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[g]overnment to insure the safety of its investment." Id. at 304. The court

concluded that "[i]nterference by the state judiciary with respect to the

administration of that task would tear at the very roots of our federal system."

Id. at 307.

      We find the Brome court's reasoning persuasive and applicable with

equal force to the circumstances presented herein. Defendants assert Brome is

distinguishable because, unlike here, the tenants in Brome were all receiving

housing assistance payments. In support, defendants point to a provision of 24

C.F.R. § 246.20 (Section 246.20), which states that "subpart [C] will only

apply with respect to units occupied by tenants receiving housing assistance

thereunder if the contract covers fewer than all units in the project."

Defendants contend that "because they no longer qualify financially to receive

housing assistance payments, neither the HAP contract nor HUD regulations

apply to [their] tenancy, even if they may apply to every other tenancy in the

[property]."

      However, the HAP contract expressly encompasses all 480 "contract

units" contained in the property. Thus, despite the fact that defendants no

longer receive Section 8 assistance payments, the apartment in which they

reside is still subject to the HAP contract, and thereby governed by the HUD

regulations. Indeed, other than housing subsidies, HUD's regulatory control

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affords defendants additional benefits, including HUD housing quality

standards, annual inspections, and tenant-protective eviction practices.

      Finally, defendants renew their contention that HUD's noncompliance

with its own regulation precludes preemption. Specifically, defendants assert

Section 246.22 compels HUD to provide written notification to the local rent

control board "about any proposed rental increases and that HUD 'has

preempted the entire field of rent regulation'" as "a prerequisite to the

preemption dictate in [Section 246.1(a)]." However, according to defendants,

the "record is completely bereft of any discussion of this issue whatsoever,"

plaintiff "utterly failed to show compliance with this section of the [HUD]

regulation," and the judge erred when this "critical" issue was "ignored."

      Section 246.22 provides, in relevant part, that

            The local HUD office . . . shall notify in writing any
            [rent control] board in the area in which the project is
            located that it is processing the [rent increase]
            application and, that, pursuant to this subpart, HUD
            has preempted the entire field of rent regulation by a
            board acting pursuant to state or local law as it affects
            the project.

            [24 C.F.R. § 246.22(b).]

Further, the HUD approval letter states that, pursuant to Section 246.22, the

landlord "must give a copy of this approved rent schedule to the local rent

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control board . . . within ten . . . days after the approved rents become

effective."

      We acknowledge the record contains no evidence of compliance with

Section 246.22. However, HUD is not a party to this action, and defendants

cite no authority to support their proposition that compliance with Section

246.22 is a prerequisite to a finding of preemption. In fact, none of the HUD

regulations requires such compliance, and Section 246.22 specifies that

"[n]otice to the [local] board of the approved increases in rents does not confer

upon the board a right to approve or disapprove [HUD]'s action or to exercise

jurisdiction over the implementation of the rent increases."       24 C.F.R. §

246.22(c). Thus, even if the notice was provided, the local rent control board

would have no authority to override HUD's decision granting the rent increase.

      Affirmed.

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