Court Opinion

ID: 4584932
Source: CourtListenerOpinion
Date Created: 2020-11-09 15:06:41.95919+00
Date Added: 2024-06-11T13:46:23.438936
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                         SUPERIOR COURT OF NEW JERSEY
                                                         APPELLATE DIVISION
                                                         DOCKET NO. A-5516-18T3

BISHOP PROPERTY
MANAGEMENT and
MAGNOLIA MANAGEMENT,

          Plaintiffs-Appellants,

v.

THE CITY OF JERSEY CITY
RENT LEVELING BOARD,

          Defendant-Respondent,

and

MARIE CALLE, DANUTA
DMOCHOWSKI, GREGORY
HODGKINSON, NANCY
HOLGUIN, ANDREA JEREZ,
HEMAL PATEL, JOSE PINERO,
JOSEFINA RESTITUYO,
and VITO SERRIPIERRO,

     Defendants/Intervenors-
     Respondents.
___________________________

                    Submitted September 21, 2020 – Decided November 9, 2020
            Before Judges Hoffman, Suter and Smith.

            On appeal from the Superior Court of New Jersey, Law
            Division, Hudson County, Docket No. L-0602-19.

            Miller, Meyerson & Corbo, attorneys for appellants
            (Gerald D. Miller, on the briefs).

            Peter J. Baker, Corporation Counsel, attorney for
            respondent (Cheneise V. Wright, Assistant Corporation
            Counsel, on the brief).

            Gibbons PC, attorneys for intervenors-respondents
            Danuta Dmochowski, Gregory Hodgkinson, Andrea
            Jerez, and Vito Serripierro (Lawrence S. Lustberg and
            Michael R. Noveck, on the joint brief).

            Marotta & Garvey, attorneys for intervenors-
            respondents Marie Calle, Nancy Holguin, Hemal Patel,
            Jose Pinero, and Josefina Restituyo (Neil D. Marotta,
            on the joint brief)

PER CURIAM

      Plaintiffs Bishop Property Management           (Bishop) and Magnolia

Management (Magnolia) appeal from an August 12, 2019 Law Division order

dismissing their complaint in lieu of prerogative writs, which challenged the

decision of the City of Jersey City Rent Leveling Board (the Board) denying

plaintiffs' applications for hardship rental increases. We affirm.

      Bishop owns the property at 234 Beacon Avenue, and Magnolia owns the

properties at 27 Concord Street and 3473-3475 Kennedy Boulevard (3475 JFK

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Blvd), all in Jersey City. Plaintiffs, in order to "maintain [their rental properties]

and make them at least Class B or A rental spaces," between 2017 and 2019,

invested $426,839 in maintenance and repairs for the three rental properties.

Meanwhile, between 2017 and 2018, the city increased the property taxes on

plaintiffs' properties. As a result, the taxes on 234 Beacon Avenue increased

approximately 110 percent, from $17,160 to $36,000; the taxes on 27 Concord

Street increased approximately seventy percent, from $8,190 to $13,912; and

the taxes on 3475 JFK Blvd increased approximately twenty-seven percent, from

$18,041 to $22,700.

      Due to the increased tax burden, and the amounts spent on repairs and

maintenance, plaintiffs filed hardship rental increase applications (hardship

applications) with the Board. Bishop filed its hardship application for 234

Beacon Avenue on June 20, 2018, and Magnolia filed its hardship applications

for 27 Concord Street and 3475 JFK Blvd on August 17, 2018 and September

12, 2018, respectively. Plaintiffs' applications sought to increase the maximum

chargeable rent for the properties' units, claiming the latest tax assessment

severely reduced the properties' profitability.

      The controlling ordinance for hardship rental increases and plaintiffs'

applications, Jersey City Municipal Code (the Code) §260-10, provides:

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            In the event that a landlord cannot meet his or her
            mortgage payments or operating expenses or does not
            make a fair return on his or her investment, he or she
            may apply to [the Board] for increased rentals, provided
            that he or she has owned the building for at least nine
            months prior to the time he or she applies for an
            increase.

            [Emphasis added.]

The Code defines "fair return" as:

            The percentage of return on equity of real property
            investment. The amount of return shall be measured by
            the net income before depreciation. A "fair return" on
            the equity investment in real property shall be
            considered to be 6 [percent] above the maximum
            passbook demand deposit savings account interest rate
            available in the municipality.

Further, the Code defines "equity in real property investment" as "[t]he actual

cash contribution of the purchaser at the time of closing of title and any principal

payments to outstanding mortgages subsequent to acquisition of title by the

purchaser." In short, the Code provides that a landlord may apply for a hardship

rental increase when the landlord is not earning a fair return on the equity of his

property investment. Equity of a property investment is measured by the amount

the landlord paid when purchasing the property plus any subsequent mortgage

payments made by the landlord.

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      Despite the Code's language, the hardship application forms provided by

Jersey City's Division of Tenant Landlord Relations indicated landlords could

calculate the equity of their property investment using the purchase price

approach described in the Code or using the property's appraised value. The

application defined equity: "Equity in real property is the owner's down payment

plus payment on the principal. Where the property has been owned for over 10

years the appraised value less outstanding loans may be used to calculate

equity."   According to plaintiffs, Jersey City's hardship application forms

included these terms since 1990, and the Board granted applications using the

appraised value approach for nearly thirty years.

      In their hardship applications, plaintiffs used the appraised value

approach, rather than the purchase price approach, to calculate the equity of their

properties and to determine the fair return amount they claimed they were

entitled to receive. Plaintiffs calculated the fair return rate at 6.05 percent of the

properties' "net equity," which represented Jersey City's .05 percent passbook

demand deposit interest rate at the time, plus six percent. Plaintiffs listed their

then-existing profits for the three rental properties: 234 Beacon Avenue showed

a $18,072.00 profit; 27 Concord Street showed a $15,355.00 profit; and 3475

JFK Blvd showed a $11,224.00 profit. For 234 Beacon Avenue, based on an

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appraisal of $2,450,000, Bishop listed a net equity of $2,003,609, which yielded

fair return amount of $121,218. Bishop purchased 234 Beacon Avenue in 1995

for $369,000 with a $500,000 mortgage, of which $446,391 of principal

remained owing. Magnolia listed a net equity of $885,000 based on an appraisal

of that same amount, resulting in a fair return figure of $53,542.50. Magnolia

purchased 27 Concord Street in 1985 for $140,000 without a mortgage. For

3475 JFK Blvd, based on an appraisal of $2,200,000, Magnolia listed a net

equity of $2,050,000, which yielded a fair return amount of $124,025. Magnolia

purchased 3475 JFK Blvd in 1983 for $350,000 taking out a mortgage of

$250,000, of which there remained a balance of $100,000 when the hardship

application was filed.

      In accordance with these calculations, plaintiffs requested rent increases

that amounted to an approximate doubling of their tenants' current rent. For

example, the rent of one tenant at 234 Beacon Avenue would have increased

from $800 a month to $1,620 a month. Specifically, for 234 Beacon Avenue,

Bishop requested an average rent increase of $820; for Concord Avenue,

Magnolia requested average rent increases of $665; and for JFK Blvd, an

average rent increase of $940 for 3475. The requested rent increases would

substantially increase the profitability of each rental property.

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        Jersey City's Division of Tenant Landlord Relations scheduled a review of

plaintiffs' hardship applications before a hearing officer. In advance of the hearing

officer's review, counsel for intervenor tenants submitted written objections to

plaintiffs' requested rent increases, challenging plaintiffs' use of appraised value to

calculate their properties' equity and fair return amount as inconsistent with the

Code.

        The hearings were held on various dates throughout the fall of 2018,

culminating in the hearing officer recommending the approval of the three hardship

applications. The hearing officer added the following comment to one of the

applications:

                Landlord has filed Application using Appraisal Method
                and the Attorney for the tenants has objected stating that
                the Ordinance is correct and the Application is not? [B]ut
                those are what I depend on to make a Recommendation
                and he has also submitted a document of objection (a copy
                is included), if the board request a change to the process
                then I must receive notification & instruction of such
                changes in order to comply.

        The Board subsequently scheduled a hearing on plaintiffs' hardship

applications, and counsel for plaintiffs and counsel for the intervenor tenants

provided written arguments on the appraised value issue. At the hearing, held

on December 27, 2018, the acting chairman for the Board noted that, in the Code,

"'Equity' is defined as an owner's 'cash contribution' plus 'principal payment' to

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any mortgage on the property[,]" and that, for the purposes of calculating a fair

return, "[a]ppraised value is not 'equity' . . . ." The chairman cast plaintiffs

basing their net equity calculation on appraised value as "conceptually

unsound in a rent control context," and "counter to the purpose of rent control:

Protecting tenants from arbitrarily large rental increases while assuring the

preservation of an efficient owner's net operating income."

      Because their applications used an inappropriate basis for calculating their

equity, the chairman recommended offering plaintiffs two options, which the

Board previously offered another landlord in a recent ruling, to enable them to

move forward with their hardship applications. First, the chairman stated that if

plaintiffs wanted to proceed using equity to calculate a fair return, they could

use "present equity as the basis for a fair return by a suitable index for inflation

since the date of purchase." Their other option was to base their hardship

applications on alternate language in the Code, which "authorizes the Board to

adjust rents if a landlord cannot meet his operating expenses."

      Just as the Board moved to vote on its decision, plaintiffs' counsel

interjected, questioning the Board's authority to adopt new policy and procedure

governing hardship rental increases without the approval of city council or

enactment through the legislative process. Counsel for the Board responded by

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                                         8
clarifying that it was not creating new law, but rather its decision "represent[ed]

a fair interpretation of the existing rent leveling ordinance." Counsel for tenants

at 3475 JFK Blvd and 234 Beacon Avenue also briefly spoke on the record to

express their support for the Board's recommendations and interpretation of the

Code.

        At the conclusion of the hearing, the Board unanimously passed a motion

accepting the Board chairman's recommendations. Resolutions dated January

10 and 14, 2019, memorialized the Board's decision and were mailed to the

interested parties in February 2019.        Additionally, the Division of Tenant

Landlord Relations provided an accompanying letter with guidance to pl aintiffs

on how to resubmit their hardship applications in light of the Board's decision.

        On February 8, 2019, plaintiffs filed a complaint in lieu of prerogative

writs in the Law Division challenging the Board's rejection of their use of

appraised value as the basis for the hardship applications.       The trial judge

granted, with the consent of plaintiffs and the Board, motions to intervene filed

by the tenants. The trial judge required the parties to submit briefs on the

threshold question of "whether [the Board] may legally reject [p]laintiffs' rent

increase applications by refusing to consider market or appraised value of the

property." On July 19, 2019, the judge heard oral argument on this issue.

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      On August 12, 2019, the trial judge entered the order under review,

dismissing plaintiffs' complaint with prejudice. In his accompanying written

opinion, the judge stated that for the purpose of his decision, he assumed, "that

the [B]oard had, for a number of years prior to [plaintiffs'] application, evaluated

hardship rent increase applications not in accordance with the literal language

of [the Code], and instead considered the market or appraised value of the

property."

      Addressing plaintiffs' arguments, the trial judge first determined that the

Board did not act arbitrarily and capriciously in abiding by the express language

of the Code. To the contrary, the judge found that the Board accepting plaintiffs'

definition of equity would have been an arbitrary deviation from the Code's

express language. Next, the judge rejected plaintiffs' argument that basing their

equity on appraised value was appropriate because the hardship application form

explicitly allowed it as an option. The judge acknowledged the application form

did contain this option, but found plaintiffs had

             not shown that [they] somehow relied upon the
             language of the application form to their detriment in
             this case. They have owned the property for a good
             number of years . . . . The Ordinance, which does not
             reference appraised value, has been in effect since 1983
             and therefore provides some type of constructive notice
             to applicants as to the standard which [the Board] may
             utilize in connection with these applications.

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                                        10
            Moreover, short of establishing a confiscatory taking,
            [plaintiffs have] not shown that [they] suffered a
            significant economic hardship by submitting an
            application on a form which stated that appraised value
            may be used in connection with these applications.

      The judge further determined that the Board permissibly deviated from

the hearing officer's recommendations, as the Code allows the Board to '"accept,

reject, or modify' a recommendation of a Hearing Officer[,]" and caselaw also

makes clear the Board may reach a different conclusion from a hearing officer

when there is substantial evidence supporting the Board's ultimate conclusion.

Though the judge dismissed the complaint with prejudice, he explicitly afforded

plaintiff's the opportunity to file a separate complaint, raising an inverse

condemnation claim:

            The [c]ourt repeats in this [o]pinion what was stated on
            the record: [p]laintiff may file a separate complaint,
            naming the City of Jersey City as a [d]efendant if
            [p]laintiff claims inverse condemnation as a result of a
            literal reading of [the Code]. The necessary [d]efendant
            for such a claim is the City, not [the Board], and there
            will be a need to create a full record, with discovery
            afforded to all parties to address [p]laintiff's claims.

This appeal followed.

      Plaintiffs here argue the Board acted arbitrarily and capriciously by

retroactively applying a new standard and policy for hardship applications after

plaintiffs submitted their applications. Plaintiffs further argue the Board denied

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them due process by failing to announce or provide notice of its policy change,

failing to provide adequate reasoning for the departure from past policy and

practice, failing to articulate specific findings of fact which supported its

decision as required by the Code, and denying plaintiffs a fair opportunity to be

heard. Plaintiffs also contend that the Board's shift to solely calculating equity

according to the Code's plain language was impermissibly confiscatory, and that

its directive that inflation may be considered in calculating equity was arbitrary

and wanting of a definitive standard.

      "[W]hen reviewing the decision of a trial court that has reviewed

municipal action, we are bound by the same standards as was the trial court."

Fallone Properties, L.L.C. v. Bethlehem Twp. Plan. Bd., 369 N.J. Super. 552,

562 (App. Div. 2004). Generally, courts afford the decisions of municipal

boards substantial deference, only "set[ting] aside a municipal board decision if

it is shown to be arbitrary, capricious, or unreasonable, not supported in the

evidence, or otherwise contrary to law." Rivkin v. Dover Twp. Rent Leveling

Bd., 143 N.J. 352, 378 (1996). However, like the trial court, we owe no

deference to a municipal board's legal interpretations, including its construction

of municipal ordinances. See Schulmann Realty Group v. Hazlet Twp. Rent

Control Bd., 290 N.J. Super. 176, 184 (App. Div. 1996). We construe an

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ordinance using the same rules of construction applied in interpreting a statute,

applying its plain meaning if the terms are unambiguous. Mays v. Jackson Twp.

Rent Leveling Bd., 103 N.J. 362, 376 (1986); Nuckel v. Borough of Little Ferry

Plan. Bd., 208 N.J. 95 (2011).

      It is well understood that a rent control board is bound to strictly follow

the rent control ordinance. Schulmann Realty Group, 290 N.J. Super. at 183.

Since the Board's powers derive from the ordinance, its actions are invalid when

they exceed the scope and literal language of the ordinance. Knight v. City of

Hoboken Rent Leveling & Stabilization Bd., 332 N.J. Super. 547, 551, 554

(App. Div. 2000). Therefore, "[a] reviewing court may reject an interpretation

of an ordinance by the governing body or rent control board which conflicts with

the plain language, particularly if the meaning of the ordinance is clear on its

face." Schulmann Realty Group, 290 N.J. Super. at 184.

      Here, the plain language of the Code is unambiguous, providing that when

a landlord seeks a hardship rental increase for not receiving a fair return on the

equity of a property, equity, and thus the fair return amount, is based on the price

paid by the landlord at purchase and any subsequent payments on the mortgage

principal, if one is attached to the property. No provision of the Code states that

the fair return amount may be based on the appraised value of the property. In

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                                        13
rejecting plaintiffs' attempt to calculate their fair return based on the apprais ed

value of their property, the judge correctly concluded that the Board adhered to

the Code as written. In fact, as the judge properly noted, if the Board accepted

plaintiffs' method of calculating equity, it would have impermissibly and

arbitrarily exceeded the scope of its authority. The judge correctly concluded

that the Board's strict adherence to the Code in this matter cannot be considered

arbitrary or capricious.

      The relevant provision of the Code was adopted in 1983 and has remained

unchanged since then. Plaintiffs submitted their hardship applications in the

summer of 2018. Plaintiffs therefore cannot argue that the Board's application

of the Code's plain language constituted a retroactive application of a new

standard adopted after plaintiffs' hardship applications were submitted , nor can

plaintiffs convincingly argue they lacked notice of the Code's requirements.

      Moreover, even if plaintiffs did reasonably believe, based on the language

of the hardship application form, that the Code allowed a hardship applicant to

calculate equity using appraised value, the Board provided plaintiffs with proper

notice of the Code's actual requirements during plaintiffs' hearing before the

Board. During the hearing and in the written communications that followed, the

Board informed plaintiffs of its intention to strictly follow the Code's plain

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                                        14
language in considering hardship applications. After providing plaintiffs with

notice of the requirements an applicant must meet to receive a hardship rental

increase, the Board offered plaintiffs the opportunity to amend and resubmit

their hardship applications. The Board therefore gave plaintiffs notice of the

relevant policy and thereafter provided plaintiffs with the opportunity to submit

their hardship applications in conformance with the policy.

      Furthermore, the statements of the Board during the December 27, 2018

hearing, as well as the written statements in the letters mailed to plaintiffs in

February 2019, provided sufficient explanation and factual basis for the Board's

decision. In its communications, the Board made clear that plaintiffs' method

of calculating their fair return was contrary to the plain language of the statute

and therefore improper.

      We agree with the trial judge that the Board did not deny plaintiffs a fair

opportunity to be heard. Plaintiffs appeared before a hearing officer on multiple

dates resulting in the hearing officer accepting plaintiffs' applications. The

Board then held a subsequent hearing concerning the applications and noted that

before doing so, "the Board has reviewed of the materials, all of the submissions

by the attorneys, including the legal briefs and the reports of the Hearing Officer

. . . ."   During the hearing, counsel for plaintiffs contested the Board's

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                                       15
interpretation of the Code; argued that an objection made by an opposing

attorney was untimely; and questioned whether the interpretation would apply

retroactively to previous hardship applicants, whether the application form

would be amended, and whether a hearing was held to determine the policy's

economic impact on long-term property owners.

      Because, "[a]t its core, due process requires adequate notice and an

opportunity to be heard[,]" Harrison Redevelopment Agency v. DeRose, 398

N.J. Super. 361, (App. Div. 2008), the procedure undertaken by the Board in

handling plaintiffs' hardship applications conformed with the requirements of

due process. Furthermore, beyond mentioning the costs incurred in preparing

their original applications, plaintiffs have not shown that the Board's actions

deprived them of any interest or caused them any hardship.          There is no

indication that plaintiffs were unable to amend their applications and

successfully secure a hardship rental increase using either of the two options

offered by the Board.

      We decline to address plaintiffs' argument that the Board's actions were

impermissibly confiscatory. The trial judge dismissed plaintiffs' complaint after

hearing arguments solely on the threshold question of "whether [the Board] may

legally reject [p]laintiffs' rent increase applications by refusing to consider

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                                      16
market or appraised value of the property." In dismissing their complaint, the

judge informed plaintiffs that they could pursue an inverse condemnation claim

by filing a new complaint against the City of Jersey City, rather than the Board.

Indeed, because the Board merely followed its legislative mandate and applied

the Code as written, the proper line of attack for a confiscatory taking claim

would be against the Code itself. The trial judge's dismissal of plaintiffs'

complaint against the Board was therefore appropriate.

      Affirmed.

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