TOLL BROTHERS, INC. v. TOWNSHIP OF WEST WINDSOR, et al.

(NOTE: This decision was approved by the court for publication.)
This case can also be found at 334 N.J. Super. 77.

NOT FOR PUBLICATION WITHOUT THE
 
APPROVAL OF THE APPELLATE DIVISION
 
 

SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-5858-97T3
A-5900-97T3
 

TOLL BROTHERS, INC., a
Delaware Corporation,

Plaintiff-Respondent,

v.

TOWNSHIP OF WEST WINDSOR, a
municipal corporation of the
State of New Jersey located
in Mercer County, MAYOR AND
COUNCIL OF THE TOWNSHIP OF
WEST WINDSOR, and THE PLANNING
BOARD OF THE TOWNSHIP OF WEST
WINDSOR,

Defendants-Appellants.
 

Argued May 1, 2000 - Decided August 16, 2000
 
Before Judges Havey, A.A. Rodr guez and Collester.
 
On appeal from Superior Court of New Jersey, Law Division, Mercer County, whose opinion is reported at 303 N.J. Super. 518 (Law Div. 1996).
 
Gerald J. Muller argued the cause for appellant Planning Board of the Township of West Windsor in A-5858-97T3 and A-5900-97T3 (Miller, Porter & Muller, attorneys; Mr. Muller, on the joint brief).
 
Karen L. Cayci argued the cause for appellants Township of West Windsor and Mayor and Council of the Township of West Windsor (Herbert, Van Ness, Cayci and Goodell, attorneys; Ms. Cayci, on the joint brief).

Henry A. Hill argued the cause for respondent (Hill Wallack and Flaster, Greenberg, Wallenstein, Roderick, Spirgel, Zuckerman, Skinner & Kirchner, attorneys; Mr. Hill, Kenneth E. Meiser, Stephen M. Eisdorfer and Carl S. Bisgaier, of counsel and on the brief).
 
PER CURIAM
The following discussion addresses issues not discussed in Judge Carchman's opinion reported at 303 N.J. Super. 518 (Law Div. 1996).
Within weeks after Judge Carchman delivered his opinion, Toll Brothers submitted a revised builder's remedy which, after months of negotiation and mediation by the court-appointed master, John Lynch, evolved into a proposal for 1,165 units: 400 single-family detached, 130 townhouses and 635 apartments, 175 of which would be affordable to low and moderate income families. Ultimately, it was determined that the Township would be entitled to an additional 115 rental bonus credits, thereby satisfying 290 units of its fair-share obligation. By April 18, 1997, Judge Carchman had resolved all of the remaining disputes between Toll Brothers and defendants over the builder's remedy, and Toll Brothers revised its fair-share plan. As approved by Judge Feinberg in March 1998, the revised plan deleted sites 1, 2, 7 and 8 of the original compliance plan, added several other sites or projects, and utilized a Regional Contribution Agreement with the City of Trenton. I
 
Defendants argue that Tolls Brothers was not entitled to a builder's remedy because it failed to act in good faith. They claim that Toll Brothers should have continued negotiations to revise the zoning ordinance or sought a variance before filing suit. Defendants' good faith argument relies on selected quotes from Southern Burlington County N.A.A.C.P. v. Township of Mount Laurel, 92 N.J. 158 (1983) (Mount Laurel II), including:
Builder's remedies will be afforded to plaintiffs in Mount Laurel litigation where appropriate, on a case-by-case basis. Where the plaintiff has acted in good faith, attempted to obtain relief without litigation, and thereafter vindicates the constitutional obligation in Mount Laurel type litigation, ordinarily a builder's remedy will be granted, provided that the proposed project includes an appropriate portion of low and moderate income housing and provided further that it is located and designed in accordance with sound zoning and planning concepts, including its environmental impact.
 
[92 N.J. at 218 (emphasis added).]

Thus:
Care must be taken to make certain that Mount Laurel is not used as an unintended bargain ing chip in a builder's negotiations with the municipality, and that the courts not be used as the enforcer for the builder's threat to bring Mount Laurel litigation if municipal approvals for projects containing no lower income housing are not forthcoming. Proof of such threats shall be sufficient to defeat Mount Laurel litigation by that developer.
 
[Id. at 280.]
 
Judge Carchman awarded a builder's remedy because Toll Brothers succeeded in the litigation and proposed to build a substantial amount of affordable housing. Toll Brothers, Inc. v. Township of West Windsor, 303 N.J. Super. 518, 575 (Law Div. 1996). A developer is entitled to a builder's remedy if (1) it succeeds in Mount Laurel litigation, (2) it proposes a project with a substantial amount of affordable housing, and (3) the site is suitable, i.e., the municipality fails to meet its burden of proving that the site is environmentally constrained or construction of the project would represent bad planning. Mount Laurel II, supra, 92 N.J. at 279-80; Allan-Deane Corp. v. Bedminster Township, 205 N.J. Super. 87, 138 (Law Div. 1985); J.W. Field Co., Inc. v. Franklin Township, 204 N.J. Super. 445, 450 (Law Div. 1985); Orgo Farms & Greenhouses, Inc. v. Colts Neck Township, 204 N.J. Super. 585, 588-89 (Law Div. 1985); AMG Realty Co. v. Warren Township, 207 N.J. Super. 388, 447 (Law Div. 1984). Although, as defendants point out, the COAH mediation process under the Fair Housing Act (FHA), N.J.S.A. 52:27D-301 to -329, is favored over the use of builder's remedy litigation, the structure of the FHA is to encourage municipalities to avoid the threat of a builder's remedy by entering the administrative process. Hills Dev. Co. v. Bernards Township, 103 N.J. 1, 35-36 (1986). Municipalities declining to subject themselves to COAH's jurisdiction "will be subject to litigation and the remedies provided by Mount Laurel II." Ibid.
We are unaware of any case where a builder has met the three-prong test entitling it to a builder's remedy and failed to act in good faith. Indeed, Judge Serpentelli in J.W. Field Co, Inc., supra, 204 N.J. Super. at 454, observed that, in his experience, "it is very difficult to prove that a suit has been brought unnecessarily or as a leverage mechanism."
In any event, we find no bad faith here. Beginning in September 1992, Toll Brothers corresponded with the Planning Board concerning a plan for developing site 6 with 670 single family dwellings, which would generate 100 affordable units. In December 1992, it presented the Board with a conceptual plan for 671 single-family dwellings, fifty affordable rental units and satisfaction of the additional fifty units through a Regional Contribution Agreement. Thereafter, Toll Brothers withdrew its request to rezone the property because the Township's interest and cooperation began to diminish in December 1992, and the Township Planner's report of March 17, 1993, was highly critical and completely unsupportive of the rezoning proposal. Throughout the summer and fall months of 1993, Toll Brothers continued communications with the Planning Board, cautioning that amended zoning ordinances would be necessary to implement the project. During case management conferences, Toll Brothers' counsel stated that it would "very much like to settle the case," and would do so on terms more favorable to the Township than it would be prepared to offer after the pending COAH regulations took effect. Clearly, it was to Toll Brothers' advantage to reach a settlement rather than commit to several years of litigation. Defendants' suggestion that Toll Brothers should have sought variances for its project is of dubious merit. The size of the property, its importance in the Township's compliance plan and the number of variances needed to build conventional single family dwellings made the project an ill-suited candidate for variance relief. Indeed, it is questionable whether the Planning Board would even have had jurisdiction over the project, since it would appear the project would require one or more special reasons variances under N.J.S.A. 40:55D-70d.

II
 
Defendants next challenge the builder's remedy awarded by Judge Carchman on several bases. First, they claim that the court erred in permitting Tolls Brothers to argue that the Township's ordinances were unduly cost-generating without allowing defendants to present proofs and to cross-examine on the issue. Second, they contend that the court and the master applied legally erroneous standards in determining whether the ordinances were in fact unduly cost-generating. Specifically, defendants contend that the fifteen-percent set-aside authorized by the court, rather than a twenty-percent set-aside, was arbitrary. Also, they argue that Toll Brothers could have utilized a pump station for a portion of the site and that the court should have required Toll Brothers to provide more recreational space. Defendants also argue that the court unduly intruded upon the municipal planning and zoning prerogatives of the Planning Board and governing body by ordering them to adopt the builder's remedy ordinance. Finally, they argue that the court erred in failing to make specific factual findings on Toll Brothers' plan to build a substantial number of multi-family housing on the site when it had previously asserted that only single-family dwellings were marketable.
John Madden, defendants' professional planner, criticized Toll Brothers' initial proposal for approximately 700 single family dwellings and 100 to 125 affordable units because in his view the plan represented a poor use of such a large site and a waste of an opportunity for the Township to generate a substantial number of affordable units. Despite the fact that the judge held that Toll Brothers was entitled to a builder's remedy, one aspect of Toll Brothers' proposal concerned him, the generating of a sufficient number of affordable units available to low-income families.
Extensive negotiations ensued between Toll Brothers and Lynch after which Toll Brothers increased the number of affordable units to 175, which, with the 115-unit rental bonus, would generate 290 credits, thereby satisfying nearly one-third of the Township's fair share. Defendants criticized the number of ordinance changes proposed by Toll Brothers. After Lynch submitted a revised report on the ordinance changes, the judge conducted a hearing after which he addressed each of the disputed issues. The order establishing standards for the builder's remedy was entered on July 30, 1997.
We reject defendants' argument that they were deprived of the opportunity to present proofs and the right to cross-examine during the builder's remedy phase of the trial. After Toll Brothers outlined the ordinance changes needed to implement its proposed project, defendants responded that Toll Brothers was not entitled to any change in any ordinance unless the ordinance had been challenged during the compliance phase of the litigation. Lynch disagreed, commenting that the type of changes sought by Toll Brothers are of a type of relief ordinarily associated with the award of a builder's remedy.
We disagree with defendants that the court had to find that the ordinances affecting Toll Brothers' project were unduly cost generative before it could order defendants to rezone the parcel to accommodate the proposed units. Moreover, the fact that Toll Brothers raised questions about the ordinance provisions only in the builder's remedy phase of the case is of no moment. As Lynch observed, "the initial compliance hearing, although quite lengthy in this case, is conducted for the purpose of making threshold determinations of compliance, not focusing on the details of ordinance language. Site yields, site suitability, and overall fair share obligations, including credits, are addressed in the compliance phase." Many of the changes sought by Toll Brothers were technical and were resolved by agreement. The more substantial changes ordered by Judge Carchman have been challenged specifically by defendants on appeal, and the challenges are addressed below. In short, a builder is entitled to construct its project if it prevails in the compliance phase of the trial, unless the municipality can show that the project is clearly contrary to sound land-use planning. Mount Laurel II, supra, 92 N.J. at 279-80. Defendants have not made that showing.
The July 30, 1997 order, establishing builder's remedy standards, allows Toll Brothers to choose the manner in which it will sewer the property, either through a gravity line or a force main and pumping station. This finding was consistent with Lynch's recommendation that Toll Brothers be given the option of choosing how to sewer that portion of the site that lay in the Duck Pond Run watershed. Defendants objected to a pump station and force main as a means of sewering the Duck Pond Run watershed portion of the site, arguing that Toll Brothers should assist in the construction of and tie into the Duck Pond Run interceptor.
This aspect of the trial judge's builder's remedy is sustainable in fact and in law. The municipality had authorized its first Mount Laurel project, Steward's Watch, to utilize a pumping station. It intends to allow pumping stations and force mains for the Copperfield and Planned Residential Retirement Community sites. Toll Brothers' predecessor-in-title had been authorized to use a pumping station until a gravity line was built close to the site. In short, a project utilizing a pumping station is not "clearly contrary to sound land use planning," ibid., nor is the ordinance requirement for a gravity system "necessary to protect health and safety." Id. at 259.
Defendants argue that the court should have required a twenty-percent set-aside, the standard set by the Court in Mount Laurel II. We disagree. Extensively analyzing COAH regulations, the master concluded that a fifteen-percent set-aside was appropriate. Judge Carchman agreed with the master's analysis and added that, through COAH's rental bonus credit rules, Toll Brothers' project generated 296 (later recalculated to 290) affordable units. It was his view that the proposed project, with a fifteen-percent set-aside of rental units, would substantially benefit the Township.
It is true that the Court in Mount Laurel II observed that in a builder's remedy case a "20" [set-aside] appears to us to be a reasonable minimum." Id. at 279 n.37. However, because of the profit developers need to generate on market units to subsidize affordable units, it soon became apparent that the building community viewed twenty percent as the maximum feasible set aside. J.W. Field Co. Inc., supra, 204 N.J. Super. at 467. If a set-aside is too high, affordable housing will not be built. Allan-Deane, supra, 205 N.J. Super. at 116.
Further, a fifteen-percent set-aside conforms to COAH guidelines. Toll Brothers advances COAH policy by proposing to build a substantial number of family rental units, but this requires a deeper subsidy from the developer. Moreover, there appears to be no prejudice to the municipality. As the judge pointed out, in July 1988, the Township reached a settlement with Toll Brothers' predecessor-in-title which called for the construction of 1,500 units at a fifteen-percent set-aside.
Defendants next protest that portion of the order revising the ordinance to reduce the amount of recreational space. The ordinance had required common open space equal to the lesser of twenty-five percent of the development area, excluding the area for single-family lots, or twenty percent of the gross development area. Toll Brothers requested that the ordinance be amended to eliminate open-space requirements for that part of the development consisting exclusively of single-family detached homes, but preserving the open-space requirements as to apartments and townhouses. The master concluded that, as to this development, less open space for the single-family area was appropriate since so much of the property (one-third, about 100 acres) was environmentally constrained land which could not be developed. Madden submitted a certification in response, citing other planning sources which called for more active open space. It was his opinion that there should be a baseball or soccer field in the development and that twelve to fifteen acres of recreation area should be included. Judge Carchman observed that Madden's certification had introduced "new factual issues and elements into the mix" and was "too little too late in this process." The judge disposed of the issue based on his confidence in the master's judgment. In our view, the judge's resolution of the dispute is amply supported by substantial evidence and constituted a reasonable exercise of his discretion.
Lastly, we reject defendants' argument that the court's order requiring defendant's to review, introduce and pass an ordinance implementing the builder's remedy was an abrogation of "the governing body's paramount legislative power to plan and zone for its municipality." Defendants rely on the following excerpt from our opinion in East/West Venture v. Borough of Fort Lee, 286 N.J. Super. 311, 330 (App. Div. 1996):
But the soundness of the planning of Mount Laurel housing and the "suitability" of the site implicate the exercise of the municipality's legislative powers in amending its master plan and zoning ordinance, as well as all of the statutory notice and public hearing safeguards provided to the public under the MLUL and other pertinent provisions of Title 40. Nothing in Mount Laurel II or other controlling case law allows shortcutting those legislative safeguards.
 
Defendants have taken the above quote out of context. In East/West Venture the municipality reached a settlement agreement with the developer; at issue there was the procedure to be followed when third parties objected to the settlement. We held that a trial court's review of the fairness of the settlement, that is, whether it sufficiently advances the interest of low and moderate-income households, does not preclude objectors from challenging, on non Mount Laurel grounds, the ordinance which implements the settlements. Id. at 328-30. This is not a case where the parties reached a settlement.
Affirmed.