DEPARTMENT OF COMMUNITY AFFAIRS v. 7 RAIL ROAD AVENUE WASHINGTON BORO WASHINGTON NORSE, LLC -

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0824-09T2

DEPARTMENT OF COMMUNITY

AFFAIRS,

Petitioner-Respondent,

v.

7 RAIL ROAD AVENUE,

WASHINGTON BORO (WASHINGTON

NORSE, LLC),

Respondent-Appellant.

________________________________________________________

March 11, 2011

Argued October 5, 2010 - Decided

Before Judges Carchman and Messano.

On appeal from a Final Decision of the Department of Community Affairs, Docket No. BHI-421-8.

N. Ari Weisbrot argued the cause for appellant (Phillips Nizer, LLP, attorneys; Mr. Weisbrot, of counsel and on the brief).

George N. Cohen, Deputy Attorney General, argued the cause for respondent (Paula T. Dow, Attorney General, attorney; Lewis A. Scheindlin, Assistant Attorney General, of counsel; Jonathan J. Greenberg, Deputy Attorney General, on the brief).

PER CURIAM

Washington Norse, LLC (WNL), appeals from the final decision of the Department of Community Affairs (DCA) that affirmed the initial decision of the administrative law judge (ALJ). The ALJ concluded that multiple continuing violations of the Hotel and Multiple Dwelling Act (HMDL), N.J.S.A. 55:13A-1 to -28, remained unabated at WNL's property, and she assessed a $49,000 penalty. WNL contends the agency's decision was arbitrary, capricious and unreasonable, and was not supported by substantial credible evidence in the record. We affirm, but remand for the limited purpose of entering an amended order regarding the penalty imposed.

WNL owns a multi-family building containing fourty-five dwelling units at 7 Railroad Avenue in Washington Borough. On March 22, 2007, William C. Kokas, a licensed multiple-dwelling inspector for the Bureau of Housing Inspection (BHI), inspected the property. Kokas discovered 164 violations of the HMDL and recorded them on an inspection report. WNL was served with the report and advised that the violations had to be abated by June 2.

Kokas returned to the property on October 5 to reinspect. He found that the majority of the violations remained open and unabated. Kokas recorded these on his report by placing an "O" next to any open violations, and noting the date at the bottom of the column. On February 28, 2008, BHI issued a "Notice of Statutory Violation and Order to Pay" in the amount of $6,300 to defendant.

WNL contested the order and the matter was transferred to the Office of Administrative Law (OAL) for an adjudicatory hearing as a contested case. Prior to the hearing, however, the parties reached a settlement that was reduced to writing and executed on April 29, 2008 by the representative of WNL, its counsel and BHI's compliance officer.

The terms of the written settlement agreement provided that WNL would "abate the violations . . . by June 1, 2008," and call for a re-inspection appointment thereafter. WNL further agreed to pay a "reduced penalty of $2500[]" in installments over the next several months. The settlement also provided that "[i]n consideration of the above terms [WNL] withdraws [its] request for an Administrative Hearing." Lastly, the agreement provided the following:

Regarding the violations . . . in the instant proceedings, this Settlement Agreement fully disposes of these issues and [WNL] by entering into this agreement relinquishes [its] right to contest the existence of the instant violations and/or the appropriateness of the instant penalties. However, the [BHI] . . . reserves the right to issue orders or assess penalties where the owner has failed to comply with this Settlement Agreement and the owner reserves the right to request an Administrative Hearing concerning the abatement of any violations cited by [DCA] and any subsequent penalties assessed by the Department for the unabatement of violations.

[Emphasis added.]

Kokas re-inspected the property on July 8. He again determined that a number of violations remained unabated and noted them on his report. On August 14, BHI issued two orders. The first was a "NOTICE OF CONTINUING UNABATED VIOLATIONS AND ORDERS TO ABATE VIOLATIONS AND TO PAY PENALTY"; the total penalty assessed was $49,000, and the order further required WNL to abate the violations by September 8. The second order assessed $1,872 in re-inspection fees. WNL requested an administrative hearing to contest the orders, and a hearing was held before the ALJ on January 13, 2009.

At the hearing, Kokas testified as to the procedure he used in conducting his inspection of the property. He further testified that he took notes as he performed the inspection and then prepared the actual report, which was computer-generated. Kokas' inspection report was introduced into evidence, and he explained the notations and entries on it.

Kokas was subject to extensive cross-examination. He conceded that he did not have a clear memory of many of the violations or details of the property. Kokas testified that when he conducted re-inspections, he generally compared the condition of the property at re-inspection to the original inspection report, and explained open and unabated violations to the property owner or manager when conducting the re-inspection. At the July re-inspection, Kokas was accompanied by the local fire inspector, the property's manager, Andrew Turk, and the property's superintendent "Dennis." Kokas testified that he explained the open violations to Turk and Dennis.

WNL called Turk as a witness. He testified that he was present for the re-inspection on July 8, and that Kokas did not review the open violations with him. Turk disputed some of the violations contained in the report. WNL produced no other witnesses nor did it introduce any other evidence.

The ALJ issued her Initial Decision on August 5, 2009. She concluded that the inspection report was "inherently reliable . . . and trustworthy." The ALJ further noted:

Respondent offered no compelling evidence to support a conclusion that [Kokas'] observations were misleading or inaccurate. Further, respondent presented no evidence to disprove the findings listed in the Department[']s inspector reports. Further, respondent presented no mitigating or aggravating circumstances that would warrant a lesser penalty assessment than that proposed by [DCA].

The ALJ concluded that "the violations were not abated," and that DCA had "properly calculated the penalty" and re-inspection fee.

WNL filed written exceptions to the ALJ's decision on August 24. On September 2, the Acting Commissioner of DCA adopted the initial decision of the ALJ, and this appeal ensued.

The Supreme Court has recently stated the basic principles that inform our review.

When considering the actions of administrative agencies, our scope of review is narrow. [O]rdinarily, we will not upset a determination by [an administrative agency] in the absence of a showing that it was arbitrary, capricious or unreasonable, or that it lacked fair support in the evidence, or that it violated legislative policies expressed or implicit in the [enabling legislation]. . . . In reviewing agency action, the fundamental consideration is that a court may not substitute its judgment for the expertise of an agency so long as that action is statutorily authorized and not otherwise defective because arbitrary or unreasonable.

. . . .

[T]he judicial role is restricted to three inquiries: (1) whether the agency's action violated the enabling act's express or implied legislative policies, (2) whether there was insubstantial evidence in the record to support the findings on which the agency based its actions, and (3) whether in applying the legislative policies to the facts, the agency clearly erred by reaching a conclusion that could not reasonably have been made after weighing the relative factors.

Thus, we grant administrative agency action a strong presumption of reasonableness. In the review of administrative agency action, [a]ppellate courts must defer to an agency's expertise and superior knowledge of a particular field. . . . Agencies, however, have no superior ability to resolve purely legal questions, and that a court is not bound by an agency's determination of a legal issue is well established.

[Aqua Beach Condo. Ass'n v. Dep't of Cmty. Affairs, 186 N.J. 5, 15-16 (2006) (alterations in original) (citations and quotations omitted).]

The agency determination must be supported by substantial evidence, which "has . . . been defined as 'evidence furnishing a reasonable basis for the agency's action.'" Figueroa v. N.J. Dep't of Corr., 414 N.J. Super. 186, 192 (App. Div. 2010) (quoting McGowan v. N.J. State Parole Bd., 347 N.J. Super. 544, 562 (2002)).

Before turning to the specific contentions raised by WNL, we address DCA's argument that by settling the first action, WNL waived any ability to challenge the existence of the violations. We agree.

The settlement agreement expressly provided that "by entering into th[e] agreement [WNL] relinquishe[d] [its] right to contest the existence of the instant violations." (Emphasis added). Pursuant to the agreement, WNL only reserved "the right to request an Administrative Hearing concerning the abatement of any violations cited by [DCA] and any subsequent penalties assessed by the Department for the unabatement of violations." (Emphasis added).

"A settlement agreement between parties to a lawsuit is a contract." Nolan v. Lee Ho, 120 N.J. 465, 472 (1990). Since the "settlement of litigation ranks high in our public policy," Jannarone v. W.T. Co., 65 N.J. Super. 472, 476 (App. Div.), certif. denied sub nom., Jannarone v. Calamoneri, 35 N.J. 61 (1961), "settlement agreements will be honored 'absent a demonstration of fraud or other compelling circumstances.'" Nolan, supra, 120 N.J. at 472 (quoting Pascarella v. Bruck, 190 N.J. Super. 118, 125 (App. Div.), certif. denied, 94 N.J. 600 (1983)). We conclude that WNL voluntarily entered into a settlement agreement that acknowledged the existence of these violations on the property, reserving only the right to challenge whether the violations were abated.

We reject WNL's claim that DCA waived this argument by not raising it before the ALJ. At the very beginning of Kokas' cross-examination, WNL's counsel began to question the inspector about "the first inspection." BHI's representative objected, noting, "We're not here on the original inspection, we're not here on the first re[-]inspection, we're here on [the] continuing nature." He further advised the judge, "It's a settlement . . . ." The judge overruled the objection. BHI's representative again reiterated the agency's position in a closing colloquy with the judge. In short, DCA did not waive the argument as it was raised below.

WNL argues that it was error to admit Kokas' inspection report into evidence, and that the failure to produce the inspector's original notes warranted dismissal of the penalty order. As to the latter argument, we note that there is nothing in the record to indicate that WNL ever requested the notes be produced. See N.J.A.C. 1:1-10.4(b) ("Parties [in a contested case] shall immediately serve discovery requests.").1 Moreover, the argument was never raised before the ALJ nor was it part of the exceptions filed with DCA. It is well-recognized that we will not consider an issue presented for the first time on appeal. Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973). We turn, therefore, to the contention that Kokas' report should not have been admitted into evidence.

The ALJ concluded the report was admissible pursuant to N.J.R.E. 803(c)(8) which excepts public records from the hearsay rule. WNL contends the report does not qualify under the exception, and, even if it did, any presumption of reliability was rebutted by the actual testimony of Kokas regarding the unabated violations therein.

In contested cases before an ALJ, "[e]vidence rulings shall be made to promote fundamental principles of fairness and justice and to aid in the ascertainment of truth." N.J.A.C. 1:1-15.1(b). The parties "shall not be bound by statutory or common law rules of evidence or any formally adopted in the New Jersey Rules of Evidence." N.J.A.C. 1:1-15.1(c). "Subject to the judge's discretion to exclude evidence under N.J.A.C. 1:1-15.1(c) . . . , hearsay evidence shall be admissible in the trial of contested cases[,]" and, if "admitted[,] shall be accorded whatever weight the judge deems appropriate taking into account the nature, character and scope of the evidence, the circumstances of its creation and production, and, generally, its reliability." N.J.A.C. 1:1-15.5(a). Lastly, the residuum rule provides that "[n]otwithstanding the admissibility of hearsay evidence, some legally competent evidence must exist to support each ultimate finding of fact to an extent sufficient to provide assurances of reliability and to avoid the fact or appearance of arbitrariness." N.J.A.C. 1:1-15.5(b).

Although the ALJ had discretion to admit the report under any circumstances, we agree with her conclusion that it qualified as an exception to the hearsay rule pursuant to N.J.R.E. 803(c)(8)(A), which provides:

Subject to Rule 807, . . . a statement contained in a writing made by a public official of an act done by the official or an act, condition, or event observed by the official if it was within the scope of the official's duty either to perform the act reported or to observe the act, condition, or event reported and to make the written statement . . . .2

This exception is premised on the "'presumption, absent contrary testimony, that those responsible for services to the public will carry out their duties in a proper, careful and prudent manner.'" State v. Matulewicz, 101 N.J. 27, 31 (1985) (quoting State v. Hudes, 128 N.J. Super. 589, 602 (Cty. Ct. 1974)). The inspection report met the requirements of the Rule.

WNL argues that Kokas' testimony "revealed many inaccuracies, falsehoods, vagaries, and mischaracterizations" in the report such that its reliability was seriously impeached. In this regard, the ALJ specifically noted that she had "carefully weighed the evidence and considered applicable hearsay exceptions for guidance in assessing the reliability of the evidence and apportioning the weight it should be given." We find no basis to disturb the highly discretionary evidentiary ruling she made in this regard.

We come to the nub of WNL's appeal. As explained in two sub-points in its brief, WNL argues that the ALJ sustained violations that "Kokas [e]ither [w]ithdrew[,] . . . [c]onceded [w]ere [i]napplicable" or "[c]ould [n]ot [d]escribe." We discern that WNL essentially contends the agency decision was not supported by substantial credible evidence.

The claim that Kokas conceded violations did not exist, or withdrew them during his testimony, is a mischaracterization of the testimony when considered as a whole. Such an assessment, in large part, ignores Kokas' testimony on direct examination and relies upon portions of his cross-examination that have been "cherry-picked" to support WNL's argument.

For example, WNL claims that Kokas conceded that one of the violations, the need to "secure electrical wiring," was inaccurate because he was not sure what type of wire it was. We note, as per our discussion above, any challenge to whether the violation existed in the first instance was waived by way of the settlement agreement. Moreover, while Kokas admitted on cross-examination to the possibility that he "could be wrong," he explained on direct how he told WNL's representative that the wires needed to be secured. WNL introduced no evidence that the wires had in fact been secured.

Another instance cited by WNL involves Kokas' testimony as to a violation requiring WNL to "correct grade" at the rear of the building. WNL argues in its brief that Kokas "admitted that he issued a violation . . . when no such grade conditions existed." Kokas made no such admission. He in fact testified that to the best of his recollection, the building did not have "correct down spouts and leaders that would direct the water away from the building." This caused erosion making the area unsafe.

It suffices to say that the balance of specific examples cited by WNL accentuates certain answers given by Kokas without reference to other testimony that the ALJ was entitled to accept and credit. We acknowledge that Kokas frequently admitted that he had no independent recollection of the violations at issue. However, the ALJ was permitted to assess the totality of his testimony, including the factors supporting the reliability of his report, and make factual determinations. See Oceanside Charter Sch. v. N.J. State Dep't of Educ., ___ N.J. Super. ___, ___ (App. Div. 2011) (slip op. at 8) ("'The choice of accepting or rejecting testimony of witnesses rests with the administrative agency, and where such choice is reasonably made, it is conclusive on appeal.'") (quoting In re Application of Howard Sav. Bank, 143 N.J. Super. 1, 9 (App. Div. 1976)). The ALJ was entitled to assess DCA's evidence and weigh it against any contrary evidence, i.e., that WNL had actually abated any of the violations that it had agreed existed when it settled the first action. In fact, no such evidence was submitted by WNL.3 In short, we find no basis to reverse.

However, we remand to the agency for the entry of an amended order in one limited respect. Kokas cited WNL for a violation based upon clutter he found in a specific unit. The cited code provision in the report is N.J.A.C. 5:10-5.8. That provision provides: "[n]o occupant shall utilize any area outside of his dwelling space for storage purposes except in an area designated for such use in accordance with N.J.A.C. 5:10-5.1(d)." N.J.A.C. 5:10-5.1(a) provides that "an occupant shall in addition to complying with all provisions of this chapter applicable to him, be responsible for violations of this chapter to the extent that he has the power to prevent the occurrence of a violation or assist in abating the violation." (Emphasis added). Assessing WNL for this violation was improper.

Rather than remand the matter, we exercise our original jurisdiction, R. 2:10-5, and order that the penalty imposed be reduced by $1000, which is the regulatory amount assessed for a "continuing violation" in a "violation area in which no life hazard violation is cited." N.J.A.C. 5:10-1.17(d)(2).

Lastly, WNL argues that it was denied due process because the notice of violations was vague, denying it the ability to correct them, and because the ALJ's decision was based upon evidence that was so inadequate as to be "procedural[ly] [un]fair." The argument lacks sufficient merit to warrant extensive discussion. R. 2:11-3(e)(1)(E). "[D]ue process requires that a party in a judicial hearing receive 'notice defining the issues and an adequate opportunity to prepare and respond.'" H.E.S. v. J.C.S., 175 N.J. 309, 321-22 (2003) (quoting McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 559 (1993)). The inspection report clearly provided WNL with adequate notice. We have already addressed the claim that the evidence was insufficient.

Affirmed; remanded for the entry of a modified order regarding the penalty imposed. We do not retain jurisdiction.4

1 WNL's citations to the record that allegedly demonstrate its "repeated demands for the[] production" of Kokas' notes are completely misleading.

2 N.J.R.E. 807 permits the judge to exclude such evidence if the adversary has not been provided with notice and "fair opportunity to meet" the evidence. It has no relevance to the facts presented.

3 Without any attribution to the record, WNL asserts in its brief that after the settlement, "[t]he penalties were paid in full and it is undisputed that the owner diligently attempted to resolve the violations in a timely fashion." While BHI agreed the penalties were paid, it clearly disputed whether WNL resolved the violations. That was the subject of the hearing. We note that although Turk's testimony questioned the existence of some of the open violations, he never testified that WNL had attempted to abate any violations.

4 In its reply brief, WNL raises two arguments which, although alluded to in the statement of facts and addressed in DCA's opposition, were not specifically argued in WNL's initial brief. WNL contends that that the final decision was issued before its exceptions were considered and that there was no evidence to support the amount of fines imposed. We note that "[r]aising an issue for the first time in a reply brief is improper." Borough of Berlin v. Remington & Vernick Eng'rs, 337 N.J. Super. 590, 596 (App. Div.), certif. denied, 168 N.J. 294 (2001). The arguments are also unavailing on their merits.

There is nothing in the record to support the claim that the final decision was reached without consideration of WNL's exceptions. As to the amount of the penalties imposed, they are consistent with the amounts permitted by regulation. See N.J.A.C. 5:10-1.17. Moreover, WNL stipulated "to the math" involved in arriving at the total penalty, and BHI's penalty assessment form was introduced at the hearing. WNL offered no proof in mitigation of the penalty amounts provided by regulation. N.J.A.C. 5:10-1.17(d).