K. HOVNANIAN AT CEDAR GROVE IV, LLC v. THE TOWNSHIP OF CEDAR GROVE

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

K. HOVNANIAN AT CEDAR

GROVE IV, LLC,

Plaintiff-Appellant,

v.

THE TOWNSHIP OF CEDAR GROVE,

THE TOWNSHIP COUNCIL OF THE

TOWNSHIP OF CEDAR GROVE, and

THE PLANNING BOARD OF THE

TOWNSHIP OF CEDAR GROVE,

Defendants-Respondents.

______________________________________

Argued May 12, 2014 Decided June 9, 2014

Before Judges Yannotti and Leone.

On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-10549-10.

Thomas F. Carroll, III, argued the cause for appellant (Hill Wallack, LLP, attorneys; Mr. Carroll and Michael J. Lipari, on the briefs).

Jeffrey R. Surenian argued the cause for respondents (McElroy, Deutsch, Mulvaney & Carpenter, LLP, and Jeffrey R. Surenian and Associates, LLC, attorneys; Thomas P. Scrivo and Mr. Surenian, of counsel; Mr. Scrivo, Mr. Surenian, Michael A. Jedziniak, and Kristoffer S. Burfitt, on the brief).

PER CURIAM

Plaintiff K. Hovnanian at Cedar Grove IV, LLC appeals from an order entered by the Law Division on August 24, 2012, dismissing without prejudice plaintiff's complaint against defendants Township of Cedar Grove, the Township's Council and its Planning Board (The Township). We affirm.

I.

In 1975, the Supreme Court held that developing municipalities had to exercise their zoning power consistent with the general welfare, and therefore could not eliminate the realistic possibility for the construction of affordable low- and moderate-income housing. S. Burlington Cnty. NAACP v. Twp. of Mount Laurel, 67 N.J. 151, 174 (Mount Laurel I), cert. denied and appeal dismissed, 423 U.S. 808, 96 S. Ct. 18, 46 L. Ed. 2d 28 (1975). Thus, land use regulations of developing municipalities were required to affirmatively provide a realistic opportunity for low- and moderate-income housing. Ibid.

Thereafter, the Court extended the so-called Mount Laurel doctrine to all municipalities, and required that they affirmatively afford a realistic opportunity for the construction of their fair share of the region's prospective need for low- and moderate-income housing. S. Burlington Cnty. NAACP v. Twp. of Mount Laurel, 92 N.J. 158, 214, 223-48 (1983) (Mount Laurel II). Among other things, the Court indicated that builder's remedies would be available to builder-plaintiffs who bring lawsuits against municipalities to enforce the Mount Laurel obligation, when the builder has attempted in good faith to obtain relief without litigation. Id. at 218.

The Court explained that the remedy would allow plaintiff-builders to construct a project provided it included a substantial percentage of housing devoted to lower-income residents. Id. at 279-80. The remedy would be granted unless the municipality shows that the builder's proposed project is clearly contrary to sound land use planning. Ibid. However, the Court noted that it had always preferred legislative to judicial action "in this field." Id. at 212.

The Legislature responded by enacting the Fair Housing Act (FHA), N.J.S.A. 52:27D-301 to -329.9. In the FHA, the Legislature declared that it was the State's preference that disputes over exclusionary zoning be resolved through the mediation and review process established under the Act rather than litigation, and to provide alternatives to the use of the builder's remedy as a means of achieving fair share housing. N.J.S.A. 52:27D-303.

The FHA established the Council on Affordable Housing (COAH), within but not of the State's Department of Community Affairs (DCA), and confers upon the agency primary responsibility for assigning and determining municipal affordable housing obligations. N.J.S.A. 52:27D-305(a), -307. Among other things, COAH is charged with "determining State housing regions, estimating the State and regional present and prospective need for low and moderate income housing, and adopting criteria and guidelines for a municipal determination of its present and prospective fair share of the region's housing need." Toll Bros., Inc. v. Twp. of West Windsor, 173 N.J. 502, 544 (2002) (internal FHA citations and quotation marks omitted).

The FHA provides that municipalities may notify COAH of its intent to submit its fair share housing plan by filing its housing element and fair share housing ordinance with the agency. N.J.S.A. 52:27D-309(b). A municipality that has filed a housing element with COAH may, within two years of doing so, petition COAH for substantive certification of the element and implementing ordinance. N.J.S.A. 52:27D-313(a).

COAH may issue a substantive certification if it finds that the plan is consistent with its rules and criteria and makes the achievement of the municipality's fair share of low- and moderate-income housing realistically possible. N.J.S.A. 52:27D-314. Substantive certification insulates the municipality from builders' remedy and other exclusionary zoning litigation for ten years from the date the housing element was filed. N.J.S.A. 52:27D-313(a).

In 1986, COAH adopted rules defining the municipalities' affordable housing obligations for the period from 1987 to 1993, the first round of the COAH process. N.J.A.C. 5:92-1.1 to

-18.20, Appendices A to F. In January 1987, the Township filed its housing element and fair share plan with COAH, and on October 17, 1988, COAH granted the Township's petition for substantive certification. In 1991, COAH readopted its first- round rules without change and provided that they would remain in effect through February 1996. 23 N.J.R. 688 (Mar. 4, 1991).

In 1994, COAH adopted substantive rules for the second round of the process, intending them to remain effective through 1999. N.J.A.C. 5:93-1.1 to -15.1, Appendices A to H; 26 N.J.R. 2300 (June 6, 1994). In 1999, COAH readopted the second-round substantive rules, providing for their expiration in May 2004. 31 N.J.R. 1479 (June 7, 1999). In May 2000, the Township petitioned COAH for substantive certification of its second-round plan. On August 2, 2000, COAH granted the petition.

In December 2004, COAH adopted the initial version of the third-round rules, along with an expiration date in 2009. N.J.A.C. 5:94-1.1 to -9.2, Appendices A to E; N.J.A.C. 5:95-1.1 to -19.4; 36 N.J.R. 5748, 5895 (Dec. 20, 2004). In July 2006, the Township filed its third-round plan, based on COAH's first iteration of its third-round rules, and later filed a petition seeking substantive certification.

In 2007, we issued our opinion on challenges to the third- round rules. In re N.J.A.C. 5:94 & 5:95, 390 N.J. Super. 1 (App. Div.), certif. denied, 192 N.J. 71-72 (2007). We affirmed in part, reversed in part, and remanded the matter to COAH for adoption of revised rules in conformance with our decision. Id. at 11. COAH adopted revised third-round rules in 2008. N.J.A.C. 5:96-1.1 to -20.4; N.J.A.C. 5:97-1.1 to -10.5, Appendices A to F; 40 N.J.R. 2690, 3161 (June 2, 2008).

In December 2008, the Township filed another plan and petitioned COAH for substantive certification. In July 2009, COAH deemed the Township's application complete, and the Township filed public notice of its petition. Two objections were filed, including an objection from K. Hovnanian Companies, L.L.C. In January 2010, COAH issued a pre-mediation report on the Township's plan.

Thereafter, we invalidated a substantial number of the revised third-round regulations, including the so-called growth methodology that COAH had used to determine municipalities' fair share affordable housing obligations. In re N.J.A.C. 5:96 & 5:97, 416 N.J. Super. 462, 485 (App. Div. 2010), aff'd as modified, 215 N.J. 578 (2013). We ordered COAH to adopt new regulations within five months of our decision. Id. at 511. The Supreme Court stayed our decision, and later granted COAH's petition for certification. 205 N.J. 317 (2011).

In November 2010, COAH conducted a telephonic mediation conference between the Township and plaintiff. On December 6, 2010, plaintiff provided the Township with a proposal for the creation of ninety-six affordable housing units. Plaintiff sought a meeting so that the parties could review its proposal. However, before the Township responded, plaintiff filed its complaint in this matter.

On or about February 17, 2011, plaintiff filed a motion for partial summary judgment, seeking a declaration that the Township had not complied with its Mount Laurel obligation and that plaintiff was entitled to a builder's remedy. On March 8, 2011, defendants filed a cross-motion to dismiss plaintiff's complaint. On April 5, 2011, after hearing oral argument on plaintiff's motion and defendants' cross-motion, the court entered an order denying the motions.

On or about June 2, 2011, defendants filed a motion to transfer the matter to COAH or stay further proceedings pending COAH's adoption of revised third-round regulations. On June 29, 2011, Governor Christie issued a reorganization plan which abolished COAH and transferred its responsibilities to the Commissioner of the DCA. 43 N.J.R. 1621(a) (Aug. 1, 2011).

On July 8, 2011, the trial court entered an order denying defendants' motion to transfer to COAH, and granting the motion to stay the trial court proceedings. The stay was vacated by a January 24, 2012 case management order.

In March 2012, we held that the Governor's order abolishing COAH was not authorized by the Executive Reorganization Act (ERA), N.J.S.A. 52:14C-1 to -11. In re Plan for Abolition of Council on Affordable Housing, 424 N.J. Super. 410, 412 (App. Div. 2012), aff'd as modified, 214 N.J. 444 (2013). The Supreme Court thereafter granted the Governor's petition for certification to review our decision. 211 N.J. 274 (2012).

In July 2012, defendants again moved to dismiss the complaint, based on our recently issued decision in Wayne Property Holdings, L.L.C. v. Township of Wayne, 427 N.J. Super. 133 (App. Div.), certif. denied, ARC Equities, Inc. v. Township of Wayne, 212 N.J. 463 (2012). On August 24, 2012, following oral argument, the court entered an order dismissing the complaint without prejudice, concluding that plaintiff was required to exhaust its administrative remedies under the FHA. This appeal followed.

II.

Plaintiff argues that the trial court erred by dismissing its complaint because COAH was a non-functioning agency that was not conducting mediation and review proceedings or otherwise enforcing the Mount Laurel doctrine. Plaintiff maintains that the trial court erroneously determined that it was required to exhaust its administrative remedies before COAH, and asserts that only the trial court can effectively enforce the Mount Laurel doctrine. We disagree.

In Wayne Property, COAH had granted the municipality's petition for substantive certification of its second-round housing plan, which was effective for six years from the date of COAH's action. Supra, 427 N.J. Super. at 138. Thereafter, one of the plaintiffs filed an exclusionary zoning lawsuit alleging that the municipality's zoning ordinance did not comply with Mount Laurel II, the FHA, and COAH regulations. Id. at 138-39.

After COAH adopted its first iteration of the third-round rules, COAH granted the municipality's application and extended the second-round substantive certification until December 30, 2005 or until the municipality filed a petition for substantive certification for the third round. Id. at 139-40. The municipality sought third-round substantive certification on December 16, 2005. Id. at 140. In 2008, after we invalidated several of the third-round rules, the other plaintiff filed its exclusionary zoning lawsuit. Ibid. COAH subsequently adopted its new third-round regulations, and the municipality filed another petition seeking substantive certification pursuant to the new rules. Id. at 140-41.

The trial court consolidated the cases, and the municipality filed a motion seeking dismissal of the complaints without prejudice, arguing that the plaintiffs were required to exhaust their administrative remedies before COAH on the third-round plans before proceeding with their claims in court. Id. at 141. The court granted the motion. Ibid. We affirmed the trial court's order. Id. at 136.

We held that, while the FHA permits a party to challenge a municipality's substantively-certified housing plan on Mount Laurel grounds, the trial court nevertheless had the authority to order exhaustion of remedies before COAH where the municipality was seeking substantive certification in COAH's next round of its process. Id. at 143. We observed that exhaustion of such remedies was consistent with several policies reflected in the FHA, "which are to bring an administrative agency into the process of enforcing municipalities' Mount Laurel obligations and 'to get the courts out of that field.'" Ibid. (quoting Hills Dev. Co. v. Bernards Twp., 103 N.J. 1, 49 (1986)).

We are convinced that the trial court correctly determined that, as in Wayne Property, plaintiff must exhaust its administrative remedies before proceeding with its complaint in court. Plaintiff is endeavoring to pursue a Mount Laurel action and obtain a builder's remedy, while the Township is seeking substantive certification of its third-round housing plan from COAH. Here, as in Wayne Property, plaintiff must exhaust its remedies before COAH.

Plaintiff argues, however, that Wayne Property should not be considered binding precedent. In its initial brief, which was filed in January 2013, plaintiff argued that, even though we had set aside the Governor's executive order abolishing COAH, the agency had not been reconstituted, was legally incapable of acting and was essentially a non-functioning agency. Plaintiff argued that, under the circumstances, it should not be required to exhaust its administrative remedies.

However, as we explained in Wayne Property, "the FHA establishes a 'strong preference' for resolving Mount Laurel disputes in an administrative forum rather than through litigation in the courts." Id. at 146 (quoting Elon Assocs. v. Twp. of Howell, 370 N.J. Super. 475, 482-83 (App. Div.), certif. denied, 182 N.J. 149 (2004)). We recognized that COAH's consideration of third-round plans had been delayed by our invalidation of the rules governing those plans, which was then pending review by the Supreme Court. Id. at 145-46. We ordered the plaintiffs to exhaust their administrative remedies "despite the ongoing litigation regarding COAH's third-round rules." Id. at 146.

Events that occurred since the trial court entered its order dismissing plaintiffs' complaint provide further support for our conclusion that plaintiff must exhaust its remedies at COAH before proceeding with its complaint in the trial court. In July 2013, the Supreme Court held that the Governor did not have authority under the ERA to abolish COAH. In re Plan for Abolition of Council on Affordable Housing, supra, 214 N.J. at 448-49.

Furthermore, in September 2013, the Supreme Court held that COAH's use of the growth share methodology was not permitted by the FHA. In re N.J.A.C. 5:96 & 5:97, 215 N.J. 578, 612-17 (2013). The Court also held that other third-round rules were invalid, and directed COAH to adopt new regulations to govern the municipal affordable housing obligations. Id. at 619-20. The Court endorsed the remedy that we had ordered. Id. at 586. As stated previously, we had required COAH to adopt new third-round rules within five months. In re N.J.A.C. 5:96 & 5:97, supra, 416 N.J. Super. at 511.

Thereafter, COAH filed a motion with the Supreme Court to extend the deadline. The Court entered an order on March 14, 2014, which required COAH to prepare and approve proposed rules by May 1, 2014, and to promulgate the rules by November 17, 2014. The Court's order additionally stated that, in the event COAH did not adopt the rules by November 17, 2014, the Court would

[e]ntertain applications for relief in the form of a motion in aid of litigants' rights, including but not limited to a request to lift the protection provided to municipalities through N.J.S.A. 52:27D-313 and, if such a request is granted, actions may be commenced on a case-by-case basis before the Law Division or in the form of "builders remedy" challenges . . . .

We note that on April 30, 2014, COAH adopted proposed rules, thus indicating that COAH is a functioning administrative agency, despite plaintiff's claims to the contrary. At the present time, we have no reason to assume COAH will not meet the Supreme Court's deadline for final adoption of the revised third-round rules and proceed with mediation and review of housing plans in light of those rules. We therefore reject plaintiffs' argument that it should not be required to exhaust its administrative remedies before COAH.

Accordingly, we affirm the trial court's order dismissing plaintiff's complaint without prejudice.

Affirmed.