COURT OF CITY OF JERSEY CITY v. 212 New Jersey Limited Liability Company LLC

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

CITY OF JERSEY CITY, a

municipal corporation of

the State of New Jersey,

Plaintiff-Respondent,

v.

212 Marin Boulevard, LLC, a

New Jersey Limited Liability

Company; 247 Manila Avenue, LLC,

a New Jersey Limited Liability

Company; 280 Erie Street, LLC,

a New Jersey Limited Liability

Company; 317 Jersey Avenue, LLC,

a New Jersey Limited Liability

Company; 354 Cole Street, LLC,

a New Jersey Limited Liability

Company; 389 Monmouth Street,

LLC, a New Jersey Limited

Liability Company; 415 Brunswick

Street, LLC, a New Jersey Limited

Liability Company; 446 Newark

Avenue, LLC, a New Jersey Limited

Liability Company; and NZ funding,

LLC, a New Jersey Limited Liability

Company;

Defendants-Appellants,

and

Claudia Jastrzebski, and

Victoria Hyman,

Defendants.

___________________________________

August 28, 2015

Argued April 15, 2015 Decided

Before Judges Fuentes, Ashrafi and O'Connor.

On appeal from Superior Court of New Jersey, Chancery Division, Hudson County, Docket No. C-12-13.

Eric D. McCullough argued the cause for appellant (Waters, McPherson, & McNeill, PC, attorneys; Daniel E. Horgan, of counsel and on the brief; Mr. McCullough and Jorge R. de Armas, on the briefs).

John J. Curley argued the cause for respondent (John J. Curley, LLC, attorneys; Mr. Curley, of counsel and on the brief; Jennifer J. Bogdanski, on the brief).

PER CURIAM

In 2005, Consolidated Rail Corporation (Conrail) sold fourteen properties in Jersey City, collectively known as the Embankment, to various limited liability companies (LLCs).1 The LLCs received and recorded quitclaim deeds for the properties. The City alleges Conrail did not follow federal law requiring it to seek leave to abandon the line of rail from the Surface Transportation Board (STB) before selling the property to the LLCs. The City claims Conrail's failure to seek leave from the STB before selling the Embankment property to the LLCs triggered the application of a New Jersey statute granting "the State and its political subdivisions" the right of first refusal over the Embankment property. N.J.S.A. 48:12-125.1. Because Conrail did not provide the City with the notice required under N.J.S.A. 48:12-125.2, the City is challenging the legality of the sale of the Embankment property to the LLCs.2

Despite the disputed ownership claims, the City's Tax Collector has recognized the LLCs as the title holders of the Embankment properties by issuing quarterly tax bills to the LLCs. The LLCs paid property taxes on the Embankment properties until 2009. After the LLCs stopped paying property taxes, the City issued Tax Sale Certificates (TSC) pursuant to the Tax Sale Law (TSL), N.J.S.A. 54:5-1 to -137. The City thereafter sold the TSCs at a public auction in 2013. All of the TSCs were bought by NZ Funding, LLC, which openly shares a common owner and unity of interests with the LLCs.

The LLCs and NZ Funding (collectively, appellants) maintain they defaulted on the taxes and subsequently purchased the respective TSCs to provide them with a means of recouping the taxes it paid the City on the properties in the event the titles they purchased from Conrail are voided and the properties revert to Conrail or some other public entity.

Jersey City filed this action in the General Equity Part, arguing appellants' scheme is dishonest, inequitable, and contrary to what the Legislature intended when it adopted the TSL. The City petitioned the court to cancel the TSCs claiming this was a perversion of the TSL and was akin to perpetrating a fraud upon the court. The General Equity Judge agreed with the City's position. The Judge found the certificate holders sought to manipulate the rights conferred to them by the TSL in order to gain a tactical advantage in a title dispute. Relying on the decision in Hyland v. Kirkman, 204 N.J. Super. 345 (Ch. Div. 1985), the Judge concluded the certificate holders' scheme was "inconsistent with the primary purpose of the Tax Sale Law and the State's public policy of insuring timely payment of municipal taxes."

After reviewing the record before us, we reverse. The General Equity Judge misapplied the Chancery Division's holding in Hyland to the salient facts of this case. In contrast to the controlling facts in Hyland, the holders of the TSCs here have not concealed their intent. Appellants have readily admitted that purchasing their own TSCs through NZ Funding is a means of hedging their position in an unrelated title dispute.

The Supreme Court has recognized, "the TSL [serves] as a framework to facilitate the collection of property taxes." Varsolona v. Breen Capital Servs. Corp., 180 N.J. 605, 620 (2004) (citation omitted). The purpose of the TSL is "to promote the sale of tax sale certificates as a source of municipal revenue[.]" In re Princeton Office Park, L.P. v. Plymouth Park Tax Servs., LLC, 218 N.J. 52, 55-56 (2014). In that context, "the purchaser of a tax sale certificate possesses a tax lien on the encumbered property." Id. at 56. By issuing TSCs to recover the amount of delinquent property taxes connected to these properties, the City achieved the principal purpose of the TSL, to convert "a non-performing asset into cash without raising taxes." Varsolona, supra, 180 N.J. at 610.

The subjective reasons a certificate holder may have for acquiring TSCs at a public auction do not impugn the legal viability of a TSC. The legal viability of the TSC depends on whether the holder complied with the statutory requirements of the TSL. There is no indication in this record that appellants failed to satisfy this objective standard.

The trial court reached the decision we review here in the context of cross-motions for summary judgment. Accepting the core factual allegations as true, the court granted the City's motion for summary judgment and voided appellants' TSCs as a matter of law. In reviewing the court's grant of summary judgment, we will apply the same standard used by the trial court. Bhagat v. Bhagat, 217 N.J. 22, 38 (2014) (citations omitted). We are satisfied there are no genuine issues of material fact in dispute and that this matter is ripe for summary judgment as a matter of law. Walker v. Alt. Chrysler Plymouth, Inc., 216 N.J. Super. 255, 258 (App. Div. 1987). Because the appeal requires us to resolve only issues of law, we do not owe any deference to the trial court's interpretation of the law or the legal consequences that flow from established facts. Manalapan Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378 (1995). Our review is de novo. Saccone v. Bd. of Trs. of the Police & Firemen's Ret. Sys., 219 N.J. 369,380 (2014).

I

A

On April 1, 1976, Conrail acquired the Embankment (Pennsylvania Railroad Harsimus Branch embankment) pursuant to the Regional Railroad Reorganization Act of 1973.3 At that time, the Embankment was "part of a line of railroad subject to the jurisdiction . . . of the Interstate Commerce Commission, now the Surface Transportation Board." The property was thus subject to the mandate under 49 U.S.C.A. 10903, requiring Conrail to seek abandonment authorization from the STB before the property could be sold for non-rail purposes.

On July 12, 2005, the LLCs purchased the Embankment properties from Conrail. In a certification submitted to the General Equity Part in support of the LLCs' motion for summary judgment, the LLCs' and NZ Funding's managing agent, Steven L. Hyman, averred Conrail provided the LLCs with quitclaim deeds, which were recorded with the Register of Hudson County. At the time the sale took place in 2005, Conrail had not petitioned the STB for abandonment. Although the record is not entirely settled about whether the LLCs were actually aware of the abandonment requirement, the federal statute's clear mandate makes this point irrelevant. All of the parties to this transaction were constructively on notice of this and any other relevant legal requirement related to the purchase of this property.

The City and the LLCs have been engaged in extensive litigation over this property since 2005. The City has maintained the property was a "line of rail," thus obligating Conrail to petition the STB for abandonment authorization, as required by 49 U.S.C.A. 10903. The City argues the deeds provided to the LLCs by Conrail are therefore void because N.J.S.A. 48:12-125.1 provides "the State and its political subdivisions" with a right of first refusal. N.J.S.A. 48:12-125.2 requires Conrail to provide notice to the City in order to enable it to decide whether it wishes to exercise the right of first refusal.

In September 2005, the LLCs filed a civil rights action in the Law Division under Docket No. HUD-L-4908-05, alleging the City violated their civil rights by interfering with the LLCs' ability to use and enjoy the Embankment. In January 2006, the City filed a series of legal actions in various federal forums that ultimately resulted in a final decision from the District of Columbia District Court, finding the Embankment was "a line of rail" subject to the STB's abandonment jurisdiction. The City's claim to void the LLCs' quitclaim deeds was stayed in the Superior Court while the federal actions were pending.

B

As the record shows, the City has unequivocally and steadfastly advanced the legal position that the quitclaim deeds the LLCs received from Conrail were void ab initio. Despite this legal position, the City assessed the Embankment property and levied and collected real property taxes from the LLCs based on the assessed valuation. The City's Tax Collector sent quarterly tax bills to the LLCs, and the LLCs paid these property taxes from 2006 through 2008.

In 2009, the LLCs stopped paying property taxes. On July 7, 2009, the City sold the TSC for one of the properties to Victoria Hyman, a well-known associate of the LLCs. The LLCs make this point clear in their counterclaim against the City

The City knew Victoria Hyman, a member of each of the LLCs, received some or all of the certificates from the auction. Those certificates were transferred to NZ Funding, LLC to, among other valid reasons, protect the interests of LLC Defendants in the Embankment against the wrongful actions of the City in making claims that titles to the Embankment were void when in fact the City was fully aware that there was no valid declaration that the Embankment was then federally regulated and that there had been no federal abandonment enabling the City to seek to apply the provisions of N.J.S.A. 48:12-125.1 or other provisions of law against the interest of the LLC Defendants.

On June 29, 2010, the City sold thirteen tax sale certificates for the remaining thirteen properties to Victoria Hyman. On September 24, 2010, Hyman transferred the tax sale certificates to NZ Funding, thus making NZ Funding the legal owner of all fourteen tax sale certificates. It is undisputed that the LLCs' title holders and NZ Funding share common ownership. Despite this, the City continued accepting tax payments from NZ Funding from 2010 through 2013. The LLCs claim they stopped paying property taxes, opting instead to purchase the tax sale certificates in order to

protect the LLCs, and their principals, from a potential judgment voiding the titles. Based upon review of the City's arguments, the LLCs have concluded that if the titles are void, Conrail would be the owner of the Embankment, and would always have been the owner because the 2005 sale was void. If Conrail is the owner, there would be no reason for the LLCs to pay real property taxes on Conrail's behalf.

The tax sale certificates provide a way for the LLCs to recoup the taxes. The tax sale certificates are a lien on the Embankment, and NZ Funding, as holder of the certificates, could institute a foreclosure action against Conrail (assuming the City succeeds in voiding the titles). As a result of the foreclosure sale (or settlement), the LLCs could recover from Conrail all the taxes paid during the period the City argues Conrail was the real owner.

II

Based on these uncontested facts, the General Equity Judge granted the City's motion for summary judgment and voided the validity of the TSCs purchased by NZ Funding. In a written opinion, the judge concluded the purchase of TSCs by individuals associated with the delinquent taxpayer violated the intent of the TSL. Relying on Hyland, supra, the judge found appellants' decision to deliberately stop paying property taxes in order to compel the City to issue TSCs with the intention of buying those TSCs at a public auction was akin to engaging in a civil conspiracy to commit fraud

I find it fraudulent for the [appellant] LLCs to deliberately default on their taxes, and then permit a related LLC to purchase the Tax Sale Certificates with the intent to foreclose, if the embankment properties revert to Conrail ownership. . . .

The [appellants'] stated purpose in purchasing the tax sale certificates through an affiliate was to "satisfy [their] obligation to pay taxes, but in a manner that creates a lien on the property," and in the event ownership reverts to Conrail, gives them the ability to get reimbursed for the taxes it has paid. It's a creative, resourceful and ingenious plan, but unfortunately it is not authorized or permitted by our Tax Sale Law. . . .

I find the [appellants'] actions "improper, fraudulent, and dishonest." I find the conduct displayed by the [appellants] to be inconsistent with the primary purpose of the Tax Sale Law and the State's public policy of insuring timely payment of municipal taxes.

As a threshold issue, appellants argue the City does not have standing to challenge the validity of the TSCs because it has not been harmed in any way. In fact, appellants stress the City has been made whole because all of the delinquent taxes have been paid. In assessing the question of standing, we "must determine 'whether the party has a sufficient stake in and real adverseness with respect to the subject matter, and whether the party will be harmed by an unfavorable decision.'" Stubaus v. Whitman, 339 N.J. Super. 38, 47 (App. Div. 2001) (quoting In re Charter Sch. Application of Englewood, 320 N.J. Super. 174, 222 (App. Div. 1999), aff'd, 164 N.J. 316 (2000)).

Courts in this State have historically taken a "broad and liberal approach to standing," interpreting standing more broadly than under the United States Constitution. N.J. Citizen Action v. Riviera Motel Corp., 296 N.J. Super. 402, 415 (App. Div. 1997). As recognized by Chief Justice Hughes in In re Quinlan, 70 N.J. 10, 34-35, cert. denied, 429 U.S. 922, 97 S. Ct. 319, 50 L. Ed. 2d 289 (1976), "our courts hold that where the plaintiff is not simply an interloper and the proceeding serves the public interest, standing will be found." However, "there must be a substantial likelihood the party will suffer some harm by an unfavorable decision." Stubaus, supra, 339 N.J. Super. at 48. We are not in the business of rendering advisory opinions. Ibid.

The issue of standing was raised by appellants in their motion for reconsideration. Citing Cummings v. Bahr, 295 N.J. Super. 374, 384 (App. Div. 1996), the trial judge declined to examine the City's standing because the issue had not been raised in the previous summary judgment motions or at oral argument. However, the question of standing was addressed by the Chancery Division in Hyland, the opinion the trial judge relied on here to support his ultimate conclusion.

In Hyland v. Kirkman, 157 N.J. Super. 565, 570 (Ch. Div. 1978), the Attorney General brought an action to set aside tax sale certificates sold to private parties which had been purchased in the course of a "massive fraud upon the courts and land recordation system of the State." The defendant argued only private interests had been damaged by its actions. Id. at 574. Ultimately, the Attorney General determined he had standing to bring the suit. Id. at 575. The court in Hyland found the Attorney General had discretion to challenge activity that threatened the public interest, to protect a natural resource such as the Pine Barrens, and a duty to safeguard the integrity of the land recordation system and public institutions from misuse. Id. at 575-76.

Here, the Attorney General is not a party. Appellants' actions did not threaten a particular public resource owned by the City. The future of the Jersey City Embankment, a historic site which is the subject of numerous preservation campaigns,4 is not implicated in this case. The City merely challenges the validity of tax sale certificates that were duly purchased at a public auction the City conducted pursuant to the TSL and controlled at all times by the office of the municipal tax collector. However, given our historic commitment to construing the concept of standing in a broad and liberal fashion, we conclude the City has an interest in ensuring its municipal property taxes are collected in a lawful manner.

We thus turn to review the central issue in this appeal. Appellants argue the City's complaint to void the TSCs should have been dismissed on ripeness grounds. Citing Rule 4:64-6(a), appellants argue the "statutorily proper forum" for challenging the validity of the tax sale certificates is in the context of an action to foreclose filed by NZ Funding. The City argues its challenge to the TSCs' validity is grounded upon N.J.S.A. 54:5-52, which permits the adjudication of the TSCs' validity at this time.

Ultimately, the question of ripeness is irrelevant because the City cannot prevail on its claim of fraud as a matter of law. "The elements of common-law fraud are '(1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages.'" Allstate New Jersey Ins. Co. v. Lajara, ____ N.J. ____, ____ (2015) (slip op. at 27). (quoting Banco Popular N. Am. v. Gandi, 184 N.J. 161, 172-73 (2005)). The City has not established any of these elements.

Appellants have not misrepresented themselves throughout this entire saga. The holders of the TSCs have not concealed their association with the entities that hold title to these properties and are delinquent in their property tax obligations. The City has not suffered an economic harm from the title holders' failure to pay taxes because the taxes were paid by the holders of the TSCs. In purchasing these TSCs, appellants have adopted a litigation strategy in the parallel case directly challenging their title to these properties. That strategy may or may not pay off. However, neither the City nor the trial judge have cited a specific provision of the TSL that appellants have violated.

N.J.S.A. 54:5-52, the statute cited by appellant as the basis of this action provides

The certificate of sale shall be presumptive evidence in all courts in all proceedings by and against the purchaser, his representatives, heirs, and assigns, of the truth of the statements therein, of the title of the purchaser to the land therein described, and the regularity and validity of all proceedings had in reference to the sale. After two years from the record of the certificate of sale, no evidence shall be admitted in any court to rebut the presumption, unless the holder thereof shall have procured it by fraud, or had previous knowledge that it was fraudulently made or procured.

[(Emphasis added).]

The City has not presented any evidence of fraud. Appellants' TSCs are thus presumptively valid. See ibid.

The trial judge's reliance on Hyland is misplaced. The salient facts in Hyland involved indisputable evidence of a massive scheme to perpetrate a fraud upon the courts and land recordation system of New Jersey. The scheme spanned decades and involved over 8000 acres of land. The two principal defendants utilized a title agency, numerous companies, multiple lawyers and real estate brokers, and their families, to fraudulently obtain vast tracts of land in the Pine Barrens. Hyland, supra, 157 N.J. Super. at 571-74. See also Hyland, supra, 204 N.J. Super. at 353-62.

Here, the City has not been economically injured. The record is devoid of any evidence of fraud or a particular violation of the TSL.

1 These companies were created under the New Jersey Limited Liability Company Act, N.J.S.A. 42:2B-1 to -70, which the Legislature repealed effective March 1, 2014, and replaced it with the "Revised Uniform Limited Liability Company Act," N.J.S.A. 42:2C-1 to -94.

2 The LLCs filed a counterclaim against the City in this case concerning the title rights of the Embankment property. After granting the City the relief it sought in this case, the General Equity Part severed and consolidated the LLCs' counterclaim with a pending action in the Law Division involving the title rights of the Embankment property. See 212 Marin Boulevard, LLC v. City of Jersey City, Docket No. HUD-L-4908-05.

3 We derived these facts in part from the Joint Stipulation filed by the City, Conrail, and the LLCs on July 10, 2012, with the United States District Court for the District of Columbia, in connection with the title dispute of the land collectively known as the Embankment, Docket No. 09-1900, and the Memorandum of Opinion authored by Judge Amy Berman Jackson, U.S.D.J. for the District of Columbia on September 30, 2013.

4 See The Embankment Preservation Coalition, www.embankment.org (last visited Aug. 24, 2015).