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Bryant v. City of Atlantic City

309 N.J. Super. 596, 707 A.2d 1072 (App. Div. 1998)

MUNICIPALITIES; DEVELOPERS; AGREEMENTS—A contingency in a municipal redevelopment agreement allowing the private developer to back out if its costs became unreasonable does not make the agreement illusory because the developer has a good faith duty to be objective in its determination that the costs are unreasonable.

A site known as Huron North (Huron) is located in the marina section of the City of Atlantic City. Despite efforts over the years to revitalize the 178 acre area, 150 of which are owned by the City, it remained vacant. In 1994, the City Council adopted a plan (Plan) to redevelop Huron into an entertainment/recreation facility by conveying the City-owned land to a redeveloper who would build the facility. A City committee chose Mirage Resorts, Inc. (MRI) as redeveloper for the site, and signed an agreement (Agreement) with it. All costs of development, including remediation of various environmental problems, were to be borne by MRI. However, if MRI determined “in its sole discretion” that costs of remediation were unreasonable, it could elect not to proceed. Residents of the City filed a complaint which was dismissed by summary judgment. Their claims, and the ultimate resolution by the Appellate Division, were:

First, it was argued that the City acted arbitrarily and capriciously in taking the steps that ultimately led to the Agreement with MRI. The Appellate Division stated that municipal actions enjoy a presumption of validity, and held that “when two courses of action are available to a municipal body, an action is not arbitrary and capricious if exercised honestly and upon due consideration, even if an erroneous conclusion is reached.” Worthington v. Fauver, 88 N.J. 183, 204-05 (1982). The Court concluded that the motion judge used the proper standard of review and properly dismissed this claim.

The residents argued that the transfer of City land to MRI for no consideration was a donation of public land for a private purpose, in violation of the New Jersey Constitution and the general principle that public money should only be used for public purposes. Relying on Roe v. Kervick, 42 N.J. 191 (1964), the Court set forth the two-part test for determining if public funds are being used in a prohibited way: the funded activity must be for a purpose that benefits the community as a whole, and the purpose must be directly related to the function of government. The Court held that the motion judge was correct in finding that, despite the incidental private benefit to MRI, the Plan was constitutional “given the public purposes and long-term goals the City had of developing the area into a world class resort.” Specifically, the Plan would lower unemployment, provide public recreational facilities, increase the City’s tax base, rehabilitate an unproductive area, and remediate a pre-existing landfill at the site. The Court also agreed that the conveyance to MRI was in furtherance of the legislative policy of redeveloping deteriorated public land, which would not occur without help from the private sector.

Next, the residents argued that the City’s approval of the Agreement violated the Local Redevelopment and Housing Law, because the Plan was not amended to mirror the Agreement that was ultimately signed. The Appellate Division upheld the finding that a redevelopment plan does not have to mirror the approved project as long as the plan outlines the proposed use of the land, the objectives to be met, and the criteria to be fulfilled, and demonstrates a significant relationship with a municipality’s master plan. The residents also claimed that failure to consider transportation issues in the Plan rendered the Agreement null and void. The Court held that nothing in the Law requires an authorizing resolution to address all of the terms ultimately to be included in any final agreement. The Court found such a requirement of foresight to be unrealistic, and affirmed the lower court’s dismissal of these claims.

Fourth, the residents claimed the Agreement contained so many contingencies that it was illusory, and must be voided, because there was no way to insure the public purposes would be satisfied. The Court defined an illusory promise as one which makes performance entirely optional, regardless of anything else. A contractual promise is not illusory if the power to terminate the contract is conditioned on factors outside a promisor’s “unfettered discretion.” The Court disagreed with the residents, finding, for example, that MRI could only terminate upon an objective, good faith showing that the costs of remediation were too high. Other grounds for termination were similarly restricted by objective, good faith standards, making the Agreement valid and enforceable.

The last argument made by the residents was that the trial judge erred in reforming the Agreement. First, the trial judge read a good faith requirement into MRI’s ability to terminate if remediation costs were too high. The Appellate Division stated that there is an implied covenant of good faith and fair dealing in every New Jersey contract, and that the judge simply made a reasonable legal interpretation. Second, the Agreement allowed conveyance by MRI to another entity without first having to obtain permission from the City, but the trial judge held that approval from the City was required. The Appellate Division agreed with the judge that the ability to convey Huron without permission from the City was in violation of Section 40A:12A-9(a) of the Local Housing and Redevelopment Law, which requires “written consent of the municipality or redevelopment entity.” However, the Court disagreed with the judge’s analysis, so instead of leaving the relevant clause in place as modified by the lower court, it simply severed that provision from the rest of the Agreement. The Court concluded that severance would not frustrate the purpose of the Agreement, which was held to be valid in all other respects.


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