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Cherokee Porete, LLC v. The Borough of North Arlington

BER-L-9580-06 (N.J. Super. Law Div. 2009) (Unpublished)

REDEVELOPMENT; MUNICIPALITIES — If a municipality’s administration changes and the new administration is opposed to the concept and terms of a previously executed redevelopment agreement, the terms of the redevelopment agreement still have to be implemented to the letter no matter how politically unpalatable they might turn out to be.

A redevelopment agreement was entered into between a group of redevelopers and a municipality. It called for building a large-scale housing development on 91 acres within the municipality. The land was designated as an area in need of redevelopment under New Jersey’s statutes and the municipality prepared and approved a redevelopment plan for the property. As part of the redevelopment agreement, the parties agreed that the municipality would, as a last resort, deploy its eminent domain powers to achieve the contemplated assemblage of real property. When the redevelopers requested that the municipality commence eminent domain proceedings with respect to several properties within the redevelopment area, the municipality rejected their request. The municipality claimed that the redeveloper failed to provide it with appraisals, copies of the offers to property owners, copies of the rejection letters, and more information relating to environmental studies. The redeveloper also asked that the municipality amend its redevelopment plan to include a site the developer controlled adjacent to the redevelopment area. When the municipality failed to respond to the developer’s requests, the developer sued, seeking damages and specific performance.

The Court ruled in favor of the redevelopers, noting that many of the property owners and tenants along the redevelopment area were opposed to an involuntary seizure of their properties. It also noted that, although the mayor endorsed the project, only a bare majority of the municipality’s governing body had approved the redevelopment agreement. Testimony was elicited at trial that several of the councilpersons, including one who was running against the mayor in the next election, were exploring ways to “get out of the [r]edevelopment [a]greement altogether.” One of the councilpersons even wrote a letter to the then-United States Attorney in New Jersey asserting that the mayor and the developer had colluded with each other to take advantage of the people of his municipality. The Court held that when one of the opposition councilmen’s slate won the primary against the then-current mayor’s slate, a “sea change” in attitude about the redevelopment agreement occurred, with the majority sentiment on the governing body now either “utterly opposing” the agreement or “exercising benign neglect” toward it.

The lower court found that by election day, when the opposition candidates won election to office, all of the redeveloper’s efforts to fulfill their undertakings pursuant to the redevelopment agreement were frustrated by the “purposive inaction” of the municipality’s agents. The Court ruled that despite the new administration’s sentiments, the terms of the contract had to be implemented to the letter, no matter how politically unpalatable they proved to be. It held that it had no role in measuring the fairness or appropriateness of the contract. It found that both sides accepted the fact that the contract was enforceable and held that it was not contrary to public policy nor the product of illegality, fraud, oppression or duress. It ruled that a letter from the municipality to the redeveloper declining to start acquisition efforts was a “thinly veiled dodge to avoid the politically suicidal process of government-sponsored acquisition.” It held that the letter committed the municipality to an unsubstantiated refusal to cooperate on extra-contractual grounds. The Court also found that the redeveloper acted in good faith as there was ample evidence that the redeveloper did all that was required under the development agreement. The Court also pointed out that the United States Constitution prohibits state governmental entities from impairing contracts, even in the name of getting elected or otherwise doing the right thing. Thus, it ruled that the municipality’s actions constituted an anticipatory breach of the contract.

The Court also ruled that the financial constraints placed upon the redeveloper’s affiliates were irrelevant to the financial agreement in the instant matter and did not put the redeveloper in material breach of the agreement. It noted that the evidence suggested several workarounds to the financing problems identified by the municipality and none triggered the municipality’s right to further assurances from the redeveloper. As to the redeveloper’s claim that the municipality breached its implied duty of good faith and fair dealing, the Court held that the municipality arbitrarily, and in bad faith, breached the contract. It rejected the redeveloper’s claims that the municipality violated its civil rights under the Federal Civil Rights Act of 1871. It ruled that “to act in a way that triggers state law remedies is one thing; to violate federal law for what is … a mundane breach of contract dispute is quite another.” The Court awarded the redeveloper the sum set aside in escrow which the redeveloper had paid into court and an amount equal to the sum of the installment payments that the redeveloper paid to the municipality. It held that these installment payments were the equivalent of an option payment or a licensing-type fee to act as redeveloper.

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