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Toll Bros., Inc. v. The Township of Moorestown

2011 WL 2559507 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

ZONING; SETTLEMENTS — A developer may have claims against a municipality for the municipality’s failure to act in a way consistent with a zoning settlement agreement if the municipality irrationally and arbitrarily treated the developer differently than similarly situated parties or, during settlement negotiations, the municipality knew its representations regarding its promises were false, intending that the developer would rely on such representations in a situation with the developer actually does rely on them.

A developer wanted to construct an age-qualified residential development. It applied for the Preliminary and Final Subdivision Approvals, Preliminary and Final Major Site Plan Approvals, and Minor Site Plan Approvals needed to begin construction. The municipality approved the application subject to certain conditions. One of the conditions required the developer to make all necessary improvements and repairs to the municipal water system or pay a pro-rata share of the cost for those improvements as determined by the municipality’s engineer.

The developer challenged the legality of these conditions in the New Jersey Superior Court and the court invalidated the conditions and directed the municipality to revise them to limit the developer’s responsibility to a pro-rata share of off-tract improvements. The municipality revised the conditions such that the developer would be required to either pay its pro-rata share of the cost of any off-tract improvements necessitated by its project or construct all off-tract improvements with the right to recapture any amount expended in excess of its pro-rata share. The municipality also required the developer to construct a second water interconnection as a condition to the issuance of any certificate of occupancy, subject to the developer’s right to recapture any amounts in excess of its pro-rata share of such improvements. The developer sued again in the New Jersey Superior Court, contending that the revised water condition remained unlawful. That court invalidated the revised condition and remanded the issue back to the municipality to determine the amount of the developer’s pro-rata share of the off-tract improvements.

The municipality adopted a final water condition. It limited the developer’s obligation for off-tract water system improvements to a pro-rata share of the cost to build the second interconnection or such other improvements necessitated by the construction and conditioned the issuance of any construction permits on such payment. Thereafter, the developer requested that the municipality provide it with the proper pro-rata assessment. The municipality responded that it could not provide the pro-rata assessment until plans were developed for the construction of the second interconnection.

In an effort to compel the municipality to provide water service to the property, the developer filed a third complaint against the municipality in New Jersey Superior Court. At that time, the parties were engaged in litigation regarding the return of the balance of a performance bond posted by the developer in connection with a prior residential project and litigation regarding property tax responsibilities for other properties within the municipality belonging to the same developer. The municipality then informed the state court that discussions were progressing well with the water company and that it did not foresee any insurmountable obstacles to construction of the second interconnection. It requested that the matter be placed on hold while the parties sought resolution of the matter. The parties then entered into a settlement agreement to resolve the pending litigation.

Following execution of the settlement agreement, the developer indicated to the municipality that it was prepared to proceed with a reservation of necessary water resources for the property. The municipality responded that it would not purchase the additional water required to service the construction due to the high cost of complying with state environmental requirements. The municipality told the developer that it did not intend to enter into a water agreement with the developer because it didn’t know how long it would be required to purchase additional water from the water company. It suggested that the developer enter into an agreement directly with the water company to supply the project.

The developer filed suit in federal court against the municipality, alleging that the municipality could simply amend its contract with the water company by discontinuing its purchase of water at retail rates and beginning to purchase at commodity demand rates. This would enable the municipality to increase its water supplies to service the project without increasing what the municipality would be obligated to pay. The developer claimed that the municipality always made sure that water was available to all other water users and had never denied water service to any applicants other than the developer. The developer also claimed that the municipality’s refusal was part of a consistent and intentional course of conduct aimed at preventing the developer from developing the project. The municipality moved to dismiss the claims.

Three of the developer’s claims asserted Constitutional violations. The developer made a Section 1983 claim, alleging that the municipality’s refusal to provide water service constituted a violation of its equal protection rights and substantive due process rights under the Fourteenth Amendment and was an unconstitutional governmental taking under the Fifth Amendment.

With respect to the Fourteenth Amendment Equal Protection argument, the Court agreed that the developer had a plausible claim that it had been irrationally and arbitrarily treated differently than similarly situated water users. The developer alleged that it was similarly situated to other persons; that the municipality had treated it differently than those other persons; and that there was no rational basis for the municipality’s actions. Likewise, the Court acknowledged a New Jersey Equal Protection claim because the requirements for such a claim essentially mirror its federal counterpart. However, the Court found no support for the substantive due process claim because the municipality’s conduct, even if arbitrary or tortious, did not rise to the level of the kind of gross misconduct that shocks the conscience.

The Court also found a valid common law fraud claim based on the developer’s allegation that the municipality, during settlement negotiations, knew its representations regarding its water promises were false, intending that the developer would rely on such representations, and that the developer did so rely.

Then, the Court found that the developer had sufficiently alleged a breach of the settlement agreement. The New Jersey court did not expressly retain jurisdiction to enforce the terms of the agreement, and the state court order was not supported by a reasoned opinion explaining the grounds for denying a prior motion by the developer. Thus, there was insufficient evidence that the state court’s order was an adjudication on the merits, which would have been necessary for it to have preclusive effect. Finally, the Court found that the developer could not sustain its takings claim under either New Jersey or Federal law because it had not previously pursued a claim for compensation pursuant to New Jersey’s inverse condemnation procedures as required for a takings claim.

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