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Westmont Development Group, LLC v. Township of Haddon

625 F.Supp.2d 178 (D. N.J. 2009)

REDEVELOPMENT — A court analyzes a developer’s claim that a municipality breached its agreement to cooperate with the developer in furthering a redevelopment agreement by refusing to use its governmental powers to acquire adjacent land for parking.

A municipality and the county improvement authority entered into a purchase-leaseback agreement for certain land within the municipality. Under the agreement, the municipality transferred title to the authority. The authority leased the land back to the municipality and provided financing for improvements to build a theater there through the issuance of bonds. The agreement provided for the municipality to repurchase the property once the bonds were fully repaid.

A developer seeking a suitable location for a new live entertainment venue became interested in the property and contacted the municipality. The developer and the municipality entered into a redevelopment agreement. Even at the inception of the redevelopment agreement, both the developer and the municipality were aware that it would be difficult to obtain adequate parking for the project. The developer entered into unsuccessful discussions with the owner of adjacent property to purchase it for parking. The developer claimed that the adjacent owner wanted an exorbitant price to sell the parcel. Notwithstanding the developer’s inability to buy the adjacent property, it anticipated that the municipality would take steps to procure the adjacent owner’s property for public use. This belief originated from a parking study conducted by the municipality which indicated that the adjacent property was the most logical source of additional parking for the municipality’s downtown district.

The municipality took no steps to acquire the property. In fact, a new municipal election cycle signified a turning point in relations between the municipality and the developer. After the election, the municipality declared the developer to be in default of the redevelopment agreement because it had failed to submit a project plan before the deadline called for in the redevelopment agreement. The developer responded by asserting that the municipality was in default under the agreement and claimed that the municipality was not acting in good faith. The municipality, again asserting that the developer failed to abide by the agreement, terminated it. The developer sued the municipality and the county improvement authority.

The United States District Court dismissed the developer’s complaint. First, the Court rejected the developer’s breach of contract claim. It held that the municipality did not breach the contract when it failed to convey the subject property because none of the contingencies set forth in the redevelopment agreement were ever satisfied by the developer. Further, it held that the municipality did not breach its contract when it did not condemn the adjacent property since it had no duty under the contract to do so. Moreover, the Court rejected the developer’s argument that the municipality breached its obligation under the “Cooperation” clause of the redevelopment agreement. Although it noted that, even in the absence of express provision, the municipality had an implied contractual obligation to comply with the covenant of good faith and fair dealing, it also found that the New Jersey Supreme Court had noted its reticence to “impose a set of morals on the market-place” especially between two experienced commercial parties, as was the case here. Thus, the Court held that no reasonable fact-finder could conclude that the municipality violated this implied covenant because: (a) the developer was technically in default of the contract before the allegedly unfair acts occurred; (b) the developer entered into the redevelopment agreement with full knowledge that lack of parking would pose a problem in effectuating the project; (c) the evidence that the new mayor disfavored the developer’s project was not accompanied with any indication that he had an improper motive for doing so; and (d) despite the foregoing, the developer still could have salvaged the project by curing its default in response to the municipality’s request for it to do so, but it did not take any such actions.

The Court also agreed with the municipality that the developer was in default under the redevelopment agreement because it had failed to submit a project plan. It found that the developer’s “proposal,” which it purported to be a project plan, was scant on details, and on its face was intended to address only one phase in the project. Nowhere in the documents submitted was a written description of proposed uses or a showing of adequate parking facilities for maximum seating capacity as required under the redevelopment agreement. Further, the Court noted that the evidence indicated that the purported “plan” submitted by the developer was not delivered in a timely fashion.

Lastly, the Court rejected the developer’s claim that the municipality made negligent misrepresentations. The Court ruled that case law was clear that a negligent misrepresentation claim is not cognizable as between commercial parties engaged in a direct contractual relationship resulting from arms-length negotiations, as was the case here. It found no special duty of care existed in such matters. As a result, the Court dissolved temporary restraints against the municipality preventing the conveyance of the subject property to a third party imposed by the Court (with the consent of all the parties) at the commencement of the action pending the outcome of the law suit, because all claims against the municipality had been dismissed.

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