SUPREME COURT OF NJ DECIDES READINGTON CASE SEWER CAPACITY ARGUMENT

http://www.judiciary.state.nj.us/opinions/supreme/A6313388Route22vTwpofReadington.pdf

388 Route 22 Readington Realty Holdings, LLC v. Township of Readington (A-63-13) (073322) Argued December 2, 2014 – May 5, 2015 ALBIN, J., writing for a unanimous Court. In this appeal, the Court considers the circumstances under which a municipality may exercise its discretion to repurchase unused sewer capacity. In December 2007, plaintiff purchased property in Readington Township (Township). The property is serviced by a septic tank with a capacity of up to 2000 gallons per day (gpd). The Township rezoned plaintiff’s property from the Mixed-Use District to the Business District. Thereafter, plaintiff made plans to redevelop the property for use as a restaurant and other retail purposes. However, plaintiff’s septic tank does not have sufficient capacity to process the wastewater generated by the uses plaintiff proposes. In 1999, the Readington-Lebanon Sewerage Authority (Authority) began to expand its plant capacity to allow the treatment of an additional 320,000 gpd of the Township’s wastewater. As a result of the expansion, the Township was allocated a total of 939,000 gpd of sewer capacity. The Township agreed to pay the Authority $6,024,704 for the increased capacity and relied on private investment to finance the project. Each landowner purchasing future sewer capacity entered into a sewer allocation agreement with the Township. The sample allocation agreement places a time limit on the right of a landowner to hold on to unused capacity and provides that the landowner pay a certain sum for unused sewer capacity annually. By ordinance, the Township provides the methodology for allocation of sewer capacity to landowners and for the recapturing of unused capacity. According to the ordinance, in the case of those development projects which have not received approval by the appropriate Township board having jurisdiction at the time a request for gallonage is made, allocation agreements shall provide that if the applicant does not make formal application to the appropriate Township board within two years of approval of the allocation, then the Township Committee may, in its discretion, terminate the agreement. The ordinance also provides that if within two years after preliminary approval, construction has not commenced, the Township Committee may, at its discretion, terminate the agreement. Plaintiff requested that the Township recapture sufficient sewer capacity to allow its construction project to proceed. In response, the Township notified plaintiff that there was no sewer capacity available. Plaintiff filed a complaint against the Township and multiple private entities to compel the transfer of allocated, but unused, sewer capacity, claiming that the municipal ordinance addressing the allocation of sewer capacity was invalid either on its face or as applied by the Township. Plaintiff and defendants subsequently moved for summary judgment. The trial court remanded the matter to the Township Committee to review the reasoning set forth in its prior rejection of plaintiff’s request for sewer capacity and to provide a statement of reasons as a supplement to its decision. In response to the remand order, the Township Committee held a public hearing and issued a resolution denying plaintiff’s request for sewer capacity. The trial court affirmed the validity of the ordinance, but determined that the Township’s blanket policy of not recalling unused sewer capacity violated the dictates of this Court’s decision in First Peoples Bank v. Township of Medford, 126 N.J. 413, 420-21 (1991). According to the trial court, the Township’s obligation is not dependent on whether plaintiff can beg, borrow or cadge capacity from others, but rather to terminate agreements where it is appropriate to do so. As a remedy, the court ordered that the Township undertake, within ninety days, a review of the unused sewer capacity listed by plaintiff and provide a reasoned basis for not recapturing that capacity. Plaintiff and several defendants appealed, and in an unpublished opinion, the Appellate Division reversed. The Appellate Division agreed with the trial court that the Township relied on a policy of not re-taking sewer rights granted by contract, but also found that plaintiff could not overcome the presumption of validity that attaches to municipal decision-making. This Court granted plaintiff’s petition for certification. 217 N.J. 287 (2014). HELD: A blanket policy of not recapturing unused sewer capacity is the functional equivalent of a moratorium on development. The Court approves of the trial court’s approach, requiring the Township both to undertake a detailed analysis of the unused capacity in the hands of private parties and to explain whether any of that capacity can be recalled. 2 1. The Court’s primary task here is to resolve whether the Township’s sewer allocation ordinance is facially valid and whether the ordinance as applied by the Township Committee constitutes an improper delegation of land-use authority to private parties in violation of First Peoples. The Legislature has the constitutional authority to delegate to municipalities the police power to enact ordinances governing the nature and extent of the uses of land and has done so through the passage of the Municipal Land Use Law (MLUL). This power, however, is not unlimited. Like all ordinances, the Township’s sewer allocation ordinance is entitled to a presumption of validity, and the party challenging the ordinance bears the burden of overcoming that presumption. (pp. 29-31) 2. A sewer ordinance should withstand a challenge unless it is inequitable, unfair, or lacks adequate standards to insure the fair and reasonable exercise of municipal authority. In First Peoples, which addressed several of the issues presented here, Medford Township financed the expansion of its sewage plant through the sale of sewer permits that were available on an equal basis to all developers. There, the question was whether the ordinance articulated adequate standards to guide the exercise of municipal discretion when considering the repurchase of permits. This Court concluded that the ordinance, although not exquisitely drafted, contained sufficient standards to withstand the plaintiff’s challenge and rejected the plaintiff’s as-applied challenge to the ordinance, finding nothing to suggest that Medford had acted arbitrarily in deciding whether to exercise its repurchase option. (pp. 32-34) 3. With those principles in mind, the Court rejects plaintiff’s challenge to the ordinance itself and finds that the Township’s sewer allocation ordinance provides adequate standards to guide the exercise of municipal discretion when considering the repurchase of permits. The Court presumes that the ordinance’s drafters intended certain practical considerations to be taken into account by the Township Committee in exercising its discretion whether to terminate an allocation agreement or extend one based on good cause. Such considerations would include (1) the length of time a landowner has possessed unused sewer capacity, (2) the development plans of the landowner to tap some or all of the unused capacity and the imminence of that happening, (3) the complexity of the development project and the importance of the project to the community, (4) whether the economy has retarded economic development, (5) proposed development projects by others that cannot proceed because of unavailability of sewer capacity and the importance of those projects to the community, and (6) any other relevant factors. As was true in First Peoples, the ordinance here was not exquisitely drafted. Nevertheless, it must be liberally construed in favor of its validity. This ordinance in no way suggests that the Township as a matter of law has delegated its authority to control land use, or access to sewer capacity, to private parties. The Court concludes that the sewer allocation ordinance provides adequate guidelines for the Township to exercise its discretion whether and when to repurchase sewer capacity. (pp. 35-37) 4. In contravention of its own ordinance, the Township maintains a blanket policy of not repurchasing unused sewer capacity allocated to developers. The fact that sewer capacity was allocated by contracts to private entities that financed the plant expansion project and was paid for at considerable expense cannot be the end of the analysis. Otherwise, the ordinance requiring the Township to exercise its discretion in recapturing sewer capacity would be meaningless. That other landowners did not participate in purchasing capacity to help finance the plant expansion may indicate nothing more than that they did not have a need for sewer capacity at the time. (pp. 37-39) 5. The Appellate Division placed on plaintiff the burden of showing that defendant developers were acting without good cause for delay by not voluntarily surrendering their sewer rights for the fair value offered by plaintiff. That defeats the purpose of the ordinance and of the policy of the MLUL, which is to have the Township exercise its decision-making authority in land-use matters. The resolution also failed to analyze which developments, if any, fall under the dictates of the Permit Extension Act, N.J.S.A. 40:55D-136.1 to -136.6. Last, and most significantly, the resolution did not give a reasoned explanation for the Township’s failure to exercise discretion, as required by its own ordinance. As a best practice, the Court suggests that the Township maintain updated records of the unused capacity held by private parties so that it can exercise its discretion, when necessary, with current information. (pp. 39-42) 6. The Court orders the Township Committee, within ninety days, to undertake a critical review of the unused capacity identified by plaintiff and to determine whether any such capacity can be recaptured from defendants to satisfy plaintiff’s development needs. (p. 42) The judgment of the Appellate Division is AFFIRMED IN PART and REVERSED IN PART. The matter is REMANDED to the trial court for proceedings consistent with this opinion. CHIEF JUSTICE RABNER and JUSTICES PATTERSON, FERNANDEZ-VINA, and SOLOMON join in JUSTICE ALBIN’S opinion. JUSTICE LaVECCHIA and JUDGE CUFF (temporarily assigned) did not participate.