GOURMET DINING, LLC VS. UNION TOWNSHIP (TAX COURT OF NEW JERSEY) , 459 N.J. Super. 323 ( 2019 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4799-17T3
GOURMET DINING, LLC,
APPROVED FOR PUBLICATION
Plaintiff-Appellant,
May 31, 2019
v. APPELLATE DIVISION
UNION TOWNSHIP and NEW
JERSEY EDUCATIONAL
FACILITIES AUTHORITY,
Defendants-Respondents,
and
KEAN UNIVERSITY,
Defendant-Appellant.
______________________________
Argued April 2, 2019 – Decided May 31, 2019
Before Judges Yannotti, Rothstadt and Natali.
On appeal from the Tax Court of New Jersey, Docket
Nos. 16504-2013 and 12334-2014.
Robert F. Giancaterino argued the cause for appellants
(Skoloff & Wolfe, PC, attorneys; David B. Wolfe,
Barbara A. Schweiger and Rebecca L. Hutcheon, on
the briefs).
Robert F. Renaud argued the cause for respondent
Union Township (Renaud DeAppolonio, LLC,
attorneys; Robert F. Renaud and Adam J. Colicchio,
on the brief).
Jamie M. Zug, Deputy Attorney General, argued the
cause for respondent New Jersey Educational
Facilities Authority (Gurbir S. Grewal, Attorney
General, attorney; Melissa H. Raksa, Assistant
Attorney General, of counsel; Jamie M. Zug, on the
brief).
The opinion of the court was delivered by
YANNOTTI, P.J.A.D.
Gourmet Dining, LLC, operates a restaurant in a building on the campus
of Kean University (the University) in the Township of Union (the Township).
The Tax Court held that the premises where Gourmet Dining operates the
restaurant are subject to local property taxes. Gourmet Dining and the
University appeal from the Tax Court's judgment affirming the assessments
and the court's order denying their motion for reconsideration. For the reasons
that follow, we reverse.
I.
In 2004, the University established a program to meet the State's need
for qualified science and mathematics teachers and scientific researchers, and
decided to construct a building on its campus to house the program. The
University financed the construction of the building through the New Jersey
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Educational Facilities Authority (the Authority), an entity authorized to
finance the construction of facilities by public institutions of higher education
in this State. See N.J.S.A. 18A:72A-5(k). The University and the Authority
entered into a Lease and Agreement, dated December 1, 2005 (the Financing
Agreement).
In the Financing Agreement, the Authority agreed to issue tax-exempt
bonds and provide the proceeds from the sale of the bonds to the University for
the construction of the building. To ensure repayment of the principal and
interest on the bonds, the University agreed to convey title to the property to
the Authority. In exchange, the Authority agreed to lease the property to the
University for a period of thirty years, or until the bonds are fully paid, at
which time the Authority would re-convey title to the University.
The University constructed the building with funds provided by the
Authority pursuant to the Financing Agreement. The building is known as the
New Jersey Center for Science, Technology and Mathematics (NJCSTM). The
NJCSTM was ready for use in September 2010. It included space for a full-
scale restaurant, which is open to the public.
In June 2010, the University's Board of Trustees (the Board) adopted a
resolution, which authorized the Kean University Foundation, Inc. (the
Foundation) to complete the restaurant project and engage an experienced
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manager to operate the restaurant. The Board's resolution stated that "a
minimum of [ten] percent of the restaurant's gross revenues [shall] annually be
allocated for scholarship purposes within the Foundation."
In October 2011, the University and the Foundation entered into a
Management Agreement, which granted the Foundation the "exclusive right to
operate, manage and control" the restaurant for a ten-year period. The
Management Agreement authorized the Foundation to subcontract its rights to
a person or entity with extensive experience and expertise in the restaurant and
catering business.
That same month, the Foundation and Gourmet Dining entered into a
Management Subcontract Agreement (MSA), which grants Gourmet Dining
"the exclusive right to operate, manage and control" the restaurant facility in
the NJCSTM for a ten-year period. The MSA designates Gourmet Dining as
the "exclusive manager" of the restaurant, and states that it has responsibility
for "all reasonable, necessary and advisable management and operational
services[.]"
Under the MSA, Gourmet Dining has sole responsibility for hiring
employees and for all expenses related to the restaurant facility, including food
costs, inventory expenses, salaries, maintenance, and normal janitorial
services. In exchange for these responsibilities, Gourmet Dining agreed to pay
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the Foundation an annual management fee of $250,000 for the first nine years
of the Agreement, and $500,000 for the tenth year. Gourmet Dining also
agreed to pay the Foundation 12.5 percent of the gross revenues derived from
the operation of the restaurant, which is called Ursino Steakhouse & Tavern
(Ursino). The restaurant opened for business in October 2011.
By letter dated August 27, 2012, the Township's Tax Assessor advised
Gourmet Dining that the Township would be assessing Gourmet Dining local
property taxes for the restaurant facility because it is operating the restaurant
on property leased from the University and the subject property is not exempt
from local property taxes. The Tax Assessor stated that Gourmet Dining
would be required to pay property taxes on the "restaurant portion" of the
building for 2011 and 2012.
Gourmet Dining did not challenge the property tax assessments for 2011
or 2012, but later filed petitions of appeal with the Union County Board of
Taxation (Tax Board) challenging the assessments for 2013 and 2014. The
Tax Board dismissed the petitions, and Gourmet Dining filed timely
complaints with the Tax Court, challenging the Tax Board's judgments.
Thereafter, the Township filed a motion for summary judgment, arguing
that Gourmet Dining was required to pay local property taxes on the portion of
the NJCSTM where it operates the restaurant. Gourmet Dining filed a cross-
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motion for summary judgment and argued that it is exempt from local property
taxes on various grounds. The University joined in the cross-motion. The Tax
Court required that the University and the Authority be joined as necessary
parties to the litigation.
Thereafter, the Tax Court filed an order dated March 14, 2018, which
granted the Township's motion and denied the cross-motion, for the reasons
stated in a written opinion that is reported as Gourmet Dining, LLC v. Union
Twp., 30 N.J. Tax 381 (Tax 2018). Gourmet Dining thereafter filed a motion
for reconsideration of the court's order. The court filed an order dated May 31,
2018, denying reconsideration. This appeal followed.
II.
On appeal, Gourmet Dining and the University argue that the Tax Court
erred by granting the Township's motion for summary judgment. They
contend the court should have granted the cross-motion for summary judgment
because the premises in the NJCSTM where Gourmet Dining operates the
restaurant are not subject to local property taxes.
We note initially that when reviewing a trial court's order granting or
denying summary judgment, we apply the same standard that governs th e trial
court. Lee v. Brown, 232 N.J. 114, 126 (2018) (citing Steinberg v. Sahara
Sam's Oasis, LLC, 226 N.J. 344, 349-50 (2016)). Summary judgment shall be
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granted when there is no genuine issue of material fact and the moving party is
entitled to judgment as a matter of law. R. 4:46-2(c). Here, the material facts
are not in dispute, and the question raised on appeal is whether the court erred
by finding as a matter of law that the property at issue is subject to local
property tax.
We review the trial court's legal determination de novo. Templo Fuente
De Vida Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 224 N.J. 189, 199
(2016). In doing so, we owe the trial court no deference on its "interpretation
of the law and the legal consequences that flow from established facts."
Manalapan Realty v. Twp. Comm., 140 N.J. 366, 378 (1995).
Gourmet Dining and the University first argue that the premises in the
NJCSTM where the restaurant operates are exempt from local property taxes
under N.J.S.A. 54:4-3.3. The statute provides in pertinent part that the
property of the State, its counties and municipalities, and their agencies and
authorities, are exempt from local property taxes when the property is "used
for public purposes." Ibid.The statute does not define the term "used for public purposes," but the
statutory language requires "something more than ownership." Cty. of Bergen
v. Borough of Paramus, 79 N.J. 302, 306 (1979). "[I]n addition to public
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ownership there must be public use." Id. at 307. Our Supreme Court has
explained that:
[t]he concept of public purpose is a broad one.
Generally speaking, it connotes an activity which
serves as a benefit to the community as a whole, and
which, at the same time is directly related to the
functions of government. Moreover, it cannot be
static in its implications. To be serviceable it must
expand when necessary to encompass changing public
needs of a modern dynamic society. Thus it is
incapable of exact or perduring definition. In each
instance where the test is to be applied the decision
must be reached with reference to the object sought to
be accomplished and to the degree and manner in
which the object affects the public welfare.
[City of Newark v. Essex Cty. Bd. of Taxation, 54
N.J. 171, 187 (1969) (quoting Roe v. Kervick, 42 N.J.
191, 207 (1964)).]
Here, the Tax Court correctly found that the subject property falls
within the purview of N.J.S.A. 54:4-3.3 because it is either the University's or
the Authority's property.1 Gourmet Dining, 30 N.J. Tax at 410. The court
found, however, that Gourmet Dining and the University failed to establish the
property was used for "public purposes" in the relevant tax years. Ibid. The
1
We note that the University's agreement with the Authority required the
University to transfer title to the NJCSTM to the Authority, and the Authority
would lease the property to the University. For reasons not clear from this
record, the University did not transfer title to the Authority until 2015. In
either case, the subject property is owned by either a State University or the
Authority.
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court essentially found that the evidence shows that the subject property is
being used for a private, rather than a public purpose. We disagree with the
court's conclusion.
In a certification submitted to the Tax Court, Philip Connelly, the
University's Vice President for Administration and Finance and Executive
Vice President of Operations, stated that the NJCSTM building was intended
and ultimately designed to be a visual landmark, that would provide space for
many of the University's needs. He stated that the building was intended to
show that the University is "a forward-looking, world-class institution with
state-of-the-art facilities[.]"
Connelly also asserted that the Board's goals for the restaurant "were
multi-faceted." He stated the University wanted to have a restaurant that could
generate income for its scholarship programs, and an in-house caterer for
events that required more upscale food than its dining services customarily
offer. He explained that presence of "a relatively upscale and critically-
acclaimed restaurant facility at the NJCSTM would serve as a visible sign to
the wider public of [the University's] emergence as [a] forward -thinking, top-
notch university with state-of-the-art facilities."
Connelly further commented that since the restaurant began operations
in December 2011, it has generated more than $377,000 for scholarships the
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Foundation has awarded to University students. The restaurant provided more
than $134,000 in 2012 and more than $128,000 in 2013 for the scholarship
programs. Connelly stated, "These are significant amounts, and the money the
restaurant has generated for [the University's] scholarships has enabled [the
University] to attract quality students who otherwise may not be able to afford
to attend [the University], and who are an asset to [the University]
academically, among other ways."
Connelly also stated that the restaurant has been "a valuable tool" for
communicating with the public "about its successes and the opportunities it
offers in order to attract quality students." He noted that the restaurant had
received critical acclaim in certain publications with wide circulation, thereby
"garnering attention for [the University] as well."
In addition, Connelly asserted that the restaurant has attracted many
visitors to the campus, and these visitors might not otherwise have known of
the University. Connelly further commented that the restaurant will purchase
produce grown on the University's property, and provide food-scrap waste that
will be used in the University's composting laboratory. Faculty and students
used the finished compost in on-going research.
Nick Davidson, manager of the restaurant in 2013, also submitted a
certification to the trial court, in which he stated that students frequently come
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to the restaurant for lunch and often partake of the "bar menu," which is a less
expensive option for students. Parents of the University's students also are
regular patrons of the restaurant. Davidson also stated that during his time at
the restaurant, about eighty-five percent of its employees were students of the
University.
In its opinion on the summary judgment motions, the Tax Court
recognized that operating a dining hall, cafeteria, or other food service
establishment for students, administrators, and others is a recognized purpose
of a public university or college. Gourmet Dining, 30 N.J. Tax at 404. The
court noted, however, that Ursino is not one of the six dining service locations
available to students or other members of the University community, and the
restaurant is not generally available under the University's traditional meal
plans. Id. at 403-04.
The court reasoned that Ursino is no different from any other restaurant,
bar, or tavern in the Township. We are convinced, however, that the court
took an unduly narrow view of the facts. The restaurant is unique because it is
located on-campus. The record shows that the University's students and their
parents regularly dine at the restaurant. Moreover, the University views the
restaurant as an important recruiting tool for students and faculty.
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Although the restaurant is not part of the University's traditional meal
plan, Ursino is different from other restaurants, bars, or taverns in the
Township because it provides students, other members of the University
community, and visitors to the campus an alternative dining experience. The
restaurant offers an alternative approach to on-campus dining, which
traditionally has been limited to meal plans and cafeterias. As we noted
previously, the concept of a public purpose "must expand when necessary to
encompass changing public needs of a modern dynamic society." City of
Newark, 54 N.J. at 187 (quoting Roe, 42 N.J. at 207).
The Tax Court also found that although Gourmet Dining pays annual
management fees to the Foundation, which are used for University
scholarships, the payment of the fees does not warrant the conclusion that the
subject property is being used for a public purpose. Gourmet Dining, 30 N.J.
Tax at 407. The court stated that a private, for-profit entity should not be
entitled to a local property tax exemption merely because part of its gross
revenue stream is paid to a public entity and then allocated to that public
entity's purpose. Ibid.
However, the record shows that the restaurant is not merely providing a
revenue stream to the University that is used for general purposes. The
restaurant provides revenues that are specifically earmarked for scholarships
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for University students. Indeed, the Board, in its resolution authorizing the
Foundation to complete the restaurant project at the NJCSTM, expressly
required that at least ten percent of the restaurant's revenues must be allocated
to University scholarships. The Foundation's use of the revenue derived from
the restaurant for scholarships provides further support for the conclusion that
the subject property is being used for a public purpose.
The Tax Court also rejected the contention that the use of the subject
property is for a public purpose because the University claims the restaurant
raises the University's public profile. Id. at 408, 410. In doing so, the court
erred by substituting its judgment for the University's Board, which believes
that having a critically-acclaimed, upscale restaurant on campus enhances the
public's perception of the University as a forward-looking institution, and
thereby serves as an important recruiting tool for students and faculty.
Furthermore, in determining whether the subject premises are used for a
public purpose, the Tax Court gave little weight to the evidence showing that
in 2013, approximately eighty-five percent of the restaurant's employees were
University students. The court also discounted the evidence that the restaurant
will use produce grown on the University's property and will provide
compostable waste for the University's science program, where it will be used
for research by faculty and students.
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Standing alone, each of these factors would not be sufficient to establish
that the property is being used for a public purpose; however, when all of the
relationships between the restaurant and the University are considered, they
warrant the conclusion that the subject property is being used for a public
purpose. We therefore conclude the subject property is exempt from local
property taxation under N.J.S.A. 54:4-3.3.
III.
Gourmet Dining and the University further argue that the Tax Court
erred by finding that Gourmet Dining is subject to local property taxes under
N.J.S.A. 54:4-2.3. The statute provides in pertinent part that
[w]hen real estate exempt from taxation is leased to
another whose property is not exempt, and the leasing
of which does not make the real estate taxable, the
leasehold estate and the appurtenances shall be listed
as the property of the lessee thereof, or his assignee,
and assessed as real estate.
[Ibid.]
Here, the court found that the Township had established that the MSA is
"functionally a lease." Gourmet Dining, 30 N.J. Tax at 424. Gourmet Dining
and the University contend, however, that the evidence does not support that
conclusion.
"[A] lease is a grant of exclusive possession to use the land for any
lawful purpose, subject to reservation of a right of possession in the landlord
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for any purpose or purposes 'not inconsistent with the privileges granted the
tenant.'" Sandyston Twp. v. Angerman, 134 N.J. Super. 448, 451 (App. Div.
1975) (quoting 3 Thompson on Real Property § 1032 (1959)); see also Thiokol
Chem. Corp. v. Morris Cty. Bd. of Taxation, 41 N.J. 405, 417 (1964).
Determining whether an agreement is a lease depends upon "the legal effect of
its provisions." Angerman, 134 N.J. Super. at 451.
"The difference between a lease and license or similar limited status . . .
is that a lease gives exclusive possession of the premises against all the world,
including the owner, while a license confers a privilege to occupy under the
owner." Thiokol Chem. Corp., 41 N.J. at 417. "A license or similar status is
generally revocable at the pleasure of the owner and gives occupancy so far as
necessary to engage in the agreed acts or the performance of agreed services
and no further," whereas "a lease gives the right of exclusive possession for all
purposes not prohibited by its terms." Ibid.As we have explained, in the Management Agreement, the University
granted the Foundation "the exclusive right to operate, manage and control . . .
the Facility," which is defined as the restaurant and catering operations located
in the NJCSTM. The Management Agreement grants the Foundation the
"exclusive right to operate, manage and control" the restaurant, not the
property.
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Similarly, in the MSA, the Foundation granted Gourmet Dining the
"exclusive right to operate, manage and control" the Facility, which is defined
as the restaurant and catering operations in the NJCSTM. The MSA does not
expressly grant Gourmet Dining a possessory interest in the property as lessee.
As we have noted, the MSA is an agreement to manage and operate the
restaurant and the catering operations on the property.
Furthermore, the MSA is for a term of ten years, unless it is terminated
earlier for cause. Under the MSA, Gourmet Dining is required to pay annual
management fees, but the MSA does not refer to the payments as rent. These
and other provisions of the MSA show that the parties intended the agreement
to be one for the management and operation of the restaurant, rather than a
lease of the property.
Indeed, there is no provision in the MSA that expressly grants Gourmet
Dining a possessory interest in the premises, as lessee. Had the parties
intended to create a landlord-tenant relationship, they could readily have done
so. We therefore conclude that the evidence does not support the Tax Court's
conclusion that Gourmet Dining has the "functional" equivalent of a lease of
the subject property. The Agreement is one for the management and operation
of a restaurant, not a lease.
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IV.
Gourmet Dining and the University further argue that the Tax Court
erred by finding the property is not exempt from taxation under N.J.S.A. 54:4-
3.6. This statute provides in pertinent part, that
[t]he following property shall be exempt from taxation
under this chapter: all buildings actually used for
colleges, schools, academies or seminaries, provided
that if any portion of such buildings are leased to
profit-making organizations or otherwise used for
purposes which are not themselves exempt from
taxation, said portion shall be subject to taxation and
the remaining portion only shall be exempt[.]
[Ibid.]
The Tax Court determined that Gourmet Dining had a leasehold interest
in the restaurant space, which was not exempt from taxation under the statute.
Gourmet Dining, 30 N.J. Tax at 413. It is undisputed that the property is part
of the University and Gourmet Dining is a profit-making entity.
However, as we have determined, Gourmet Dining is entitled to an
exemption from property taxes under N.J.S.A. 54:4-3.3 because it is using the
University's property for a public purpose. Moreover, as we have found, the
MSA is an agreement to manage and operate the restaurant, not a lease.
Therefore, Gourmet Dining is not subject to local property taxation under
N.J.S.A. 54:4-3.6.
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V.
Gourmet Dining and the University also contend that the subject
premises are exempt from local property taxes under N.J.S.A. 18A:72A-18
because the NJCSTM, including the restaurant space therein, is an Authority
"project" and Gourmet Dining is the Authority's "agent." The Authority's
enabling statute provides in pertinent part that "neither the [A]uthority nor its
agent shall be required to pay any taxes . . . in respect of a project . . . acquired
or used by the [A]uthority or its agent[.]" N.J.S.A. 18A:72A-18.
The Tax Court found the evidence does not establish that by managing
and operating the restaurant, Gourmet Dining was acting as the Authority's
"agent." Gourmet Dining, 30 N.J. Tax at 418. The court stated that there was
"no relationship, contractual or otherwise, between Gourmet Dining and [the
Authority]" and there was no indication "that any third party relied on any
alleged apparent authority they perceived Gourmet Dining to possess on behalf
of [the Authority]." Ibid.
"An agency relationship is created when one party consents to have
another act on its behalf, with the principal controlling and directing the acts
of the agent." Sears Mortg. Corp. v. Rose, 134 N.J. 326, 337 (1993). An
agency relationship also may be created if a third party relies on one party's
"apparent authority" to act on behalf of the principal. Id. at 338. The court
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correctly determined that here, there was no agency relationship between
Gourmet Dining and the Authority.
Gourmet Dining and the University note that in the Financing
Agreement, the Authority authorized the University to construct and develop
the NJCSTM building. They contend that under the Financing Agreement, the
University acted as the Authority's "agent."
The Authority may have designated the University as its agent for the
purpose of constructing the building, but the evidence does not support the
conclusion that Gourmet Dining was acting as the Authority's agent in its
management and operation of the restaurant. The Tax Court correctly found a
reasonable fact finder could not infer that in its management and operation of
Ursino, Gourmet Dining was acting as an agent for the Authority. Gourmet
Dining, 30 N.J. Tax at 418.
Reversed and remanded for entry of an order granting summary
judgment in favor of Gourmet Dining and the University.
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