TOWNSHIP OF TOMS RIVER VS. GUTTMAN FAMILY, LLC (L-0386-17, OCEAN COUNTY AND STATEWIDE) ( 2019 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited . R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2487-17T1
TOWNSHIP OF TOMS RIVER,
Plaintiff-Respondent,
v.
GUTTMAN FAMILY, LLC,
Defendant-Respondent,
and
1940 ROUTE 9, LLC,
Defendant-Appellant.
____________________________
Argued telephonically January 29, 2019 –
Decided February 14, 2019
Before Judges Sabatino and Haas.
On appeal from Superior Court of New Jersey, Law
Division, Ocean County, Docket No. L-0386-17.
Paul V. Fernicola argued the cause for appellant (Paul
V. Fernicola & Associates, LLC, attorneys; Paul V.
Fernicola, on the briefs).
Richard P. De Angelis, Jr., argued the cause for
respondent Guttman Family, LLC (McKirdy, Riskin,
Olson & DellaPelle, PC, attorneys; Richard P. De
Angelis, Jr., on the brief).
PER CURIAM
This appeal arises out of a dispute over whether a party with a not-fully-
implemented contract to purchase real estate has a right to participate in eminent
domain proceedings and share in the proceeds of a condemnation award for that
property. The trial court concluded the contract purchaser had no such right,
finding that it failed to act with diligence and in good faith in pursuing the land
use approvals for the property specified in the contract.
The contract purchaser now appeals that determination. For the reasons
that follow, we vacate the court's decision and remand for its reconsideration
with respect to what appear to be several important aspects of the case.
I.
The pertinent facts include the following. Defendants, Guttman Family,
LLC ("Guttman") and 1940 Route 9, LLC ("1940") entered into a contract for
the sale of the subject property on December 22, 2015. The property is located
at 1940 Lakewood Road in the Township of Toms River and is designated as
Block 171, Lots 11, 17, 18, 19, and 32 on the Township's tax map. The agreed-
upon purchase price was $5.2 million.
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Key Terms of the Sales Contract
Article 1.02(B) of the sales contract required 1940 to deposit $100,000 in
escrow upon execution of the agreement and an additional $100,000 upon the
expiration of the due diligence period. Both of these sums would be credited
towards the purchase price at closing and were potentially refundable.
The contract also stated in Article 3.02(C), "Purchasers require
[preliminary subdivision] approvals of 100 +/- residential units." It further
provided in Section 3.01 that "[t]he obligation of the Purchaser 1 to purchase the
Property is expressly contingent upon the Purchaser successfully obtaining such
preliminary subdivision approval[.]"
Due Diligence
Article 1.04 detailed the terms of governing the due diligence process, as
follows:
Purchaser shall have one hundred twenty (120)
days to perform its due diligence examination of the
Site, title, etc. The due diligence shall be of the extent
and nature as the purchaser may require in its sole
discretion. If the examination proves unsatisfactory for
any reason, other than any reason relating to the state
of title regarding Lot 11, Block 171, Purchaser shall
have the right to terminate the agreement and have the
Deposit monies refunded in full. If the examination
1
The contract vacillates between referring to "Purchaser" in the singular and
the plural.
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proves satisfactory, the Purchaser must Notify the
Seller in writing within five (5) days of the end of the
completion of the due diligence period and to continue
with the purchase of the property. At the time the
additional deposit of $100,000.00 will be delivered to
the Purchaser's attorney.
[(Emphasis added).]
Land Use Approvals
Article 3 of the contract specified the timeline for 1940 to obtain land use
approvals for its subdivision plans for the property. The contract afforded 1940
twenty-four months following the due diligence period to obtain these
approvals, dividing that period into two separate twelve-month intervals. If
1940 obtained the approvals within the initial twelve months, it was to make a
non-refundable deposit of an additional $60,000, which was creditable to the
purchase price, to Guttman's attorney. Alternatively, if 1940 did not obtain the
approvals within the first twelve months, the contract provided in Article
3.02(B):
If the Purchaser has acted in good faith to obtain the
approvals and same have not been issued within the
initial 12 month period, [the] Purchaser shall be entitled
to 2) [sic] six month extensions provided Purchaser will
[sic] $50,000.00 for each extension up to twelve (12)
months, such payments will be non-refundable and not
credited towards the purchase price.
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Article 3.02(E) specified that, after receipt of the preliminary subdivision
approvals, 1940 had forty-five days to close on the sale. The contract in Article
3.07 required both parties "to cooperate in good faith and to act in a prudent and
reasonable manner with respect to the processing and submission [sic] all
applications and the pursuance of preliminary subdivision approval."
Article 5.02 expressed the conditions precedent to the closing of title,
which "must be satisfied or waived in writing before closing can occur." Those
conditions precedent included: "[s]atisfaction of the conditions and
requirements for closing as stated herein including obtaining Preliminary Sub-
division or Site Plan Approval"; and that "[a]ll representations and warranties
made by Seller shall be true and correct."
Waiver Rights of the Purchaser
Notably for this litigation, Article 5.02 of the contract, entitled
"Satisfaction of Contingencies – Protection of the Purchaser" declared that
"[t]he conditions stated are included in this Agreement for the protection of the
Purchaser, and Purchaser shall have the right to waive any or all of the
contingencies." (Emphasis added). Despite this one-sided waiver provision in
Article 5.02, Article 20.09 of the contract states "[e]ither party shall have the
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right to waive any conditions contained herein, which are solely for their
benefit." (Emphasis added).
If there is a non-satisfaction or non-waiver of any of the conditions
precedent, the "Purchaser shall have the right upon (10) days written notice to
Seller, to cancel this Agreement, unless within said ten (10) day notice period
all such conditions have been either satisfied or waived." (Emphasis added).
Closing and Waiver Rights
In addition, the contract specified in Article 7.02 that closing of title was
to "take place within 90 days after all the conditions set forth in this Agr eement
have been satisfied or waived by the Purchaser." (Emphasis added). If the
conditions precedent were not satisfied within the specified time frames, Article
7.03 provided 1940 with two options: first, "waiving the conditions precedent
and closing title without any reduction or abatement in Purchase Price"; or
second, "declaring this Agreement Null and Void and terminating this
Agreement and promptly receiving a refund of $200,000.00" of 1940's deposit.
The Default Provision in Articles 9.01 and 9.02
The contract further specified in Article 9.01 and 9.02 what was to occur
in the event either party defaulted. If the 1940 defaulted, Article 9.01 provided
"Seller shall have its full rights and remedies in law and/or equity whi ch shall
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not be less than the amount of the deposits." Reciprocally, if Guttman defaulted,
Article 9.02 stated "Purchaser shall have its full rights and remedies in law
and/or equity."
Article 16.01 and Notice of Termination
A separate provision of the contract, Article 16.01, specified Guttman's
right to terminate the agreement and 1940's companion right to proceed
nevertheless with the purchase within five days of receiving such a notice of
termination from Guttman. That provision stated as follows:
16.01 Notwithstanding anything herein
provided, if Seller undertakes to terminate this
Agreement pursuant to the provisions hereof, Purchaser
shall have the right to proceed with the purchase of the
Property without reduction in the purchase price and
upon waiving all contingencies. Purchaser shall notify
Seller in writing, within five (5) business days of
receipt of Seller's notice of termination, of its intention
to proceed hereunder.
The Parties Post-Contract Actions and Communications
Upon executing the agreement, 1940 deposited the required $100,000 with
its transactional attorney. 2 Thereafter, in a letter dated April 11, 2016, 1940
requested a sixty-day extension in the due diligence period because meetings
2
Both 1940 and Guttman have been represented in the litigation and on appeal
by counsel different from their respective transactional lawyers.
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with the Township Planner suggested that more time was needed to formulate
an adequate plan for the development of the property. Guttman offered to grant
1940 a thirty-day extension, with an additional thirty-days if 1940 showed it had
made satisfactory progress.
1940's counsel responded in a letter dated April 21, 2016 that he believed
a ninety-day extension was required but would "certainly accept" a thirty-day
extension with a thirty-day renewal of extension. In this letter, 1940's counsel
elaborated upon the following efforts that 1940 had already made, stating,
"[t]hus far, our client has expended over thirty thousand ($30,000.00) dollars in
legal and engineering fees in moving forward with the project. Draft plans were
prepared showing a layout of not only the commercial portion of the site but the
multi-family portion as well." 3
The April 21, 2016 letter also refers to a meeting that 1940 representatives
had with the Township's Planner to review the proposal, noting that it appeared
only eighty units would be approved not the originally contemplated 117 units.
The letter also notes "the threatened condemnation by the Township is causing
3
The record on appeal contains this concept plan, dated February 4, 2016, along
with a boundary and topographical survey dated February 8, 2016.
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some delays[.]" (Emphasis added). Ultimately, the due diligence period was
extended by thirty days.
The April 26, 2016 Ordinance Authorizing Condemnation
On April 26, 2016, the Township Council adopted Ordinance 4508-16
authorizing the Township's acquisition by eminent domain of the subject
property and other properties on the same block.
The Parties' May 2016 Post-Ordinance Communications
On May 2, 2016, 1940's transactional attorney sent a letter to Guttman's
transactional attorney about the pending condemnation action, stating:
We are moving ahead through the due diligence
period as promised. Our clients have obviously
expended significant resources thus far.
At this juncture however, we think it would be
helpful for all of the parties if the contract were to be
amended in order to deal with the condemnation action
which will be filed by the Toms River Township.
Initially the Township advised your client that they
were merely "interested in purchasing the property."
The reality is that they are ready to proceed with
condemnation.
Our clients' contract is of significant value in
negotiating with the Township as to [the] amount to
[be] paid to the property owner. Obviously, it has no
value unless we complete due diligence and are willing
to proceed with the approvals. Needless to say
obtaining the approvals is merely a posturing gesture at
this time.
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Our client is willing to move forward providing
there is a financial incentive for them to do so. We
believe that our client should have an opportunity to
share in the increase gained by the use of the contract
in negotiating with the Township. We would request
that you review this option with your client and advise
us as to whether or not there is interest in proceeding.
From our perspective, we would like to control
the [condemnation] negotiations with the Township
since if we waive due diligence we would have every
right to do so. However, there is no incentive for us to
push the Township to a Five Million ($5,000,000.00)
Dollar purchase price or even a Seven Million
($7,000,000.00) Dollar purchase price unless our client
shares in the benefit. We have a baseline number if one
is to consider the current fair market value. It is
obviously assessed at a very low number and fair
market is something greater than the assessed value. If
we can agree on the base line number then we can come
to some understanding as to how the additional monies
would be divided or shared between the parties.
[(Emphasis added).]
Guttman's attorney responded to this letter on May 17, 2016, with a letter
stating that Guttman "declines to engage in any amendments" to the contract and
asserting "the due diligence period has now expired." The letter requested
1940's attorney to "please advise if your client will be proceeding in good faith
to obtain governmental approvals. In the alternative, the contract should be
terminated immediately." (Emphasis added). The letter also stated, "[s]hould
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your client wish to make a substantive offer containing specific terms, please let
me know."
1940's attorney responded that same day in a terse email that simply
stated: "Our clients have satisfied their due diligence and will proceed with the
contract." That same day, 1940 deposited the additional $100,000 required to
be paid at the end of the due diligence period.
On May 27, 2016, 1940's attorney sent a letter to Guttman's attorney
confirming the escrow deposit had been made. Among other things, the letter
states, "As we proceed with the approval process we will provide you with
updated information. If your client wishes to meet to discuss the issue of a
possible condemnation by the Municipality please do not hesitate to contact us."
(Emphasis added).
Pre-Complaint Events in the Latter Part of 2016
On or about June 11, 2016, the Township made an offer to purchase the
subject property from Guttman.
On August 2, 2016, 1940's litigation counsel sent a letter to the Township,
notifying the Township of its asserted interest, as a contract purchaser, in the
subject property. Thereafter, 1940, in a letter dated August 26, 2016, rejected
the Township's offer to purchase the property for $4.7 million. 1940 notified
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the Township that if it reached an agreement with Guttman to buy the property,
the Township would "acquire title subject to [1940's] contract of sale."
As emails and letters in the record reflect, 1940's attorney repeatedly
contacted the Township from September 20, 2016 to at least January 20, 2017,
inquiring about the anticipated timeline for the filing of the condemnation
action.
The February 2017 Condemnation Complaint and the June 2017
Declaration of Taking
On February 8, 2017, the Township filed a condemnation complaint in the
Law Division, seeking the appointment of commissioners to value the property.
The complaint stated that the Township had offered $4.75 million for the
property, corresponding to an appraisal conducted on the Township's behalf in
May 2016.
On February 23, 2017, the trial court issued an order requiring, among
other things, the Township to deposit its $4.75 million offer into court, and
granting the Township, pursuant to N.J.S.A. 20:3-19, "immediate and exclusive
possession of the premises" without further process once the declaration of
taking, deposit, and proof of service were filed and the required notice given.
On June 28, 2017, the Township filed a Declaration of Taking, confirming
that the sum of $4.75 million had been deposited with the court. The Township
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also filed a Notice of Lis Pendens that same day, listing defendants Guttman and
1940 as the known condemnees. The Township also issued notices to the tenants
on the subject property, notifying them to vacate the premises.
Motion Practice
On August 16, 2017, Guttman moved to withdraw the deposited money
and dismiss 1940 from the condemnation proceedings. 1940 cross-moved for,
among other things, a declaratory judgment determining that 1940, not Guttman,
is entitled to any excess condemnation funds over the $5.2 million contract
purchase price, and a declaration that 1940 had not breached its contract with
Guttman. Guttman opposed the cross-motion, asserting that 1940 had no valid
interest in the parcel because it had not fulfilled the conditions of the sale
contract.
The Trial Court's Rulings
After considering the written submissions and the oral arguments of
counsel, but without taking any testimony from witnesses, the trial court ruled
on October 23, 2017 in favor of Guttman.
Among other things, the court found in its written opinion that the
Township had not filed the Declaration of Taking until after what the court found
to be the (implicitly non-waived) twelve-month deadline for 1940 to obtain
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subdivision approvals; that it is "undisputed" that 1940 did not take any steps
after the completion of due diligence to obtain subdivision approval; and that
1940's equitable interest was "terminated by [its] failure to proceed in good faith
to complete the contract by taking steps to obtain preliminary subdiv ision
approval."
1940 moved for reconsideration. The trial court denied the motion in a
more detailed written opinion dated January 8, 2018.
This appeal by 1940 ensued. 4 Meanwhile, the condemnation action has
been stayed.
II.
Upon due consideration of the issues posed on appeal, we find it
appropriate to vacate the trial court's determination and remand the matter for
further consideration. In particular, the following three subjects should be
explored on remand, along with any associated matters the trial court may wish
to reexamine in its discretion.
4
The Township takes no position regarding the merits of the appeal, or
concerning 1940's alleged right to share in any condemnation proceeds.
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1.
On appeal, 1940 has stressed that Guttman at no time served upon it a
notice of termination of the contract, in accordance with the procedures for
termination prescribed by Article 16.01 of the contract. If such a notice had
been duly served, 1940 would have had under Article 16.01 "the right to proceed
with the purchase of the Property without reduction in the purchase price and
upon waiving all contingencies." 1940 contends that it would have exercised
that right to proceed with the transaction within five days after receiving such a
notice.
Guttman acknowledges that, under the timelines of the contract, it could
not have served a termination notice under Article 16.01 until, at the earliest,
May 17, 2017, i.e., twelve months from May 17, 2016 when the parties agree
the due diligence period ended.5 Guttman maintains the contract automatically
expired on or before that May 17, 2017 date, because 1940 had not yet obtained
the land use approvals called for under the contract or requested an extension.
We note the trial court's two written opinions did not fully address the
potential impact of Article 16.01 upon the analysis of the parties' respective
5
The trial court's first opinion uses the date of May 16, 2017. In light of our
remand, the one-day difference may be inconsequential.
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rights. Respectfully, that provision could have a critical impact upon the
analysis, in light of its prefatory phrase "Notwithstanding anything herein
provided[.]" The phrase arguably is meant to be an override of the other
provisions and rights set forth within the contract.
We cannot tell from the bare words of Article 16.01 whether the provision
implicitly required Guttman to notify 1940 through a formal writing that
Guttman considered the contract terminated because of perceived non-
performance by 1940, or whether serving such notice of termination was
optional under the circumstances presented. The trial court's opinion appears to
suggest that service of a formal termination provision was unnecessary in the
context of the communications between counsel. However, in the absence of
service of formal notice, it is unclear whether and when 1940's rights under the
"five-day" aspect of Article 16.02 occurred.
We also cannot tell from the face of the contract how the termination
provision in Article 16.01 relates to and affects the governmental approval
provisions in Article 3, or the conditions precedent, due diligence, and the
contingency provisions in Article 5, or the satisfaction of conditions provision
in Article 6, or the closing date provisions in Article 7, or the default provisions
in Article 9, or the mutual rights of waiver set forth in Article 20.09. The
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interplay of these various provisions with Article 16.01 does not appear clear
from the face of the contract, and we respectfully invite the trial court to attempt
to sort this out in the first instance.
2.
A second area of necessary deeper inquiry relates to the intended meaning
of the one-sentence May 17, 2016 email from 1940's counsel to Guttman's
counsel stating, "[o]ur clients have satisfied their due diligence and will proceed
with the contract."
The first portion of that email sentence ("[o]ur clients have satisfied their
due diligence") could be viewed as 1940's representation that it had actually
completed all the steps necessary for due diligence to its own satisfaction.
Alternatively, the statement could be viewed as 1940's waiver of its right to
conduct any further due diligence, even if the due diligence was incomplete. It
is also unclear if this waiver extended to other contingencies beyond the due
diligence period.
Turning to the second portion of the May 17 email's sentence ("will
proceed with the contract"), it is unclear whether that passage was implicitly
intended to convey that 1940 was committing unequivocally to buy the property
and to pay Guttman the purchase price, regardless of the other contingencies set
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forth in the contract and the looming anticipated condemnation. In other words,
was 1940's declaration on May 17, 2016 that it "will proceed with the contract"
a waiver by 1940 of any further contingencies and conditions?
We note in this regard the contract's language in Article 5.02 specifying
that the conditions stated in the agreement are included expressly "for the
protection of the Purchaser [i.e., 1940] and Purchaser shall have the right to
waive any or all of the contingencies." (Emphasis added). Can that unilateral
provision be sensibly construed to give 1940 an open-ended right to proceed
unless Guttman served formal notice to terminate upon 1940? This issue
warrants further illumination.
In sum, the documentary record is unclear about the intended meaning of
1940's May 17, 2016 email, and its impact on the parties' respective rights. We
respectfully request this subject be explored more deeply on remand.
3.
A third major concern bears upon assessing whether 1940 failed to pursue
the development project and the necessary land use approvals in good faith and
in a timely manner. In particular, we are uncertain whether the trial court's
finding of dilatory conduct and lack of good faith on the part of 1940 is logically
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affected by the chronology of the Township's actions in announcing and moving
forward with its plans to acquire the property.
As noted, the record tells us that on April 26, 2016, the Township adopted
an ordinance authorizing the taking of the property through eminent domain.
Nine months later, in February 2017, the Township ultimately filed its
condemnation complaint. Thereafter, in June 2017, the Township filed the
declaration of taking and deposited the funds.
We question whether it would have been economically sensible and
reasonable for 1940 to have continued to spend resources on a development
application for the Township's Planning Board after the April 26, 2016
ordinance by the Township's governing body was issued announcing the
municipality's authorization to proceed with a taking. The law generally
disfavors courses of action and outcomes that entail unreasonable economic
waste. See 525 Mainstreet Corp. v. Eagle Roofing Co., Inc., 34 N.J. 251, 255
(1961); see also Twp. of W. Windsor v. Niremburg, 150 N.J. 111, 135 (1997)
(observing that a developer cannot be faulted for failing to pursue a development
application where it would have been "futile" to do so).
We have substantial doubts that the Planning Board would have proceeded
to entertain a development application after the Township's April 26, 2016
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condemnation ordinance. To be sure, not all authorized municipal takings result
in the filing of a condemnation complaint and an ultimate acquisition. Even so,
the actual practicalities and reasonableness of 1940 pursuing development
approvals after April 26, 2016 are concerns that warrant closer examination.
Moreover, the record is unclear as to what the original expectations of the
parties were concerning the prospects of condemnation at the time when they
entered into the sales contract in December 2015. Unfortunately, the parties
failed to include any provision within their contract to deal with the prospect of
a condemnation action. Their failure to do so has produced this litigation, and
the uncertainties we now face in adjudicating the parties' rights. We suspect that
a fuller record about the parties' original intent might illuminate this subject as
well.
All of these identified concerns must be explored more deeply on remand
in an evidentiary hearing that we hope will shed light on these subjects. Such
an evidentiary hearing could assist in developing a more informative record
about: the intended meaning of the contractual provisions; the impact of Article
16.01 and Guttman's failure to serve any notice of termination in accordance
with Article 16.01; the intended meaning and legal impact of the May 17, 2016
email from 1940's counsel, the impact of the April 26, 2016 Township
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condemnation ordinance upon the parties' respective rights and obligations; and
a realistic evaluation of 1940's efforts (or non-efforts) in pursuing development
approvals after that date.
Although we are mindful of the litigation expenses the parties have
incurred to date, we are persuaded that a plenary hearing could assist the court
in divining the true "intent of the parties" where, as here, the contract terms and
the parties' post-contract communications appear to be fraught with multiple
ambiguities. See Conway v. 287 Corp. Ctr. Assocs., 187 N.J. 259, 269 (2006)
(allowing extrinsic proofs to bear upon an interpretation of the written words of
the contracting parties); Hall v. Bd. of Educ., 125 N.J. 299, 305 (1991) (same).6
The trial court shall have discretion to permit discovery in advance of the
evidential hearing.
6
It is conceivable that, once the Township's condemnation plans were formally
announced in April 2016, both parties strategically adopted, in essence, a "wait-
and-see" non-committal approach. For instance, perhaps Guttman chose not to
terminate the contract formally because it wanted to be able to salvage the sale
and obtain the contract price from 1940 if the Township were to abandon its
announced plans to condemn and acquire the parcel. On the other hand, perhaps
1940 strategically minimized its expenditures on experts, lawyers, and in
preparing development applications, waiting to see whether the Township would
actually go forward with the condemnation. We do not adopt here such an
interpretation of the events, but simply present it for the trial court's
consideration as a possibility.
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For these reasons, we vacate the trial court's decision and remand for a
plenary hearing and other necessary proceedings. In doing so, we do not
intimate an appropriate outcome or range of outcomes. Rather, we entrust the
matter to the sound reconsideration of the trial court, based upon a fuller and
what we hope will be more informative record.
Vacated and remanded for further proceedings.
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