SUMMIT PLAZA ASSOCIATES VS. RAGEE KOLTA (LT-007691-18, HUDSON COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1305-18T3
SUMMIT PLAZA ASSOCIATES,
APPROVED FOR PUBLICATION
Plaintiff-Respondent,
February 20, 2020
v.
APPELLATE DIVISION
RAGEE KOLTA, MARK R.
KOLTA, SOUAD KOLTA,
and DAVID R. KOLTA,
Defendants-Appellants.
_____________________________
Argued November 7, 2019 – Decided February 20, 2020
Before Judges Koblitz, Whipple and Gooden Brown.
On appeal from the Superior Court of New Jersey,
Law Division, Hudson County, Docket No. LT-
007691-18.
John V. Salierno argued the cause for appellants.
Tracey L. Goldstein argued the cause for respondent
(Feinstein Raiss Kelin Booker & Goldstein LLC,
attorneys; Tracey L. Goldstein, on the brief).
The opinion of the court was delivered by
GOODEN BROWN, J.A.D.
This appeal requires us to determine the parameters of the federal
preemption doctrine in the context of a summary dispossess action.
Defendants, a family of four, are tenants at plaintiff landlord's multi -family
apartment building, which receives housing assistance payments for eligible
families pursuant to section 8 of the United States Housing Act of 1937, 42
U.S.C. § 1437f (Section 8), and section 524(a) of the Multifamily Assisted
Housing Reform and Affordability Act of 1997 (MAHRA), Pub. L. No. 105-
65, Tit. V, 111 Stat. 1384, as amended. Defendants received Section 8 housing
assistance payments from 1980 until 2002, when their income exceeded the
Section 8 threshold, requiring them to pay the full contract rent. In 2017, after
receiving approval from the United States Department of Housing and Urban
Development (HUD), plaintiff increased the contract rent, but defendants
refused to pay the increased amount. As a result, plaintiff filed an eviction
action under N.J.S.A. 2A:18-61.1(a), for failure to pay rent, and N.J.S.A.
2A:18-61.1(f), for failure to pay rent after a rent increase (New Jersey's Anti -
Eviction Act).
Prior to trial, invoking preemption, plaintiff moved in limine to preclude
defendants from introducing any evidence challenging the HUD-approved rent
increase. Over defendants' objection, in an August 31, 2018 Law Division
order, the trial court granted plaintiff's motion, finding that federal regulations
A-1305-18T3
2
preempted New Jersey's Anti-Eviction Act. The parties later settled, and a
consent judgment was entered on October 12, 2018, rendering the underlying
legal issue moot. See Daoud v. Mohammad, 402 N.J. Super. 57, 59 (App. Div.
2008) (finding the defendant tenant's appeal from a judgment of possession
entered against him in a summary dispossess action moot because "defendant
vacated the . . . premises, which has since been re-rented"). "Ordinarily, our
interest in preserving judicial resources dictates that we not attempt to resolve
legal issues in the abstract." Zirger v. Gen. Accident Ins. Co., 144 N.J. 327,
330 (1996). However, notwithstanding its mootness, we now resolve the issue
because it "is one of substantial importance, likely to reoccur but capable of
evading review," ibid., and affirm the judge's August 31 evidentiary ruling.
I.
We summarize the relevant facts and procedural history. In December
2016, pursuant to Section 8 and MAHRA, plaintiff entered into a twenty-year
"Project-Based Section 8 Housing Assistance Payments Renewal Contract for
Mark-Up-to-Market Project" (HAP contract) with HUD and the New Jersey
Housing and Mortgage Finance Agency (NJHMFA), HUD's contract
administrator. Under the HAP contract, the operation, management and
maintenance of plaintiff's property is subject to HUD's regulatory control. The
HAP contract authorized increased contract rents based on "capital repairs" to
A-1305-18T3
3
the apartments agreed to by plaintiff. A contract rent is the maximum rent
approved by HUD that a landlord is permitted to charge a Section 8 tenant,
who pays thirty percent of the tenant's household income. The remaining
portion of the contract rent is paid directly to the landlord by HUD. Once a
tenant's income exceeds the Section 8 threshold, HUD regulations require the
tenant to pay the full contract rent without the benefit of an assistance payment
and prohibits the landlord from evicting the tenant based solely on the tenant's
financial ineligibility. Pursuant to the HAP contract, the contract rent for a
two-bedroom apartment in plaintiff's property was increased to $2700,
effective December 21, 2016.
Defendants have lived in a two-bedroom apartment in plaintiff's property
since 1980. Based on their annual recertification, a process by which tenants
submit information to the landlord regarding household income and other
relevant information required by HUD, defendants received a Section 8
housing subsidy. However, in 2002, defendants' household income increased,
due partly to their now adult sons' employment, and they no longer qualified
for housing assistance. As a result, defendants paid the full contract rent of
$1006 from 2002 until 2017. 1 In 2017, upon receiving notice of the rent
increase authorized by the HAP contract, defendants refused to pay, prompting
1
Plaintiff acquired ownership of the property in 2013.
A-1305-18T3
4
plaintiff to file an eviction action, which was ultimately resolved by way of a
consent judgment dated February 28, 2017. The February 28, 2017 judgment
reduced defendants' rent from $2700 to $1460 per month through February 28,
2018, and required defendants to "complete the recertification process,"
including "signing a new lease . . . no later than April 1, 2017."
On March 1, 2017, defendants completed the recertification process and
reported a total annual household income of $182,819. Defendants also
executed a one-year HUD model lease, beginning March 1, 2017, reflecting
the agreed upon monthly rent of $1460. The lease specified that "th[e]
monthly rent [was] less than the market (unsubsidized) rent due on th[e] unit,"
and that "the amount of rent . . . may be changed during the term of [the
lease]" if "HUD or the Contract Administrator . . . determines, in accordance
with HUD procedures, that an increase in rents is needed." In the event of a
rent increase, pursuant to the lease, "[t]he landlord agree[d] to give the [t]enant
at least [thirty] days advance written notice." "The landlord" could
"terminate" the lease based on "the [t]enant's material noncompliance with [its]
terms."
Effective December 21, 2017, HUD approved another contract rent
increase for all 480 units on plaintiff's property. Pertinent to this appeal,
monthly rent for all two-bedroom units was increased to $2724. The HUD
A-1305-18T3
5
approval letter indicated "[t]he increase [was] determined to be reasonable and
necessary for the continued viability of the property." On May 30, 2018,
plaintiff notified defendants in writing that "[b]eginning July 1, 2018," the rent
would increase from $1460 to $2724. The notice explained that the increase
"was approved by HUD for . . . two-bedroom units at the property."
Defendants were advised that "[i]f [they did] not accept and agree to th[e] rent
increase, [they] must vacate and surrender possession of the premises no later
than June 30, 2018," or face eviction proceedings. Defendants once again
refused to pay the rent increase or vacate the premises, and plaintiff filed the
summary dispossess action that is the subject of this appeal.
Prior to trial, plaintiff moved in limine to preclude defendants from
introducing any evidence challenging the HUD-approved rent increase. In
support, plaintiff argued that because its property was a HUD-regulated
apartment building, New Jersey law was preempted under 24 C.F.R. § 246.1
(Section 246.1) and 24 C.F.R. § 246.21 (Section 246.21) (collectively, HUD
regulations). Thus, according to plaintiff, HUD-approved rent increases were
not reviewable in summary dispossess proceedings.
Defendants countered that the HUD regulations did not apply to them
because they no longer qualified financially to receive Section 8 assistance
payments. They asserted that because their tenancy was not controlled by the
A-1305-18T3
6
HUD regulations, the court must review the rent increase under the standard of
unconscionability embodied in New Jersey's Anti-Eviction Act, pursuant to
N.J.S.A. 2A:18-61.1(f), prohibiting eviction when the increase is
"unconscionable." Defendants argued that even if the HUD regulations
applied, the prohibition against rent regulation specified in Section 246.1 and
Section 246.21 did not apply to N.J.S.A. 2A:18-61.1(f) because the statute was
not a rent control law. Further, defendants contended HUD failed to comply
with 24 C.F.R. § 246.22 (Section 246.22), requiring written notification to the
local board of HUD's proposed rent increase and preemption of rent regulation,
a purported prerequisite to a finding of preemption. In reply, plaintiff certified
that defendants "receive[d] the benefit of HUD involvement in the property"
even if they no longer received rent assistance payments.
In an oral decision, the judge determined the "case law . . . support[ed]
[plaintiff's] position," and granted plaintiff's application to bar evidence of
unconscionability "because the rent increase issue [was] pre-empted" by the
HUD regulations. The judge reasoned that HUD had "to have pre-emption
control over rentals of subsidized apartments" because it is in "the public's best
interest to . . . protect the economic interest of these HUD properties."
According to the judge, "[w]e want these properties to exist and flourish so
that people will have these apartments available to them." To that end, "the
A-1305-18T3
7
federal government has allowed [HUD] to create this process where the rents
are set by HUD."
The judge explained that because defendants "signed the lease," and the
"lease . . . acknowledges the fact that there[ is] a possibility . . . [a tenant]
might not get any subsidy," defendants understood and agreed that they were
subject to the HUD regulations, whether they qualified for a subsidy or not.
Further, the judge was "particularly swayed" by plaintiff's argument that
despite the fact that defendants no longer qualified for the subsidy, they
received significant benefits from their tenancy in a HUD regulated apartment,
including the HUD regulations' prohibition against eviction when the tenant no
longer qualifies for a subsidy as well as the ability to re-certify and re-qualify
for a subsidy if their financial circumstances worsened.
II.
On appeal, defendants renew their contention that N.J.S.A. 2A:18-
61.1(f) is not preempted by federal law, and assert the judge erred in ruling
otherwise and barring evidence of unconscionability as permitted under the
statute. "To be sure, 'a trial court is afforded considerable latitude regarding
the admission of evidence, and is to be reversed only if the court abused its
discretion.'" Alves v. Rosenberg, 400 N.J. Super. 553, 562 (App. Div. 2008)
(quoting State v. Nelson, 173 N.J. 417, 470 (2002)). "Discretion, however,
A-1305-18T3
8
means legal discretion, 'in the exercise of which the judge must take account of
the law applicable to the particular circumstances of the case and be governed
accordingly.'" Id. at 562-63 (quoting State v. Steele, 92 N.J. Super. 498, 507
(App. Div. 1966)). "Obviously, '[i]f the trial judge misconceives the
applicable law or misapplies it . . . the exercise of legal discretion lacks a
foundation and becomes an arbitrary act.'" Id. at 563 (alterations in original)
(quoting Steele, 92 N.J. Super. at 507). In that regard, the trial judge's
"interpretation of the law and the legal consequences that flow from
established facts are not entitled to any special deference." Manalapan Realty,
L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
Here, we agree with the judge's determination that N.J.S.A. 2A:18-
61.1(f) is preempted by federal law under the Supremacy Clause, U.S. Const.,
art. VI, § 2. "There are several theories under which federal law will preempt
a state statute." Franklin Tower One, L.L.C. v. N.M., 157 N.J. 602, 615
(1999).
Congress explicitly may express its intent to preempt
state law. Alternatively, preemption may be inferred
where the federal legislation is so comprehensive that
it creates the inference that Congress intended to leave
no room for state regulation in the area.
Preemption also may be found where state law
actually conflicts with federal law. Conflict
preemption occurs in two instances: where compliance
with both federal and state regulations is a physical
A-1305-18T3
9
impossibility, or where a state law stands as an
obstacle to the accomplishment and execution of the
full purposes and objectives of Congress. Under
conflict preemption analysis, a court first must
consider the purposes of the federal law, and then
evaluate the effect of the state law on those purposes.
[Id. at 615-16 (citations and quotation marks
omitted).]
"[P]re-emption is not to be lightly presumed," Cal. Fed. Sav. & Loan
Ass'n v. Guerra, 479 U.S. 272, 281 (1987), and "the historic police powers of
the States [are] not to be superseded by [federal law] unless that was the clear
and manifest purpose of Congress." Wis. Pub. Intervenor v. Mortier, 501 U.S.
597, 605 (1991) (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230
(1947)). Thus, "[t]he party claiming preemption bears the burden of
supporting that claim by 'clear and manifest evidence.'" Franklin, 157 N.J. at
615 (quoting Pa. Med. Soc'y v. Marconis, 942 F.2d 842, 853 (3d Cir. 1991)).
Traditionally, states have had "broad power to regulate housing
conditions in general and the landlord-tenant relationship in particular."
Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 440 (1982).
However, because "[t]he Section 8 program was enacted '[f]or the purpose of
aiding low-income families in obtaining a decent place to live and of
promoting economically mixed housing,'" public policy goals shared by the
State of New Jersey, courts have consistently recognized that "[t]he federal
A-1305-18T3
10
legislation and regulations explicitly contemplate that the states will work with
the federal government to implement the Section 8 program." Franklin, 157
N.J. at 608-09 (second alteration in original) (quoting 42 U.S.C. § 1437f(a)).
Here, plaintiff is a Section 8 program participant, and has entered into a
HAP contract classified as a "subsidized insured project," governed by HUD
regulations. Section 246.1 and Section 246.21 are the governing HUD
regulations germane to this appeal. See Glukowsky v. Equity One, Inc., 180
N.J. 49, 65 (2004) ("The regulations of a federal agency are given the same
weight and afforded the same presumptions regarding preemption as federal
statutes . . . ." (citing Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 844
(1984))).
Section 246.1 provides in pertinent part:
(a) . . . The regulation of rents for projects coming
within the scope of "Subpart C—Subsidized Insured
Projects" is preempted in its entirety by the
promulgation of these regulations. . . .
(b) Any state or local law, ordinance, or regulation is
without force and effect insofar as it purports to
regulate rents of: . . . projects coming within the scope
of subpart C . . . . Compliance with such law,
ordinance, or regulation shall not be required as a
condition of, or prerequisite to, the remedy of
eviction, and any law, ordinance, or regulation which
purports to require such compliance is similarly
without force and effect.
A-1305-18T3
11
(c) It is the purpose of [HUD] that these regulations
shall bar all actions of a board that would in any way
frustrate the purpose or effect of these regulations or
that would in any way delay, prevent or interfere with
the implementation of any increase in rental charges
approved by HUD.
Additionally, Section 246.21 provides:
[HUD] finds that it is necessary and desirable . . . to
preserve the continued viability of [Section 8] projects
as a housing resource for low-income families.
[HUD] also finds that it is necessary and desirable to
protect the substantial economic interest of the Federal
Government in those projects. Therefore, [HUD]
concludes that it is in the national interest to preempt,
and it does hereby preempt, the entire field of rent
regulation by local rent control boards, . . . or other
authority, acting pursuant to state or local law as it
affects projects covered by this subpart.
Despite the explicit language in the regulations expressly preempting
state law, defendants argue that N.J.S.A. 2A:18-61.1(f) does not constitute
"rent regulation" as contemplated in the HUD regulations. Under N.J.S.A.
2A:18-61.1(f), "[n]o lessee or tenant . . . may be removed by the Superior
Court from any . . . tenement leased for residential purposes" unless a tenant
"has failed to pay rent after a valid notice to quit and notice of increase of said
rent, provided the increase in rent is not unconscionable and complies with any
and all other laws or municipal ordinances governing rent increases." N.J.S.A.
2A:18-61.1(f) (emphasis added). See also Mayes v. Jackson Twp. Rent
Leveling Bd., 103 N.J. 362, 378 (1986) (explaining that under N.J.S.A. 2A:18-
A-1305-18T3
12
61.1(f), "unconscionability of rent increase is a defense to removal for cause
based upon failure to pay rent"). Defendants argue that because N.J.S.A.
2A:18-61.1(f) does not constitute regulation of rents as that phrase is used in
the HUD regulations, application of the statute as a defense to the present
eviction action is not preempted.
In Hill Manor Apartments v. Brome, 164 N.J. Super. 295, 302 (Cty. Ct.
1978), the court rejected an identical argument and determined that the HUD
regulations at issue, which were similar to the regulations here, preempted
N.J.S.A. 2A:18-61.1(f). In Brome, as here, the plaintiff-landlord was "a
subsidized insured project" regulated by HUD. Ibid. "[T]he applicable federal
rule provide[d] that all state and local rent regulation laws [were] superseded.
The regulation further state[d] that owners of subsidized insured projects
[were] excused from complying with state and local laws which condition the
remedy of eviction upon adherence to rent control provisions." Id. at 306-07
(footnotes omitted). When the defendant-tenants in Brome "refused to pay the
[HUD-approved] increased rents claiming that they [were] excessive and
unconscionable," the plaintiff filed actions to summarily evict them. Id. at
300.
In holding that "well settled principles mandate[d] a finding of
preemption in th[e] case," id. at 302, the Brome court reasoned:
A-1305-18T3
13
Applicable federal rules promulgated by HUD provide
that "regulation of rents for [federally subsidized]
projects is preempted in its entirety." A long line of
federal and state decisions holds that local rent control
ordinances are preempted by this and similar
regulations. Contrary to defendants' argument, it is
equally plain that the Supremacy Clause commands a
similar conclusion with respect to N.J.S.A. 2A:18-
61.1(f).
To be sure, [New Jersey's] Anti-Eviction Act is not a
rent control law. The statute does not purport to
establish ceilings with respect to rental charges, nor
does it require prior judicial or administrative
approval with respect to such increases. N.J.S.A.
2A:18-61.1(f) merely requires a finding that the
increase in rents charged by the landlord is not
"unconscionable" as a prerequisite to summary
eviction.
Although it is arguable that the judicial role
contemplated by N.J.S.A. 2A:18-61.1(f) does not
constitute "regulation" of rents as that phrase is used
in [the HUD regulations], the preemptive command is
implicitly set forth in the structure of the federal rule
as well as its purpose.
[Id. at 303-04 (footnotes omitted).]
Focusing on the wording in the regulation, which, as here, did not
require "'[c]ompliance with [a state law or local ordinance] . . . as a condition
of or prerequisite to, the remedy of eviction,'" the Brome court found that
"[t]he language of the regulation is not vague or ambiguous," and "[t]he
obvious intent of HUD in promulgating [the regulation] was to supersede state
laws where their enforcement would impair the ability of the [f]ederal
A-1305-18T3
14
[g]overnment to insure the safety of its investment." Id. at 304. The court
concluded that "[i]nterference by the state judiciary with respect to the
administration of that task would tear at the very roots of our federal system."
Id. at 307.
We find the Brome court's reasoning persuasive and applicable with
equal force to the circumstances presented herein. Defendants assert Brome is
distinguishable because, unlike here, the tenants in Brome were all receiving
housing assistance payments. In support, defendants point to a provision of 24
C.F.R. § 246.20 (Section 246.20), which states that "subpart [C] will only
apply with respect to units occupied by tenants receiving housing assistance
thereunder if the contract covers fewer than all units in the project."
Defendants contend that "because they no longer qualify financially to receive
housing assistance payments, neither the HAP contract nor HUD regulations
apply to [their] tenancy, even if they may apply to every other tenancy in the
[property]."
However, the HAP contract expressly encompasses all 480 "contract
units" contained in the property. Thus, despite the fact that defendants no
longer receive Section 8 assistance payments, the apartment in which they
reside is still subject to the HAP contract, and thereby governed by the HUD
regulations. Indeed, other than housing subsidies, HUD's regulatory control
A-1305-18T3
15
affords defendants additional benefits, including HUD housing quality
standards, annual inspections, and tenant-protective eviction practices.
Finally, defendants renew their contention that HUD's noncompliance
with its own regulation precludes preemption. Specifically, defendants assert
Section 246.22 compels HUD to provide written notification to the local rent
control board "about any proposed rental increases and that HUD 'has
preempted the entire field of rent regulation'" as "a prerequisite to the
preemption dictate in [Section 246.1(a)]." However, according to defendants,
the "record is completely bereft of any discussion of this issue whatsoever,"
plaintiff "utterly failed to show compliance with this section of the [HUD]
regulation," and the judge erred when this "critical" issue was "ignored."
Section 246.22 provides, in relevant part, that
The local HUD office . . . shall notify in writing any
[rent control] board in the area in which the project is
located that it is processing the [rent increase]
application and, that, pursuant to this subpart, HUD
has preempted the entire field of rent regulation by a
board acting pursuant to state or local law as it affects
the project.
[24 C.F.R. § 246.22(b).]
Further, the HUD approval letter states that, pursuant to Section 246.22, the
landlord "must give a copy of this approved rent schedule to the local rent
A-1305-18T3
16
control board . . . within ten . . . days after the approved rents become
effective."
We acknowledge the record contains no evidence of compliance with
Section 246.22. However, HUD is not a party to this action, and defendants
cite no authority to support their proposition that compliance with Section
246.22 is a prerequisite to a finding of preemption. In fact, none of the HUD
regulations requires such compliance, and Section 246.22 specifies that
"[n]otice to the [local] board of the approved increases in rents does not confer
upon the board a right to approve or disapprove [HUD]'s action or to exercise
jurisdiction over the implementation of the rent increases." 24 C.F.R. §
246.22(c). Thus, even if the notice was provided, the local rent control board
would have no authority to override HUD's decision granting the rent increase.
Affirmed.
A-1305-18T3
17