GOURMET DINING, LLC VS. UNION TOWNSHIP (TAX COURT OF NEW JERSEY)

210 A.3d 917, 459 N.J. Super. 323

• Court: New Jersey Superior Court Appellate Division
• Decided: May 31, 2019
• Docket: A-4799-17T3
• Status: Published

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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

A-4799-17T3 2 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

A-4799-17T3 3 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

A-4799-17T3 4 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-

A-4799-17T3 5 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

A-4799-17T3 6 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

A-4799-17T3 7 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.

A-4799-17T3 8 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

A-4799-17T3 9 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

A-4799-17T3 10 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.

A-4799-17T3 11 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

A-4799-17T3 12 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.

A-4799-17T3 13 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

A-4799-17T3 14 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.

A-4799-17T3 15 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.

A-4799-17T3 16 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[.]

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.

A-4799-17T3 17 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

A-4799-17T3 18 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.

A-4799-17T3 19