PALISADIUM MANAGEMENT CORP. VS. BOROUGH OF CLIFFSIDE PARK CARLTON CORP. VS. BOROUGH OF CLIFFSIDE PARK (TAX COURT OF NEW JERSEY)

• Court: New Jersey Superior Court Appellate Division
• Decided: September 14, 2018
• Docket: A-4370-15T4
• Status: Published

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-4370-15T4

PALISADIUM MANAGEMENT CORP.,

Plaintiff-Appellant/ APPROVED FOR PUBLICATION Cross-Respondent, September 14, 2018

v. APPELLATE DIVISION

BOROUGH OF CLIFFSIDE PARK,

Defendant-Respondent/ Cross-Appellant. _______________________________

CARLTON CORP.,

Plaintiff-Appellant/ Cross-Respondent,

v.

Defendant-Respondent/ Cross-Appellant. _______________________________

Submitted October 23, 2017 – Decided September 14, 2018

Before Judges Accurso, O'Connor and Vernoia. On appeal from the Tax Court of New Jersey, Docket Nos. 5633-2011, 10266-2012 and 8940-2013, whose opinion is reported at 29 N.J. Tax 245 (Tax 2016).

Michael A. Paff, attorney for appellants/cross- respondents.

Diktas Gillen, PC, attorneys for respondent/cross- appellant (Christos J. Diktas and Crystal G. Calabrese, on the briefs).

The opinion of the court was delivered by

ACCURSO, J.A.D.

Plaintiffs Palisadium Management Corp. and Carlton Corp., owners of two

adjacent tax lots on the site of the former Palisades Amusement Park in Cliffside

Park, appeal from six May 13, 2016 Tax Court judgments affirming the 2011-2013

tax assessments on the properties. The Tax Court denied the Borough's R. 4:37-

2(b) motion, finding plaintiffs had overcome the presumption of the validity of the

assessments; rejected the Borough's cost approach for valuing the property, finding

it not unique or special purpose; rejected the reliability of improvement costs

generated by computer software; accepted plaintiffs' expert's hybrid approach to

valuation but found the appraiser lacked adequate objective evidence to support his

adjustments; and determined there was not sufficient competent evidence in the

record to permit the court to make an independent finding of true value, resulting

in the assessments being affirmed.

2 A-4370-15T4 Plaintiffs appeal, arguing their expert "provided solid evidence of value

based on reliable market data which was adequate to determine value," and the Tax

Court should have applied its expertise to the substantial evidence in the record to

determine true value and fix the assessment for the years in question. The Borough

cross-appeals, arguing the Tax Court should have adopted its "cost approach as the

appropriate method of valuation" and that the cost data relied on by its appraiser

"was admissible, reliable, relevant and persuasive." We reject those arguments and

affirm, substantially for the reasons expressed by Judge Fiamingo in her written

opinion, which is reported at 29 N.J. Tax 245 (Tax 2016).

The facts are fully set forth in the Tax Court opinion. We note only the

properties, commonly known as the Palisadium, consist of the unusual

combination of a banquet hall and fitness center in one building located along the

edge of one of the cliffs of the Palisades and a detached four-story parking garage.

The combined area of the two lots is over four acres. The property has

unobstructed views of the Hudson River and the New York City skyline. Its total

assessed value for each year in question was $17,251,000, with equalized values of

$17,251,000 in 2011, $19,285,634 in 2012 and $18,692,166 in 2013.

The Tax Court rejected the Borough's cost approach to value, finding none

of the reasons typically supporting such an approach applied. Palisadium, 29 N.J.

Tax at 260-64. Specifically, the court noted the property was not new, having been

3 A-4370-15T4 built over thirty years ago, see Worden-Hoidal Funeral Homes, Inc. v. Red Bank

Borough, 21 N.J. Tax 336, 338 (Tax 2004), and could not be said to be so special

purpose or unique as to have no market, see Dworman v. Borough of Tinton Falls,

1 N.J. Tax 445, 452 (1980), aff’d, 180 N.J. Super. 366 (App. Div. 1981).

Palisadium, 29 N.J. Tax at 260-61.

The Tax Court was also critical of the Borough's expert's use of an

automated valuation software, the Marshall and Swift Valuation Service computer

program, to generate replacement costs.1 Id. at 263-64. The court noted "the

Borough's expert indicated that he 'plugged in' the numbers into the program and

did not independently check any of the resulting calculations to determine their

accuracy vis-à-vis the Marshall & Swift hand calculations historically accepted by

the court." Id. at 263. Noting "[i]n order for a new technology to be deemed

reliable, there must be 'sufficient scientific basis to produce uniform and

reasonably reliable results,'" State v. Hurd, 86 N.J. 525, 536 (1981) (quoting State

v. Cary, 49 N.J. 343, 352 (1967)), the court ruled it lacked "any basis to determine

1 Plaintiffs claim their expert got tarred with the same brush, although he did not use the Marshall and Swift software to develop his cost analysis but relied on its hard copy manual, attaching copies of the pages illustrating the calculations on which he relied to his report. Although our review of the record confirms this, it obviously had no effect on the court's findings. We view the court's reference to plaintiffs' expert in this context as an inconsequential flaw in an otherwise sound opinion.

4 A-4370-15T4 whether the estimates produced by the software and utilized by the appraisal expert

were accurate or reasonable." Palisadium, 29 N.J. Tax at 263-64.

This is not the first occasion on which the Tax Court has expressed concern

about the reliability of improvement costs estimated through the use of software

and an expert's inability to explain or corroborate at trial the calculations produced

by the software on which the expert relied to produce the valuation report. See

Forsgate Ventures IX, LLC v. Twp. of S. Hackensack, 29 N.J. Tax 28, 45 (Tax

2016), aff’d, Forsgate Ventures IX LLC v. Twp. of S. Hackensack, No. A-2943-15

(App. Div. Apr. 6, 2018). Because the Tax Court reasonably rejected both parties'

reliance on the cost approach to valuation, we are not required to resolve the

reliability of the software here, and the record is not such that we could do so with

confidence.

We note only that "[t]he net opinion rule . . . mandates that experts 'be able

to identify the factual bases for their conclusions, explain their methodology, and

demonstrate that both the factual bases and the methodology are reliable.'"

Townsend v. Pierre, 221 N.J. 36, 55 (2015) (quoting Landrigan v. Celotex Corp.,

127 N.J. 404, 417 (1992)). As the Court has recently reminded, we review a trial

court's decision "to exclude expert testimony on unreliability grounds" only for

abuse of discretion. In re Accutane Litig., __ N.J. __, __ (2018) (slip op. at 70).

Real estate appraisers testifying in the Tax Court should be guided accordingly.

5 A-4370-15T4 Plaintiffs' expert employed a hybrid approach to value the property,

employing a sales comparison approach to value the banquet hall and an income

capitalization approach to value the health center. Palisadium, 29 N.J. Tax at 259.

He used the cost approach only to confirm his results. Ibid. Although accepting

plaintiffs' hybrid approach as sound given the unusual combination of uses, see

Aliotta v. Twp. of Belleville, 27 N.J. Tax 419, 464-65 (Tax 2013), Livingston Mall

Corp. v. Livingston Twp., 15 N.J. Tax 505, 522 (Tax 1996), the court found such

serious flaws in the expert's adjustments to comparable sales, including those

relying on a "paired sales" analysis, that it rejected his opinion of value based on a

comparable sales approach. Palisadium, 29 N.J. Tax at 266-73 (explaining

rejection of plaintiffs' expert's time/market adjustment as well as adjustments for

location, parking and views). The court did not review the expert's income

analysis for the health center, concluding "[w]ithout reliable proof of value of the

banquet facility, valuation of the health/fitness facility is meaningless." Id. at 274.

Having already rejected the suitability of a cost approach for valuing the

property, the court was without credible and competent evidence in the trial record

upon which its own independent determination of value could be based. Ibid. See

F.M.C. Stores Co. v. Borough of Morris Plains, 100 N.J. 418, 430 (1985).

Accordingly, it affirmed the assessments. Palisadium, 29 N.J. Tax at 274.

6 A-4370-15T4 The scope of our review of judgments of the Tax Court is limited. Because

"[t]he judges presiding in the Tax Court have special expertise . . . their findings

will not be disturbed unless they are plainly arbitrary or there is a lack of

substantial evidence to support them." First Republic Corp. of Am. v. Borough of

E. Newark, 17 N.J. Tax 531, 536 (App. Div. 1998) (quoting Glenpointe Assoc. v.

Twp. of Teaneck, 241 N.J. Super. 37, 46 (App. Div. 1990)). Having considered

the parties' arguments and reviewed the entire record, we affirm the judgments

substantially for the reasons stated by Judge Fiamingo in her thoughtful and well-

reasoned opinion.

Affirmed.

7 A-4370-15T4