November 19, 2012

Written By: Thomas F. Carroll, III

On November 14, 2012, the New Jersey Supreme Court heard oral argument on the various appeals concerning the “third round” rules that were adopted by the Council on Affordable Housing (“COAH”). The Court reserved decision on the issues, with an opinion to be released sometime during the months to come. COAH has failed to operate with constitutional rules for 13 years - since the “second round” ended in 1999. It is hoped that the Supreme Court will now move quickly to release its opinion and fashion a remedy designed to bring about Mount Laurel compliance at long last.

At issue before the Supreme Court is the question of whether the Court should affirm the Appellate Division’s October 2010 opinion striking down a number of COAH’s third round rules. On behalf of the New Jersey Builders Association, Hill Wallack LLP has argued that the Appellate Division decision is legally sound, and should not be disturbed. Among other things, the Appellate Division opinion ruled that the “growth share” methodology is unlawful, and that the densities in COAH’s rules were too low, with the affordable housing set-asides being too high. The Appellate Division opinion also ordered COAH to adopt new rules within five months of its opinion, although that ruling was stayed until the Supreme Court decides the appeals, which were principally filed by municipalities.

Possible Outcomes

It is impossible to predict the outcome of the appeals based on the questions and comments posed by the justices during the November 14 oral argument. However, it is possible to predict the range of outcomes, and offer educated assessments as to where matters will likely wind up.

First, it is possible that the Supreme Court will completely reverse the Appellate Division opinion and reinstate COAH’s third round rules in all respects. This is an unlikely outcome, especially since COAH’s third round rules do not reflect what the current administration wants to see. The State’s current objective, as articulated by the Christie administration on numerous occasions, is to impose a 10% affordable housing set-aside against all residential development in the State, with no density bonuses or other benefits off-setting the financial burden of providing the affordable housing. The third round rules do not do so, and it is difficult to imagine the Court finding the rules valid in all respects.

It is also possible that the Supreme Court will partially reverse and partially affirm the Appellate Division, holding some rules lawful, and some rules unlawful. Such an outcome is certainly possible, but all parties are urging the Court to send COAH back to the drawing board with respect to the “big picture” rules at issue.

The Court could also affirm the Appellate Division opinion in all material respects, holding the third round rules unlawful, although the reasoning underlying such a decision would be equally important in finally putting the issues to rest. For example, the Court could rule that the growth share methodology is unlawful because our Legislature has not authorized COAH to calculate fair share obligations in such a way, with the Court also declining to rule that a growth share approach is unconstitutional. Such a decision would invite the Legislature to examine the question, and the issue would then become whether the Assembly, the Senate and the Governor could agree on such a “new approach” to satisfying the Mount Laurel doctrine. However, if the Court also rules that a growth share approach is unconstitutional, as the Court suggested in 1983 in its Mount Laurel II opinion, the Legislature would be unable to cure such a defect by passing new statutes.

The Issue of Remedy

Regardless of how the Court rules on the question of whether the third round rules are lawful, the Court must also deal with the equally important issue of remedy. For example, even if the Court were to totally reverse the Appellate Division and affirm the third round rules, the question would arise as to how that decision would be implemented, since the Christie administration does not support the rules and, as noted further below, the Governor seeks to eliminate COAH.

More likely, some or all of the rules at issue in the appeals will be invalidated, and the question then arises as to what the Court will do in terms of remedy. It is hoped that the Court will direct COAH to adopt lawful rules within a short period of time, and it would certainly be preferable if, like the Appellate Division, the Court ordered COAH to utilize the fair share methodology COAH used in the second round (i.e., not a growth share methodology). It would also be quite helpful to the process if the Court retained jurisdiction to hear any further disputes as to new rules, so that it is not necessary to file fresh appeals and start the litigation all over again. The appointment of a master would also be helpful.

The “Other Appeal”: Will COAH be abolished?

Against the backdrop of the appeals concerning COAH’s rules is a separate appeal concerning the “Reorganization Plan,” issued by Governor Christie, which abolished COAH and substituted in its place the Commissioner of the DCA. That Reorganization Plan was invalidated by the Appellate Division, with COAH nominally being reinstated, but that Appellate Division ruling is also now under appeal to our Supreme Court.

The Court is scheduled to hear oral argument on that appeal on January 28, 2013. It is unlikely that a ruling on the appeals concerning COAH’s rules will be issued until after the Court decides the appeal in the Reorganization Plan case, since a ruling striking down some COAH rules will presumably be accompanied by a directive ordering either COAH or the DCA Commissioner to adopt lawful rules, depending on the outcome of the case concerning the Reorganization Plan. It is therefore unlikely that rulings as to these issues will be released prior to the spring of 2013.

The Need for Legislation

As we have seen for the last 13 years, compliance with the Mount Laurel doctrine has been frustrated by the refusal of COAH to faithfully implement the doctrine. More COAH regulations will likely bring nothing but more litigation. Far preferable would be a self-effectuating mechanism where housing advocates spend more time getting housing built, and less time battling in the courts.

For example, builders have supported a framework through which they could seek approvals for inclusionary developments, containing both lower income housing and market-rate housing, in exclusionary towns that do not already have a variety and choice of housing or sufficient affordable housing. Putting an administrative agency like COAH between municipalities and housing advocates can act as a barrier to actual housing production, and that has been the case for far too long. The most preferable result of the upcoming Supreme Court decisions may be rulings that help forge an equitable legislative compromise leading to the production of the much-needed affordable housing, with the free market dictating the location of that housing.

Suits or Use Variances in the Meanwhile

Until the dust settles, builders seeking approvals for inclusionary projects are basically limited to two options. The first is bringing builder’s remedy suits against those towns that have not filed fair share plans with COAH. The second is the use variance route. Thus far at least, our courts have ruled that inclusionary developments are “inherently beneficial uses,” entitled to use variances upon relaxed standards. Our appellate courts have not yet ruled on this issue, but there are a number of inclusionary development use variance applications pending throughout the State, and more can be expected as interested parties wait for a judicial conclusion to the “COAH morass.”

About Hill Wallack LLP

Hill Wallack LLP is a leading law firm in New Jersey and eastern Pennsylvania that has built a reputation for problem-solving and aggressive advocacy. The firm has comprehensive commercial capabilities and deep experience in a number of industry sectors. With extensive government experience, Hill Wallack LLP represents businesses and public entities in many areas in which public and private interests intersect. The firm's offices are located in Princeton, N.J. and Yardley, Pa.

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For more information, contact the author of this Client Alert:

Thomas F. Carroll, Esq.

Other Contacts:

Stephen M. Eisdorfer, Esq.

Kenneth E. Meiser, Esq.

Henry T. Chou, Esq.

Michael J. Lipari, Esq.

This article provides information of general interest and is not intended, and should not be used, as a substitute for consultation with legal counsel. Any questions regarding the specific issues raised in this article should be directed to the authors or to your contacts at Hill Wallack LLP.