Old Bridge Owners Assn. v. Old Bridge Twp. ( 2001 )

Opinions of the United
2001 Decisions States Court of Appeals
for the Third Circuit
4-10-2001
Old Bridge Owners Assn. v. Old Bridge Twp.
Precedential or Non-Precedential:
Docket 99-5602 & 99-5603
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Recommended Citation
"Old Bridge Owners Assn. v. Old Bridge Twp." (2001). 2001 Decisions. Paper 72.
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Filed April 10, 2001
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos.: 99-5602, 99-5603
OLD BRIDGE OWNERS COOPERATIVE CORP;
NORTH COUNTY CONSERVANCY OF UNION CITY, L.L.C.;
GRANDVIEW ESTATES OF NEW JERSEY, LP ,
a New Jersey Limited Partnership; OLD BRIDGE
PARTNERS I, L.L.C., a New Jersey Limited
Liability Company
FEDERAL DEPOSIT INSURANCE CORPORATION, as
Receiver for Metro North State Bank and The Mer chants
Bank ("FDIC") Intervenor-Plaintif f in D.C.
v.
TWP OF OLD BRIDGE;
OLD BRIDGE MUNICIPAL UTILITIES AUTHORITY
Twp of Old Bridge,
Appellant in 99-5602
Federal Deposit Insurance
Corporation, as Receiver for
Metro North State Bank and
The Merchants Bank ("FDIC"),
Appellant in 99-5603
Appeal from the United States District Court
for the District of New Jersey
D.C. No.: 95-CV-02539
District Judge: Honorable John W. Bissell
Submitted Under Third Circuit LAR 34.1(a)
February 6, 2001
Before: BECKER, Chief Judge, AMBRO and
STAPLETON, Circuit Judges
(Opinion Filed: April 10, 2001)
Timothy J. O'Neill
Jamieson, Moore, Peskin & Spicer
300 Alexander Park
Princeton, NJ 08543-5276
Counsel for North County Conservacy
of Union City, L.L.C. and Old Bridge
Partners I, L.L.C.
Lawrence H. Richmond
Federal Deposit Insurance
Corporation
801 17th Street N.W.
Washington, DC 20434
Counsel for Federal Deposit
Insurance Corporation
William S. Ruggierio
Township of Old Bridge
One Old Bridge Plaza
Old Bridge, NJ 08857
Counsel for Township of Old Bridge
Louis E. Granata
Granata, Wernik & Zaccardi
210 Main Street
P.O. Box 389
Matawan, NJ 07747
Counsel for Old Bridge Municipal
Utilities Authority
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Keith A. Bonchi
Goldenberg, Mackler, Sayegh, Mintz,
Pfeffer, Bonchi & Gill
660 New Road
Suite 1A
Northfield, NJ 08225
Counsel for New Jersey State League
of Municipalities and Tax Collectors
and Treasurers Association of New
Jersey
OPINION OF THE COURT
AMBRO, Circuit Judge:
Federal Deposit Insurance Corporation ("FDIC") appeals
from the final judgment of the United States District Court
for the District of New Jersey holding the FDIC personally
liable for delinquent property taxes, and water and sewer
charges, accrued with respect to an apartment complex
during the years that the FDIC held a mortgage inter est in
the property.
In 1988 Old Bridge Owners Cooperative Corp. ("Owners")
and Grandview Estates, L.P. ("Grandview") purchased an
apartment complex named Sterling Estates. The pur chase
was financed with a $12 million loan. After defaulting on
loan payments, Owners and Grandview refinanced the loan
(presumably including accrued but unpaid inter est) into
two separate debts, with each debt secured by a separate
mortgage. The first mortgage (the "Metr o mortgage"),
securing the amount of approximately $9 million, was held
by Metro North State Bank ("Metro"). The second mortgage
(the "Coreast mortgage"), securing the amount of
approximately $4 million, was held by Cor east Savings
Bank ("Coreast"). Owners and Grandview later defaulted on
repayment of the debts secured by the mortgages, and both
Metro and Coreast became insolvent.
In 1991, Resolution Trust Company ("R TC")1 was
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1. The RTC was created by the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 ("FIRREA"), Pub. L. No. 101-73, 103 Stat.
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appointed receiver for Coreast. RTC transferred the Coreast
mortgage to North County Conservancy, Inc. ("North
County") in 1994. In 1992, the FDIC was appointed receiver
for Metro. In March 1994, the FDIC instituted an action to
foreclose on the Metro mortgage that r esulted in a
foreclosure judgment in the amount of $17.5 million. In
1995, the FDIC obtained the title to Sterling Estates
through a sheriff 's sale and sold the apartment complex to
North County. When North County acquired Sterling
Estates, property taxes and water and sewer charges had
not been paid for the years 1990 through 1995.
North County brought this action against the T ownship
of Old Bridge ("Township") and the Old Bridge Municipal
Utilities Authority ("MUA") to have the 1990-1995 liens for
the unpaid property taxes and other char ges declared void
pursuant to 12 U.S.C. S 1825(b), which pr ovides a detailed
tax exemption framework applicable to property of the
FDIC. The FDIC intervened as a plaintiff.
On January 11, 1996, the District Court held that
S 1825(b) precluded any liens securing pr operty taxes and
water and sewer charges from attaching to Sterling Estates
from 1991 to 1995, the years during which the FDIC held
the Metro mortgage in receivership. See Old Bridge Owners
Coop. Corp. v. Township of Old Bridge, 914 F. Supp. 1059,
1064-66 (D.N.J. 1996). But the Court also held that the
FDIC would remain personally liable for the delinquent
property taxes and other charges accumulated during those
years. See id.
The District Court reached this conclusion based on its
interpretation of three sub-sections ofS 1825(b). The Court
reasoned that, under a broad exemption contained within
S 1825(b)(1),2 the FDIC was liable for the delinquent
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183 (1989) (codified at 12 U.S.C. 1441a(b)(1),(3)), to mirror the FDIC's
resolution responsibilities with r espect to insolvent savings and loan
institutions. The RTC existed until 1995, at which time the FDIC became
the RTC's successor by operation of law. Pub. L. No. 101-73, 103 Stat.
183 (1989) (codified as amended at 12 U.S.C. 1441a(m)(1)).
2. Section 1825(b)(1) provides that the FDIC as receiver "shall be exempt
from all taxation imposed by any State, county, municipality, or local
taxing authority, except that any real pr operty of the [FDIC] shall be
subject to State, territorial, county, municipal, or local taxation to the
same extent according to its value as other r eal property is taxed."
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property taxes and other charges accrued against the
Sterling Estates for the period of time during which the
FDIC held a mortgage interest in the pr operty. See id. at
1064. However, the Court further observed that, under
S 1825(b)(2),3 these pr operty taxes and other charges could
not be secured through a lien attaching to Sterling Estates.
See id. at 1065. Finally, the Court noted that S 1825(b)(3)4--
which exempts the FDIC from penalties or fines arising
from a failure to pay property taxes owed-- would be
unnecessary if S 1825(b)(2) entirely exempted the FDIC from
tax liability. See id. at 1065-66. The Court therefore
concluded that the FDIC must remain personally liable
under S 1825(b)(1) for the delinquent taxes and charges
that could not be secured through a lien attaching to
Sterling Estates because of S 1825(b)(2). 5
The FDIC filed a motion for reconsideration arguing that
the District Court had misinterpreted the subsections of
S 1825(b). Under S 1825(b)(1), the FDIC contended that it
was liable for ad valorem property taxes and other charges
on any real property it owns, but not on real property in
which it only has a mortgage interest.6 It further alleged
that S 1825(b)(2) does not preclude the attachment of a lien
to Sterling Estates because the apartment complex was not
owned by, and therefore not the "pr operty of," the FDIC.7 In
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3. Section 1825(b)(2) provides that "no property of the [FDIC] shall be
subject to levy, attachment, garnishment, for eclosure, or sale without
the consent of the [FDIC], nor shall any involuntary lien attach to the
property of the [FDIC]."
4. Section 1825(b)(3) provides that the FDIC"shall not be liable for any
amounts in the nature of penalties or fines, including those arising from
the failure of any person to pay any real property, personal property,
probate, or recording tax or any r ecording or filing fees when due."
5. The District Court also held that any pr operty taxes and other charges
arising prior to the federal receivership would be secured by a lien
attaching to the apartment complex, but S 1825(b)(2) protects the FDIC's
interest by requiring its consent befor e foreclosure of the property to
satisfy the lien. See id. at 1065.
6. The FDIC's Tax Policy Statement on Section 1825(b)(1) provides that
it is liable for any ad valorem pr operty taxes on real property it owns.
See Statement of Policy Regarding the Payment of State and Local
Property Taxes, 61 Fed. Reg. 65,053, 65,057 (Dec. 10, 1996).
7. The FDIC's Tax Policy Statement on Section 1825(b)(2) provides that
tax liens are permitted to attach to r eal property in which the FDIC only
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short, the FDIC claimed that a lien should have attached to
Sterling Estates to secure the delinquent pr operty taxes
and other charges. Moreover, that lien should have run
with the land when it was sold to North County, and the
FDIC, as a mere mortgage holder, should not have been
held personally liable for the delinquent amounts. However,
on March 7, 1996, the District Court denied the FDIC's
motion for reconsideration. After further pr oceedings, final
judgment was entered on July 9, 1999, and North County
and the FDIC appealed.
The overwhelming weight of authority is that Section
1825(b)(1) does not give rise to the FDIC's liability for taxes
and charges accrued on real property in which the FDIC
has a mere mortgage interest, and thatS 1825(b)(2) does
not prevent liens from attaching to such property. See S/N-
1 REO Ltd. Liability Co. v. City of Fall River, 81 F. Supp. 2d
142, 150-51 (D. Mass. 1999); RTC Commer cial Assets Trust
1995-NP3-1 v. Phoenix Bond & Indem. Co., 963 F . Supp.
706, 712 n.2 (N.D. Ill. 1997); In re Staf ford Pool & Fitness
Ctr., 252 B.R. 627, 630 (Bankr. D. N.J. 2000); PNL Asset
Mgmt Co. v. Kerrville Ind. Sch. Dist., 37 S.W .3d 80, 84 (Tex.
App. 2000); Town of East Lyme v. New England National,
LLC, No. 547594, 2000 WL 1784127, at *4 (Conn. Super .
Nov. 9, 2000); 37 Huntington St. v. City of Hartford, No. CV
99059067, 2000 WL 226372, at *4 (Conn. Super . Feb. 10,
2000); Casino Reinvestment Dev. Auth. v. Cohen , 728 A.2d
868, 870-72 (N.J. Super. Ct. Law Div. 1998); see also
Atlantic National Trust, L.L.C., No. CV 00-1087, slip op. at
14-15 (D.N.J. Jan. 10, 2001) (unpublished).
However, subsequent to the filing of this appeal North
County surrendered the unpaid property tax under protest
and paid the water and sewer charges pursuant to a
settlement agreement. Moreover, North County voluntarily
withdrew its appeal because it no longer had any stake in
the case after paying the Township and MUA. The FDIC
urges us to review the District Court's decision nevertheless
_________________________________________________________________
holds a mortgage interest. See Statement of Policy Regarding the
Payment of State and Local Property Taxes, 61 Fed. Reg. 65,053, 65,058
(Dec. 10, 1996).
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because it has collateral legal consequences for the FDIC in
other proceedings that can be effectively addressed by a
decision of this Court. See National Iranian Oil Co. v. Mapco
Int'l, Inc., 983 F.2d 485, 490 (3d Cir . 1992) ("If a trial
court's order will have possible collateral legal
consequences, a case is not moot."); accor d Int'l Bhd. of
Boilermakers v. Kelly, 815 F.2d 912, 916 n.5 (3d Cir. 1987).
We empathize with the FDIC's position, butfind that we
are unable to reach the merits because its appeal is moot.
Mootness occurs when there is no live contr oversy left to be
resolved. Int'l Bhd. of Boilermakers , 815 F.2d at 915. Article
III, section 2, clause 1 of the United States Constitution
dictates that a cause of action must present a case or
controversy. "To establish the existence of such a `live'
issue, there must be `a real and substantial controversy
admitting of specific relief through a decree of conclusive
character, as distinguished from an opinion advising what
the law would be upon a hypothetical state of facts.' " Int'l
Bhd. of Boilermakers, 815 F.2d at 915 (quoting Aetna Life
Ins. Co. v. Haworth, 300 U.S. 227, 241 (1937)). A central
question in determining mootness is whether a change in
circumstances since the beginning of the litigation
precludes any occasion for meaningful r elief. Jersey Cent.
Power & Light Co. v. New Jersey, 772 F.2d 35, 39 (3d Cir.
1985). Since the filing of this appeal, North County paid the
property taxes and the water and sewer char ges. No case
and controversy remains. Moreover , we do not believe that
the collateral consequences the FDIC complains of ar e
sufficient to save this appeal from being r endered moot.
However, we note that "[g]enerally, when a case becomes
moot pending disposition of an appeal, the judgment below
will be vacated and the case will be remanded with
instructions to dismiss." Humphreys v. Drug Enforcement
Admin., 105 F.3d 112, 113 (3d Cir . 1996) (citing United
States v. Munsingwear, Inc., 340 U.S. 36, 39-40 (1950)).
Whether to vacate a decision because of mootness is within
the Court's discretion based on equity. Id. at 114. A major
equitable consideration is whether the parties,"through no
fault of their own, [have] been deprived of a review on the
merits of the district court's adverse rulings and ought not
to be forced to acquiesce in them." In r e Orthopedic Bone
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Screw Prods. Liab. Litig., 94 F .3d 110, 111 (3d Cir. 1996).
In U.S. Bancorp Mortgage Co. v. Bonner Mall P'Ship, 513
U.S. 18, 25 (1994), the Supreme Court advised that "[a]
party who seeks review of the merits of an adverse ruling,
but is frustrated by the vagaries of circumstance, ought not
in fairness be forced to acquiesce in the judgment." We
conclude that the FDIC should not be penalized by allowing
the District Court's ruling to stand when it is pr ecluded,
through no fault of its own, from having that decision
reviewed on the merits. We will ther efore grant the
equitable relief of vacatur.
* * *
For the foregoing reasons, we dismiss this appeal as moot
but vacate the judgment of the District Court.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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