ESTATE OF WINIFRED SKORSKI VS. NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY (NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY) ( 2019 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3314-17T2
ESTATE OF WINIFRED SKORSKI,
Appellant,
v.
NEW JERSEY ECONOMIC
DEVELOPMENT AUTHORITY,
Respondent.
_______________________________
Argued March 4, 2019 – Decided March 20, 2019
Before Judges Sumners and Mitterhoff.
On appeal from the New Jersey Economic
Development Authority.
Michael G. Sinkevich argued the cause for appellant
(Lieberman & Blecher PC, attorneys; Stuart J.
Lieberman and Michael C. Kondrla, of counsel;
Michael C. Kondrla and Michael D. Sinai, on the
briefs).
Laura Drahushak, Deputy Attorney General, argued the
cause for respondent (Gurbir S. Grewal, Attorney
General, attorney; Laura Drahushak, on the brief).
PER CURIAM
Appellant, Estate of Winifred Skorski ("Estate"), appeals the New Jersey
Economic Development Authority's ("EDA") final agency decision denying its
application for a conditional hardship grant pursuant to the Underground Storage
Finance Act, N.J.S.A. 58:10A-37.1 to -37.23 ("UST Act" or "the Act"). Under
the Act, owners or operators of leaking underground petroleum storage tanks
may receive grants or loans for the upgrade or closure of tanks and the
remediation of contaminated properties. See N.J.S.A. 58:10A-37.49(a).1 To
receive a conditional hardship grant, an applicant, among other requirements,
"cannot reasonably be expected to repay all or a portion of the eligible project
costs if the financial assistance were to be awarded as a loan." N.J.S.A. 58:10A-
37.5(c)(1).
The Act and its implementing regulations do not discuss applications by
estates, but the EDA applies informal guidance contained in application
materials to evaluate applications by estates. The Estate challenges this informal
guidance, particularly a requirement that an estate's assets exceed its liabilities
in order to qualify for a conditional hardship grant, as improper de facto
1
The upgrade or closure of such tanks may be required by federal or state
statutes. See N.J.S.A. 58:10A-37.4(a) (citing 42 U.S.C. 6991 to 6991(m) and
N.J.S.A. 58:10A-21 to -35).
A-3314-17T2
2
rulemaking that should have been subject to the formal rulemaking procedures
of the Administrative Procedure Act ("APA"), N.J.S.A. 52:14B-1 to -31.
For the reasons that follow, we agree with the Estate that certain
provisions of the EDA's informal guidance constitute improper de facto
rulemaking and reverse the EDA's denial of the Estate's application.
I.
The UST Act and Implementing Regulations
The UST Act established the Petroleum Underground Storage Tank
Remediation, Upgrade, and Closure Fund ("UST Fund") as a "special, revolving
fund" administered by the EDA. N.J.S.A. 58:10A-37.3(a). The UST Fund is
administered jointly by the New Jersey Department of Environmental Protection
("DEP") and the EDA. See N.J.S.A. 58:10A-37.12. Applicants seeking
assistance from the UST Fund must first apply to the DEP for consideration of
technical compliance with the cost guidelines developed by the DEP. N.J.A.C.
19:31-11.8(a). If the DEP deems the costs of the projects eligible, the EDA then
evaluates the applicant's financial condition to determine eligibility for a grant
or a loan. See N.J.A.C. 19:31-11.8 to -11.10.
The EDA "may award financial assistance from the fund to an eligible
owner or operator in the form of a loan or a conditional hardship grant[.]"
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N.J.S.A. 58:10A-37.5(a)(1). "A conditional hardship grant for eligible project
costs of an upgrade, closure or remediation shall be awarded by the [EDA] based
upon a finding of eligibility and financial hardship and upon a finding that the
applicant meets the criteria set forth in this act." N.J.S.A. 58:10A-37.5(c)(1).
By contrast, "[a] loan to an eligible owner or operator for the eligible project
costs of an upgrade, closure, or remediation shall be awarded by the authority
only upon a finding that the applicant other than a public entity is able to repay
the amount of the loan." N.J.S.A. 58:10A-37.59(c)(2).
The Act provides two initial eligibility criteria for a conditional grant for
remediation: (1) ownership of a qualifying tank; and (2) income and net worth
limits:
In order to be eligible for a conditional hardship grant
for remediation, in the case of a regulated tank, the
applicant shall have owned or operated the subject
regulated tank at the time of tank closure. No applicant
shall be eligible for a conditional hardship grant if the
applicant has a taxable income of more than $250,000
or a net worth, exclusive of the applicant's primary
residence and pension, of over $500,000. Any
applicant with a taxable income of more than $200,000
who qualifies for a grant shall be required to pay no
more than $1,000 of the eligible project costs.
[Ibid.]
The Act provides additional criteria for evaluating financial hardship:
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A finding of financial hardship by the authority
shall be based upon a determination that an applicant
cannot reasonably be expected to repay all or a portion
of the eligible project costs if the financial assistance
were to be awarded as a loan. The amount of an award
of a conditional hardship grant shall be the amount of
that portion of the eligible project costs the authority
determines the applicant cannot reasonably be expected
to repay.
[. . .] In making a finding of financial hardship
for an application for the upgrade or remediation of a
petroleum underground storage tank, where the
petroleum underground storage tank is not a part of the
business property of the owner, the authority shall base
its finding upon the applicant's taxable income in the
year prior to the date of the application being submitted.
[Ibid.]
Accordingly, for an application not pertaining to a business property, a
finding of financial hardship is based on: (1) "a determination that an applicant
cannot reasonably be expected to repay all or a portion of the eligible project
costs if the financial assistance were to be awarded as a loan" and (2) "the
applicant's taxable income in the year prior to the date of the application being
submitted." N.J.S.A. 58:10A-37.5(c)(1).
All recipients of loans, as well as recipients of a conditional hardship grant
for a property other than the recipient's residence, are subject to a lien on the
property in the amount of financial assistance awarded to the applicant. N.J.S.A.
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58:10A-37.16(a). Recipients of a conditional hardship grant for a tank at the
recipient's primary residence, however, are not subject to a lien on the property.
Ibid.
For conditional hardship grants, the lien is "removed upon repayment of
the amount of the grant that is unsatisfied or upon the end of a five-year period
in which the site . . . continued to be operated in substantially the same manner
as it was operated at the time of the award of financial assistance." N.J.S.A.
58:10A-37.16(c). In contrast, a recipient of a loan is required to repay the loan.
N.J.S.A. 58:10A-37.16(b) ("A lien that is filed on real property pursuant to a
loan shall be removed upon repayment of the loan.").
The EDA promulgated regulations to implement the UST Act. N.J.A.C.
19.31-11.1 to -11.14. The EDA's regulations provide that an applicant may
receive a conditional hardship grant when the applicant meets: (1) eligibility
requirements; (2) financial hardship requirement; and (3) statutory requirements
of N.J.S.A. 58:10A-37.5(c). N.J.A.C. 19:31-11.6(b). With respect to the
eligibility requirements, the regulations track the language of N.J.S.A. 58:10A -
37.5(c)(1) regarding ownership of a qualifying tank and the income and net
worth of the applicant. N.J.A.C. 19:31-11.6(b)(1).
A-3314-17T2
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Regarding financial hardship, similar to N.J.S.A. 58:10A-37.5(c)(1), the
regulations provide:
i. A finding of financial hardship by the Authority shall
be based on a review of the applicant's financial
condition and a determination that an applicant cannot
reasonably be expected to repay all or a portion of the
eligible project costs if the financial assistance were to
be awarded as a loan.
ii. The amount of an award of a conditional hardship
grant shall be the amount of that portion of the eligible
project costs the Authority determines the applicant
cannot reasonably be expected to repay; however, any
applicant with a taxable income of more than $200,000
who qualifies for a grant shall be required to pay no
more than $1,000 of the eligible project costs[.]
[N.J.A.C. 19:31-11.6(b)(2)(i) to (ii).]
The regulations, however, do not contain the UST Act's requirement that
"where the petroleum underground storage tank is not a part of the business
property of the owner, the authority shall base its finding [of financial hardship]
upon the applicant's taxable income in the year prior to the date of the
application being submitted." N.J.S.A. 58:10A-37.5(c)(1).
The EDA's Informal Guidance Regarding Applications by Estates
The parties agree that neither the UST Act nor the EDA's implementing
regulations specifically address applications by estates. The Act defines
"Owner" as "any person who owns a facility" and "Operator" as "any person in
A-3314-17T2
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control of, or having responsibility for, the daily operation of a facility."
N.J.S.A. 58:10A-37.2 (emphasis added). The Act defines "Person" as "any
individual, partnership, corporation, society, association, consortium, joint
venture, commercial entity, or public entity, but does not include the State or
any of its departments, agencies or authorities." Ibid. In its brief, the EDA notes
it "has long interpreted the UST Act to include estates as eligible recipients of
loans or hardship grants similar to other legally created entities that own
property in need of remediation."
Accordingly, the EDA provides informal guidance regarding applications
by estates in two documents provided to applicants who have received technical
approval from the DEP. The first document, titled "Frequently Asked Questions
Leaking Underground Storage Tanks" ("FAQ Sheet"), describes the following
evaluation of financial hardship for an estate: "A determination of financial
hardship with an Estate applicant . . . liabilities must exceed its assets inclusive
of primary residence and pension plans (IRS recognized retirement plans, IRA,
401K) and the estate must not be settled." (ellipsis and emphasis in original).
The second document, titled "Estates" ("Estates Sheet"), provides more
detailed guidance regarding the evaluation of applications by estates:
I. In order to qualify for a grant from the Petroleum
and Underground Storage Tank Program, an
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applicant (Executor/Administrator applying on
behalf of the Estate) must satisfy the following
requirements:
1) Taxable Income – no more than $250,000
2) Net Worth – no more than $500,000
(excluding primary residence and
pensions)
3) Must be a financial hardship
4) Meets statutory eligibility
II. The project site will be characterized based on its
use at the time of the decedent's death (i.e.
primary residence, a residence, or an investment
property). Therefore . . .
1) if it was the decedent's primary residence,
it will be excluded from the net worth test
and no lien will be placed on the property.
2) if it was the decedent's residence at any
time during the 12 months prior to the
decedent's death, it will be included in the
net worth test, but no lien will be placed on
the property.
3) if it was an investment property (decedent
did not reside there), it will be included in
the net worth test and a lien will be placed
on the property for 5 years and repaid on a
pro-rate basis if the property is sold within
the 5 years.
III. In order to satisfy the financial hardship test
(mentioned above), the administration of the
Estate must not yet be settled and Estate
liabilities must exceed Estate assets.
A-3314-17T2
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IV. If the Executor/Administrator has the authority to
incur debt on behalf of the Estate, the Estate may
be eligible to receive a loan.
If the decedent passes away on or after the date of the
current application to the NJDEP or NJEDA, criteria III
does not have to be satisfied. The financial hardship
test will be utilized based on an expense to income
ratio.
The Estate's Application
On April 28, 2016, the Estate applied to the DEP for the costs incurred in
the removal and remediation of a leaking underground storage tank located at a
property in Bergen County (the "Property"). While the Estate’s application was
awaiting the DEP's technical compliance review, the Estate sold the property on
July 20, 2016 and received $285,257.52 in proceeds from the sale.
On August 17, 2017, the DEP sent the Estate a letter informing its
administrator that the DEP had determined that the Estate had satisfied the
technical eligibility requirements to receive remediation costs in the amount of
$70,524.07. The letter advised it did not "constitute any approval or release of
funding" and that the EDA would contact the administrator in the coming weeks
with a request for financial information. Accordingly, on August 21, 2017 , the
EDA sent the Estate application materials, including the FAQ Sheet and the
Estates Sheet.
A-3314-17T2
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On October 10, 2017, the Estate submitted its application to the EDA. As
part of the application, the Estate submitted a "Personal Finance Sheet" which
listed the Estate's assets and liabilities. The Estate's assets, inclusive of the net
proceeds from the sale of the Property, totaled $290,257.52. The Estate's
liabilities, inclusive of the cost to remediate the property, totaled $214,533.14.
By letter dated November 9, 2017, the EDA advised the Estate that based
on the review of the financial information submitted, the Estate was ineligible
to receive grant funding. The letter stated: "The first two eligibility
requirements have been satisfied, but the financial hardship test has not been
satisfied because the Estate's assets exceed its liabilities." The letter informed
the Estate that staff could review the application for consideration for a loan if
the administrator had authority to incur debt on behalf of the Estate.
On December 11, 2017, the Estate's counsel sent a letter to the EDA
requesting that the Estate's application be considered by the EDA Board. The
letter argued that the financial hardship test applied to estates was unsupported
by statute or regulation and was therefore "ultra vires and should be invalidated."
The letter also informed the EDA that the Estate did not intend to pursue a loan.
The EDA Board considered the Estate's application on February 13, 2018.
The Board voted to deny the Estate's conditional hardship grant application and
A-3314-17T2
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adopted a resolution incorporating its staff’s memorandum. The memorandum
reiterated that the financial hardship test was not satisfied because the Estate's
assets exceeded its liabilities. Responding to the Estate's argument that the
financial hardship test for estates was unsupported by regulation or statute, the
memorandum stated:
As explained earlier, the regulations describe the
eligibility requirements for a conditional hardship grant
and the basis for EDA's determination of financial
hardship. The regulations, however, do not speak to the
specific hardship requirements of an estate. An
explanation of the specific documentation required
from estates and the method in which the third hardship
requirement applies to estates is set forth in the EDA's
application documents and FAQs for the [petroleum
underground storage tank] program. This
documentation was provided to the Applicant. This
documentation is also provided to all prospective
applicants. Accordingly, staff applies the hardship test
in the regulations in all cases, including any estate
applicant. In re-assessing this application, staff reached
the same conclusion that the Estate's assets exceeded its
liabilities, and therefore did not present a financial
hardship that would make it eligible for [petroleum
underground storage tank] grant funding.
This appeal followed.
II.
A.
On appeal, the Estates raises the following arguments for our review:
A-3314-17T2
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I. THE EDA GUIDANCE DOCUMENTS ARE
IMPROPER DE FACTO ADMINISTRATIVE
RULEMAKING AND MUST BE STRICKEN IN
THEIR ENTIRETY.
A. The UST Finance Act and its Implementing
Regulations Do Not Support the EDA Guidance
Documents' Financial Hardship Test.
B. According to Precedent, the EDA Guidance
Documents Are Improper De Facto
Administrative Rules.
C. Respondent's Actions are Ultra Vires and Violate
All Estate Applicant's Constitutional Right to
Due Process.
In general, our review of a final agency decision is limited to four
inquiries:
(1) whether the agency's decision offends the State or
Federal Constitution;
(2) whether the agency's action violates express or
implied legislative policies;
(3) whether the record contains substantial evidence to
support the findings on which the agency based its
action; and
(4) whether in applying the legislative policies to the
facts, the agency clearly erred in reaching a conclusion
that could not reasonably have been made on a showing
of the relevant factors.
[In Re Taylor, 158 N.J. 644, 656 (1999) (quoting Brady
v. Bd. of Review, 152 N.J. 197, 210-11 (1997)).]
A-3314-17T2
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In this case, the Estate raises the second issue, arguing that the EDA's
informal guidance violates the formal rulemaking procedures of the APA and
exceeds the statutory authority provided to the EDA by the UST Act. Our
review of this legal issue and the agency's interpretation of the UST statute is de
novo. See id. at 658.
"Nonetheless, we 'defer to an agency's interpretation of both a statute and
implementing regulation, within the sphere of the agency's authority, unless the
interpretation is plainly unreasonable'" Ardan v. Bd. of Review, 231 N.J. 589,
604 (2018) (quoting In re Election Law Enf't Commn Advisory Op. No. 01–
2008, 201 N.J. 254, 262 (2010)). "That deference derives from our
'understanding that a state agency brings experience and specialized knowledge
to its task of administering and regulating a legislative enactment within its field
of expertise.'" Ibid. (quoting In re Election Law Enf't Commn, 201 N.J. at 262).
B.
The Estate contends that the informal guidance used by the EDA to
evaluate applications by estates constitutes improper de facto rulemaking and is
therefore invalid because the EDA did not engage in the formal procedures of
the APA. The Estate argues that the guidance documents are inconsistent with
the UST Act and its implementing regulations because: (1) the requirement that
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an estate's liabilities exceed its assets is not contained in the Act or regulations;
and (2) the proceeds from the Estate's sale of the Property were included as an
asset when evaluating financial hardship. Therefore, the Estate seeks that the
informal guidance be stricken in its entirety and that the denial of the Estate's
application be reversed.
In response, the EDA contends that it did not engage in improper
rulemaking and that it reasonably applied the UST Act and its implementing
regulations to evaluate applications by estates. The EDA argues that it
reasonably exercised its expertise to evaluate the financial hardship of estate
applicants according to the estate's assets and liabilities, because estates are
static entities comprised of an ascertainable amount of money determined by the
assets and liabilities of the decedent. The EDA further contends that in enacting
the UST, the Legislature did not intend that hardship grants function simply as
handouts, but rather to assist struggling business owners and homeowners in
their remediation efforts so that they are able to maintain their businesses or
homes. The EDA argues that granting conditional hardship grants to all estates
whose net worth does not exceed $500,000, without a separate finding of
A-3314-17T2
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financial hardship based on assets and liabilities, would be inconsistent with this
legislative intent. 2
The APA defines an administrative rule as "each agency statement of
general applicability and continuing effect that implements or interprets law or
policy, or describes the organization, procedure or practice requirements of any
agency." N.J.S.A. 52:14B-2. "The term . . . does not include: (1) statements
concerning the internal management or discipline of any agency; (2) intra-
agency and inter-agency statements; and (3) agency decisions and findings in
contested cases." Ibid."If an agency determination or action constitutes an 'administrative rule,'
then its validity requires compliance with the specific procedures of the APA
that control the promulgation of rules." In re N.J.A.C. 7:1B-1.1 Et Seq., 431
N.J. Super. 100, 134 (App. Div. 2013) (quoting Airwork Serv. Div., a Div. of
Pac. Airmotive Corp. v. Dir., Div. of Taxation, 97 N.J. 290, 300 (1984)). These
procedures require the agency to, among other things, publish notice of the
proposed rule in the New Jersey Register, N.J.S.A. 52:14B-4(a)(1), "[a]fford all
interested persons a reasonable opportunity to submit data, views, comments, or
2
In this regard, the EDA contends that the Estate was still able to distribute
nearly $76,000 to its beneficiaries after completing the remediation and would
therefore receive a windfall of $70,524.07 if it received a grant.
A-3314-17T2
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arguments, orally or in writing," N.J.S.A. 52:14B-4(a)(3), and "[p]repare for
public distribution . . . a report listing all parties offering written or oral
submissions concerning the rule, summarizing the content of the submissions
and providing the agency's response to the data, views, comments, and
arguments contained in the submissions," N.J.S.A. 52:14B-4(a)(4).
"As an alternative to acting formally through rulemaking or adjudication,
administrative agencies also may act informally." Nw. Covenant Med. Ctr. v.
Fishman, 167 N.J. 123, 136 (2001). "Although not easily defined, informal
agency action is any determination that is taken without a trial-type hearing,
including investigating, publicizing, negotiating, settling, advising, plann ing,
and supervising a regulated industry." Id. at 136-37.
"An agency has discretion to choose between rulemaking, adjudication, or
an informal disposition in discharging its statutory duty, provided that it
complies with due process requirements and the [APA]." Id. at 137. In this
regard, "an exception has been created so that where the agency's action 'is
inferable from the enabling statute itself and does not reflect a new or changed
position, it will not be held invalid for failure to meet rule-making procedural
requirements.'" St. Barnabas Med. Ctr. v. New Jersey Hosp. Rate Setting
Comm'n, 250 N.J. Super. 132, 144 (App. Div. 1991) (quoting In re 1982 Final
A-3314-17T2
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Reconciliation Adjustment for Jersey Shore Medical Center, 209 N.J. Super. 79,
87 (App. Div. 1986)). Nonetheless, "[a]n agency may not use its power to
interpret its own regulations as a means of amending those regulations or
adopting new regulations." In re Hospitals' Petitions For Adjustment of Rates
For Reimbursement of Inpatient Servs. to Medicaid Beneficiaries, 383 N.J.
Super. 219, 247 (App. Div. 2006) (quoting Besler & Co. v. Bradley, 361 N.J.
Super. 168, 173 (App. Div. 2003)).
The Supreme Court has enumerated six factors to consider in assessing
whether an agency action constitutes rulemaking subject to the APA's
procedures. See Metromedia, Inc. v. Director, Division of Taxation, 97 N.J.
313, 331-32 (1984). These factors consider whether the agency action:
(1) is intended to have wide coverage encompassing a
large segment of the regulated or general public, rather
than an individual or a narrow select group; (2) is
intended to be applied generally and uniformly to all
similarly situated persons; (3) is designed to operate
only in future cases, that is, prospectively; (4)
prescribes a legal standard or directive that is not
otherwise expressly provided by or clearly and
obviously inferable from the enabling statutory
authorization; (5) reflects an administrative policy that
(i) was not previously expressed in any official and
explicit agency determination, adjudication or rule, or
(ii) constitutes a material and significant change from a
clear, past agency position on the identical subject
matter; and (6) reflects a decision on administrative
A-3314-17T2
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regulatory policy in the nature of the interpretation of
law or general policy.
[Ibid.]
"Not all factors need be present for an agency action to qualify as an
administrative rule." In re Provision of Basic Generation Serv. for Period
Beginning June 1 2008, 205 N.J. 339, 350 (2011). "The pertinent evaluation
focuses on the importance and weight of each factor, and is not based on a
quantitative compilation of the number of factors which weigh for or against
labeling the agency determination as a rule." Ibid.To most clearly assess these factors in this case, we separately apply the
factors to the two aspects of the informal guidance that the Estate challenges:
(1) the assets and liabilities test for financial hardship; and (2) the informal
guidance on the characterization of primary residences for estates.
Liabilities and Assets Test
In applying the Metromedia factors to the assets and liabilities test, we
conclude that this informal guidance constitutes an administrative rule that was
required to be promulgated pursuant to the APA's formal rulemaking
procedures.
As to the first Metromedia factor, the record does not reveal whether
applications by Estates are best considered "a large segment" or a "narrow select
A-3314-17T2
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group" of the applicants for conditional hardship grants under the UST Act. 97
N.J. at 331. The Estate argues that the informal guidance has wide coverage,
but the EDA contends that estate applicants are a small segment of the general
public. On balance, this factor may support adherence to the APA's rulemaking
procedures, see In re Provision of Basic Generation Serv., 205 N.J. at 350-51,
but we give little weight to this factor given the limited record.
The second factor, however, clearly supports that the assets and liabilities
test constitutes an administrative rule. The standards expressed in the guidance
documents are "intended to be applied generally and uniformly to all"
applications for conditional hardship grants by estates. Metromedia, 97 N.J. at
331. Similarly, with respect to the third factor, the EDA provides the guidance
documents to all prospective applicants and applies the guidance to evaluate all
applications by estates. Thus, the third factor also is satisfied because the
guidance is designed to operate prospectively.
The fourth factor is the most heavily contested by the parties. The EDA
contends that giving appropriate deference to its interpretation of the UST Act,
the assets and liabilities test is inferable from the Act and its implementing
regulations. Specifically, the EDA suggests that the assets and liabilities test is
inferable from the statutory language that "[a] finding of financial hardship . . .
A-3314-17T2
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shall be based upon a determination that an applicant cannot reasonably be
expected to repay all or a portion of the eligible project costs if the financial
assistance were to be awarded as a loan," N.J.S.A. 58:10A-37.5(c)(1), and from
the regulatory language that "a finding of financial hardship by the Authority
shall be based on a review of the applicant's financial condition," N.J.A.C.
19:31-11.6(b)(1)(i) (emphasis added).
We find, however, that the assets and liabilities test is far more specific
than either of these sections and adds additional criteria (assets and liabilities)
that are not otherwise mentioned in the UST Act or its implementing regulations.
Under the terms of the Act, for an application not pertaining to a business
property, an award of a financial hardship grant is based on (1) "a determination
that an applicant cannot reasonably be expected to repay all or a portion of the
eligible project costs if the financial assistance were to be awarded as a loan"
and (2) "the applicant's taxable income in the year prior to the date of the
application being submitted." N.J.S.A. 58:10A-37.5(c)(1). In this regard, the
record does not reflect that the EDA considers any additional criteria other than
the taxable income from the previous year in determining whether an individual
applicant can reasonably be expected to repay the loan and has a financial
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hardship.3 Likewise, although N.J.A.C. 19:31-11.6 provides that "a finding of
financial hardship . . . shall be based on a review of the applicant's financial
condition," the parameters of the assets and liabilities test are not clearly and
obviously inferable from this regulatory subsection. 4
In this case, the Estate notes that its taxable income in the year prior to its
application was $0.00 and its net worth was below the $500,000 statutory limit.
Accordingly, had the EDA "based its finding upon the applicant's taxable
income in the year prior to the date of the application being submitted ," N.J.S.A.
58:10A-37.59(c)(1), the EDA would have determined that the Estate could not
reasonably have been expected to repay a loan and had a financial hardship.
Thus, as demonstrated by the Estate's application, the informal guidance
provides determinative standards for evaluating applications by estates.
3
The Personal Finance Sheet does ask all applicants to provide information
regarding their personal annual expenditures, asset totals, liability totals, and
properties and businesses owned. However, there is no indication in the record
that this information is used to calculate anything other than net worth and
income for non-estate individual applicants.
4
Moreover, the FAQ Sheet provides that an estate's assets include primary
residences and pensions, whereas the UST Act clearly provides that primary
residences and pensions are excluded from the calculation of net worth.
N.J.S.A. 58:10A-37.5(c)(1).
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Although we agree with the EDA that the UST Act was not intended to
provide conditional hardship grants as handouts to applicants who could
otherwise reasonably be expected to repay a loan, the EDA may not establish
determinative standards for financial hardship that are not contained in or clearly
inferable from the Act or its regulations without engaging in the APA's formal
rulemaking procedures. In these ways, despite the deference given to an
agency's interpretation of its enabling statute and implementing regulation, the
fourth Metromedia factor is established because the assets and liabilities test is
not clearly and obviously inferable from the UST Act or its implementing
regulations. See In re N.J.A.C. 7:1B-1.1 Et Seq., 431 N.J. Super. 100, 138 (App.
Div. 2013) (holding that factors four and five were met where the DEP's
informal guidance on waiver regulations "elaborate[ed] upon and clarif[ied] the
very standards by which applicants will be held and the outcomes of their
applications").
Similarly, the fifth factor is satisfied because the assets and liabilities test
was not previously expressed in any official and explicit agency rule, as neither
the UST Act nor its implementing regulation refer to such a test for evaluating
financial hardship. See Ardan, 231 N.J. at 606-07 (holding that agency's
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interpretation of its regulation was plainly unreasonable where fourth and fifth
factors were satisfied.).
As to the sixth factor, the unofficial guidance documents distinctly reflect
"a decision on administrative regulatory policy in the nature of the interpretation
of law or general policy," Metromedia, 97 N.J. at 331, specifically the
application of the UST Act and its implementing regulations to applications by
estates. See In re Adoption of Reg'l Affordable Hous. Dev. Program Guidelines,
418 N.J. Super. 387, 393 (App. Div. 2011). Thus, the sixth factor supports that
the assets and liabilities test constitutes an administrative rule.
In sum, we find that five of the six Metromedia factors support that the
assets and liabilities test contained in the informal guidance constitutes an
administrative rule. Although the EDA's interpretation of the UST Act and its
implementing regulations warrants deference, the requirement that an estate's
liabilities exceeds it assets to qualify for a conditional hardship grant is not
"clearly and obviously inferable" from the Act or its implementing regulations.
Metromedia, 97 N.J. at 331. For these reasons, we conclude that that the assets
and liabilities test is invalid because it was not promulgated pursuant to the
APA's formal rulemaking procedures.
A-3314-17T2
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Primary Residence Characterization
In applying the Metromedia factors to the informal guidance on the
characterization of primary residences for estates, we conclude that the informal
guidance does not constitute an improper de facto rule.
As to the first, second, third, and sixth factors, we find the above analysis
with respect to the assets and liabilities test is similarly applicable to the
informal guidance's characterization of primary residences for estates. Thus, we
give little weight to the first factor, and we find that the second, third, and sixth
factors support that the informal guidance is an administrative rule.
As to the fourth factor and fifth factors, however, we find that the EDA's
characterization of primary residence for estates is clearly inferable from the
UST Act and does not materially change any eligibility requirements for estate
applicants. With respect to these factors, the EDA argues that its criteria for
characterizing the primary residences for estates are a "commonsensical"
interpretation of the UST Act. The EDA contends that the Estate Sheet
reasonably characterizes the project site based on its use at the time of the
decedent's death or within twelve months of the decedent's death. The Estate
counters that the EDA strayed from the UST Act's mandates on primary
A-3314-17T2
25
residences by counting the proceeds from the sale of the Property in its
calculation of the Estate's net worth and assets.
We agree with the EDA that it is clearly inferable from the Act that an
estate's primary residence would be characterized based on its use at the time of
the decedent's death. Likewise, it is easily inferable from the Act that once an
estate sells a primary residence, the proceeds from the sale will be considered a
monetary asset and will be included in the calculation of net worth. Any other
interpretations would fail to give effect to the plain terms of N.J.S.A. 58:10A-
37.5(c)(1) that net worth is to be calculated only "exclusive of the applicant's
primary residence and pension." See Ardan, 231 N.J. at 604-05 ("To apply the
'plainly unreasonable' standard, we first consider the words of the statute,
affording to those words 'their ordinary and commonsense meaning.'" (quoting
In re Eastwick Coll. LPN-to-RN Bridge Program, 225 N.J. 533, 542 (2016))).
Thus, we conclude that the fourth factor is not satisfied because the EDA's
interpretation is "clearly and obviously inferable" from the Act. Metromedia,
97 N.J. at 331. Similarly, the fifth factor is not satisfied because EDA's informal
guidance is consistent with the UST Act and does not constitute a "material and
significant change" from the policy expressed on primary residences in the UST
Act and its implementing regulations. Ibid.A-3314-17T2
26
In sum, although some of the Metromedia factors support that the informal
guidance in the Estate Sheet concerning primary residences is a de facto rule,
we conclude that fourth and fifth Metromedia factors weigh more heavily in the
agency's favor. These factors support that the informal guidance on primary
residences is not an administrative rule because the EDA's interpretation is
clearly inferable from the UST ACT. See St. Barnabas, 250 N.J. Super. at 144.
According due deference to this interpretation, the EDA's criteria for the
characterization of the primary residences for estates are not plainly
unreasonable. See Ardan, 231 N.J. at 604-05. We therefore conclude that the
EDA's informal guidance on the characterization of primary residences for
estates is valid and does not constitute an improper de facto rule.
C.
For the above reasons, we conclude that the assets and liabilities test
contained in the EDA's informal guidance documents is an improper de facto
rule and must be invalidated because the EDA did not follow the formal
rulemaking procedures of the APA. However, we conclude that the EDA's
informal guidance on primary residences of estates is not an administrative rule
and that the EDA may continue to apply the informal guidance's criteria
regarding the primary residences of estates.
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In this case, when applying only the primary residences criteria and not
the assets and liabilities test, the Estate's application for a conditional hardship
grant should be approved. Even when factoring in the proceeds from the sale,
the Estate would not exceed the taxable income limit of $250,000 (because the
requirement is based on the income from the previous tax year) or the $500,000
net worth limit. Additionally, as discussed above, had the EDA based its
evaluation of financial hardship on the Estate's taxable income from the previous
year, it would have determined that the Estate could not reasonably be expected
to pay back a loan and that the Estate had a financial hardship.
Accordingly, we reverse the EDA's denial of the Estate's application
because the Estate would have met all requirements for a conditional hardship
grant if the EDA had not applied the assets and liabilities test. If the EDA seeks
to apply the assets and liabilities test to evaluate future applications, we direct
the agency to post notice of its proposed rule in the New Jersey Register, in
accordance with N.J.S.A. 52:14B-4, within ninety days. 5
5
Although we are constrained to reverse the EDA's denial of a conditional
hardship grant on the particular facts of this case, we do not address the issue of
how our decision would impact any potential future grant applications by
estates.
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To the extent we have not addressed any other arguments raised by the
parties, we conclude they lack sufficient merit to warrant discussion in a written
opinion. R. 2:11-3(e)(1)(E).
Reversed. We do not retain jurisdiction.
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