Matter of Distribution of Liquid Assets

764 A.2d 494 (N.J.Super.A.D. 2001)

IN THE MATTER OF THE DISTRIBUTION OF LIQUID ASSETS UPON DISSOLUTION OF THE UNION COUNTY REGIONAL HIGH SCHOOL DISTRICT NO. 1, UNION COUNTY.

A- 106

September Term 1999

SUPREME COURT OF NEW JERSEY

Argued October 23, 2000

Decided January 30, 2001

On certification to the Superior Court, Appellate Division.

SYLLABUS

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

STEIN, J., writing for a unanimous Court.

In this appeal, the Court considers the propriety of the State Board of Education's (State Board) failure to order distribution of the now-dissolved Union County Regional High School District's liquid assets only to those municipalities that were not deeded real estate.

In 1993, the school boards for six communities that comprised the Union County Regional High School District No. 1 (District) (Clark, Garwood, Kenilworth, Springfield, Mountainside, and Berkeley Heights) commissioned a study to consider the feasibility of dissolving the District. Thereafter, all of the municipalities, except Garwood, applied to the Union County Superintendent of Schools pursuant to N.J.S.A. 18A:13-51 to make an investigation as to the advisability of the dissolution of the regional district. In April 1995, Dr. Leonard Fitts, the Union County Superintendent, issued a report recommending against dissolution, but enabling the municipalities to form an independent intelligent judgment as to the advisability of the proposed dissolution and its effects on the educational and financial condition of the constituent municipalities. In the event the District was dissolved and the four school buildings and accompanying real estate were deeded to their host municipalities, Dr. Fitts recommended that Mountainside and Garwood alone, both of which did not host school buildings, share all liquid assets, with Mountainside receiving the bulk thereof, based on an October 1994 equalized valuation of property.

Notwithstanding Dr. Fitts' recommendation to the contrary, in May 1995, pursuant to N.J.S.A. 18A:13-54, the five municipalities that favored dissolution petitioned the State Commissioner of Education for permission to submit to the legal voters of each constituent municipality the issue of whether the regional school district should be dissolved. The petition identified a series of objections set forth by Dr. Fitts, including his objections that two of the six municipalities would not acquire high school buildings of the District. The petition responded by endorsing Dr. Fitts' liquid asset distribution alternative as a method of preserving the equity of the dissolution.

As required by N.J.S.A. 18A:13-56, the Commissioner of Education submitted the dissolution petition to the Board of Review, the membership of which includes a representative of the State Board as well as the Commissioner him or herself. The Board of Review is responsible for determining whether the petition should be granted and, if so, the amount of indebtedness, if any, to be assumed by each of the constituent municipalities. In November 1995, the Board of Review issued a letter opinion granting the petition to dissolve on the condition that Kenilworth agree to accept Garwood High School students in a sending-receiving relationship, if Garwood chose to enter that relationship. The Board of Review noted that it was not convinced that following the statutory scheme for distribution of the assets and liabilities would result in an inequity of such proportion as to provide a basis for denying the petition for dissolution. Without explicitly rejecting the agreement of the five municipalities to distribute the liquid assets exclusively to Mountainside and Garwood, the Board of Review added that liquid assets would be distributed to each of the six municipalities in accordance with their proportionate property valuations pursuant to N.J.S.A. 18A:8-24. That Statute provides that the county superintendent shall make a division of the assets (except buildings and other real assets, etc.) of the dissolving district on the basis of the amount of the ratables in the respective districts on which the last school tax was levied.

Thereafter, on March 8, 1996, acting Union County Superintendent of Schools David S. Livingston informed the municipalities that the liquid assets would be distributed proportionally to each municipality, unless they desired a different allocation. In that event, Livingston informed the municipalities that it would be necessary for them to agree to include a different allocation provision in the referendum question, and cited Egg Harbor Bd. of Educ. v. Greater Egg Harbor, 188 N.J. Super. 92 (App. Div. 1982), in support of the proposition that the statutory framework required that procedure.

On May 14, 1996, the referendum for dissolution was passed by a majority of the voters in the entire District. However, the ballot included no mention of the distribution of liquid assets. In July 1996, Mountainside wrote to the Commissioner of Education to request that the liquid assets be distributed only to it and to Garwood, as recommended in Dr. Fitts' report and endorsed by five of the municipalities in the dissolution petition. Assistant Commissioner Peter B. Contini declined Mountainside's request, citing the absence of that specific proposed distribution in the referendum. Contini further declined to heed Dr. Fitts' recommendation because the Board of Review never specifically adopted or authorized implementation of that recommendation. The Commissioner of Education subsequently denied Mountainside's formal petition to distribute the liquid assets only to it and to Garwood, reaffirming the substance of Contini's letter ruling.

Mountainside appealed to the State Board, which modified and affirmed the Commissioner's decision dismissing Mountainside's petition. Although the State Board determined that the decision in Egg Harbor did not bar an alternative method of distributing the liquid assets in the absence of a submission of that issue to the voters in the referendum, it concluded that nothing in the case reflected that application of the statutory scheme would result in an inequity such as to provide a basis for denying the finality of the issue as determined by the Board of Review. In reaching that determination, the State Board relied heavily on the earlier disposition by the Board of Review, finding that there was no indication that the Board of Review intended a departure from the statutory method for distribution of assets and noting the absence of the issue from the referendum. The State Board also questioned its own jurisdiction over the appeal, noting that previous appeals in the case had been filed directly with the Appellate Division, and that the "character of composition" of the Board of Review made direct appeal to the courts a more appropriate mechanism for review.

Mountainside appealed the State Board's decision to the Appellate Division, which summarily rejected Mountainside's claims of error in an unpublished opinion. The Supreme Court granted certification.

HELD: Deviation from the asset distribution formula set forth in N.J.S.A. 18A:8-24 is permissible under the statutory framework, and the State Board of Education's decision not to deviate from that formula in this case, which would have allowed Mountainside and Garwood - the only two constituent municipalities of the now-dissolved Union County Regional High School District who were not deeded real estate on the dissolution of the District - to receive all of the liquid assets of the District, was erroneous.

1. The principle of deference to agency actions applies to policymaking and fact-finding, and to a lesser extent to statutory interpretation by an agency, and a court is in no way bound by an agency's interpretation of a statute or its interpretation of a strictly legal issue. (pp. 13-14)

2. Given the inter-agency composition of the Board of Review, the appropriate practice under the rules is to require direct Appellate Division review of all Board of Review judgments, and the Commissioner of Education and State Board do not have jurisdiction to hear appeals from the Board of Review. However, the State Board did have jurisdiction over Mountainside's appeal because that appeal was from a decision of the Union County Superintendent of Schools and not from the Board of Review's determination. (pp. 15-17)

3. In the absence of a specific finding by the Board of Review justifying intervention in the distribution of the liquid assets of the District, the power to order distribution of those assets rested exclusively with the Union County Superintendent of Schools. Thus, in this case, the Board of Review's disposition of the liquid asset distribution issue is entitled to no weight, nor are the determinations of the County Superintendent, the Commissioner of Education, or the State Board on that issue to the extent that those determination were based on the Board of Review order. (pp. 17-18)

4. Egg Harbor neither holds that deviations from the statutory scheme must appear on the ballot, nor does it address the circumstances under which a deviation form the statutory scheme is appropriate, and there is no other support for the notion that deviations from the statutory scheme must appear on the referendum ballot. (pp. 18-20)

5. The legislative history and the statutory scheme for dissolution of regional districts illustrate clearly that the overriding goal of the statutory scheme is to distribute equitably the regional district's assets and liabilities. Although the principal tool for equalizing the overall dissolution package is the shifting of debt, this case illustrates the point that equalization...