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Legal Q & A

 

Letters of Credit and
Civilian Police Directors


Deborah M. Kole
League Staff Attorney
books
Deborah M. Kole, League Staff Attorney

Q A developer building a large project in our community wants to provide his performance guarantee for tract improvements 10 percent in cash and the rest in the form of a Letter of Credit. He proposes that the maintenance guarantee be totally in Letter of Credit form. We would like to require 15 or 20 percent in cash for the performance guarantee, and 5 percent cash for the maintenance guarantee because of the size of the project. The developer claims that we cannot make this demand. We also are unfamiliar with the use of a Letter of Credit for these purposes. Is it acceptable under New Jersey law?

A The developer is correct that under N.J.S.A.40:55D-53.3, a municipality cannot require that a maintenance bond be in cash or that more than 10 percent of a performance bond be in cash for on tract improvements. As for the use of Letters of Credit for these purposes, under the provisions N.J.S.A.40:55D-53.5, an irrevocable Letter of Credit is acceptable as a performance or maintenance guarantee provided that it meets certain conditions:

a.   ‑it constitutes an unconditional payment obligation of the issuer running solely to the municipality for an express initial period of time in the amount required by law;

b.     ‑it is issued by a banking or savings institution authorized to do and doing business in this State;

c.     ‑it is for a period of time of at least one year; and

d.     ‑it permits the municipality to draw upon the letter of credit if the obligor fails to furnish another letter of credit which complies with the requirements 30 days or more in advance of the expiration date of the letter of credit or such longer period in advance thereof as is stated in the letter of credit.”

Therefore, you must make sure that the issuing bank is authorized to do business in New Jersey and is doing business here. The other requirements of the statute must be contained in each Letter of Credit itself. If these standards are all met, the guarantees will be acceptable under New Jersey law.

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Q I am confused as to what the position of “police director” really means. A recently retired police officer from another municipality just became police director in our community. Although I know that he is a member of the Police and Firemen’s Retirement System, and has many years of training and experience as a police officer, he does not wear a uniform, carry a gun or make any arrests. I was told that this is because it is a civilian position. Is he a police officer or not?

A He is a retired police officer currently holding a civilian position that does not allow him to participate in law enforcement activities. In a recent case, Jordan and Asbury Park v. Peter Harvey, 381 NJ 112 Super. (2005), the New Jersey Appellate Division dealt with the status of a police director. In that case, the Asbury Park police director did carry a firearm, wore a police uniform, and apprehended suspects. After the New Jersey Attorney General issued an opinion letter stating that the office of police director is a civilian position that does not allow the individual to engage in law enforcement activities, the city passed an ordinance giving the police director“…all authority and duties of a police officer.”

The Police Director and the city then filed an action for injunctive and declaratory relief against the Attorney General for interference with the Police Director’s law enforcement powers. Both the trial court and the Appellate Division ruled against the plaintiffs, on the grounds that: 1) the police director is a civilian position and 2) a municipality does not have the power to grant law enforcement powers to an individual holding the position. The Appellate Court found that local authorities are preempted by state law concerning police appointments from doing so.

In effect, noted the court, giving these powers to a police director made him a police chief in all but name, and therefore circumvented the requirements in the statutes for appointing a police chief, including appointing from within the ranks of the department. Furthermore, the Legislature has implicitly recognized the civilian nature of the police director position, the court pointed out, because only those police directors who were serving in law enforcement within six months of their appointment can continue to be members of the Police and Firemen’s Retirement System (N.J.S.A. 43:16A-3.1)

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This column is for informational purposes only, and is not intended as legal advice.

 

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