A New Jersey appeals court has overturned a counsel fee award to a Montclair resident who successfully challenged a local ordinance allowing for the construction of an assisted-living facility.

The three-judge Appellate Division panel on Thursday in Grabowsky v. Montclairsaid a trial judge erred when he awarded a local resident and government watchdog, Richard Grabowsky, $123,225 in counsel fees and costs after he successfully challenged the passage of the ordinance.

Appellate Division Judges Marianne Espinosa, Karen Suter and Michael Guadagno, in an unsigned opinion, said there was no reason to depart from the so-called “American Rule,” in which litigants are expected to bear their own costs.

The appeals court said the trial judge incorrectly applied the “fund in court” doctrine to award fees and costs to Grabowsky. The “fund in court” exception to the American Rule is meant to apply when there has been an account created by public agencies to pay for legal expenses.

The appeals court judges said awarding Grabowsky counsel fees and costs would only serve to harm the township’s taxpayers.

The award would “penalize the municipal taxpayers who derived no tangible economic benefit from the litigation,” the appeals court said.

Neither Grabowsky’s attorney, Jonathan Guldin of Montclair’s Clark Guldin, nor the township’s lead attorney, Jennifer Borek of Genova Burns in Newark, could be reached for comment.

Grabowsky, the court noted, has argued that former Mayor Jerry Fried and former Township Councilman Nick Lewis should not have voted to approve the project because of a conflict of interest. In his suit, Grabowsky alleges Fried and Lewis are senior members of the Unitarian Universalist Congregation Church, and that the church might benefit by having the assisted living facility built next door, according to the decision.

Grabowsky, who wants to propose alternate plans for the site, also claims the five-story, 88-unit center violates the township’s master plan.

The township’s original ordinanceeventually was voided because of the conflict of interest, in a case that previously made its way to the state Supreme Court.

The appeals court said that for the “fund in court” exception to apply, there must actually have been a litigation fund created. In this case, the judges said, there was no designated fund established.

“The net effect is that … taxpayers would be required to fund plaintiff’s lawsuit,” the appeals court judges said.

Contact the reporter at mbooth@alm.com.