BARBARA S. EBERT v. BRIAR KNOLL CONDOMINIUM ASSOCIATION

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-6487-04T15932-04T1

BARBARA S. EBERT,

Plaintiff-Appellant,

v.

BRIAR KNOLL CONDOMINIUM ASSOCIATION,

Defendant-Respondent,

and

TOWNSHIP OF DOVER,

Defendant.

__________________________________

 

Argued October 3, 2006 - Decided January 26, 2007

Before Judges S.L. Reisner and C.L. Miniman.

On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. C-210-04.

Mendel White argued the cause for appellant.

Edward V. Murachanian argued the cause for respondent.

PER CURIAM

This action was commenced by plaintiff Barbara S. Ebert (Ebert) on March 30, 2001, as an Action in Lieu of Prerogative Writ against defendants Briar Knoll Condominium Association (the Association) and the Township of Dover, alleging violations of the condominium site plan, municipal building codes, and the Association's rules and regulations and seeking damages and injunctive relief. The gravamen of Ebert's complaint related to the elimination of handicapped parking spaces required by the approved site plan and the Association's long-standing failure to fund and effect repairs. On June 4, 2001, the Association filed an answer demanding dismissal of Ebert's complaint and an award of attorney's fees and costs of suit.

Over the course of the next four years, the litigants participated in mediation and settlement negotiations. Some issues were resolved, and on May 2, 2005, the Association moved for summary judgment alleging that all unsettled claims fell within the business-judgment rule. Ebert opposed the motion and cross-moved for attorney's fees. This appeal followed the grant of summary judgment to the Association and the denial of Ebert's application for fees. We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

The relevant facts, viewed in a light most favorable to Ebert, appear to be as stated herein. Ebert owns and resides in Unit B3 in the Briar Knoll Condominium complex in Toms River, New Jersey. By virtue of that ownership, she is a member of the Association. Over the course of several years, the Association failed to address sixty-three items of necessary maintenance brought to its attention by Ebert. Additionally, the Board eliminated Ebert's handicapped parking space, which was near the entrance to her unit, despite her protests. After months of discovery and mediation, the Board addressed some of those items. Ebert then filed a motion for summary judgment compelling the Board to act in accordance with applicable law. The Board argued, on the other hand, that the remaining items were insulated from judicial review based on the protection afforded by the business-judgment rule.

In support of her motion, Ebert argued that the latter rule only afforded protection to a condominium association when the association followed legal requirements governing condominium associations. Specifically, Ebert argued that, with respect to its meetings, the Board was required to (1) formulate an agenda, (2) give notice of a meeting, (3) conduct an open, public meeting, (4) discuss the items on the agenda, and (5) vote on the agenda items. She asserted that the Board had failed to follow these requirements. As a result, she argued that any action taken by the Board was ultra vires and not eligible for protection under the business-judgment rule.

At a hearing on May 27, 2005, the judge framed the issue on summary judgment as "the conduct of the meetings." He further stated that under the business-judgment rule, the court cannot run the property, but "can be in the position of enforcing the Statutes and regulations that apply to the conduct of meetings because any decision made by a Board which is not consistent with the Statutes and regulations as cited by [Ebert] would be ultra vires." Because the Association could not, at the time of oral argument, demonstrate that the issues had been discussed at a properly noticed meeting, the judge carried the matter for several days. Ebert's attorney protested, arguing that his client had certified that no such meetings had occurred and the Board had stalled for months. Nonetheless, the judge permitted the Association to have one more opportunity to demonstrate that it had considered all of the issues raised by Ebert in a open public meeting and had voted thereon.

In an effort to delimit the issues the Board was required to address, the parties began by discussing a settlement that the Board had proposed at one point in time, which contained thirty-three undertakings on its part to resolve the litigation. No settlement had been reached because Ebert would not agree with items one and eight. Specifically, she would not agree to the proposal respecting handicapped parking spaces in the A-B lot (item one) and reinspection of the sidewalks and walkways in front of Building B to determine if repairs were necessary (item eight). She also had two additional items she wanted to include in the settlement to which the Board would not agree. The first was described in paragraph five of Ebert's January 21, 2004, certification, which demanded that the Board comply with the recommendations of the Bureau of Fire Safety respecting certain violations of the local fire safety code. The second was reflected in paragraph six of the same certification, but the transcript of the summary judgment motion does not reflect what those items were and the certification is not before us.

In resolving the motion then before the court, the judge asked Ebert's attorney whether, by attaching the proposed settlement and paragraphs five and six of Ebert's certification he would "now have all the issues" listed. Ebert's attorney agreed. The judge then said to Ebert's attorney:

I'm going to put a note in this Order that your client is absolutely barred from producing anything further in the context of this litigation. This case is now defined by these attached documents. And to the extent that I've made decisions, those are barred to the extent that I've granted relief to your client. It is so ordered.

The order was then read into the record. The motion to require the Association to perform the work was denied, the Association was required to advise the judge of the next two regularly scheduled meeting dates of the Association and the items on the agendas. The judge also ruled that Ebert was entitled to have her items of correspondence placed on the agendas and to have the Board vote on her requests at its public meetings. The judge scheduled a case management conference for September 1, 2004. After the Board had addressed each of the items listed in the attachments to the order, the judge would determine whether the Board's determinations were insulated from review by the business-judgment rule. The judge specifically ordered that "[t]he plaintiff is barred from adding any further items of complaints other than those set forth in this Order and the exhibits in the context of this litigation."

As of March 24, 2005, the Board still had not considered the various issues. Three meetings had been scheduled and cancelled. Ebert protested that she had been waiting since September, that six months had passed, and still there was no meeting. The judge ordered the attorney for the Board to appear before him daily until timely proper notice of a meeting had been given. By March 28, 2005, Ebert agreed that the agenda had been properly prepared. The meeting was scheduled for April 21, 2005, and the meeting took place that day. The Board served a summary judgment motion on May 3, 2005.

Larry Stefanacci, the President of the Association and a member of the Board, certified that over the years the Board had considered all of Ebert's requests and either agreed or refused to accommodate those requests. He further certified that the Board met on April 21, 2005, and the Board and members of the public discussed each and every item on the agenda for that meeting. He assured the court that Ebert "attends most meetings and is allowed to speak at those meetings." He further stated, "Some of plaintiff's requests are reasonable and are welcome. Some of them are considered and denied based upon the judgment of the Board that the request would not be proper to be honored at that particular time."

In opposition to that motion, Ebert's counsel informed the court that the majority of the units in the Briar Knoll Condominium complex are owned by one corporation and that

[t]he representative of this corporate owner is on the Board and regularly votes against any increase in the maintenance fees. The President of this three member Board is also a renter of his unit. Thus, the Board by self-dealing does not permit the imposition of proper maintenance fees. This is pointed out in the affidavit of plaintiff attaching a copy of the report of the reserve specialists hired by the Board to determine the maintenance fees necessary for the proper maintenance of the property of the condominium.

Ebert's attorney asserted that the motion was flawed because it did not have a proper Statement of Undisputed Facts. As a consequence, he argued that the judge could not utilize the business-judgment rule to shield the Board's four-year-long delay in acting on Ebert's concerns and sought an award of counsel fees and costs in the total sum of $22,553.47.

In her certification opposing the motion, Ebert brought to the attention of the judge that many items on the agenda were rejected by the Board because it did not have enough money to undertake the various items of repair and replacement. She certified that the lack of money was due to the Board's failure to charge maintenance fees that would generate a sufficient reserve. She attached a 2000 Reserve Study prepared for the Board, at its request, stating that the average annual contribution to the maintenance reserve should be $24,045 whereas in 2000 the actual contribution was only $7,200. Ebert asserted that "[t]his under funding of reserves has resulted in a deterioration of the Briar Knoll property and failure, due to lack of funds, to pay bills for years." With respect to the latter comment, Ebert supplied hearsay examples of bills for snow plowing that went unpaid from December 2003 right through to the April 21, 2005, meeting. She further complained that she should not have to bring lawsuits to compel the Board members to perform their fiduciary duties.

Stefanacci responded to the opposition, and certified to the determinations made by the Board on April 21, 2005, with respect to each of the forty-two items on the agenda for that meeting. In a supplemental certification, he also averred that the Board, in good faith, considered every concern that was raised by Ebert over the years and acted on many of them. He attached the maintenance logs of the management company to demonstrate action taken by the Board in response to Ebert's concerns. Finally, he certified that:

This Board always acted with courtesy and with consideration for every item that the plaintiff requested. These items have been dealt with for years. There has never been any disregard for her requests, although there has been many items that the Board has agreed that they would not do. All of those items were based upon the judgment of the board that they were not proper and necessary or, financially feasible.

The argument on the Association's motion for summary judgment was heard on May 27, 2005. The Association contended that it had met and reacted to each and every one of Ebert's concerns and, therefore, it was entitled to dismissal of her complaint. Ebert argued that the business-judgment rule did not shield the Association's historical conduct of meetings with no notice or with improper notice, and its failure to take and publish minutes. Ebert also argued that the business-judgment rule did not apply to repairs the Board determined could not be done because the reserves were insufficient, as the Board failed to discharge its fiduciary duty to provide for adequate reserves to maintain the property. Ebert pointed out that the maintenance fee at the time was one-third of what the Board's expert recommended to it as necessary for the upkeep of the property. She argued that the property has deteriorated "fiercely" as a result of the failure to maintain adequate reserves, and she attributed that failure to two of the members on the three-person Board. One was Berger, who was a representative of the corporation that owned and rented forty-two of the sixty-eight units in the condominium complex, who regularly voted against maintenance-fee increases. The other was Stefanacci, who also rented the one unit he owned. Ebert also argued that, even after the April 21, 2005, meeting, the Board continued to violate the Condominium Act and the administrative code by failing to post notice of future meetings.

The Association argued that increasing maintenance fees from the $130 then being charged to $390 was "outrageous" and that the Board was not going to do that. The Association denied any self-dealing, admitting that Berger voted against the last proposed maintenance-fee increase, but pointing out that the two other members of the Board voted to increase maintenance fees.

The judge then placed his decision on the record as follows:

The Court has had this matter before it on several occasions. Plaintiff's assertions had to do with the management and operation of the Condominium Association and the condominium complex. The matter with regard to some of these assertions was settled. With regard to the remaining items, the Court ordered that even assuming the Business Judgment Rule applied, the Association had the affirmative duty to provide a forum and to at least acknowledge receipt of the concerns of the plaintiff and to deal with those concerns in the context of a formal meeting and in the context of a resolution.

After the court made its decisions with regard to the matter and after the settlement the matter languished. There was very little activity and indeed a failure on the part of the Board on at least two or three occasions to . . . properly . . . give notice and conduct a meeting where it would consider the items asserted by the plaintiff because of this recalcitrance.

The procedural impediment to the Court dealing with the substantive issue of whether or not the items asserted by the plaintiff come within the Business Judgment Rule is now ripe. There are - I think there's something like three pages of items. The Court has had an opportunity to review each and every one of those and the Court does find that they do come within the Business Judgment Rule. The Court finds that it would be inappropriate for this Court to substitute its decision with regard to cash reserves, what should be painted, what shouldn't be painted, what should be repaved and what shouldn't be repaved. The cases are legion that stand for the proposition that the Court should not be placed in that position, that the relief is to be found with regard to this matter before the Board itself.

The Court is going to grant the Summary Judgment. The Court previously granted what I felt were significant counsel fees for the recalcitrance shown by the defendant in the past. The Court is going to deny any further counsel fees. The matter is now over.

On appeal Ebert contends that summary judgment should not have been granted because the Association never filed a statement of undisputed material facts as required by R. 4:46-2; that the business-judgment rule, as a matter of law, does not shield the Association's course of conduct over a four-year period; that the Board of the Association owed a fiduciary duty to her; that the powers of the Board are fixed by the Condominium Act, N.J.S.A. 46:8B-1 to -38; and that her attorney's fees should be assessed against the Association.

Summary judgment is designed to provide a prompt, business-like and inexpensive method of resolving cases. Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 74 (1954). A motion for summary judgment must be considered on the basis that the non-moving party's assertions of fact are true and the court must "grant all the favorable inferences to the non-movant." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 536 (1995). Summary judgment is only appropriate when there is no genuine issue as to any material fact in the record.

The judgment or order sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law.

[R. 4:46-2(c).]

Generally, in reviewing a ruling on a summary judgment motion, we apply the same standard as that governing the trial court. Antheunisse v. Tiffany & Co., 229 N.J. Super. 399, 402 (App. Div. 1988), certif. denied, 115 N.J. 59 (1989); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). Where, as here, the issues are entirely questions of law, our review is de novo. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995) ("A trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference."). See also Rowe v. Hoffman-La Roche Inc., 383 N.J. Super. 442, 452 (App. Div. 2006).

Ebert's claim that the Board of the Association has a fiduciary duty to her as an owner of a condominium unit is well grounded in our jurisprudence. "The Association's Board of Directors has a fiduciary obligation to its members similar to that of a corporate board to its shareholders. That obligation includes the duty to preserve and protect the common elements and areas for the benefit of all its members." Kim v. Flagship Condo. Owners Ass'n, 327 N.J. Super. 544, 550 (App. Div.) (citations omitted), certif. denied, 164 N.J. 190 (2000); Siller v. Hartz Mountain Assocs., 93 N.J. 370, 382, cert. denied, 464 U.S. 961, 104 S. Ct. 395, 78 L. Ed. 2d 337 (1983). This fiduciary relationship requires that the Board

act consistently with the Condominium Act and its own governing documents and that its actions be free of fraud, self-dealing, or unconscionability. Moreover, that fiduciary relationship requires that in dealing with unit owners, the association must act reasonably and in good faith. If a contested act of the association meets each of these tests the judiciary will not interfere.

[Kim, supra, 327 N.J. Super. at 554 (quoting Billig v. Buckingham Towers Condo. Ass'n I, 287 N.J. Super. 551, 563 (App. Div. 1996) (citations omitted)).]

See also The Glen, Section I Condo. Ass'n v. June, 344 N.J. Super. 371, 380 (App. Div. 2001).

The Condominium Act provides that the association established by the master deed is "responsible for the administration and management of the condominium and condominium property, including but not limited to the conduct of all activities of common interest to the unit owners." N.J.S.A. 46:8B-12.

Where injunctive relief is sought, as here,

the court must . . . concern itself with the propriety of the board's action in th[e] specific case. . . . "[T]he actions of the board of directors of a corporation must meet the test of reasonableness. This standard also applies to the actions of the governing body of a condominium." . . . [A] board of directors of a condominium association, elected as it is, "to oversee and protect the rights and interests of the community at large," is vested with substantial discretion in the performance of its duties and responsibilities. The "business judgment" rule applies. The rule requires that there be a showing of fraud or lack of good faith in the conduct of the affairs of a corporation in order to question decisions of its board of directors. If the directors' actions are authorized, fraud, self-dealing or unconscionable conduct must be shown to justify judicial action. "Courts will not second-guess the actions of directors unless it appears that they are the result of fraud, dishonesty or incompetence."

[Courts at Beachgate v. Bird, 226 N.J. Super. 631, 640-41 (Ch. Div. 1988), (quoting Papalexiou v. Tower W. Condo., 167 N.J. Super. 516, 526-27 (Ch. Div. 1979)).]

We have held that:

A two-pronged test has been established to determine whether the Association breached its fiduciary duty: (1) whether its action was authorized by statute or its own bylaws, and, if so, (2) whether the action was fraudulent, self-dealing or unconscionable. The scope of judicial review is limited to these two questions, which are issues of law. As long as the Association acted reasonably and in good faith the courts will not second guess its conduct.

[Thanasoulis v. Winston Tower 200 Ass'n, 214 N.J. Super. 408, 411 (App. Div. 1986) (citations omitted), rev'd on other grounds, 110 N.J. 650 (1988).]

See also Owners of the Manor Homes of Whittingham v. Whittingham Homeowners Ass'n, 367 N.J. Super. 314, 322 (App. Div. 2004).

The business-judgment rule does not apply where the action of the association is in violation of the Condominium Act, the association's master deed, or its by-laws. Micheve, L.L.C. v. Wyndham Place at Freehold Condo. Ass'n, 381 N.J. Super. 148, 154 (App. Div. 2005), certif. denied, 186 N.J. 256 (2006).

Indisputably, the Association here has a duty to maintain, repair, replace, clean and sanitize the common elements. N.J.S.A. 46:8B-14(a). It also has a duty to assess and collect funds for common expenses and to pay those expenses. N.J.S.A. 46:8B-14(b). It must exercise its powers and discharge its duties "in a manner that protects and furthers . . . the health, safety and general welfare of the residents of the community." N.J.S.A. 46:8B-14(j).

In concluding that the business-judgment rule precluded judicial review here of "cash reserves, what should be painted, what shouldn't be painted, what should be repaved and what shouldn't be repaved," the judge lost sight of the over-arching issues in the case and failed to apply the two-pronged test formulated by our Supreme Court. As a threshold matter, he should have determined (1) whether the Board's actions prior to and during the course of the litigation were authorized by statute or its own bylaws, and, if so, (2) whether any of those actions were fraudulent, self-dealing or unconscionable.

Ebert has clearly made out a prima facie case of breach of fiduciary duty with respect to the obligation of the Association's Board "to preserve and protect the common elements and areas for the benefit of all its members." Kim, supra, 327 N.J. Super. at 550. She has offered evidence that the Board has allowed the common elements to deteriorate, diminishing the value of the condominium property, and that it has failed to provide adequate reserves for the maintenance of the common elements by refusing over the course of years to increase maintenance fees sufficiently to create such reserves. Indeed, the expert retained by the Board recommended in 2000 that the maintenance fees be increased threefold in order to create adequate reserves. This evidence was not rebutted with the certifications of Stefanacci. If proven at trial, such conduct could be found to have violated the Condominium Act and the fiduciary duty of the Board to the owners to preserve and protect the common elements. The Board's decisions respecting maintenance fees would then not be immune from judicial review.

Even if it is ultimately determined that the Board complied with the Condominium Act and the Association's bylaws, Ebert has also produced prima facie evidence that could support an ultimate conclusion that Berger and Stefanacci engaged in self-dealing with respect to the level of reserves. With at least forty-three of the sixty-eight units in the complex subject to rental contracts, the owners of those rental units might not be in a position to pass increased maintenance charges on to their current tenants, or even to have such fees absorbed by the rental market when the premises are leased to new tenants or existing leases are renewed. The Board did not refute this evidence when it replied to Ebert's opposition to the Association's summary judgment motion and the trial court erred when it shielded the issue of adequate reserves under the business-judgment rule. The allegations of self-dealing in the face of inadequate reserves mandate a plenary hearing and not a summary disposition.

In addition to the issue of reserves, when an association's powers are exercised by a governing board, the Condominium Act requires that the bylaws provide that:

all meetings of that governing board, except conference or working sessions at which no binding votes are to be taken, shall be open to attendance by all unit owners, and adequate notice of any such meeting shall be given to all unit owners in such manner as the bylaws shall prescribe . . . . At each meeting required under this subjection to be open to all unit owners, minutes of the proceedings shall be taken, and copies of those minutes shall be made available to all unit owners before the next open meeting.

[N.J.S.A. 46:8B-13(a).]

Ebert has offered prima facie evidence that the Board, over many years, has failed to give notice of meetings; to vote only at meetings open to unit owners; to take minutes of the meetings; and to make those minutes available to unit owners before the next open meeting; as rooted in the Condominium Act. Indeed, at oral argument before us in October 2006, Ebert represented that the Board is continuing to violate the Condominium Act in this manner. Viewed most favorable to Ebert, the evidence she presented in opposing the summary judgment motion would support the issuance of a permanent injunction requiring the Board and its members to conduct the business of the Association in the manner required by the Condominium Act. The business-judgment rule does not protect the Board's failures to give notice of meetings, to vote only at meetings open to unit owners, to take minutes of the meetings, and to make those minutes available to unit owners before the next open meeting.

Because we are remanding this matter for trial, we conclude that the denial of an award of counsel fees to Ebert was premature and we reverse that determination pending further proceedings. The issue is to be revisited based on the proofs at trial.

Reversed and remanded for further proceedings consistent with this opinion.

 

Ebert is a handicapped person entitled to park in handicapped spaces.

Neither the Association nor Ebert conformed to the requirements of R. 4:46-2(a) and (b) because in the Association's statement of material facts it did not cite "to the portion of the motion record establishing the fact[s]," and Ebert filed no response. We do not consider the contents of the statement of material facts and glean the relevant facts from the certifications on file and the transcripts of proceedings in this matter.

The record on appeal did not include this motion for summary judgment, but the record was supplemented with the post-argument submission of the transcript of the August 27, 2004, argument.

Ebert asserted that these legal requirements may be found in the Condominium Act, N.J.S.A. 46:8B-1 to -38; the New Jersey Nonprofit Corporation Act, N.J.S.A. 15A:1-1 to 15A:14-26; the Planned Real Estate Development Full Disclosure Act, N.J.S.A. 45:22A-21 to -56; and the New Jersey Administrative Code, N.J.A.C. 5:24-1.1 to -3.4.

Although the bylaws have not been supplied to us, we presume that they conform to the requirements of the Act.

(continued)

(continued)

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A-5932-04T1

January 26, 2007