WINTERGREEN HOMEOWNERS ASSOCIATION, INC v. KINGS GRANT MAINTENANCE ASSOCIATION, INC

(NOTE: The status of this decision is .)
 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4471-07T14471-07T1

WINTERGREEN HOMEOWNERS

ASSOCIATION, INC.,

Plaintiff-Appellant,

v.

KINGS GRANT MAINTENANCE

ASSOCIATION, INC.,

Defendant-Respondent.

_______________________________________

 

Argued January 14, 2009 - Decided

Before Judges Rodr guez and Payne.

On appeal from the Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-003332-04.

Paul Leodori argued the cause for appellant (Law Offices of Paul Leodori, P.C., attorneys; Mr. Leodori, on the brief).

Steven E. Angstreich argued the cause for respondent (Weir & Partners LLP, attorneys; Mr. Angstreich, on the brief).

PER CURIAM

This is the second time that this matter comes before us. Wintergreen Homeowners Association, Inc. (Wintergreen) appeals from the April 9, 2008 order dismissing with prejudice its complaint against Kings Grant Maintenance Association, Inc. (Kings Grant). We reverse and remand for additional fact finding.

A summary of the facts is set forth in our prior opinion. Wintergreen Homeowners Association, Inc. v. Kings Grant Maintenance Association, Inc., A-4575-05T1 (App. Div. January 31, 2007). Kings Grant is a non-profit corporation established to manage the development of a large residential community. The sub-communities within the larger development sued Kings Grant, alleging Kings Grant had been granted excessive powers and exercised improper influence over the sub-communities' affairs. The Law Division ordered a reformation of the Kings Grant's powers and responsibilities. Soon thereafter, owners in the sub-community that later became Wintergreen filed suit alleging Kings Grant had not relinquished control and was impinging on their right to manage their own community. This suit resulted in the eleven-page Consent Settlement Order (CSO) that established the Wintergreen Homeowners Association, the appellant herein, as a sub-community within the development.

Because of the concern that Kings Grant had overcharged Wintergreen residents, the CSO provided that an accountant could be appointed to examine the pertinent books and records. The CSO further provided that Wintergreen could seek recovery of any amounts overcharged, but released the parties from liability on any other grounds and required any complaint be filed by September 1, 2004. By order of the Chancery Division, the September 1 deadline was extended to December 1, 2004, to allow Wintergreen time "to complete the audit and file any potential litigation against [Kings Grant]. . . ."

In letters dated January 29, March 4 and March 30, 2004, counsel for Kings Grant discussed and approved various changes to the CSO. Among other revisions to the CSO, Kings Grant agreed to change the term "audit" to "examination," stating, "While I don't believe this has any substantive value whatsoever, I have made the change at your request."

On May 11, 2004, Wintergreen retained an accountant, Allen Raevsky, who reviewed Kings Grant's financial records and orally advised Wintergreen's treasurer, Robert Campbell, that Kings Grant had improperly charged various litigation expenses both to Wintergreen residents and to all Kings Grant residents generally. Raevsky did not issue a written report.

Wintergreen wrote several letters to Kings Grant, requesting production of certain documents. It appears that many of these discovery requests were complied with and, where they were not, Kings Grant articulated specific reasons for non-production based in the provisions of the CSO or on other legal grounds. On November 8, 2004, Wintergreen sent Kings Grant a letter demanding payment on a non-exclusive list of demands and seeking "amicable resolution" of the dispute. Wintergreen never filed a motion to compel production of documents in compliance with the CSO prior to filing its complaint on November 30, 2004. It did file such a motion on July 6, 2007, which the judge denied.

Wintergreen filed suit against Kings Grant on November 30, 2004, one day before the CSO deadline. Wintergreen terminated Raevsky and retained a second accountant, Melvin Crystal, who confirmed Raevsky's findings in a written expert report dated February 10, 2006. Simultaneously, Wintergreen sought to amend the complaint against Kings Grant to add Kings Grant's accountant as an additional defendant. Kings Grant filed a cross-motion to dismiss the complaint. The matter was referred to the judge, who determined, sua sponte, that Wintergreen's complaint did not comply with the terms of the CSO, which required that a written audit be completed prior to filing a complaint. The judge dismissed Wintergreen's complaint with prejudice.

Wintergreen appealed, arguing the language of the CSO did not require an audit be performed prior to filing a complaint. We held, "[T]he intended meaning of [the CSO and extension order] is not entirely self-evident, at least with respect to the form and timing of the 'examination' to be conducted by Wintergreen's retained auditor." We remanded the matter for a plenary hearing to determine the intent of the parties.

On July 20, 2007, the judge held a plenary hearing to determine whether the parties intended the audit and complaint portions of the CSO to be conjunctive or disjunctive. Wintergreen argued its November 8, 2004 letter satisfied the written audit requirement of the CSO, that Kings Grant's failure to comply with various document requests prohibited Wintergreen from completing the audit, estopping Kings Grant from demanding such audit, and that Kings Grant was estopped from asserting its defense that Wintergreen failed to submit a written audit because Kings Grant failed to raise the issue in prior pleadings. During the course of the hearing, Wintergreen conceded that the CSO and extension required it to contemporaneously file the audit and complaint.

The judge found that, because the sole purpose of the plenary hearing was to determine whether the parties intended for completion of the audit to be a conjunctive or disjunctive condition, there was no need for additional testimony on that issue and the purpose of the hearing had been satisfied. The judge ended the hearing early to attend the swearing-in ceremony of another judge but assured Wintergreen it would have the opportunity to call witnesses at a later date.

Wintergreen submitted three certifications on August 6, 2007, alleging that certain discovery documentation Wintergreen had not received from Kings Grant was necessary to complete the required audit, that Wintergreen had in good faith sought production of the discovery, that in the accounting world the term "examination" does not contemplate a written report, that the parties to the CSO did not intend to require a full audit, and that the parties did not want to incur the expense or burden of a full audit.

In an order dated April 9, 2008, the judge dismissed Wintergreen's claim with prejudice. The judge found Kings Grant's affirmative defenses were sufficiently pleaded in its answer to avoid waiver and that Wintergreen's failure to file any discovery motions precluded its estoppel claim. The judge also found the November 8, 2004 letter did not meet any definition of the word "audit" and was nothing more than a demand letter.

The judge found it problematic that Wintergreen had taken various positions throughout the proceedings and that the certifications received August 6, 2007, were made by individuals available to testify at the July 20, 2007 hearing. He also noted that Wintergreen had conceded the CSO obligated it to obtain an audit prior to filing a claim against Kings Grant. The judge concluded that this was the sole issue to be addressed in the plenary hearing and, because Wintergreen had conceded the point, all issues had been resolved.

Wintergreen appeals and contends that "the mutual intent of Kings Grant and Wintergreen was that no written document had to be prepared by Wintergreen as a prerequisite to filing suit against Kings Grant in accordance with the April 22, 2004 CSO." We agree.

There seem to be two underlying arguments here which have both been raised over the course of this dispute: (1) that the parties determined that a non-written "examination" would suffice, and (2) that it was never a requirement that the audit be prepared in advance of filing suit. Wintergreen is now arguing the first. The judge based his ruling on the second, rejecting it.

The judge read our decision to mean that the only issue to be determined in the plenary hearing was whether the parties intended the report, in whatever form, be filed prior to the complaint. When Wintergreen conceded that this was the case, the judge found the only remaining question was whether Wintergreen had complied. He found it had not, in that Wintergreen submitted nothing which could qualify as a written audit. Further, he found that the parties intended the CSO to provide finality and certainty in the dispute: it precluded all causes of action other than the issue as to whether Kings Grant committed any accounting malfeasance, and it was calculated to provide Kings Grant with notice of what those specific accounting issues were. Therefore, an inclusive, written audit was a necessary precursor to filing suit and a non-written accounting would not suffice.

However, the judge never formally concluded the plenary hearing or allowed Wintergreen to call any of its witnesses. In his subsequent ruling, the judge faulted Wintergreen for not having called the witnesses. The judge was correct that Wintergreen articulated no reason why, within the confines of the hearing as the judge defined them, it should have the opportunity to present additional witnesses when they could do nothing to further Wintergreen's position that the audit term was disjunctive. The problem is the judge adopted too narrow an interpretation of the remand order in defining the permissible scope of the plenary hearing.

The language of the remand order suggests the plenary hearing need not have been limited to determining whether the audit requirement was conjunctive or disjunctive. We first stated, "[T]he intended meaning of [the CSO and extension order] is not entirely self-evident, at least with respect to the form and timing of the 'examination' to be conducted by Wintergreen's retained auditor." We went on to state:

Given these numerous ambiguities, we conclude that it is most appropriate to vacate the [Judge]'s order...to remand this matter for a plenary hearing as to the mutual intent of the parties concerning the pertinent conditions of the [CSO] and the subsequent extension order . . .

. . .

We also stress that the [Judge]'s ultimate conclusion on [Wintergreen]'s lack of timeliness is not manifestly incorrect and may well be corroborated by the remand proofs. We simply hold that the judge's decision-making process should have taken advantage of extrinsic aids to construction and a plenary hearing as to the mutual intent of the parties.

The remand order describes a broader mandate to fully resolve any ambiguities in the language of the CSO and extension order. It need not have been limited to the grounds the judge articulated.

The limited record on appeal suggests there is some merit to Wintergreen's underlying claim that Kings Grant improperly charged Wintergreen for its litigation expenses and that it should compensate Wintergreen for these misappropriated funds. The principles of equity dictate that such a claim should not be barred because of a technical deficiency.

Given the multiple ambiguities in the language of the CSO and extension order, the judge should have heard sufficient testimony to fully resolve the intent of the parties on all challenged contractual language prior to issuing his final decision. Upon resolving the disputed contractual requirements of the CSO and extension order, the judge would be free to determine whether Wintergreen complied with those requirements.

In its second point on appeal, Wintergreen contends that "Kings Grant must be estopped from contending entitlement to a written audit because it delayed the production of documents to Wintergreen." Wintergreen relies heavily on the CSO language requiring such production and on the certification of one of its accountants that the non-production of such documents made it impossible to complete an audit.

Kings Grant argues Wintergreen cannot advance this argument because it never filed a motion to compel production of the documents and because it failed to raise the argument at any prior procedural stage. The judge found Wintergreen's estoppel argument "disingenuous" where Wintergreen never sought a court order compelling production of the documents.

From our review, we hold that Wintergreen has not made out any of the elements of estoppel: intentional conduct calculated to induce reliance, which actually induces reasonable reliance, to the detriment of the relying party. Knorr v. Smeal, 178 N.J. 169, 178 (2003).

Kings Grant does not appear to have engaged in any conduct intended to induce any sort of reliance on Wintergreen's part, such as convincing Wintergreen not to complete a written audit. In fact, Kings Grant appears to have supplied Wintergreen with all the documents it was required to under the CSO and made it clear why any requested documents were withheld. Wintergreen never challenged these reasons in correspondence with Kings Grant or in a motion to compel production. Neither has Wintergreen suggested that it actually relied in any particular way on the non-production of these documents; for example, Wintergreen does not claim it proceeded to file its complaint under the assumption that it need not first produce a written audit. Wintergreen has not shown any grounds for invoking estoppel.

Wintergreen suggests, as a subset of its estoppel argument, that the doctrine of unclean hands is applicable. "Equity will not open its doors to one who seeks its aid for the purpose of violating a contract, or who seeks to enforce alleged rights arising from a contract which he himself breached." Polino v. Pollino, 39 N.J. Super. 294, 299 (Ch. Div. 1956) (citation omitted).

We reject this argument because Wintergreen never sought enforcement of the CSO provisions requiring document production. Wintergreen cannot invoke unclean hands where it did not act in a way suggesting it considered the contract breached, did not seek enforcement of the contract, and only raises the argument at a late procedural stage in this case.

Moreover, there is nothing in the record suggesting Kings Grant acted fraudulently, unconscionably, or in bad faith. In the specific letter Wintergreen cites to as an "admission" that Kings Grant had not produced the documents necessary for the audit, Kings Grant articulates specific grounds based in the CSO for not producing the documents. If the CSO did not require production of the documents, there was no bad faith conduct. If the CSO did require such production or the provision was legitimately debatable, Wintergreen should have sought resolution through the courts rather than sitting on the issue through the period up to filing its complaint, the motion to dismiss, the motion for reconsideration, and the appeal.

Wintergreen did not take the steps necessary to ensure it had the tools to complete the audit, nor did it suggest at any time prior to the plenary hearing that it would need the documents it now claims prevented it from completing the audit. Seeking a court order would have revealed the ambiguities and problems latent in the CSO, giving the parties the opportunity to reform the CSO to ensure each received the protection and benefits it expected from the agreement.

Accordingly, we remand for a determination of the nature and scope of the audit/examination required by the CSO. Specifically:

a) does it require a formal audit or will a less-detailed synopsis of Wintergreen's claims suffice?

b) does the CSO require the report be in writing?

c) what level of detail did the parties intend be included in the report?

Depending on these answers the Law Division must then decide whether wintergreen's action goes forward or should be dismissed.

Reversed and remanded to the Law Division, Burlington county. We do not retain jurisdiction.

(continued)

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A-4471-07T1

June 16, 2009