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

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4575-05T14575-05T1

WINTERGREEN HOMEOWNERS

ASSOCIATION, INC.,

Plaintiff-Appellant,

v.

KINGS GRANT MAINTENANCE

ASSOCIATION, INC.,

Defendant-Respondent.

____________________________________

 

Submitted November 15, 2006 - Decided January 31, 2007

Before Judges Sabatino and Messano.

On appeal from the Superior Court of New Jersey, Law Division, Burlington County, L-3332-04.

Leodori & Whelihan, attorneys for appellant (Paul Leodori, on the brief).

Levy, Angstreich, Finney, Baldante, Rubenstein & Coren, attorneys for respondent (Steven E. Angstreich, on the brief).

PER CURIAM

Plaintiff Wintergreen Homeowners Association, Inc. ("Wintergreen") appeals an order of the Law Division dismissing, sua sponte, plaintiff's monetary claims against defendant Kings Grant Maintenance Association, Inc. ("KGMA"). The dismissal was based upon the perceived non-compliance of plaintiff's claims with the terms of a Consent Settlement Order entered on April 22, 2004, as extended by a subsequent order on August 27, 2004. Because we consider the applicable terms of the Consent Settlement Order ambiguous on their face, we reverse the dismissal order, and remand for further proceedings to ascertain the mutual intent of the parties concerning those settlement terms.

Although the factual and procedural history of this matter is complicated, we shall describe it in a summary fashion for the sake of brevity, and because most of the details of that history are irrelevant to the issues now on appeal.

Kings Grant is a large development community located in Evesham Township. Within that community are fifteen townhome and condominium communities. KGMA was created as a non-profit corporation for managing the development through conditions imposed in 1983 by Evesham. See Fox v. Kings Grant Maintenance Association, Inc., 167 N.J. 208, 214 (2001). The development conditions were embodied in a Declaration issued in 1985. Under the Declaration, sub-associations were created for the various communities within the Kings Grant development. However, "all powers and duties for the maintenance, preservation, administration and operation of common property" were "irrevocably delegated to KGMA." Id. at 215.

Homeowners are not directly represented on the KGMA Board. Rather, each of the fifteen communities within Kings Grant may elect one delegate, with an additional delegate assigned for every fifty units in excess of the first fifty within that community. These delegates, in turn, elect the KGMA's five-member Board of Trustees, whose duties included providing for the maintenance and repair of common property within the development. Id. at 216.

In 1994 the Waters Edge condominium community was formed, the last of the fifteen Kings Grant communities to be created. Id. at 217. By 1997, a number of unit owners in Waters Edge had objected to KGMA's alleged improper interference with their sub-association's affairs. Ibid. Numerous Waters Edge unit owners thereafter filed a lawsuit against KGMA. That action was eventually addressed by our Supreme Court in Fox. The Court held, among other things, that the KGMA Declaration was excessive, and that it delegated to KGMA, as the umbrella association, "powers far beyond the maintenance of facilities used in common by all unit owners within the Kings Grant development." Id. at 228. The Court accordingly remanded the matter to the Law Division "to enter a judgment that alters the powers and responsibilities of KGMA and the Kings Grant condominium associations on a prospective basis[.]" Id. at 229.

The Wintergreen townhome community involved in the present appeal was established within Kings Grant in 1986. At that time KGMA took control over the maintenance of the common areas owned by the 117 Wintergreen unit owners. After the Court's decision in Fox, KGMA failed to relinquish its control and none of the elected trustees on the KGMA Board was from Wintergreen. These circumstances led several of the Wintergreen unit owners to file suit in the Chancery Division in a case entitled Willis v. Kings Grant Maintenance Assoc. ("Willis"). They sought (1) a declaration that KGMA was violating their rights to manage their property; (2) a prohibition against KGMA trespassing on their property; (3) a prohibition against KGMA conducting a private nuisance; and (4) a declaration that KGMA was violating their right to manage their unique commonly owned property.

On October 24, 2003, the Chancery judge issued a tentative disposition granting a motion for summary judgment in favor of the Willis plaintiffs. In his disposition, the judge specifically found that the Supreme Court's decision in Fox applied to the circumstances in Willis, and that Wintergreen should thereby be allowed to govern its own common areas.

The tentative disposition in Willis led to a detailed, eleven-page Consent Settlement Order filed in the Chancery Division on April 22, 2004. Among other things, the Consent Settlement Order provided for the creation of the Wintergreen Homeowners Association, Inc. (the present appellant) as a not-for-profit entity to oversee the management of the Wintergreen complex. Pending the organization of such a permanent sub-association for Wintergreen, the Consent Settlement Order also provided for the creation of an interim board.

Because of concerns that KGMA may have overcharged Wintergreen residents in the past, the Consent Settlement Order also provided for the appointment of an accountant by Wintergreen's interim board to examine the pertinent books and records. The role of that independent accountant, who is described in the document as an "auditor", was spelled out in the Consent Settlement Order as follows:

IT IS FURTHER ORDERED that the Interim Board may, at its own expense, retain an independent certified public accountant, duly licensed in the jurisdiction in which he practices (hereinafter the "Auditor"), to examine the books, records, ledgers and documents of the KGMA applicable to the Wintergreen section reasonably necessary for an evaluation of and an accounting for monies collected, reserved and expended on behalf of the Wintergreen Section since January 1, 2000. In that regard, KGMA shall make available to the Auditor all reasonably available information relative to reserves for Wintergreen as well as other books and records of account of the Wintergreen section including, but not limited to, prior annual reports and audits, balance sheets, and income and expense statements for the Wintergreen section, as well as the balance sheet and income and expense statements for the Wintergreen section through the Turnover Date as defined in this Order to be provided by the KGMA's certified public accountant. The information needed for the Auditor's examination will be made available within forty five (45) days of the date of this Order at the exclusive cost of the KGMA. The KGMA shall also have an obligation to make available any additional documentation reasonably required by the Auditor retained by the Interim Board, which Auditor shall have sixty (60) days from receipt of any additional records from the KGMA to complete his examination. In the event that the Interim Board wishes to conduct further examination of the books and records for the time period prior to January 1, 2000, it shall have the right to do so subject to the following conditions. No examination shall be conducted for a period greater than seven (7) years past. All costs for reproduction of records for the time period preceding January 1, 2000 shall initially be borne by the Interim Board. However, the Interim Board and/or the successor Board and/or the to be formed non-profit corporate entity shall retain the right to seek reimbursement for the fees and costs of the examination performed in the event that the examination reveals accounting improprieties which, if established, would require reimbursement or compensation to the Wintergreen section. The fees and costs of conducting the examination shall be borne by the Interim Board, subject to possible reimbursement as set forth herein[.]

[Emphasis added.]

The Consent Settlement Order also included a limitation on KGMA's future liability:

[E]xcept to the extent that the accounting examination conducted by the independent certified public account hired by the Interim Board [of Wintergreen] reveals accounting improprieties and/or the misappropriation of any monies collected from unit owners of the Wintergreen section of Kings Grant, the parties to this action, as well as those individuals and entities having a fee interest to property within the Wintergreen section of Kings Grant, do hereby mutually release each other from any and all claim for money damages, Association fee assessments, legal or equitable relief, and for claims asserted and those that could have been asserted in or contemplated by the pleadings in [the Willis litigation] . . . . Any claims as raised by the accounting examination must be formally asserted through the filing of a complaint in the Superior Court, if at all, by September 1, 2004.

[Emphasis added.]

The September 1 deadline was extended, at the behest of the Willis plaintiffs, by the Chancery judge on August 27, 2004 in an order which stated:

[T]he deadline of the Consent Agreement Order . . . is hereby amended to reflect that the deadline of September 1, 2004 for Wintergreen to complete the audit and file any potential litigation against the Kings Grant Maintenance Association, Inc., as the result of the auditor's findings is hereby extended to December 1, 2004.

[Emphasis added.]

On May 11, 2004, Wintergreen's interim board of directors retained a certified public accountant, Allen Raevsky, to conduct an audit of KGMA. CPA Raevsky was engaged by Wintergreen through November 2004 at which time his services were discontinued. During his engagement, CPA Raevsky examined the books and records of KGMA for the years ending December 31, 1997 through December 31, 2003 and for the period January 1, 2004 through June 4, 2004. As the result of that examination, CPA Raevsky orally advised Wintergreen's treasurer, Robert Campbell, that KGMA had improperly classified its litigation expenses in Willis v. KGMA and a related case, Campbell v. KGMA, as "maintenance" expenses and had exclusively allocated those expenses only to Wintergreen unit owners. CPA Raevsky also orally advised Campbell that, by contrast, KGMA had classified its litigation expenses in the Fox case as "administrative" expenses proportionately to all Kings Grant unit owners, not just those with units in the Waters Edge community. CPA Raevsky did not, however, issue a written report.

Based upon CPA Raevsky's oral advice, the Wintergreen board authorized its counsel to file the present action, principally alleging that KGMA had engaged in accounting improprieties and had overcharged the Wintergreen unit owners. The case was filed in the Law Division on November 30, 2004, one day before the extended deadline of December 1, 2004 specified in the August 27, 2004 order of the Chancery Division.

Following its termination of CPA Raevsky, the Wintergreen board hired a second certified public accountant, Melvin Crystal, to represent its interests in the dispute with KGMA. In an expert report dated February 10, 2006, CPA Crystal confirmed his predecessor's finding that KGMA had engaged in accounting improprieties in its classification of the litigation expenses in Willis and Campbell as "maintenance" expenses and in not allocating those expenses to all Kings Grant unit owners, as had been done for the litigation expenses in Fox. CPA Crystal quantified the amount thus overcharged to Wintergreen unit owners at $69,061. Wintergreen's counsel promptly served CPA Crystal's report upon defendant KGMA.

Contemporaneous with CPA Crystal's report, plaintiff moved to amend its Law Division complaint against KGMA to include as an additional defendant Edward Budzyn, KGMA's accountant. KGMA opposed that motion to amend and also filed a cross-motion to dismiss the complaint. In its cross-motion, KGMA argued, among other things, that plaintiff's claims against KGMA were incorporated into the release language of the Consent Settlement Order and were thus extinguished. KGMA also argued that plaintiff's complaint was untimely, based upon its mistaken belief that the complaint had been filed on December 17, 2004 after the extended December 1, 2004 deadline.

The motions were referred to a Law Division judge, who heard oral argument. During the course of that argument, the Law Division judge, sua sponte, made the observation that plaintiff's complaint was inconsistent with the conditions of the Consent Settlement Order for a reason not specifically advanced by KGMA's counsel. Specifically, the Law Division judge ruled that the Consent Settlement Order, as extended by the Chancery Division, imposed "a two-pronged obligation" by December 1, 2004, namely, one, "to complete the audit, which I don't think under any stretch of the imagination was done[,] and [,] two . . . to file any potential litigation, which I guess arguably was done." The Law Division judge further ruled that "there's nothing before me that indicates that the audit had been completed."

Based upon that reasoning, the Law Division judge concluded that the complaint against KGMA was violative of the Chancery Division's orders and the parties' settlement agreement. The judge accordingly dismissed plaintiff's complaint with prejudice. However, the judge did grant plaintiff leave to pursue claims against KGMA's accountant Budzyn, as he perceived Budzyn to be outside of the scope of the release and strictures of the Consent Settlement Order. Reconsideration was thereafter denied.

Plaintiff appealed, raising the following points in its initial brief and in its reply brief:

POINT I

IT WAS PLAIN ERROR FOR THE TRIAL COURT'S SUA SPONTE DISMISSAL OF WINTERGREEN'S COMPLAINT AGAINST KGMA FOR THE MISAPPROPRIATION OF MONIES GIVEN WINTERGREEN'S UNDISPUTED EXPERT REPORT CONFIRMS THE MISAPPROPRIATION OF $69,061 BY KGMA.

POINT II

DISMISSAL OF WINTERGREEN'S COMPLAINT AGAINST THE KGMA VIOLATES NEW JERSEY'S PUBLIC POLICY AGAINST FRAUD AND SELF-DEALING BY A COMMUNITY ASSOCIATION'S GOVERNING BODY.

POINT III

ALLOWING WINTERGREEN'S COMPLAINT AGAINST BUDZYN WHILE DISMISSING WINTERGREEN'S COMPLAINT AGAINST THE KGMA VIOLATES THE ENTIRE CONTROVERSY DOCTRINE AND CONSTITUTES IMPROPER CLAIM SPLITTING.

REPLY POINT I

THE TRIAL COURT'S AND KGMA'S REFUSAL TO ACKNOWLEDGE THE RAEVSKY AUDIT DONE PRIOR TO NOVEMBER 30, 2004 MANDATES REINSTATEMENT OF WINTERGREEN'S COMPLAINT.

REPLY POINT II

NCP LITIGATION TRUST V. KPMG LLP, 187 N.J. 353 (2006) MANDATES THAT WINTERGREEN'S PENDING COMPLAINT AGAINST KGMA'S ACCOUNTANT BUDZYN AND THIS PRESENT MATTER BE CONSOLIDATED.

The Consent Settlement Order entered on April 22, 2004 in the Chancery Division was in the nature of a contract. It constituted an agreement to end litigation, subject to certain negotiated terms and conditions that preserved, in one limited respect, the right of the Wintergreen association or its unit owners to pursue further claims against KGMA.

We are mindful that our state has a strong public policy favoring the settlement of lawsuits. Nolan v. Lee Ho, 120 N.J. 465, 472 (1990); see also Brown v. Pica, 360 N.J. Super. 565, 570 (Law Div. 2001), appeal dismissed, 360 N.J. Super. 490 (App. Div. 2003); N.J.R.E. 408. However, that public policy does not require the dismissal of litigation where a bona fide dispute between or among parties still persists.

The Law Division judge appropriately took judicial notice of the two successive orders issued in the Chancery Division on April 22, 2004 and on August 27, 2004. See N.J.R.E. 201(b)(4) (authorizing judicial notice of court records). However, the intended meaning of those documents 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.

Plaintiff, citing a dictionary definition that we need not quote from or rely upon here, contends that an "audit" encompasses the process of examination of financial books and records, whether or not the results of that examination are compiled in written form. Defendant, on the other hand, urges that we adopt the Law Division judge's interpretation that the Consent Settlement Order contemplated that the written results of the auditor's findings had to be communicated to KGMA by December 1, 2004.

Because of these circumstances, including the undefined terminology of the Consent Settlement Order and of the time-extension order of August 27, 2004, we perceive that the documents in question are sufficiently ambiguous to require resort to extrinsic aids of construction. Driscoll Constr. Co. v. Dep't. of Transp., 371 N.J. Super. 304, 316 (App. Div. 2004). Where an instrument is ambiguous on its face, parol evidence may, and often should, be consulted to assist the court in deciphering its intended meaning. Ultimately, the mutual intent of the parties controls. Conway v. 287 Corp. Ctr. Assoc., 187 N.J. 259, 270 (2006).

It is unclear from the record what, if any, involvement the Chancery judge had in the negotiations which led to the Consent Settlement Order. It may well be that the settlement was presented to the Chancery judge as a fait accompli, in which case he would have no special insight on its meaning. Nor is the genesis and intent of the August 27, 2004 order of extension, drafted by plaintiffs' counsel in Willis and entered apparently without opposition from KGMA, obvious from the record. Nor do we have before us any testimony of the principals involved in the negotiations and drafting process of these documents, nor any copies of earlier drafts that might shed light on the import of the final language.

We concur with the Law Division judge that it is reasonable to infer from the two Chancery Division orders that the disputants wanted to have both a written audit report completed and the filing of any litigation against KGMA accomplished by December 1, 2004. It is likewise plausible that the object of the Consent Settlement Order and the subsequent order extending time was simply to have any new lawsuit filed by the stated deadline, and that such a lawsuit would be circumscribed by the review of KGMA's books conducted by Wintergreen's auditor, whether or not the results of that audit were contemporaneously served in written form upon KGMA. Any lawsuit filed by plaintiff would, of course, require a good faith basis, whether or not yet documented in a formal written report of an auditor. R. 1:4-8. As a functional matter, it is also unclear if the contents of the November 30, 2004 complaint sufficed to provide the level of notice to KGMA mutually contemplated by the parties.

Given these numerous ambiguities, we conclude that it is most appropriate to vacate the Law Division's order of March 29, 2006 to remand this matter for a plenary hearing as to the mutual intent of the parties concerning the pertinent conditions of the Consent Settlement Order and the subsequent extension order of August 27, 2004. See Lederman v. Prudential Life Ins. Co., 385 N.J. Super. 324, 346 (App. Div.), certif. denied, 188 N.J. 353 (2006). We do not decide whether the remand proceedings should be conducted by the Chancery judge whose prior orders are at issue, although that may be desirable if, in fact, the Chancery judge possesses any special insights concerning the genesis of those two orders. See R. 4:5B-1 (analogously providing that, absent exceptional circumstances, motions in a matter should be heard by the same designated judge).

We also stress that the Law Division judge's ultimate conclusion on plaintiff's untimeliness 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 remaining arguments of plaintiff on appeal are either mooted by our disposition or otherwise lack sufficient merit to warrant discussion in this opinion. R. 2:11-3(e)(1)(E).

Vacated and remanded. We do not retain jurisdiction.

 

It was subsequently clarified that plaintiff's complaint was filed on November 30, 2004, not on December 17, 2004, a fact which defendant's counsel did not contest at oral argument in the Law Division.

The record does not contain, for instance, a copy of the Willis plaintiffs' notice of motion or transmittal letter to the court accompanying the proposed form of order extending time. Such a communication might have explained the status of the auditor's review and the expected time in which the audit and an audit report would be completed.

(continued)

(continued)

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A-4575-05T1

January 31, 2007