ROBERT GOLOMB, et al. v. WARWICK CONDOMINIUM ASSOCIATION, INC.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-5578-05T15578-05T1

ROBERT GOLOMB; MILLARD BRAUNSTEIN and RENEE BRAUNSTEIN, husband and wife; ARNOLD ROSE and MARLYN ROSE, husband and wife; HARRY CHESNICK and MARILYN CHESNICK, husband and wife; MARTIN SHUWALL and GLENDA SHUWALL, husband and wife; DAVID SHUWALL and ZELDA SHUWALL, husband and wife; MAXWELL KUSHNER and MAXINE KUSHNER, husband and wife; HAROLD GRABOYES and EILEEN GRABOYES, husband and wife; SOLOMAN PITT and MARCELLA PITT, husband and wife; ADELL WALDMAN; FAITH SHRAGER; BERNARD WYMAN and MAXCINE WYMAN, husband and wife; MARCUS FRIEDMAN; MARVIN FREEMAN and DOSSY FREEMAN; husband and wife; HARRY KAISERMAN and LEONA KAISERMAN, husband and wife; HERMAN SUFFIAN and ILENE SUFFIAN; MARIE CUPANI HORNER; HERBERT WALLACK and DIANE WALLACK; HENRY MONO; SHIRLEY GEKOSKI; SHERYL R. RENTZ; EDDY SHERMAN; SAM HOLMAN; MICHELLE HOLMAN; ENID HAMELIN; DONALD FOGEL; RICHARD SHIFRIN and BARBARA SHIFRIN; E. ROBERT BLANK; ANDREW COHEN; NATHAN WEISS and ROSE WEISS; JOAN SALTZMAN; BRUCE PASTER and EILEEN PASTER; HERMAN UHR; SYLVIA PAUL; NATALIE KNABLE; SANDRA DAUER; JOSEPH NOVICK and MARY NOVICK; ALAN LAKEN; FRED NAPHYS and JOAN NAPHYS; MELVIN KOPEW and MARILYN KOPEW; GERALD RAPPAPORT; HOWARD COOPER and YVONNE COOPER; MYRNA LINSENBERG; ALLEN SPECTOR and CHARLOTTE SPECTOR; LILLIAN ROSEN; RICHARD HYMAN; NANCY HYMAN; MYLES HORWITZ and BLANCHE R. HORWITZ; PATRICIA SCARCELLI; ELAINE ROSENBERG; HEIDI WITTELS,

Plaintiffs-Respondents,

v.

WARWICK CONDOMINIUM

ASSOCIATION, INC.,

Defendant-Appellant.

____________________________

 

Argued March 26, 2007 - Decided April 26, 2007

Before Judges Lintner, S.L. Reisner

and Seltzer.

On appeal from the Superior Court of

New Jersey, Law Division, Camden County,

L-2455-03.

Norman L. Zlotnick argued the cause for

appellant (Mairone, Biel, Zlotnick &

Feinberg, attorneys; Mr. Zlotnick, on

the brief).

Leonard W. Moss argued the cause for

respondents.

PER CURIAM

Defendant, Warwick Condominium Association, Inc., appeals from an August 4, 2005, partial summary judgment determining that it was liable to reimburse plaintiffs, former members who had paid an assessment utilized to repair storm damage, from insurance proceeds recovered after plaintiffs had sold their units. Defendant also appeals from a June 13, 2006, order, entered after a two-day bench trial, that required payment of pre-judgment interest on the amount to be reimbursed.

The facts underlying the partial summary judgment order were not in dispute. The Warwick Condominium, a nine-story building, consists of 275 units and is located in Atlantic City. Defendant is a non-profit corporation, formed under the Condominium Act (Act), N.J.S.A. 46:8B-1 to -38. The master deed creating the Condominium requires defendant to maintain insurance on the property, and the by-laws require defendant to insure the property "against loss by . . . lightning, windstorm and other risks."

In July 1996, a storm damaged the Condominium's fifty-year-old building. The Condominium's Board of Trustees authorized three special assessments to all unit owners, collecting a total of $347,800.67 in 1996, $956,626.00 in 1997, and $956,626.00 in 1998. Of the total collected by the assessments, $2,098,985 was used to effectuate repairs caused by the storm and to provide apparently needed, but unrelated, maintenance. The balance of $162,127 was kept in a reserve fund. See N.J.A.C. 5:26-8.7. Although the work on the building addressed conditions unrelated to the storm, there is no contention that the cost to repair the storm damage was less than the amount of insurance proceeds ultimately paid to defendant. Plaintiffs owned units in the Warwick Condominium between October 1996 and December 1998 and paid these assessments.

Defendant's insurance carriers denied coverage for the cost of repairs, arguing that the damages claimed were not caused by the storm. Defendant filed suit and obtained an award that, after fees and costs, amounted to $416,638.83. Defendant received that sum in January 2003. By the time defendant received the money, plaintiffs in the present action had sold their units.

When plaintiffs learned that the proceeds of the insurance would not be used to reimburse them for the assessment they had paid to repair damage covered by insurance, they filed suit alleging that defendant wrongfully withheld the insurance proceeds and in doing so breached its fiduciary duty. While the suit was pending, pursuant to the Condominium's by-laws, the Board of Trustees appointed an insurance trustee to manage the funds recovered from defendant's insurer. The trustee issued a report recommending the insurance proceeds be held in a reserve account for future use. We infer that a failure to do so would have required an additional assessment of current owners to meet reserve requirements.

After the complaint was amended to add additional plaintiffs, both sides moved for a determination of defendant's obligation to reimburse plaintiffs. Specifically, plaintiffs sought a declaration "that as a matter of law, the plaintiffs are entitled to a proportionate share of the net proceeds received" from the insurers.

Plaintiffs relied on N.J.S.A. 46:8B-24(a), which provides:

Damage to or destruction of any improvements on the condominium property or any part thereof or to a common element or elements or any part thereof covered by insurance required to be maintained by the association shall be repaired and restored by the association using the proceeds of any such insurance. The unit owners directly affected shall be assessed on an equitable basis for any deficiency and shall share in any excess.

The judge found the statute unambiguous and concluded that

based on the clear language of the statute and the bylaw and master deed's clauses

. . . the Court finds that the insurance proceeds represent solely the cost of damage caused by the storm, and since costs for that damage [were] fully covered by the assessments, the moneys awarded in the underlying trial are properly identified as excess.

On appeal, defendant renews its argument that the judge's interpretation of the statute was both incorrect and "unfair" to the current owners. Our review of the legal conclusion of a judge is de novo. Balsamides v. Protameen Chems., Inc., 160 N.J. 352, 372 (1999); Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Nevertheless, we agree with the judge's thorough analysis on this issue.

"'[W]hen interpreting a statute, [the] overriding goal must be to determine the Legislature's intent.'" Alan J. Cornblatt, P.A. v. Barow, 153 N.J. 218, 231 (1998) (quoting State, Dep't of Law & Pub. Safety v. Gonzalez, 142 N.J. 618, 627 (1995)). The language of the statute is "the surest indicator" of such intent, and where that language is plain, "'the court's sole function is to enforce the statute in accordance with those terms.'" Ibid. (quoting State, Dep't of Law & Pub. Safety v. Bigham, 119 N.J. 646, 651 (1990)). A court should apply "'ordinary and well-understood meanings'" to the statute's terms. Ibid. (quoting Manalapan Realty, L.P., supra, 140 N.J. at 383-84).

The statute grants to "[t]he unit owners directly affected" the right to share in "excess" insurance proceeds and imposes upon them the obligation to pay any deficiency. N.J.S.A. 46:8B-24(a) It is hard to understand how the unit owners actually paying, by way of assessment, for the repairs to the building that were ultimately found to be the responsibility of an insurer could not be considered "directly affected." Those owners paid for the repairs; they are surely directly affected by the damage to the condominium property for which insurance is in place.

Similarly, we fail to perceive how the proceeds, no longer needed to repair the damage by virtue of the previous assessment, cannot be "excess" proceeds. "Excess" connotes an amount beyond that which is required. See American Heritage Dictionary 472 (2d College ed. 1985) (defining "excess" as "[t]he state of exceeding what is . . . sufficient."); Webster's II New College Dictionary 390 (1995) (defining "excess" as "[t]he state of exceeding what is . . . sufficient."). The insurance proceeds were not required to effectuate the repairs, already completed, for which they were intended; they were necessarily "excess."

Defendant's argument that the statute does not "speak to a situation in which . . . the proceeds are not immediately available" is not persuasive. Defendant cites no authority for the proposition that the Legislature intended to condition the application of N.J.S.A. 46:8B-24(a) upon the immediate receipt of insurance proceeds. The logic of this situation is to the contrary; owners paying for repairs should not be prejudiced because an insurance carrier wrongfully denies coverage. Had the proceeds been paid promptly, plaintiffs would not have paid at least some of the assessment. They should not be in a worse position because of the delay in receipt of those proceeds. Indeed, if the assessment is viewed as a loan pending receipt of the insurance proceeds, the obligation of defendant is clear.

The Act imposes on defendant "a fiduciary obligation to its members similar to that of a corporate board to its shareholders." Kim v. Flagship Condo. Owners Ass'n, 327 N.J. Super 544, 550 (App. Div.), certif. denied, 164 N.J. 190 (2000). The sale of the plaintiffs' units, under these circumstances, does not discharge that duty with respect to the insurance proceeds.

While there are no New Jersey cases dealing with this precise issue and the legislative history of the statute is uninformative, the Third Circuit, interpreting an analogous statute, held that insurance funds recovered for damages to a condominium constituted "assets of an express trust, of which the individual apartment owners [suffering damages] are the intended beneficiaries." Mountain Top Condo. Ass'n v. Dave Stabbert Master Builder, Inc., 72 F.3d 361, 367 (3d Cir. 1995). We believe that is the case here as well.

We do not credit defendant's argument that the result we reach is unfair to the current owners. Indeed, a contrary result would allow a windfall to those owners because they would receive both the benefit of repairs funded by others and funds intended to pay for those repairs that may now be used for other purposes. Nor is there any merit to defendant's claim that the interpretation we have given to the statute runs afoul of other provisions of the Act or of the condominium documents. We do not quarrel with the proposition that defendant is charged with fixing common expense assessments, maintaining the common elements and maintaining adequate reserves. Nor do we quarrel with the proposition that in general these duties are exercised within broad discretionary boundaries. Nevertheless, that discretion cannot conflict with the specific direction of N.J.S.A. 46:8B-24(a) that insurance proceeds be used to repair the damage as a result of which they were collected.

We note that defendant might have provided in its master deed or by-laws that insurance proceeds need not be used to repair a covered loss. See N.J.S.A. 46:8B-24(c). However, it failed to do so. In the absence of such a provision, even the appointment of an insurance trustee pursuant to the by-laws accomplishes only a mechanism for the application of the proceeds to the repairs; it does not permit diversion of the funds in contravention of the clear direction of N.J.S.A. 46:8B-24(a). The judge properly determined defendant could not appropriate the insurance proceeds for purposes other than reimbursing those who had funded the repair of the covered losses by way of assessment.

After a two-day trial in which defendant's obligation was quantified, the judge, concluding that Rule 4:42-11 was applicable because the case was "a hybrid tort/contract action," granted plaintiff "pre-judgment interest from the date of the filing of the Complaint" at a rate of eight per cent.

Rule 4:42-11(b) provides for the mandatory payment of pre-judgment interest in tort actions at a rate specified in the rule. In 2003, when the insurance proceeds were received by defendant and the complaint was first filed, that rate was five percent; in 2004, it was four percent; in 2005, when judgment was entered, the rate was three percent. Pressler, Current N.J. Court Rules, Publisher's Note to R. 4:42-11 (2007).

By contrast, there is no mandatory award of prejudgment interest in contract actions where "prejudgment interest is assessed on a discretionary basis as the result of the application of equitable principles." DialAmerica Mktg., Inc. v. KeySpan Energy Corp., 374 N.J. Super. 502, 508 (App. Div.), certif. denied, 184 N.J. 212 (2005) (citing N. Bergen Rex Transp., Inc. v. Trailer Leasing Co., 158 N.J. 561, 575 (1999); Meshinsky v. Nichols Yacht Sales, Inc., 110 N.J. 464, 478, (1988); Bak-A-Lum Corp. of Am. v. Alcoa Bldg. Prods., Inc., 69 N.J. 123, 131, (1976); Society Hill Condo. Ass'n. v. Society Hill Assocs., 347 N.J. Super. 163, 178 (App. Div. 2002)).

The judge treated the case as a "hybrid" and applied equitable principles. The judge correctly determined that prejudgment interest is not imposed as a penalty.

The "equitable purpose of prejudgment interest is to compensate a party for lost earnings on a sum of money to which it was entitled, but which has been retained by another." Sulcov v. 2100 Linwood Owners, Inc., 303 N.J. Super. 13, 39 (App. Div.), certif. granted, 152 N.J. 10 (1997) [appeal dismissed, 162 N.J. 194 (1999)]; see also, Pressler, Current N.J. Court Rules, comment 8 on R. 4:42-11 ("[P]rejudgment interest is not a penalty but rather its allowance simply recognizes that until the judgment is entered and paid, the defendant has had the use of money rightfully the plaintiff's.").
 
[N. Bergen Rex Transp., supra, 158 N.J. at 574-575.]

Nevertheless, the judge suggested no other equitable considerations supporting the award of prejudgment interest. He did not determine the value of the money to plaintiffs and provided no reason to deviate from the principle that, absent unusual circumstances, the rate of prejudgment interest in a tort case should also be used in a contract action. Benevenga v. Digregorio, 325 N.J. Super. 27, 34-35 (App. Div. 1999), certif. denied, 163 N.J. 79 (2000).

Moreover, the judge incorrectly believed the rule fixed interest at twelve percent. Despite that belief, the judge's opinion makes it clear that the imposed rate deviated from the perceived rule rate only by virtue of a concession by plaintiffs that they would accept a lesser rate. Because the parties conceded at oral argument that the cost involved in litigating the proper interest rate is grossly disproportionate to the amount in dispute, we exercise our original jurisdiction, see R. 2:10-5, to direct the entry of an order fixing prejudgment interest in accordance with the applicable rates set out in Rule 4:42-11(b).

 
The order of August 4, 2005, is affirmed; the order of June 13, 2006, is affirmed except insofar as it fixed prejudgment interest, as to which it is remanded for the entry of an order fixing prejudgment interest in accordance with this opinion.

The order also quantified the reimbursement obligation, but defendant does not appear to contest the amount it was required to repay. In any event, the failure to brief that issue constitutes a waiver of any such claim. Liebling v. Garden State Indem., 337 N.J. Super. 447, 465-66 (App. Div.), certif. denied, 169 N.J. 606 (2001).

Defendant also filed suit against its insurers for failing to cover damages caused by a February 1998 storm. This appeal involves only the proceeds from the insurance claim relating to the 1996 storm.

Defendant's argument that plaintiffs lack standing to assert an entitlement to the funds is without sufficient merit to justify discussion in a written opinion. R. 2:11-3(e)(1)(E). See Strulowitz v. Provident Life & Cas. Ins. Co., 357 N.J. Super. 454, 459 (App. Div.), certif. denied, 177 N.J. 220 (2003) (noting a financial interest is sufficient to confer standing). Defendant's standing argument assumes that plaintiffs cannot prevail on the merits, but that is a different question from whether they are permitted to make the claim of entitlement in the first place.

The rate is computed with reference to the rate of return achieved by the State of New Jersey Cash Management Fund. For judgments exceeding the jurisdictional limit of the Special Civil Part, the rate is increased by two percent. See R. 4:42-11(a)(iii).

(continued)

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A-5578-05T1

April 26, 2007