NEW UNITED CORPORATION v. COUNTY OF ESSEX

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3168-08T23168-08T2

NEW UNITED CORPORATION,

Plaintiff-Respondent,

v.

COUNTY OF ESSEX,

Defendant-Appellant,

and

ESSEX COUNTY IMPROVEMENT AUTHORITY,

Defendant,

and

ESSEX COMMUNITY HEALTH SERVICES, INC.,

Defendant-Respondent.

________________________

 

Argued February 9, 2010 - Decided

Before Judges Skillman, Fuentes and Gilroy.

On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-8794-04.

Paul A. Sandars III argued the cause for appellant (Lum, Drasco & Positan, LLC, attorneys; Dennis Drasco, of counsel and on the brief; Mr. Sandars and Jessica DiBianca, on the brief).

Daniel P. Silberstein argued the cause for respondent New United Corporation.

Edward J. Dauber argued the cause for respondent Essex Community Health Services, Inc. (Greenberg Dauber Epstein & Tucker, attorneys; Mr. Dauber, of counsel and on the brief).

PER CURIAM

This action concerns disputes between two condominium unit owners, where one owner seeks to require the condominium association to maintain the condominium's common elements, and to assess the second owner for the costs of certain repairs. On leave granted, defendant County of Essex (the County) appeals from the January 13, 2009 order that, among other things, impleaded the condominium association (the Association), the Essex Community Health Services, Inc., as a party to the action, and appointed Edward J. Dauber, Esq., to "represent and administer the affairs of the Condominium Association and act on its behalf consistent with the Master Deed, By-laws and Condominium Act." We affirm in part; reverse in part; and remand for further proceedings consistent with this opinion.

I.

NUC is a real estate development company. In 1997, NUC purchased a tract of land in Newark known as United Campus upon which the United Hospital and Medical Center had formerly operated. United Campus consisted of five buildings containing approximately 450,000 square feet of office space, and a parking garage. At about the same time, the County was considering whether to refurbish the Essex County Hospital Center in Cedar Grove or to relocate it to a new facility. It decided to relocate the hospital to United Campus.

The County and NUC entered into an agreement to convert United Campus to a three-unit condominium. The County agreed to purchase Unit 1 (the parking garage), and Unit 2 (a significant portion of the North Tower building and the 10th Street building, consisting of approximately 165,000 square feet of office space). NUC retained ownership of Unit 3, the remaining office space within the buildings. The parties conditioned the agreement on the County having majority voting rights of the Association, notwithstanding that its interest in the common elements would be 40.29% and NUC's interest would be 59.71%.

On November 23, 1999, NUC filed the Master Deed converting the property to condominium ownership. On the same day, NUC conveyed Units 1 and 2 to the Essex County Improvement Authority (the Authority); and the Authority leased those two units to the County.

II.

Subsequent to taking ownership in the condominium, the County decided not to relocate the Essex County Hospital Center to that location. After doing so, the County allegedly not only failed to maintain its two units, but also failed to properly manage the Association.

On October 30, 2004, NUC filed a complaint against the County and the Authority alleging breach of express and implied covenants, tortious interference with NUC's prospective economic advantage, and breach of the condominium by-laws. Specifically, NUC asserted that the County had turned off the heat, water and electricity to its units, allowing storm drain pipes that cross the North Tower building to break and flood parts of the condominium's common areas and NUC's unit.

On July 26, 2005, NUC filed an order to show cause (OTSC) seeking an order directing the County to make repairs to the condominium. On August 19, 2005, the trial court ordered the County to repair the broken storm drain pipes. In September 2005, NUC filed a motion seeking leave to join the Association as a defendant. On October 24, 2005, the court denied the motion. In December 2005, NUC filed an amended complaint alleging that the County had breached its fiduciary duty to NUC by improperly exercising its majority voting control over the Association, thereby preventing the Association from performing its duties. The County filed an answer and counterclaim, asserting that NUC had assumed responsibility to maintain the condominium's common areas.

On December 3, 2007, NUC filed a second OTSC, seeking to compel the County to complete the repairs to the storm drain pipes and to repair the parapet wall on the North Tower eight-story building. The County opposed, contending that an order compelling it to act was not required as it would voluntarily make all necessary repairs to its units and the common elements. On February 22, 2008, the trial court denied the OTSC, finding that a plenary hearing was required to resolve disputed facts.

In June 2008, NUC filed a motion for partial summary judgment on liability, seeking an order holding the County liable for failure to maintain its two units and the common elements, and causing damage not only to the common elements, but also to NUC's unit and business interests. On October 31, 2008, after hearing argument on the motion, the court decided sua sponte to implead the Association as a necessary party, and to appoint a receiver to discharge the Association's responsibilities. After the parties tentatively agreed to the appointment of Eric Max as receiver, the court continued the matter without deciding the motion.

Because the parties could not agree on a form of order, the court conducted a conference on January 5, 2009. At the conference, the court advised the parties that Eric Max was not available to serve as receiver, and recommended that the parties consider Dauber instead. On January 12, 2009, the court conducted a second conference to settle the form of order. On the following day, the court entered an order that, among other things, impleaded the Association "as a necessary party to this litigation under [Rule] 4:28-1"; appointed Dauber "to represent and administer the affairs of the [Association] and to act on its behalf consistent with the Master Deed, By-Laws, and the Condominium Act"; prohibited the members of the Association and its Board of Trustees from meeting to conduct any business of the Association; authorized Dauber to retain Helena Ruman, an architect, to inspect the condominium and make recommendations for the preservation and safety of the condominium; and directed the parties to pay Dauber a $10,000 retainer, in accordance with their respective ownership interests in the common elements.

On February 28, 2009, we granted the County's motion for leave to appeal and stayed the January 13, 2009 order. NUC filed a motion for reconsideration, seeking to modify the stay of the trial court's order to permit Dauber to make necessary repairs to the condominium. On March 19, 2009, we entered an amended order remanding the matter to conduct a plenary hearing "to determine the physical integrity of the condominium building and whether any of the defects constitute a danger to the life and safety of persons in and around the condominium property so as to warrant immediate repair." We also directed the trial court to make findings of fact and conclusions of law concerning its impleading the Association and appointing Dauber to act on behalf of the Association. The trial court conducted the hearing on April 21, 23, and 28, 2009.

On May 20, 2009, the court issued a twenty-four page Memorandum of Decision setting forth its findings of fact and conclusions of law. The court found that the Association was not functioning and could not function because of a deadlock between the parties; the "County, as the majority voter of the Association, either cannot or will not maintain the common areas"; and even if the County was willing and able to make the necessary repairs, it cannot act as efficiently as the Association. The court also found that the "failure to complete repairs when they were required has created a hazardous condition to the public" from masonry falling off the parapet wall, pieces of glass falling from the North Tower windows, and failure to comply with fire codes; the finances of the Association were in disarray; and no proof existed that the Association had obtained insurance as required by the Master Deed. Based on those findings, the court made the following conclusions of law:

1. The Association is an indispensable party to the action under Rule 4:28-1(a) as any unit owner's claim for damages arising from the failure to maintain a common element is derivative of the Association's.

2. The decision to implead the Association is not barred by the law of the case doctrine, the County having failed to act since the October 2005 order denying NUC's motion to join the Association.

3. The Association is not fulfilling its legal obligations to manage and maintain the condominium's common areas.

4. The Association owes a duty to the public to prevent risk of harm from falling masonry and shards of glass.

5. The court possesses equitable powers to appoint Dauber as agent for the Association to assure that the Association acts "as it is required to act under the statute, the Master Deed, and By-Laws" to protect not only the two unit owners, but also the public.

On May 28, 2009, we entered an order modifying our stay of the January 13, 2009 order to allow Dauber to arrange for "the remediation of the condominium's broken windows; the parapet wall; and the building's fire protection system." We further directed that "[t]he extent and costs of the repairs shall be determined upon application to the trial court. In all other respects, the trial court's January 13, 2009 order shall remain stayed pending appeal."

On June 5, 2009, Dauber submitted "details of [his] preliminary arrangements for the remediation of the condominium's broken windows, parapet wall and fire protection system," and notified NUC and the County of his intent to levy a preliminary special assessment of $100,000 "to be used to the extent necessary to defray expenses of the receiver, the architect and any consultants hired by them." NUC and the County objected.

On June 18, 2009, NUC filed an OTSC to resolve Dauber's request for a special assessment. On July 10, 2009, the court heard argument on the application. At the hearing, Dauber sought to increase the assessment to $250,000 based on additional costs for the repair of the parapet wall. The court granted Dauber's request and entered an order directing that "the parties be assessed in the amount of $250,000 in accordance with their respective shares, $100,000 to be paid by [July 15, 2009] and $150,000 to be paid by [July 21, 2009]." The order further provided in relevant part that "[t]he receiver has the authority to disburse up to $50,000 to arrange for scaffolding without further order of the court. All remaining requested disbursements shall be submitted to the court."

Although the County paid its share of the assessment, NUC did not. In lieu thereof, the County agreed without prejudice that its funds could be used to pay for the entire cost of the scaffolding. Each party also agreed to pay the costs for the repair of windows in the buildings in which their respective units are located.

On August 14, 2009, at the request of the court and the parties, we again modified our stay to permit Dauber to review the status of insurance coverage and to obtain liability insurance if agreed by the parties; if the parties failed to agree, we directed that Dauber apply to the trial court for resolution of the issue.

III.

On appeal, the County argues:

POINT I.

THE TRIAL COURT'S FINDINGS AS TO THE APPOINTMENT OF EDWARD DAUBER, ESQ. ARE NOT SUPPORTED BY ADEQUATE, SUBSTANTIAL AND CREDIBLE EVIDENCE AND THUS, MUST BE REVERSED AND VACATED.

POINT II.

THE TRIAL COURT'S FINDINGS AS TO THE IMPLEADING OF THE CONDOMINIUM ASSOCIATION ARE ERRONEOUS AND ARE BARRED BY THE LAW OF THE CASE.

POINT III.

THE CONDUCT OF MR. DAUBER POST[-]ENTRY OF THE TRIAL COURT'S ORDER OF JANUARY 13, 2009 SHOWS THAT THE PURPOSE OF THE ORDER WILL NOT BE ACHIEVED AND THUS, THE ORDER MUST BE REVERSED AND VACATED.

Reviewing courts "'do not disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice.'" Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974) (quoting Fagliarone v. Twp. of No. Bergen, 78 N.J. Super. 154, 155 (App. Div. 1963)). However, "[a] trial [judge's] interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995).

The County argues first that the trial court erroneously impleaded the Association as a party to the action. The County, citing the law of the case doctrine, contends that the court improperly sua sponte reconsidered the October 24, 2005 order denying the motion to add the Association as a party. We disagree.

Generally, "[t]he 'law of the case' doctrine . . . requires a decision of law made in a particular case to be respected by all other lower or equal courts during the pendency of that case." State v. Reldan, 100 N.J. 187, 203 (1985), certif. denied, 121 N.J. 598 (1990). The doctrine is rooted "in the policy that once an issue [has been] litigated and decided in a lawsuit, relitigation of that issue should be avoided if possible." Franklin Med. Assocs. v. Newark Pub. Schs., 362 N.J. Super. 494, 512 (App. Div. 2003).

Whether to apply the doctrine to a prior decision in the same case rests in the discretion of the court. Ibid. However, "the 'law of the case' doctrine is not implicated at all by a judge's reconsideration of a prior interlocutory order." Pressler, Current N.J. Court Rules, comment 4 on R. 1:36-3 (2010).

Because the October 2005 order denying NUC's motion to add the Association as a party to the action was interlocutory, the trial court was not barred by the law of the case doctrine from impleading the Association three years later. With that said, we now consider the propriety of the court's decision to implead the Association.

Rule 4:28-1(a) governs joinder of indispensable parties. "Indispensability is usually determined from the point of view of the absent party and in consideration of whether or not his rights and interests will be adversely affected." Pressler, Current N.J. Court Rules, comment 3.1 on R. 4:28-1 (2010). Accordingly, whether a party is indispensable to an action is fact specific. Allen B. DuMont Labs., Inc. v. Marcalus Mfg. Co., 30 N.J. 290, 298 (1959). "As a general proposition, . . . a party is not truly indispensable unless he has an interest inevitably involved in the subject matter before the court and a judgment cannot justly be made between the litigants without either adjudging or necessarily affecting the absentee's interests." Ibid.

A condominium association is responsible for the "'maintenance, repair, replacement, cleaning, and sanitation of the common elements.'" Siller v. Hartz Mountain Assocs., 93 N.J. 370, 380 (quoting N.J.S.A. 46:8B-14), cert. denied, 464 U.S. 961, 104 S. Ct. 395, 78 L. Ed. 2d 337 (1983). And, "[s]o long as it carries out those functions and duties, the unit owners may not pursue individual claims for damages to or defects in the common elements predicated upon their tenant in common interest." Ibid. Thus, an association is authorized to act on behalf of the unit owners to pursue claims for damages to the common elements. See N.J.S.A. 46:8B-16(a) (providing that "[a]n association . . . may assert tort claims concerning the common elements and facilities of the development as if the claims were asserted directly by the unit owners individually."). However, if the association fails to pursue such claims, a unit owner may then do so. Id. at 381. "In that event the unit owner's claim should be considered derivative in nature and the association must be named as a party." Ibid. (Emphasis added).

Here, NUC is pursuing claims against the County for the County's failure to maintain its units and for damages caused by that failure to the common elements and NUC's unit. Because the claim for damages to the common elements is a claim the Association should be pursuing, the Association must be included as a party to the action. As such, the trial court correctly impleaded the Association as a necessary party under Rule 4:28-1.

The County argues next that the trial court's appointment of a receiver was unsupported by substantial credible evidence; the court invoked this extraordinary action without considering other less intrusive remedies; and Dauber's appointment was not in compliance with Rule 4:53-1. Alternatively, the County argues that the trial court's appointment of Dauber and its directive that the Association refrain from conducting any business improperly prevents the unit owners from exercising their legal rights under the condominium documents and the Condominium Act. We disagree with the County's primary argument, but agree with its alternative argument.

Although this is a Law Division action, the trial court may "exercise the powers and functions of the [Chancery] [D]ivision when the ends of justice so require, . . . so that all matters in controversy between the parties may be completely determined." N.J. Const. art. VI, 3, 4; Gov't. Employees Ins. Co. v. Butler, 128 N.J. Super. 492, 494 (Ch. Div. 1974). Accordingly, we review the trial court's exercise of its equitable powers.

A court exercising equitable authority "'has the power to adapt equitable remedies to the particular circumstances of each particular case.'" Rutgers Cas. Ins. Co. v. LaCroix, 194 N.J. 515, 529 (2008) (quoting Arabia v. Zisman, 143 N.J. Super. 168, 176 (Ch. Div. 1976), aff'd, 157 N.J. Super. 335 (App. Div.), certif. denied, 78 N.J. 335 (1978)). "[E]quitable remedies 'are distinguished by their flexibility, their unlimited variety, their adaptability to circumstances, and the natural rules which govern their use.'" Salorio v. Glaser, 93 N.J. 447, 469 (1983) (quoting 1 J. Pomeroy, Equity Jurisprudence, 109, 122-23 (4th ed. 1918)), cert. denied, 464 U.S. 993, 104 S. Ct. 486, 78 L. Ed. 2d 682 (1983). In fact, "'[t]here is . . . no limit to their variety and application; the court of equity has the power of devising its remedy and shaping it so as to fit changing circumstances of every case and the complex relations of all the parties.'" Ibid. (quoting 1 J. Pomeroy, at 122-23).

"A court of equity has the inherent power to appoint a custodial receiver to manage a corporation's affairs and preserve its assets. Such power is to be exercised pendente lite for remedial purposes incidental to an independent action over which the court has jurisdiction." William A. Dreier & Paul A. Rowe, Guidebook to Chancery Practice in New Jersey Equitable Remedies, Custodial Receiverships, 99 (4th ed 1997). This equitable power may be exercised where "a corporation is unable to function as a result of internal dissension." Id. at 100.

The court "determined that appointing an agent is the only remedy that would result in the Association's acting as it is required to act under the statute, the Master Deed, and By-Laws." The court reasoned that,

naming an agent to carry out the job of the Association during the pendency of the litigation will protect the unit owners and the public. Neither party has suggested any alternative, other than to continue with the status quo, which has resulted in a risk to the public and to the unit owners.

We are satisfied that the trial court properly exercised its discretion in appointing Dauber to act on behalf of the Association for the limited purpose of undertaking necessary repairs to the condominium to prevent further damage to the common areas, and possible injury to the general public. Although the County possessed a majority of voting rights on the Association's board, it failed to maintain the common areas as required under the Condominium Act and the Association's by-laws. The County's non-actions created a hazard to the general public by risk of falling masonry from the parapet wall on the North Tower building, the risk from broken shards of glass falling from the windows, and violations of various fire codes.

Although the County argues that the Association is not deadlocked and that it would have voluntarily undertaken the necessary actions to make the repairs, it failed to do so from October 2005 through October 2008, other than the repairs previously ordered by the court. We are satisfied, from our review of the record, that dangerous conditions existed because of the Association's inaction. We also note that after the County was forced to the table by Dauber's appointment, it did cooperate with Dauber's undertaking by paying the special assessments. Accordingly, we conclude the trial court properly exercised its discretion in formulating a pendente lite remedy to prevent further disrepair of the common elements and possible injury to the public.

However, we reverse paragraph 3 of the January 13, 2009 order prohibiting the Association and its trustees from meeting to conduct business pending further order of court. The trial court abused its discretion in entering that restraint. Such prohibition was more than necessary to accomplish the prevention of further damage to the common elements and injury to the general public. The Association and its trustees have a right to operate in accordance with the condominium documents, and prohibiting them from doing so only compounds the problems.

Dauber's appointment should have been limited to making the necessary repairs to the condominium to prevent further damage to the common elements or possible harm to the public. We also conclude that no reason exists for Dauber to act beyond the limited scope of those duties, or for more time than is necessary. Accordingly, we remand to modify paragraph 2 of the January 13, 2009 order.

In sum, we affirm the appointment of Dauber as receiver for the Association for the limited purpose of making the necessary emergent repairs as set forth in our order of May 28, 2009; we remand to modify paragraph 2 of the January 13, 2009 order to limit Dauber's powers of appointment to making those necessary repairs, and to consider setting a specific date for the termination of his appointment as receiver; and we reverse paragraph 3 of the January 13, 2009 order. On remand the trial court is to address NUC's motion for partial summary judgment, and determine the ultimate responsibility of the parties to pay for the cost of repairs and for any damages incurred by NUC. We also direct the trial court to conduct a hearing to determine whether the Association is willing and able to complete any repairs not yet made to the condominium, and if so, to enter an order directing that the Association undertake those repairs forthwith to save future fees and expenses of having the repairs undertaken and supervised by the receiver and his consultants.

 
Affirmed in part; reversed in part; and remanded to the trial court for further proceedings consistent with this opinion.

Plaintiff New United Corporation (NUC) argues in its appellate brief that the trial court erred in failing to decide NUC's motion for partial summary judgment. Because this interlocutory appeal was taken solely from the January 13, 2009 order, this issue is not before us.

Pursuant to the lease agreement, the Authority assigned all of its rights, obligations, and interest in the condominium and the Association to the County. Accordingly, for purposes of this opinion, we refer to the County as the owner of Condominium Units 1 and 2.

Eric Max is the Director of the State Office of Dispute Settlement.

The County's motion of January 29, 2010, to supplement the appellate record is denied.

(continued)

(continued)

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A-3168-08T2

April 19, 2010