APPLE RIDGE CONDOMINIUM ASSOCIATION, INC v. CHARLES RODGERS

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0424-12T4

APPLE RIDGE CONDOMINIUM

ASSOCIATION, INC.,

Plaintiff-Respondent,

v.

CHARLES RODGERS AND AURELINE

RODGERS,

Defendants-Appellants.

____________________________________

January 29, 2014

Submitted November 12, 2013 Decided

Before Judges Ashrafi and St. John.

On appeal from Superior Court of New Jersey,

Law Division, Bergen County, Docket No.

L-1778-11.

Breslin and Breslin, P.A., attorneys for

appellants (Charles Rodgers, on the brief).

Kennedy, Wronko, Kennedy, attorneys for

respondent (Terence J. Wronko, of counsel

and on the brief).

PER CURIAM

Defendants Charles and Aureline Rodgers appeal from an August 10, 2012 order for summary judgment dismissing their counterclaim against plaintiff Apple Ridge Condominium Association, Inc. We affirm.1

Apple Ridge consists of 260 condominiums and sixteen detached "fee simple" residential units. Defendants own a condominium unit at Apple Ridge and are members of the plaintiff association. They did not pay their maintenance fees, and the association filed a collection action against them. In response, defendants filed a counterclaim alleging that the association had caused monetary damage to them. They claimed the association had engaged in bad faith conduct by its involvement in a lawsuit filed by a group of the fee simple owners against the association, and they alleged the fee simple litigation had caused defendants to be rejected for a reverse mortgage loan on their condominium. However, defendants developed no admissible evidence that any wrongful conduct by the association was the cause of their inability to obtain reverse mortgage financing. Consequently, the trial court granted summary judgment to the association.

Viewed most favorably to defendants as the non-moving parties, see R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995), the summary judgment record reveals the following facts.

Charles Rodgers is a retired attorney who was admitted to the bar of this State in 1952. He and his wife originally owned their condominium at Apple Ridge without any mortgage financing. Over the years, they obtained loans secured by first and second mortgages. By 2009, they were in severe financial distress and needed additional funds to avoid foreclosure on their mortgaged condominium unit. At the time of the deposition of Charles Rodgers in 2012, the total principal balance due on the two mortgages was about $437,000, and both installment loans were in arrears. Foreclosure proceedings had been initiated on the first mortgage.

Charles Rodgers testified that, in mid-2009, he spoke on the telephone to a mortgage agent about obtaining a reverse mortgage from Metropolitan Life that would pay off the debts and rescue defendants from their financial difficulties. Later, the agent informed Rodgers that Metropolitan Life would not grant a reverse mortgage because the association was then engaged in litigation with the fee simple owners.

The fee simple owners had filed suit in January 2009 alleging they were being overcharged maintenance fees and that the association was withholding financial information from them that would establish that claim. The association referred the lawsuit to its insurance carrier, and an attorney was retained to represent the association. The association filed an answer in July 2009. Rather than engage in discovery in that litigation, the parties and their attorneys attempted to settle the dispute through mediation with the aid of a retired judge. The mediation, however, was not successful.

In the meantime, Charles Rodgers, having learned that he would not get a reverse mortgage from Metropolitan Life, filed a motion to intervene in the fee simple lawsuit for the purpose of gathering information to help him determine who was at fault in the dispute. He intended to initiate discovery, which in his view would demonstrate that the parties were negotiating in bad faith. Both the association and the fee simple owners opposed his motion to intervene. Before the motion was heard, the fee simple owners and the association agreed to dismiss their litigation without prejudice and to continue private negotiations in an attempt to settle the matter. A stipulation dismissing the fee simple lawsuit was filed on January 29, 2010, one year after the complaint had been filed.

The association filed its collection complaint against defendants in February 2011. Defendants' counterclaim alleged that the association had acted in bad faith in conducting the fee simple litigation and thus caused their inability to obtain a reverse mortgage during the "seller's market" pre-dating the recent economic downturn. After discovery was conducted in this action, the association moved for summary judgment. The trial court heard argument and granted the association's motion on the ground that defendants could not prove the association had acted in bad faith or caused defendants' alleged loss. Subsequently, the court filed a written amplification of its decision pursuant to Rule 2:5-1(b).

Defendants contend that summary judgment was improperly granted because their evidence showed the association acted in bad faith for two years in withholding financial information from the fee simple owners, thus causing the fee simple lawsuit to be filed. Further, the association acted in bad faith during the litigation by failing to conduct discovery in an effort to resolve the matter promptly, and further acted in bad faith by opposing Rodgers' motion to intervene. In support of their contention that the litigation was the cause of their inability to obtain a reverse mortgage, defendants refer to an admission by a board member of the association that one other individual was also denied a reverse mortgage for the same reason. Additionally, Charles Rodgers contends he is an attorney with fifty years of experience and can testify as an expert witness about the conditions of the real estate market and the reasons defendants were unable to obtain a reverse mortgage.

The association responds that defendants did not produce any admissible testimony or documentary evidence to show that the fee simple lawsuit was the cause of defendants' alleged rejection. It emphasizes that defendants had no evidence from any mortgage loan provider or even a broker or agent that defendants were rejected because of the fee simple lawsuit. Also, the deposition testimony of Charles Rodgers does not even include a claim that defendants made a formal application for mortgage financing. In addition, the association argues that the business judgment rule, see Walker v. Briarwood Condo Ass'n, 274 N.J. Super. 422, 426 (App. Div. 1994), precludes a claim against the association for conducting its litigation as it did.

Subject to the condominium association's master deed and bylaws, "the association shall be an entity which shall act through its officers and may enter into contracts, bring suit and be sued." N.J.S.A. 46:8B-15(a) (emphasis added). Implied within the statute is the association's authority to present a defense to any suit brought against it as its business judgment deems appropriate.

At the same time, a condominium association has a fiduciary relationship with each of its unit owners that requires it to act "reasonably and in good faith." Billig v. Buckingham Towers Condo. Ass'n I, Inc., 287 N.J. Super. 551, 563 (App. Div. 1996). This relationship requires that the association protect the interests of the group as a whole, and the interests of each constituent owner individually. See ibid.

"[D]ecisions made by a condominium association board should be reviewed by a court using the same business judgment rule which governs the decisions made by other types of corporate directors." Walker, supra, 274 N.J. Super. at 426 (citing Courts at Beachgate v. Bird, 226 N.J. Super. 631, 641 (Ch. Div. 1988); Papalexiou v. Tower W. Condo., 167 N.J. Super. 516, 527 (Ch. Div. 1979)). The general test for whether an association has acted properly is "(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." Thanasoulis v. Winston Tower 200 Ass'n, Inc., 214 N.J. Super. 408, 411 (App. Div. 1986), rev'd on other grounds, 110 N.J. 650 (1988). The business judgment rule is not available as a general defense if the fiduciary duty of the association was breached by fraud, or acts performed in bad faith. See Mulligan v. Panther Valley Prop. Owners Ass'n, 337 N.J. Super. 293, 300 (App. Div. 2001); Papalexiou, supra, 167 N.J. Super. at 527.

Here, defendants relied only on the conclusory testimony of Charles Rodgers to prove that the association acted in bad faith when it disputed claims by the fee simple owners and then engaged in litigation without conducting prompt discovery. Defendants have not presented any documentary or other factual evidence that the association's board engaged in fraud, self-dealing, or unconscionable conduct.

Moreover, the association and its attorney must have the ability to make decisions regarding disputes and litigation without second-guessing by one or more individual unit owners. Whether pursuant to the business judgment rule, or a variant of the litigation privilege, see Loigman v. Twp. Comm. of Middletown, 185 N.J. 566, 583 (2006); Peterson v. Ballard, 292 N.J. Super. 575, 588-89 (App. Div.), certif. denied, 147 N.J. 260 (1996), the association cannot be liable for damaging individual unit owners such as defendants simply because its actions in the course of litigation on behalf of all members may have affected some of the members unfavorably. Here, the litigation strategy utilized by the association was actually quite successful for the membership as a whole since the fee simple lawsuit was dismissed within a year without liability being imposed on the association. Defendants had no evidence of wrongful conduct by the association that would make it liable to them as individual members of the association.

Furthermore, defendants had no admissible evidence that the actions of the association were the cause of their failure to obtain a reverse mortgage. As we have stated, there was no factual testimony, no witness certification, and no documentary evidence to that effect. The statement of a board member about another individual also failing to obtain a reverse mortgage was both inadmissible hearsay on that factual point and not probative of the cause of defendants' rejection. Defendants had severe financial problems, including two mortgages in arrears. They cannot simply rely on Charles Rodgers' conclusion that the fee simple litigation was a substantial cause of their rejection because he says so.

Nor did defendants provide any foundation evidence or discovery establishing the alleged qualification of Rodgers to render an expert opinion about why a mortgage lender in 2009 would not grant him and his wife a reverse mortgage. The fact that he is an attorney and had prior experience with mortgage transactions does not establish his expertise in the field of mortgage lending, in particular, in the 2009 financing market. Defendants never provided an expert report from Rodgers or anyone else to support their contention that they had expert testimony to prove their claims.

Without evidence of the kind of wrongful conduct needed to prove the association's liability, and also without evidence of causation of their losses, defendants could not prove their counterclaim. The trial court correctly dismissed it.

Affirmed.

1 Although our record does not include a final judgment on plaintiff's initial complaint, plaintiff's brief states that a judgment in its favor was later entered, thus making defendants' appeal one from a final judgment and appealable as of right. See R. 2:2-3(a)(1).