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American National Bank and Trust of New Jersey v. Presbyterian Homes of New Jersey

Decided: March 14, 1977.


Lora, Crane and Michels. The opinion of the court was delivered by Lora, P.J.A.D.


Plaintiffs, co-executors of the estate of Helen A. Gabrielsen, on September 25, 1974 filed a complaint against defendant seeking the return of the $33,000 capital fee paid by decedent when she became a resident of Meadow Lakes, a retirement community owned and operated by defendant, as well as other statutory remedies. The complaint alleged that defendant had violated the Retirement Community Full Disclosure Act, N.J.S.A. 45:22A-1 et seq. , in that (1) on September 14, 1970, and for six months thereafter, defendant had not registered under the act, (2) had not delivered a current Public Offering Statement to decedent prior to or at the time she signed the Meadow Lakes Residence Agreement, and (3) had violated the act by failing to disclose in a Public Offering Statement filed some six months after decedent had paid defendant the $33,000 capital fee that the fee would not be refunded in the event of her death while a resident of Meadow Lakes.

Cross-motions for summary judgment bottomed upon affidavits, depositions and answers to interrogatories were heard and the trial judge granted summary judgment in favor of plaintiffs, who then moved for an award of attorneys' fees pursuant to the statute. Judgment was entered awarding plaintiffs $33,000 in damages, $10,708.33 in interest, counsel fees of $1,600 plus $238.65 in costs and disbursements, for a total of $45,546.98.

Defendant appeals, contending that the trial judge erred in finding that (1) plaintiffs had standing to bring the suit, thereby creating a windfall for the beneficiaries of decedent's

estate where both parties to a valid contract had enjoyed complete performance of its terms; (2) defendant is not exempt from the Retirement Community Full Disclosure Act; (3) defendant had not complied with the act; (4) plaintiffs were not estopped from bringing the action, (5) in granting plaintiffs the statutory remedy of rescission under N.J.S.A. 45:22A-16(b), and (6) in refusing to give his decision prospective application only. Plaintiffs cross-appeal from the trial judge's refusal to grant the requested amount of attorneys' fees.

Meadow Lakes is a total care retirement community which is one of four owned and operated by defendant Presbyterian Homes of New Jersey. The living arrangements and services provided are fully described in Presbyterian Homes v. Division of Tax Appeals , 55 N.J. 275 (1970).

Preliminarily, we note that aside from consideration of the Retirement Community Full Disclosure Act, the residence agreement or life-care contract is fully enforceable. See Bower v. The Estaugh , 146 N.J. Super. 116 (App. Div. 1977), and Riemenschneider v. Fritz Reuter Altenheim , 146 N.J. Super. 123 (App. Div. 1977).

Plaintiffs contend for the first time on appeal that defendant failed to clearly set forth in the offering statement delivered to Mrs. Gabrielsen that the capital fee would not be returned to her estate if she died after occupying the apartment, thereby omitting a material fact required to be stated in the prospectus or necessary to be stated in order to make the prospectus not misleading under N.J.S.A. 45:22A-16(a). In support of this contention plaintiffs assert that the prospectus only briefly refers to the residence agreement for the rights and obligations of the parties, information regarding disposition of the capital fee upon a resident's death being set forth in the residence agreement and which itself is misleading because the clause is grouped with several other provisions under the heading "Termination of this Agreement" and is not included under the heading

"Financial Arrangements." Plaintiffs also argue that their contention is further supported by the Recommended Form for Public Offering Statement found in Appendix A following N.J.A.C. 5:17-6.11, which lists in its Part IV, "refund privileges, if any."

Aside from the fact that this issue was not raised below and that there are no findings in the record with respect to any of said allegations, we see no merit in plaintiffs' claim. The prospectus did in fact refer to the residence agreement in which the "no refund" provision is clearly set forth. Nor is there any requirement in the statute or regulations that such clause appear in the prospectus, N.J.S.A. 45:22A-7; N.J.A.C. 5:17-4.8. Our examination of the residence agreement satisfies us that the disclosure in the Residence agreement is sufficient to prevent the prospectus from being misleading.

The primary issue for our determination is the applicability of the Retirement Community Full Disclosure Act to Meadow Lakes.

N.J.S.A. 45:22A-2(b) defines a retirement community as

Defendant asgues that the residence agreement evidences neither a sale nor a lease and that consequently the act is not applicable. Concededly, no sale is involved.

To distinguish its residence agreement from a conventional lease, defendant cites the many services provided at Meadow Lakes which are not present in a landlord-tenant relationship -- e.g. medical care, maid service, linen and towel service, and meal service consisting of three meals a day in a

common dining hall. Defendant further asserts that decedent did not have the right to exclusive possession of the unit she occupied in that Meadow Lakes retained a key to her unit and in its discretion could have removed her to a hospital if she had become ill, with the right to reassign her to a comparable unit upon her discharge from the hospital. The agreement expressly disclaims transfer of any proprietary rights or interest to the resident. Johnson v. Kolibas , 75 N.J. Super. 56 (App. Div. 1962), certif. den. 38 N.J. 310 (1962).

Defendant also relies on the opinion of the Attorney General of New Jersey, issued in December 1973 and a construction of the act by the agency charged with its enforcement, that the Meadow Lakes Residence Agreement is not a lease and that the community is therefore not subject to the Act.

In addition, defendant argues that the Interstate Land Sales Act, 15 U.S.C.A. § 1701 et seq. which was the model for the act, is limited in scope to conventional real estate transactions. Finally, defendant notes that the definition of "unit" in the act was amended to include "a share or membership interest of a cooperative housing corporation or association which entitles the holder thereof to possess and occupy for dwelling purposes a house, apartment or other structure owned or leased by said corporation or association, or to lease or purchase a dwelling constructed or to be constructed by said corporation or association * * *." N.J.S.A. 45:22A-2(c) as amended by L. 1975, c. 335, § 1, eff. March 3, 1976. Since the Legislature failed to refer to the type of accommodations here involved when it so amended the act, defendant states that this is further evidence that the act was not intended to apply to communities like Meadow Lakes.

Plaintiffs counter that the intent of the parties and the nature of the transaction mandate a determination that the residence agreement constituted a lease. They assert that decedent's initial letter to defendant expressed her interest ...

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