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Kim v. Flagship Condominium Owners Association

January 31, 2000


Before Judges, Brochin, Eichen and Wecker.

The opinion of the court was delivered by: Wecker, J.A.D.


Submitted September 29, 1999

On Appeal from the Superior Court of New Jersey, Law Division, Atlantic County.

This appeal requires us to address the fiduciary relationship between a condominium association and an individual unit owner who is a member of the association. We conclude that when a condominium association allows a third party the virtually exclusive right to market and operate a hotel-type rental program, including access to its members and use of a common area of the premises, the Association has a fiduciary obligation to protect each member's right to participate in that program on fair and equal terms.

Plaintiff, Sang-Hoon Kim, appeals from a summary judgment dismissing his complaint against defendant Flagship Condominium Association, and from an order denying his cross-motion for summary judgment against the Association. Neither party alleges that any material facts are in dispute, and the issue before us is clearly a question of law. Because the Association failed to meet its fiduciary obligation to Kim, we reverse the summary judgment dismissing his complaint against the Association and remand for entry of partial summary judgment in favor of Kim and a determination of damages.

The relevant, undisputed facts as they appear in this record are as follows. Plaintiff is the owner of two units in a 440-unit high-rise condominium in Atlantic City, known as the Flagship Condominium. The master deed and by-laws empower the Association to administer the property for the benefit of the owners. The master deed and by-laws also permit unit owners the unrestricted right to rent out their units. Most, if not all the individual unit owners *fn1 participate in a rental program under contracts with co-defendant Flagship Hotel Management Corporation ("the Corporation" or "the management company"). The Corporation places advertisements, takes reservations, maintains the units (but not the common areas), and operates the front desk of the Flagship as if it were a hotel. The Corporation receives its management fees out of the rental revenue. The record reveals no written agreement between the Corporation and the Association. However, the record does establish (and the Association does not dispute) that the Corporation, as the manager and agent of the rental program, made use of a portion of the common area, including a front desk in the main lobby, for purposes of operating the hotel business.

For reasons not revealed in the record, plaintiff withdrew from the rental program in 1992 and sued the Corporation, apparently engaging it in costly litigation. As a result, the Corporation refused Kim's subsequent attempt to rejoin the rental program, and Kim then sought the Association's intervention with the management company on his behalf. The President of the Association's Board of Directors, Alberino Leone, testified in a deposition that he did not know "who hires the management company." Thomas Souther, director of operations for the management company, testified in a deposition that Bruce Kay, a member of the Association's Board of Directors, owns the management company. Souther's testimony appears to have been undisputed by any competent evidence offered on the cross-motions.

Leone further testified that he took plaintiff's request for action to the Board:

and they all agreed with me that the Condominium Association did not have any control over the rental program. The rental program was between the management company, who manages the rental program and between the individual unit owners. It was a contract between them and the management company

Leone continued, "[W]e all agreed we had no jurisdiction .... We had no authority over the rental program .... So, we had to drop the issue [of Kim's request for help getting back into the rental program]." Although Leone knew that Bruce Kay was a member of the Association's Board as well as the owner of the management company, Leone did not know whether Kay participated in the Board's decision not to take action on Kim's behalf. *fn2 When the Association declined to act, Kim filed this suit against the Corporation and the Association.

Plaintiff's complaint against the Corporation and the Association alleged in the first count that by excluding him from the program, both defendants "discriminat[ed] against him, in violation of the United States Constitution, and the Constitution of the State of New Jersey, and such other laws as shall be shown through discovery." In the second count, plaintiff alleged that "the defendants ... discriminated against the plaintiff as a result of successful resolution of a prior lawsuit [and] [s]aid discrimination is violative of the public policy of the State of New Jersey." Defendants obtained partial summary judgment dismissing the first two counts of plaintiff's complaint. Plaintiff has not appealed from that judgment. This appeal concerns only plaintiff's third count, charging the Association with violating its fiduciary duty "to protect the plaintiff's interest in this matter." The Law Division Judge granted the Corporation's motion for summary judgment on the ground that the Corporation was free to refuse to contract with any person. *fn3 That judgment does not affect the issue before us.

Kim claims that the Association owed him a fiduciary duty to intervene with the Corporation to enable him to enter the rental program. The Association maintains that it had no duty whatsoever to intervene on Kim's behalf. It maintains that neither its bylaws, nor its articles of incorporation, nor the Condominium Act, place any duty on the Association to act in an individual member's pecuniary interest. In addressing the cross-motions between plaintiff and the Association, the Law Division Judge framed the issue as follows:

But the central issue that I have to decide here right now is whether or not there is a duty on the condominium association to do that which Mr. -Mr. Thompson contends. Certainly under certain circumstances there is a duty for a condominium association to act. That duty can be ...

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