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Committee For a Better Twin Rivers v. Twin Rivers Homeowners' Association

February 7, 2006

COMMITTEE FOR A BETTER TWIN RIVERS, DIANNE MCCARTHY, HAIM BAR-AKIVA AND BRUCE FRITZGES, PLAINTIFFS-APPELLANTS/ CROSS-RESPONDENTS,
v.
TWIN RIVERS HOMEOWNERS' ASSOCIATION, TWIN RIVERS COMMUNITY TRUST, AND SCOTT POHL, DEFENDANTS-RESPONDENTS/ CROSS-APPELLANTS.



On appeal from the Superior Court of New Jersey, Chancery Division, General Equity, Mercer County, C-121-00.

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

APPROVED FOR PUBLICATION

Argued: April 19, 2005

Before Judges Kestin, Lefelt*fn1 and Fuentes.

In this appeal, among other issues, we address the questions whether, and in what circumstances, the expressive rights guarantees of the New Jersey Constitution limit the authority of those who govern a community association in setting and administering standards for that community; the extent to which the Planned Real Estate Development Full Disclosure Act applies to a community established before the statute was enacted; and questions bearing upon the application of the business judgment rule and contractual standards.

Plaintiff Committee for a Better Twin Rivers (CBTR) is a non-profit, unincorporated association comprised of residents of Twin Rivers, a planned unit development in East Windsor. The individual plaintiffs, Dianne McCarthy, Haim Bar-Akiva, and Bruce Fritzges are residents of Twin Rivers. McCarthy and BarAkiva are members of CBTR. The defendants are the Twin Rivers Homeowners' Association (TRHA), the Twin Rivers Community Trust (TRCT), and Scott Pohl, the president of TRHA and a member of TRHA's board of trustees.

Plaintiffs sued for declaratory and injunctive relief in a nine-count complaint. Count one of the amended complaint sought mandatory injunctive relief permitting "the posting of political signs" on the property of community residents "and on common elements under reasonable regulation." Count two sought mandatory injunctions "to allow plaintiffs to utilize the community room in the same manner as other similarly situated entities." In the third count, plaintiffs sought "equal access" to the pages of Twin Rivers Today (TRT), "the official newspaper of Twin Rivers. . . . published and distributed monthly to each resident by the TRHA[;]" mandatory injunctive relief that would permit the "expression of their views [therein] concerning the management of the community[;]" and an injunction against "the president of [TRHA] from using TRT as his own personal political trumpet[.]" In counts four and five respectively, plaintiffs sought the right to tape record TRHA board meetings and to have access to TRHA financial records. In count six, plaintiffs sought declaratory rulings establishing the invalidity of a TRHA board resolution that provided for the discipline of board members suspected of disclosing information deemed confidential, and determining that plaintiff McCarthy had not violated the resolution; along with an expungement of McCarthy's censure in TRHA records. In count seven, plaintiffs sought "access to lists of eligible voters [in TRHA elections] without unreasonable conditions." Count eight sought an improved alternate dispute resolution mechanism over that in established TRHA procedures, as well as mandatory injunctive relief "re-establishing the voting rights of plaintiff Bruce Fritzges and other TRHA members similarly situated." In count nine, plaintiffs sought a declaratory judgment that the then-current weighted-voting provisions of TRHA's charter and bylaws violated the New Jersey Constitution, requiring reformation. Plaintiffs also sought counsel fees and costs.

The parties filed cross-motions for summary judgment. The motion judge granted summary judgment in favor of plaintiffs on certain elements of counts two and seven and on count six; and in favor of defendants on other elements of counts two and seven, and on counts one, three, five, eight, and nine.*fn2 The court's order also memorialized rulings on "three overarching issues": that TRHA is not subject to the constitutional limitations imposed on state actors, at least in the factual context specifically presented in this case; that the 1993 amendments to PREDFDA [the Planned Real Estate Development Full Disclosure Act], as codified in N.J.S.A. 45:22A-43 to -48, apply to Twin Rivers; and that Plaintiff CBTR is dismissed from the case for lack of standing.

The reasons for the court's summary judgment determinations and rulings were expressed in a comprehensive written opinion appended to the order.

I.

Plaintiffs appeal from the disposition as to counts one, two (in part), three, five, eight, and nine. They challenge the "overarching" ruling regarding constitutional limitations, specifically contending that the motion judge erred in upholding defendants' policies restricting signs on residents' lawns, charging assertedly excessive fees for use of the community room, refusing to afford equal coverage to plaintiffs' views in the Twin Rivers Today newsletter, withholding access to financial documents, disenfranchising plaintiff Fritzges for refusing to pay a fee and failing to provide alternative dispute resolution for his dispute, and weighting TRHA voting according to property value. Plaintiffs also challenge the judge's holding that CBTR did not have standing.

Defendants appeal from the disposition of counts two (in part), six and seven (in part). They challenge the judge's "overarching" ruling that PREDFDA applies to Twin Rivers. Defendants also contend specifically that the judge erred in invalidating existing TRHA standards governing use of the community room as "impermissibly vague. . . . and direct[ing] that the regulations for the use of the room be modified to provide clear standards for the granting or withholding of permission for its use;" disallowing certain TRHA standards regarding the confidentiality of documents; and invalidating a liquidated damages provision for violation of the confidentiality agreement required before a member may obtain TRHA's voting list.

Plaintiffs depict this appeal as squarely presenting the one question "left unanswered . . . in Mulligan v. Panther Valley Property Owners Ass'n, 337 N.J. Super. 293 (App. Div. 2001), because of an insufficient record: i.e., whether defendant association 'performed quasi-municipal functions, such that its actions perhaps should be viewed as analogous to governmental actions in some regards.'" Id. at 305. Plaintiffs assert that "[t]he record in this case fills the gap that existed in the Panther Valley record, and demonstrates that Twin Rivers operates as a constitutional actor." Defendants join issue, contending that the conduct involved is that of private actors not subject to constitutional control, and must be evaluated under the business judgment rule and an analysis of contractual rights. Amicus curiae, Community Associations Institute, has filed a brief in support of defendants' positions.

II.

The motion judge, in his opinion, set out the factual background of the matter:

Twin Rivers is a planned unit development ("PUD") consisting of privately-owned condominium duplexes, townhouses, single family homes, apartments and commercial buildings located in the Township of East Windsor, New Jersey. The community covers about one square mile in area and contains a population of approximately 10,000 people occupying some 2,700 residences. The Twin Rivers Community Trust ("TRCT" or "Trust") was created by Indenture on November 13, 1969 for the stated purpose of owning, managing, operating and maintaining the residential common property of Twin Rivers. Each property owner is assessed a fee to fund the managerial and operational expenses of the Trust.

Twin Rivers Homeowners Association ("TRHA" or "Association") has sole discretion, under the indenture, to make reasonable rules and regulations for the conduct of its members upon the land owned or controlled by the Trust. All property owners in Twin Rivers are automatically members of the Association and beneficiaries of the Trust. Purchasers are required, as a condition of purchase, to accept the regulations of the TRHA Articles of Incorporation and its By-Laws. Violations of the rules are punishable by fines, which can range in amount from $50 to $500. The Association is governed by a Board of Directors ("Board"), whose members are elected by all eligible voting members of the Association. The Board serves as trustee for TRCT. All members of the Association who are in "good standing" at the time of the elections are eligible to vote for nominees to the Board.

Twin Rivers provides various amenities for the exclusive use of its residents, including parks, four pool complexes, handball and basketball courts, ball fields, and playgrounds. Twin Rivers also offers certain services to its residents, including lawn maintenance, recycling, garbage collection for certain sections of the community, snow removal, and street lighting. Located within the "boundaries" of Twin Rivers are various private commercial businesses such as dry cleaners, gas stations and banks. Several public facilities are also located within the borders of Twin Rivers, including schools, a county library and a firehouse. These public facilities are provided and maintained by the Township of East Windsor. In addition to the 34 private roads in Twin Rivers, a state highway also runs through the community.

In addition to the foregoing, TRHA sponsors recreational and sports activities, trips, events, and a day camp.

Twin Rivers is not a gated community. Its roads are open to public traffic. The TRCT administrator certified, however, that "[t]rust-owned property and facilities are for the exclusive use of Twin Rivers residents and their invited guests," and that the "general public is not invited" to use them.

TRHA expected to collect over $3,000,000 from homeowners' maintenance fees in 2001, and its annual budget was nearly $3,500,000. It had over twenty year-round employees and fifty who worked on a seasonal basis.

In a document before the trial court on the motions for summary judgment, the TRCT administrator listed services that the Township of East Windsor provides to Twin Rivers' residents. Those services include police, firefighting, first aid, road and traffic control, public education, health and welfare provisions, water and sewage systems, and zoning and building codes.

Plaintiffs' expert, Evan McKenzie, an associate professor of political science at the University of Illinois and an attorney, certified that Twin Rivers's centralized shopping area, "looks and feels like a town," and that TRHA delivered "a broad range of traditional municipal services" to its residents. He opined that "privately governed communities in this country," including Twin Rivers, "have substantially replaced municipal government as the most immediate form of government for their residents" and "exercise government-like dominion over their residents without formal accountability to the public political process."

Arlene Mulry-Pearl, a real estate broker dealing in Twin Rivers properties for twenty-six years, a resident of Twin Rivers for over twenty-four years, and the owner of a townhouse there, opined that it was a desirable community, clean and well-maintained, with attractive recreational facilities. She attributed the steadily increasing home values in Twin Rivers to TRHA's rules and regulations, which insured that needed repairs were done and "maintain[ed] the beauty and integrity of the community." She noted that the Twin Rivers "monthly maintenance fee is quite reasonable and a good value" compared to fees charged in other developments in the area.

The motion judge, in his opinion, described the plaintiffs as follows:

The individual Plaintiffs are residents of Twin Rivers and members of the Association. Dianne McCarthy was also a member of the Board of Directors, (although now a former member). All of the Plaintiffs, with the exception of Bruce Fritzges, are also members of an unincorporated association known as The Committee for a Better Twin Rivers ("CBTR").

CBTR was organized for the stated purpose of focusing the efforts of Twin Rivers residents interested in changing the manner in which Twin Rivers is administered. It does not have any formal membership requirements, but it is recognized throughout the community, and its activities are regularly reported and commented upon in the community newspaper, Twin Rivers Today ("TRT").

In framing the questions to be addressed, the motion judge noted the presentation of the "three overarching issues," which he characterized as follows: "whether Twin Rivers has 'quasi-municipal' status, the applicability of PREDFDA, and whether CBTR has standing to appear as a plaintiff in this case." These issues are before us on appeal, as well. As we have noted, the judge decided the first and third adversely to plaintiffs and the second adversely to defendants. We will review and pass upon the motion judge's disposition of those three issues before addressing any of the particular questions he decided.

III.

We disagree with the trial court's determination that TRHA is not subject to constitutional limitations such as those imposed on public sector actors. The basis for the trial court's ruling was that no governmental entity had delegated governmental powers to TRHA, and that TRHA performed no inherently governmental functions. In arriving at our conclusion that this ruling was erroneous, we eschew the use of the term "quasi-municipal" because, in the context of the issues before us, it tends to beg the question and adds nothing to the necessary inquiries. We are called upon to determine whether the standard-setting and standard-applying exercises at issue are essentially in performance of public functions or impact with sufficient directness upon public interests to call into play the constitutional limitations that classically apply to public sector actors, but which the New Jersey Constitution applies more broadly.

A.

The motion judge cogently summarized the positions of the parties on this status issue as follows:

Plaintiffs claim that TRHA has substantially replaced the role of the municipality in the lives of its ten thousand residents, by providing various services that are traditionally performed by municipal bodies, and should therefore be subject to the same constitutional limitations as a municipality in creating "laws" for the community. The Board of the Association functions as a municipal council, and the mandatory assessments levied on owners are, they argue, the equivalent of a tax. Therefore, Plaintiffs argue, TRHA should be required to respect the same constitutional boundaries that would be required of a municipality. Plaintiffs further argue that the provisions of the Condominium Act at N.J.S.A. 46:8B-15(f) which allow for an Association to impose fines as penalties for violation of its rules are a delegation of police powers which are unique to the government, and therefore, the Association takes on "quasi-municipal" status, in part, because of this ability to impose fines. Defendants reject the assertion that Twin Rivers is equivalent to a municipality, and that the Constitution applies to TRHA in the same way it applies to state actors. TRHA and the Trust are non-profit organizations, and Defendants claim that it is well settled law in New Jersey that the business judgment rule is the standard of review for the duly enacted policies and decisions of their board of trustees. Defendants argue that the burden is on Plaintiffs to show that the decisions of the Board were fraudulent, self-dealing or unconscionable; which Defendants assert they cannot and do not do in their pleadings.

B.

Nationally, as of 1999, 42,000,000 Americans lived in community associations. Clifford J. Treese, Community Associations Factbook 6 (Frank H. Spink ed., 1999).

In a paper presented at a governmental services conference in 2002, Edward Hannaman, the association regulator in the Planned Real Estate Development Unit, Bureau of Homeowner Protection, Division of Codes and Standards of the Department of Community Affairs, noted that, in New Jersey, 40% of private residences and over 1,000,000 people were governed by homeowner's associations. According to him, almost 20% of "new homebuyers" were required to join community associations in 1996, and the number increased to over 30% in 2000. According to the Mercer County multiple listing service, 23% of real estate listings for homes in that county in 2002 required membership in condominium or homeowners' associations.

Hannaman said that complaints revealed an "undemocratic life" in many associations, with homeowners unable to obtain the attention of their board or manager. Boards "acting contrary to law, their governing documents or to fundamental democratic principles, are unstoppable without extreme owner effort and often costly litigation." Board members "dispute compliance" with their legal obligations and use their powers to punish owners with opposing views. "The complete absence of even minimally required standards, training or even orientation for those sitting on boards and the lack of independent oversight is readily apparent in the way boards exercise control."

Hannaman described instances of abuse of power in some detail while conceding that there were "many good associations." He stressed, however that, typically, power was centralized in boards, which acted as executive, legislature and judiciary.

An Assembly Task Force to Study Homeowners' Associations, created by Assembly Resolution No. 47 of 1996, reported in 1998 that associations' duties were "increasingly governmental" and that they exercised "quasi-governmental powers." The Task Force recommended that associations be subject to several government standards, including public bidding and disclosure of conflicts of interest.

The Task Force reported that "many residents feel that the 'balance of power' hangs too heavily in the direction of the association board. The testimony indicated that more should be done to safeguard homeowners' rights of due process, including guidelines for fair elections of board members. . . . " The Task Force recommended oversight of board action by the Commissioner of Community Affairs to protect residents' rights and to ensure against capricious use of board power. The Legislature has not acted on the recommendations of the Task Force.

In contrast, the Community Associations Factbook states: "Community associations are arguably the most representative and responsive form of democracy found in America today. Residents of a community freely elect neighbors to serve on a board of directors of that community." Treese, supra, at 9.

C.

Plaintiffs assert that, just as shopping centers that are technically private have replaced downtown business districts, planned developments that are technically private have replaced towns. Plaintiffs argue that fundamental constitutional rights must be protected despite these changes in the environment in which they are exercised. They contend that their status as residents of a private community, rather than visitors to private property, strengthens their position.

Defendants counter that the judge properly applied the business judgment rule as the basic criterion governing their conduct. They contend that constitutional standards apply to private actors only when they invite the public onto their property, and that plaintiffs are members of the TRHA, not the invited public. Defendants assert that "[a]pplying the Constitution as a whole would fundamentally alter the very nature of planned developments."

The argument in favor of the application of constitutional standards has its roots in Marsh v. Alabama, 326 U.S. 501, 66 S. Ct. 276, 90 L. Ed. 265 (1946). There, appellant was convicted of trespassing for distributing religious literature in Chickasaw, a "company-owned town[,]" which was otherwise open to the public. 326 U.S. at 502, 66 S. Ct. at 277, 90 L. Ed. at 266. Invalidating the application of the state trespassing statute in the circumstances at hand, the Court held that "those people who live in or come to Chickasaw [cannot] be denied freedom of press and religion simply because a single company has legal title to all the town[.]" 326 U.S. at 505, 66 S. Ct. at 278, 90 L. Ed. at 268.

The Court balanced "the Constitutional rights of owners of property against those of the people to enjoy freedom of press and religion," noting that "the latter occupy a preferred position." 326 U.S. at 509, 66 S. Ct. at 280, 90 L. Ed. at 270. The Court explained: "Ownership does not always mean absolute dominion. The more an owner, for his advantage, opens up his property for use by the public in general, the more do his rights become circumscribed by the statutory and constitutional rights of those who use it." 326 U.S. at 506, 66 S. Ct. at 278, 90 L. Ed. at 268.

The Court held that people who live in company-owned towns, like residents of municipalities, "are free citizens of their State and country," and that "[t]here is no more reason for depriving these people of the liberties guaranteed by the First and Fourteenth Amendments than there is for curtailing these freedoms with respect to any other citizen." 326 U.S. at 508-09, 66 S. Ct. at 280, 90 L. Ed. at 270.

In State v. Schmid, 84 N.J. 535, 538 (1980), appeal dismissed, sub nom. Princeton Univ. v. Schmid, 455 U.S. 100, 102 S. Ct. 867, 70 L. Ed. 2d 855 (1982), defendant was convicted of trespassing for distributing political literature on the campus of Princeton University. The Supreme Court of New Jersey declined to rule on the basis of the First Amendment to the United States Constitution, recognizing that the New Jersey Constitution was an "independent source of individual rights[,]" id. at 555, which could "surpass the guarantees of the federal Constitution." Id. at 553. The Court specifically cited two provisions of the New Jersey Constitution as "more sweeping in scope than the language of the First Amendment[.]" 84 N.J. at 557.

Every person may freely speak, write and publish his sentiments on all subjects, being responsible for the abuse of that right. No law shall be passed to restrain or abridge the liberty of speech or of the press

[N.J. Const. (1947) art. I, ¶ 6.]

The people have the right freely to assemble together, to consult for the common good, to make known their opinions to their representatives, and to petition for redress of grievances.

[N.J. Const. (1947), art. I, ¶ 18.]

Noting that the interpretation of the New Jersey Constitution is not subject to "constraints arising out of principles of federalism[,]" id. at 559, the Court, in an opinion authored by Justice Handler, held that the guarantees the State Constitution confers can be available against private entities, as well as governmental entities, when the private entities have "assumed a constitutional obligation not to abridge the individual exercise of such freedoms because of the public use of their property." Id. at 560. The Court adopted a balancing test for resolving the conflict between the protections to be accorded private property and those to be given to expressive exercises upon such property:

This standard must take into account (1) the nature, purposes, and primary use of such private property, generally, its "normal" use, (2) the extent and nature of the public's invitation to use that property, and (3) the purpose of the expressional activity undertaken upon such property in relation to both the private and public use of the property. [Id. at 563.]

The Court added that private property owners were entitled to impose reasonable rules "governing the time, place and manner for the exercise of such expressional rights." Ibid. Because the University regulations at issue contained no standards, the Court held that the University had violated defendant's "State constitutional rights of expression in evicting him and securing his arrest for distributing political literature upon its campus." Id. at 568.

In New Jersey Coalition Against War in the Middle East v. J.M.B. Realty Corp., 138 N.J. 326 (1994), cert. denied sub nom. Short Hills Ass'n v. New Jersey Coalition, 516 U.S. 812, 116 S. Ct. 62, 133 L. Ed. 2d 25 (1995), the Court, in an opinion by Chief Justice Wilentz, confirmed that "the State right of free speech is protected not only from abridgement by government, but also from unreasonably restrictive and oppressive conduct by private entities." Id. at 353. In that case, the Court applied its ruling in Schmid to large, regional shopping centers. Employing the Schmid balancing test, the Court concluded that "the balance of factors clearly predominates in favor of" the constitutional obligation to allow leafletting at the shopping centers on issues of public import, observing that "the right ...


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