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Lake Shawnee Club, Inc. v. Akhtar


March 14, 2008


On appeal from Superior Court of New Jersey, Law Division, Special Civil Part, Morris County, Docket No. DC-008878-06.

Per curiam.


Argued February 5, 2008

Before Judges Fuentes, Grall and Chambers.

Plaintiff Lake Shawnee Club, Inc. (the Club) is a not-for-profit corporation organized under the laws of this State. Membership in the Club is limited to owners of property in an area of Jefferson Township, Morris County, known as the Lake Shawnee Reservation (the Reservation). The individual defendants each own at least one residential lot in the Reservation, but none have opted to join the Club.

The Club commenced this litigation to recover an amount invoiced as "membership dues" for the fiscal year beginning on April 1, 2006. In each complaint the Club alleged alternate theories in support of its claim for payment of the sum billed: on a book account; for goods and services rendered; as the reasonable value of goods and services sold and delivered or rendered; and as a debt on an account. Defendants responded with a demand for the Club to withdraw its frivolous claims and filed counterclaims for a judgment declaring that the Club could not require all owners of property in the Reservation to become members of the Club or pay dues. Initially, all owners of property in the Reservation were members of the Club, but during a period starting in the 1960s and extending to 2006, the Club treated membership as optional.

After consolidating the actions, the trial judge granted defendants' motion for summary judgment and declared that the Club lacked authority to require homeowners in the Reservation to join the Club or pay "membership fees." The judge entered a supplemental order that enjoined the Club from prosecuting litigation to recover "membership fees" pending in other vicinages, terminated that pending litigation and enjoined the Club from "initiating any action for the collection of mandatory membership fees from any property owner in the Lake Shawnee section of Jefferson Township in the future." The judge denied defendants' request for counsel fees pursuant to Rule 1:4-8 and N.J.S.A. 2A:15-59.1. A motion for reconsideration was denied.

The Club appeals from the summary judgment dismissing its complaints and declaring that membership in the Club is not mandatory and from the supplemental order terminating litigation pending in other vicinages and precluding future litigation. Defendants cross-appeal from the denial of counsel fees.

The question before this court is narrow. The trial judge assumed that the developer conveyed the property by a master deed that is in each defendants' chain of title. The trial judge also assumed that the Club could enforce any covenants and conditions in the master deed and recorded documents that made membership and dues mandatory, despite the period of non-enforcement. The judge granted summary judgment in favor of defendants on the ground that "[t]here is no contract, no deed restriction, and no other principle of law or equity [that] requires" membership in the Club and payment of Club membership fees. Accordingly, the only question on this appeal is whether the provisions of the master deed and recorded documents referenced therein require each owner of property in the Reservation to become a member of the Club. On review of this grant of declaratory judgment by summary judgment in favor of defendants, we must determine whether defendants were entitled to judgment as a matter of law on the narrow issue, the undisputed facts and the facts assumed to be favorable to the Club. R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); Kramer v. Ceiba-Geigy Corp., 371 N.J. Super. 580, 602 (App. Div. 2004). Because a proper reading of the documents that are assumed to be in defendants' respective chains of title make membership mandatory, we reverse and remand for further proceedings and affirm the order denying counsel fees.

The pertinent facts are not in dispute. The Reservation includes over 500 residential lots, a private lake, which was formed by a dam built in the 1940s, and recreational areas. The Club maintains the dam, a clubhouse, beaches, swimming lanes, boat docks, playing fields, parks and basketball courts. The Club also purchases liability insurance. The New Jersey Department of Environmental Protection has determined that the dam poses a "significant hazard." The dam needs repair. In addition, the Club has concluded that the lake is in need of dredging that will cost over one-million dollars.

The Arthur D. Crane Company (Crane) developed the Reservation in the mid-1940s. In 1946 the Club incorporated and filed a certificate of incorporation. The Club initially rented the lake and recreational areas from Crane pursuant to an Agreement and Lease of August 6, 1948, which was recorded in the Book of Deeds for Morris County.*fn1 On September 28, 1948, Crane conveyed lots in the Reservation to the Schneiders. For purposes of this summary judgment motion, the Schneider deed was assumed to be in each of the defendants' chain of title.*fn2

The Schneider deed refers to the Club's certificate of incorporation, charter and the recorded Agreement and Lease between the Club and Crane. With reference to the location of the Agreement and Lease in the book of records, Section I of the Schneider deed makes the conveyance subject to that Agreement and Lease. Section IV of the deed requires members of the Club to comply with the Club's certificate of incorporation, charter and by-laws.

The Club's certificate of incorporation recognizes the Club's obligation to enforce conditions and restrictions in the deed and explains Club membership. The certificate identifies its purposes in a list that includes the development of "social and recreational activities," maintenance of Club properties, and enforcement of the "covenants, conditions, and restrictions under which the properties in the Reservation" were sold.

The certificate of incorporation provides for two classes of Club members. "Associate members" are the "immediate family" of an active member. "Active members" are "the incorporators" of the Club, "those who acquire ownership of the property in" the Reservation, and "those who contract to purchase property in the [Reservation], and are elected to membership in [the Club] and are in good standing." Thus, the certificate of incorporation makes those who execute an agreement to purchase property in the Reservation "active members" of the Club upon approval of their membership.

The membership obligation is further explained in a Sales Agreement referenced in and appended to the recorded Agreement and Lease between the Club and Crane. In the Agreement and Lease, the Club acknowledges its "approv[al] and accept[ance of] any and all obligations expressed, implied or inferred in [the] Sales Agreement." That Sales Agreement makes the conveyance contingent upon, but does not guarantee, membership in the Club. The Sales Agreement provides that upon execution and in consideration for the sale of the subject property, the contract purchaser must pay specified "maintenance fees to the [Club] from the date of the Sales Agreement." By signing the Sales Agreement, the purchaser acknowledges his or her understanding that membership is not guaranteed and that the Sales Agreement will be "null and void" and all payments will be refunded if the contract purchaser "is not approved for membership."*fn3 Like the Schneider deed, the Sales Agreement makes the conveyance "subject to" the Agreement and Lease of August 6, 1948. Under the Agreement and Lease, the Club promises to "refund immediately any money received with an application for membership if such applicant is rejected."

Pursuant to the Club's certificate of incorporation, referenced in the Sales Agreement and the Schneider deed, membership in the Club is granted upon approval of the Club's membership committee. The membership committee is also referenced and described in the Agreement and Lease.

Section III of the Schneider deed includes covenants of the purchaser that address membership. Consistent with the Sales Agreement, paragraph d of Section III provides:

(d) The [purchaser] will not sell, rent, lease or permit to be occupied, the premises hereby conveyed to or by any person or persons excepting those approved for membership and/or guest privileges in the Lake Shawnee Club, and will submit the required application/s to the said Club and obtain approval thereof before lease, sale or rental is consummated and/or occupancy is permitted.

Section IV of the Schneider deed also addresses membership in the Club. It provides:

It is mutually understood and agreed that the conveyance of the property herein described does not entitle the [purchaser] to membership in, or to any of the benefits or privileges of the [Club]. It is, however, agreed that if the [purchaser] is elected to membership in the [Club], he, she or they shall, at all times, comply with the terms and conditions set forth in the Certificate of Incorporation, Charter and By-Laws of said Club and the amendments thereof and the supplements thereto, -- said Club, however, to have no control over or rights in the premises hereby conveyed, except as in this Deed provided.

With ownership and active membership in the Club, there is an obligation to pay maintenance fees to the Club. The certificate of incorporation references an active member's obligation to pay the Club a maintenance fee "as shall be fixed in the by-laws." Section IV of the Schneider deed requires members to comply. Section III of the Schneider deed also obligates each property owner to contribute to the Club. Regardless of the number of lots owned, an owner of property in the Reservation must pay the Club annual "maintenance fees" in the amount of $1.50 "per month from the date of purchase" and "such Governmental Tax as may be imposed on, or by reason of the payment of the amounts." Section III also permits the Club to charge an owner for work the Club does when the owner fails to meet his or her obligation, pursuant to Section III, to clear the premises of brush and high grasses and allow the Club to have the work done if the owner does not comply. Pursuant to Section III of the Schneider deed, any amount an owner owes for brush clearance, governmental tax and maintenance fees is a personal obligation that the Club may enforce by imposing a lien on the property if not paid within the specified time.

Collection of fees by the Club from its members is related to the Club's obligations under the Agreement and Lease of August 6, 1948, to which a conveyance of property under the Schneider deed is subject. The Agreement and Lease defines rent due to Crane from the Club as "a sum equal to one-fourth of the charges made to Club Members for maintenance fees and one-fourth of the charges made to Rental Guests" plus "$5.00 of each initiation fee collected." Under that Agreement and Lease, in addition to assuming the obligation of enforcing conditions in the deed (such as fee collection), the Club assumed the obligation of paying all taxes on the leased property. As noted above, the Club's certificate of incorporation states that an active member is obligated to pay a maintenance fee as fixed in the by-laws.

The Schneider deed also includes several provisions that give the Club control over and rights in the privately owned lots in the Reservation. Section II establishes permitted uses and structures and required setbacks, limits the height of fences and hedges, and reserves to the Club the right to approve building plans and give written consent to deviations from the restrictions. Section II expressly provides that these restrictions run with the land.

Section VII provides that "[a]ll of the protective covenants, restrictive conditions, reservations and provisions [] contained [in the deed] shall be for the benefit of, and shall apply to and bind the said parties hereto and their respective heirs, executors, administrators, successors and assigns."

There is no dispute, that from its inception until the 1960s, the Club required all owners to sell their property only to a person approved for membership. The Club acknowledges that it stopped enforcing "the mandatory membership" requirement and "slip[ped] into a voluntary membership situation" because membership had been used to exclude purchasers on the basis of "race, color, creed and ethnicity." Anecdotal evidence of such discrimination is included in the record. Despite the Club's abandonment of mandatory membership, the Club continued to collect the annual maintenance fees from all property owners at the rate of $1.50 per month, as provided in Section III of the Schneider deed. The Club charged voluntary members, whom it allowed to use the Club's facilities and recreational areas, more. In 2005, 332 property owners paid the Club membership dues; 255 members paid $350 and seventy-seven senior members paid dues of $184. Non-member owners paid an $18 maintenance fee or $1.50 per month.

In November 2005, the members of the Club's board determined that circumstances, including the need to repair the dam and dredge the lake, required the Club to enforce mandatory membership. The by-laws were amended to provide that persons owning or renting property in the Reservation were eligible for membership and that, in the future, membership would be granted automatically upon conveyance of title. The amended by-laws also require members to pay annual fees and assessments for operation of the Club. Invoices sent to all property owners for 2006 demanded payment of $300 in dues and advised that a late fee of fifty dollars would be assessed if payment were not received by June 30, 2006.

In 2006, 512 owners paid membership dues; 406 members paid $300 and 106 senior members paid dues of $185. Some who paid dues claim that they did so to avoid the cost of litigation or imposition of a lien on their land.

We cannot agree with the trial judge's conclusion that "[t]here is no contract, no deed restriction, and no other principle of law or equity [that] requires mandatory membership."

A covenant or condition that requires membership in a club or association and payment of fees "affect[s] the use and enjoyment of the land, [and its] language must be construed strictly, and in favor of the owner's unrestricted use." Highland Lakes Country Club & Cmty. Ass'n v. Franzino, 186 N.J. 99, 112 (2006). While such restrictive covenants are not favored and are strictly construed where there is ambiguity, courts determine and give effect to the intent of the parties expressed in the deed with reference to the attendant circumstances. Perelman v. Casiello, 392 N.J. Super. 412, 419 (App. Div. 2007). "'[A] covenant should not be read in such a way that defeats the plain and obvious meaning of the restriction.'" Bubis v. Kassin, 184 N.J. 612, 624 (2005) (quoting Lakes at Mercer Island Homeowners Ass'n v. Witrak, 810 P.2d 27, 30 (Wash. Ct. App. 1991)).

The Schneider deed is subject to the recorded Lease and Agreement of August 6, 1948. The recorded Lease and Agreement includes a Sales Agreement that addresses any possible ambiguity about membership that can be found in Sections III and IV of the Schneider deed. Under these documents it is clear that no one could perform a contract to purchase property in the Reservation unless elected to membership. It is also clear that once elected to membership, an owner is required to comply with the Club's certificate of incorporation, charter, by-laws and amendments thereto. Thus, there can be no question that the intent was to require membership of all property owners and a sharing of common expenses as authorized by the members of the Club in accordance with the by-laws.

We recognize that in Mountain Springs Ass'n of N.J., Inc. v. Wilson, 81 N.J. Super. 564, 575 (Ch. Div. 1963), the trial judge concluded that the deed at issue, which is similar in some respects to the deed at issue here, did not require membership in the association. In that case, the association argued that a covenant restricting sale of property to members implied that all purchasers of property must become members. Ibid. The court concluded that the covenant "[did] not carry with it a necessary implication that the purchaser of property in the development must become a member of the Association." Id. at 576. That deed, however, did not include a provision comparable to Section IV of the Schneider deed, which provides that one "elected to membership in the [Club] . . . [must] comply with the terms and conditions set forth in the Certificate of Incorporation, Charter and By-Laws of said Club and the amendments thereof and the supplements thereto." Further, nothing in Mountain Springs indicates that there were related recorded documents such as the Agreement and Lease in this case.

In Highland Lakes, the association and the members agreed that the deeds required membership in the association, and its adequacy in that respect was not at issue. 186 N.J. at 104. In that case, the master deed and the deeds used thereafter contained membership covenants. Id. at 104 n.1. "In covenants (s) and (t), the purchaser acknowledges that membership in the Association is required of homeowners, affirms that membership has been applied for, and agrees to abide by the Association's requirements, stating specifically that 'the buyer further agrees to comply with and conform to the By-Laws of such association.'" Ibid. The Schneider deed, assumed to be the master deed in this case, does not address membership with the same clarity. But when viewed together with the recorded Agreement and Lease (and appended Sales Agreement) of August 6, 1948, to which a conveyance under the Schneider deed is subject, and the certificate of incorporation and by-laws referenced in the deed, the documents state the membership obligation with equivalent clarity. Accordingly, a grant of summary judgment on the ground that membership is not required by the relevant documents cannot be sustained, because it would defeat the "plain and obvious meaning." Bubis, supra, 184 N.J. at 624.

The Club argues that its recent amendment of its by-laws, which makes ownership of Reservation property the only requirement for membership, cures any concern about discriminatory enforcement and now permits the Club to mandate membership that the Club has treated as voluntary for many years. There is precedent for enforcing such amendments that preclude discriminatory use of membership covenants. In Paulinskill Lake Ass'n v. Emmich, 165 N.J. Super. 43, 44-45 (App. Div. 1978), this court considered recent changes in a membership covenant that automatically extended membership to a purchaser, grantee or owner and, on that basis, rejected a claim that covenants requiring membership were void as an unlawful restraint and permitted the association to enforce obligations of membership.

For the foregoing reasons, we reverse the grant of summary judgment and the supplemental order, which was based solely on the judge's reading of the Schneider deed and related documents.

The conclusion that the grant of summary judgment was inappropriate does not end the inquiry. Numerous questions remain as to whether the Club's conduct over the years, changed circumstances or the relevant equities preclude imposition of this "membership fee." See Perelman, supra, 392 N.J. Super. at 423-24 (and cases cited therein). We also direct the parties' attention to principles governing common interest communities and their operation and decisions addressing issues related to servitudes in such communities. See Citizens Voices Ass'n v. Collings Lakes Civic Ass'n, 396 N.J. Super. 432, 446 (App. Div. 2007); Lake Lookover Property Owner's Ass'n v. Olsen, 348 N.J. Super. 53, 54 (App. Div. 2002); see generally Restatement (Third) of Property: Servitudes §§ 1.8, 6.2, 6.5, 6.10, 6.12; id. at § 6.12 comment b and illustration 2; Evergreen Highlands Ass'n v. West, 73 P.3d 1, 7 (Colo. 2003), cert. denied, 540 U.S. 1106, 124 S.Ct. 1059, 157 L.Ed. 2d 892 (2004).

We further note that if the Club or defendants seek a declaratory judgment, it is incumbent upon them to join "all persons having or claiming any interest which would be affected by the declaration . . . ." N.J.S.A. 2A:16-56; see N.J.S.A. 2A:16-57; Garnick v. Serewitch, 39 N.J. Super. 486, 494-501 (Ch. Div. 1956) (discussing the issue in the context of an action for declaratory judgment concerning a restrictive covenant in a deed establishing a neighborhood scheme).

Defendants' cross-appeal from the order denying counsel fees pursuant to Rule 1:4-8 and N.J.S.A. 2A:15-59.1 is moot.

The grant of summary judgment in favor of defendants is reversed and remanded; the supplemental order restricting and terminating litigation is reversed; the order denying counsel fees is affirmed.

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