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Clark v. Lake End Corporation of Green Pond

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


November 25, 2008

RON CLARK AND ROBYN VALLE, PLAINTIFFS-APPELLANTS,
v.
LAKE END CORPORATION OF GREEN POND, N.J., A CORPORATION OF THE STATE OF NEW JERSEY, AND THE TOWNSHIP OF ROCKAWAY, A MUNICIPAL CORPORATION, DEFENDANTS-RESPONDENTS AND LYNNE P. SMEDLEY AND RAYMOND W. SMEDLEY, DEFENDANTS/INTERVENORS-RESPONDENTS.

On appeal from the Superior Court of New Jersey, Law Division, Morris County, L-1940-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued September 16, 2008

Before Judges Winkelstein, Fuentes and Chambers.

In 1924, defendant Lake End Corporation of Green Pond purchased approximately 338 acres of property in Rockaway Township, leasing approximately sixty-five separate parcels of land to various individuals, for a period of ninety-nine years each. Lake End later extended the term of the leases to 2078. The leaseholders constitute the Lake End shareholders. The corporation is managed by a board of directors (the Board).

Plaintiffs are the lessees of a parcel of land in Lake End, having acquired their interest in 1989 by lease assignment. In 2004, the Board approved plaintiffs' application to construct additions and alterations to their home, but denied their request to expand their second bedroom, and to construct a porch roof within fifteen feet of the side yard; the Township refused to issue a construction permit without the Board's prior approval. As a result, plaintiffs sued Lake End for failing to approve their plans, and the Township for failing to issue a construction permit.*fn1 The trial court dismissed plaintiffs' claims on summary judgment, and awarded counsel fees to defendants. On appeal, plaintiffs raise the following legal arguments:

I. NO REGULATION, ORDINANCE OR STATUTE ALLOWS THE TOWNSHIP TO DENY PLAINTIFFS' APPLICATION FOR A PERMIT SOLEY BECAUSE THE CORPORATION HAS NOT APPROVED THE CONSTRUCTION.

II. THE BOARD APPROVED THE [PLAINTIFFS'] PRELIMINARY PLANS AND IS ESTOPPED FROM DENYING APPROVAL OF THEIR FORMAL PLANS.

III. THE RESTRICTION REQUIRING A FIFTEEN-FOOT SETBACK WAS INTENDED TO APPLY ONLY TO NEW CONSTRUCTION ON LOTS THAT WERE UNIMPROVED WHEN THE RESTRICTIONS WERE IMPOSED.

IV. THE [PLAINTIFFS'] PROJECT DOES NOT VIOLATE THE 50% RULE.

V. ANY NEIGHBORHOOD SCHEME OF RESTRICTIONS HAS BEEN ABANDONED.

VI. THE CORPORATION'S DENIAL OF PLAINTIFFS' APPLICATION CONSTITUTES A BREACH OF FIDUCIARY DUTY AS ITS DECISION WAS INCONSISTENT WITH ITS GOVERNING DOCUMENT AND THE RULE OF REASONABLENESS.

VII. BECAUSE THE CORPORATION'S CROSS-MOTION WAS NOT GERMANE TO THE [PLAINTIFFS'] MOTION FOR SUMMARY JUDGMENT AND, THUS, WAS NOT ENTITLED TO THE [SAME] RETURN DATE [AS] THE [PLAINTIFFS'] MOTION, THE SANCTIONS IMPOSED AGAINST THE [PLAINTIFFS] ARE UNJUST.

We reject plaintiffs' arguments in points one through six, and affirm the dismissal of their complaint. We agree with plaintiffs' argument in point seven that defendants were not entitled to counsel fees. Consequently, we reverse the court's order granting counsel fees to defendants.

I.

Subject to the terms of their lease, plaintiffs own the structures on their property: a 1,365 square foot, one-story, two-bedroom cottage and a three-car garage. Nevertheless, the leases for each lot in Lake End, including plaintiffs', include the following restrictions:

7. No building, habitation or other structure, when erected, shall be wider than 50% of the width of a single lot, 37 1/2 % of two lots, 30% three lots, 25% four lots, on a line parallel with the shore of the lake.

8. No new building, habitation or other structure shall be erected, constructed or located within fifteen feet of either side line of a lot, except by special permission of the Board of Directors of the LESSOR.

12. No building, vault or other structure of any kind whatsoever shall be located, erected, constructed, added to, moved or altered until the location thereof, and the plans therefor have first been submitted to the LESSOR and approved by a resolution of its Board of Directors.

28. The LESSEE covenants, promises and agrees, to and with the LESSOR that he will in all respects fully and completely perform, fulfill and carry out all of the terms and provisions hereof.

Lake End's bylaws and rules and regulations contain provisions that are identical to these lease provisions.

In 1999, plaintiffs submitted drawings to the Board to expand their dwelling. On September 14, 1999, the Board approved plaintiffs' "design idea" for the expansion but required a construction plan "before permission from the Board [would be] considered." After the approval of their design plan, plaintiffs retained an architect to prepare construction plans.

In January 2004, plaintiffs applied to Lake End for approval of several additions and alterations including a new master bedroom, a new master bathroom, expansion of their second bedroom, and a new covered front porch. The Board approved the master bedroom construction; granted a variance from the fifty percent rule for construction of a new master bathroom; and denied the request to expand the second bedroom and construct a porch roof within fifteen feet of the side yard. The Board also offered to grant a variance for further expansion on the east side of the plaintiffs' property, which needed no side yard variances, in exchange for removal of an existing non-conforming structure on the west side of the property.

Plaintiffs subsequently submitted a new plan, omitting the renovations that the Board had rejected; the Board approved that plan, the Township issued a building permit, and plaintiffs have completed that construction.

In July 2005, plaintiffs submitted new plans, modifying the plans the Board previously rejected. The Board again denied the application. To avoid Board involvement, plaintiffs submitted their plans directly to the Township. The Township construction code official declined to issue a construction permit unless the Board first approved the plans. Plaintiffs appealed from that decision to the Morris County Construction Board of Appeals, which did not decide the issue.*fn2

II.

The first five counts of plaintiffs' complaint were directed against Lake End, and the sixth count was against the Township. Plaintiffs' first five counts alleged: breach of fiduciary duty (count one); the Board's 1999 approval of the design plan estopped it from later denying approval of the construction plans (count two); plaintiffs' dwelling did not violate the fifteen-foot setback or the fifty percent rule (count three); Lake End had abandoned the neighborhood scheme as to the setback and fifty percent rule (count four); and the Board had violated the Planned Real Estate Development Full Disclosure Act, N.J.S.A. 45:22a-21 to -56. (count five). In count six, plaintiffs demanded that the Township issue them a construction permit.

On April 19, 2007, plaintiffs moved for partial summary judgment against Lake End on count three, asserting that the fifteen-foot setback and fifty percent rule did not apply to their lot, and against the Township on count six. The trial court scheduled oral argument on the motions for May 25, 2007. On May 15, 2007, Lake End submitted opposition to plaintiffs' motion and cross-moved for summary judgment on counts one through five. On May 21, 2007, plaintiffs responded only to Lake End's statement of undisputed facts; they did not respond to the cross-motion.

On the return date of plaintiffs' motion, the judge did not hear argument because plaintiffs were only prepared to argue their motions, not Lake End's cross-motion for summary judgment on counts one, two, four, and five. Plaintiffs contended that Lake End's cross-motion was not germane to their original motion, and thus it was not entitled to the same return date. The judge adjourned the argument to June 22, 2007, and gave defense counsel permission to submit applications for counsel fees against plaintiffs for being unprepared to argue Lake End's motion.

On June 12, 2007, plaintiffs submitted their brief opposing Lake End's cross-motion on counts one through five. On June 18, 2007, Lake End filed opposition. On June 22, 2007, the court heard oral argument and granted summary judgment to Lake End on counts one through five, but denied plaintiffs' summary judgment for the Township, finding that "genuine issues of material fact precluded summary judgment." In granting Lake End's and denying plaintiffs' summary judgment motions, the trial judge stated:

The [c]court finds that plaintiffs are not fee owners. Admittedly, unique circumstances are presented in the instant matter by virtue of the fact that plaintiffs are leaseholders for 99 years. As plaintiffs point out they utilize many of the rights that are traditionally held and exercised by the fee owner. However, the [c]court is constrained by the terms of the agreement entered into by the parties.

The [c]court should not interfere with contractual language, absent a showing of fraud or coercion. There is no such claim or evidence of same. Instead, plaintiffs'[] bases for alleging that the terms of the lease should be relaxed are waiver and other policy based practical arguments. The [c]court is not persuaded by these arguments . . . .

Though the [c]court [empathizes] with plaintiffs'[] arguments regarding prior variances and allowance of nonconforming uses, this area is unambiguously governed by the terms of the lease and the rules and regulations . . . that the Board must follow. The lease clearly sets forth the fact that leaseholders must seek approval from Lake End prior to construction projects. The lease also clearly sets forth zoning restrictions, including a 15-foot setback and a 50 percent rule as to coverage. The fact that Lake End and/or the Board previously permitted nonconforming uses does not constitute a waiver of those provisions. Instead, the rationale underlying the approval process is that each permit must be considered on a case by case basis.

The fact that a variance or other adjustment was previously permitted by no means entitles the leaseholder to the same result in future applications. Additionally, the fact that plaintiffs provided evidence of other permits issued to Lake End residents as fee owners is of no moment. This question is a legal question that requires reliance upon legal principles, not mere coincidence. It is reasonable to conclude that Lake End would not unnecessarily expend resources to clarify that it was the fee owner in relation to permits for which it did not object.

In the instant matter, Lake End appears to have a reasonable, well founded basis for objecting to the plaintiffs'[] proposal. Similarly, it appears that the Board reasonably exercised its discretion when it denied plaintiffs'[] application for a permit. Based upon the totality of the circumstances, the [c]court finds that plaintiffs are not fee owners.

[T]he [c]court grants Lake End's cross-motion for summary judgment on Counts One and Three, that Lake End is the fee owner, so it did not breach a fiduciary duty, but, instead, properly exercised its right to deny plaintiffs'[] proposed plans based upon, among other things, the violations of the 15-foot setback and 50 percent coverage rules.

The [c]court further finds that Lake End is entitled to summary judgment on Count Four. As previously discussed, the restrictive covenants were not abandoned. Instead, the covenants were apparently imposed to control all future construction. Both those that constitute new construction, and those consisting additions. The provisions were intended to avoid further encroachments that were deemed unduly burdensome. Here, Lake End reasonably concluded that the further encroachments occasioned by the proposed building project could not be approved.

Summary judgment also appears proper on Counts Two and Five. . . . [T]here was no violation of N.J.S.A. 45:22A-46.

The final issue is as to the fee certification submitted by defendants'[] counsel. The certifications were elicited by the [c]court, in light of the adjournment of these motions on the prior return date to afford plaintiffs an opportunity to respond to defendants'[] submissions in writing. Upon review of the certifications, and R.P.C. 1.5, the [c]court grants fees for the three hours of work at each attorney's billing rate.

On October 15, 2007, the court entered summary judgment against plaintiffs and in favor of the Township. Plaintiffs appeal from all adverse orders, except as to the dismissal of count five of their complaint.

III.

We begin our discussion with plaintiffs' contention that Board approval for improvements to their property is not necessary because as holders of a ninety-nine year lease, plaintiffs should be treated as fee owners. Based on the language of the lease, we conclude that plaintiffs' arguments are without merit.

The plain terms of the lease constrain plaintiffs' unfettered right to construct improvements to their property. Paragraph twelve reserves in the lessor the right to approve alterations to their premises. It states, in part, that "[n]o building . . . or other structure of any kind whatsoever shall be . . . erected, constructed, added to, moved or altered until the . . . plans therefor have first been submitted to the LESSOR and approved by a resolution of its Board of Directors." In paragraph twenty-eight of the lease, plaintiffs agreed to fully comply with the lease's remaining terms. To give plaintiffs the same rights to improve their property as a fee owner would permit them to undertake construction without the lessor's knowledge or consent, a direct violation of the express language of the lease. Plaintiffs have provided no compelling reason for us to substantially eviscerate paragraph twelve of their lease. See Kutzin v. Pirnie, 124 N.J. 500, 507 (1991) (clear and unambiguous terms of contract are to be enforced as written); Standard Refinery Union, Inc. v. Esso Standard Oil Co., 31 N.J. Super. 548, 551 (App. Div. 1954) ("parties have the right to stand upon the precise terms of their agreement"). Given the language of the lease, we agree with defendants that the Board was required to approve plaintiffs' construction plans before the Township could issue plaintiffs a construction permit.

We also reject plaintiffs' assertion that the Board waived its right under the lease to approve their proposed construction because it had approved other applications where applicants listed themselves as fee owners of the property. The Board argues that its approval of prior construction applications on which the applicants listed themselves as fee owners does not in fact make those residents fee owners, nor does it constitute a waiver by the Board of its right to contest plaintiffs' claim of such status. We agree with the Board that its approval of applications for other residents who had considered themselves fee owners did not equate to a clear, unequivocal and decisive waiver of Lake End's right to approve proposed future construction. See Knorr v. Smeal, 178 N.J. 169, 177 (2003) ("The party waiving a known right must do so clearly, unequivocally, and decisively."); Shebar v. Sanyo Bus. Sys. Corp., 111 N.J. 276, 291 (1998) ("waiver . . . involves the intentional relinquishment of a known right, and thus it must be shown that the party charged with the waiver knew of his or her legal rights and deliberately intended to relinquish them").

Alternatively, plaintiffs claim that the fifteen-foot setback and the fifty percent coverage restrictions in the lease are inapplicable to their lot. We disagree.

A property owner is bound by lawfully enacted restrictive covenants. Homann v. Torchinsky, 296 N.J. Super. 326, 334 (App. Div.), certif. denied, 149 N.J. 141 (1997); Murphy v. Trapani, 255 N.J. Super. 65, 73 (App. Div.), certif. denied, 130 N.J. 17 (1992). These restrictions are generally disfavored because they impair the alienability of property; consequently, they are strictly construed. Cooper River Plaza East, LLC v. Briad Group, 359 N.J. Super. 518, 526 (App. Div. 2003).

Applying these principles here, we address first the fifteen-foot setback provision. Paragraph eight of the lease states: "No new building, habitation or other structure shall be erected, constructed or located within fifteen feet of either side line of a lot, except by special permission of the Board of Directors of the Lessor." Plaintiffs contend that this paragraph restricts the need for Board permission only to new construction, not to additions to pre-existing buildings. Plaintiffs point to the inclusion of the word "new" in paragraph eight, which is not included in paragraph twelve, which addresses the necessity of Board approval for alterations or additions to an existing building.

We are not convinced by plaintiffs' argument. Their interpretation of paragraph eight, applying the fifteen-foot set back requirement to only new construction, would allow all property owners to extend their current buildings to their respective lot lines. Theoretically, that could eliminate open space between all existing homes in the development. We cannot conceive that that was the intent of the set-back restriction in the lease.

Plaintiffs' arguments regarding the fifty percent rule in the lease are equally unavailing. Paragraph seven of the lease provides that "[n]o building, habitation or other structure, when erected, shall be wider than 50% of the width of a single lot . . . on a line parallel with the shore of the lake." When plaintiffs purchased their lot, the house on the lot was approximately fifty-two and one-half feet wide, exceeding the fifty percent rule by over one foot. That violation became more pronounced when they constructed their second bathroom on the easterly side of the house, increasing the house width by nine feet, making it sixty-one feet, seven inches wide. Plaintiffs assert that their "proposed project fits within an L-shaped 'cutout' of the house, but does not extend as far as the existing westerly wall of the house[, and that] [i]f the project is completed, the house width will still be [sixty-one feet, seven inches]." Regardless, however, of the location of the house on the property, the house exceeded the fifty percent rule prior to the expansion on the east side of the house, and the current proposal would simply add to the width of the house, further violating the fifty percent rule.

Plaintiffs claim that because the Board previously approved the construction of their second bathroom, the Board is required to approve the additional expansion. We disagree. We find no reason on this record to support plaintiffs' argument that the Board waived the fifty percent rule simply because it granted plaintiffs a variance to build on the east side of the property. See Knorr, supra, 178 N.J. at 177 (waiver must be clear, unequivocal and decisive); see also Cox, New Jersey Zoning and Land Use Administration, § 13-3 (Gann 2008) (one variance does not create precedent for granting of another variance; each variance must stand or fall on its own factual circumstances).

We turn next to plaintiffs' argument that the Board is estopped from denying plaintiffs' application because it previously approved their design idea. "The essential elements of equitable estoppel are a knowing and intentional misrepresentation by the party sought to be estopped under circumstances in which the misrepresentation would probably induce reliance, and reliance by the party seeking estoppel to his or her detriment." O'Malley v. Dep't of Energy, 109 N.J. 309, 317 (1987).

The minutes of September 14, 1999, state: "Clark/Valle #113 construction plan is still pending. The Board has approved their design idea, but construction plans are still required before permission from the Board is considered." Plaintiffs argue that relying on this approval, they "undertook efforts that involved a substantial amount of time, effort and money."

We are not convinced by this argument. The Board's minutes reflect that the construction plan was "still pending." The Board approved plaintiffs' idea in principle, but withheld permission for construction pending a review of plaintiffs' construction plans, which had not at that time been submitted. Accordingly, the action taken by the Board at the meeting could not reasonably induce plaintiffs' reliance, which is an essential element of plaintiffs' estoppel argument. See ibid.

We also reject plaintiffs' argument that the restrictive covenant should not be enforced because the neighborhood scheme as to the fifteen-foot sideline setback and the fifty percent coverage rule has been modified or abandoned.

A restrictive covenant is a contract dependent on reciprocal or mutual burdens and benefits shared by each lot owner brought within the scheme. Houston Petroleum Co. v. Auto. Products Credit Ass'n, 9 N.J. 122, 131 (1952). The existence of a neighborhood scheme is a question of fact. Weinstein v. Swartz, 3 N.J. 80, 85-86 (1949). To be enforceable, a neighborhood scheme must be (a) universal, the restriction applying to all lots of like character brought within the scheme; (b) reciprocal, the restrictions constituting a benefit to all lots involved which are subject to the burden imposed; (c) reasonably uniform as to the restrictions imposed; they need not be identical but any variations must be such as not to create an inequitable burden or benefit. [Homann, supra, 296 N.J. Super. at 334 (quotation omitted).]

Violations of a restrictive covenant can constitute an abandonment of a neighborhood scheme. Murphy, supra, 255 N.J. Super. at 74. A plaintiff seeking to establish abandonment of the covenant must show that the violations are so pervasive as to indicate either a changing neighborhood or that the property owners intended to abandon or modify the original plan. Ibid.; see also Steiger v. Lenoci, 323 N.J. Super. 529, 534 (App. Div. 1999) (placing a "heavy burden on a party who seeks to establish an abandonment or modification of reciprocal restrictive deed covenant based on past violations"). "[W]hether a covenant has been abandoned or modified should be determined on the basis of development patterns in the entire neighborhood subject to the restriction." Steiger, supra, 323 N.J. Super. at 535; see also La Fetra v. Beveridge, 124 N.J. Eq. 24, 31-32 (E. & A. 1938) ("Before violations can constitute an abandonment they must be so general as to indicate either a change in the neighborhood or a clear intent on the part of the property owners generally to abandon the original plan.").

Plaintiffs claim that in 2008, "at least 44 of 65 improved lots have structures built within the [fifteen-foot] setback . . . [and] [o]n twenty-nine of those lots . . . it is the house that violates the setback." Plaintiffs claim that the fifty percent rule has been abandoned because "at least fourteen lots appear to have structures that exceed their required width." Lake End replies that "the Board . . . carefully reviews each application for an exemption for the complex[] well-established rules and regulations," and as such, "there is no change in the neighborhood aside from those individual exemptions reviewed by the Board."

Plaintiffs have not met their heavy burden to show that the Board intended to abandon or modify the original plan. The record does not show if the violations of the fifteen-foot sideline setback were approved before or after the Board's bylaws and rules were enacted, nor does it provide sufficient details from which it can be reasonably inferred that the Board intended to modify or abandon the original plan. The same holds true with regard to the fifty percent coverage rule. That fifteen of the sixty-five lots exceed the required width does not prove that the members of the development intended to abandon or modify the original plan. The record does not clearly indicate if the violations of the fifty percent rule occurred before or after the Board's bylaws and rules were enacted. Consequently, we reject plaintiffs' argument that the neighborhood scheme has been modified or abandoned.

We also reject plaintiffs' claim that the Board breached its fiduciary duty to plaintiffs.

The directors of a private corporation are considered to be in a fiduciary relationship with the corporation and its shareholders. Valle v. N. Jersey Auto. Club, 141 N.J. Super. 568, 573 (App. Div. 1976), modified by and aff'd, 74 N.J. 109 (1977). Courts will not second-guess directors' actions unless they are the result of fraud, dishonesty, or incompetence. Papalexiou v. Tower West Condo., 167 N.J. Super. 516, 527 (Ch. Div. 1979).

Plaintiffs assert that because the Board had approved other projects that violated the restrictive lease provisions, it was unreasonable for the Board to reject their application. Plaintiffs have not, however, demonstrated that the Board has singled them out for enforcement, while not enforcing the rules as to other leaseholders. Plaintiffs have not provided evidence to rebut the Board's argument that many of the violations occurred before the bylaws and rules were enacted. Stated another way, plaintiffs have not demonstrated that the Board failed to enforce its rules or took either fraudulent or improper action related to plaintiffs' application. On this record, we have no reason to "second-guess" the internal business decisions of the Board. Plaintiffs have failed to prove that the interests of the unit owners as a whole were not "served, advanced, or protected by the board's action." Billig v. Buckingham Towers Condo. Ass'n, 287 N.J. Super. 551, 563 (App. Div. 1996). Plaintiffs, therefore, have not demonstrated that the Board breached its fiduciary duty to them.

Finally, we agree with plaintiffs' argument that defendants were not entitled to an award of counsel fees.

On the return date of plaintiffs' summary judgment motion, May 25, 2007, plaintiffs' attorney argued that defendant's cross-motion was actually its "own motion for summary judgment." Counsel pointed out that Lake End had "six or seven weeks to prepare [their cross-motion] . . . and [he] only received the responding paperwork on May 15th; and, "in fairness to [plaintiffs] . . . [he] should have the opportunity to respond to a motion for summary judgment on . . . counts that are not part of [plaintiffs'] motion. The trial judge rescheduled the argument to June 22, 2007, but instructed defendants' attorneys to submit applications for counsel fees.

Where a hearing is continued because a party failed to submit a required brief pursuant to Rule 1:6-3, the court may, in its discretion, order the defaulting party to pay attorney fees to the adverse party, if the party is "without just excuse or because of failure to give reasonable attention to the matter." R. 1:2-4(b). Here, plaintiffs' counsel did have just excuse for not being prepared as to defendants' cross-motion.

"A cross-motion may be filed and served by the responding party together with that party's opposition to the motion and noticed for the same return date only if it relates to the subject matter of the original motion." R. 1:6-3(b). Rule 4:46-1 states: "a motion for summary judgment shall be served and filed not later than 28 days before the time specified for the return date; opposing affidavits, certifications, briefs, and cross-motions for summary judgment, if any, shall be served and filed not later than 10 days before the return date."

Plaintiffs moved for summary judgment against Lake End on count three of their complaint, which was filed on April 19, 2007, asserting that the fifteen-foot setback and fifty percent rule did not apply to their lot. Twenty-six days later, on May 15, 2007, Lake End filed its opposition to plaintiffs' motion for summary judgment on count three, and cross-moved for summary judgment on counts one through five. The return date was scheduled ten days later. The question is whether the substance of the cross-motion related to the subject matter of the original motion. R. 1:6-3(b). We conclude that it did not.

Plaintiffs' summary judgment motion on count three addressed whether plaintiffs' dwelling violated the fifteen-foot setback or the fifty percent rule. Defendants' cross-motion related to other issues: whether the Board breached its fiduciary duty; whether the Board's original approval of the project estopped it from later denying approval; whether the neighborhood scheme had been abandoned; and whether the Board violated the requirements of the Planned Real Estate Development Full Disclosure Act. Thus, the cross-motion did not relate to the subject matter of the original motion. Consequently, plaintiffs were entitled to, but did not receive, the full amount of time to respond provided by Rule 4:46-1. As a result, their failure to be ready to argue the cross-motion on the return date should not have subjected them to counsel fees. Accordingly, we vacate the award of counsel fees to defendants.

Affirmed in part and reversed in part.


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