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Robert J. Pacilli Homes, LLC v. Pilesgrove Township Planning Board

February 13, 2009


On appeal from the Superior Court of New Jersey, Law Division, Salem County, Docket Nos. L-319-05 and L-90-06.

Per curiam.


Argued December 1, 2008

Before Judges Lisa, Sapp-Peterson and Alvarez.

These appeals arise out of two unrelated land use applications for residential subdivisions in Pilesgrove Township (Pilesgrove or Township). Although the preliminary and final subdivision approvals granted by the Pilesgrove Planning Board (Planning Board or Board) occurred at the same time for the two developments, the two parcels are unrelated to each other, as are the developers for each and the attorneys representing them.

The Planning Board approvals contained certain conditions pertaining to stormwater management and maintenance, and placed responsibility for those issues upon the to-be-formed homeowners' associations (HOAs) of the two developments. As required by the Planning Board approvals, the attorney for each developer prepared and submitted to the Planning Board planner, engineer and solicitor, and to the township solicitor, the required documents for this purpose. These included HOA certificates of incorporation and bylaws and a declaration of covenants and restrictions.

The township solicitor refused to accept the submitted documents, and instead drafted a set of his own documents and demanded they be accepted by the developers. Many of the provisions were unacceptable to the developers, and their attorneys' efforts to negotiate compromise provisions were rebuffed. Because of the impasse, township officials would not sign the final plats, which could not be recorded, and construction could not commence.

Independent of each other, and at different times, the developers filed actions in lieu of prerogative writs, seeking a determination that the Township's refusal to sign the final plats was arbitrary and unreasonable. They contended that the documents they submitted complied in all respects with the Planning Board's requirements, that the township solicitor attempted to impose additional requirements that were beyond the authority of the township committee to impose, and that some requirements sought to be imposed were not authorized by law, were illegal, or were arbitrary, capricious or unreasonable.

Robert J. Pacilli Homes, LLC (Pacilli) filed the first action. With the consent of both parties, the trial court appointed a special master to assist the court in evaluating the legality and propriety of some of the disputed provisions. Graciella Rodriguez (Rodriguez) then filed the second action. Because the issues were substantially the same, the cases were assigned to the same judge and were heard together. Rodriguez's attorney consented to participation with the special master.

By order of May 12, 2006, the court granted partial summary judgment in favor of Pacilli and denied Pilesgrove's cross-motion for summary judgment. By order of October 10, 2006, the court granted partial summary judgment in favor of Rodriguez, and denied Pilesgrove's cross-motion for summary judgment. Notwithstanding the direction of the court that all counsel should attempt to resolve the remaining disputed provisions in the documents with the special master, the Township remained steadfast in its insistence upon the use of its documents. Accordingly, recognizing that the Planning Board approval directed the developers' attorneys to draft and submit the documents, the court directed the special master to treat the documents prepared by the developers' attorneys as the working documents, but to give due consideration to the contrary provisions in the documents prepared by the township solicitor.

Rather than critique the developers' documents on a piecemeal basis, the format of the special master's report included a third set of documents prepared by the special master. The attorneys for both developers found the special master's report acceptable and moved for its confirmation. In approving the report by its orders January 24, 2007 in each case, the court accepted the special master's documents and ordered that they would be controlling. The court ordered the Township to approve and sign the final plats.

The Township appealed from portions of the partial summary judgment orders in favor of the developers entered on May 12, 2006 and October 10, 2006, and from portions of the January 24, 2007 orders adopting the special master's report. Pacilli cross-appealed from one provision in the May 12, 2006 order. By prior order of this court, the Township's appeal in the Pacilli case (A-3271-06T2) and Pacilli's cross-appeal (A-4226-06T2) have been consolidated. Rodriguez's appeal (A-3301-06T2) was calendared back-to-back with the Pacilli appeals and we now consolidate all of these matters for disposition in this single opinion.

After the appeals were filed, further activities occurred in the trial court. To the extent that further trial court proceedings were precluded by Rule 2:9-1, a limited remand should have been sought from this court. However, the record with respect to those additional proceedings is complete and the issues have been fully briefed. No party has objected to our consideration of orders emanating from the additional proceedings, and we perceive no prejudice to any party. At the conclusion of the additional proceedings, the Township filed amended notices of appeal with respect to adverse rulings against it. Therefore, in the interest of judicial economy, we will address them on the merits.

Most notable among the additional proceedings were applications by both developers for an allowance of counsel fees and costs against the Township under the frivolous litigation statute, N.J.S.A. 2A:15-59.1. The court granted the motions. It ordered Pilesgrove to pay Rodriguez $20,999.74. It initially ordered Pilesgrove to pay Pacilli $46,263.91, but, upon Pilesgrove's reconsideration motion, reduced the amount to $40,859.56.

We conclude that the trial court erred in awarding counsel fees and costs against the Township, and we reverse the orders making those awards. In all other respects, we affirm.


Pacilli applied to the Planning Board for a major subdivision of its fifty-five-acre tract into twenty-one single family detached home building lots and two open space and basin lots to become the property of a HOA to be established for the "Oldman's Bluff" subdivision. The Board granted preliminary approval by Resolution No. 04-153, adopted on September 15, 2004, and, by Resolution No. 224-05, adopted on July 20, 2005, granted final approval. Rodriguez applied, through her grandnephew, William R. Manolopoulos, for a major subdivision of her 14.63 acre tract into twelve residential lots, to be known as "Athenian Estates." The Board granted preliminary approval by its September 15, 2004 Resolution No. 04-152, and granted final approval by its July 20, 2005 Resolution No. 225-05.

Because the issues forming the basis of this appeal pertain to disputes regarding stormwater management responsibility, we preface our further discussion of the facts with a discussion of the relevant State and local regulations pertaining to that issue. On March 24, 2004, the New Jersey Department of Environmental Protection (DEP), Bureau of Nonpoint Pollution Control, Division of Water Quality issued an "AUTHORIZATION TO DISCHARGE R10-Tier B Municipal Stormwater General Permit" to Pilesgrove, effective April 1, 2004. The permit required that: upon its effective authorization date, Pilesgrove (a Tier B Municipality) should ensure that any residential development that is subject to the Residential Site Improvement standards for stormwater management (N.J.A.C. 5:21-7) comply with those standards; within twelve months from the effective date of permit authorization, Pilesgrove must adopt a municipal stormwater management plan; within twelve months from the adoption of the plan, Pilesgrove must adopt a stormwater control ordinance to implement that plan; and, within twenty-four months from the effective date of permit authorization, Pilesgrove must ensure "adequate long-term operation and maintenance of BMP's [Best Management Practices] on property not owned or operated by . . . [Pilesgrove]."

As part of its Master Plan, the Planning Board adopted a "Stormwater Management Plan Element" on June 23, 2005. It included these pertinent sections:

3.2 Relevant Local Issues

As a rural community, Pilesgrove

Township is very concerned about the long-term maintenance responsibilities for stormwater management facilities. The Township has limited resources and does not intend to accept responsibility for the maintenance of basins and infiltration systems. In this regard, the Township supports the establishment of Homeowners Associations to maintain and repair stormwater management systems for each major development. The township will also require that it have the ability, but not the obligation, to take action if stormwater management facilities are not being properly maintained and to assess the members of the association for any costs incurred by the Township. To prevent any township involvement or intervention, it is imperative that proposed developments have an approved Stormwater Management Maintenance Plan (SMMP) that contains maintenance, inspection, and financial planning components in accordance with this Plan.

7.2 Stormwater Management Coordination

Issue. Stormwater management basins are often not properly maintained by Homeowners Associations. Municipalities are often asked to intervene to cause them to be properly maintained.

Control Measure. The Township Planning Board should require that Homeowners Associations be established to maintain basins in residential developments. The Homeowner Association documents shall permit the municipality to enter and maintain or repair a basin that is not being maintained by the Association. In any such event, all of the costs incurred by the Township shall be subsequently paid by members of the Association via an assessment or lien. . . .

8.0 Stormwater Management Maintenance Plan (SMMP) Requirements

Responsible party. The SMMP shall clearly define the entity and party responsible for implementation of the SMMP. A viable corporate entity such as a Homeowner's Association shall be identified. Developers shall be designated as the responsible entity prior to the establishment of the Association. Subsequently, the President of the Association shall be designated as the responsible party. . . .

On April 25, 2006, the Township adopted Ordinance #06-04 "to establish minimum stormwater management requirements and controls for major development." The ordinance recognized that a HOA could be designated as the responsible party for stormwater maintenance.

Resolution No. 224-05, granting final approval to Pacilli, placed responsibility for stormwater maintenance upon the to-be-formed Oldman's Bluff HOA, as agreed by the developer. The resolution designated the HOA as the party responsible for the SMMP, and further provided:

The Stormwater Management Maintenance Plan (SMMP) shall clearly define the responsible entity, responsible party, and service contractors that will implement the maintenance plan.

The Applicant agreed to designate the Homeowners' Association as the party responsible for the SMMP and provide the telephone number of the service technician to be contacted by the Township in the event of problems. The name and telephone number shall be updated if any changes occur and supplied to the Township Clerk.

1.1 Responsible Entity

The SMMP shall clearly state the Homeowners' Association will be responsible for implementation of the plan and for all costs associated with the maintenance, inspection and repair of drainage facilities as defined in the Homeowners' Association By-laws. The By-laws need to be appended to the SMMP.

The SMMP shall further state Pilesgrove Township will not be responsible for the maintenance and/or repair of the Oldmans Bluff stormwater system. The Applicant agreed to attach the By-laws of the Homeowners' Association to the SMMP.

As relevant to the issues before us, the resolution granting final approval to Pacilli was conditioned upon:

2. Submitting to the Board's Planner, Engineer, Solicitor, and Township Solicitor, the following documents of encumbrance/ restrictions/easements, Homeowners' Association documents and Bylaws:

(It is the Board's intention that the Solicitor assure the restrictions and/or easements described hereafter are:

a. Not encumbered by any prior interest;

b. Could not be modified by unanimous vote or action of any organization or property owners subject thereto created to maintain or enforce same without the Township having the right to veto said modification;

c. Drafted in a manner to impose upon the Homeowners' Association and lot owners within the development, jointly, severally, and in the alternative, the obligation to perpetually maintain and repair the drainage facilities, landscaping, buffering, development sign, open space, conservation areas, and all other restrictions and/or easements imposed upon the Property;

d. Drafted to vest the Township with the right to perform the work upon default of other parties and to levy the costs incurred against the property owners, jointly, severally, and in the alternative;

e. The person responsible for the maintenance of the facilities and enforcement of the restrictions shall annually provide proof of insurance against loss or damage.

f. Recorded in a fashion to provide the public adequate notice.)

7. Implementation of [a] Stormwater Management Maintenance Plan (SMMP) as revised in accordance with the comments contained in Paragraph 5, Pages 8-12, above. The following guarantees were required:

4. Applicant shall post a performance guarantee in favor of the Township to insure the completion of all improvements as described in N.J.S.A. 40:55D-53 in an amount approved by the Township Engineer, which shall be 120% of the estimated cost, and in a form acceptable to the Township Solicitor or a Letter of Credit as authorized by the Department of Community Affairs (DCA) pursuant to N.J.A.C. 5:36-4.3. If the approved DCA Letter of Credit is posted, the Township Solicitor shall be satisfied it can be called in the event the improvements are not installed and dedicated during the period of protection for which this approval is being granted specifically two (2) years from July 20, 2005. If a bond is posted it shall be valid for a period of two years, six months, or whenever the improvements are deemed completed by the appropriate Township Official, whichever occurs first. . . .

5. Posting a maintenance guarantee with the Township upon completion of all improvements for a period of two (2) years after the final acceptance thereof in an amount of 15% of the cost of the improvements as calculated by the Township Engineer. The Applicant's performance guarantee shall not be released until the maintenance guarantee is posted and shall secure said posting.

On May 26, 2005, William F. Ziegler, Pacilli's attorney, sent to William L. Horner, the township solicitor, drafts of the Oldman's Bluff HOA bylaws and declarations of covenants and restrictions. On September 6, 2005 and again on November 1, 2005, Ziegler asked Horner to review the documents. On November 8, 2005, Horner sent Ziegler alternative forms of a certificate of incorporation, bylaws and a declaration of covenants that Horner had prepared for the Oldman's Bluff HOA. We need not set forth in detail all of the disputed issues. It is sufficient to our analysis to describe some of them.

In the HOA bylaws, Horner provided for quarterly meetings and for a quorum of at least fifty percent of the members. Horner further provided that no amendment to the bylaws could be made except upon the affirmative vote of 100% of the total membership and advance approval by Township resolution. Horner required in the bylaws that, under "Duties and Responsibilities" of the HOA board of trustees, it was responsible to maintain and renew every two years a cash deposit or surety bond in favor of the Township to cover stormwater maintenance or repairs not accomplished by the HOA.

Ziegler objected to these provisions. He complained that Horner was attempting to interject himself into the internal affairs of the non-profit corporation HOA. Under the laws of this State governing such organizations, quarterly meetings and fifty percent quorums were not required. Ziegler insisted that a twenty-five percent quorum was sufficient, as were annual regular meetings, as set forth in his documents. Ziegler objected to the perpetual bonding obligation because it was a new condition, not imposed by the Planning Board as part of the comprehensive approval process, nor authorized by the Municipal Land Use Law (MLUL), N.J.S.A. 40:55D-1 to -163, or any Pilesgrove ordinance. With respect to bylaw amendments, Ziegler said he had no objection to requiring prior Township approval for any amendment to the declaration of covenants, but as to other activities of the HOA, the Township had no interest or basis to interfere.

Ziegler also inserted a provision for vesting, contrary to that proposed by Horner. It provided that the three-member board of trustees would be voted on the following schedule: after seven lots are sold - one member, after fourteen lots are sold - two members, and after all lots are sold - all three members will be HOA members and will not include the developer.

Horner's draft of the declaration of covenants provided for priority of liens and personal liability, joint and several, for HOA members. In particular, it provided:

Each assessment authorized under this Declaration, together with the costs of collection thereof (including but not limited to fees for legal counsel and court costs) and interest on any assessments or other amounts to be collected hereunder, shall be a continuing lien upon the Lots against which they are made having priority over all Mortgages and Other Liens but subject and subordinate to all Township Liens, or other amounts owed to the Township, and shall also be the joint and several personal obligation of the Owner of the Lot at the time when such assessment, fine or other charge fell due.

Ziegler objected to any personal liability requirement, asserting there was no legal authority for anything other than in rem liability. He opined that the procedural and substantive provisions of N.J.S.A. 40:55D-43 should apply, which require notice of deficiency, hearings and pro rata assessment, and imposition of liens against the properties in the development.

On February 15, 2006, the court entered an order which included reference to the special master, Edward F. Duffy, "for review of homeowner's documents, consultation with counsel and report and recommendation to the Court." Pacilli moved for summary judgment on February 22, 2006, and the Township cross-moved for summary judgment. In an oral opinion on April 12, 2006, the court disposed of some of the issues raised and granted Pacilli partial summary judgment. The court upheld the Township's perpetual bonding requirement, concluding that although there was no express authorization for such a requirement in the MLUL or other law or regulation, the power of a municipality to impose such a requirement could be reasonably implied, particularly in light of the principle that legislation affecting the public health and safety should be given broad application and construction. The court, however, rejected other provisions proposed by Horner, finding no basis in law for imposition of personal liability and finding that the quorum, vesting and bylaw amendment provisions improperly intruded on the day-to-day operations of the HOA, "smack[ed] of micro management," and were "unreasonable." The court's May 12, 2006 order, disposing of the motions, contained the following relevant provisions:

1. The Defendant Township's requirement that the Oldman's Bluff Homeowners Association, post, maintain and renew a cash deposit or surety bond to assure maintenance of the stormwater management system is lawful, reasonable, and appropriate.

2. The Defendant Township may not subject the individual homeowners association members to in personam liability for the homeowners association's breach of its duties as proposed in the Defendant Township's form of Declaration of Covenants and Restrictions and Deed of Easement for Oldman's Bluff . . . because the Township has other effective remedies available to it, and also because such subjection would:

(a) constitute an extension of the typical methods by which municipalities deal with recalcitrant property owners; (b) constitute an expansion of liability without the members' real participation or input, thereby implicating due process concerns; and (c) possess a certain level of arbitrariness that renders it inappropriate.

3. The Defendant Township may not impose specific quorum requirements upon the homeowners association.

4. The Defendant Township may not impose specific vesting requirements upon the homeowners association that dictate the schedule by which the developer member(s) cede control of the homeowners association to the homeowner members, provided that the vesting schedule conforms to what would be required by the Planned Real Estate Development Full Disclosure Act.

5. The Defendant Township may not require the homeowners association members to obtain Township approval prior to amendment of the homeowners association bylaws.

7. The Township of Pilesgrove has also consented on the record that any audits to be conducted by or on behalf of the homeowners association to be formed are not required to be "certified".

8. The parties are directed to meet with Edward Duffy, Esquire, Court appointed Special Master for purposes of reviewing the remaining outstanding items as to which the Court has not ruled . . . .

It was during the pendency of these summary judgment cross-motions in the Pacilli case that Rodriguez filed suit. The Planning Board resolution granting Rodriguez final subdivision approval contained provisions and conditions substantially the same as in the Pacilli resolution.

On September 29, 2005, Ross Levitsky, Rodriguez's counsel, transmitted to Horner and others copies of the documents he drafted, including a "Declaration of Covenants and Deed of Easement for Permanent Storm Water Drainage Facilities and Maintenance of Same," a "Declaration of Covenants and Restrictions for the Athenian Estates Subdivision and By-Laws of the Athenian Estates Homeowners Association, Inc.," and a "Copy of Certificate of Incorporation for the Homeowners Association."

After months of not responding, on March 8, 2006, Horner forwarded to Levitsky his own alternative "forms of certificate of incorporation, bylaws and declaration of covenants [that he] prepared for the Athenian Estates project." Horner added an additional requirement:

I have drafted the declaration to include easement rights over adjoining Lot 8.05 because based on present information an inability to maintain the off-tract pipe could negatively impact proposed Lot 8.11. I just learned that the negatively affected area might be within the drainage easement on that lot, though, which could change my thinking on the subject, but in the meantime I simply cannot approve a declaration that does not provide access to and the ability to maintain the off-site pipe.

Rodriguez moved for summary judgment and the Township cross-moved for summary judgment. Rodriguez's moving papers included Manolopoulos' affidavit stating that Horner insisted that his "documents must be executed, as drafted, in order to have the final plans signed for filing." Levitsky's objections to the Horner documents were similar to those expressed by Ziegler on behalf of Pacilli. Additionally, Levitsky objected to Horner's condition, not imposed by ...

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