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Zephyr Lofts Condominium Association, Inc. v. Henderson Lofts Urban Renewal

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


October 13, 2009

ZEPHYR LOFTS CONDOMINIUM ASSOCIATION, INC., PLAINTIFF-APPELLANT,
v.
HENDERSON LOFTS URBAN RENEWAL, L.L.C., A NEW JERSEY LIMITED LIABILITY COMPANY; SAVANNA JERSEY CITY, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY; SAVANNA PARTNERS, L.L.C., A NEW YORK LIMITED LIABILITY COMPANY; LUBERT-ADLER REAL ESTATE FUND II, L.P., A DELAWARE LIMITED PARTNERSHIP; LUBERT-ADLER REAL ESTATE FUND III, L.P., A DELAWARE LIMITED PARTNERSHIP; LUBERT-ADLER REAL ESTATE PARALLEL FUND II, L.P., A DELAWARE LIMITED PARTNERSHIP; LUBERT-ADLER REAL ESTATE PARALLEL FUND III, L.P., A DELAWARE LIMITED PARTNERSHIP; LUPERT-ADLER CAPITAL REAL ESTATE FUND II, L.P., A DELAWARE LIMITED PARTNERSHIP; LUBERT-ADLER CAPITAL REAL ESTATE FUND III, L.P., A DELAWARE LIMITED PARTNERSHIP; LUBERT-ADLER REAL ESTATE EQUITY FUND III, L.P., A DELAWARE LIMITED PARTNERSHIP; LUBERT-ADLER GROUP, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY; LUBERT-ADLER GROUP II, L.P., A DELAWARE LIMITED PARTNERSHIP; LUBERT-ADLER GROUP II, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY; LUBERT-ADLER GROUP III, L.P., A DELAWARE LIMITED PARTNERSHIP; LUBERT-ADLER GROUP III, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY; IRA LUBERT; DEAN S. ADLER; CHRISTOPHER SCHLANK; NICHOLAS BIENSTOCK; STEVEN M. SCHULMAN; JAMES S. MCNEIGHT, R.A.; CORCORAN GROUP, INC., A NEW YORK CORPORATION; NRT, INC., A DELAWARE CORPORATION; CONNELL FOLEY, L.L.P.; A NEW JERSEY LIMITED PARTNERSHIP; ANTHONY ROMANO, II, DEFENDANTS-RESPONDENTS.

On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-2811-08.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued September 14, 2009

Before Judges Reisner and Yannotti.

Plaintiff Zephyr Lofts Condominium Association, Inc. appeals from an order entered by the trial court on September 29, 2008, which dismissed its complaint and ordered that it submit its claims to arbitration. For the reasons that follow, we affirm.

Plaintiff is a condominium association that is responsible for the management, administration and operation of the Zephyr Lofts Condominium (Condominium) in Jersey City. On June 3, 2008, plaintiff filed a complaint in the Law Division in which it named as defendants Henderson Lofts Urban Renewal, L.L.C. (Henderson Lofts), the sponsor/developer of the Condominium, and certain individuals and entities that allegedly have an interest in Henderson Lofts, including Savanna Jersey City, L.L.C. and Savanna Partners, L.L.C. (Savanna), Christopher Schlank (Schlank), Nicholas Bienstock (Bienstock), Steven Schulman (Schulman), Ira Lubert (Lubert), Dean S. Adler (Adler) and certain entities in which Lubert and Adler allegedly have interests.*fn1

Plaintiff also named as defendants the Corcoran Group (Corcoran) and its parent, NRT, Inc. (NRT), the parties who were allegedly responsible for the marketing and sale of units in the Condominium; Connell Foley LLP (Connell Foley) and Anthony Romano, II (Romano), the attorneys who prepared the public offering statement (POS) for the condominium; and James S. McNeight (McNeight), the architect who surveyed the property and prepared a report that appeared in the POS.

In its complaint, plaintiff asserted claims against: Henderson Lofts for negligent construction, breach of implied warranties, certain defects in the Condominium, and negligent failure to establish an adequate reserve budget for replacement of common elements and facilities (Counts I, II, III, IV); Schlank, Bienstock and Schulman for breach of fiduciary duties (Count V); Henderson Lofts and other defendants for violations of the Planned Real Estate Development Full Disclosure Act (PREDFDA), N.J.S.A. 45:22A-21 to -56 (Count VI); Henderson Lofts and Corcoran for common law fraud, negligent misrepresentation, and violations of the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -106 (Counts VII, VIII, IX); various defendants seeking to impose liability by piercing the corporate veils of certain entities (Count X); NRT and other defendants for liabilities imposed upon Corcoran (Count XI); Connell Foley and Romano for common law fraud and negligent misrepresentation (Counts XII and XIII); McNeight for negligence (Count XIV); and certain fictitious parties who constructed or renovated the Condominium (Count XV).

On August 15, 2008, the Henderson Lofts Defendants and the Lubert-Adler Defendants filed a joint motion seeking to dismiss the complaint and compel arbitration or, alternatively, to dismiss Counts VI, VII, VIII and IX pursuant to Rule 4:6-2(e) for failure to state a claim upon which relief can be granted and failure to plead fraud with particularity as required by Rule 4:5-8(a). Connell Foley and Romano filed a motion seeking dismissal of Counts XII and XIII or, alternatively, a stay of proceedings on the claims against them pending arbitration of the claims in the case. In addition, NRT filed a motion seeking dismissal of the claims against it or, alternatively, a stay of proceeding on the claims against it pending arbitration.

The trial court considered the motions on September 29, 2008, and placed its decision on the record on that date. The court concluded that all of plaintiff's claims should be submitted to arbitration pursuant to a provision of certain agreements between Henderson Lofts and the purchasers of certain units in the Condominium that generally require binding arbitration of claims arising from the agreements. The court entered an order dismissing plaintiff's complaint without prejudice and compelling arbitration. This appeal followed.

Plaintiff argues that the trial court erred by requiring it to submit its claims to binding arbitration. Plaintiff contends that it has standing to assert the claims in its complaint and it is not asserting claims of the unit owners. Plaintiff also argues that the arbitration agreements executed by unit owners are not binding upon it. We disagree.

In this matter, the record shows that there are 102 units in the Condominium. Upon the initial sale of 96 of those units, the purchasers executed written agreements with Henderson Lofts in which they agreed to submit to binding arbitration claims arising out of the agreements. Thereafter, 22 of the 102 units were re-sold. As of September 2008, when this matter was before the trial court, the owners of 74 of the units were persons who had executed the arbitration agreements.

In considering whether the unit owners' arbitration agreements apply to the claims asserted by plaintiff in this action, we turn first to the Condominium Act, which provides for the regulation of condominiums in New Jersey. N.J.S.A. 46:8B-1 to -38. "[C]ondominium ownership is distinct from other forms of property ownership because, when an individual purchases a condominium unit, he or she simultaneously acquires a proportionate undivided interest in the community's common elements." Fox v. Kings Grant Maintenance Ass'n, 167 N.J. 208, 218 (2001) (citing N.J.S.A. 46:8B-6).

The Condominium Act provides for the creation of an association, which has responsibility for the administration and management of the condominium and its property, "including but not limited to the conduct of all activities of common interest to the unit owners." N.J.S.A. 46:8B-12. The association is charged with the duty to maintain the common elements and to assess and collect funds for common expenses. N.J.S.A. 46:8B-13. The association is administered by a governing board and, when at least 75% of the units have been sold, only the unit owners may elect members to the association's board. N.J.S.A. 46:8B-12.1(a).

Thus, under the Condominium Act, the association "'is a representative body that acts on behalf of the unit owners.'" Fox, supra, 167 N.J. at 220 (quoting Thanasoulis v. Winston Towers 200 Ass'n, 110 N.J. 650, 656 (1988)). Through the association, the unit owners exercise their "ultimate responsibility" for the management of a condominium's common elements. Ibid. The association must "act on behalf of its unit owners" and it has "primary responsibility" to protect the unit owners' interests in the common elements. Id. at 220-21 (citing Siller v. Hartz Mountain Assoc., 93 N.J. 370, 380, cert. denied, 464 U.S. 961, 104 S.Ct. 395, 78 L.Ed. 2d 337 (1983)).

Furthermore, a condominium association has the exclusive authority to sue third parties "'to protect the rights and interests of the unit owners in the common elements.'" Id. at 221 (quoting Siller, supra, 93 N.J. at 380). The Condominium Act states that an association may "assert tort claims concerning the common elements and facilities of the development as if the claims were asserted directly by the unit owners individually." N.J.S.A. 46:8B-16(a). The unit owners nevertheless retain the right to assert claims regarding their own units. Siller, supra, 93 N.J. at 378.

Here, plaintiff has asserted claims concerning the common elements of the Condominium. The complaint is not, however, limited to such claims. For example, in Count II, plaintiff alleges that Henderson Lofts breached the implied warranty of habitability and "failed to assure that the renovation of the units and common elements" of the Condominium "was performed in a good and workmanlike manner." (emphasis added). In Count III, plaintiff claims that Plaintiff asserts that "portions of the condominium are unsafe for their intended use and purpose." (emphasis added).

Moreover, in several counts of the complaint, plaintiff alleges that various defendants failed to disclose or misrepresented material facts to prospective purchasers of units. These claims relate to such things as parking, the roof, water infiltration in the garage, and the adequacy of the reserve budget. Although these claims may relate to the common elements, they are the claims of the unit owners because they involve the alleged failure to disclose, or the misrepresentation of, facts to the unit owners.

We are convinced that, because the complaint includes claims related to the common elements and individual claims of the unit owners themselves, plaintiff is bound by the arbitration agreements executed by a substantial majority of the unit owners. The fact that not all of the present unit owners signed the agreement is not dispositive. Virtually all of the original purchasers signed the agreements, and almost two-thirds of the present unit owners executed the agreements.

In this case, plaintiff chose to include the unit owners' claims in its complaint. Having done so, plaintiff is bound by the unit owners' agreements to arbitrate and must submit all of the claims in the complaint to arbitration. To conclude otherwise would allow the unit owners to do an end-run around their arbitration agreements merely because plaintiff is asserting the claims and the unit owners are not named as plaintiffs in the complaint.

Plaintiff contends, however, that it cannot be compelled to arbitrate its claims because N.J.S.A. 46:8B-16(a) provides that a unit owner may not bind the association. We do not agree. We are convinced that, because plaintiff has chosen to include the unit owners' claims in the complaint, and because plaintiff's own claims regarding the common elements of the Condominium are inextricably related to those of the unit owners, the arbitration agreements require arbitration of all of the claims asserted in the complaint.

Plaintiff further argues that it cannot be required to arbitrate the claims in the complaint because it never executed an arbitration agreement. Again, we disagree. In our judgment, the trial court properly compelled plaintiff to arbitrate all of the claims in the complaint because a significant number of the unit owners executed arbitration agreements and there is a substantial nexus between those agreements and the claims plaintiff is asserting in this case.

This conclusion is supported by Jansen v. Salomon Smith Barney, Inc., 342 N.J. Super. 254, 258 (App. Div.), certif. denied, 170 N.J. 204 (2001). In Jansen, the plaintiffs were the putative beneficiaries of their father's retirement accounts. Id. at 255. When he opened the account, the decedent executed a contract with the defendant in which he agreed to arbitrate "'[a]ny controversy arising out of or relating to [his] accounts.'" Id. at 256. Another provision of the contract stated that its terms were binding on the decedent's heirs. Ibid.

The plaintiffs in Jansen claimed that they had interests in the retirement accounts. Id. at 257. It appears that federal law barred the distribution of the proceeds of the account to anyone other than the decedent's spouse without the spouse's written consent. Ibid. The plaintiffs alleged that one of the defendant's stock brokers had negligently advised the decedent that the plaintiffs would receive a portion of the accounts upon his death. Ibid.

In Jansen, we held that the plaintiffs had asserted a claim that arose from the decedent's contract and the plaintiffs were required to arbitrate their claims under that agreement because "they were the intended successors to [the decedent's] interest in the accounts." Id. at 261. We stated that there was "a substantial nexus . . . between the subject matter of the arbitration agreement and the claim raised by [the] plaintiffs." Ibid.

Our conclusion also is supported by our decision in Bruno v. Mark MaGrann Assoc., 388 N.J. Super. 539, 545 (App. Div. 2006). In Bruno, the plaintiffs had purchased homes from U.S. Home Corporation (U.S. Home), who was the general contractor and developer of an adult community. Id. at 542. The plaintiffs asserted that their heating units did not work properly and brought suit against U.S. Home. Ibid. The trial court required the plaintiffs to submit those claims to arbitration based on a provision in their contracts with U.S. Home, which required arbitration of any disputes arising under those agreements. Ibid.

The plaintiffs in Bruno then instituted another action against the heating subcontractors, in which they raised essentially the same claims that they had raised against U.S. Home. Id. at 544-545. The plaintiffs did not have a direct contractual relationship with the subcontractors; however, the contracts between U.S. Home and its subcontractors required the subcontractors to arbitrate any disputes with U.S. Home arising under their contracts. Id. at 545. The subcontractors maintained that the plaintiffs also were required to arbitrate the claims against them, even though they were not parties to the subcontracts. Ibid.

The trial court agreed with the subcontractors and we affirmed. Id. at 549. We observed that the plaintiffs had claimed: that the heating systems in their homes do not work correctly. That claim arises directly out of their contracts with U.S.

Home, which contain warrantees against defects in the homes. The arbitration provisions of the U.S. Home contracts require plaintiffs to arbitrate those disputes. The subcontractors, in turn, similarly agreed in their contracts with U.S. Home to arbitrate those types of disputes. Thus, though plaintiffs do not have a contract with the defendant subcontractors, the broad arbitration provisions contained in their U.S. Home contracts bind them to resolve their disputes with the subcontractors by arbitration, just as the subcontractors are bound by their contracts with U.S. Home to do the same. [Id. at 546-47.]

In addition, our conclusion is supported by Stanford Dev. Corp. v. Stanford Condominium Owners Ass'n, 285 S.W.3d 45 (Tex. App. 2009). In that case, the condominium association brought suit against the developer on behalf of the unit owners for defective construction of the condominium complex. Id. at 47. Twenty seven of the thirty seven unit owners had entered into earnest money contracts with the developer, which provided in pertinent part that certain claims must be submitted to binding arbitration claims, including claims arising from the construction of the residence. Ibid. The trial court held that the association was not bound by the arbitration clauses. Id. at 48.

The Texas Court of Appeals reversed. Id. at 52. The court noted that, in its complaint, the association had asserted claims under the contracts, as well as various tort claims, including claims for fraud, intentional and negligent misrepresentation, negligent design and construction. Id. at 49. The court stated that because the association had chosen to assert contract and tort claims, it must arbitrate both the contract claims and the "intertwined tort claims." Ibid. The court added that:

[t]he [a]ssociation does not own the property that is the subject of the dispute. Each individual homeowner owns an undivided interest in the common areas that are the subject of this dispute. Although the [a]ssociation has standing to bring the suit, its rights are limited to those possessed by the people it represents.

Because the homeowners are bound by arbitration agreements, and the [a]ssociation has sued on their behalf, it, too, is bound by the agreements.

[Id. at 50.]

Plaintiff maintains that the Stanford case is distinguishable. Plaintiff notes that, under Texas law, a condominium association is expressly authorized to pursue claims on behalf of "two or more unit owners." Tex. Prop. Code Ann., § 82.102(4). New Jersey's Condominium Act does not contain a similar provision. Plaintiff also notes that the Condominium Act provides that the unit owners of a condominium may not bind a condominium association.

We remain convinced, however, that the reasoning of the Stanford court is persuasive. Here, as in Stanford, plaintiff has asserted claims regarding the common elements but has included the unit owners' claims in its complaint. Even though the unit owners may not act to bind the association, they have the authority to agree to arbitration of their own claims and a substantial number of the unit owners have done so. Moreover, plaintiff's claims are "intertwined" with those of the unit owners. Stanford, supra, 285 S.W.3d at 49. We are convinced that, under the circumstances, the trial court properly ordered plaintiff to arbitrate all of the claims in its complaint.

Affirmed.


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