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Claridge House One Condominium Association, Inc v. Claridge House Owners For Justice


January 22, 2013


On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-3578-11.

Per curiam.


Argued October 22, 2012

Before Judges Graves and Guadagno.

Claridge House One Condominium (Claridge House) is a twelve-story, 274-unit condominium in Verona. When Claridge House was constructed in 1965, it originally contained rental units and was converted to condominiums in 1980. Plaintiff, Claridge House One Condominium Association, Inc. (Association), is a New Jersey not-for-profit corporation provided for in the Claridge House master deed, and is responsible for the "maintenance, repair, replacement, administration and operation" of Claridge House. Master Deed p. 7, ¶ 5(a); see also N.J.S.A. 46:8B-3; N.J.S.A. 46:8B-12. Each Claridge House unit owner is a member of the Association, whose affairs are managed by the board of trustees (Board). Members of the Board are elected by vote of the unit owners at the regular annual meeting of the Association.

In the early 1990s, the Association learned that Claridge House was experiencing water infiltration problems. Gordon Smith Engineering (GSE) was retained to assess the problem and make recommendations. While some repairs were made in 1996, the problem persisted. In 2010, the Board retained the Falcon Group engineering firm (Falcon), to perform an evaluation of the building's facade, including all exterior walls, windows, and exterior doors. In July 2010, Falcon submitted a detailed report noting several "deficiencies" with recommendations for repairs and maintenance.

On October 19, 2010, the Association held a meeting with the unit owners to discuss the Falcon report. Falcon estimated the cost of the remediation to be in excess of $7.6 million. Although the Board was divided as to how to address the remediation, a majority voted to proceed with the project following Falcon's recommendations. In March 2011, the Association obtained a loan commitment from Banco Popular for $7.7 million. On April 11, 2011, the Board voted to adopt a resolution to permit the Association to execute the Banco Popular loan commitment and borrow $7.7 million to be used "solely in connection with the facade renovations, window replacement work and other related water mitigation work as outlined in the Falcon reports."

Several unit owners opposed borrowing the money. They retained counsel and formed Claridge House Owners for Justice (CHOJ). Counsel for CHOJ sent a letter to the Association claiming that Association by-laws require approval of two-thirds of the unit owners before a loan of this size could be obtained, and that, if the loan closed without that approval, "the Board of Trustees and any Board members who vote in favor of the loan may be sued for damages, bad faith and breach of fiduciary duty."

Claiming that the threatened litigation was preventing the Board from proceeding with the repairs, the Board filed a complaint in the Law Division, seeking a declaratory judgment acknowledging the Association's authority to borrow money pursuant to the loan commitment. Named as defendants in the action were CHOJ, and six individual unit owners thought to be members of CHOJ.

On June 22, 2011, the motion judge held a hearing on plaintiff's application. Plaintiff called Anthony Volpe, an engineer employed by Falcon. Volpe testified that he performed a complete inspection of all units as well as the exterior of the building. He recommended that the facade work and all of the windows be replaced but conceded that the work could be done in phases, over several years. When asked if the conditions constituted an "emergency," Volpe responded, "I don't see an imminent danger at the building."

The motion judge heard oral argument on June 24, 2011, and entered an order denying declaratory relief on July 6, 2011. The order was accompanied by a thorough written opinion, finding that the Association's by-laws "do not provide plaintiff with the specific authority to undertake the repairs described by the Falcon Group."

In July 2011, the Association held its annual election and the composition of the Board changed significantly. Several unit owners associated with CHOJ, who were named defendants in the complaint, were elected as trustees to serve on the Board (New Board), and assumed the position of plaintiff in the litigation.

The New Board showed no inclination to appeal the July 6, 2011 order. Therefore, on July 21, 2011, several former Board members and other unit owners, who sought to appeal the July 6, 2011 order, moved to intervene. In an affidavit supporting the motion, the former president of the Board described the effect of the elections as, "the Defendants are now the Plaintiffs."

Plaintiff filed a notice of dismissal with prejudice and a stipulation of dismissal with prejudice, then claimed the intervenors' motion was moot based on the dismissal. Without addressing the mootness issue, the judge granted the motion to intervene pursuant to Rule 4:33-2.

On appeal, intervenors argue that the Board was authorized to expend money for the repair and maintenance of the property without a vote of the unit owners. Respondents cite a provision of the Claridge House by-laws requiring approval of two-thirds of the unit owners before an expenditure in excess of $50,000 can be incurred by the Board.

In considering whether the Board had authority to borrow money for the repairs, 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. The Act provides for the creation of a condominium 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 Condominium Act also requires the association to act on behalf of its unit owners and gives primary responsibility to the association to protect those interests." Fox v. Kings Grant Maint. Ass'n, 167 N.J. 208, 220 (2001). Through the association, the unit owners exercise their "ultimate responsibility" for the management of a condominium's common elements. Ibid. The administration and management of the condominium and condominium property, and the actions of the association, shall be governed by by-laws which shall initially be recorded with the master deed. N.J.S.A. 46:8B-13.

Thus, we look to the by-laws to determine whether the Board was authorized to borrow $7.7 million to effectuate repairs without submitting the proposal to a vote by the unit owners. Article IV, Section 7 of the Claridge House by-laws is entitled "Expenditures" and provides:

Except for the Management Agreement described in Article II, Section 8(c) hereof and any other expenditures and contracts specifically authorized by the Master Deed and By-Laws, the Board shall not approve any expenditure in excess of Fifty Thousand Dollars ($50,000.00) unless required for emergency repair, protection or operation of the Common Elements, nor enter any contract of more than five (5) years duration without the prior approval of two-thirds (2/3) vote of the total percentage of ownership of the Common Elements.

Intervenors argue that this provision does not control here. Rather, they rely on Article II, Section 8 of the by-laws which is entitled "Powers and Duties" and provides in pertinent part:

The Board shall exercise for the Association all powers, duties and authority vested therein by the Act, the Master Deed, or these By-Laws, except for such powers, duties, and authority reserved thereby to the members of the Association. The powers and duties of the Board shall include, but shall not be limited to, the following:

(b) to administer the affairs of the Association and the Property;

(c) to engage the services of an agent . . . to maintain, repair, replace, administer and operate the Property[;]

(f) to provide for the operation, care, upkeep, maintenance, repair, replacement and improvement of the Common Elements and payments therefor, and to approve payment vouchers or to delegate such approval to the officers of the Association, the manager or Managing agent;

(i) . . . to make purchases for the maintenance, repair, replacement, administration, management and operation of the Property and the Common Elements, and to delegate any such powers to a Managing Agent (and any employees or agents of a Managing Agent);

The motion judge found that the two provisions must be read together, recognizing the Board's authority to borrow money to maintain and repair the common elements of the structure, but also recognizing that the "Expenditures" provision places limitations on this authority. We agree. Unless the Board declares an emergency, it must obtain the prior approval of two-thirds of the unit owners in order to approve an expenditure in excess of $50,000.

We reject intervenors' argument that the "Powers" provision of the by-laws must be read in isolation and without reference to the "Expenditures" provision. To do so would give the Board unrestricted authority to borrow money and incur expenses without limitation, as long as the expenditures fell under the general description of maintenance and repair of the common elements. Such unchecked authority is inconsistent with the Claridge House master deed and by-laws, as well as the statutory scheme of the Condominium Act, "to vest ultimate responsibility for the management of common elements in the unit owners of each condominium." Fox, supra, 167 N.J. at 220.



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