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Belmont Condominium Association, Inc. v. Geibel

Superior Court of New Jersey, Appellate Division

July 9, 2013

BELMONT CONDOMINIUM ASSOCIATION, INC., Plaintiff-Respondent,
v.
DEAN GEIBEL, METRO HOMES, L.L.C., WATERFRONT MANAGEMENT CORPORATION, COMMERCE CONSTRUCTION MANAGEMENT, L.L.C., BADGER ROOFING CO., INC., LATORRE CONSTRUCTION, MAYITO'S PLASTERING, INC., TAAS CONSTRUCTION CORP., INC., and TRI-STATE SHEARING & BENDING, INC., Defendants, and MONROE STATION ASSOCIATES, L.L.C., Defendant-Appellant.

Argued April 8, 2013

On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-138-07.

Brian D. Barr and Timothy J. O'Shaughnessy (Mauro Lilling Naparty LLP) of the New York bar, admitted pro hac vice, argued the cause for appellant (Cooper Levenson April Niedelman & Wagenheim, P.A., and Mr. O'Shaughnessy, attorneys; Mr. Barr and Caryn L. Lilling, of counsel and on the briefs).

Eileen A. Lindsay argued the cause for respondent.

Before Judges Parrillo, Sabatino and Carroll.

OPINION

PARRILLO, P.J.A.D.

This appeal arises from an action by plaintiff, the Belmont Condominium Association, Inc. (plaintiff or Association), against, among others, defendant Monroe Station Associates, L.L.C. (defendant or Monroe Station), the sponsor, developer and general contractor of the Belmont, a seven-story, thirty-four unit condominium building in Hoboken. The complaint alleged negligence, fraud, and violations of The Planned Real Estate Development Full Disclosure Act, N.J.S.A. 45:22A-21 to -56 (PREDFDA), and the Consumer Fraud Act, N.J.S.A. 56:8-1 to -20 (CFA). All claims arose from the construction of the Belmont, and from certain pre-construction statements by defendant relating to the developer/builder's experience.

The jury returned a verdict in favor of plaintiff on its negligence claim, finding defendant eighty percent responsible. The jury also found that defendant had made two deceptive statements under the CFA, and pursuant thereto, the court trebled the damages against defendant. Over defendant's objection, the court awarded prejudgment interest on the entire damages award, including the treble portion. Plaintiff was also awarded attorney's fees, which included prejudgment interest.

On appeal, defendant argues that plaintiff's CFA claims should have been dismissed as a matter of law because: (a) the Association lacked standing to aggregate ascertainable losses of members who did not purchase their units from Monroe Station; (b) the representations in the public offering statement (POS) were true at the time they were made and are not accompanied by "aggravating circumstances"; and (c) the CFA claims, based on the alleged misrepresentations in the POS and accompanying marketing materials pertaining to defendant's background and experience, are barred by the statute of limitations. In addition, defendant contends that plaintiff also lacks standing because the windows for which plaintiff claims damages are not part of the "common elements" of the condominium. Lastly, defendant attributes error to the court in (a) permitting the jury to apportion the damages; (b) improperly trebling the prejudgment interest on the punitive portion of the CFA damages award; (c) admitting references to the adverse health effects of mold in the Belmont, which unduly prejudiced defendant; and (d) permitting plaintiff to voluntarily dismiss its claim against defendant Commerce Construction Management without prejudice. For reasons that follow, we affirm the damages award in part and reverse in part; reverse the award of prejudgment interest on the punitive portion of the CFA damages award; and remand for the purpose of vacating the award for the cost of the replacement windows and the recalculation of the prejudgment interest award.

Construction of the Belmont began in late 1998 and was completed in early 2000. Subcontractors on the project included Badger Roofing Co., Inc. (Badger Roofing), Mayito's Plastering, Inc. (Mayito's), Taas Construction Corp., Inc. (Taas), Tri-State Shearing & Bending, Inc. (Tri-State), and Lattore Construction (Lattore). All thirty-four units in the Belmont were sold by defendant to individual purchasers between February and June 2000.

In 1999, as part of the Belmont's development, and before the building was even built, Monroe Station filed a POS pursuant to the PREDFDA, which provided that "[t]here are no known defects in the building (a part of which) you are purchasing, nor in the common area and facilities, that you could not determine by a reasonable inspection." Attached to the POS were certain marketing materials, which stated that the potential buyers would be getting a "Proven Developer and Construction Management Team which has overseen the building and renovation of Over 400 Single Family & Condominium Homes, and over 1, 000, 000 Sq. Ft. Of Office/Commercial/Retail Development."

Actually, Dean Geibel, who was the owner and general manager of Monroe Station, later admitted, in September or October 2000, that the Belmont was the first building he had constructed. In fact, Geibel did most of the development of the Belmont, which was part of the pre-construction phase of the building process. According to Geibel, he assembled a construction team consisting of himself, Paul Freed, and Aram Papazian, whom he brought on for their combined experience, and made them the project/construction managers. It was the combination of the experience of all three of them that, he believed, supported the representation in the marketing materials that the buyers would be getting a "proven" developer. However, Papazian denied being a part of either the Belmont's "development team" or "construction management team, " although that was the original plan. Freed, on the other hand, did have extensive constructive experience before his involvement with the Belmont project.

Practically from the beginning, the building was plagued by water leaks. Christine Sheedy, one of the original unit purchasers and a board member of the Association from 2001 to 2003, experienced water leaking through the molding around her windows sometime in late 2000 or early 2001. She complained about the leaks, but assumed that they were fixed because she did not have any further leaks in her unit until 2007, when she noticed water infiltration into one of her bedrooms. At that time, she also noticed mold growing around the window sills and would scrub it off three or four times a year. However, she had learned that there was mold in the walls of the Belmont back in 2005 or 2006.

Another owner, Eric Barr, who had purchased his unit from one of the original purchasers in January or February 2002, and who served as board president of the Association from July 2005 to May 2009, also experienced water leaking into his unit in December 2003 through the high-hat lighting fixtures in the kitchen. The then property manager, Waterfront Management Corporation, apparently remedied the problem because it no longer leaked when it rained. However, one year later, in December 2004, water infiltrated Barr's unit again, this time into his living room.

Barr immediately notified the new property manager, Realty Express LaBarbera (Realty Express), who learned for the first time about water leaks at the Belmont. Its subsequent investigation had uncovered water infiltrating the two top-floor units of the Belmont through the air conditioning ducts, as well as water leaking into the closet of a fourth floor unit. Realty Express hired a handyman, who applied sealant to the air conditioning ducts on the roof. Realty Express also hired Jetco, an exterior waterproofing company, to help assess the true extent of the problem.

During its investigation, Realty Express also discovered roofing tar product cans left on the roof, which had deteriorated the roofing membrane underneath. Realty Express contacted Badger Roofing, who made the necessary repairs.

Realty Express also identified a crack that ran the length of the south wall of the Belmont. Jetco patched the crack, and caulked and applied elastomeric paint to all four sides of the Belmont. Notwithstanding their efforts, there were continuing complaints of water infiltration into the building.[1]

To help identify the source and scope of the water infiltration, Realty Express hired Hudson Chimney and Roofing (Hudson Chimney), and in January 2006, John Estes, a licensed home inspector. Estes performed leak testing that suggested that the leaks were coming from the corner of the building. He also determined that there was a caulk failure in the joint between the Belmont and the adjoining building. Based on Estes's recommendations, Realty Express hired someone to do some repair work.

In June 2006, the Association invited defendant to come inspect the building and help resolve the water infiltration problem. As a result, on June 21, 2008, Art Johnson of Metro Homes[2], and Vincent Martinez, a senior project manager at Kipcon Incorporated, an engineering and inspection firm, met with Estes and Barr to inspect the building. They inspected three units that day, and throughout, Estes pointed out the tops of the balconies and the copings he believed were the source of the leaks; he never indicated the windows, or the areas around them, as the source.

Based on his inspection, and the information provided to him by the Association, Martinez could not determine the condition of the building "as built" because repairs and alterations had already been made before the Association ever consulted with the developer, architect or engineer of the building. Nor did the Association or Estes obtain any of the manufacturers' specifications, such as architectural or engineering drawings, before making the repairs.

Martinez's inspection revealed several maintenance issues, such as the lack of caulking, caulking issues at the joints, clogging of some of the drains on the roof, and the discharge of water onto the roof from the HVAC unit. Martinez's company, Kipcon, prepared a report wherein it detailed the results of its investigation and site inspection:

It is Kipcon's understanding that the Belmont Condominium Association has employed someone other than Metro Homes, LLC as their management company for approximately the last 2 years. Various building maintenance deficiencies were identified at the time of our June 21, 2006 visit that also have the potential for water infiltration and water infiltration related problems. These included: leaking of the HVAC condenser units and condensate lines on the roof top; cracked, worn caulk at building joints, flashing and seals; leakage stains (old and new) located on the ceilings and ceiling tiles in the condominium units directly located below the roof, etc. No maintenance records were available for our review in order to verify ongoing building maintenance while obvious lack of maintenance existed.
In conclusion, the fact that numerous physical alterations have been made to the building without the opportunity for Metro Homes, LLC, Kipcon, the design architect and engineer or the representative of the material companies to inspect the building prior to these changes, combined with the apparent lack of preventive building maintenance, there is no possible way to conclude that the construction of the building by Metro Homes, LLC created any leaks or mold. Because of the alterations made by Diego under the supervision of Belmont Condominium Association, any suggestion that the apparent water infiltration is a direct cause of the way Metro Homes, LLC built the building can and will only be a speculation. Any changes made to the building should have been inspected, detailed and supervised by qualified professionals. It is realistic to say that the alterations made, if not properly completed, could have and will continue to create damage or water infiltration to the building. It is also a possibility that if the "leak testing" of the building was not done correctly or overseen by a qualified professional, such as an architect or engineer, the test itself could have actually caused damage to the building.

After receiving Kipcon's report, the Association stopped making repairs, the cost of which up to then had amounted to $111, 551. Instead, in January 2007, the Association filed suit against defendant, and eventually the project subcontractors, essentially claiming negligence, fraud and violations of the PREDFDA and the CFA. At the ensuing trial, the testimony focused on the origin and cause of the water infiltration, with the Association's experts attributing the problem to construction defects and defendant's experts blaming poor or inadequate maintenance.

Kevin Helsby of Wiss, Janney, Elstner Associates, Inc. (Wiss Janney), an engineering, architecture, and material science consulting firm, was qualified as plaintiff's expert exterior building envelope consultant. His investigation revealed that there were multiple points of water entry into the Belmont. Unsealed penetrations and a joiner in the metal column cover on the seventh floor balcony were sources of water infiltration. "No flashings were observed at the head, jamb or sill of the windows. There was no sealant applied between the stucco cladding and the window frame. And there was [sic] open gaps between the stucco cladding and the window frame."

Also, there was "no flashing installed between the sheathing and the window frame. There's no gap between the stucco and the frame. And there's absolutely no sealant or any other material to seal that transition between the stucco and the window frame." He observed wide open gaps between sheets of metal with "no evidence of sealant or anything to prevent water from getting into that gap at any of the locations . . . observed."

Although Helsby agreed that caulk deteriorates and has to be maintained, he concluded that none of the conditions observed at the Belmont were the result of a lack of maintenance. He believed that the building was improperly constructed and that maintenance was not designed to correct construction deficiencies.

Helsby found that most of the leaking came through the sides of the building with no windows. In fact, none of the forty windows on the back was damaged or had to be repaired or replaced. Many of the forty windows on the front of the building did not need to be replaced either. Helsby recommended repair or replacement as necessary based on the conditions at the time of remediation. He did not identify any leak in the roof.

Michael Bressler, an associate principal at Wiss Janney, was qualified as plaintiff's expert in architecture, with a specialty in building envelope investigations. He had worked with Helsby and their investigation revealed deficiencies in the construction of the Belmont. Specifically, the exterior insulation and finishing system (EIFS) and stucco were not installed properly. The architectural drawing provided for a gap between the windows and the EIFS or stucco to allow for the installation of backer-rods and sealant; no such gaps were left. Bressler concluded, within a reasonable degree of certainty, that Mayito's failure to leave a gap prevented the proper installation of backer-rods and sealant, which contributed to water infiltration into the building. He was of the opinion that water migrated into the building around the perimeters of the windows because they were not flashed. Also, the way Mayito's installed the stucco and EIFS against the vents and penetrations contributed to the influx of water into the building because it prevented the proper installation of sealant.

Bressler also concluded that the way Badger Roofing installed the coping covers contributed to the migration of water into the interior. The nine black metal column posts at the front of the building caused leaks into the building on the front of the building; there was no sealant in the joints, and therefore, they were not installed in compliance with good building practices. However, his investigation did not reveal any leaking in the roof.

Although Bressler agreed that caulk deteriorated over time and needed to be maintained, there was nothing that he observed that led him to believe that the water infiltration problem was caused by a lack of maintenance. He attributed fault for the water infiltration to Badger Roofing, Mayito's, and Taas.

David Kichula, of Air Consulting Services, was qualified as plaintiff's expert in industrial hygiene and mold investigation, identification and remediation. He performed extensive testing at the Belmont and concluded that remediation was necessary; it was not acceptable to leave mold in the walls. The sheathing, insulation and sheetrock had to be removed because there was no way to sanitize them.

Herman Sabath, Ph.D., a board certified microbial consultant, and plaintiff's environmental consultant expert, testified that mold eats the cellulotic fibers in the sheetrock which leads to deterioration. If left untreated, the insulation materials--gypsum board, sheetrock and other building materials-would all deteriorate. He also noted the potential health problems at the Belmont because of the presence of mold, namely, allergies, infections, immunological problems, and "sick building syndrome." Delay in fixing the water infiltration and mold remediation would add to potential health problems.

William Pyznar, a professional engineer and managing partner of The Falcon Group, an engineering and architecture consulting firm, was plaintiff's expert in engineering, with a specialty in cost analysis. He was retained by plaintiff to prepare a construction analysis and report for the remedial work relating to the existing water infiltration, construction deficiencies and mold infestation.

According to Pyznar, the total estimated cost to remediate the exterior and interior of the Belmont was approximately $1.825 million, consisting of approximately $984, 000 to remediate the exterior and, approximately $615, 000 for the interior. Contained in his total estimate was a 20% contingency allowance, a 16.6% engineering design and construction administration allowance and a 2.5% performance bond.

Pyznar's estimate included the cost of removing all of the EIFS and stucco, 80% of the sheathing, and the replacement of all eighty windows, notwithstanding the fact that those repairs were beyond the scope of repairs recommended by plaintiff's experts. Also, his estimate included the cost of total remediation of all thirty-four units, notwithstanding the fact that not all of the units were tested and some were tested and determined to be normal.

In contrast to the Association's experts, Russell Burner, defendant's expert engineer in water infiltration investigation and evaluation, concluded that, within a reasonable degree of engineering water infiltration analysis investigation certainty, poor maintenance was a factor in the water infiltration at the Belmont. There was clear evidence that caulking was not maintained; there were failed caulking joints that were not repaired, and there was an open joint in the coping. He was amazed to see that, in 2009, there were still open channels where water could infiltrate the building. He believed that a surface-mounted kind of caulking would have been an acceptable remedy to the water infiltration problem.

Richard Lester, president of Garden State Environmental, an industrial hygiene consulting firm, was defendant's expert industrial hygienist and environmental consultant, who performed various environmental tests at the Belmont and reviewed the results of plaintiff's environmental expert's testing. Lester concluded within a reasonable degree of certainty, that there was no evidence that all thirty-four units needed to be remediated. While plaintiff's cost expert made the general statement that all units needed to be remediated, none of plaintiff's other experts provided a scope of work of what remediation should be done. Based on all the testing done, including his own, he could not determine the scope of work that should be done as of the time of trial.

John Stevens, vice president and general manager of Kipcon, was qualified as defendant's building inspection and cost estimating expert. From September 2007 through May 2008, he observed plaintiff's engineers from Wiss Janney inspect the building and perform tests. For the most part, he concurred with their recommendations regarding the exterior of the building.

He concluded, however, that repairing the flashing and copings up at the balcony levels would correct the water infiltration problem; he did not believe it was necessary to replace the windows. He recommended covering the window flange with water-proofing membrane or water-proofing flashing, which would seal the windows.

Stevens estimated that it would cost $741, 000 to remediate the exterior and interior of the Belmont. His estimate varied significantly from the Falcon Group's estimate in part because he did not allocate any money for replacement windows, while the Falcon Group allocated $240, 000 for the replacement of all eighty windows.

Further, his estimate included remediation or partial remediation of seventeen of the thirty-four units, depending on the experts' recommendations; if a unit was not tested or the experts stated that the unit was fine, it was excluded from his calculations. The Falcon Group's estimate included the costs for total remediation of all thirty-four units. Finally, the Falcon Group's estimate contained a 30% architect fee; Stevens's estimate did not include such a fee because he did not feel it was necessary.

As noted, the jury returned a verdict in favor of plaintiff and against defendant Monroe Station, Badger Roofing, and Mayito's; it found Taas not liable. It also found that plaintiff was not negligent for failing to inspect and maintain the building, and awarded $2, 186, 675 in damages, finding defendant 80% responsible ($1, 749, 340), and Badger Roofing and Mayito's each 10% responsible ($218, 667.50).

The jury having found defendant in violation of the CFA, the court trebled the $1, 749, 340 damages against defendant to a total of $5, 248, 020, and further awarded prejudgment interest on that entire $5, 248, 020 damages award in the amount of $1, 123, 004. Final judgment in the amount of $6, 371, 024, plus attorney's fees of $865, 653.28 (which included prejudgment interest), was entered.

This appeal follows.

I.

(A)

As a threshold matter, defendant contends that the Association lacked standing to aggregate the ascertainable loss of members who were not the original purchasers, and thus failed to demonstrate reliance on the alleged misrepresentations or any causal relationship between defendant's unlawful conduct and plaintiff's ascertainable loss. We disagree.

Historically, New Jersey courts have taken "a much more liberal approach on the issue of standing than have the federal [courts]." Crescent Park Tenants Ass'n v. Realty Equities Corp. of N.Y., 58 N.J. 98, 101 (1971) (holding tenant's association had standing to maintain action against landlord concerning matters of common interest). And both our Legislature and courts "have given wide recognition to suits by associations." Id. at 109.

Pursuant to the New Jersey Condominium Act, N.J.S.A. 46:8B-1 to -38 (NJCA), the association "shall be responsible for the administration and management of the condominium and condominium 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. "Association" is defined as "the entity responsible for the administration of a condominium, which entity may be incorporated or unincorporated." N.J.S.A. 46:8B-3. "[T]he association shall be an entity which shall act through its officers and may enter into contracts, bring suit and be sued." N.J.S.A. 46:8B-15(a) (emphasis added). 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) (emphasis added).

"[T]he clear import, express and implied, of the statutory scheme is that the association may sue third parties for damages to the common elements, collect the funds when successful, and apply the proceeds for repair of the property." Siller v. Hartz Mountain Assocs., 93 N.J. 370, 377, cert. denied, 464 U.S. 961, 104 S.Ct. 395, 78 L.Ed.2d 337 (1983). In Siller, the Court noted:

The statutory provisions empowering the association to sue, imposing the duty on it to repair, and authorizing it to charge and collect "common expenses, " coupled with the prohibition against a unit owner performing any such work on common elements, are compelling indicia that the association may institute legal action on behalf of the unit owners for damages to common elements caused by third persons.

[Id. at 378 (footnote omitted).]

The Court also explained the policy considerations in support of that conclusion:

Avoidance of a multiplicity of suits, economic savings incident to one trial, elimination of contradictory adjudications, expedition in resolution of controversies, accomplishment of repairs, and the positive effect on judicial administration are supportive policy reasons. Moreover, the financial burden on an individual owner may be so great and so disproportionate to his potential recovery that he could not or would not proceed with litigation.

[Id. at 379 (footnote omitted).]

In concluding the causes of action to remedy defects in the common elements of a condominium development belong to the condominium association, the Court further noted:

It would be impractical indeed to sanction lawsuits by individual unit owners in which their damages would represent but a fraction of the whole. If the individual owner were permitted to prosecute claims regarding common elements, any recovery equitably would have to be transmitted to the association to pay for repairs and replacements. A sensible reading of the statute leads to the conclusion that such causes of action belong exclusively to the association, which, unlike the individual unit owner, may apply the funds recovered on behalf of all the owners of the common elements.

[Id. at 381.]

Thus, under the NJCA, a condominium association, acting in a representative capacity on behalf of the individual unit owner, has the exclusive right to sue a developer for construction defects related to the common elements, N.J.S.A. 46:8B-12, -15(a), -16(a), and although unit owners may sue the developer for defects pertaining to their units, individual unit owners are prohibited from repairing or altering common elements, N.J.S.A. 46:8B-18, and therefore generally lack standing to sue for damages to the common elements. Siller, supra, 93 N.J. at 377, 381-82; Soc'y Hill Condo. Ass'n v. Soc'y Hill Assocs., 347 N.J.Super. 163, 169 (App. Div. 2002).[3]

By parity of reasoning, where the alleged damages involve the common elements, nothing in the NJCA bars the Association from bringing a CFA claim against the developer as well. As noted, the NJCA authorizes the Association to bring suit in a representative capacity on behalf of the individual unit owners for damages to the common elements. N.J.S.A. 46:8B-12, -15(a), -16(a). In fact, we have previously allowed a homeowners association, in its representative capacity, to assert a CFA claim. In Port Liberte Homeowners Ass'n v. Sordoni Constr. Co., 393 N.J.Super. 492 (App. Div.), certif. denied, 192 N.J. 479 (2007), the manufacturer of an allegedly defective exterior moisture barrier system used during construction allegedly made misrepresentations or omissions to the developer in order to induce the developer to use its product. Id. at 498-500. That happened before the plaintiff, the homeowners association, was even formed. Id. at 497.

At issue was whether the homeowners association, formed after the misrepresentations or omissions complained of were made, had standing to assert common law and consumer fraud claims against the manufacturer of a product used by the developer in the construction of the common elements. Id. at 497. We held "that a condominium association has standing to assert claims for common law fraud and consumer fraud against third-party contractors and materialmen for defects in the construction of the common elements, regardless of whether the association formally existed at that particular point in time." Id. at 501. We explained that to hold that the association did not have standing "produces an unjust result and is contrary to the legislative scheme permitting a condominium homeowners association to institute suit to recover damages to the common elements." Id. at 501-02 (citing N.J.S.A. 46:8B–14, -15(a), and -16(a)).

For purposes of standing, we perceive no meaningful distinction between Port Liberte and the present matter which, in our view, presents the more compelling case. In the former, the association had to step into the shoes of the developer because the alleged misrepresentations were not made to, or intended for, the plaintiff association or the individual unit owners. Here, on the other hand, the misrepresentations in the marketing materials were made directly to, and intended for, the potential unit owners to induce them to purchase a unit. In either case, the Association represents the unit owners who were harmed by the proven damage to the common elements. Therefore, our holding in Port Liberte has equal, if not more persuasive, application here:

[B]ecause the CFA allows "any person who has suffered an ascertainable loss" to sue under the CFA, N.J.S.A. 56:8–19, an association, charged with the maintenance and repair of the common areas of a condominium, that discovers defects in the construction of its common element areas, has standing to pursue a claim under the CFA. . . .

[Id. at 505.]

Accordingly, because the Association, through its construction defect and CFA claims, sought to recover for damages to the common elements, it is unquestionably the real party in interest and therefore has standing to pursue its complaint against defendant.

Defendant's alternative argument that the Association lacked standing because it failed to demonstrate reliance on the alleged misrepresentation is even less persuasive. The Association was not required to ...


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