NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-4216-12T1
CLAIR W. FLINN and VALERIE K. FLINN; ROBERT C. MCGIRR; R. REUEL STANLEY; KEVIN SHULMAN and GINA SHULMAN; JOSEPH BUCKELEW; JOHN R. O'BRIEN; APPROVED FOR PUBLICATION G. GERARD BARNETT and MARJORIE P. BARNETT; JOHN MORRONGIELLO July 2, 2014 and SUSAN MORRONGIELLO; ROSEMARIE LAROCCA; JAMES C. DAY APPELLATE DIVISION and KATHLEEN DAY; JOSEPH C. ROSELLE and ANITA ROSELLE; HENRY DABROWSKI and IRENE W. DABROWSKI; ROBERT GROSSMAN and GALE GROSSMAN; D. KASUN ASSOCIATES; ROBERT A. SHEKITKA and EDA SHEKITKA;1 JOHN CUTILLO and PRUDENCE M. CUTILLO; and CARMELO CONTRINO and SUSAN CONTRINO,
Plaintiffs-Appellants,
v.
AMBOY NATIONAL BANK and AB MONMOUTH, LLC,
Defendants-Respondents. _____________________________________
Argued May 28, 2014 - Decided July 2, 2014
Before Judges Messano, Sabatino and Rothstadt.
1 This plaintiff's name is alternatively spelled in the record as Edna Shekitka and Eda Shikitka. On appeal from Superior Court of New Jersey, Chancery Division, Monmouth County, Docket No. C-159-12.
Richard P. Coe, Jr., argued the cause for appellants (Kennedy, Wronko, Kennedy and Weir & Partners LLP, attorneys for appellants; Mr. Coe and E. Richard Kennedy, on the brief).
Catherine J. Bick argued the cause for respondents (Giordano, Halleran & Ciesla, PC, attorneys; J. Scott Anderson and Ms. Bick, on the brief).
The opinion of the court was delivered by
SABATINO, J.A.D.
This case involves disputes between plaintiffs, who are
unit owners in a partially-completed condominium project, and
defendants, a bank and its wholly-owned subsidiary that took
over the project after the original developer defaulted on its
loans.
In their complaint, the unit owners sought to be granted
control over the condominium association pursuant to N.J.S.A.
46:8B-12.1(a) because defendants allegedly have ceased building
more units or offering units for sale in the ordinary course of
business. Plaintiffs further alleged that defendants made or
are responsible for misrepresentations in the sale documents,
have mismanaged the project, have failed to make required
payments, and have otherwise breached their fiduciary duties.
2 A-4216-12T1 The trial court granted defendants' motion to dismiss the
complaint in its entirety with prejudice, and plaintiffs
appealed. We reverse the trial court's dismissal order and
remand for further proceedings.
I.
Although the record is not fully developed and is
essentially still in the pleadings stage, we derive the
following background information from the documents furnished on
appeal. Plaintiffs are a group of twenty-eight owners of
eighteen2 condominium units in The Monmouth Condominium ("The
Monmouth"), a mixed-use, age-restricted residential condominium
project located in Wall Township. They appeal the trial court's
order dismissing with prejudice their five-count complaint
against defendants, Amboy National Bank ("Amboy Bank") and AB
Monmouth, LLC ("AB Monmouth"), a wholly-owned subsidiary of
Amboy Bank.
The Project
As initially contemplated, The Monmouth was to feature
ninety-six luxury residential units housed in sixteen buildings,
together with other structures and improvements for common use
and enjoyment. However, as we describe further, infra,
2 Defendants' brief incorrectly states that plaintiffs own only sixteen units, but that tabulation is contradicted by an exhibit attached to one of the certifications.
3 A-4216-12T1 financial hardship befell the original developer of the project,
and it failed to construct forty-eight of the planned ninety-six
units. Ultimately, the property was foreclosed upon by Amboy
Bank, which had financed the project. In the wake of the
sheriff's sale, ownership of The Monmouth was transferred to
defendants. As of the time of those foreclosure proceedings,
the original developer had sold only twenty-four of the forty-
eight constructed units.
Following the change in ownership, eight more units were
sold, bringing the total units sold to thirty-two out of forty-
eight constructed units. The remaining sixteen units have been
leased. As for the other forty-eight units that were planned
for completion, they remained unconstructed, at least as of the
time of the trial court's decision.
Each of the purchased units in The Monmouth is owned in fee
simple by the residents, who concomitantly have an undivided
interest in the common elements of the condominium complex,
proportionate with their share of the total units.
The Monmouth Condominium Association, Inc. (the "Monmouth
Association"), which is not a party to this litigation, is the
condominium's association "responsib[le] for the administration,
operation, and management of [The Monmouth] and the recreation
facilities and other improvements intended for the common use
4 A-4216-12T1 and enjoyment of the residents of [The Monmouth]." Any person
who owns a unit in The Monmouth is automatically a member of the
association, and only an owner may be a member.
The Monmouth Association is operated by a three-member to
five-member board of trustees (the "board," or the "governing
board"), whose primary duty is to administer the association and
to preserve and maintain the common elements for use and
enjoyment of the residents in The Monmouth. The common
elements, as defined in the master deed, include streets,
alleys, walkways, common parking areas, public utilities
connections, stairways, steps, landings, as well as amenities
such as a swimming pool and club room.
The Oakshire Group, LLC ("Oakshire") was the original
developer of the condominium project. Oakshire first registered
the project with the New Jersey Department of Community Affairs
with the filing of, among other things, a public offering
statement (the "Oakshire POS") dated February 4, 2004. The
Oakshire POS functioned as a disclosure statement to potential
buyers, providing certain salient details about The Monmouth,
such as a description of the interests to be offered, the
management and operation of common elements, easements and
encumbrances, and applicable warranties.
5 A-4216-12T1 Oakshire later filed a master deed (the "Oakshire Master
Deed") for The Monmouth dated October 26, 2005. The Oakshire
Master Deed functioned as the legal instrument that, when
recorded with the county, established the condominium form of
ownership for the land and the improvements located thereon.
The Oakshire Master Deed likewise contained pertinent
information about The Monmouth, such as descriptions of the
individual units, descriptions of the common elements, unit
owner association voting rights, powers of attorney,
restrictions, and statements of sponsor's rights and
obligations. Notably, a section of the Oakshire Master Deed,
entitled "ARTICLE XV. SPONSOR'S RIGHTS AND OBLIGATIONS,"
contained several provisions on liability of the project's
transferor and successors. Those provisions included the
following pertinent language:
15.04 Liability of Transferor. Upon transfer of any such Special Sponsor Right, the liability of the transferor is as follows:
(a) A transferor is not relieved of any obligation or liability arising before the transfer and remains liable for warranty obligations imposed upon him. Lack of privity does not deprive any Unit Owner of standing to bring an action to enforce any obligation of the transferor.
(b) If a transferor retains any such Special Sponsor Right, or if a successor to any such Special Sponsor Right is an
6 A-4216-12T1 affiliate of the Sponsor, the transferor is subject to liability for all obligations and liabilities imposed on a Sponsor by law or by the Master Deed, arising after the transfer, and is jointly and severally liable with the successor for the liabilities and obligations of the successor which relate to the Condominium.
(c) A transferor who retains no such Special Sponsor Rights has no liability of any act or omission or any breach of a contractual or warranty obligation arising from the exercise of any such Special Sponsor Right by a successor Sponsor who is not an affiliate of the transferor.
. . . .
15.07 Liability of Successors. The liabilities and obligations of persons who succeed to all Special Sponsor Rights are as follows:
(a) A successor to all such Special Sponsor Rights who is an affiliate of the Sponsor is subject to all obligations and liabilities imposed on any Sponsor by law or by the Master Deed.
(b) A successor to all such Special Sponsor Rights, . . . who is not an affiliate of Sponsor, is subject to all obligations and liabilities imposed upon Sponsor by law or the Master Deed, but he is not subject to liability for misrepresentations or warranty obligations on improvements made by any previous Sponsor or made before the Condominium was created, or for a breach of fiduciary obligation by any previous Sponsor.
[(Emphasis added).]
7 A-4216-12T1 The Loan Agreement and Oakshire's Default and Foreclosure
Amboy Bank and Oakshire entered into and executed a loan
agreement (the "Oakshire Loan Agreement"), providing for Amboy
Bank to finance Oakshire's development and construction of The
Monmouth. In exchange for that financing, Oakshire executed and
delivered to Amboy Bank a mortgage and security agreement which
granted the bank a first mortgage lien interest on The Monmouth.
At some point following the execution of the mortgage, Amboy
Bank apparently released twenty-two of the units from the lien,
leaving seventy-four units in The Monmouth still subject to it.
In the ensuing years, Oakshire experienced financial
difficulties and defaulted under the terms of the Oakshire Loan
Agreement. As a result, Amboy Bank filed a complaint for
foreclosure in October 2007 against Oakshire and other
defendants. By that point, only twenty-four of the units in The
Monmouth had been sold.
In January 2008, the Chancery Division judge in the
foreclosure case3 entered a custodial receivership order. Among
other things, that order appointed a third-party entity as the
custodial receiver for The Monmouth. The order also enjoined
3 A different judge subsequently presided over the present lawsuit.
8 A-4216-12T1 Oakshire from incurring further debts on the property. The
duties of the custodial receiver were subsequently expanded.
In November 2008, the Oakshire POS was amended (the
"Amended Oakshire POS") to reflect certain events that had
followed its default of the Oakshire Loan Agreement. In
relevant part, the Amended Oakshire POS disclosed to potential
buyers that Amboy Bank had brought foreclosure proceedings
against Oakshire, that the bank had elected to proceed with a
sheriff's sale to acquire the property, that the property was
under the care of a custodial receiver, and that all deposit
monies paid by potential purchasers would be held in escrow
pending the resolution of the foreclosure proceedings.
At the ensuing sheriff's sale held on November 2, 2009,
Amboy Bank was the successful bidder to purchase the seventy-two
remaining unsold units at The Monmouth. The seventy-two units
were then conveyed to AB Monmouth4 via Sheriff's Deed dated
November 19, 2009, and recorded in the Monmouth County Clerk's
Office on December 9 and December 24, 2009. By separate
instrument, the Sheriff's Deed conveyed the Special Sponsor
4 As we previously noted, AB Monmouth is a wholly-owned subsidiary of Amboy Bank. It is unaffiliated with Oakshire. Amboy is the sole member of AB Monmouth, a New Jersey limited liability company ("LLC").
9 A-4216-12T1 Rights, described supra, in Article XV of the Oakshire Master
Deed.
AB Monmouth thereafter issued a revised Public Offering
Statement (the "AB Monmouth POS") on June 21, 2010. The AB
Monmouth POS detailed the events that led to AB Monmouth's
holding of title to The Monmouth. The document also contained
the following relevant summary of the status of the project:
At this time, Oakshire has completed construction of 8 Buildings containing 48 Units (the "Oakshire Units") and common elements (the "Common Elements") serving the Condominium including all of the recreational amenities which include the 18- hole putting course, outdoor swimming pool, indoor swimming pool, and clubhouse ("Oakshire Common Facilities"). Oakshire previously sold 24 Oakshire Units, and 24 Oakshire Units remain unsold. As part of the within Registration, AB Monmouth is registering the 24 Oakshire Units that remain unsold along with the remaining 48 Units that are unbuilt. In the event that AB Monmouth does construct the AB Units, it will complete any associated Common Elements which were discussed in the Oakshire Public Offering Statement. AB Monmouth reserves the right to add up to the planned 48 Units in the 8 unbuilt buildings ("AB Units"), but is under no obligation to do so. Additionally, AB Monmouth reserves the right, with the approval of the necessary number of the Unit Owners of the 24 Oakshire Units not owned by AB Monmouth, and with such other required governmental approvals, to alter the configuration of the AB Units in the 8 unbuilt buildings and construct an additional 48 Units within the remaining 8 unbuilt buildings for a total of 144 Units in the Project.
10 A-4216-12T1 Further, AB Monmouth reserves the right, with the approval of the necessary number of the Unit Owners, and with such other required governmental approvals, to modify the age-restriction for the Project to allow a certain percentage of Units, as specified more fully below, to be conveyed for occupancy by individuals under the age of fifty-five.
Plaintiffs' Complaint
In October 2012, plaintiffs filed their complaint in the
Chancery Division against Amboy Bank and AB Monmouth. Among
other things, the complaint seeks an order requiring defendants
to turn over control of the condominium association to the unit
owners, in addition to statutory money damages. The record
shows that seventeen of the named plaintiffs took title to their
units before the Sheriff's Deed was conveyed to AB Monmouth.
The complaint identifies each defendant, i.e., Amboy Bank and AB
Monmouth, as a "Developer/Sponsor" of The Monmouth.
According to the complaint, since the time of title
transfer of The Monmouth to AB Monmouth, eight more units in the
condominium project had been sold, bringing the total number of
units sold in the forty-eight units that have been built to
thirty-two. Defendants do not dispute that fact, nor do they
dispute the fact that the remaining sixteen units have been
leased out. The complaint further alleges that of the forty-
11 A-4216-12T1 eight remaining unbuilt units, defendants are no longer offering
those units up for sale in the ordinary course of business.5
Count I of the complaint seeks the divestiture of
defendants' control over the condominium association. That
request is predicated upon proviso language within N.J.S.A.
46:8B-12.1(a), which plaintiffs contend requires a condominium
developer to relinquish control of a condominium association
when it no longer is building or offering condominium units for
sale in the ordinary course of business.
Count II of the complaint seeks from defendants monetary
damages and counsel fees, on the basis that the AB Monmouth POS
contained material misrepresentations and omissions, in
violation of N.J.S.A. 45:22A-37, a provision within the New
Jersey Planned Real Estate Development Full Disclosure Act
("PREDFDA"), N.J.S.A. 45:22A-21 to -56.
Count III of the complaint alleges that defendants violated
their financial obligations under N.J.A.C. 5:26-8.6(b), certain
statutory provisions of the New Jersey Condominium Act ("NJCA"),
N.J.S.A. 46:8B-1 to -38, (specifically N.J.S.A. 46:8B-3 and -6),
and portions of the Master Deed.
5 As discussed, infra, defendants strenuously dispute this latter contention alleging an ongoing failure to market the unsold units.
12 A-4216-12T1 Count IV of the complaint alleges that defendants failed to
pay for common expenses, as they were required to do under
certain PREDFDA regulations, N.J.A.C. 5:26-8.6, -8.7(a),
-8.7(c), and -8.7(d).
Lastly, Count V of the complaint alleges that defendants
breached their fiduciary duties and that plaintiffs suffered
damages as a result.
The Motion to Dismiss
Shortly after being served with the complaint, defendants
moved for dismissal under Rule 4:6-2(e), arguing that the
complaint failed to state viable claims upon which relief may be
granted. Both sides filed certifications in support of their
competing positions on the dismissal motion.6 Following oral
argument, the trial court issued a bench opinion dismissing all
five counts of the complaint, specifically doing so "with
prejudice."
As to Count I, the trial court held that a regulation cited
by defendants, N.J.A.C. 5:26-8.4(d), required the unit owners to
first approve, by a majority vote, a willingness to assume
control over the association. The court determined that such a
6 Although these submissions asserted matters outside of the contents of the complaint, the trial court, with the mutual assent of counsel, did not convert the application to a Rule 4:46 motion for summary judgment. See R. 4:6-2(e) (last sentence).
13 A-4216-12T1 majority vote, as specified under the regulation, was a legal
precondition to a judicial order for the turnover of control
under N.J.S.A. 46:8B-12.1(a).
The court next dismissed Count II. It ruled, first, that
plaintiffs had failed to plead their fraud claims with
specificity as required under Rule 4:5-8(a). Second, the court
found that AB Monmouth, under the terms of the Oakshire Master
Deed and as a successor to Oakshire, could not be held liable
for misrepresentations Oakshire made, and third, that plaintiffs
were barred by PREDFDA's six-year statute of limitations,
N.J.S.A. 45:22A-37(d). The court further concluded that
plaintiffs' claims of misrepresentation were not cognizable in
particular against co-defendant Amboy Bank, because the bank was
"not a developer sponsor" of the condominium, and also because
the bank, as a mere member of AB Monmouth, cannot be liable for
that LLC's obligations.
Lastly, the court dismissed Counts III, IV, and V of the
complaint, based on a determination that all of the plaintiffs
lacked standing to bring those particular claims.
The trial court issued a corresponding order of dismissal
that same day. The court thereafter denied plaintiffs' motion
for reconsideration. This appeal followed.
14 A-4216-12T1 II.
On appeal, plaintiffs advance several arguments why the
court's dismissal of their complaint, with prejudice, was in
error.
As to their claim for control of the association,
plaintiffs contend that the trial court erred in construing a
regulation, N.J.A.C. 5:26-8.4(d), to constrain their statutory
rights under N.J.S.A. 46:8B-12.1(a) to assume control of the
condominium association when a developer has ceased building or
marketing additional units.
With respect to their fraud claims, plaintiffs maintain
that their complaint was sufficiently specific. However, if it
was not, they urge that the preferred remedy under case law is
to allow them to revise their complaint to be more specific,
rather than to dismiss it conclusively "with prejudice."
Plaintiffs do acknowledge that principles of standing and also
the statute of limitations may disallow some of the unit owners
presently named in the complaint from suing AB Monmouth for
fraud. However, they contend that the trial court went too far
in dismissing all of those claims. Instead, the court should
have preserved the claims of the specific unit owners who are
eligible to sue.
15 A-4216-12T1 As to Counts III, IV, and V, plaintiffs argue that the
trial court failed to recognize their ability under case law to
sue derivatively on behalf of the association where, as here,
the association remains in the control of the developer.
Lastly, plaintiffs submit that the trial court should have
allowed the claims against Amboy Bank to proceed, despite the
entity status of AB Monmouth as an LLC, because PREDFDA provides
that a defendant that "directly or indirectly controls" a
developer nonetheless may be liable for the developer's
violations of the statute. See N.J.S.A. 45:22A-37(c).
A.
We begin with a few general observations concerning the
standards governing dismissal motions under Rule 4:6-2(e) and
our scope of review of orders granting such motions.
"In reviewing a complaint dismissed under Rule 4:6-2(e)
[the] inquiry is limited to examining the legal sufficiency of
the facts alleged on the face of the complaint." Printing Mart-
Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989)
(citing Rieder v. Dep't of Transp., 221 N.J. Super. 547, 552
(App. Div. 1987)). The "essential test," Green v. Morgan
Properties, 215 N.J. 431, 451 (2013), is "whether a cause of
action is 'suggested' by the facts." Printing Mart, supra, 116
N.J. at 746 (quoting Velantzas v. Colgate-Palmolive Co., 109
16 A-4216-12T1 N.J. 189, 192 (1988)). "[A] reviewing court 'searches the
complaint in depth and with liberality to ascertain whether the
fundament of a cause of action may be gleaned even from an
obscure statement of claim, opportunity being given to amend if
necessary.'" Ibid. (citing Di Cristofaro v. Laurel Grove Mem'l
Park, 43 N.J. Super. 244, 252 (App. Div. 1957)).
In Rule 4:6-2(e) dismissals, "the [c]ourt is not concerned
with the ability of plaintiffs to prove the allegation contained
in the complaint." Ibid. (citing Somers Constr. Co. v. Bd. of
Educ., 198 F. Supp. 732, 734 (D.N.J. 1961)). Instead,
"'plaintiffs are entitled to every reasonable inference of
fact[,]' . . . and '[t]he examination of a complaint's
allegations of fact required by the aforestated principles
should be one that is at once painstaking and undertaken with a
generous and hospitable approach.'" Green, supra, 215 N.J. at
452 (quoting Printing Mart, supra, 116 N.J. at 746).
Notwithstanding this "indulgent standard," id. at 456, "[a]
pleading should be dismissed if it states no basis for relief
and discovery would not provide one." Rezem Family Assocs., LP
v. Borough of Millstone, 423 N.J. Super. 103, 113 (App. Div.),
certif. denied and appeal dismissed, 208 N.J. 366 (2011); see
also Sickles v. Cabot Corp., 379 N.J. Super. 100, 106 (App.
Div.), certif. denied, 185 N.J. 297 (2005). In those "rare
17 A-4216-12T1 instances," Smith v. SBC Communications, Inc., 178 N.J. 265, 282
(2004), "[a] motion to dismiss pursuant to Rule 4:6-2(e)
ordinarily is granted without prejudice." Hoffman v. Hampshire
Labs, Inc., 405 N.J. Super. 105, 116 (App. Div. 2009) (emphasis
added) (citing Smith, supra, 178 N.J. at 282).
Our review of the trial court's dismissal order in this
context is de novo. A reviewing court "'appl[ies] a plenary
standard of review from a trial court's decision to grant a
motion to dismiss.'" Gonzalez v. State Apportionment Comm'n,
428 N.J. Super. 333, 349 (App. Div. 2012) (quoting Rezem Family
Assocs., supra, 423 N.J. Super. at 114). We "owe[] no deference
to the trial court's conclusions." Ibid.
Applying these well-established principles, we conclude
that the trial court's "with-prejudice" dismissal of plaintiffs'
complaint in its entirety was premature, overbroad, and, in
certain respects, based on a mistaken application of the law.
We now turn to the specific components of our conclusion.
B.
The trial court's dismissal of plaintiffs' request in Count
I to gain control of the association was erroneous, for several
reasons.
Under the applicable provisions of the NJCA, a condominium
association is "responsible for the administration and
18 A-4216-12T1 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; see
also Thanasoulis v. Winston Towers 200 Ass'n, 110 N.J. 650, 656-
57 (1988) ("The most significant responsibility of an
association is the management and maintenance of the common
areas of the condominium complex." (citation omitted)). The
association is thus charged with various duties, not the least
of which include the maintenance of the common elements and the
assessment and collection of funds for common expenses. See
N.J.S.A. 46:8B-14.
Each unit owner automatically retains an interest in the
common elements by virtue of his or her holding title to
individual units in the condominium. See N.J.S.A. 46:8B-6. The
governing board of the association (or other similar governing
body) manages the day-to-day functions of the association
itself, which in turn maintains the common elements. N.J.S.A.
46:8B-12.1. Typically composed of three to five individuals,
the governing board decides, for example, whether to enter into
contracts with third parties, how much to set association fees
and related assessments, and the manner in which to provide
bookkeeping and other limited administrative services for the
benefit of the association. N.J.S.A. 46:8B-12.2.
19 A-4216-12T1 The composition of the governing board is of particular
importance both to unit owners and the developer, because they
may at times have competing interests with respect to the manner
in which common elements are to be managed or maintained. The
NJCA dictates the apportionment of control between developer-
appointed trustees and unit-owner-elected individuals on the
governing board. Those statutory provisions, set forth in
N.J.S.A. 46:8B-12.1(a), initially establish a lock-step,
percentage-based method by which unit owners may gradually gain
control of the association:
When unit owners other than the developer own 25% or more of the units in a condominium that will be operated ultimately by an association, the unit owners other than the developer shall be entitled to elect not less than 25% of the members of the governing board or other form of administration of the association. Unit owners other than the developer shall be entitled to elect not less than 40% of the members of the governing board or other form of administration upon the conveyance of 50% of the units in a condominium. Unit owners other than the developer shall be entitled to elect all of the members of the governing board or other form of administration upon the conveyance of 75% of the units in a condominium.
Apart from this lock-step construct, the last sentence of
the first unnumbered paragraph of N.J.S.A. 46:8B-12.1(a)
contains the following proviso, which creates a separate pathway
20 A-4216-12T1 for unit owners to gain control. The proviso covers situations
where, as is alleged here, the developer is not building and not
marketing for sale additional units "in the ordinary course of
business":
However, when some of the units of a condominium have been conveyed to purchasers and none of the others are being constructed or offered for sale by the developer in the ordinary course of business, the unit owners other than the developer shall be entitled to elect all of the members of the governing board or other form of administration.
[Ibid. (emphasis added).]
The statute grants the developer the right to elect at
least one member of the board, but only if the developer is
continuing to hold for sale at least one condominium unit:
Notwithstanding any of the provisions of [N.J.S.A. 46:8B-12.1(a)], the developer shall be entitled to elect at least one member of the governing board or other form of administration of an association as long as the developer holds for sale in the ordinary course of business one or more units in a condominium operated by the association.
Plaintiffs claim in their complaint, and in their
certifications opposing defendants' motion to dismiss Count I,
that AB Monmouth and Amboy Bank were not, in fact, constructing
or offering for sale any more units in The Monmouth. Defendants
disputed that factual assertion in their own submissions. The
21 A-4216-12T1 trial court did not resolve that factual disagreement because it
concluded, as a matter of law, that plaintiffs were precluded
from control of the association without first obtaining a
majority vote of unit owners approving such a takeover.
Specifically, the trial court hinged its analysis on the
PREDFDA regulation cited by defendants, N.J.A.C. 5:26-8.4(d).
That provision is contained within N.J.A.C. 5:26-8.4, a lengthy
regulation which reads in full as follows:
(a) Irrespective of the time set for developer control of the association provided in the master deed, covenants and restrictions or other instruments of creation, control of the association shall be surrendered to the owners in the following manner:
1. Sixty days after conveyance of 25 percent of the lots, parcels, units or interests, not less than 25 percent of the members of the executive board shall be elected by owners;
2. Sixty days after conveyance of 50 percent of the lots, parcels, units or interests, not less than 40 percent of the members of the executive board shall be elected by the owners;
3. Sixty days after conveyance of 75 percent of the lots, parcels, units or interests, the developer's control of the executive board shall terminate at which time the owners shall elect the entire executive board.
(b) Notwithstanding (a)1, 2 and 3 above, the developer may retain one member of the executive board so long as there are any
22 A-4216-12T1 units remaining unsold in the regular course of business.
(c) In calculating the above percentages, it is presumed that they are calculated on the basis of the entire number of units entitled to membership in the association.
(d) A developer may surrender control of the executive board of the association prior to the time as specified, provided the owners agree by a majority vote to assume control.
(e) Upon assumption by the owners of control of the executive board of the association, the developer shall forthwith deliver to the association all items and documents pertinent to the association such as, but not limited to a copy of the master deed, declaration of covenants and restrictions, documents of creation of the association, by-laws, minute book, including all minutes, any rules and regulations, an accounting of association funds, association funds, all personal property, insurance policies, government permits, a membership roster and all contracts and agreements relative to the association.
(f) The association, when controlled by the owners, shall not take any action that would be detrimental to the sales of units by the developer and shall continue the same level of maintenance, operation and services as immediately prior to their assumption of controls, until the last unit is sold.
(g) From the time of conveyance of 75 percent of the lots, parcels, units or interests, until the last lot, parcel, unit or interest in the development conveyed in the ordinary course of business the master deed, by-laws or declaration of covenants and restrictions shall not require the affirmative vote of more than 75 percent of
23 A-4216-12T1 the votes to be cast in order to amend the by-laws or rules and regulations.
(h) The developer shall not be permitted to cast any votes allocated to unsold lots, parcels, units or interest in order to amend the master deed, by-laws or any other document for the purpose of changing the permitted use of a lot, parcel, unit or interest, or for the purpose of reducing the common elements or facilities.
In essence, the trial court concluded that before it could
entertain a request by the plaintiff unit owners to assume
control of the association, all of the owners, by a majority
vote, must first consent to such a transfer of control in
accordance with N.J.A.C. 5:26-8.4(d). The trial court's
reliance on the regulation in this setting was misplaced.
The legislative intent underlying the transfer-of-control
statutes, N.J.S.A. 46:8B-12.1 and -12.2, contemplates that unit
owners should ultimately be vested with control of the
association, rather than the developer, in order to safeguard
their property interests as the people who own (and who, most
likely, live in) the premises. The developer is not to retain
control of the association once it becomes clear that the
statutory criteria for the transfer of that control have been
triggered.
24 A-4216-12T1 As the Supreme Court has explained, "the statutory scheme
is to vest ultimate responsibility for the management of common
elements in the unit owners of each condominium. . . . [It]
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) (emphasis added); see also Port Liberte Homeowners Ass'n
v. Sordoni Const. Co., 393 N.J. Super. 492, 503 (App. Div.)
("The unique relationship between a condominium association and
a developer, created by statute, allows an association to step
into the developer's shoes when control is passed to the
association." (citing N.J.S.A. 46:8B-12.1(a))), certif. denied,
192 N.J. 479 (2007). As the Court noted in Fox:
N.J.S.A. 46:8B-12.1 and N.J.S.A. 46:8B-12.2 reflect more than the orderly transition of power between the developer and unit owners. They demonstrate the Legislature's understanding that in a condominium community, the unit owners' interests take precedence over any outside interest, whether that interest is a developer, an umbrella association, or any other outside party. Furthermore, those provisions demonstrate that condominium ownership differs significantly from traditional forms of property ownership, and that because unit owners have an undivided interest in their community's common elements any governance scheme that conflicts with the recognition of that interest is inconsistent with and in violation of the [NJCA].
25 A-4216-12T1 The [NJCA] contains no provision giving the developer the right to use the property interests of . . . unit owners as a bargaining chip for the developer's own interests. To the contrary, the Legislature included specific language in the [NJCA] to prevent a developer's lingering control over a condominium association.
[Fox, supra, 167 N.J. at 225-26 (emphasis added).]
The customary manner in which the transfer of governance is
to occur is specified in the lock-step provisions, which are
contained in both N.J.S.A. 46:8B-12.1(a) and in the associated
regulations set forth in N.J.A.C. 5:26-8.4(a). Those companion
regulations prescribe that a specified percentage of the seats
on the governing board "shall be surrendered" to the unit owners
through an election held within sixty days of the conveyance of,
respectively, twenty-five percent, then fifty percent, then
seventy-five percent, of the units or other property interests.
N.J.A.C. 5:26-8.4(a).
Apart from this lock-step mechanism, N.J.A.C. 5:26-8.4(d)
adds a separate optional procedure, in which a project developer
may voluntarily seek to cede control to the unit owners, if the
unit owners agree by a majority vote to accept such control.
The regulation specifies that the developer "may surrender" such
control "prior to the time as specified [in the lock-step
provisions]," but only "provided [that] the owners agree by a
26 A-4216-12T1 majority vote to assume control." N.J.A.C. 5:26-8.4(d). The
manifest purpose of this regulation7 is to assure that if the
developer wants to step out of the management of the association
at a time earlier than contemplated under the percentage-based
lock-step milestones described supra, it may do so, but only if
a majority of the owners would prefer to assume such total
control at that earlier stage. Ibid.
We do not construe the "majority vote" regulatory procedure
in N.J.A.C. 5:26-8.4(d) to curtail the unit owners' statutory
rights established under N.J.S.A. 46:8B-12.1(a) to have control
transferred to them in circumstances where the developer has, in
effect, become dormant in ceasing the construction of more units
or in marketing unsold units. If the developer is, in fact,
failing to build or advertise in the "ordinary course of
business," then the proviso in N.J.S.A. 46:8B-12.1(a) authorizes
a court to strip the developer of control involuntarily. This
transfer of control is mandatory, and not discretionary, given
that the statute explicitly states that the unit owners "shall
be entitled" to elect a certain number of board members at
certain milestones. N.J.S.A. 46:8B-12.1(a) (emphasis added);
see also Jersey Cent. Power & Light Co. v. Melcar Util. Co., 212
7 Curiously, this regulation has no cognate provision in the relevant statutes. There is no history of it in the New Jersey Register that provides any relevant insight about its origins.
27 A-4216-12T1 N.J. 576, 587-88 (2013) ("[T]he Legislature's choice of the word
'shall,' [] is ordinarily intended to be mandatory, not
permissive.").
In contrast, the regulation codified at N.J.A.C. 5:26-
8.4(d) addresses a developer's voluntary decision to relinquish
control over the condominium association. It provides that "[a]
developer may surrender control of the executive board of the
association prior to the time as specified,8 provided the owners
agree by a majority vote to assume control." (Emphasis added).
"Under the 'plain meaning' rule of statutory construction, the
word 'may' ordinarily is permissive[.]" Aponte-Correa v.
Allstate Ins. Co., 162 N.J. 318, 325 (2000).
Thus, under the terms of the regulation, a developer has
the discretion to relinquish its control over to the governing
board before it is otherwise required to do so by statute in the
NJCA. However, the developer may not indiscriminately abdicate
its control, and therefore its responsibility, of the
association. Instead, the developer can only do so when a
majority of unit owners vote to approve of that step. N.J.A.C.
5:26-8.4(d).
8 This phrase obviously refers to the lock-step percentage milestones in N.J.S.A. 46:8B-12.1(a) and N.J.A.C. 5:26-8.4(a).
28 A-4216-12T1 The trial court's erroneous interpretation of these
provisions essentially allows a voluntary and optional procedure
set forth in a regulation to trump a mandate called for by a
statute. We reject that interpretation.
It is well settled that "when the provisions of the statute
are clear and unambiguous, a regulation cannot amend, alter,
enlarge or limit the terms of the legislative enactment." L.
Feriozzi Concrete Co. v. Casino Reinvestment Dev. Auth., 342
N.J. Super. 237, 250-51 (App. Div. 2001) (citing N.J. State
Chamber of Commerce v. N.J. Election Law Enforcement Comm'n, 82
N.J. 57, 82 (1980); Hotel Suburban Sys., Inc. v. Holderman, 42
N.J. Super. 84, 90 (App. Div. 1956)). "Where there is a
conflict, the statute prevails over the regulation." Id. at 251
(citing Siri v. Bd. of Trs. of the Teachers' Pension & Annuity
Fund, 262 N.J. Super. 147, 152 (App. Div. 1993)). Moreover,
"'[s]tatutes, when they deal with a specific issue or matter,
are the controlling authority as to the proper disposition of
that issue or matter. Thus, any regulation or rule which
contravenes a statute is of no force, and the statute will
control.'" Ibid. (quoting Terry v. Harris, 175 N.J. Super. 482,
496 (Law Div. 1980)).
For these reasons, we reject the trial court's conclusion
that a majority vote of unit owners was required to accept
29 A-4216-12T1 control of the association before the court was empowered to
implement the transfer of control mandated by the proviso in
N.J.S.A. 46:8B-12.1(a) for situations with a dormant developer.
As a matter of law, such a majority vote is not required in this
setting under the statute. Indeed, a significant number 9 of unit
owners (twenty-eight) have implicitly displayed their
acquiescence to the assumption of control by joining forces in
this lawsuit as co-plaintiffs. Their legislatively-granted
right to proceed with such a transfer of control must not be
thwarted by a misapplication of N.J.A.C. 5:26-8.4(d).10 Hence,
Count I of the complaint should not have been dismissed, and
certainly not in a conclusive manner "with prejudice."
That said, we cannot and do not resolve on the present
record whether the "ordinary course of business" proviso in
N.J.S.A. 46:8B-12.1(a) has actually been triggered. That
disputed question cannot be answered by a mere paper review of
the pleadings, or of the parties' motion submissions.
9 Assuming the total of eighteen units corresponding to the named plaintiffs is correct, it appears that a majority of the thirty- two non-developer units are owned by persons who favor assuming control of the association, although they apparently have not taken a formal vote on the question. 10 We need not ponder here whether a single "gadfly" unit owner could foist control under the statute upon otherwise unwilling owners, where a developer has not been constructing or marketing units in the ordinary course of business.
30 A-4216-12T1 Defendants, as we have already noted, strongly dispute
plaintiffs' claim that the units have not been advertised in the
ordinary course of business. That dispute should be resolved by
the trial court, after appropriate discovery on the question has
been completed. See State v. Gaitan, 209 N.J. 339, 381 (2012)
(noting the potential necessity of a plenary hearing to resolve
factual issues disputed in the parties' written submissions);
see also Bruno v. Gale, Wentworth & Dillon Realty, 371 N.J.
Super. 69, 76-77 (App. Div. 2004). Given the passage of time
while this appeal has been pending, the trial court should
examine the current circumstances, rather than perform a
retroactive evaluation of what had existed several years ago
when the complaint was filed.11 See N.J.S.A. 46:8B-12.1(a)
(expressing the proviso, in the present tense, in terms of
whether units "are being constructed or offered for sale by the
developer in the ordinary course of business" (emphasis added)).
The trial court's dismissal of Count I is consequently
reversed. On remand, the factual issues under N.J.S.A. 46:8B-
12.1(a) relating to Count I should be resolved in the trial
court.
11 It is undisputed that plaintiffs have yet to attain the seventy-five percent ownership milestone that would enable them to obtain a transfer of total control under the lock-step mechanism in N.J.S.A. 46:8B-12.1(a) and N.J.A.C. 5:26-8.4(a)(3).
31 A-4216-12T1 [At the direction of the court, the published version of this opinion omits Parts II(C), (D), and (E), which address issues distinct from the control issues pleaded in Count I. See R. 1:36-3.]
III.
The orders dismissing plaintiffs' complaint and denying
reconsideration are consequently reversed, on the terms and
conditions we have set forth in this opinion. The trial court
shall conduct a case management conference with counsel within
thirty days. We do not retain jurisdiction.
32 A-4216-12T1