Opinion
DOCKET NO. A-3606-12T1
08-29-2014
LEONARD ANKLOWITZ and ROSE ANKLOWITZ, Plaintiffs-Appellants, v. GREENBRIAR AT WHITTINGHAM COMMUNITY ASSOCIATION, Defendant-Respondent.
Grant S. Ellis argued the cause for appellants (Mayo & Russ, P.A., attorneys; Mr. Ellis, on the brief). James P. Ricciardi argued the cause for respondent (White Fleischner & Fino, L.L.P., attorneys; Mr. Ricciardi and Brian M. Thorn, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Ashrafi and Leone. On appeal from Superior Court of New Jersey, Chancery Division, General Equity Part, Middlesex County, Docket No. C-0152-12. Grant S. Ellis argued the cause for appellants (Mayo & Russ, P.A., attorneys; Mr. Ellis, on the brief). James P. Ricciardi argued the cause for respondent (White Fleischner & Fino, L.L.P., attorneys; Mr. Ricciardi and Brian M. Thorn, on the brief). PER CURIAM
Plaintiffs Leonard and Rose Anklowitz appeal from an order of the Chancery Division granting summary judgment to defendant Greenbriar at Whittingham Community Association. Greenbriar is an association of the owners of single-family homes in an age-restricted community in Monroe Township. Plaintiffs have lived in the community since it was built in the 1990s. In 2008, they sought permission from Greenbriar to construct an all-season sunroom as an addition to the back of their house. Greenbriar denied permission. Plaintiffs filed suit seeking to compel Greenbriar to grant their request. After three years of litigation and several summary judgment motions, the Chancery Division dismissed their complaint. We now affirm the Chancery Division's order.
Both parties agreed in the trial court that witness testimony was not needed to resolve their dispute, and that the court could decide the matter based on undisputed facts and its interpretation of documentary evidence. The issue they presented to the court was whether the business judgment rule, see Seidman v. Clifton Savings Bank, 205 N.J. 150, 174-77 (2011), provides a full defense to plaintiffs' claims against Greenbriar.
In Green Party v. Hartz Mountain Industries, Inc., 164 N.J. 127, 147-48 (2000) (citations omitted), the Court described the business judgment rule as follows:
The business judgment rule has its roots in corporate law as a means of shielding internal business decisions from second-guessing by the courts. Under the rule, when business judgments are made in good faith based on reasonable business knowledge, the decision makers are immune from liability from actions brought by others who have an interest in the business entity. The business judgment rule generally asks (1) whether the actions were authorized by statute or by charter, and if so, (2) whether the action is fraudulent, self-dealing or unconscionable.
The relevant facts are that plaintiffs purchased their home in 1997. At that time, Greenbriar had adopted its by-laws and other restrictions that limit homeowners' rights to build additions or make other changes to their home. The by-laws, which are dated December 14, 1994, provide:
Section 5.11, Structural Changes: Nothing shall be done to any Home which will impair the structural integrity of any Home or which will structurally change a Home. No owner (other than Developer) may make any structural additions, alterations or improvements in or to his Home without the prior written approval of the Covenants Committee . . . .
Section 10.02 delineated the powers of the Covenants Committee, and it repeated the prohibition of any structural additions, alterations, or improvements without the written approval of that committee. It stated that "[t]he Covenants Committee shall (i) regulate the external desire [sic], appearance, use and maintenance of the Property in accordance with standards and guidelines contained in the Declaration of By-Laws or otherwise adopted by the Board [of Directors of Greenbriar]." That section of the by-laws also established a procedure for homeowners to apply to the Covenants Committee and a right of appeal to the Board of Directors.
A Declaration of Covenants, Easements and Restrictions for Greenbriar at Whittingham ("the Covenants"), also dated December 14, 1994, contained a Section 5.11 identical in language to that quoted from the by-laws. According to Greenbriar's brief on appeal, Section 5.04 of the Covenants stated in relevant part: "No homeowner or occupant shall build, plant, or maintain any matter or thing (including, without limitation, any plantings, lawn ornaments, additions, alterations, improvements to any home) upon, in, over or under the property without the prior written consent of the covenant's committee."
Both parties have provided us with appendices that contain missing pages. Neither appendix includes the page of the Covenants on which Section 5.04 would be printed. Also, both appendices have one or more pages missing from plaintiffs' complaint so that we do not have a precise record of what relief plaintiffs sought in filing their lawsuit. Counsel are reminded to check the record and appendix before filing papers with this court.
Plaintiffs' home had a patio in the backyard in conformity with the site plan approval granted by the Township Planning Board to the developer, U.S. Home Corporation ("U.S. Home"). In about 1998, plaintiffs obtained permission to build a deck over their patio. The township granted a certificate of approval for the deck in 2003.
On June 3, 2007, plaintiffs requested permission from Greenbriar's Site Review Committee, which was a subcommittee of the Covenants Committee, to "install a screened enclosure" on the deck. The Site Review Committee responded by letter dated June 6, 2007, that it needed more information about plaintiffs' intended alteration and that "[a]ny permanent enclosure or addition to your home would require approval of the Monroe Township Planning Board." The township zoning officer, in turn, wrote to plaintiffs on September 11, 2007, that permission of the homeowners' association was necessary before the zoning officer would review their request. Greenbriar then wrote to plaintiffs on September 25, 2007, that their "inquiry to modify your home and increase the footage by adding an enclosed sunroom/enclosed deck . . . would be denied" because the township had informed Greenbriar that the developer "has built out to the maximum allowable square footage of home (20% impervious coverage)."
About a year later, on November 7, 2008, plaintiffs renewed their application, this time describing their plan for "installation of a multi-seasonal sun room on already existing concrete patio." They disputed the reason for the earlier denial of their application, stating that their proposed sunroom would be built on the existing concrete pad and therefore would not increase the impervious coverage of their lot.
The Site Review Committee denied the renewed application by a letter dated January 27, 2009, stating:
[T]he Association's policy is to deny additions and no additions have been approved in the past. Additions are prohibited to ensure that the community complies with density and coverage calculations required by township ordinance. After reviewing these factors, the Site Review Committee has determined that this policy will not be modified. Accordingly, please be advised that your application has been denied.Plaintiffs appealed to the Board of Directors, but the Board ratified the decision of the Site Review Committee.
Plaintiffs filed their complaint in the Law Division in May 2009. After the court denied an initial motion by Greenbriar for summary judgment, the parties were scheduled to appear for a bench trial before Judge Rivas in May 2010. At the time of trial, Greenbriar moved for dismissal of the plaintiffs' complaint, claiming protection of the business judgment rule. Judge Rivas heard argument, considered the parties' submissions and the pertinent law, and denied Greenbriar's motion by order and written opinion dated October 12, 2010. The judge stated that the only issue with respect to applicability of the business judgment rule was whether Greenbriar's alleged blanket policy of denying all requests to build additions was unconscionable. He concluded that issues of fact existed as to whether Greenbriar had such a blanket policy, which he commented would render the approval process of the by-laws a nullity. Judge Rivas wrote:
If the decision on all applications for additions or modifications is preordained, the procedures and process provided for by the Associations documents are a nullity, constitute an artifice and are devoid of any good faith. If indeed this is the policy of the Association, actions taken based on this undisclosed policy are unconscionable.
Rather than try the case in accordance with Judge Rivas's decision, plaintiffs moved for summary judgment or, as an alternative, transfer of the case to the Chancery Division. Greenbriar cross-moved for reconsideration of Judge Rivas's decision. The matter was assigned to Judge Currier, who denied summary judgment to either party and, instead, transferred the case to the Chancery Division because plaintiffs were no longer seeking money damages and the relief sought was entirely of an equitable nature.
In the Chancery Division, counsel met with Judge Ciuffani and agreed that the case did not need a trial but could be decided as a legal issue on the documentary and undisputed evidence. On renewed cross-motions for summary judgment, Judge Ciuffani ruled by written decision dated February 22, 2013, that Judge Rivas's prior decision was not the law of the case, and that Greenbriar was entitled to the protections of the business judgment rule. The judge granted Greenbriar's motion for summary judgment and dismissed plaintiffs' complaint.
On appeal, we conduct plenary review of an order granting summary judgment; generally, we review the same record as the trial court and apply the same standard to the motion. See Murray v. Plainfield Rescue Squad, 210 N.J. 581, 584 (2012); Fernandez v. Nationwide Mut. Fire Ins. Co., 402 N.J. Super. 166, 170 (App. Div. 2008), aff'd o.b., 199 N.J. 591 (2009). The moving party is entitled to summary judgment only if the record as a whole, making all reasonable inferences in favor of the opposing party, shows there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
The business judgment rule applies to homeowners' and condominium associations. In Walker v. Briarwood Condo Ass'n, 274 N.J. Super. 422, 426 (App. Div. 1994), we stated: "[D]ecisions made by a condominium association board should be viewed by a court using the same business judgment rule which governs the decisions made by other types of corporate directors." Accord Courts at Beachgate v. Bird, 226 N.J. Super. 631, 641 (Ch. Div. 1988); Papalexiou v. Tower West Condo., 167 N.J. Super. 516, 527 (Ch. Div. 1979).
The test is "(1) whether the Associations' actions were authorized by statute or by its own bylaws or master deed, and if so, (2) whether the action is fraudulent, self-dealing or unconscionable." Owners of the Manor Homes of Whittingham v. Whittingham Homeowners Ass'n, 367 N.J. Super. 314, 322 (App. Div. 2004); accord Chin v. Coventry Square Condo. Ass'n, 270 N.J. Super. 323, 328-29 (App. Div. 1994). "If a contested act of the association meets each of these tests the judiciary will not interfere." Billig v. Buckingham Towers Condo. Ass'n I, Inc., 287 N.J. Super. 551, 563 (App. Div. 1996).
On the other hand, if the fiduciary duty of the association is breached by fraud or acts performed in bad faith, the business judgment rule is unavailable as a defense. See Mulligan v. Panther Valley Prop. Owners Ass'n, 337 N.J. Super. 293, 300 (App. Div. 2001) (citing Papalexiou, supra, 167 N.J. Super. at 527).
Plaintiffs do not dispute that Greenbriar's by-laws allow it to deny an application for additions. Nor do plaintiffs allege fraud or self-dealing as a ground for setting aside Greenbriar's denial of their application. Rather, plaintiffs contend that Greenbriar's blanket prohibition on additions is unconscionable, arbitrary, and capricious, in particular, because they had no notice when they purchased their home that such a blanket policy existed.
The record discloses, however, that Greenbriar's policy of denying permission to build additions does not date back to the early years of the development and the time when plaintiffs purchased their home in 1997. Rather, our record indicates that the policy developed over time as a result of the developer's and Greenbriar's interactions with the township zoning authorities.
When the subdivision was developed in the mid-1990s, the Township Planning Board entertained several applications by U.S. Home for modification of the final site plan approval and for variances adjusting the permissible dimensions and features of backyard patios. A December 17, 1996 resolution of the Planning Board denied one of these applications, which included a request to permit "premium lots with no backyard restrictions to enclose the patio with a professional screened-in porch." The Planning Board approved only certain dimensional modifications for the patios in the zoning applications submitted by U.S. Home for the subdivision.
When plaintiffs applied to the Site Review Committee for permission to build their proposed addition, that committee apparently believed that enclosed or structural additions would not be approved by the municipal zoning authorities, and so, it referred to its "policy" of denying permission for such additions. The committee was aware that no addition had ever been approved in the community for any other homeowner to build a room or similar structure. It based its denial letter of January 29, 2009, on the early history of zoning applications by the developer of the property and the absence of any prior approvals for additions in the community.
A letter dated March 25, 2010, from the township zoning officer to the President of Greenbriar states that "no additions may be built onto homes at Greenbriar Whittingham" in accordance with a "Planning Board agreement, August, 1997." We have not found such a 1997 agreement in the documents contained in the parties' appendices, and plaintiffs argue that we should not consider the zoning officer's letter because it was not provided to plaintiffs in discovery and Judge Rivas ruled he would not consider it. In any event, because the zoning officer's letter is hearsay, we give it no weight in determining the facts.
But plaintiffs are also mistaken in relying on the zoning officer's letter of September 11, 2007, as proof that the township would approve additions to the homes at Greenbriar. The September 2007 letter simply states that the zoning officer will not consider plaintiffs' request for a zoning evaluation and a building permit until they have received Greenbriar's approval. It does not say, as plaintiffs interpret it, that additions to the Greenbriar homes are authorized by the township's zoning laws and might be approved by its zoning authorities. Our record is neither decisive nor informative with respect to plaintiffs' prospects of obtaining municipal authorization to build the addition they seek.
Particularly significant to our decision on this appeal, plaintiffs have not provided us with any legal authority that would assist us in determining the central issue in this dispute — whether a blanket prohibition of additions is unconscionable, either because it would deprive Greenbriar homeowners of property rights or because plaintiffs did not have notice of such a prohibition when they purchased their house.
The rationale for Greenbriar's restriction on additions was to ensure that the properties will be maintained in a manner: "(1) providing for visual harmony and soundness or repair; [and] (2) avoiding activities deleterious to the aesthetic or property values of the property." Judge Ciuffani found this rationale to be "rooted in sound reasoning and the desire and duty to maintain Greenbriar in a common scheme for the benefit of all owners." He concluded that Greenbriar's decision is protected by the business judgment rule. We agree.
Greenbriar also points to a provision of the Covenants that created a drainage easement, thus prohibiting individual homeowners from making any alterations that would affect the water drainage plan for the community. While plaintiffs argue that the impervious coverage of their lot would not be increased by their proposed addition, roof runoff and drainage routes might be altered by a room addition as opposed to a flat concrete patio and deck.
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A homeowners' association has a fiduciary relationship with each of its unit owners that requires it to act "reasonably and in good faith." Billig, supra, 287 N.J. Super. at 563. This relationship requires that the association protect the interests of the group as a whole, and the interests of each constituent owner individually. See ibid. When by-laws restrict structural changes to homes, "[i]ndividual owners and residents are required to subordinate their own interests to those of the community at large." Courts at Beachgate, supra, 226 N.J. Super. at 637 (quoting W. Smith, New Jersey Condominium Law 78 (1985)).
Greenbriar rejected plaintiffs' application to avoid deviation from the common scheme and what it believed are the aesthetic and practical benefits of uniformity among the hundreds of homes in the community. The developer had been denied a deviation by the Planning Board to include enclosed decks on some of the homes. Greenbriar believed that the denial was necessitated, or grounded upon, the zoning regulations that applied to the Planning Board's approval of the subdivision as originally planned by U.S. Home. Neither Greenbriar nor the municipal authorities had ever allowed the type of addition sought by plaintiffs, and Greenbriar believed the history was an indication that additions would not comply with zoning regulations. Whether Greenbriar was mistaken or correct in that belief does not vitiate its business judgment in denying plaintiffs' application. See Papalexiou, supra, 167 N.J. Super. at 527 (business judgment rule does not expect the directors to be incapable of error); Daloisio v. Peninsula Land Co., 43 N.J. Super. 79, 89-90 (App. Div. 1957) (the law does not require the infallibility of decisions of corporate directors).
Plaintiffs argue that Greenbriar's failure to disclose its blanket prohibition makes it unconscionable. They rely on cases pertaining to deeds with restrictive covenants and argue that such restrictions are not favored in the law because they impair the alienability of land, and that they must be strictly construed. See, e.g., Berger v. State, 71 N.J. 206. 215 (1976). But the policy in dispute here is not a restrictive covenant in a deed. It can be changed if a majority of the homeowners in the community prevail upon their Board of Directors to change it. Restrictive covenant cases are not the controlling law in this case.
Judge Rivas was troubled by the apparent absence of a true review process for applications to build an addition if a blanket policy "preordained" Greenbriar's decision. But not all additions and alterations to the homes were prohibited by the policy. Only structural additions that increased the size of the home were prohibited. Other types of additions or alterations were to be considered on the individual merits of the application.
In fact, Greenbriar granted plaintiffs' request to add a deck to their home in 1998. And the rules of Greenbriar's Architectural Committee suggest that adding rooms at re-entrant corners of certain types of homes may be allowed. Greenbriar also argues that certain lesser types of improvements that might be considered additions might be permitted, such as reconfiguration of doors, windows, and entryways, as opposed to room additions that increase the size of the home.
Thus, Greenbriar's approval process is not a complete nullity, nor is the decision of the Site Review Committee preordained for all applications. The "blanket policy" is limited to room additions of the type proposed by plaintiffs, which the homeowners' association perceives as unacceptable in all cases.
A blanket policy on certain types of additions or improvements is not unconscionable as a matter of law. Greenbriar argues that it could, for example, have a blanket prohibition against the construction of cell towers in the community, and no homeowner's request for permission to construct one would be considered. While that illustration is the extreme, we can also conceive of blanket prohibitions against other types of structures or alterations in a common community of homes, such as prohibition of fire pits or outdoor barbecue facilities, or satellite TV antennas. The process for applying for permission from the homeowners' association is not a nullity because some types of applications are denied as a matter of policy.
Furthermore, Judge Rivas's concern that plaintiffs were charged a fee for their application when denial was inevitable does not address the provisions that describe the fee as a deposit subsequently refunded to the applicant in the absence of special reasons for Greenbriar to retain the fee. In this case, we are told that plaintiffs' fee was refunded.
Finally, Greenbriar's by-laws and covenants did not affirmatively mislead plaintiffs into believing they could construct an addition such as a sunroom. As we stated previously, the policy seems to have developed over the years based on Greenbriar's experience with the municipal zoning authorities. There was no unconscionable deception of plaintiffs as home buyers in the 1990s.
We hold, in agreement with the trial court, that Greenbriar's decision to deny plaintiffs' application for a sunroom was protected by the business judgment rule.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION