The trial court upheld both regulations and granted summary judgment in favor of the association. A divided Appellate Division panel affirmed, Thanasoulis v. Winston Tower 200 Ass'n,Inc., 214 N.J. Super. 408, (1986). We hold that in adopting the parking fee differential, the association exceeded the scope of its power as defined by the Act and the master deed, and that the regulation is therefore invalid.
Some apply constitutional principles, using equal protection or due process standards, either disregarding the state action requirement or analogizing condominiums to municipalities. See, e.g., White Egret Condominium, Inc. v. Franklin, 379 So.2d 346 (Fla. 1979) (equal protection); Majestic View Condominium Ass'n v. Bolotin, 429 So.2d 438 (Fla. 4th Dist. Ct. App. 1983) (procedural due process); cf. Thanasoulis v. Winston Towers 200 Ass'n, 214 N.J. Super. 408, 519 A.2d 911 (1986) (finding constitutional principles inapplicable for lack of state action), rev'd on other grounds, 542 A.2d 900, 76 A.L.R.4TH 273 (N.J. 1988); Covered Bridge Condominium Ass'n, Inc. v. Chambliss, 705 S.W.2d 211, 213 (Tex. App. 1985) (reviewing for constitutionality while recognizing that the "restriction [was] created by a private contract"); Franklin v. Spadafora, 388 Mass. 764, 447 N.E.2d 1244, 1250, 39 A.L.R.4TH 77 (1983) (assuming state action is present when condominium amends bylaws); Levandusky v. One Fifth Ave. Apartment Corp., 75 N.Y.2d 530, 554 N.Y.S.2d 807, 553 N.E.2d 1317, 1320 (1990) (describing condominium association as a "quasi-government").
The "business judgment" rule contrasts sharply with the "reasonableness" standard and with rule-making according to constitutional or administrative agency standards. For a discussion of these various standards and pertinent cases, see Judge Cohen's dissent in Thanasoulis v. Winston Tower 200 Ass'n, 214 N.J. Super. 408, 420, 519 A.2d 911 (App.Div. 198 6) (Cohen, J.A.D., dissenting), rev'd, 110 N.J. 650, 542 A.2d 900. See also Note, "Judicial Review of Condominium Rulemaking," 94 Harv.L.Rev. 647 (1981).
Id. at 1017. Accord, Thanasoulis v. Winston Tower 200 Ass'n, 519 A.2d 911, 912 (N.J.Super. App. Div. 1986) (stating that courts will not second-guess association's reasonable, good-faith acts), rev'd on other grounds, 542 A.2d 900 (N.J. 1988); Riss v. Angel, 934 P.2d 669, 680-81 (Wash. 1997) (requiring directors of homeowners' associations to act reasonably and in good faith). We must therefore decide whether there is a genuine issue of material fact about the reasonableness of Weimar's actions challenged by Bennett.
The court also observed that the two prong test to determine if a condominium association has acted properly is "(1) whether its action was authorized by statute or its own by-laws, and, if so, (2) whether the action was fraudulent, self-dealing or unconscionable." Id. (quoting Thanasoulis v. Winston Tower 200 Ass'n Inc., 214 N.J. Super. 408, 411, 519 A.2d 911 (App. Div. 198 6). The court further noted that "the expense which defendants' predecessor in title incurred was self-inflicted as the result of a known and calculated risk." Bird, 545 A.2d at 249.
Absent a showing of fraud, self-dealing or unconscionability, the court's inquiry is so limited and it will not inquire as to the wisdom or soundness of the business decision (see, Fe Bland v. Two Trees Mgt. Co., 66 N.Y.2d 556, 565; Matter of Boisson v. 4 E. Hous. Corp., 129 A.D.2d 523; Bernheim v. 136 E. 64th St. Corp., 128 A.D.2d 434). Courts in several other jurisdictions have applied the business judgment rule to judicial review of actions by condominium boards of managers (see, Thanasoulis v. Winston Tower 200 Assn., 214 N.J. Super. 408, 519 A.2d 911; Papalexiou v. Tower W. Condominium, 167 N.J. Super. 516, 401 A.2d 280, supra; Schwarzmann v. Association of Apt. Owners, 33 Wn. App. 397, 655 P.2d 1177; Rywalt v. Writer Corp., 34 Colo. App. 334, 526 P.2d 316, supra) and we find their reasoning to be sound. Moreover, in 1974 the Legislature amended the Condominium Act to permit the incorporation of the board of managers of a condominium (Real Property Law § 339-v [a], as amended by L 1974, ch 1056, § 6). Thus, in those cases where the board of managers has chosen to incorporate, the business judgment rule would, of course, be applicable.
The general test for whether an association has acted properly is "(1) whether its action was authorized by statute or its own bylaws, and, if so, (2) whether the action was fraudulent, self-dealing or unconscionable." Thanasoulis v. Winston Tower 200 Ass'n, Inc., 214 N.J. Super. 408, 411 (App. Div. 1986), rev'd on other grounds, 110 N.J. 650 (1988). The business judgment rule is not available as a general defense if the fiduciary duty of the association was breached by fraud, or acts performed in bad faith.
Ibid. For a discussion of these standards, see Note, Judicial Review of Condominium Rulemaking, 94 Harv. L.Rev. 647 (1981), and Thanasoulis v. Winston Tower 200 Ass'n, 214 N.J.Super. 408, 420, 519 A.2d 911 (App.Div. 1986) (Cohen, J.A.D., dissenting), rev'd, 110 N.J. 650, 542 A.2d 900 (1988). The Supreme Court has adopted the business rule as the more appropriate analytical framework for judicial review of condominium rulemaking.
The Association has breached that duty by declining even to look into the matter. Just as a condominium association may not unfairly discriminate among its members, Thanasoulis v. Winston Tower 200 Ass'n, Inc., 214 N.J. Super. 408, 420 (App.Div. 1986) (J. Cohen, dissenting), rev'd, 110 N.J. 650 (1988), it may not look away when a management company operating on its premises is alleged to have done so. A good faith review of Kim's request for help was essential to fulfilling the Board's obligation to Kim.
Moreover, that fiduciary relationship requires that in dealing with unit owners, the association must act reasonably and in good faith. See this court's opinion in Thanasoulis v. Winston Tower 200 Ass'n., Inc., 214 N.J. Super. 408, 411, 519 A.2d 911 (App.Div. 1985), rev'd on other grounds, 110 N.J. 650, 542 A.2d 900 (1988). If a contested act of the association meets each of these tests the judiciary will not interfere.