April 2011
In This Issue:
Developer Can't Enforce Promissory Note
Association Not Liable for Owner's Injuries
Association Didnít Waive Right to Enforce Restriction
Co-developer Liable for Construction Defects
Homeowners Can't Protest Zoning Changes
Developer's Rights Don't Extend to Reserve Property
Easement Doesnít Pertain to Similarly Situated Properties
Owners Fail to Prove Association's Liability for Mold Damage
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Developer Can't Enforce Promissory Note

Board of Managers of Marbury Club Condominium v. Marbury Corners LLC, No. 29420/09, N.Y. Supr. Ct., Sept. 22, 2010

Developmental Rights/State and Local Legislation and Regulation: A New York Supreme Court granted declaratory judgment and injunction to a condominium board of managers that sought to rescind a promissory note that granted the developer a security interest in the condominium's accounts that violated the New York Condominium Act.

Marbury Club is a 55-unit condominium located in Pelham, N.Y. Units were offered for sale pursuant to an offering plan filed with the New York attorney general by the Marbury Corners LLC, the sponsor. The effective date of the offering plan was January 2005.

In April 2005, a member of the sponsor-appointed Marbury Club Condominium Board of Managers executed a promissory note to the sponsor for $2.2 million. As security for the note, the sponsor received an assignment of common charges, a security agreement conveying a security interest in all the condominium's accounts and a UCC-1 financing statement with respect to the security agreement.

In December 2009, the current board of managers, elected by the unit owners of the condominium, sued Marbury Corners LLC, requesting partial summary judgment on three causes of action. The first cause of action sought a declaration that the sponsor board had no legal right to authorize execution of the promissory note and security documents. The second cause of action sought an injunction against the continued payment of the promissory note, an order requiring that the promissory note and security documents be canceled and that all liens be released and discharged. The third cause of action sought compensatory damages in the form of a return of the interest and principal paid on the promissory note.

The board asserted that the note placed “an illegal mortgage on the property,” and was illegal because the only authority for a board of managers to borrow money or incur debt arises from the New York Condominium Act, which provides that a board of managers has authority only where either the declaration or bylaws of the condominium expressly provide that the borrowing power exists or five years after conveyance of the first unit for certain statutory purposes. Neither the declaration nor the bylaws of Marbury Corners conferred borrowing power on the sponsor board, and the transaction contemplated by the promissory note did not fall within the permissible time period or statutory purposes set forth in the condominium act, since the fifth anniversary of the effective date of the offering plan fell after the note was signed and its purpose did not fall within those enumerated in the act.

The board argued that the legislative history behind the act shows that it was intended to limit the authority of a condominium board to borrow money secured by the assets of the condominium. It asserted that the statute did not permit a condominium board to execute a promissory note secured by an assignment of common charges at any time, much less at a time when the board was under sponsor control.

The board further argued that the fact that the note was disclosed in the offering plan did not mean the transaction was approved by the unit owners. According to the board, a sponsor cannot make an unlawful transaction lawful by simply disclosing it. The declaration and bylaws, not disclosures in the offering plan, controlled. The board also asserted that the disclosure in the offering plan failed to state the “purported legal right of the board to incur debt that would be repaid through unit owners’ common charges over a period of several decades,” in a transaction that, “. . . was so blatantly unauthorized and inequitable that no amount of the purported disclosure in the offering plan could validate the illegality.”

In addition, the note violated two other provisions of the act: provision RPL § 339-r, which requires every mortgage and other lien affecting a unit to be paid and satisfied before the first conveyance; and provision RPL § 339-l, which provides that, “[s]ubsequent to recording of the declaration, and while the property remains subject to [the act], no lien of any nature shall thereafter arise or be created against the common elements except with the unanimous consent of the unit owners . . .”

The board questioned the validity of the note based on lack of evidence that it was actually authorized by the sponsor board, pointing out that no such approval was memorialized in minutes or resolutions. The board contended that the lack of appropriate documentation was evidence that the note represented a sham transaction, and because it occurred during the time when the board of managers were employees of the sponsor, it was subject to a great potential for conflicts of interest.

The board argued that the note was null because it was not supported by consideration since the purpose was not described, and the benefit conferred on the condominium and unit owners was not revealed. It further argued that no deference to the acceptance of the offering plan should be afforded by the court, as the cover of the offering plan contained a statement that the attorney general, in accepting the offering plan, did not approve its contents.

In opposition to the board’s allegations, the sponsor pointed out that the budget included in the offering plan specifically included a line item for debt service of the note and a footnote to the budget that explained the terms of the note and documents to be executed in connection therewith. It further pointed out that each unit owner indicated the willingness and consent to accept title to the unit subject to the terms of the offering plan.

To support its position that the note was supported by consideration, the sponsor explained that condominiums ordinarily were taxed as rental buildings at a lower rate than single-family homes. However, under legislation adopted by the Village of Pelham, units in Marbury Club were going to be taxed at full market value, and the sales price of each unit would function as the basis for determining the market value for tax assessment purposes. The tax estimate was so high that the sponsor contemplated changing the condominium to cooperative ownership, but the Village of Pelham threatened to rescind its approvals if the sponsor implemented the change. Therefore, to avoid the risk of delays in construction and completion of the building, the sponsor reverted to its condominium plan. This meant reducing the sales prices on which the tax valuations would be based in an effort to make the units more marketable.

After exploring various options for recouping lost sales revenue, the sponsor decided to take back the $2.2 million promissory note and require unit owners to lease at least one parking space in the garage to the condominium, using the rent to pay the debt on the note. It determined that the condominium would receive a fee for use of its recreational amenities by another condominium developed by the sponsor to offset its losses.

The sponsor provided a copy of the purchase agreement signed by each owner, agreeing that the offering plan was incorporated by reference into the agreement. It argued that the legislative history of the act showed that the act was never intended to apply to situations such as this where the note and security documents were clearly and fully disclosed and each purchaser consented to them prior to signing a purchase agreement.

The sponsor pointed out that it had the express right under the declaration to amend the declaration to include the promissory note and security documents, making the board's action moot. It asserted that such amendment was authorized in the declaration, and the sponsor should be entitled to amend the declaration to remedy this technical deficiency because it would not impact the unit owners in any materially adverse way, and because there would be no harm to mortgage holders since the note and security documents did not affect the right, title or interest in the condominium units.

As its legal argument, the sponsor contended that the act had no application because the note did not constitute either a mortgage or a lien on any unit or any interest in the common area. It further contended that the board's position was contrary to New York law, which requires that all writings that are part of a single transaction be read together. The sponsor argued that the offering plan, the declaration and the bylaws must be read and interpreted together. Therefore, if the act were applicable, its requirements should be considered satisfied by the terms and provisions of the offering plan. Further, even if the note were in technical violation of the act, for reasons of fairness and equity, it should be enforced in accordance with its terms.

The sponsor declared that if the court were to invalidate the note, it would result in a substantial forfeiture and an unjust windfall to the unit owners, since the note was given for valuable consideration, i.e., a reduction in the aggregate sales price of the units, lower real estate taxes, as well as the income generated from leasing of the parking spaces and annual fee paid by the neighboring condominium for the recreational facility. The sponsor pointed out that the board's claims that the note jeopardized the viability of the condominium was unfounded, since the income for payment of the note was provided for in the leasing activities.

In rebuttal of the sponsor’s statement that deference be given to the attorney general's acceptance of the offering plan, the board produced a letter to the court from the attorney general's office stating that, “[a]ny . . . concealment of material fact . . . renders this filing void ab initio and [t]he filing of the offering literature shall not in any way be construed as approval of the contents or terms thereof by the attorney general . . .” The board pointed out that the sponsor conceded that it had intentionally omitted material facts from the offering plan, i.e., that the $2.2 million debt constituted an extra purchase price and was fashioned in this manner to evade taxes. Thus, the note was created for an illegal purpose.

The board related that during a May 2009 meeting with the sponsor in the attorney general's office, the sponsor refused to make any changes to the terms of the note, suggested as a means to settle the parties' dispute, and the Attorney General's office ultimately ceased its efforts and advised the board to litigate the issue to secure a determination. The board produced an e-mail from the Attorney General's office stating it had threatened to investigate the sponsor in order to persuade it to compromise on the note, but even the threat failed to secure the sponsor’s agreement to make any changes to the note.

That the note was a means to avoid real estate taxes and secure higher purchase prices was never communicated during the meeting with the Attorney General's office. The board contended that had this been disclosed, "the Attorney General's office, as a law enforcement agency, would have been constrained to either report the scheme to the proper authorities or itself take appropriate legal action because of the non-disclosure."

The board used the sponsor's admissions concerning the purpose of the note to argue it was clear that the debt was not incurred for capital purposes and, therefore, the loan was not in accordance with the legislative intent of the act.

The board asserted that the condominium would not receive a windfall if the note were invalidated; instead, it was the sponsor who was seeking to retain a windfall based on monies wrongfully taken.  At the end of the day, the dubious benefit received by the unit owners under the note was an increase in the purchase price of their units that they never agreed to pay. The board pointed out that there was a public interest "in stopping a developer from cheating, simultaneously, a taxing authority and purchasers of real property as part of a public offering of condominium units filed with the Attorney General."

Responding to the sponsor’s argument that it should be allowed to fix this technical defect by amending the declaration, the board stated that: (1) the sponsor board was no longer in power; (2) the declaration was filed more than five years earlier, and neither the declaration or bylaws authorized issuance of the note; and (3) the sponsor lacked authority under the declaration to belatedly insert language authorizing the note because it would create a new and extraordinary right that would certainly have a material adverse effect on unit owners.

The court found that the promissory note and security documents were unenforceable because they violated the New York Condominium Act. It determined that the statute clearly did not authorize execution of a promissory note to reduce the sales prices of condominium units. Legislative history submitted by the sponsor did not support its position. The memorandum indicated that the legislature was concerned that older condominiums require expensive capital repairs the costs of which often exceed available reserve funds. Thus, the legislature vested the power to borrow for capital purposes in the board of managers and the unit owners to permit financial concerns to be addressed while protecting owners from improvident borrowing.

Because the governing documents did not confer debt-creating authority that would permit the borrowing made in this case, the authority would have to arise from the statute. The court noted that the not-within-the-first-five-years rule resulted from concerns that the law should not provide a means by which condominium sponsors, who might remain in control for a period of time, could commit any nonconsenting unit owner to repay debt. There was also concern that sponsors in control of a debt-incurring board might find a way to misappropriate borrowed funds or "hide a sin" or infirmity in the original budget. The authority granted in the statute was carefully and intentionally restricted by the legislature to borrowings for certain purposes (principally capital improvements and repairs) and to borrowings made after the first five years from the date of the first unit sale.

The court concluded that the sponsor caused the condominium to incur $2.2 million in debt so that it could recoup lost sales proceeds it incurred as a result of its decision to reduce the sales price of the units to lower the tax assessments. The unit owners were required to pay additional consideration for their units through a compelled indirect financing mechanism under which the sponsor got more money for selling the units through a parking lease. Not only is borrowing by the condominium for the purpose of financing the acquisition of units, or for the purpose of creating an artificially low sales price for tax purposes, not within the scope permitted by the statute, but the borrowing occurred within the first five years of the condominium.

The court noted that while the fact of the borrowing was disclosed, the purpose of the borrowing was not. Nowhere were purchasers informed that the borrowing plan was devised as a means by which the sponsor would recoup the profits lost by price reductions made to achieve lower real estate taxes.

Because there were public policy implications, and because the statute was enacted to prevent such borrowing prior to expiration of the five-year period, the court declared the note and security documents violative of the condominium act. The court observed that case law concerning the enforceability of contracts that violate statutes is well settled. “[C]ontracts that violate statutory provisions are, as a general rule, unenforceable on public policy grounds where the statute that is violated is enacted to protect the public health and safety . . . or where the statute's purpose [is] the protection of public . . . morals or the prevention of fraud.” Benjamin v. Koeppel, 85 N.E.2d 549. Thus, “a party to an illegal contract cannot ask a court of law to help him carry out his illegal object . . . No one shall be permitted to profit by his own fraud . . . or to found any claim upon his own inequity.” McConnell v. Commonwealth Pictures Corp., 166 N.E.2d 494.

The court found no basis to allow the sponsor to amend the declaration as proposed, finding that a retroactive authorization in the declaration for the sponsor board to have entered into the note and security documents was not the unilateral amendment anticipated by the declaration.

The court granted the board’s motion for summary judgment on its first cause of action, declaring that the sponsor board had no legal right, power or authority to authorize, direct and/or permit the managing member to execute and deliver the promissory note and related security documents to Marbury Corners, LLC, and that the promissory note and security documents were illegal, invalid and/or otherwise unenforceable.

The court granted the board’s motion for summary judgment on its second cause of action, enjoining the sponsor from enforcing the provisions of the promissory note and security documents and declaring the documents cancelled and rescinded.

The issue of damages raised in the board’s third cause of action appeared to be complex, particularly as to payments received by the condominium from unit owners of the neighboring condominium for use of the recreational amenities. Accordingly, the court did not grant an inquest; rather, it scheduled a conference for the purpose of establishing schedules for resolution of the remaining issues in the case.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Association Not Liable for Owner's Injuries

Boyan v. The Orchards at Holmdel Condominium Association, Inc. No. A-1020-09T2, N.J. Super. Ct., App. Div., Oct. 13, 2010

Risks and Liabilities: A New Jersey appeals court affirmed a trial court's finding that a condominium association was not negligent in an accident that occurred when a unit owner fell through a perimeter fence located on her property.

Laura Boyan owns a unit in the Orchards at Holmdel Condominium, located in Monmouth County, N.J. The condominium is comprised of two sections. Boyan’s unit is situated in the second section.

The Orchards at Holmdel Condominium Association decided to replace the wooden enclosure fences in the first section of the condominium with vinyl fencing. No enclosure fences existed in the second section of the condominium except on Boyan's property.

When she learned that the association only intended to replace fences in the first section, Boyan contacted the property manager to request that her fence also be replaced. She was informed that she could attend the next meeting of the board of directors, who were then unaware that her property had a fence.

At the next board meeting, no business could be transacted because too few members were in attendance to constitute a quorum. Boyan attended the meeting carrying a glass of wine in one hand and a carafe of wine in the other. She appeared to be intoxicated and acted belligerently when she learned no business could be transacted. As a result, the board determined that all future communications with her should be through the association’s legal counsel.

After considering the difference in cost between wood and vinyl, the board approved a new wooden fence for Boyan’s property; however, when the contractor attempted to install the fence, Boyan threatened him with a suit if he proceeded, so the installation was suspended.

In 2003, Boyan was walking her dog when it bolted toward the fence and dislodged a board in the fence. She suffered an accident that caused injury to her head. She sued the association, alleging negligence and breach of fiduciary duty, claiming that, as a result of the accident, she experienced vertigo and pain in her head, neck, lower back and left leg. She also claimed that she suffered from a spinal condition that was asymptomatic until triggered by her accident. She claimed that these conditions severely affected her quality of life and ability to work.

The association denied Boyan’s claims, and following a jury trial, a verdict was rendered in favor of the association. Boyan appealed.

In her appeal, she contended that she was denied a fair trial because the jury was permitted to hear about her excessive alcohol consumption and bizarre behavior, which had no relevance to the case. She argued that the association’s references throughout the trial to “hidden proofs” bearing on the veracity of her claims and the trial judge's failure to give a limiting instruction to the jury excluding these statements were errors that warranted a new trial.

The appeals court noted that the trial court made a specific ruling prior to trial that evidence of Boyan’s intoxication at the board meeting was admissible to explain why the association had its attorney deal with Boyan instead of contacting her directly. On the other hand, the court ruled her prior DWI and any other consumption issues were inadmissible. The court observed that the testimony admitted at trial was used to impeach Boyan’s credibility, since she disputed the association’s testimony concerning her behavior at the board meeting. No claim was made that she had consumed alcohol on the date of the accident or that her consumption of alcohol caused or contributed to her accident. The court found that this testimony did not rise to a level sufficient to cause Boyan any injustice.

The trial court granted Boyan’s motion to bar the association from eliciting testimony or mentioning in its opening or closing statements that she was involved in prior car accidents in which she was not injured. Boyan argued that there was no evidence to suggest that she had any pre-existing conditions or had suffered injuries prior to the present incident. She argued that, in spite of the court’s ruling, the association alluded to missing medical records and secret doctors, as well as other inflammatory suggestions of hidden proofs, rendering her trial unfair.

The appeals court conceded that while it might have been true that the association suggested that her allegations were inconsistent, illogical or suspiciously coincidental to believe, it disagreed that her right to a fair trial was undermined, and the association’s accusations, insinuations or suggestions of lack of credibility did not have the clear capacity to project an unjust result.

Boyan also argued that the trial court erred by failing to give a curative instruction to the jury, but the court found no reversible error because the charge adequately conveyed the law, did not mislead the jury and demonstrated no prejudice toward Boyan.

The court affirmed the trial court’s ruling.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association Didnít Waive Right to Enforce Restriction

College Book Centers, Inc. v. Carefree Foothills Homeowners Association, No. 1 CA-CV 08-0450, Ariz. App. Ct., Oct. 26, 2010

Covenants Enforcement: An Arizona appeals court granted judgment as a matter of law to a homeowners association that refused to allow a lot owner to construct a roadway across his lot because it would violate a restrictive covenant that prohibited nonresidential structures.

Carefree Foothills is a residential subdivision consisting of 76 lots located in Maricopa County, Ariz. Each lot is subject to the declaration of covenants, conditions and restrictions, which prohibits nonresidential structures, and each lot owner is subject to mandatory membership in Carefree Foothills Homeowners Association. An architectural control committee is responsible for approving the construction of any structure to be placed on a lot. The declaration also provides that failure to enforce any restriction does not constitute a waiver of the right to enforce the restriction in the future.

Lot 24 is undeveloped and located on a cul-de-sac street. Adjacent to its eastern border is a nine-acre rectangular tract, known as Mamie Maude Mining Claim, which is not part of the subdivision. This tract, together with three other mining claims, was originally transferred to private ownership in 1912 when the U.S. government granted a land patent. At the time of the conveyance, federal land surrounded all four mining claims. At one point, the claims were allegedly accessible by Sentinel Rock Road, located just north of the Mamie Maude tract in its current configuration.

A steep slope divides the Mamie Maude tract into two areas: the elevated northern portion is sufficient for one large homesite, and the lower southern portion is large enough to build four homes on one-acre lots. Because of the steep grade, it is not feasible to safely build a road connecting the two portions of the tract. Sentinel Rock Road currently provides access to a planned development north of the tract but does not provide legal access to the tract itself.

David Vanyo is trustee for College Book Centers, Inc., 401 Profit Sharing Plan. He purchased lot 24 and the Mamie Maude tract in March 2005. Although he stated he was unaware of the access problems when he purchased the properties, he was aware, from due diligence conducted before closing, that lot 24 was subject to a restriction that prohibited construction of a roadway, and he knew that developing the Mamie Maude tract would be difficult.

Vanyo’s predecessor-in-interest had previously submitted a plan to the association to construct a roadway across lot 24 to access the lower portion of the Mamie Maude tract. The association rejected the plan, explaining that construction of the roadway would violate the restriction that prohibited nonresidential structures. Vanyo submitted another proposal to the association to build a roadway across lot 24, which the association also rejected.

Vanyo subsequently sued the association, alleging that its refusal to grant his request to construct a roadway across lot 24 prevented him from accessing the Mamie Maude tract. He sought a declaratory judgment that the association had waived the restriction prohibiting nonresidential structures by explicitly or implicitly approving two other roadways within the subdivision, and he was entitled to an implied way of necessity across lot 24.

Alternatively, Vanyo alleged that he was entitled to a statutory private way of necessity across lot 24. Specifically, he sought to obtain an easement across lot 24 by condemning the association’s interest in the restriction that prohibited nonresidential structures. The association filed motions for judgment as a matter of law as to all three claims. All of the claims were tried by a jury.

For Vanyo’s claim, the jury found in his favor that the association waived its ability to enforce the restriction. It did not decide the implied way of necessity and private condemnation claims because the special verdict form instructed the jury members to cease deliberations if they found the waiver claim verdict in Vanyo’s favor.

The association renewed its motions for judgment as a matter of law, alternatively requesting a new trial based on the court's jury instruction on the waiver claim. The trial court denied the association's motions, and the association appealed.

The appeals court noted that a court properly grants a motion for judgment as a matter of law "only if the facts presented in support of a claim have so little probative value that reasonable people could not find for the claimant." The association argued that it never approved similar restriction violations, and even if it had, the non-waiver provision in the declaration barred Vanyo's waiver claim.

Vanyo did not dispute that his proposed roadway was a nonresidential structure that would violate the restriction or that the association had the right to prevent the roadway. However, he presented evidence at trial to support his claim that two similar violations of the restriction had occurred on lots located within the subdivision. The first evolved from a 1984 grant of an access easement across lot 7 to a five-acre parcel outside the subdivision that, like the Mamie Maude tract, was currently zoned for one residence per acre. The developer of Carefree Foothills granted the easement and, at that time, unilaterally made all decisions regarding the subdivision because the association had not yet been formed.

The second violation arose from a 1987 grant of an easement for reciprocal ingress and egress among the owners of lots 42 and 43 and the developer, who owned lot 44 at the time. A roadway crossing all three lots was constructed to provide access to lot 42.

Assuming that these two roadways violated the nonresidential structure restriction, the appeals court concluded, as a matter of law, that the roadways did not constitute frequent violations such that a jury could reasonably infer waiver.

Even if the violations could reasonably be considered frequent, the court held that the association was entitled to judgment as a matter of law based on the non-waiver provision contained in the declaration, explaining that when declarations contain a non-waiver provision, a restriction remains enforceable, despite prior violations, so long as the violations do not constitute complete abandonment. Vanyo argued that the nonwaiver provision was intended only to protect the association from unintentionally waiving its enforcement rights through inaction and was never intended to shield the association from the consequences of affirmatively approving restriction violations. The court disagreed.

The record did not support Vanyo’s assertion that the association affirmatively approved the two previous roadways, and he provided no documentation, such as board or committee minutes, showing that the association approved or ratified either roadway. The most he could claim was that the association ignored the two roadways after they were constructed. Furthermore, assuming that the association approved the roadways, the law does not support the assertion that waiver applies only in the context of affirmative acts; in fact, waiver is the relinquishment of a known right.

The court concluded that Vanyo’s claim that the association waived its ability to enforce the declaration to prevent construction of his proposed roadway across lot 24 failed as a matter of law. It vacated the jury’s verdict and remanded the case for entry of judgment in the association’s favor on that claim.

The association then argued that Vanyo failed to establish a prima facie case of an implied way of necessity under common law, and therefore, the court erred in denying its motion for judgment as a matter of law. The appeals court agreed.

When land is sold that has no outlet, the seller, by implication of law, grants rights of ingress and egress over the parcel to which he retains ownership. In contrast to access achieved by private condemnation by statute, an outlet imposed by common law implication is known as “implied way of necessity.” An implied way of necessity is appurtenant to the land; thus, if the owner of the Mamie Maude tract acquired an implied way of necessity over the adjoining federal land at the time the tract was created, Vanyo would have been its recipient. Otherwise, Vanyo could seek to obtain a private way of necessity under Arizona’s private condemnation statute.

To establish an implied way of necessity, Vanyo was required to show (1) that the Mamie Maude tract (dominant property) and the surrounding federal land (servient property) were under common ownership; (2) that the Mamie Maude tract was severed; (3) that it had no outlet at the time it was severed; and (4) that access across federal land was reasonably necessary when severance occurred.

It was undisputed that the Mamie Maude tract and surrounding federal lands were under common ownership prior to severance of the four mining claims in 1912. However, the court found nothing in the record to establish that it was landlocked in 1912 when severance occurred. Vanyo contended that the 1912 patent transferring the Mamie Maude tract and the other mining claims from the federal government into private ownership was sufficient to create an implied way of necessity because the patent was silent as to access. He asserted that because there was never any recorded access to the tract, the only logical conclusion was that there was never any “legal” access, thus proving the elements of an implied way of necessity.

The court did not agree that the 1912 land patent’s silence regarding access was sufficient to establish lack of an outlet at the time. As noted, the tract was conveyed as part of a larger parcel; thus, Vanyo must provide at least some evidence that the property consisting of the four mining claims was landlocked. At trial he did not present any historical evidence other than a 1909 survey and the 1912 land patent. He did not try to prove whether mining activities were being conducted at the time or whether access was necessary to perform such activities, which may have been by foot, mule or wagon. That type of information would have provided the court with a basis to determine whether there was access to the tract or any of the adjoining mining claims conveyed in 1912. The court concluded that having failed to present such evidence at trial, Vanyo could not prevail on his claim for an implied way of necessity.

Vanyo then argued that the policy behind the implied way of necessity doctrine was to encourage the use of land, and the court should focus on “reasonable necessity, not historic use.” He contended that, “any grant of rural property without express access that occurred prior to the advent of the automobile and expansion of the roadway system could never give rise to an implied easement,” and landlocked parcels in Arizona could remain that way forever. The court noted that he failed to consider that the Arizona Constitution provides a remedy for these circumstances in a private way of necessity. Thus, a landowner who cannot establish a right of access by implication may, nonetheless, be able to obtain access.

Because the court found no evidence in the record that the Mamie Maude tract was inaccessible in 1912, it concluded that Vanyo failed to establish entitlement to an implied way of necessity for lot 24. Accordingly, the association was entitled to judgment as a matter of law on this claim.

Lastly, the association argued that it was entitled to judgment as a matter of law on Vanyo’s claim that he had a statutory right to privately condemn the restriction, thereby removing the legal obstacle that prevented construction of a roadway across lot 24.

Arizona law authorizes the owner of landlocked property to acquire a private way of necessity through condemnation. Section 12-1203(A) of the Arizona Revised Statutes provides:

An owner of or a person entitled to the beneficial use of land, mines or mining claims and structures thereon, which is so situated with respect to the land of another that it is necessary for its proper use and enjoyment to have and maintain a private way of necessity over, across, through and on the premises, may condemn and take lands of another, sufficient in area for the construction and maintenance of the private way of necessity.

This statutory right is created only if no other access exists by common law implication. The fact that an alternative route is available does not, however, bar a lawsuit seeking to condemn a private way of necessity. A person seeking to take a property interest of another must establish that a “reasonable necessity” exists.

To establish his right to construct a roadway on lot 24 based on a private right of condemnation, Vanyo merely had to show that removal of the nonresidential structure restriction was reasonably necessary for the proper use and enjoyment of the Mamie Maude tract. The evidence at trial was disputed as to whether Sentinel Rock Road provided reasonable access to the tract, including the larger portion located below the steep slope. Thus, the issue of Vanyo’s entitlement to condemn a property interest enabling him to access all or a portion of the tract were questions for the jury, and the trial court did not err in denying the association’s motion for judgment as a matter of law.

Because the jury found that the association waived its right to enforce the declaration, it did not deliberate whether Vanyo could condemn the lot owners’ interests in the declaration or determine whether the association presented sufficient evidence to establish it was entitled to damages for the loss of its ability to enforce the restrictive covenant against lot 24.

The court reversed the trial court’s denial of the association's motion for judgment as a matter of law on Vanyo’s waiver and implied way of necessity claims. It remanded the case for entry of judgment in favor of the association on those two claims.

As to Vanyo’s claim for acquiring access by virtue of a private right of condemnation, the court remanded the issue for a new trial.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Co-developer Liable for Construction Defects

In re Tarragon Corporation, No. 09-10555 (DHS), Adv. Pro. No.: 09-01465 (DHS), U.S. Dist. Ct., Dist. N.J., Oct. 1, 2010

Developer Liability: A homeowners owners association, alleging construction defects, sued a developer that jointly built a condominium complex, . The bankruptcy court dismissed third-party claims brought against the developer's officers by its co-developer for indemnification, contribution and violations of state consumer protection laws.

1200 Grand Street Condominium Association sued Tarragon Corporation and URSA Development, Inc., joint developers of the condominium, alleging construction defects. Defendants, URSA Development Group, Mark Settembre and Michael Sciarra (collectively, URSA) filed a cross complaint against officers of Tarragon, William S. Friedman and Robert Rohdie, seeking to hold them responsible for implied indemnification and contribution for any liability incurred by URSA. Friedman and Rohdie moved to dismiss the third-party claims.

URSA contended that Friedman and Rohdie supervised construction of the condominium and controlled, directly or indirectly, all actions alleged in the association’s suit.

Friedman and Rhodie argued that they were not party to a binding agreement that would provide for indemnification, nor did they have a special legal relationship with URSA that would be required for any finding of implied indemnification. Further, they asserted that the Comparative Negligence Act does not provide for a private cause of action among joint tortfeasors, nor could they be considered joint tortfeasors under New Jersey law. Lastly, they argued that the underlying claims sounded in contract, not tort, and therefore, they were not liable to URSA for contribution.

URSA argued, conversely, that the parties were bound by an operating agreement that included an indemnification clause. The operating agreement purportedly detailed the parties’ responsibilities and provided for the indemnification of its members and managers. URSA asserted that it was entitled to implied indemnification, regardless of the relationship with Friedman and Rhodie because of vicarious liability for claims brought by the association. URSA further argued that since Friedman and Rhodie could be held personally liable, they were joint tortfeasors and were liable for contribution under New Jersey law.  

The court noted that a contract will not be construed to indemnify a party against losses resulting from its own negligence unless that intention is expressed in unequivocal terms. URSA was accused of negligence and other wrongdoing. It failed to identify an agreement in its complaint that would support a finding of express or contractual indemnification. Assuming that the operating agreement applied to the condominium, Friedman and Rhodie were neither parties to the operating agreement nor bound by its terms. Thus, URSA’s cross-claim for contractual indemnification failed.

URSA claimed that it was entitled to implied indemnification because it was free of fault and only incurred liability as a result of Friedman and Rhodie’s actions. The court found that New Jersey’s case law supports implied indemnification founded either by (1) a special legal relationship between the parties and a plaintiff’s vicarious liability; or (2) a finding that one party’s liability is purely vicarious and free of fault. The court concluded that implied indemnification did not apply since there was no special relationship between the officers and URSA, and URSA's potential liability was primary rather than vicarious.

URSA sought contribution under the New Jersey Joint Tortfeaser’s Contribution Act and the Comparative Negligence Act. It alleged that Friedman and Rhodie were personally liable under association claims predicated on violations of the Consumer Fraud Act and Planned Real Estate Development Full Disclosure Act. In the absence of any alleged tortious conduct on the part of the officers, the court found they could not be liable for contribution based solely on their positions as officers of Tarragon, which allegedly committed the tortious acts, and could not be held liable based on comparative negligence as joint tortfeasors.

The court found that while Friedman and Rhodie were potentially liable under state laws prohibiting unconscionable practices that victimized consumers, URSA failed to allege with the requisite particularity that they committed any unlawful practice.

The court granted Friedman and Rhodie’s motion to dismiss the cross-claims, but granted leave to URSA to amend its complaint to address the pleading deficiencies.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Homeowners Can't Protest Zoning Changes

Jennings v. The Borough of Highlands, No. A-0941-09T1, N.J. Super. Ct., App. Div., March 14, 2011

State and Local Legislation and Regulations: A New Jersey appeals court affirmed a ruling that protests by condominium owners did not trigger a heightened voting threshold on a zoning amendment under the Municipal Land Use Law.

The Borough of Highlands is located in Monmouth County, N.J. It has a population of approximately 5,100 residents, including Eastpointe, a 14-story residential high-rise condominium comprised of 166 units. In 2007, the Borough’s governing body introduced an ordinance to amend the planning board’s master plan, which was opposed by a group of local residents and failed to pass. The governing body directed the planning board to review the ordinance and make recommendations. After holding public hearings and discussing the proposed ordinance, the board adopted a resolution proposing eight distinct recommendations to the council.

Special counsel determined that the Borough did not have jurisdiction to defeat the ordinance because inadequate notice was given to landowners situated within 200 feet of the affected zone. Subsequently, the Borough council sought to revive the ordinance and served new public notices on all affected property owners.

A second protest petition was circulated, and 74 condominium owners from Eastpointe signed the petition; however, the condominium association took no action. Eastpointe’s parking lot and open space are located within 200 feet of the land affected by the ordinance, but none of its condominium units lie within the 200-foot area.

New Jersey’s Municipal Land Use Law requires a two-thirds supermajority of the council for zoning ordinance approval if a petition is signed by owners of lots encompassing 20 percent or more of the area in question or of lots extending 200 feet from the area subject to rezoning.

The transcript of the public hearing indicated that the public comments were uniformly opposed to the zoning amendment. The transcript did not reflect any discussion by the council of the planning board's report and recommendations. The council ultimately voted three to two to adopt the zoning amendment, which necessitated a review by special counsel to determine whether the vote required a super-majority. He concluded that a super-majority vote was not necessary because neither of the protest petitions had enough signatures to account for 20 percent of the lots or land directly affected by the ordinance.

Pauline Jennings sued the Borough seeking a declaration that the ordinance was invalid because it was not passed by a supermajority vote. The trial court held that the Borough properly adopted the ordinance without a supermajority vote. Jennings appealed.

The appeals court found that, on its face, the land use statute conferred significant protest rights only to owners of “lots or lands” located within 200 feet of the land subject to the proposed zoning ordinance. Only entire properties inside that 200-feet perimeter are eligible to protest, not properties that have a portion of land within the perimeter. Thus, because all units in Eastpointe lay outside the required perimeter, the condominium owners were not eligible to protest the ordinance.

Further, the court found that condominium unit owners hold a hybrid interest in real estate, having fee-simple title to their individual units while retaining an undivided interest in common areas as tenants-in-common with other unit owners. Because of the shared nature of the common elements, the New Jersey Condominium Act provides a mechanism, the condominium association, to administer the interests of the owners. The court recognized the anomaly that the association does not own the common elements; nevertheless, it conferred upon it the rights of an owner of “lots or land” under the land use statute to ensure fulfillment of the legislative purpose.

The court noted that the association has a fiduciary obligation to the unit owners to preserve and protect the common elements for all of its members. From established principles governing condominiums, the court concluded that individual Eastpointe unit owners did not qualify as owners eligible to protest the ordinance because their interests in the common elements were shared with other unit owners as governed by the Condominium Act. Instead, consistent with the Act, the responsibility to decide whether to engage in the protest petition rested with the association.

The court observed that the legislature could have written a broader provision, but elected otherwise. Tenants, mortgagees, lien holders, judgment creditors, contract purchasers, beneficiaries and persons with future interests cannot validly execute a protest petition. Because the individual condominium owners did not own their common elements outright, their individual signatures could not be considered a valid protest. Therefore, the court agreed with the trial court that inclusion of the Eastpointe land within the zoning area contravened the land use statute and the ordinance was not rendered ineffective by the three-to-two vote.

However, the court next considered the basis of its disagreement with the trial court over the Borough council’s failure to review the report and recommendations of the planning board. The appeals court found from the record that the Borough council abdicated its duty to legislatively review the planning board’s report. Although it did not change or reject any part of the board’s recommendations, it largely ignored them. In keeping with the land use statute, a mandatory duty is imposed on a governing body to “review the report of the planning board.” There was no evidence that the council complied with the plain language of the statute. Therefore, the court found that adoption of the ordinance was invalid, and it reversed the trial court’s ruling.

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Developer's Rights Don't Extend to Reserve Property

Marzo Club, L.L.C. v. Columbia Lakes Homeowners Association, No. 14-09-00099-CV, Texas App. Ct., Oct. 19, 2010

Developmental Rights/Covenants Enforcement: A Texas appeals court reversed a judgment in favor of a homeowners association that adopted amendments to restrictive covenants subjecting previously unrestricted reserve lands to the restrictions.

In 1972, Tenneco Realty Development Company began development of Columbia Lakes Subdivision in Brazoria County, Texas. At the time, Tenneco recorded restrictive covenants that provided for areas shown on the recorded plats of the subdivision to be unrestricted areas to be used for any purpose by the developer. Though it did not impose restrictions on the reserves, Tenneco reserved the right in the declaration to impose restrictions in the future.

In 1988, CLT Properties, Inc.,assumed the role of developer of the subdivision and subsequently conveyed various lots—as well as two tracts of land located in the reserves—to Columbia Lakes, LLC. At that time, CLT filed the amendment to restrictions and partial transfer and assignment of rights and functions of the developer. However, CLT reserved for itself “all the right, title, interest, equity and estate as developer in the [restrictions] with respect to the remainder of all property now or hereafter owned by CLT Properties, Inc., in Columbia Lakes Subdivision.” Thereafter, Columbia Lakes assigned its right, title and interest in its role as developer of the subdivision to Columbia Lakes Homeowners Association.

In September 2006, CLT conveyed various tracts located in the reserves to Marzo Club, LLC, along with all of its right, title, interest and estate as developer in the restrictions as amended. The assignment provided that Marzo’s rights under the assignment were subject to any amendments to the restrictions made before or contemporaneously with the assignment.

The association, acting as a subdivision developer, adopted and recorded amendments to the restrictions that subjected the reserves to the restrictions. Subsequently, the association sued Marzo, seeking a judicial declaration that Marzo was developing association property. The association claimed that Marzo declined to engage in discussions regarding contributions to the maintenance fund maintained for the subdivision. It alleged that properties located in the previously unrestricted reserves should bear their fair share of the association’s maintenance expenses upon their development for sale, improvement and use as residential lots and be subject to the association's architectural controls. It sought judicial determination of its rights, powers and authority under the recorded documents as to its role as developer of the subdivision. It also sought a specific declaration that the recorded amendments to the Restrictions were “valid and subsisting.”

Marzo filed a motion for declaratory relief seeking a determination that the amendments made by the association to the restrictions were invalid and unenforceable. It moved for summary judgment on traditional and no-evidence grounds, asserting that the reserve parcels were not within the boundaries of the subdivision, that they were sold as unrestricted property and that CLT excluded from its transfer to the association the properties and developer rights that were purchased by Marzo. Thus, developer rights within the subdivision were partitioned and limited by the specific parcels to which they related within the subdivision. Marzo further argued that it did not consent to the amendments and, as a developer, was entitled to exempt any lots in the subdivision from a maintenance charge.

The association then filed a motion for summary judgment, arguing that even though a surveyor’s affidavit stated that none of the parcels conveyed to Marzo were within the boundaries of the subdivision, the restrictions provided that the reserves were part of the subdivision and stated “it is the intention of the developer to include all of the premises, except as herein expressly excluded, in said plat . . . ” Accordingly, the association interpreted that the reserves were subject to the provisions of the restrictions, permitting the developer or one with developer rights to later impose restrictions.

The association conceded that when the property was sold to Marzo, it was unrestricted, but they argued that because the purchase was made from property identified on recorded plats of the subdivision as reserves, Marzo purchased the property aware that, under the restrictions, a developer could later impose restrictive covenants. The association asserted that his argument asserting that developer rights were “partitioned and limited by the specific parcels to which they related within the subdivision,” was contrary to the restrictions and contrary to Tenneco’s plan to develop all the land on the several plats as a “single development.” The association did acknowledge, however, that the current situation was that several entities within the subdivision were vested with developer rights.

The association claimed that the restrictions effectively required that all parties with developer rights consent to imposition of the restrictions on areas that were originally designated as unrestricted on the subdivision plats, pointing out that the restrictions defined “lots” to explicitly include any portions of the reserves shown on the recorded plats of the subdivision.

The association acknowledged that Marzo had not consented to the amendments. Thus, it did not request a declaration that the amendments were valid; instead, it requested that the court find that even if the amendments were invalid because of lack of consent, under the original restrictions, all parties who are assigned developer rights in connection with title to the lands identified on plats of the subdivision as reserves must consent to the adoption of any restrictions proposed as to any parcel so identified in order for such restrictions to be legally effective.

The trial court granted the association’s motion for summary judgment. The court declared that any entity assigned developer rights must consent to the adoption of restrictions proposed to be imposed on any parcel of land identified as reserve on any of the recorded plats of the subdivision. Marzo appealed.

In its appeal, Marzo argued that the trial court’s judgment was not supported by the pleadings. It pointed out that the association did not specifically request the trial court to make the declaration contained in the judgment. Nonetheless, because no special exceptions were asserted against the association’s petition requesting a declaration and determination of its rights under the restrictions, the appeals court had to construe the pleading liberally in the association’s favor. Although the association did not specifically request the declaration made by the court, its general request was sufficient to constitute a request for the relief granted in the trial court’s judgment. Accordingly, the appeals court overruled Marzo’s first issue.

Marzo asserted that the trial court erred in declaring that all entities holding developer rights must consent to adoption of any restrictions to be imposed on reserves because the association only acquired partial developer rights.

The appeals court considered that, in the original restrictions, it was expressly contemplated that the developer included several entities that, by their agreements with Tenneco, were substituted as developer under the restrictions. Under the unambiguous language of the partial transfer, CLT agreed that Columbia Lakes would receive the right to be substituted as developer under the restrictions, but only as to that property conveyed to Columbia Lakes by CLT. CLT expressly reserved all developer rights to property not conveyed to Columbia Lakes. As the assignee of Columbia Lakes’ developer rights, the association had no greater developer rights than its assignor, Columbia Lakes.

The court considered that it would be unreasonable and contrary to the unambiguous language of the relevant instruments to construe any party with developer rights as being the developer to all reserves. Instead, as a matter of law, the association was the sole developer as to the Columbia Lakes property, and Marzo was the sole developer as to its property.

The association argued that the instruments whereby Marzo received its developer rights expressly stated that the assignment of developer rights was subject to the partial transfer, in which the association’s assignor received developer rights as to the Columbia Lakes properties as well as the rights and duties regarding the architectural control committee and maintenance fund committee.

However, the court determined that Marzo’s developer rights were not made subordinate to the association’s developer rights because these subsequent instruments were subject to the partial transfer. The assignors in the subsequent instruments did not purport to assign any developer rights that were transferred in the partial transfer, and the fact that these assignments were subject to the partial transfer did not support the declaratory relief granted by the trial court.

The association also relied on Tenneco’s statement in the original restrictions that it desired to, “create and carry out a uniform plan and scheme for improvement, development and sale of certain property in Columbia Lakes.” The court concluded, however, that although Tenneco stated that desire in 1972, it chose the original restrictions as a means by which to pursue and effect the desire, and the restrictions allowed for partial transfers of developer rights as to different properties.

Though the association argued that the trial court’s construction of the recorded documents was sensible and fair, the appeals court concluded that the trial court’s construction did not give effect to the unambiguous language of the instruments, and held that it erred in rendering the declaratory relief contained in its summary judgment. Accordingly, the appeals court sustained this issue raised by Marzo.

Marzo argued that the trial court erred in denying its motion for summary judgment. It asserted that there was no genuine fact issue, and it was entitled to summary judgment as to five issues raised at trial and on appeal. However, the appeals court found those five issues raised were summary-judgment grounds, and Marzo did not ask the trial court to make a declaration as to any of those grounds. Marzo asked the trial court to render judgment that the association’s amendments to the restrictions were invalid. It presented no appellate argument in support of its position that it was entitled to relief as a matter of law. Nor did it present argument that the summary-judgment evidence proved, as a matter of law, that the association was not entitled to any of the relief requested in its petition or that the amendments were invalid. The appeals court concluded that Marzo’s argument failed to show that Marzo was entitled to summary judgment and overruled this issue.

The court held that the trial court’s judgment was supported by the pleadings; but its only declaration was contrary to the unambiguous language of the relevant recorded instruments. Marzo did not present an argument that it was entitled to the relief requested in its summary-judgment motion. Therefore, it failed to show that the trial court erred in denying the motion.

Though the trial court erred in rendering judgment, both parties requested declaratory relief that was not resolved by the appeal. Accordingly, the court reversed the trial court’s judgment and remanded the case for further proceedings consistent with its findings, including but not limited to consideration by the trial court of the remaining requests for declaratory relief.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Easement Doesnít Pertain to Similarly Situated Properties

Mattison v. Black Point Beach Club Association, No. 09-4174-cv, U.S. App. Ct., 2nd Cir., May 10, 2010

Federal Law and Legislation/Powers of the Association: A U.S. appeals court affirmed a grant of summary judgment to an association in an equal protection action filed by a homeowner who claimed the association singled her out for arbitrary treatment when it denied her request for an easement across a private road owned by the association.

Frances Mattison owned property in Black Point Beach Club in Connecticut. She sued the Black Point Beach Club Association in a “class-of-one” equal protection action, alleging that the association unlawfully singled her out for arbitrary treatment when, after granting an easement to an owner of a similarly situated property, it denied her request for an easement over a street owned by the association.

A class-of-one plaintiff must show, among other things, “an extremely high degree of similarity” between herself and comparators to succeed on an equal protection claim. She must demonstrate that (1) “no rational person could regard the circumstances of the plaintiff to differ from those of a comparator to a degree that would justify the differential treatment on the basis of a legitimate government policy” and (2) “the similarity in circumstances and difference in treatment are sufficient to exclude the possibility that the defendants acted on the basis of a mistake.”

Mattison did not dispute that the other owner’s property was landlocked and had no access to public roads. By contrast, her property was not landlocked when she requested an easement. Like the district court, the appeals court concluded that this fact alone precluded a reasonable person from finding that Mattison was similarly situated to her comparator.

Mattison argued that the district court should have compared the other owner's property with a one-acre lot she planned to split from her 4.5-acre property, not to the undivided whole; but her argument failed because the landlocked parcel she described on appeal did not exist at the time she requested the easement from the association or during the trial.

The court found that the district court properly concluded that Mattison failed as a matter of law to show that she and the owner of the other property receiving an easement from the association were similarly situated to the degree necessary to support a class-of-one equal protection claim.

The district court’s ruling was affirmed.

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Owners Fail to Prove Association's Liability for Mold Damage

Winters v. Gold Parc Condominium Association, Inc. No. A-4732-08T3, N.J. Super. Ct., App. Div., Oct. 14, 2010

Risks and Liabilities: A New Jersey trial court properly dismissed a suit against a condominium association that alleged the association’s failure to repair leaks in the common areas caused mold contamination of a unit.

Jo Dee Winters and Amit Levitin resided in a unit in Gold Parc condominium, which is located in Hudson County, N.J. A leak in the roof and cracks in the exterior walls of the building caused flooding in their unit when it rained. They hired a laboratory to test the unit for mold contamination, and the mold inspection report contained findings that certain specific forms of mold were present in the unit, and the inspectors recommended professional remediation. Winters formally notified the association’s property manager of the problems and subsequently moved out of the unit on the advice of his physician.

In October 2007, Winters and Levitin sued the association. Their complaint sought a declaratory finding that the association had breached its contractual duties, specifically performance of repairs to their unit and compensatory damages.

The discovery period for hearing was extended twice, resulting in a 15-month discovery period. In a November order, the trial court set a discovery end date in February 2009 and a trial date in March 2009.

In January 2008, the association served interrogatories on Winters and Levitin that included a request for an itemized statement of all damages alleged as a result of leaks and mold that formed the basis of their complaint. They responded to the interrogatory in April 2008 by providing three documents and a statement that they would supplement the response with additional documents.

The day before close of discovery, the association received a package of approximately 2,000 pages that represented the unit owners’ out-of-pocket expenses after they moved out of the condominium.

Other interrogatories requested disclosure of experts and expert reports. The plaintiffs responded, “To the extent that this interrogatory seeks disclosure relating to a testifying expert, the plaintiff has not retained any testifying experts. The plaintiff’s unit has been tested for mold.” Although an order dated June 20, 2008, required the production of all expert reports by August 15, 2008, the unit owners never identified the laboratory mold inspection report as an expert report or provided any other expert report to the association in support of their claim.

In February 2009, before delivery of the additional responsive documents, the parties agreed that depositions could be taken after close of discovery because Winters was undergoing medical treatment. The association took the plaintiffs’ depositions in March 2009.

The trial was adjourned after the association filed a summary judgment motion that was denied on March 31, 2009. The association later filed two motions in limine. In one they sought to preclude Winters and Levitin from introducing evidence of economic damage on grounds that their late production of documents failed to comply with Civil Procedures Rule 4:17-7, and in the other, they sought to exclude the laboratory mold report as hearsay. The trial court granted both motions. Because the plaintiffs were unable to prove damages as a result of the court’s rulings on the in limine motions, the court dismissed their complaint with prejudice. They appealed.

Winters and Levitin argued in their appeal that the trial court abused its discretion in granting the association’s motions in limine and, subsequently, in dismissing the case. The appeals court observed that Rule 4:17-7 provides that amended answers to interrogatories must be served no later than 20 days prior to the end of discovery. After discovery is ended, amendments may only be allowed if the amending party includes a certification that the information in the amendment was not available prior to the discovery end date. The rule provides that, “In the absence of said certification, the late amendment shall be disregarded by the court and adverse parties.”

Here, Winters and Levitin served 2,000 documents on the eve of the expiration of the discovery period, and no certification was filed to excuse the untimely amendment. The plaintiffs were unable to represent, let alone show, that the documents were not available prior to the discovery end date. As a result, pursuant to the unequivocal language of the rule, the court disregarded the filing.

Winters and Levitin also argued that the trial court abused its discretion in excluding the laboratory mold inspection report as hearsay. The appeals court observed that the plaintiffs represented during the discovery period that they did not intend to call any expert witnesses during their case-in-chief. The association argued that because the laboratory mold inspection report was not disclosed as expert testimony, it constituted inadmissible hearsay evidence. Winters and Levitin argued that the existence of mold in their unit was not a disputed fact, and further, that they were willing to have the report admitted for limited purposes to show the notice provided to the association and the reasonableness of their decision to vacate the unit.

The appeals court granted deference to the trial court’s finding that allowing the laboratory mold inspection report as evidence would be used to prove the truth of the mold infestation. However, the report was not properly admissible without expert testimony to establish the nature of the testing that was done and the conclusions that were drawn. The trial court had considered each of the arguments made by Winters and Levitin and determined that the issue of the extent of the mold was disputed and, despite the offer to use the report for limited purposes, the conclusions contained in the report to support their arguments required expert testimony to be admissible.

The appeals court was satisfied that the trial court did not abuse its discretion in granting the motion to exclude the report. Because Winters and Levitin were unable to sustain their burden of proof following the court’s rulings, their complaint was properly dismissed with prejudice.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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