ATTORNEY ADVERTISING
Client Alert / March 2014
LITIGATION
CONDO ASSOCIATION LAWSUIT – SAVED BY RATIFICATION –
WHAT IT MEANS FOR YOU
By: Karim G. Kaspar, Esq. and Richard A. Bodnar, Esq.
In late January, the New Jersey
Appellate Division confronted a case
where a Condominium Association’s
bylaws required unit owner approval
for the filing of a lawsuit. Port Liberte
II Condomnium Association, Inc.,
v. New Liberty Residential Urban
Renewal Company, LLC, et al. 2014
WL 339882, – A.3d – (N.J. App.
Div. January 31, 2014) (awaiting
publication). The Court held that postcomplaint unit owner ratification can
be sufficient to allow the Association
to pursue its claims. This holding
is relevant to any condominium
association considering litigation
and may prove more broadly relevant
to any association seeking to take
actions requiring unit owner approval.
Port Liberte II concerns construction
defects by a developer who built the
225-unit condominium development
completed in 2004. When the
Association took over the development,
it discovered numerous alleged
construction defects. After attempting
unsuccessfully to settle the dispute,
the Association filed suit against the
developer in 2008 without seeking or
receiving unit owners’ approval despite
a by-law requiring as much.
The Association did not seek a vote
of the members because the statute
of limitations was about to expire on
certain of its claims. Shortly after filing
the lawsuit, the Association called an
owner meeting to ratify approval for
the lawsuit and to borrow money to
fund it. At the next meeting, the unit
owners, nearly unanimously, approved
the lawsuit.
In 2011, after extensive discovery,
defendants filed a summary judgment
motion seeking dismissal of the
complaint because the Association did
not receive unit owner approval before
filing the suit. The trial court granted
defendants’ motion and dismissed the
suit at the summary judgment stage,
holding that since the bylaws required
unit owner approval to commence a
lawsuit and approval was not received
before filing, the Association lacked
standing to proceed. The Association
held a second ratification vote after the
decision and sought to reinstate the
complaint – but the trial court denied
this as well. The Association appealed,
as the ruling would have left $18
million worth of construction defect
repairs on the shoulders of the unit
owners, who would have to collectively
fund the repairs without any
compensation from the responsible
parties – and bear all the litigation
costs accrued through 2011, including
for the extensive discovery taken.
The Appellate Division reversed
the trial court, holding that later
ratification by the unit owners of
the lawsuit granted the Association
standing to proceed. Further, the
Appellate Division held that the
trial court’s ruling was contrary to
the intent of the Condominium Act,
N.J.S.A. 46:8B–1 to –38, which granted
associations the sole right to pursue
claims related to the common areas
and, indeed, allowed unit owners
to launch derivative suits against
associations that refused to pursue
such claims. The Condominium Act, the
Appellate Division observed, envisioned
giving associations the power to pursue
these claims and thus it would be
contrary to the Act to dismiss a claim
that was pursued by an association and
ratified by the unit owners.
The Appellate Division’s endorsement
of ratification may have broad-reaching
implications. For example, this case
may allow unit owner votes, so long
as the unit owners later ratify the
activity engaged in. On the other hand,
the facts of the case, including that
dismissal would have precluded any
recovery by the Association, that the
Association and unit owners’ interests
were aligned, and that there were two,
separate, nearly unanimous ratification
votes may limit the implications of
this holding.
In light of the Appellate Division ruling,
condominium associations, especially
those with consent provisions in the
bylaws, should know the following:
1. If considering litigation, contact
counsel as early as possible in the
process for a review of the bylaws,
the statute of limitations and your
potential claims;
2. This decision may allow ratification
in areas besides litigation. A review
of the bylaws of your association can
assist you in understanding when unit
owner votes are required.
LITIGATION
contacts
For any questions or comments
related to the above or involving
condominium association
litigation, please contact:
Karim G. Kaspar
973 597 2390
[email protected]
Richard A. Bodnar
973 422 6474
[email protected]
www.lowenstein.com
New York
Palo Alto
Roseland
1251 Avenue of the Americas
New York, NY 10020
212 262 6700
390 Lytton Avenue
Palo Alto, CA 94301
650 433 5800
65 Livingston Avenue
Roseland, NJ 07068
973 597 2500
© 2014 Lowenstein Sandler LLP.
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to the completeness or accuracy of this Client Alert and assumes no responsibility
to update the Client Alert based upon events subsequent to the date of its
publication, such as new legislation, regulations, and judicial decisions. Readers
should consult legal counsel of their own choosing to discuss how these matters
may relate to their individual circumstances.