LOUIS ESPOSITO BARBARA ESPOSITO v. RIVIERA AT FREEHOLD HOMEOWNERS ASSOCIATION INC

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Superior Court of New Jersey, Appellate Division.

LOUIS ESPOSITO and BARBARA ESPOSITO, Plaintiffs–Appellants, v. RIVIERA AT FREEHOLD HOMEOWNERS ASSOCIATION, INC., Defendant–Respondent.

DOCKET NO. A–6001–09T1

Decided: June 30, 2011

Before Judges Graves and St. John. Woehling & Freeman, L.L.P., attorneys for appellant (R. Bruce Freeman, on the brief). Hueston McNulty, P.C., attorneys for respondent (Samuel J. McNulty, of counsel and on the brief;  Stephen H. Shaw, on the brief).

Plaintiffs Louis and Barbara Esposito appeal from a May 19, 2010 order, and a supplemental order of judgment.   We affirm.

In October 2005, the Espositos entered into a contract to purchase a home in Freehold, New Jersey, located in an adult active community known as The Riviera at Freehold.   On July 31, 2006, the Espositos closed on their home.   Prior to closing, the Espositos decided to replace the front door of the home.   Louis was advised that he could not change the front door without first submitting the necessary application and obtaining prior written approval from the Board of The Riviera at Freehold Homeowners Association, Inc. (the Association) or the Association's designee, the Architectural Review Committee (ARC).

The Association is a non-profit corporation organized pursuant to the New Jersey Nonprofit Corporation Act, N.J.S.A. 15A:1–1, for the purpose of governing the community and is subject to the New Jersey Planned Real Estate Full Disclosure Act, N.J.S.A. 45:15–16.27 (PREFDA).   The Association acts through an elected Board of Trustees.   The Espositos, as a result of their home ownership, are members of the Association.   A declaration of covenants, easements and restrictions (Declaration) was recorded, and an initial set of Rules and Regulations, dated 2005, (Rules) was adopted.   Both the Declaration and the Rules provide that any exterior modification to a home must receive prior approval from the Board.

When the community was constructed in 2005, the developer offered the homeowner the option of four different Colonial- style front doors.   Without any written approval from the Association, the Espositos replaced their existing Colonial-style door with a Gothic-style door.   Subsequent to the installation, Louis submitted an application seeking permission to install the new door.   Louis asserts that prior to changing the door, he obtained consent from Christine Maldonado, an employee of the property management company for the Association.

On August 24, 2006, after the door was replaced, the ARC reviewed the Esposito's application and denied the request.   The ARC unanimously found that the requested door did not blend with the architecture of the community.   The Espositos subsequently requested a hearing pursuant to the Association's alternate dispute resolution procedures.   The Espositos argued that the verbal approval from Ms. Maldonado was sufficient to grant permission to install the new door.   Their request was denied, and on October 6, 2007, a letter of notification of denial was sent to the Espositos advising them that fines would be imposed commencing forty-five days from the date of the letter.   The fines were $25 for each day that the offending Gothic-style door remained on their home.

The Espositos filed a complaint against the Association, and an order to show cause without temporary constraints was entered on January 7, 2008.   They requested injunctive relief restraining the Association from requiring them to remove and replace their front door.   The Association agreed to assess no further fines as of January 1, 2008.   Thereafter, the Association filed an answer and counterclaim, which asserted a breach of the Declaration, and sought its enforcement through compelling payment of fines and an award of attorneys' fees.   The parties then undertook discovery.

A bench trial was held before Judge Daniel M. Waldman on May 8, 2009 and June 1, 2009.   The trial judge entered an order of judgment, granting dismissal of the Espositos' complaint and entering a judgment in favor of the Association against the Espositos.   The judgment directed the removal of the door, and a replacement with a door approved in advance, in writing, by the ARC, in accordance with the Association's governing documents.   The trial judge issued a comprehensive opinion setting forth his findings of facts and conclusions of law.   The judge reserved on the issue of payment of the Association's attorneys' fees, fines and costs of services for the Association's engineering firm.   The trial court entered a supplemental order of judgment, on the reserved decision, awarding fines, and attorneys' fees and costs, in an aggregate amount of $23,588.32, consisting of $20,503.32 in legal fees and costs through trial, $2,150 in fines, and $935 in legal fees and costs post-trial.   The trial judge denied the request for the costs of the Association's engineering firm.   The supplemental order was accompanied by a detailed opinion determining the amount of the judgment for the Association's counterclaim for all outstanding fines, attorney's fees and costs.

The Espositos appeal the orders of judgment.   They contend that the trial court erred by requiring replacement of the door and by awarding attorney's fees to the Association.   We disagree and affirm.

A judgment shall not be overturned except where, after a careful review of the record and weighing of the evidence, we determine that “continued viability of the judgment would constitute a manifest denial of justice.”  In re Adoption of a Child by P.F.R., 308 N.J.Super. 250, 255 (App.Div.1998) (quoting Baxter v. Fairmont Food Co., 74 N.J. 588, 597–98 (1977)).   We will not disturb the factual findings of a trial court unless they are “ ‘so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice.’ ”  Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974) (quoting Fagliarone v. Twp. of No. Bergen, 78 N.J.Super. 154, 155 (App.Div.), certif. denied, 40 N.J. 221 (1963)).   Consequently, “the appellate court should exercise its original fact finding jurisdiction sparingly and in none but a clear case where there is no doubt about the matter.”  Ibid. “ ‘That the case may be a close one or that the trial court decided all evidence or inference conflicts in favor of one side has no special effect.’ ”  Czoch v. Freeman, 317 N.J.Super. 273, 283 (App.Div.) (quoting State v. Johnson, 42 N.J. 146, 162 (1964)), certif. denied, 161 N.J. 149 (1999).

The rationale underlying this limited scope of appellate review is that “a trial judge's findings are substantially influenced by his or her opportunity to hear and see the witnesses and to get a ‘feel’ for the case that the reviewing court [cannot] enjoy.”  Twp. of W. Windsor v. Nierenberg, 150 N.J. 111, 132 (1997) (citing State v. Whitaker, 79 N.J. 503, 515 (1979)).   For this reason, credibility determinations are entitled to particular deference, because the trial judge has a superior perspective “in evaluating the veracity of witnesses.”   Id. at 133.   However, the same level of deference is not required when we are reviewing a legal conclusion.  Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

The Espositos posit that, had the trial court applied the “reasonableness” and “material adverse effect” standards articulated in Billig v. Buckingham Condominium Association I, Inc., 287 N.J.Super.   551 (App.Div.1996), their replacement door would have been a permitted exterior modification.   Judge Waldman comprehensively addressed the seminal cases elucidating the legal standards applicable to the modification of exterior improvements of residences which are governed by condominium boards and, as here, homeowners' association boards.   In addition, the statutory framework applicable to the condominium form of ownership and to the homeowners' associations was addressed by the trial court.   The “material adverse effect” standard advocated by the Espositos, applicable to the condominium form of ownership, and the “business judgment rule” (BJR) asserted by the Association were reviewed and contrasted by the trial court.

The protections for common interest residents were described by the Court in Committee for a Better Twin Rivers v. Twin Rivers Homeowners' Association, 192 N.J. 344 (2007).   The Court noted that:

First, the business judgment rule protects common interest community residents from arbitrary decision-making.   That is, a homeowners' association's governing body has “a fiduciary relationship to the unit owners, comparable to the obligation that a board of directors of a corporation owes to its stockholders.”   Pursuant to the business judgment rule, a homeowners' association's rules and regulations will be invalidated (1) if they are not authorized by statute or by the bylaws or master deed, or (2) if the association's actions are “fraudulent, self-dealing or unconscionable.”   Our Appellate Division has uniformly invoked the business judgment rule in cases involving homeowners' associations.

Second, residents are protected by N.J.S.A. 45:22A–44 of the PREFDA, which provides:

Powers and duties of associations

a.  Subject to the master deed, declaration of covenants and restrictions or other instruments of creation, the association may do all that it is legally entitled to do under the laws applicable to its form of organization.

b. The association shall exercise its powers and discharge its functions in a manner that protects and furthers the health, safety and general welfare of the residents of the community.

c. The association shall provide a fair and efficient procedure for the resolution of disputes between individual unit owners and the association, and between unit owners, which shall be readily available as an alternative to litigation.

[Id. at 369–70 (citations omitted).]

The BJR was once the appropriate standard to be applied to actions of a condominium board.  Siller v. Hartz Mountain Ass'n, 93 N.J. 370, 382, cert. denied, 464 U.S. 961, 104 S.Ct. 395, 78 L. Ed.2d 337 (1983).   We modified the applicability of the BJR to a condominium association by applying a reasonableness test to the approval by the board of certain exterior improvements:

We reach this conclusion for the reasons articulated in Thanasoulis v. Winston Tower 200 Ass'n., Inc., 110 N.J. 650, 657 (1988).   As the Court there explained, a condominium association stands in a fiduciary relationship to the unit owners.   That relationship requires that it act consistently with the Condominium Act and its own governing documents and that its actions be free of fraud, self-dealing, or unconscionability.   Moreover, that fiduciary relationship requires that in dealing with unit owners, the association must act reasonably and in good faith.   If a contested act of the association meets each of these tests the judiciary will not interfere.

[Billig, supra, 287 N.J.Super. at 563 (App.Div.1996) (internal citations omitted).]

We have held that the BJR does not apply where the action of a condominium association is in violation of the Condominium Act, the association's master deed, or its by-laws.  Micheve, L.L.C. v. Wyndham Place at Freehold Condominium Ass'n, 381 N.J.Super. 148, 154 (App.Div.2005), cert. denied, 186 N.J. 256 (2006).

We also addressed the application of the BJR and the “reasonableness” standard with regard to actions by the membership as a whole, in amending a property owners association's declaration of covenants, easements and restrictions.   Mulligan v. Panther Valley Prop. Owners Ass'n, 337 N.J.Super.   293 (App.Div.2001).   In Mulligan, we determined that:

Because these amendments all reflect changes adopted substantially after plaintiff took up residence at Panther Valley, and because the governing documents require no more than a simple majority vote, we are unwilling to afford them the presumption of validity for which defendants contend.   We are satisfied that plaintiff is entitled in the context of this case to have these amendments judged on their reasonableness.

[Id. at 303.]

The Espositos urged the trial court to apply a “reasonableness” and concomitant “material adverse effect” standard to the Board's action in approving or denying their application for the installation of the Gothic-style front door.   Judge Waldman addressed the New Jersey Condominium Act, N.J.S.A. 46:8B–18, which governs when it is reasonable to enforce a particular restriction and deny an alteration, and the holding in Billig.   The trial judge held that since the Association was not a condominium association, the Condominium Act did not apply, and he refused to extend the “reasonableness” and “material adverse effect” standard in Billig to this matter.

We agree that the appropriate standard to be applied in analyzing the actions of the Board of the Association in denying the application of the Espositos is the BJR. After a careful review of the record and weighing of the evidence, we see no reason to disturb the judgment requiring replacement of the door.   We reach this decision based on the finding of facts by the trial court, which are adequately supported by the evidence, and essentially for the legal conclusions expressed in Judge Waldman's comprehensive and thoughtful opinion.

We now address the supplemental judgment awarding to the Association, attorneys' fees and costs, and fines in an aggregate amount of $23,588.32.   The trial judge denied the Association's application for $2,803.63 in expert's fee for Falcon Engineering.

The Espositos argue that not only were the fines imposed improperly during the forty-five day “grace period” under the governing documents, but also that they were not the core subject matter of the trial.   Therefore, they should not have been assessed in any event.

New Jersey remains committed to the “American Rule” that each party bears its own counsel fees.   See, e.g., Mason v. City of Hoboken, 196 N.J. 51, 70 (2008).   However, there are exceptions to this general rule.   Rule 4:42–9 does not prohibit an award of attorneys' fees permitted by contract.  Verna v. Links at Valleybrook Neighborhood Ass'n, 371 N.J.Super. 77, 100 (App.Div.2004);  Pressler & Verniero, Current N.J. Court Rules, Comment to R. 4:42–9 (2011).

Here, there are contractual obligations relating to attorneys fees.   Article XII, Section 12.1 of the By-laws states that:

The Association shall have the power, at its sole option, to enforce the terms of this instrument or any Rule or Regulation promulgated thereto, by ․ restoring the Association to its original position and charging the breaching party with the entire cost or any part thereof;  complaint to the duly constituted authorities, taking any other action before any court, summary or otherwise, as may be provided by law.

Additionally, Section 6.01(u) of the Declaration states that:

The Board of Trustees of the Association shall have the power to promulgate such Rules and Regulations as may be necessary to carry out the intent of these restrictions and shall have the right to bring lawsuits to enforce the Rules and Regulations promulgated by it․  In the event the Association Board of Trustees institutes legal action for collection of any fines, then the defendant(s) shall be responsible for payment of reasonable attorneys' fees of the Association plus interest and costs of suit.

[ (Emphasis added).]

The By-laws and Declaration provide that the Association is permitted an award of its reasonable attorneys' fees and costs in a successful enforcement proceeding.   Since the Declaration is a deed restriction, it is regarded as a contract, and its enforcement is a contract right.   See Homann v. Torchinsky, 296 N.J.Super. 326, 334 (App.Div.) (“ ‘[A] restrictive covenant is a contract.’ ”) (citations omitted), certif. denied, 149 N.J. 141 (1997);  see also Assisted Living Assocs. of Moorestown, L.L.C. v. Moorestown Twp., 31 F.Supp.2d 389, 397 (D.N.J.1998) (“New Jersey adheres to the minority view which treats an equitable servitude as a contract right, not a property right,” (citation and internal quotation marks omitted));  Weinstein v. Swartz, 3 N.J. 80, 86 (1949) (stating that “[a] restrictive covenant is a contract”).   Therefore, because restrictive covenants are contracts, the well-established rules of contract construction are applicable.  Homann, supra, 296 N.J.Super. at 334;  see also Verna, supra, 371 N.J.Super. at 88 (“[A] neighborhood scheme, like the mutual undertakings contained in the association's governing documents, is a matter of contract” (citation omitted)).

Although the Espositos commenced the action, these provisions apply to the counterclaim by the Association to collect fines, attorneys' fees and costs.   We have reasoned that:

If we were to agree that being a plaintiff is the determinative factor, then it will not be long before clever unit owners, embroiled in such controversies, will simply out-race their adversaries to the courthouse and file complaints seeking declaratory relief, thus reserving only for themselves the title “plaintiff.”   In that way, the availability of a fee award would turn on which party more quickly sued the other.   We reject this formalistic and illogical approach.

[Verna, supra, 371 N.J.Super. at 101.]

We see no reason to disturb Judge Waldman's opinion with regard to the award of fines, attorneys' fees and costs, and find the Epositos' contentions to be without sufficient merit to warrant further discussion in this decision.  R. 2:11–3(e)(1)(E).

Affirmed.

PER CURIAM

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