766 A.2d 1186 (N.J. Super. Ct. App. Div. 2001)
In 1976 plaintiff purchased a home in Panther Valley, a gated private common-interest residential community located in the Township of Allamuchy, Warren County, New Jersey, that contains more than 2,000 homes, including single-family homes, townhouses and condominium units.1 Defendant Panther Valley Property Owners Association is a non-profit corporation organized in 1968 to govern the community; it acts through an elected Board of Trustees whose members are also named as defendants.2 Plaintiff became a member of the Association by virtue of her home ownership.3
In October 1998 the Association membership voted to adopt six amendments to the community's Declaration of Covenants and Restrictions and to the Association's bylaws.4 Plaintiff filed suit challenging five of the amendments.5 The case was handled as a summary proceeding in the trial court.6
The first amendment declared that no individual registered as a Tier 3 offender under Megan's Law could reside in Panther Valley.7 The second amendment authorized the Association to file a Notice of Continuing Violation with the Warren County Clerk when a member persisted in violating the governing documents.8 The third amendment provided that an owner could be liable for the Association's counsel fees and costs if the Association prevailed in an enforcement suit.9 The fourth amendment set forth procedures governing member inspection of the Association's books and records.10 The fifth amendment established minimum qualifications for members seeking election to the Board of Trustees.11
The trial court upheld the first, fourth, and fifth amendments and struck down the second and third amendments.12 Both parties appealed and cross-appealed.13 The Appellate Division heard argument on December 11, 2000.14
Whether the validity of amendments to the Declaration of Covenants and Restrictions and bylaws adopted by membership vote should be measured under a reasonableness standard?15
Amendments to the governing documents of a common interest community are reviewed under a reasonableness standard.16 This applies to amendments adopted by simple majority vote of the membership after a homeowner's purchase.17 Such amendments lack the presumption of validity attached to original recorded restrictions.18 They were not enacted by a board exercising fiduciary duties.19
Yes. Because plaintiff purchased her home in Panther Valley in 1976, the membership's adoption of the six amendments by simple majority vote in October 1998 occurred long after her purchase. The Declaration permits amendment by simple majority at any time, and the changes were enacted by the full membership rather than the Board of Trustees.20 These facts remove the justification for the business judgment rule that applies to board actions and require instead that the amendments be judged on their reasonableness.21
The court applies the reasonableness standard to the amendments.22
Whether the amendment barring Tier 3 Megan's Law registrants from residing in Panther Valley is valid on the existing record?23
A post-purchase amendment excluding Tier 3 Megan's Law registrants from a common interest community is not valid on the existing record when the record fails to address the number of such communities adopting similar restrictions, the availability of housing for Tier 3 registrants statewide, and whether the association performs quasi-municipal functions.24
No. The record contains only the Attorney General's statistic that eighty Tier 3 registrants existed statewide as of July 1999.2526 It shows that Panther Valley turned over traffic enforcement to the township.27 It supplies no data on how many common interest communities have adopted comparable residency bars or whether the Association provides other municipal-style services.28 These gaps prevent any reasoned determination whether the amendment creates an impermissible concentration of Tier 3 registrants or functions as governmental action.29
The amendment is not valid on the existing record and the trial court's upholding of it is reversed.30
Whether the amendment authorizing the Association to file a Notice of Continuing Violation with the county clerk is valid?31
An amendment authorizing an association to record a Notice of Continuing Violation with the county clerk is invalid when it permits filing without prior notice to the affected owner.32 The public recording of a lien-like encumbrance requires notice even in a non-condominium common interest community.33
No. The amendment permits the Association to file the Notice of Continuing Violation whenever the Covenants Committee finds a continuing violation.3435 The balance of Article XV provides other private enforcement mechanisms but contains no requirement that an owner receive notice before the Notice is recorded with the Warren County Clerk.36 The qualitative difference between private enforcement and the creation of a publicly recorded lien requires notice to the owner.37
The amendment is invalid and the trial court's striking of it is affirmed.38
Whether the amendment permitting the Association to recover counsel fees and costs when it prevails in enforcement actions is valid?39
An amendment authorizing an association to recover reasonable counsel fees and costs from an owner when the association prevails in an enforcement action is valid.40 This is so when it is reasonable in light of the shared-expense foundation of common interest communities.41 The Declaration's original provision for amendment by majority vote supports this.42
Yes. The amendment allows the Association to collect fees only when it prevails in a suit to enforce the Declaration, bylaws, or rules and treats the fees as an assessment.43 Panther Valley is not subject to the Condominium Act fee-shifting provision yet the shared-expense principle that underlies all common interest communities makes it reasonable to shift enforcement costs to the non-compliant owner.44 The Declaration always permitted amendment by majority vote so plaintiff had notice that new provisions could be added.45
The amendment is valid and the trial court's striking of it is reversed.46
Whether the amendment establishing procedures for member inspection of the Association's books and records is valid?47
An amendment limiting inspection of association books and records to the current and two prior fiscal years, requiring ten business days' written notice, capping each inspection at two hours, and authorizing the board to withhold documents involving privacy, privilege, litigation, or personnel matters is valid when the notice period exceeds the statutory minimum and any overbreadth claims can be addressed case by case.48
Yes. The amended bylaw restricts inspection to the current and two prior fiscal years.49 It mandates ten business days' written notice.50 It limits each session to two hours with a follow-up date if needed.51
It permits the board to withhold documents involving privacy, privilege, litigation, or personnel matters. N.J.S.A. 15A:5-24c requires only at least five days' notice so the ten-day requirement is lawful.52 The fiduciary duties of board members and the availability of judicial review under the Nonprofit Corporation Act adequately protect against abuse.53
Whether the amendment setting minimum qualifications for candidates for the Board of Trustees is valid?56
An amendment establishing minimum qualifications for board candidates, including no prior dismissal for cause and no felony or moral-turpitude conviction, while preserving a ten-percent petition route to the ballot is valid when the petition threshold is not unduly burdensome and the board's fiduciary duties plus statutory judicial review guard against favoritism.57
Yes. The amended bylaw retains the prior nominating-committee structure.58 It adds qualifications barring candidates dismissed for cause or convicted of a felony or crime of moral turpitude.59 It allows any owner who obtains signatures from ten percent of lots to appear on the ballot without satisfying additional board-adopted qualifications.60 The record shows no evidence that the ten-percent threshold is burdensome.61 The Nonprofit Corporation Act supplies a judicial forum for election challenges.62
The amendment is valid and the trial court's upholding of it is affirmed.
Whether the plaintiff is entitled to counsel fees under the frivolous claims statute?63
A prevailing party is not entitled to counsel fees under N.J.S.A. 2A:15-59.1 unless the opposing party's claims or defenses meet the statutory threshold of being frivolous.64
Plaintiff is not entitled to counsel fees and the trial court's denial is affirmed.68