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Harbor View Condominium Association, Inc. v. Manhattan Skyline III, Limited Partnership

A-3542-09T3 (N.J. Super. App. Div. 2011) (Unpublished)

CONDOMINIUMS — Where unit owners have sued a developer, and years later after their condominium association had been formed, the condominium association again sues the developer based on similar facts, the second suit may not necessarily be barred by the doctrine of res judicata, but the doctrine of laches may serve to bar the suit anyway.

A developer renovated and converted an apartment building into a condominium. It filed a Master Deed. The developer’s public offering statement disclosed that the Master Deed had inadvertently omitted the interest in the common elements held by a commercial unit laundry facility. It asked for consent to amend the Master Deed and to allow for this correction. In 1990, an amendment to the Master Deed was recorded converting the first-floor laundry room into a unit.

The association’s bylaws allowed the developer to have control over the board of directors until 75% of the units were sold. The developer later filed for bankruptcy protection and, in the proceedings, it transferred the unsold units to another investment group. This gave the new investment group control of the association’s board of directors. In 1996, the unit owners sued this successor sponsor-developer alleging that the association did not have a duly elected board of directors, that the new investment group failed to collect money from the old developers for common area charges for unsold units, and that the owner of the developers and investment group had unlawfully assessed various charges against the unit owners and breached their fiduciary duties to them. In 1997, the unit owners amended the complaint. They further claimed that the association’s funds had been diverted to operate the (private) laundry room in the building. The lower court, in that proceeding, ruled in favor of association, the development company, and the owner. The court stated that the motion was unopposed and that the unit owners had not established that they had sustained any compensable damages.

Once the investment group, as successor sponsor, sold 75% of the units, it surrendered control of the board to the unit owners. In 2008, the association filed the instant action to challenge the 1990 amendment to the Master Deed and to void the two deeds that transferred the unit. The suit sought to reform the Master Deed to make the laundry unit part of the building’s common elements. The association also asserted claims for breach of fiduciary duty, fraud, conspiracy to commit fraud, and for violations of the Condominium Act and of the Planned Real Estate Development Full Disclosure Act. The developer filed a motion for partial summary judgment asking for dismissal of certain counts based on the doctrines of laches and res judicata, as well as based on the statute of limitations. The association opposed the motion and filed a cross motion for summary judgment. The lower court found that the association’s claims were barred by the entire controversy doctrine and laches, and it entered an order granting the developer’s motion for summary judgment. It denied the association’s cross-motion for summary judgment.

The association appealed, and the Appellate Division held that the lower court had erred by applying the entire controversy doctrine to the association’s claims. According to the lower court, the entire controversy doctrine applied because the unit owners did not raise its claims in the 1990 amendment to the Master Deed and ownership of the laundry unit in the earlier suit. The lower court believed that these claims had to be raised at that time, and that the failure to raise those claims severely prejudiced the defendants. The Court disagreed, finding that even though the unit owners had sufficient facts in the first proceeding to assert claims regarding the validity of the 1990 amendment and transfer of title, the factual basis for those claims in the instant suit was substantially different from the facts forming the basis for the claims in the first proceeding. The first proceeding was about the association’s board not being lawfully constituted and that the developer-controlled association had engaged in fraud and unconscionable conduct. Because the facts that gave rise to the first proceeding were different from the facts that formed the basis for the claims in this action, the entire controversy doctrine did not bar the association’s claims.

Next, the Court addressed the doctrine of laches, finding that the lower court correctly concluded that the action was barred by the doctrine of laches because the delay in bringing the claims earlier was inexcusable where the unit owners were on notice of the proposed amendment in 1989, but did not assert the claim until 18 years after the master deed was amended, 11 years after the prior litigation was filed, and 9 years after depositions were taken in that matter. Further, the association could be charged with the unit owners’ delay in bringing the claims. The association could not assert claims when, as unit owners, they had all the facts necessary to do so but just failed to bring them in a timely manner. Additionally, the unit owners’ delay in assessing the claims substantially prejudiced the developer.

In sum, the Appellate Division found that the lower court had correctly found that the association’s claims were barred by laches and, on that basis, it affirmed the lower court’s order granting summary judgment to the development company and deny the association’s motion for summary judgment.

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