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New United Corporation v. County of Essex

A-3168-08T2 (N.J. Super. App. Div. 2010) (Unpublished)

CONDOMINIUMS — A condominium association has a responsibility to pursue claims for damages to the condominium’s common elements on behalf of the unit owners and if the association fails to act, unit owners may pursue such claims for damages as derivative claims.

A developer purchased a property that had once been used as a hospital and medical center. At the same time, the county elected to relocate a hospital to that site. The county and developer entered into an agreement to convert the property into a three-unit condominium. The county agreed to purchase two units, one of which was the parking garage. The developer was to retain ownership of the third unit. Even though the developer’s interest in the common elements was greater than the county’s, the parties agreed that the county would have majority voting rights in the condominium association.

Some time after it acquired title to the two condominium units, the county decided not to relocate the county hospital to the site. The county then stopped maintaining its units and failed to manage the condominium association. The developer then sued the county alleging that the county had turned off the utilities to the units, causing drain pipes to break and flooding of the common areas as well as of the developer’s unit. The developer filed an order to show cause to compel the county to repair the condominium. The developer sought leave to amend the complaint to add the condominium association as a party and that motion was denied. The developer then filed an amended complaint alleging that the county breached its fiduciary duty by improperly exercising its majority control over the association and by preventing the association from performing its duties.

The developer filed a motion for partial summary judgment on liability, seeking an order finding that the county was liable because it did not maintain its units or the common elements, and that it caused damage not only to its units but also to the developer’s unit. The lower court, by its own motion, added the condominium association as a necessary party. The lower court found that: (1) the association did not fulfill its legal obligations to manage and maintain the common elements; (2) the association owed a duty of care to the public to prevent risk of harm from falling masonry (resulting from a damaged parapet wall); (3) the court had equitable powers to appoint a receiver as agent for the association to assure that the association acted in the manner required under the condominiums organizational documents.

The Appellate Division stayed the trial court order but it allowed the receiver to arrange for the repair of the broken windows, a parapet wall, and the building’s fire protections systems. The receiver sought to assess the unit owners for the costs of the third party consultants retained to repair the units and the common areas. The lower court granted the receiver’s request.

In its appeal, the county argued that the lower court improperly added the condominium association as a necessary party when it previously denied the developer’s motion to add the association as a party. The county argued that the under the “law of the case” doctrine, the lower court should not have reconsidered an issue that was litigated previously. The Court, however, noted that the decision whether to apply the “law of the case” doctrine to a prior decision in at the court’s discretion and is not applicable when a judge reconsiders a prior interlocutory order. In this case, the lower court’s initial decision not to add the association as a party was interlocutory, so its later decision to add the association as a party three years after its initial decision not to was proper. The Court noted that a party is indispensable, and should be added, if it has an interest in the subject matter and judgment cannot justly be made between the litigants without adding that party. The dispute in this case involved a condominium. Pursuant to the Condominium Act, the condominium association is responsible for maintaining the common elements, and, as long as the association is carrying out its duties individual unit owners are not permitted to pursue individual claims for damages in the common elements. It is the association’s responsibility to pursue claims for damages to the common elements on behalf of the unit owners. Unit owners are only permitted to pursue claims for damages to the common elements as derivative claims, if the association fails to act.

In this case, the developer sued the county for its failure to maintain its two condominium units, as well as the damages it caused to the common elements and the developer’s unit. The Court found that since the claim for damages to the common elements was a claim the condominium association should have pursued, it was proper to add the association as a party.

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