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Ruggiero v. Valleybrook Homeowners’ Association, Inc.

A-5073-06T3 (N.J. Super. App. Div. 2008) (Unpublished)

HOMEOWNERS ASSOCIATIONS; CONDOMINIUMS; MAINTENANCE FEES — Decisions made by a homeowner’s association regarding collection of dues is governed by the business judgment rule and, if the association is not a condominium association, it is not subject to condominium statutes.

A real estate development consisted of six communities, each of which had its own condominium association and each of which collected annual dues. There was also a homeowners’ association for the entire development. It owned and operated a recreational center for the development’s use. The homeowners’ association also collected dues annually from the homeowners. Homeowners in five of the communities were required to pay the full amount of their annual dues early each year. Homeowners in the sixth community were allowed to pay their dues to the homeowners’ association in monthly installments, each of which were included with their payments to their community’s condominium association. That association paid the homeowners’ association directly out of its expense funds.

A resident, who lived in one of the five communities where the homeowners paid their dues upfront, objected to the method in which the homeowners of the sixth community had their dues collected. After failing to have the matter arbitrated, the resident brought an action against the homeowners’ association, its board of directors, and two members of its board. The resident claimed that each had breached a fiduciary duty to the members of the homeowners’ association and sought an order requiring uniform enforcement of the collection of dues. The lower court, on motion, dismissed all of the resident’s claims.

On appeal, the Appellate Division noted that, in accordance with requirements of the homeowner’s association, the $170 annual dues were the same for homeowners of all six communities. It rejected the resident’s argument that the homeowners of the five communities that had paid their dues upfront paid more as a result of losing the interest that they could have earned had they paid their dues on a monthly basis. The Court found that there was a cost savings to the homeowners’ association by collecting the money in a lump sum from the sixth community’s expense funds instead of collecting the dues from each individual homeowner and that the other communities were free to use the same method.

Although the resident did not argue that the sixth community’s method of collecting homeowners’ association dues violated condominium and development statutes in the lower court, the Court agreed to hear his argument in the interest of finalizing the matter. It found that the homeowners’ association was not a condominium association and was therefore not subject to condominium statutes. The Court also found that the sixth community’s condominium association did not violate condominium statutes by paying the homeowners’ association out of its expense funds and then collecting that amount from the individual homeowners along with their monthly condominium association dues. It added that the condominium association was not collecting dues for the homeowners’ association because it was required to do so, which would not have been permitted, but that it entered into the agreement voluntarily with the homeowners’ association. The Court rejected the resident’s argument that statutes governing disclosure for planned developments were violated based on the assertion that the homeowners’ association did not act in the interest of the homeowners of the community. It further added that the decisions made by the homeowners’ association regarding the collection of dues were governed by the business judgment rule, which prevents the courts from second-guessing internal business decisions that were made in good faith.

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