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Wintergreen Homeowners Association, Inc. v. Kings Grant Maintenance Association, Inc.

A-4471-07T1 (N.J. Super. App. Div. 2009) (Unpublished)

AGREEMENTS — Where a consent settlement order, which is an agreement among the parties, contains multiple ambiguities, a lower court should hear sufficient testimony before resolving the intent of the parties on all challenged contractual language prior to issuing its final decision.

A non-profit corporation (KGMA) was established to manage the development of a large residential community. The sub-communities within the larger development sued the manager claiming it had been granted excessive powers and exercised improper influence over the sub-communities’ affairs.

The lower court ordered a reformation of the manager’s powers and responsibilities. The owners of the sub-communities then sued the manager claiming they had not relinquished control as was ordered by the lower court. This suit resulted in a Consent Settlement Order (CSO) that established the plaintiff-homeowners association as a sub-community within the development. One of the provisions in the CSO permitted the homeowners association to hire an accountant to examine the manager’s pertinent books and records. The role of the independent accountant, who was described in the document as an “auditor,” was spelled out in the Consent Settlement Order as follows:

“IT IS FURTHER ORDERED that the Interim Board may, at its own expense, retain an independent certified public accountant, duly licensed in the jurisdiction in which he practices (hereinafter the “Auditor”), to examine the books, records, ledgers and documents of the KGMA applicable to the Wintergreen section reasonably necessary for an evaluation of and an accounting for monies collected, reserved and expended on behalf of the Wintergreen Section since January 1, 2000. ****However, the Interim Board and/or the successor Board and/or the to be formed non-profit corporate entity shall retain the right to seek reimbursement for the fees and costs of the examination performed in the event that the examination reveals accounting improprieties which, if established, would require reimbursement or compensation to the Wintergreen section. The fees and costs of conducting the examination shall be borne by the Interim Board, subject to possible reimbursement as set forth herein[.]”

The accountant hired by the homeowners association advised the association that the manager had improperly charged certain items to the sub-community’s residents. The association sent a letter to the manager requesting payment for the items noted by the accountant. When the manager failed to pay what was requested, the homeowners association sued.

The lower court dismissed the complaint with prejudice. It held that the complaint by the homeowners association did not comply with the terms of the CSO, which required that a written audit be completed prior to filing a complaint. The association appealed, alleging that the CSO did not require an audit be performed prior to filing a complaint.

The Appellate Division remanded for a plenary hearing to determine the intent of the parties. It ruled that the intended meaning of the CSO was not entirely self-evident with respect to the form and timing of the examination to be conducted by the auditor.

On remand, the lower court dismissed the homeowners’ claim with prejudice. It noted that the homeowners association had conceded that the CSO obligated it to obtain an audit prior to filing a claim against the manager and that it had failed to do so. The lower court found that since an audit was a prerequisite to the filing of a claim against the manager under the CSO the action could not move forward. The homeowners association appealed, contending that the mutual intent of the parties was that no written document had to be prepared by it as a requirement to filing suit.

The Appellate Division reversed. It noted that the lower court incorrectly read the CSO to mean that the only issue to be determined in the plenary hearing was whether the parties intended the report be filed prior to the complaint. It found that when the lower court determined that the homeowners association did not comply with this requirement, it improperly dismissed the complaint. According to the Court, its remand order described a broader mandate to fully resolve any ambiguities in the language of the CSO, not just the narrow issue addressed by the lower court. It found that the lower court never formally concluded the plenary hearing or allowed the homeowners association to call any of its witnesses. It further ruled that the limited record suggested there was some merit to the homeowners association’s claim that the manager improperly charged residents for its litigation expenses. Accordingly, it concluded that principles of equity dictated that such a claim should not be barred because of a technical deficiency. Nevertheless, the Court noted that there was nothing in the record to suggest that the manager acted fraudulently, unconscionably or in bad faith. In this regard, it found that the manager had articulated specific grounds for its failure to produce certain documents requested by the accountant and noted that the homeowners association had not sought to compel the production of these documents. The matter was remanded to determine: (a) if the CSO required a formal audit; (b) whether the CSO required the report to be in writing; and (c) what level of detail did the parties intend be included in the report. Depending on the answers, the lower court would then have to decide whether the action should go forward or be dismissed.

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