Ratification of Originally Unauthorized Lawsuit by a Condominium Association

Port Liberte II Condominium Ass’n, Inc. v. New Liberty Residential Urban Renewal Co., LLC, 435 N.J. Super. 51 (App. Div. 2014).  The caption in this case, a construction defect action regarding the Port Liberte II Condominium, a 225-unit development in Jersey City, consumes five full pages.  The list of counsel takes up nearly five more pages.  Mercifully, however, Judge Reisner’s opinion for the panel is short and elegant.  It is also wise.

The plaintiff condominium association (“the Association”) filed suit against the developer, the general contractor, and various subcontractors.  The parties had discussed settlement, but those talks did not succeed.  The case was filed when the statute of limitations was about to expire.  As a result, the Association, which under Siller v. Hartz Mountain Assocs., 93 N.J. 370 (1983), is the sole party with standing to complain about defects in the common elements, did not obtain unit owners’ approval for the lawsuit, as was required by the applicable by-laws.  However, about eighteen months later, the Association did seek unit owner approval, which was granted by a 72-3 vote.  “Thereafter, no unit owner objected to the vote, sought to intervene in the lawsuit, or otherwise legally questioned the Association’s authority to conduct the litigation pursuant to the by-laws.”

Defendants, however, seized on the lack of pre-suit approval.  They filed a motion for summary judgment demanding dismissal because the unit owners had not authorized the lawsuit before it was filed.  The Law Division granted the motion.  The Association then asked unit owners again to ratify the filing of the lawsuit.  This time the vote in favor of ratification was 65-1.  The Association moved to restore the case, but the Law Division ruled that the failure to obtain unit owner authorization prior to filing the case could not be cured.

Separately, the Law Division had denied the Association’s motion to file a fourth amended complaint that would have asserted additional defects in common areas.  The Association then filed a separate case.  The 65-1 ratification vote also covered that separate lawsuit.  Despite that, however, the Law Division dismissed the case on the grounds that the Association lacked standing to file it.

The Association appealed both the summary judgment and the denial of leave to amend that led to the second lawsuit.  Judge Reisner ruled for the Association in both respects, though her discussion of the leave to amend issue was excluded from the published version of the panel’s opinion.  The de novo standard of review applied to the summary judgment, while the abuse of discretion standard governed review of the denial of leave to amend.

Judge Reisner began by reiterating that the Association had standing to file the construction defect action.  The question then was whether unit owners could remedy the lack of pre-suit authorization by ratifying the suit thereafter.  The panel concluded that such ratification could occur, and that it did.  The by-laws’ requirement of pre-suit approval “was intended to protect the unit owners’ financial interests by requiring pre-approval of possibly expensive litigation.  However, the owners clearly have an equally great– if not greater– financial interest in recovering damages to repair the common areas, because otherwise they will have to pay for the repairs themselves through assessments.”  Judge Reisner refused to construe the by-laws so as to “strip the owners of a cause of action designed to recoup payment for construction defects, if they are willing to authorize the litigation after it was filed.”

After discussing the concept of ratification, Judge Reisner determined that the unit owners had authorized the fiing of the lawsuit nunc pro tunc by ratifying the lawsuit after the fact.  She also rejected the notion that defendants could enforce the by-laws for their own benefit.  Defendants lacked standing to do that.  Moreover, because defendants were adverse to the unit owners, allowing defendants to invoke the by-laws to bar the Association’s suit “would be akin to letting the proverbial fox protect the interests of the chickens.”  New Jersey cases that defendants had cited as analogies, as well as out-of-state cases in which associations had not obtained ratification votes by unit owners, did not help defendants’ cause.  The fact that defendants had waited years to raise the issue of lack of pre-suit authority also cut against them.  At worst, Judge Reisner concluded, if the Law Division questioned the ratification vote that had already occurred, the court should have stayed the case to allow a re-vote, rather than dismissing the matter entirely.

This decision exemplifies New Jersey’s rejection of “technisms” as a basis to close courthouse doors.  Instead, our courts favor allowing disputes to proceed to a proper resolution on the merits, especially where, as here, the alternative is to leave the fox in charge of the henhouse, as Judge Reisner perceptively observed.