The Appellate Division issued a decision today in PORT LIBERTE HOMEOWNERS ASSOCIATION, INC., et. al. v. SORDONI CONSTRUCTION COMPANY, et. al., which has be approved for publication.
The Plaintiffs in the PORT LIBERTE matter, the Port Liberte Homeowners Association, Inc. and the Port Liberte Condominium Association I, Inc., originally filed suit in June of 1992, in connection with various construction deficiencies at the Port Liberte Development located in Jersey City, New Jersey. The construction deficiencies included defects in the Exterior Insulation and Finish System (“EIFS”) installed as the exterior cladding on the buildings at Port Liberte. The EIFS products were manufactured by Defendant Dryvit Systems, Inc. (“Dryvit”). After approximately eleven years of litigation and eight years of non-binding arbitration, the Plaintiffs settled with all Defendants except Dryvit.
The Plaintiffs’ claims against Dryvit include allegations that Dryvit committed common law fraud and violations of the New Jersey Consumer Fraud Act through misrepresentations and omissions of material fact about its EIFS products during Dryvit’s interaction with the original Developer of Port Liberte, Port Liberte Partners, when that entity was selecting what EIFS products to use in constructing the Port Liberte Development.
Dryvit was granted summary judgment by the trial court in September of 2003. The trial court dismissed the Plaintiffs’ fraud and consumer fraud claims because it found that the Plaintiff Associations had no standing to assert such claims against Dryvit. The trial court reasoned that since Dryvit’s alleged misrepresentations and omissions about its EIFS products were made to Port Liberte Partners when it was choosing what products to use to construct the development, which was at a point in time when the Associations that would eventually govern the common property of the development had not yet been created as legal entities, then the Associations could not have standing to assert claims based on those misrepresentations and omissions by Dryvit to Port Liberte Partners.
The Plaintiffs appealed the trial court’s decision on January 5, 2005. They were represented by E. Richard Kennedy, Esquire and Dennis Drasco, Esquire. The Community Association Institute (“CAI”) was granted leave to appear as amicus curiae by the Appellate Division on July 6, 2005. The Appellate Court allowed CAI to be heard on the appeal due to the significant effect the trial court’s decision would have on the rights of community associations throughout New Jersey. Stark & Stark Construction Litigation Shareholder John Randy Sawyer, Esquire filed the brief and argued the cause for amicus curiae CAI.
The Appellate Division held that under New Jersey’s legislative scheme for community developments, a condominium association is the intended beneficiary of a developer’s actions in developing a community project. Any subcontractor or product manufacturer, the Court reasoned, that enters into a contract with a developer or supplies it products for use in construction of the common elements of such a project “after the developer registers the condominium with the [Department of Community Affairs], pursuant to the Planned Real Estate Development Full Discosure Act, N.J.S.A. 45:22A- 21 to -56 (PREDFDA), specifically N.J.S.A. 45:22A-26, is on constructive notice that representations made to, and omissions withheld from, the developer will be deemed as if they were made to, or withheld from, the association, once the association assumes control of the condominium.” The Court went on to hold that a condominium association has standing to assert claims for common law fraud and consumer fraud against third-party contractors and material suppliers for defects in the construction of the common elements of the development, “regardless of whether the association formally existed at that particular point in time.”
The Appellate Division adopted the arguments made by Plaintiffs and amicus curiae CAI in its determination that a condominium association essentially “stands in the shoes” of the developer and is the intended beneficiary of all of the developer’s actions in connection with the common elements, including all of its interactions with contractors, subcontractors and material suppliers during the construction phase of the development. The Plaintiffs and amicus curiae CAI argued that, under PREDFDA and the New Jersey Condominium Act, a developer of a community project is required to register the project with the Department of Community Affairs and incorporate an Association that will be responsible for the maintenance and control of the development’s common elements. The legislative scheme, however, also requires the developer to control the Association until a certain number of units within the development have been sold, at which time control of the Association is turned over to the independent unit owners who decided to live within the development. That process, called transition, often does not occur until well after construction of the development is under way and all decisions regarding what contractors to use for the work and what material suppliers to purchase from have already been made by the developer. The Appellate Court agreed with Plaintiffs and amicus curiae CAI that preventing community associations from having standing to assert claims against product suppliers like Dryvit, simply because the suppliers only made misrepresentations or omissions to the developer prior to creation of the Association or prior to transition, would produce an “unjust result and is contrary to the legislative scheme permitting a condominium homeowners association to institute suit to recover damages to the common elements. N.J.S.A. 46:8B-14, -15(a), and -16(a).”
The dismissal of Plaintiffs’ common law fraud and consumer fraud act claims was reversed and remanded to the trial court for further proceedings.
John Randy Sawyer is available to discuss the arguments made to the Court by amicus curiae CAI and the impact the Court’s decision will have on community associations pursuing construction defect claims against developers, product manufacturers, contractors and sub-contractors.
He can be reached directly at 609.895.7349 or by email at rsawyer@stark-stark.com.