CONSTRUCTION & REAL ESTATE BLOG

Does a Homeowners’ Association’s Sign Prohibition Trump Residents’ Free Speech Rights?

In Mazdabrook Commons Homeowners Assn v. Khan, 210 N.J. 482 (2012), the New Jersey Supreme Court recently held that a homeowners’ association’s rules that banned the posting of political signs on property owners’ residential units was unconstitutional.

In that case, Wasim Khan (Defendant) was a resident of Mazdabrook Commons, a planned townhouse community that was managed by a homeowner’s association, (Plaintiff). When Defendant ran for town council, he posted at his private residence two signs in support of his candidacy. Plaintiff notified
him that the signs violated the association’s rules and ordered him to remove them.

Plaintiff brought suit in the Superior Court, Law Division, Special Civil Part (Lower Court) based upon an objection it had to the Defendant’s rose garden. Defendant filed a counterclaim against Plaintiff, claiming that its sign restrictions violated his free speech rights under the New Jersey Constitution (State Constitution). The Lower Court dismissed Defendant’s counterclaim and held that the sign restrictions did not violate his constitutional rights. Id. at 489.

Defendant appealed to the Appellate Division of Superior Court of New Jersey (Appellate Court). The
Appellate Court explained that the sign restrictions were not content-neutral; favored commercial speech; and foreclosed an entire type of communication that had long been recognized as significant. Accordingly, it held that Plaintiff’s sign restrictions were unconstitutional. Id. at 489-490.

Shortly thereafter, Plaintiff appealed to the New Jersey Supreme Court (Court). Plaintiff argued that a private residential community did not violate free speech rights by the enforcement of rules agreed to by all
unit owners. Plaintiff cited the fact that the unit owners received various documents in connection with the purchase of their townhome. Those documents restricted the posting of signs. Id. at 487.  For example, the document entitled Rules and Regulations specified that [n]o signs of any kind will be placed in or on windows, doors, terraces, facades or other exterior surfaces of the buildings or Common Facilities Id. at 488.

In its analysis, the Court explained that the State Constitution guarantees individuals a broad, affirmative right to free speech.  Id. at 492. The Court quoted the relevant portion of the State Constitution as follows:

[e]very person may freely speak, write and publish his sentiments on all subjects, being responsible for the abuse of that right. No law shall be passed to restrain or abridge the liberty of speech or of the press.  

 N.J. Const. art. 1.6; Id. at 492.

The Court noted that the affirmative guarantee in the first sentence of that provision offers greater protection than the First Amendment. The First Amendment bars the government from restraining speech. However, in New Jersey, an individual’s affirmative right to speak freely, in certain situations, is protected not only from
unreasonably restrictive and oppressive conduct by the government, but also from private entities. Id. at 493.

Next, the Court applied the three-factor test outlined in State v. Schmid, 84 N.J.  A. 2d 615 (1980), to determine the parameters of free speech rights on privately owned property. Under that test, courts considered the following three factors:

(1) the nature, purposes, and primary use of such private property, generally its normal use;

(2) the extent and nature of the public’s invitation to use that property; and

(3) the purpose and the expressional activity undertaken upon such property in relation to both its private and public use.

  Id. at 494.

Furthermore, the Court applied the balancing test laid out in Coalition Against War in the Middle East v. JMB Realty Corp., 138 N.J. A. 2d 757 (1994). In that case the court considered not only the three-factor test, but also applied a balancing test. That test required the Court to weigh a private property owner’s interest in controlling activities on their property against the limited and important free speech right sought. Id.

Factor One

The Court applied the three Schmid factors. In regard to the first factor, it explained that Plaintiff was a common-interest community. The nature of the property was distinguishable from other forms of real property because there was a commonality of interest. Thus, owners had to comply with certain common
restrictions for the overall benefit of the development.  Id. at 499.

Factor Two

In regard to the second factor, the Court explained that the property was not public because there was no broad invitation to travel to, or shop in, the development. On the other hand, the importance of the second
factor was muted due to the fact that Defendant was not an outsider or visitor; rather, Defendant was the owner of the restricted property.

Factor Three

In its analysis of the third factor, the Court stated that Plaintiff restricted political speech which lied at the core of our constitutional free speech protections. Further, it explained that free speech protections assumed particular importance in the context of a person campaigning for public office.

Candidates have a constitutional right to engage in discussion of public issues and to vigorously and tirelessly advocate their own candidacy. Accordingly, the Court held that factor three favored Defendant because Plaintiff’s sign restrictions prevented Defendant from advancing his own candidacy for Town Council by posting signs at his residence. Id. at 499-500.

The Balancing Test

Further, the Court stated that Plaintiff’s sign restriction was a near-complete ban on residential signs. On the contrary, Defendant’s use of his signs constituted only a minimal interference with the Plaintiff’s property or common areas since they were placed on his own private residence. Therefore, the Court determined that Defendant’s right to promote his candidacy outweighed the relatively minor interference his conduct posed to the private property interest. Id. at 500-501.

Accordingly, the Court held that Plaintiff’s sign restrictions were unreasonable and in violation of the State Constitution.  As such, it deemed the documents that memorialized the sign restrictions unenforceable. However, the Court did reaffirm an association’s power to adopt reasonable time, place, and manner
restrictions to serve the community’s interest. Id. at 507.

Comments/Questions: gdn@gdnlaw.com

2013 Nissenbaum Law Group, LLC

May a Spoilation of Evidence Claim Protect a Contractor From a Suit for Construction Defects?

Under certain circumstances, a contractor who defectively completed a construction project may protect himself from a lawsuit by alleging that the plaintiff spoiled evidence of that defect.

An example of this proposition is New Jersey Municipal Environment Risk Management v. Killam Associates Consulting Engineers, et. al., in which the Appellate Division of the Superior Court of New Jersey considered a spoilation of evidence claim with respect to a construction project. A spoilation claim arises when a party in a civil action has “hidden, destroyed or lost relevant evidence and thereby impaired another party’s ability to prosecute or defend the action.” Id. at 5. To avoid a spoilation claim, a prospective party who is aware of the probability of a law suit has an obligation to preserve evidence related to that claim. If a party was not diligent in seeking to prevent spoliation, he may be subject to sanctions. Id.

In Killam Associates, the Plaintiff hired a contractor (“Defendant”) to design and construct a piping system to transport fuel from an above-ground storage tank to a generator. After six years, the Plaintiff found a defect in the system. Id. at 1. Three years later, the New Jersey Department of Environmental Protection demanded that the Plaintiff provide compensation for the environmental damage caused by the system’s defective condition. In turn, Plaintiff filed the action against the Defendant for negligent installation and design to recover damages for the defects found in the piping system. Id. at 2.

Though the Plaintiff contemplated suing the Defendant when the defect was initially found, the Plaintiff instead proceeded with repairs to the piping system and did not inform the Defendant of any damage. Because the Plaintiff commenced repair, replacement, maintenance and/or disposal of the underground transfer pipes that proved defective and did not notify the defendants of its conduct, the Defendants alleged that Plaintiff wrongfully spoliated the evidence of what caused the leak. The Defendants alleged that the Plaintiff compounded this spoliation of evidence by not notifying the Defendants of the defect to provide them with an opportunity to inspect the faulty piping system before it was removed.

In assessing the Defendants’ Spoilation of Evidence claim, the Court found that the Plaintiff did violate its legal duty to preserve the lost evidence by its failure to:

1) alert the defendants and thereby deprive them of any opportunity to observe the conditions as they existed and take appropriate measures to avoid prejudicial loss of evidence and

2) direct their own agents to preserve the components of the dismantled pipeline. 

Id. at 6.

However, the Court also noted that with respect to commercial construction projects, the parties may consider a “vast array of alternate sources of information that such projects generally provide.” Id. at 7. Therefore, the potential spoliation claim might be mitigated if the information were available from some other source. Id.

Ultimately, the Court held that the Plaintiff did violate its duty to preserve the evidence of the faulty piping material. However, the Court remanded the case to the trial court to rule on the Defendants’ spoliation of evidence claim only after a thorough review of other sources of relevant information regarding the piping system’s defect.

Comments/Questions: gdn@gdnlaw.com

© 2013 Nissenbaum Law Group, LLC

Can A Lessor Disregard An Exclusivity Provision In a Lease Agreement After the Lessee has Defaulted?

An exclusivity provision is a provision that bars a lessor from leasing a rental unit to an establishment that competes with the existing lessee. There may be circumstances in which a lessor or owner may disregard an exclusivity provision in its lease agreement when the lessee or tenant defaults in its lease payments.

In BG Monmouth, LLC., v. Sue’s Frozen Yogurt, Inc., et. al., No. A-2020-10T4 (N.J. Super. Ct.
App. Div. August 3, 2012), the Appellate Division of the Superior Court of New Jersey considered this issue. That case concerned the circumstances under which an exclusivity provision was rightfully abandoned.

The Plaintiff was the owner (Owner) of a shopping complex and shared a lease agreement with the Defendant, Sue’s Frozen Yogurt (Defendant, or Renter). The Defendant operated several food service establishments in Plaintiff’s shopping complex. Defendant’s establishments primarily served hot dogs, bagels, ice cream, and frozen yogurt. The lease agreement between the Plaintiff and the Defendant included an exclusivity provision that barred the Plaintiff from renting units in the shopping complex to proprietors that competed with the Defendant by providing primarily similar menu items. Id. at 2-5.

Though Defendant operated several food establishments in Plaintiff’s shopping complex, Defendant proved consistently tardy in paying rent and eventually left defaulted payments uncured. Plaintiff sent several letters to Defendant warning of the potential breach of the lease. Id. at 14.

The dispute escalated when Plaintiff granted a lease to Amazon Cafa food establishment that provided
menu items very similar to those of Defendant. Id. at 7. Defendant argued that Plaintiff breached the exclusivity provision found in its lease agreement. The exclusivity provision read as follows,

Provided the Lessee has not been in default hereunder and Lessee is operating the Demised Premises as a restaurant featuring hot dogs, ice cream, bagels, yogurt, and frozen yogurt, then Lessor agrees not to lease any space in the Shopping Center to any tenant whose primary business is either the sale of hot dogs, ice cream, bagels, yogurt and/or frozen yogurt.

Id. at 13.

In its decision, the Court began with the legal doctrine that [w]here the terms of a contract are clear and unambiguous there is no room for interpretation or construction and the courts must enforce those terms as written. Id. at 11.

In this case, the terms of the exclusivity provision clearly stated that it would only be enforced [p]rovided
the Lessee has not been in default hereunder. However, since the lessee was in default (by not paying rent), the Court held that the lessee could not enforce the exclusivity provision.

Comments/Questions: gdn@gdnlaw.com

� 2013 Nissenbaum Law Group, LLC

How Should You Structure a Settlement So That You are Not the Subject of Sanctions?

In Repole v. Gawrysiak, A-1602-11T4 (N. J. Super. Ct. App. Div. August 8, 2012), the Appellate Division of the Superior Court of New Jersey upheld the decision of the Law Division of the Superior Court of New Jersey to grant counsel fees to plaintiffs William and Maria Repole (Plaintiffs) for Danielle Gawrysiaks (Defendant) (jointly Parties) continued failure to adhere to prior orders. 

In that case, Defendant appealed the Law Division’s decision to grant the attorney fee award to Plaintiff.
The award was granted after Defendant repeatedly failed to comply with deadlines set in numerous motions enforcing a prior settlement between the Parties. Originally, Plaintiffs commenced a lawsuit against Defendant and their neighbor, seeking damages for alleged property damage and trespass. Ultimately, the litigation settled. Under the terms of the settlement, Plaintiffs were responsible for conveying a piece of their property to Defendant.  Id. at 2.  In return, Defendant was responsible for removing an existing masonry wall and replacing it with a new retaining wall.  Id.

After Defendant delayed construction of the wall, Plaintiffs filed three (3) separate motions seeking enforcement of the settlement.  Each time a new order was entered a new deadline was set for when the wall needed to be completed; Defendant missed the deadline each time.  Defendant also failed to pay the counsel fee imposed during Plaintiffs’ second motion.  As a result of Defendant’s noncompliance, the Court entered a final order enforcing the prior orders, imposed sanctions and granted additional counsel fees.  Id. at 2-3.

Defendant moved to vacate the sanctions and for reconsideration of the counsel fee awards.
Although the awards of sanctions were vacated, the Judge stated that the counsel fee awards related not to the settlement of the underlying litigation, but rather . . . defendant’s continued failure to comply with prior orders. Id. at 4. Additionally, the Judge reasoned that counsel fees were warranted because the attorney’s services were necessary to secure defendant’s compliance with the settlement. Id.

The bottom line is that you can cause yourself harm by failing to cooperate with settlement terms.
It is in your best interest to negotiate terms that you are capable of satisfying. Indeed, when you fail to comply with settlement terms, the result can involve even more cost to you. For example, in this case, the counsel fees were not initially included in the settlement.  It was not until the Defendant repeatedly failed to adhere to his side of the deal hashed out between the Parties, that attorney fees and sanctions were included as a form of penalty.

Comments/Questions: gdn@gdnlaw.com

2013 Nissenbaum Law Group, LLC

At What Stage Of An Incomplete Construction Project Is the Statute of Repose Triggered In New Jersey?

The Statute of Repose is a law that provides a ten year bar for claims related to construction-related lawsuits for “any deficiency in the design, planning, survey, supervision or construction of an improvement to real property.” The ten years begins to run at the stage of “substantial completion”. For construction projects, the stage of “substantial completion,” occurs when most of the project is complete even if certain “punch list” tasks remain. However, the issue remaining is whether there can be different dates of completion for different contractors, based upon when their work was finished.

The issue was considered in a recent case considered by the Appellate Division of the State of New Jersey. New Jersey v. Perini Corp., 425 N.J. Super. 62 (App. Div. 2012). In that case, the State of New Jersey utilized Perini Corp. to construct the South Woods State Prison (“prison”) with a centralized underground hot water distribution system (“distribution system”). (Id. at 66) The State’s contract with Perini Corp. specified that the project would be completed in three phases, each with its own completion deadline. (Id. at 68) Perini Corp. subcontracted with several vendors that contributed in various capacities to the project. (Id.)

The Perma-Pipe Corporation was one such subcontractor, and it designed the layout of the distribution system and manufactured its materials. The distribution system exhibited defects from 2000, just a few years after construction of the prison. On April 28, 2008, the State sued five (5) companies responsible for the design, construction, and materials used in the distribution system. That date was ten (10) years after the prison began operating but three (3) days before ten (10) years from the date that the State issued the final certificates of substantial completion of the project. (Id.)   The State admitted that the distribution system was completed and in operation by April, 27, 1998, when the prison was in operation. Id. at 67-71.

The relevant issues considered were:

1) does the ten-year period of the Statute of Repose run from the substantial completion of a phase or component of a construction project or from completion of the entire project; and

2) what is the relevance of multiple and successive certificates of substantial completion in determining the date from which the ten-year period runs.

 Id. at 71.

The decision hinged on the interpretation of N.J.S.A. 2A:14-1.1a., which barred claims regarding an improvement to real property from being brought “‘more than 10 years after the performance or furnishing of such services and construction.’”  Id. at 72  Particularly, the Court considered the statutory interpretation of the words, “‘improvement to real property.’” Id. at 75.

After reviewing various state precedents, the Court decided that, “the trigger date is the date of substantial completion, not completion of every last task…, [that] separate trigger dates apply to subcontractors that have substantially completed their work, even if improvement as a whole is not completed…and [that] the trigger date for any single contractor runs from completion of that contractor’s entire work on the ‘improvement,’ not from discrete tasks.” Id. at 74.

The Court stated that components of construction may be substantially completed before completion of the entire project and that subcontractors who work on those components with no further duties may expect the Statute of Repose to run when their work is completed. Id. at 77. However, for the Statute of Repose to run under those circumstances, components of a project must have been documented as distinguishable components in the contract for the construction work. Id. at 78. In this case, the Court decided that the water distribution system was a component of an improvement, not a separate improvement to real property. Id. at 76.

The distribution system was not identified in the State’s contract with Perini Corp., as a separate  improvement that was substantially completed before the completion of the entire project. Id. at 79. Accordingly, the Statute of Repose did not run independently for substantial completion of the distribution system alone. Because the State filed its complaint three (3) days before ten (10) years of the official certification for substantial completion of the entire project, the Statute of Repose did not bar the claim.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

What Are the Elements of a Fraudulent Transfer Under the New Jersey Fraudulent Transfer Act, NJSA 25:2-26?

In Seta Artunian Nassif, et. al. v. Jelmac, L.L.C., No. A-4100-10T2 (N.J. Super. Ct. App. Div. July 11, 2012), the Appellate Division of the Superior Court of New Jersey was presented with the following legal issue: what constitutes a fraudulent transfer under the New Jersey Fraudulent Transfer Act (Act)? N.J.S.A. 25:2-26.

That case involved a business that was late in paying its rent. The landlord alleged that the entity that was responsible for the rent had transferred its assets to insiders who were individuals that had a relationship to the entity. The plaintiff alleged that the purpose had been to frustrate the landlords ability to collect a judgment for the rent. The Court was asked to determine whether the admitted transfer of those assets constituted a fraudulent transfer under the Act.

The Act sets forth the following factors to determine whether a fraudulent transfer occurred:

a. The transfer or obligation was to an insider;

b. The debtor retained possession or control of the property transferred after the transfer;

c. The transfer or obligation was disclosed or concealed;

d. Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;

e. The transfer was of substantially all the debtor’s assets;

f. The debtor absconded;

g. The debtor removed or concealed assets;

h. The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

i. The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

j. The transfer occurred shortly before or shortly after a substantial debt was incurred; and

k. The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

The Court determined that no fraudulent transfer had occurred. In reaching that holding, it focused on the fact that no evidence had been adduced as to when the transfers took place. Therefore, there was no way
of knowing whether the transfers were done knowing that they would render  the tenant insolvent. As the court stated, [i]n  other words, no evidence demonstrates whether the alleged cash transfer was made before or after plaintiff’s claim arose. Id. at 20.

This case is instructive for those individuals who control entities that may owe money to others.  The Act should be taken into account when moving funds from such an entity to be sure the transfer does not run afoul of it.

Comments/Questions: gdn@gdnlaw.com

2012 Nissenbaum Law Group, LLC

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