The New Jersey Supreme Court has held that the ten-year statute of repose for bringing an action against a contractor or an architect begins to run as of “substantial completion” of the real property. Russo Farms v. Vineland Bd. of Educ., 144 N.J. 84, 117 (1996). The Court defined “substantial completion” as the date when construction is sufficiently complete so that an owner can occupy or utilize the building. Therefore, generally when the architect certifies as much to the owner and a Certificate of Occupancy is issued attesting to the building’s fitness for occupancy, the real property is substantially complete and the statute of repose begins to run.
One important concept has evolved from recent developments of case law interpreting the statute of repose: the start date for the ten-year time limit of the statute of repose is not the same for all contractors and design professionals on a particular project; the start date differs depending on a party’s continued involvement with a construction project. See State v. Perini Corp., 425 N.J. Super. 62 (App. Div. 2012). The Perini Court engaged in a lengthy discourse of the relevant case law interpreting New Jersey’s statute of repose from which it derived three guiding principles: First, the trigger date is the date of substantial completion, not completion of every last task of the contractor; Second, separate trigger dates apply to subcontractors that have substantially completed their work, even if the improvement as a whole is not completed and ready for use and a certificate of occupancy has not been issued; Third, the trigger date for any single contractor runs from completion of that contractor’s entire work on the “improvement,” not from discrete tasks. [425 N.J. Super. at 74-75 (internal quotations omitted).] This means that certain contractors, who performed services on a job site early on, can benefit from a repose period that commences earlier than the date of substantial completion.
Thus, while the statute of repose commences as to the developer, general contractor and architect upon substantial completion, the analysis is not the same for each individual contractor who will claim the benefit of the repose period ten years after the date the contractor walked away from the project having rendered all of his services and discharged all of his responsibilities
Finally, it is important to note that the strict limitations of the statute of repose only apply to those claims “arising out of the defective and unsafe condition of an improvement to real property.” N.J.S.A. § 2A:14-1.1. The statute as plainly worded applies to parties whose professional work is functionally related to and integrated with a building plan or design, and which gives rise or contributes to a defective and unsafe condition.
The New Jersey Supreme Court has pointed out that the statute of repose does not provide that all claims against planners, and designers, including surveyors, vanish after the passage of ten years from the performance of services. Rather, the statute of repose includes as a significant limiting qualification the requirement that a condition be both defective and unsafe. This means that in determining which actions fall within the statute, a court must first determine, as a threshold issue, whether the claimed condition is one that can be classified as "defective and unsafe."
An unsafe condition exists when the work created a situation hazardous to the well-being and safety of persons or property coming into contact with the improvement or structure. See, e.g., Newark Beth Israel Medical Center v. Gruzen and Partners, 124 N.J. 357 (1991) (prospect that building an addition to a hospital as designed would render the completed building dangerously susceptible to wind created an unsafe and hazardous condition even though the design flaw did not pose a threat to the building as then presently constructed) Rosenberg v. Town of N. Bergen, 61 N.J. 190, 197-98 (1972) (holding that a negligently paved road created an unsafe condition); Cnty. of Hudson v. Terminal Constr. Corp., 154 N.J. Super. 264, 267 (App. Div. 1977) (holding that negligently installed ceramic tiles that began to crumble and fall created a hazardous condition), certif. denied, 75 N.J. 605 (1978); Salesian Soc'y v. Formigli Corp., 120 N.J. Super. 493, 496 (Law Div.1972) (holding that the leakage of water that damaged the building's support structure created an unsafe condition), aff'd o.b., 124 N.J. Super. 270 (App. Div. 1973); cf. E.A. Williams, supra, 82 N.J. at 170-71 (surveying error, resulting in improper spacing between buildings, did not rise to the level of a dangerous and unsafe condition); N.C. State Ports Auth. v. L. A. Fry Roofing Co., 294 N.C. 73, 86 (1978) (action against contractor for damages from leaky roof was not subject to statute of repose because no unsafe condition was found).
Accordingly, in order for the statute of repose to even apply, defendants will have to show that their work created an unsafe or hazardous condition.
To this end, our courts recognize the inherent unfairness in allowing statutes of limitations to run against an association while the developer controls its board. The reason is clear – individual unit owners lack standing to assert claims for faulty construction affecting the common elements prior to transition. Thus, equity cannot support the running of limitation periods against an association that legally cannot assert its rights during the period of developer control.
In New Jersey, the Law Division decision in Terrace Condominium Ass'n v. Midlantic Nat. Bank, 268 N.J. Super. 488 (Law Div. 1993), clearly stands for the proposition that statutes should be tolled when the unit owners of a condominium are not in control of the Board. In Terrace, a condominium association brought an action against a bank that took over construction of the building. At the time the bank took over, some of the units had been sold, but construction was still continuing. Construction was later completed under the bank’s watch, and almost immediately its residents experienced numerous problems with water infiltration into their units. Midlantic, the bank/owner in question, engaged an engineer to document the problems and provide a solution. Most of these repairs were “short-lived or improper repairs to the most significant of the [] problems and generally had the effect of concealing the true causes of the problems.”
Transition occurred and the Association filed suit against Midlantic. Midlantic raised a statute of limitations defense as to several of the building warranty claims. The court found that because the bank had effectuated repairs, the statute of limitations did not run against the unit owners because they relied upon the bank to effectuate the proper repairs while in control of the Association. Additionally, the court found that, notwithstanding the repairs undertaken by Midlantic, the “unit owners had no control of the Association, and should not be bound by the period of time thereto.” This is true “even if each unit owner could have sued the Bank while the Bank was in control of the Association” and that “it may well be that ordinarily the right to make such claims should be tolled or deferred until the unit owners control the association.”
There is also an unpublished decision by the Appellate Division that directly addresses a condominium Association’s ability to control its own destiny. The Appellate Division decision captioned Skyline Condominium Assoc. v. Falkin, No. A-3913-98, A-3860-98, A-3792-98 (App. Div. September 10, 2001), is right on point. In the Skyline opinion, the Appellate Division was faced with the issue of “determining the first date that a plaintiff obtained the enforceable right to institute and maintain an action regarding the controversy” for the purposes of the entire controversy doctrine.
Recognizing the difficulty in running the statute of limitations clock while the individual unit owners are not in control of their association’s board, the Skyline Court concluded that the statute of limitations on an action for construction defects by a condominium association against a sponsor should be tolled until the unit owners control the association.
Put simply, for a cause of action to accrue, the injured plaintiff must have knowledge of both injury and fault. Lynch v. Rubacky, 85 N.J. 65, 70 (1981) ("the discovery rule centers upon an injured party's knowledge concerning the origin and existence of his injuries as related to the conduct of another person"). This rule applies to complex construction defect cases involving hidden construction and design defects.
Among the relevant factors in analyzing whether the discovery rule applies are the nature of the injury and the difficulties inherent in discovering it. Vispisiano v. Ashland Chem. Co., 107 N.J. 416, 428 (1987). For example, in a toxic tort case, such as that presented in Vispisiano, diagnosing a plaintiff's injury is but the first step in establishing a chain of causation. Id. at 429. The plaintiff's suspicion that he had been poisoned, after comparing his symptoms to those of a co-worker, was not sufficient to accrue a cause of action, particularly in the face of his doctors' repeatedly rejecting plaintiff's concerns that he had been poisoned while working at a chemical plant. Id. at 436.
Applying the foregoing to the condominium construction defect setting gives rise to the argument that a plaintiff association’s cause of action accrues when it receives an engineer’s report (either during transition or afterwards) that first apprises the association of the defects afflicting its buildings and the suspected causes of those defects. However, it may be the case that the requisite knowledge is obtained at an earlier date when unit owner board members learn of defects.
New Jersey follows the discovery rule, which tolls the running of the statute of limitations until the time when plaintiff has or reasonable should have knowledge of injury and fault. One fundamental difference between the statute of limitations and repose is that the statute of limitations may be tolled, whereas the statute of repose cannot. In New Jersey, the statute of repose period is ten (10) years from the date of substantial completion and the statute of limitations period is six (6) years from the date of accrual of a cause of action.
]]>The article discusses the fact that in New Jersey, litigations need to be aware of the “statue of repose” in addition to the statue of limitations. Mr. Markin states that statute of repose issues will most commonly arise in the area of construction defect litigation, when a lawsuit is filed more than 10 years after the construction of a building.
You can read the full article online here. (PDF)
In the article, Mr. Markin states, “Since its inception, the New Jersey Home Warranty and Builders’ Registration Act, N.J.S.A. 46:3B-1 to -20, has proven to be more of a trap for new homeowners than the safety net it was purported to be. The purpose of the act is to establish a program requir¬ing that newly constructed homes con¬form to certain construction and quality standards, as well as to provide buyers of new homes with insurance-backed warranty protection in the event such standards are not met. While the intent of the act is to provide homeowners with a prompt, convenient and cost-saving means of resolving disputes con¬cerning construction defects, in reality, its effect has been, in many cases, to strip homeowners of any meaningful means of recovery for discovered con¬struction defects.”
While a municipality enjoys immunity for its exercise of discretion and judgment in the development of a sewer and drainage plan, such immunity does not protect it from liability for the creation of a nuisance or actual trespass.
A Board that acts in reliance upon advice of its experts and legal professionals cannot be held liable for negligence or breach of fiduciary duty if that advice turns out to be wrong. A provision of the New Jersey Nonprofit Corporation Act specifically provides, in relevant part:
Trustees and members of any committee designated by the board shall discharge their duties in good faith and with that degree of diligence, care and skill which ordinary, prudent persons would exercise under similar circumstances in like positions. In discharging their duties, trustees and members of any committee designated by the board shall not be liable if, acting in good faith, they rely on the opinion of counsel for the corporation or upon written reports setting forth financial data concerning the corporation and prepared by an independent public accountant or certified public accountant or firm of accountants or upon financial statements, books of account or reports of the corporation represented to them to be correct by the president, the officer of the corporation having charge of its books of account, or the person presiding at a meeting of the board.[N.J.S.A. § 15A:6-14 (emphasis added).]
The conduct necessary to make the actor liable for a private nuisance may consist of an act or a failure to act under circumstances in which the actor is under a duty to take positive action to prevent or abate an interference. Restatement (Second) of Torts, § 824 (1979). An invasion is intentional if the actor purposely causes it or knows that the invasion is substantially certain to result from his conduct. An intentional invasion of another's use is unreasonable if:
(a) the gravity of the harm outweighs the utility of the actor's conduct, or
(b) the harm caused by the conduct is serious and the financial burden of compensating for this and similar harm to others would not make the continuation of the conduct not feasible.
[Restatement (Second) of Torts, § 826.].
Water discharge from a broken storm drain pipe is most likely an actionable nuisance. See, e.g., City of Oxford v. Spears, 228 Miss. 433 (1956) (There is no question that an invasion of one's interest in the use of downstream waters may constitute a nuisance); Sterling Iron and Zinc Co. v. Sparks Manufacturing Co., 55 N.J.Eq. 824 (E. & A. 1896) (New Jersey long ago recognized that the pollution of a watercourse may constitute an actionable nuisance); Bengivenga v. Plainfield, 128 N.J.L. 418 (E. & A. 1942) (municipalities were held liable for nuisance resulting in water pollution, although the legal analysis upon which liability was based, active wrongdoing, is now outdated); Borough of Westville v. Whitney Home Builders, 40 N.J. Super. 62, 68 (App. Div. 1956) (Our courts have held that the discharge of treated sewage effluent into a running stream is not necessarily an unreasonable riparian use in today's civilization, but that it may be unreasonable if the harm from doing so outweighs the benefit).
Presented with the question of whether a public entity can be liable for a nuisance as recognized by the TCA, our Supreme Court concluded that it is for two reasons: First, sections of the Tort Claims Act may be interpreted as making public entities liable for nuisance under the standards provided by the Act, and second, in light of the history of municipal liability in this area, the Supreme Court perceived no intent to eliminate this liability.
With respect to the statutory recognition and continuation of the nuisance cause of action, the two sections of the act implicated are N.J.S.A. 59:4-2 and N.J.S.A. 59:2-2. The former creates liability for injury caused by the dangerous condition of a public entity's property. Nothing in this section has been construed to impose liability upon a public entity for a dangerous condition of its public property if the action the entity took to protect against the condition or the failure to take such action was not palpably unreasonable. Thus, this section imposes liability upon a municipality in its status as property owner for nuisance where its actions can be found to be "palpably unreasonable."
In sum, an action in nuisance may be maintained against a municipality under and subject to the standards of the Tort Claims Act, so long as Plaintiff shows that the action taken or failure to act by the public entity was palpably unreasonable. See, e.g., Lyons v. Twp. of Wayne, 185 N.J. 426, 434 (2005) ("When analyzing a nuisance . . . wrongful conduct is not limited to the creation of the condition. Rather, a failure to physically remove or legally abate that condition, resulting in the physical invasion of another's property, also constitutes wrongful conduct."); Gould & Eberhardt, Inc. v. City of Newark, 6 N.J. 240, 243 (1951) ("[A] municipality does not have the right to collect surface water and discharge it upon private property in greater quantity and with greater force than would occur from natural flow, so as to cause substantial injury."); Sheppard v. Twp. of Frankford, 261 N.J. Super. 5, 8 (App. Div. 1992) (noting that injunctive relief was appropriate because unreasonable discharge of storm waters by township onto plaintiffs' property created continuing nuisance); Black v. Borough of Atlantic Highlands, 263 N.J. Super. 445, 453 (App. Div. 1993) (allowing nuisance cause of action for failing to prune crab apple trees creating dangerous condition on adjacent private property).
In Russo Farms v. Vineland Bd. of Educ., 144 N.J. 84 (N.J. 1996), the Plaintiffs brought a lawsuit against, inter alia, the Vineland Board of Education (the Board) and the City of Vineland (the City) for damages to their crops and farmland from flooding that resulted from the improper siting and construction of a public school located across the street from their property and by an inadequate drainage system on a bordering street. Plaintiffs claimed that the Board and City were liable under a nuisance theory because the Board and City's use of their property invaded plaintiffs' use and enjoyment of their land. The Court noted that invasion was a physical invasion, which ordinarily sounds in trespass, but "the flooding of the plaintiff's land, which is a trespass, is also a nuisance if it is repeated or of long duration." See also Hennessy v. Carmony, 50 N.J. Eq. 616, 618 (Ch. 1892) (throwing water on another's property once constitutes a trespass, "to continue to do so constitutes a nuisance").
When a court finds that a continuing nuisance has been committed, it implicitly holds that the defendant is committing a new tort, including a new breach of duty, each day, triggering a new statute of limitations. That new tort is an "alleged present failure" to remove the nuisance, and since this failure occurs each day that the defendant does not act, the defendant's alleged tortious inaction constitutes a continuous nuisance for which a cause of action accrues anew each day. See also Sheppard v. Township of Frankford, 261 N.J. Super. 5, 8-9 (App. Div. 1992) (noting that disposal of water runoff onto plaintiff's property created continuing nuisance).
It is pretty well settled that periodic flooding due to defective construction of a drainage system constitutes a continuing tort. The Russo Farms court held that a nuisance is continuing when it is the result of a condition that can be physically removed or legally abated. In such a case, it is realistic to impute a continuing duty to the defendant to remove the nuisance, and to conclude that each new injury includes all elements of a nuisance, including a new breach of duty. On the other hand, when the nuisance cannot physically be removed, it is unfair to impose a continuing, impossible to fulfill duty to remove the nuisance.
Accordingly, the continued flooding of a landowner’s property would be considered an actionable continuous nuisance. See Russo Farms, supra, 144 N.J. at, 97-105 (holding that TCA permits nuisance and negligence causes of action for damages caused on private property by dangerous condition on public entity's property created by school drainage and municipal storm-water drainage system); Medford Lakes, supra, 90 N.J. at 591-96 (allowing action for nuisance for damage to lake caused by discharge from municipally owned and operated sewage treatment plant); Saldana v. DiMedio, 275 N.J. Super. 488, 499 (App. Div. 1994) (allowing cause of action against municipality for dangerous condition on its property for fire that spread from city-owned abandoned building to privately-owned property); Sheppard v. Township of Frankford, 261 N.J. Super. 5 (App. Div. 1992) (in a nuisance case that involved a public entity's disposal of storm-water runoff onto private property the court found a continuous nuisance existed where the storm-water drainage system at issue "enhanced, concentrated, and sped up the flow of the storm water into the drainage ditch," thereby causing flood damage on the plaintiff's property).
When liability for any of these breaches is imposed on an individual director or trustee, the issue of indemnification arises. In New Jersey, because condominium associations are generally organized as not-for-profit corporations under the Nonprofit Corporation Act, indemnification may be available to an officer of an entity organized under this Act provided that the officer (1) “acted in good faith and in a manner which the [officer] reasonably believed to be in or not opposed to the best interests of the corporation,” and (2) “with respect to an criminal proceeding, the [officer] had no reasonable cause to believe the conduct was unlawful.” N.J.S.A. 15A:3-4(b). If the director can satisfy this standard, he can recover from the association both expenses incurred in the litigation and the amount paid in satisfaction of a judgment rendered against him. Id. However, entitlement to indemnification for a claim for punitive damages will not likely be available because it is generally against public policy to provide indemnification for punitive damages. Johnson & Johnson v. Aetna Cas., 285 N.J. Super. 575 (App. Div. 1995).
Although plan or design immunity does not depend upon any showing of the reasonableness of the design, nor can it be lost by changed circumstances, N.J.S.A. 59:4-6 cmt, it does not suffice for the public entity to show that works were constructed under a permit. For, although liability cannot be based on the inadequacy of the design or plan, immunity from liability for an independent affirmative act (such as the claimed discharge of high amounts of phosphates and nutrients) is afforded in the first instance only for an approved feature of the plan or design. Therefore, a fair reading of the TCA’s planning and design immunity provision compels the conclusion that the prerequisite fact which must be proved in order for the public entity's burden of proof to be deemed to have been successfully carried is that the specific design or plan detail alleged to constitute the dangerous condition was the subject of prior governmental approval or in conformity with prior approved standards. Moreover, it is important to note that the public entity bears both the burden of pleading the affirmative defense and the burden of proof. Ibid.
New Jersey courts that have considered the application of the business judgment rule have concluded that the scope of judicial review of condominium association decisions is limited to a two-pronged test: (1) whether an association's action was authorized by statute or its own bylaws and, if so, (2) whether the action was fraudulent, self-dealing or unconscionable. Thanasoulis, supra, 110 N.J. at 655; see also Chin v. Coventry Square Condo, 270 N.J. Super. 323, 328-29, (App. Div. 1994); Siller, supra, 93 N.J. at 382; Papalexiou v. Tower West Condo, 167 N.J. Super. 516, 527 (Ch. Div. 1979).
In Thanasoulis, the New Jersey Supreme Court considered whether a rule adopted by the board of directors of a condominium association increasing the parking fee for tenants of nonresidents owners but not for those of resident owners constituted a breach of the board’s fiduciary duty to the nonresident owners. In a 4-3 decision, the Supreme Court determined that the association was without requisite authority to enact the revised parking fee schedule in such a discriminatory manner, and thus failed to meet even the first prong of the test. The majority held that the association’s regulation was not authorized by either the Condominium Act or the condominium’s master deed. The Court noted that by substituting itself as the lessor of the unit owner’s parking space and thereby severing the owner’s right to the parking space, the association had, in effect, confiscated for its own use the value of the unit owner’s parking space. The Court reject the argument that the regulation was a security measure aimed at the prevention of subletting parking spaces to people not residing in the building since the same end could have been accomplished through other means.
Perhaps the clearest explication of the business judgment rule is contained in Papalexiou v. Tower West Condominium, in which individual unit owners challenged the authority of the board to levy a special emergency assessment upon the membership. In upholding the assessment, the court said:
The refusal to enforce arbitrary and capricious rules promulgated by governing boards of condominiums is simply an application of the "business judgment" rule. This rule requires the presence of fraud or lack of good faith in the conduct of a corporation's internal affairs before the decisions of a board of directors can be questioned. If the corporate directors' conduct is authorized, a showing must be made of fraud, self-dealing or unconscionable conduct to justify judicial review . . . Although directors of a corporation have a fiduciary relationship to the shareholders, they are not expected to be incapable of error. All that is required is that persons in such positions act reasonably and in good faith in carrying out their duties. Courts will not second-guess the actions of directors unless it appears that they are the result of fraud, dishonesty or incompetence.
[Papalexiou, supra, 167 N.J. Super. at 527 (citations omitted) (emphasis added).]
Accordingly, to hold a Board member personally liable, a plaintiff must establish evidence that illustrates self-dealing or a lack of good-faith in carrying out the duties of the Board.
Nevertheless, the business-judgment rule does not apply to shield board members where the action of the association is in violation of the Condominium Act, the association's master deed, or its by-laws. Micheve, L.L.C. v. Wyndham Place at Freehold Condo. Ass'n, 381 N.J. Super. 148, 154 (App. Div. 2005), certif. denied, 186 N.J. 256 (2006). Likewise, where the Board acts without authority derived from its governing documents or statute, it is similarly unprotected by the business judgment rule. See Verna v. Links at Valleybrook Neighborhood Ass'n, 371 N.J. Super. 77, 93 (App. Div. 2004) (Only when a board's actions are authorized and of the type that justify application of the "business judgment" rule, will a court refrain from second-guessing its actions).
Generally, enforcing rules and other constituent document provisions, such as the duty to collect assessments, is an area of special sensitivity for board members and associations, which may be attacked for breach of fiduciary duty for failure of such enforcement as well as for discriminatory enforcement. In Glen v. June, 344 N.J. Super. 371 (App. Div. 2001), the court found that an association had breached its fiduciary duty by depriving an owner of the use of his driveway, a limited common element, and a garage, which was apparently part of his unit. The court concluded that an award of damages would be appropriate for the breach of fiduciary duty. The court also found that an attempt to humiliate the owner by piling snow in his driveway was a breach of fiduciary duty, although it offered no remedy for that incident.
Necessarily, self-dealing must be avoided, corporate opportunity enhanced, and facts which have a bearing on association concerns must be honestly and fully disclosed. The issue of self-dealing was considered in Owners of the Manor Homes of Whittingham v. Whittingham Homeowners Ass'n, Inc., 367 N.J. Super. 314, 323 (App. Div. 2004). There, the allegation was that the Board members breached their fiduciary duties by changing the method of calculating maintenance assessments (i.e. by re-measuring the units) several years after the condominium had been in operation. As a result, the monthly assessments for certain types of residences increased while it decreased for others. Plaintiffs alleged self-dealing, but that was rejected by the court because there was no evidence that the Association or Board benefited by the remeasuring. Moreover, there was an independent business reason for doing the remeasurement, i.e. the source of the developer measurements were unclear and contradicted by architectural drawings. Accordingly, in order for a breach of fiduciary duty claim to pass muster, a plaintiff must come forward with evidence that the Board or an individual Board member received some type of direct benefit from an authorized act of the Board.
Nonetheless, breach of fiduciary duty to “maintain, repair and replace” common area of the condominium could cause a trustee to be liable for the cost of returning the condominium to the position that it would have been in had such maintenance been undertaken. See Berish v. Bornstein, 770 N.E.2d 961 (Mass. 2002), remanded to 21 Mass. L. Rptr. 530 (Mass. Super. 2006) (trustee was also the developer). Notably, however, our research produced no published New Jersey case that considered this issue.
An association’s fiduciary duty will in certain circumstances include the duty to warn owners of a known dangerous condition. See Siddons v. Cook, 382 N.J. Super. 1, 10-11 (App. Div. 2005), where the association knew that faulty dishwasher hoses had flooded several condos but did not notify the unit owners. The court examined the nature of the risk, the interests a notification would protect, and the ease with which the association could notify the owners, in holding that the association breached its duty to warn the unit owners.
Additionally, a director’s breach of fiduciary duty owed to unit owners may expose the director to liability for punitive damages. For instance, in Scott v. Williams, 607 S.W.2d 267 (Tex. Ct. App. 1980), unit owners brought suit against the directors of the association alleging that the directors had controlled the condominium for the their own personal gain and had mismanaged its affairs and misapplied its funds. The trial court enjoined the directors from controlling the affairs of the condominium to maximize their profits, awarded damages for the directors’ failure to repair the common elements of the condominium, and awarded punitive damages. The Texas Appellate Court affirmed the grant of an injunction but reversed and remanded for a new trial that part of the award dealing with damages. The appellate court reversed the damage award on the sole ground that the plaintiffs had no standing to sue on behalf of other unit owners who may have been damaged by the directors’ conduct and who were not joined as plaintiffs in the suit. At no point in its opinion did the Scott court indicate that the punitive damage awards were improper. Even if the Association has obtained directors and officers insurance, policies of this nature do not cover intentional acts.
]]>(b) A public entity is not liable for legislative or judicial action or inaction, or administrative action or inaction of a legislative or judicial nature;
(c) A public entity is not liable for the exercise of discretion in determining whether to seek or whether to provide the resources necessary for the purchase of equipment, the construction or maintenance of facilities, the hiring of personnel and, in general, the provision of adequate governmental services;
(d) A public entity is not liable for the exercise of discretion when, in the face of competing demands, it determines whether or how to utilize or apply existing resources, including those allocated for equipment, facilities and personnel unless a court concludes that the determination of the public entity was palpably unreasonable. Nothing in this section shall exonerate a public entity for negligence arising out of acts or omissions of its employees in carrying out their ministerial functions.
[N.J.S.A. 59:2-3.]
Subsection (a) concerns the "exercise of judgment or discretion" in making basic policy -- the type made at the planning, rather than the operational level of decision-making. Moreover, immunity is contingent upon proof that discretion was actually exercised at that level by an official who, faced with alternative approaches, weighed the competing policy considerations and made a conscious choice.
In Birchwood Lakes Colony Club v. Medford Lakes, 90 N.J. 582, 601 (N.J. 1982) our Supreme Court acknowledged the validity of a pre-Tort Claims Act case, Barney's Furniture Warehouse v. Newark, 62 N.J. 456, 467-68 (1973), which held that although a municipality is not liable for the gradually increasing functional incapacity of its sewer system, it remains liable for negligent operation or repairs and would be liable if in actual operation the system expels artificially collected sewage upon a claimant's property (Barney's Warehouse, supra, involved claims of damage by property owners whose premises were periodically flooded by water backup following rainfall. The Court concluded that "by far, the greater portion of the floodwaters . . . consists of either precipitation or back-flow of surface water. . . ." Id. at 462. The Court held there was no affirmative municipal duty to keep its storm water system abreast of municipal growth and no showing that "collected waters" were cast upon plaintiffs' lands. Id. at 468. The court distinguished from the matter before it such cases as those of private damage resulting from lack of repair or from the connection of additional laterals to a sewer whose existing incapacity was already demonstrated, or from the casting into a sewer of "sewage beyond its capacity to conduct to the common outlet so that it must empty itself upon the private property" and the case of a common sewer outlet emptying directly on private property. It was said that in all of such instances the public body is generally held responsible.).
Accordingly, the Medford Lakes court held that a public entity will be immune from liability for claims of damages from public sewer discharges when the amount of discharge is incorporated into the plan and design "approved in advance" by the body exercising "discretionary authority to give such approval," N.J.S.A. 59:4-6, so long as the works are thereafter operated with reasonable care and in accordance with the permit requirements.
As the Barney’s Furniture court acknowledged, the duties of the municipal authorities in adopting a general plan of drainage and in determining when and where sewers shall be built, of what size and at what level, are of a quasi-judicial nature, involving the exercise of deliberate judgment and discretion, and depending upon considerations affecting the public health and general convenience throughout an extended territory; and the exercise of such judgment and discretion in the selection and adoption of the general plan or system of drainage is not subject to revision by a court or jury in a private action for not sufficiently draining a particular lot of land. However, the construction and repair of sewers, according to the general plan so adopted, are simply ministerial duties, and for any negligence in so constructing a sewer or keeping it in repair, the municipality which has constructed and owns the sewer may be sued by a person whose property is thereby injured.
The view that liability does not attach for defects in the general plan of a municipal sewerage system is generally held. A few jurisdictions, however, have followed a minority rule to the effect that if a sewer system as established proves inadequate "to keep pace with the increasing demands upon the resources of the artificial channels it has established" it must be changed to accommodate such demands at peril of liability. See, e.g., City of Louisville v. Cope, 296 Ky. 207 (Ct. App. 1943); City of Macon v. Cannon, 89 Ga. App. 484 (Ct. App. 1954); City of Holdenville v. Griggs, 411 P.2d 521 (Okl. Sup. Ct. 1966). More frequently, however, it is held that if a sewer is adequate when constructed the municipality is not liable because of subsequent inadequacy occasioned by the growth of the municipality and the increased demands made upon the sewer. This position is qualified to the extent that liability will follow if in actual operation the system expels artificially collected sewage, whether sanitary or storm or both, into plaintiff's home or onto his land.
Thus, flooding of a plaintiff’s property as a result of waters cast upon it out of sewer lines would be a basis for imposing liability on the public entity in control of the sewer lines through application of the doctrine of the “collected water” cases cited above. Moreover, liability attaches when damage results because of a public entity’s failure to remedy a condition of disrepair.
Accordingly, public entities remain liable for negligent operation or construction. In our State, the operation of a sewer system by a municipality is held to be the exercise of a proprietary function, and liability is determined under ordinary principles of negligence, without regard to the municipal character of the tortfeasor.
When a municipality constructs and operates a sewer system it becomes its duty to keep it in repair and free from conditions that will cause damage to private property. Its duty to keep its sewers in repair is not performed by waiting to be notified by citizens that they are out of repair, and repairing them only when the attention of municipal officials is called to the damage they have occasioned by having become dilapidated and defective. Its duty involves the exercise of a reasonable degree of watchfulness in ascertaining their condition from time to time, and preventing them from becoming dilapidated and defective. Where dilapidation and defects are the ordinary result of the use of the sewer which ought to be anticipated and could be guarded against by an occasional examination by tests or otherwise, the failure to make such examinations is a neglect of duty which renders the municipality liable for damage proximately caused thereby.
The rule of damages applicable to damage sustained to real property of a plaintiff allows recovery based upon the diminution in value of said property caused by the defendant public entity’s negligence. Additionally, evidence of the reasonable cost of repairs necessary to restore such property to its former condition may be considered in determining such loss.
]]>