Construction Litigation Law Blog

An action for trespass arises upon the unauthorized entry onto another's property, real or personal. A trespass on property, whether real or personal, is actionable, irrespective of any appreciable injury. Under a trespass theory, a plaintiff may "assert a claim for whatever damages the facts may lawfully warrant." Thus, a plaintiff may claim damages from the loss in value to the land trespassed upon, as well as consequential damages such as property taxes and loss of profits.

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.

This blog is the fifth and final installment in a series of posts discussing an individual’s potential liability for the collective decisions made by their board. Be sure to read our previous posts online here.

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).]

Therefore, a Board is encouraged to seek the advice of counsel; however, as a practical matter, the Board should always use its best business judgment in making informed decisions that affect its association and community.

An action for nuisance may be brought against a public entity unhampered by the TCA. Private nuisance is but one possible theory for recovery of damages caused by the invasion of one's interest in the private use and enjoyment of land. That interest may be invaded by more than one type of conduct, i.e., the conduct may be intentional, it may be unintentional but caused by negligent or reckless conduct, or it may result from an abnormally dangerous activity for which there is strict liability. One is subject to liability for private nuisance if the invasion is either:
(a) intentional and unreasonable, or
(b) unintentional and otherwise actionable under the rules controlling liability for negligent or reckless conduct, or for abnormally dangerous conditions or activities.

[Restatement (Second) of Torts, § 822 (1979).]

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).

This blog is the fourth in a series of posts discussing an individual’s potential liability for the collective decisions made by their board. Be sure to read our previous posts online here.

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).

The immunity principle espoused by the Barney’s Furniture court (concluding that the city could not be held liable in damages for floods resulting from a gradually increasing functional incapacity of the sewer system) is codified as the planning and design immunity provision of the TCA. See N.J.S.A. 59:4-6. The Act's plan or design immunity is granted because such decisions are "an example of the type of highly discretionary governmental activity which the courts have recognized should not be subject to the threat of tort liability." N.J.S.A. 59:4-6 cmt. Thus, under Barney's Furniture, as well as under the Tort Claims Act, a public entity may establish plan or design immunity for its original construction of a drainage system. Once it does, "no subsequent event or change of condition shall render a public entity liable on the theory that the existing plan or design of public property constitutes a dangerous condition." N.J.S.A. 59:4-6 cmt.

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.

This blog is the third in a series of posts discussing an individual’s potential liability for the collective decisions made by their board. Be sure to read our previous posts online here.

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.

Public entities, however, are not liable for discretionary activities. The section that confers immunity based upon discretionary activities reads as follows:

(a) A public entity is not liable for an injury resulting from the exercise of judgment or discretion vested in the entity;

(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.

This blog is the second in a series of posts discussing an individual’s potential liability for the collective decisions made by their board. Be sure to read our previous posts online here.

Since condominium associations are generally organized as non-profit corporations under N.J.S.A. 15A:1-1 et seq., the New Jersey Nonprofit Corporation Act is quite instructive on a Board member’s standard of care:

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.

[N.J.S.A. 15A:6-14.]

Moreover, the overriding scheme of the Condominium Act requires an association to act as a fiduciary and make decisions for the protection of the whole condominium and each of the constituent owners, not to act discriminatorily, arbitrarily, or in bad faith. See Billig v. Buckingham Towers Condo. Ass'n I, Inc., 287 N.J. Super. 551, 563 (App. Div. 1996). Therefore, since a condominium association stands in a fiduciary relationship to the unit owners, that relationship requires that it act consistently with the Condominium Act and its own governing documents and that its actions be free of fraud, self-dealing, or unconscionability. Ibid. Essentially, all that is required is that the Board act reasonably and in good faith using the degree of skill and care an ordinary person would exercise under similar circumstances. Ibid. If a contested act of the association meets each of these tests the courts will not interfere or substitute the court’s judgment for the judgment of the Board. Ibid.; see also Courts at Beachgate v. Bird, 226 N.J. Super. 631 (Ch. Div. 1988) (upholding a board’s enforcement of restrictions on changes in windows where the restrictions were imposed for aesthetic and safety reasons). This protection from judicial scrutiny is commonly known as the “business judgment rule”.

The New Jersey Tort Claims Act (the “TCA” or the “Act”) provides that "a public entity is not liable for an injury" caused by an act or omission "[e]xcept as otherwise provided by this act." N.J.S.A. 59:2-1a. Under the TCA, immunity is the rule and liability is the exception. The TCA defines public entities to include counties and municipalities, and therefore townships also fall within the scope of the TCA. N.J.S.A. 59:1-3.

One relevant exception to the general rule of immunity covers dangerous conditions on public property. N.J.S.A. 59:4-2. That section provides:

A public entity is liable for injury caused by a condition of its property if the plaintiff establishes that the property was in dangerous condition at the time of the injury, that the injury was proximately caused by the dangerous condition, that the dangerous condition created a reasonably foreseeable risk of the kind of injury which was incurred, and that either:

(a) a negligent or wrongful act or omission of an employee of the public entity within the scope of his employment created the dangerous condition; or

(b) a public entity had actual or constructive notice of the dangerous condition under section 59:4-3 a sufficient time prior to the injury to have taken measures to protect against the dangerous condition.

Nothing in this section shall be 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.

[N.J.S.A. 59:4-2.]

Chapter 4 of the Act, specifically N.J.S.A. 59:4-2, imposes liability on a public entity for injury caused by a condition of its property if the plaintiff establishes that the property was in dangerous condition at the time of the injury, that the injury was proximately caused by the dangerous condition, and that the dangerous condition created a reasonably foreseeable risk of the kind of injury incurred. The plaintiff must also establish that the public entity was responsible either through its employees for creating the dangerous condition or had actual or constructive notice of the condition sufficiently before the injury to have taken measures to protect against the dangerous condition, provided that the entity will not be liable if the action taken to protect against the condition was not "palpably unreasonable." N.J.S.A. 59:4-1(a) defines "dangerous condition" as "a condition of property that creates a substantial risk of injury when such property is used with due care in a manner in which it is reasonably foreseeable that it will be used."

The TCA defines "public property" as property that is "owned or controlled by the public entity." N.J.S.A. 59:4-1c. However, liability is not limited to an event occurring on public property. In fact, our Supreme Court has concluded that public entities may be liable for creating a dangerous condition on private property that is under the "control" of the public entities.

Nevertheless, whether a dangerous condition exists is ultimately a question for the jury. In order for plaintiffs to be successful at trial, they must not only prove that public property created a dangerous condition, but that the condition created a foreseeable risk of the kind of injury that occurred, that the condition proximately caused the injury and that the action the public entities took to protect against the dangerous condition or the failure to take such action was palpably unreasonable. The term "palpably unreasonable" connotes "behavior that is patently unacceptable under any given circumstance." A dangerous condition under the TCA relates to the physical condition of the property itself and not to activities on the property. See Roe ex rel. M.J. v. New Jersey Transit Rail Operations, Inc., 317 N.J. Super. 72 (App. Div. 1998), certif. denied, 160 N.J. 89 (1999) (held that a permanently bolted-open gate on New Jersey Transit's property constituted a dangerous condition under N.J.S.A. 59:4-2 because it invited the public to enter a high-crime area).

This blog is the first in a series of posts discussing an individual’s potential liability for the collective decisions made by their board. Be sure to check back for future posts.

Like directors of corporations, members of association Boards enjoy various protections for the consequences of their business decisions. Essentially, in order for a Board member to be personally liable for an act of the Board, the Plaintiff would have to prove either (1) that the Board acted without authorization from the association’s governing documents, Condominium Act or other statute; or (2) that an authorized act of the Board was fraudulent, unconscionable or resulted in self-dealing. Generally, as long as a Board member acts in good-faith and makes informed decisions, he will be protected from personal liability by operation of the business judgment rule.

An association is comprised exclusively of the unit owners who, through their individual deeds, automatically become members. In essence, an association is responsible for the governance of the common areas and facilities used by the owners of the condominium units. It is a representative body that acts on behalf of the unit owners. Its powers derive from its by-laws, the master deed, and applicable statutory provisions. An association may enter into contracts, bring suit and be sued. The most significant responsibility of an association is the management and maintenance of the common areas of the condominium complex. See Thanasoulis v. Winston Towers 200 Ass'n, 110 N.J. 650, 656-57 (1988).

The Association's Board of Directors has a fiduciary obligation to its members similar to that of a corporate board to its shareholders. See id. at 657; Siller v. Hartz Mountain Assoc., 93 N.J. 370, 382, cert. denied, 464 U.S. 961 (1983). That obligation includes the duty to preserve and protect the common elements and areas for the benefit of all its members. Kim v. Flagship Condominium Owners Ass'n, 327 N.J. Super. 544, 550 (App. Div. 2000). It is widely accepted that directors of a corporation not only owe a fiduciary duty to shareholders, but also to the corporation itself. See Daloisio v. Peninsula Land Co., 43 N.J. Super. 79, 90-91 (App. Div. 1956) (Directors, when elected to office, become trustees of the entire body of corporate owners. They owe loyalty not only to the majority stockholders, or to the minority, but to all of them, represented by the corporate entity. To disregard the rights of either group, or of the corporation as such, even for a moment, is a violation of their fiduciary obligation).

Accordingly, just like corporate directors have a fiduciary relationship with the corporation and its stockholders, association board members have a fiduciary relationship with the individual unit owners and the association as a whole. See, e.g., Casey v. Brennan, 344 N.J. Super. 83, 108 (App. Div. 2001) aff'd, 173 N.J. 177 (2002) (Corporate directors have a fiduciary relationship with the corporation, and its stockholders); Mulligan v. Panther Valley Prop. Owners Ass'n, 337 N.J. Super. 293, 309 (App. Div. 2001) (The members of the Association's board occupy a fiduciary position vis-a-vis the Association and the membership).

The law in New Jersey is such that a public entity is not liable for an injury caused by the issuance, denial, suspension or revocation of, or by the failure or refusal to issue, deny, suspend or revoke, any permit, license, certificate, approval, order, or similar authorization where the public entity or public employee is authorized by law to determine whether or not such authorization should be issued, denied, suspended or revoked.

Pursuant to N.J.S.A. 59:2-3, "(a) a public entity is not liable for an injury resulting from the exercise of judgment or discretion vested in the entity; (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." Determining whether governmental action is discretionary for the purposes of the Tort Claims Act generally depends upon whether the decision is a high level policy decision. Generally high level policy decisions classified as discretionary acts involve planning, and are distinct from ministerial acts, which pertain merely to operations and which are not immunized.

A ministerial act has been defined as "one which a person performs in a given state of facts in a prescribed manner in obedience to the mandate of legal authority, without regard to or the exercise of his own judgment upon the propriety of the act being done." Thus, it has been determined that decisions of planning boards and boards of health are discretionary because planning boards and boards of health do not simply perform in a given manner without the exercise of their own judgment, their actions cannot be deemed ministerial. While it is true that once certain facts have been established, a planning board is mandated to act in a certain way, however, the board uses discretion in weighing the credibility of witnesses and evidence presented when making findings of fact. Therefore, the decisions of planning boards and boards of health, to issue permits or authorize subdivisions, for example, are the types that are afforded immunity. See N.J.S.A. 59:2-5.

This immunity is necessitated by the almost unlimited exposure to which public entities would otherwise be subject if they were liable for the numerous occasions on which they issue, deny or suspend permits and licenses. In addition, most actions of this type by a public entity can be challenged through an existing administrative or judicial review process.

As the comment to N.J.S.A. 59:2-5 describes, the TCA has been interpreted to grant immunity to all phases of the licensing function, whether or not the act was classified as discretionary or ministerial. See Malloy v. State, 76 N.J. 515 (1978). Therefore, any allegations that a planning board negligently granted site plan approval or a licensing board wrongly issued a permit, would more likely than not fall within the purview of the immunizing provisions of the Act.

Often times, a subcontractor or general contractor may be left with no other option after attempting to collect funds from a general contractor or owner then to file a Construction Lien to collect these funds at some future time. The party filing the Construction Lien, however, should be careful to ensure that the Lien is not overstated and it is accurate in its entirety. While Construction Lien Law allows a contractor to file a Lien against a property, it is also favorable to the property owner if the Construction Lien is improperly filed, overstated, or contains incorrect information. As a reference point, the process for filing a Construction Lien with regard to a residential property is entirely different than commercial Liens.

As to non-residential properties, a contractor must first be able to demonstrate the existence of a Construction Agreement. In the absence of a signed Contract, a party may not file a Construction Lien. The individual must then make sure that the Lien has been timely filed, which is within ninety days of the last date services or materials were provided. This period excludes any relevant warranty work which may be performed. Thereafter, a party must be careful not to overstate the value of the Construction Lien. An overstated Construction Lien may be removed due to its invalidity. A contractor must be aware of the statute which provides that if a Lien holder fails to file suit within thirty days of a demand by the property owner, or within one year of the filing of the Lien, then in that event, the Lien becomes invalid.

Once the Construction Lien has been properly filed, the contractor should be careful to ensure that the Lien has satisfied the above requirements and that a lawsuit has been timely instituted. If the contractor fails to follow the above requirements, then a property owner may seek to have the Lien removed and they would be entitled to any counsel fees and costs incurred in removing an overstated or invalid Construction Lien. If a lawsuit is not commenced within one year of the date of the filing of a Construction Lien, the Lien must be removed upon request by the property owner. If not, the owner can move forward to have the Lien removed and be awarded counsel fees and costs associated with doing so. These are just a few simple rules which a party must follow when filing a Construction Lien. While it is a good process to help to preserve and protect a contractor’s right, it can end up becoming something that an adverse party can use to subject you to sanctions, counsel fees, and costs. Therefore, it is always suggested that you consult with an attorney prior to filing a Construction Lien.