What Every Association Needs to Know About Port Liberte: Appellate Division Affirms the Right of Associations to Bring Consumer Fraud Claims
Port Liberte Homeowners Association, Inc. v. Sordoni Construction Company
N.J. Super. (App. Div. 2007) (A-2138-04)
In a case of first impression, the New Jersey Appellate Division has determined that a condominium association has standing to sustain claims for both fraud and consumer fraud against third-party contractors and manufacturers even though the fraudulent misrepresentations and omissions by these third-parties were made to the developer and occurred prior to the creation and construction of the association. J. Randy Sawyer, Esquire, a shareholder in Stark & Stark’s Construction Litigation Group, successfully argued this matter as amicus curiae on behalf of the Community Associations Institute along with counsel for the homeowners’ association. You can read Randy’s detailed discussion of the Port Liberte decision here.
Briefly stated, the facts of Port Liberte are as follows: the Port Liberte Homeowners Association, Inc. (hereinafter “Port Liberte”) brought numerous claims against both the contractors who were involved in the construction of Port Liberte’s buildings and common elements as well as the manufacturers of the materials used in this construction, specifically, the Exterior Insulation and Finish System (“EIFS”). As part of its complaint, Port Liberte asserted fraud and consumer fraud claims against the contractors and manufacturers, alleging that these defendants made certain fraudulent misrepresentations to Port Liberte prior to construction of the association’s buildings, albeit when Port Liberte was still controlled by the original developer. In its decision, the Appellate Division found that because a “condominium association is the intended beneficiary of a developer’s actions ... [third parties are] on constructive notice that representations made to, and omissions withheld from, the developer will be deemed as if they are made to, or withheld from, the association, once the association assumes control of the condominium.” The Court found that to hold otherwise would create an unjust result, which is “contrary to the legislative scheme permitting a condominium homeowners association to institute a suit to recover damages to the common elements.”
So practically speaking, what does the Port Liberte decision mean for community associations in New Jersey? This decision – which determines essentially that an association “stands in the shoes” of the original developer and can bring claims against third parties for misrepresentations made to the developer – has wide-reaching implications for condominium and homeowners associations going through transition. Transition can be described as the transfer of control and responsibilities from the developer to the unit owners, which includes the governance of the association, the acceptance of the common property, and the accounting of funds. The result of the decision in Port Liberte is that associations now must be more diligent than ever in proceeding with this transition process in order to protect the rights of the association and the individuals who live in and make up the association. As part of this process, each association should be engaging in a thorough review of the plans, specifications, books and records of the association as well as any contracts or agreements entered into by the developer on behalf of the association. This review should be undertaken with the assistance of the association’s professionals – engineers, accountants and counsel – to determine if there are any issues and potential claims against either the developer or third-parties for the construction and representations made thereto. If these documents have not been turned over to the association by the developer, the association has a right under the New Jersey Condominium Act and the Planned Real Estate Development Full Disclosure Act (“PREDFDA”) to request such turnover from the developer. Moreover, prior to entering into any transition agreement or releasing the developer or any third-parties from liability for goods and services provided during the construction, marketing and sale of the association’s units, it is essential that the association consult with counsel to ensure that the association is protecting the rights of the association and complying with its fiduciary duty with regard to the health and welfare of the association. Overall, this decision is an enormous victory for condominium and homeowner associations throughout New Jersey, reaffirms the Legislature’s mandate to protect consumers from unconscionable practices and further demonstrates that New Jersey has one of the strongest consumer protection laws in the nation.
If you would like to discuss the Port Liberte opinion and how it affects condominium associations in more detail, please contact David J. Byrne or Jonathan H. Katz.
