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Appellate Division Upholds Protections For Business Judgements Of Association Board

In Apple Ridge Condominium Association v. Rodgers, unit owners Charles Rodgers and Aureline Rodgers filed suit against the Association, alleging that the Association had engaged in bad faith conduct by its involvement in a lawsuit filed by a group of fee simple owners against the Association, and that the civil litigation had caused the Defendants to be rejected for a reverse mortgage loan on their unit.

The unit owners alleged that the Association acted in bad faith in withholding financial information for the fee simple owners, thus causing the fee simple lawsuit to be filed. That suit was eventually resolved. Nonetheless, Rodgers sued the Association claiming that its actions caused the fee simple lawsuit to be filed in the first place, and in turn, caused him to be rejected for a reverse mortgage loan.

The Court rejected Rodgers' arguments. With regard to the fee simple litigation which the Association had defended, the Court recognized the Association's right under the New Jersey Condominium Act and its governing documents, which indicate that it may enter into contracts, bring suit, and be sued. The Court further recognized that Courts reviewing decisions of condominium association boards should apply the “Business Judgment Rule” which governs decisions made by other types of corporate directors. The general test for whether an association has acted properly is whether its action was authorized by statute or its own bylaws, and if so, whether the action was fraudulent, self-dealing or unconscionable. If not, the Association's decision will be protected by the Business Judgment Rule. The Court held that Rodgers had not presented any evidence that the Association's Board engaged in fraud, self-dealing or unconscionable conduct, and further recognized that the Association must have the ability to make decisions regarding disputes and litigation without second guessing by one or more individual owners.

As demonstrated in Apple Ridge, courts continue to recognize the protections afforded to Boards pursuant to the Business Judgment Rule.