March 10, 2009

by Michael S. Karpoff, Esquire

There is no need for governing boards to panic over the decision by the Appellate Division of New Jersey's Superior Court in Committee for a Better Twin Rivers v. Twin Rivers Homeowners Association. Notwithstanding the sensationalist newspaper headlines and the public claims of the plaintiffs, the Appellate Division did not invalidate any community association regulations or provide an unfettered right to free speech for members of common interest communities.

Rather, the court held only that New Jersey state constitutional provisions apply to members' expressive conduct and remanded the case to enable the trial court to re-evaluate three issues regarding expressive conduct under the constitutional standard. On the other hand, the appellate court affirmed the use of the business judgment rule and contractual principles in upholding other association regulations and policies. Moreover, the defendants plan to appeal, so the Supreme Court will have an opportunity to address the issue.

Twin Rivers is a planned development which includes 2,700 residences with 10,000 occupants. The Twin Rivers Community Trust owns the common property, and the Twin Rivers Homeowners Association governs the use of the common property. The plaintiffs challenged a number of the association's regulations and practices. Conceding that the U.S. Constitution's First Amendment does not control on private property, the plaintiffs relied primarily upon New Jersey's state constitutional free speech and assembly clauses, which grant broader rights than the First Amendment.

Trial Court Rejected Constitutional Standard

Plaintiffs argued that Twin Rivers is similar to a town and therefore should be subject to the constitutional protections. The trial court rejected that argument. He then considered each of the plaintiffs' specific claims.

In Count One of their complaint, the plaintiffs challenged the association's policy on posting signs, which limits residents to one sign in a window and one sign in the garden bed no more than three feet from the residence. Plaintiffs claimed that these restrictions violate their right to free speech. The trial court concluded that because the property is private, constitutional provisions do not apply. He also determined that the sign policy is reasonable and therefore enforceable under contract principles.

The plaintiffs also contested, in their second count, the association's requirements that owners pay rent, post a security deposit, and provide an insurance certificate to use the community room for a meeting and that the Board of Directors may deny such rentals. The trial court upheld the rental fee, deposit, and insurance requirement, finding that the charges are reasonably related to the association's costs and the insurance requirement can be met at no cost and with little difficulty. However, the court overruled the Board's ability to deny rentals because there were no standards to guide its decisions.

The association publishes a monthly newsletter, Twin Rivers Today, which is distributed to the residents. The newsletter contains articles about Twin Rivers, a president's message, and letters to the editor. The plaintiffs complained in Count Three that they were denied equal access to Twin Rivers Today because the president of the association, who also was the editor, allegedly used the newsletter to advance his own views and to criticize them and placed their responses in positions of lesser prominence. The trial court rejected that argument, stating that as long as the newsletter prints opposing viewpoints, its editors retain discretion on the actual content and placement of articles.

Appellate Court Disagrees Regarding Expressive Conduct

The Appellate Division, however, concluded that the state's constitutional provisions regarding speech and assembly apply to members of community associations. The appellate court held that because the lower court rejected the argument that the state constitution applies with respect to Counts One, Two and Three, he applied the wrong standard. The panel therefore remanded the case to the trial court for reconsideration of these three counts under the constitutional standard.

The court did not state that any of the association's rules are invalid or that the plaintiffs have a right to unrestricted speech. On the contrary, the court recognized that reasonable time, place and manner regulations are permitted to control even constitutional speech. Specifically, the court wrote,

As we have stated, in reaching our conclusions, we do not rule upon the merits of any claims plaintiffs have made bearing upon their fundamental rights under the New Jersey Constitution; only that, in resolving those claims on summary judgment, the trial court applied an inappropriate standard. Accordingly, we remand for reconsideration by the proper standard of the claims based upon the expressive rights guarantees of article I, ¶6 and ¶18. We recognize that such rights, while fundamental, are not absolute. They are subject to reasonable and proper limitations having to do with the time, place and manner of their exercise. · We leave to the trial court the assessment of any questions that remain in that regard.

Court Affirms Business Judgment Rule and Contract Principles for Operational Rules

Overlooked by the newspapers and the plaintiffs in their comments, though, is the fact that the Appellate Division affirmed the trial court on the remainder of the rulings. That decision upholds the ability of community associations to regulate their operations for the good of the entire community, provided they rely upon adequate standards.

For example, another subject of plaintiffs' complaint concerned the association's policies regarding disclosure of information. The plaintiffs argued that the policy denies access to documents to which they are entitled. The trial court found the policy to be valid because it is within the authority of the Board and contains sufficient standards.

The Board also had adopted a resolution concerning confidentiality of certain Board matters and subsequently censured one of the plaintiffs, a Board member, for violating that resolution. Plaintiffs argued that the Board exceeded its authority in determining what subjects were confidential. Although the court referred to an opinion by an official of the Department of Community Affairs which disagreed with the Board's position, he ultimately ruled that the resolution was unenforceable because it contained no standards as to confidentiality.

Plaintiffs also challenged the association's rules that members may obtain a copy of the membership list only if they sign an agreement to keep the list confidential and that a member who breaches the agreement is subject to liquidated damages of at least $1,000.00. The court approved the confidentiality requirement as reasonable but voided the liquidated damages clause because there was no showing that the amount was reasonably related to actual damages.

ADR Not Required for All Disputes

Twin Rivers established a procedure for alternative dispute resolution (ADR). The rule requires the party requesting ADR to submit a $150.00 deposit but splits the costs equally between the parties. The rule exempts three types of disputes from ADR disputes over common expense assessments, election issues, and issues of compliance with the governing documents or applicable law. Plaintiffs sought to void the ADR rule on the grounds that the cost is too high, and that it improperly excludes matters. The trial court found the ADR provision to be valid.

Finally, the plaintiffs argued that Twin Rivers' voting scheme, based upon the respective value of the units, is constitutionally unsound and sought one vote per unit, including for tenants. They also claimed that a rule prohibiting owners who are delinquent in paying assessments or fines from voting is improper. The trial court upheld the voting system, finding that the owners had consented by taking title subject to the governing documents and that tenants have no right to vote.

The Appellate Division affirmed these decisions by the trial court, relying upon the trial court's use of the business judgment rule and contract principles.

Thus, although the Committee for a Better Twin Rivers case applied constitutional standards to restrictions on members' expressive conduct, associations do not have to allow a free-for-all. Members' rights are subject to reasonable limitations so that they do not interfere unduly with the rights of other members, the functioning of the association, or the ability of the association to fulfill its purposes. The appellate court also affirmed the application of the business judgment rule and contractual principles in evaluating associations' operational rules.

Moreover, the Twin Rivers defendants plan to appeal the appellate court's decision to the New Jersey Supreme Court, so the final word on members' speech rights still has not been spoken.

Click here to read entire Court Opinion

This article provides information of general interest and is not intended, and should not be used, as a substitute for consultation with legal counsel. Any questions regarding the specific issues raised in this article should be directed to Michael S. Karpoff, Esq. (609) 734-6376 or by email: info@hillwallack.com