February 13, 2009

by Ronald Perl, Esquire

The recent Appellate Division decision in Committee for a Better Twin Rivers v. Twin Rivers Homeowners Association has caused quite a stir. The attention being given to the case is almost as great as the confusion that it has created. The purpose of this communication is to cut through the rhetoric to the actual holdings in the case and its potential impact upon community associations.

The holding of the court which has resulted in the most commentary is that in New Jersey, association regulations which impact upon speech or assembly are to be measured by state constitutional standards rather than the business judgment rule or contractual principles. However, the Appellate Division did not invalidate any regulations. Rather, it remanded the case to the trial court for reconsideration under this standard.

Reliance on State Constitution Rather than First Amendment

Most people are familiar with the First Amendment to the United States Constitution, which prohibits the making of any law abridging the freedom of speech, the right of assembly, or freedom of the press. The First Amendment has been held to apply not only to the federal government but also to state and municipal governments as the result of the Fourteenth Amendment to the Constitution. However, the courts have generally held that the First Amendment applies solely to governments and not to private individuals or property.

The New Jersey Constitution contains broader provisions relating to the freedom of speech and assembly which do not refer to government action, though. New Jersey's Supreme Court therefore has held that the rights guaranteed by the state Constitution can, under certain circumstances, be available against private parties as well as government entities. The two most significant cases dealing with this issue involved regional shopping malls and Princeton University. Although these cases involved private property, the Court declared that the free speech rights of the public were of greater importance than the private property rights of the owners because the private entities had opened their properties to the public to such a degree that they resembled public property. In the case of shopping malls, the Court observed that regional shopping centers had displaced downtown business areas as centers of commercial and social activity. The Court resolved the balancing of speech rights against property rights in such cases in favor of the rights of individuals to express their opinions by way of leafleting.

The Appellate Division too previously weighed in on this issue. In one case, it held that where a community association offers its property for public political expression, it cannot prohibit opposing viewpoints. However, the court held in another case that where a community association does not open itself to public expression, it is not subject to the state Constitution's free speech clause.

In Twin Rivers, the Appellate Division for the first time extended the rationale of the shopping center cases to all community associations, regardless of the extent to which they have invited public access. The court stated,

In the exercise of fundamental rights, we discern no principled basis for distinguishing between the general public at large and the members of a community association. Because of the broadly applicable rights guarantees contained in the New Jersey Constitution, any regulation of a fundamental right engages the public interest by definition, especially where the regulator is functionally equivalent to a governmental body in its impact upon the affected public·.

The court thus concluded that because associations exercise control over individuals residing within their boundaries, they had become the functional equivalent of towns and should be subject to the constitutional protections.

Associations Still Retain Regulatory Control

However, the court's conclusion that constitutional standards apply to community associations does not mean that associations lose the ability to regulate conduct within their communities. The decision applies only to speech and assembly and not, for example, to regulations relating to the operation of the swimming pool or the keeping of pets. Moreover, even as to expressive activities, the decision recognizes the ability of associations to regulate the time, place and manner of such conduct. In other words, the rights of unit owners to express themselves within their common interest communities are not unlimited and are subject to reasonable regulation by an association as to the time, place and manner of exercising those rights.

Moreover, the Appellate Division decision deals with the residents' rights to engage in expressive conduct relating to issues regarding the community, government, public policy, and other matters of general interest. It does not allow unfettered commercial communications or communications that are not of general interest. Nor can an association be forced to permit defamatory content, matters which would constitute invasions of privacy, or other communications the content of which would violate a public policy (such as pornography).

As the court pointed out, it did not rule on any of the merits of the plaintiffs' claims against the association. It only ruled that, in resolving those claims on summary judgment, the trial court applied an inappropriate standard. The court stated: "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."

Furthermore, the Appellate Division's decision is not the final word. The defendants intend to appeal the decision to the Supreme Court.

Court Affirmed Business Judgment Rule for Other Regulations

On the other hand, an important part of the appellate court's ruling has received little attention in the press. The trial court had applied the business judgment doctrine in ruling in favor of the Association with regard to its policy on confidential documents, system of voting, and ability to disqualify a member from voting because of delinquency. The Appellate Division opinion affirmed the use of the business judgment rule regarding these issues. Thus, for regulations other than those pertaining to speech and assembly, governing boards' decisions are to be upheld provided they have the legal authority to adopt them and there is no proof of bad faith, self-dealing or unconscionable conduct.

In addition, the appellate court agreed with the trial court that associations created before the Planned Real Estate Development Full Disclosure Act was adopted are subject to the Act and therefore must offer alternative dispute resolution (ADR) mechanisms to owners. However, the court found in favor of the association with regard to its ADR procedures. The plaintiffs had contended that ADR was required with regard to virtually every disagreement between a unit owner and the association. The appellate court held that ADR "is not to provide a forum for every disagreement between members and their association but to disputes which could be pursued in a court of law." The court concluded that the business-type decisions of an association, such as the frequency of lawn fertilization or the selection of a particular vendor, are not generally subject to ADR.

Determination of the actual impact that Twin Rivers will have on New Jersey's community associations must await the outcome of the appeal to the Supreme Court or the decision of the trial court on remand. In the meantime, associations should continue, as most association attorneys have advised in the past, to provide opportunities for their members to communicate with each other as well as with the board and to adopt reasonable regulations in good faith in conformity with the authority granted by their governing documents and applicable statutes.

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 Ronald L. Perl, Esq. (609) 734-6349 or by email: info@hillwallack.com