Clarkson Fisher Jr.

Claims by a homeowner association against a developer are not subject to arbitration agreements between the developer and individual homeowners, where the claims are pressed on the association's own behalf, a New Jersey appeals court ruled Nov. 16 in a published decision.

The appeals court set aside an order by a Superior Court judge compelling arbitration in a suit against U.S. Home Corp. by the Greenbriar Oceanaire Community Association. A motion judge compelled arbitration of all disputes in the case on finding that the suit was brought on behalf of the homeowners. The judge rejected the plaintiff's assertion that the claims should be viewed as belonging to the association, which never agreed to arbitrate disputes with U.S. Home.

The appeals court remanded the case for clarification on which claims were brought on behalf of homeowners and which on the association's own behalf. But the panel also suggested the judge below could construe claims asserted on the association's behalf as asserted on behalf of the homeowners.

The homeowner association for a 1,425-unit community in Waretown, New Jersey, filed a suit in June 2015 accusing US Home, doing business as Lennar Corp., of design and construction defects, violations of the Planned Real Estate Development Full Disclosure Act and leaving insufficient reserves when the association took over management of the complex from the developer.

The association said U.S. Home failed to “fully fund the reserves and deferred maintenance annually resulting in a material underfunding that will financially materially affect the association and home owners,” causing injury to “the association and members of the association.” The design and construction claims were settled.

On appeal, the association noted that its agreement with the developer contained no arbitration agreement. Judges Clarkson Fisher Jr., Thomas Sumners Jr. and Scott Moynihan said the homeowner association's complaint stated that it was bringing claims on its own behalf and on behalf of its members, alleged misrepresentations and omitted facts made by U.S. Home, an alleged violation of state law, and plaintiff and its members suffered damages because they relied on the company's misstatements and omissions. The suit also said U.S. Home's alleged deferred maintenance and failure to fully fund the community's reserves would materially affect the association and homeowners.

Conflation of claims for the association and for homeowners in the complaint appears to relegate the court to either arbitrating all of the claims or none of them, Fisher wrote for the panel. Claims against U.S. Home on behalf of the homeowners must be arbitrated, he reasoned, but because the complaint also asserts claims solely on behalf of the association, the appeals court remanded the case to the Law Division for the filing of an amended complaint that differentiates between the two types of claims.

“When faced with such a quandary as presented by the association's complaint here, a court need not be left lost in the confusion created, intentionally or otherwise, by the pleadings. A court should ensure a correct resolution of the arbitrability controversy by compelling the pleader to express its claims with greater specificity,” Fisher wrote.

After a new complaint is filed, the judge below may compel arbitration of claims asserted by the association on behalf of the homeowners, or consider whether claims asserted on behalf of the association should, in fact, be construed as claims asserted on behalf of the homeowners.

“If, after the completion of those proceedings, the motion judge determines there are not only arbitrable claims but nonarbitrable claims as well, he should determine whether both the arbitrable and nonarbitrable claims may simultaneously proceed in their separate forums, or whether arbitration should precede any further litigation in the trial court, or vice versa,” Fisher said.

Justin Oravetz of Archer & Greiner in Haddonfield, New Jersey, who represents U.S. Home, declined to comment on the ruling.

Samuel McNulty of Hueston McNulty in Florham Park, New Jersey, who represented the homeowner association, did not return a call.

Clarkson Fisher Jr.

Claims by a homeowner association against a developer are not subject to arbitration agreements between the developer and individual homeowners, where the claims are pressed on the association's own behalf, a New Jersey appeals court ruled Nov. 16 in a published decision.

The appeals court set aside an order by a Superior Court judge compelling arbitration in a suit against U.S. Home Corp. by the Greenbriar Oceanaire Community Association. A motion judge compelled arbitration of all disputes in the case on finding that the suit was brought on behalf of the homeowners. The judge rejected the plaintiff's assertion that the claims should be viewed as belonging to the association, which never agreed to arbitrate disputes with U.S. Home.

The appeals court remanded the case for clarification on which claims were brought on behalf of homeowners and which on the association's own behalf. But the panel also suggested the judge below could construe claims asserted on the association's behalf as asserted on behalf of the homeowners.

The homeowner association for a 1,425-unit community in Waretown, New Jersey, filed a suit in June 2015 accusing US Home, doing business as Lennar Corp., of design and construction defects, violations of the Planned Real Estate Development Full Disclosure Act and leaving insufficient reserves when the association took over management of the complex from the developer.

The association said U.S. Home failed to “fully fund the reserves and deferred maintenance annually resulting in a material underfunding that will financially materially affect the association and home owners,” causing injury to “the association and members of the association.” The design and construction claims were settled.

On appeal, the association noted that its agreement with the developer contained no arbitration agreement. Judges Clarkson Fisher Jr., Thomas Sumners Jr. and Scott Moynihan said the homeowner association's complaint stated that it was bringing claims on its own behalf and on behalf of its members, alleged misrepresentations and omitted facts made by U.S. Home, an alleged violation of state law, and plaintiff and its members suffered damages because they relied on the company's misstatements and omissions. The suit also said U.S. Home's alleged deferred maintenance and failure to fully fund the community's reserves would materially affect the association and homeowners.

Conflation of claims for the association and for homeowners in the complaint appears to relegate the court to either arbitrating all of the claims or none of them, Fisher wrote for the panel. Claims against U.S. Home on behalf of the homeowners must be arbitrated, he reasoned, but because the complaint also asserts claims solely on behalf of the association, the appeals court remanded the case to the Law Division for the filing of an amended complaint that differentiates between the two types of claims.

“When faced with such a quandary as presented by the association's complaint here, a court need not be left lost in the confusion created, intentionally or otherwise, by the pleadings. A court should ensure a correct resolution of the arbitrability controversy by compelling the pleader to express its claims with greater specificity,” Fisher wrote.

After a new complaint is filed, the judge below may compel arbitration of claims asserted by the association on behalf of the homeowners, or consider whether claims asserted on behalf of the association should, in fact, be construed as claims asserted on behalf of the homeowners.

“If, after the completion of those proceedings, the motion judge determines there are not only arbitrable claims but nonarbitrable claims as well, he should determine whether both the arbitrable and nonarbitrable claims may simultaneously proceed in their separate forums, or whether arbitration should precede any further litigation in the trial court, or vice versa,” Fisher said.

Justin Oravetz of Archer & Greiner in Haddonfield, New Jersey, who represents U.S. Home, declined to comment on the ruling.

Samuel McNulty of Hueston McNulty in Florham Park, New Jersey, who represented the homeowner association, did not return a call.