Flinn v. Amboy Nat’l Bank, 436 N.J. Super. 274 (App. Div. 2014). This opinion by Judge Sabatino contains, among other things, an encyclopedic discussion of cases that address the standards of review on a motion to dismiss a complaint. Additionally, however, the decision reinforces the principle that an administrative regulation may not contradict a statute.
Unit owners at a partially-completed condominium development sought to take control of the condominium association from the developer (or, rather, a successor to the developer). The unit owners relied on the Condomimium Act, N.J.S.A. 46:8B-12.1(a), which provides that when some units in a condominium development have been sold and “none of the others are being constructed or offered for sale by the developer in the ordinary course of business, the unit owners other than the developer shall be entitled to elect all the members” of the condominium association’s governing body. Plaintiffs alleged that defendants, a bank and its subsidiary that took over the property after the developer experienced financial failure, were not offering any other units for sale. Defendants disputed that, but Judge Sabatino noted that this dispute of fact could not be resolved on a motion to dismiss.
The Chancery Division had dismissed the complaint on a different ground, however. N.J.A.C. 5:26-8 directs, in summary, that the more units that are sold by the developer or a successor, the higher a percentage of the board of a condominium association is to be elected by unit owners. Those provisions parallel the Condominium Act, N.J.S.A. 46:8B-12.1(a), which sets out that same schedule for turnover of board seats. One subsection of the regulation, however, N.J.A.C. 5:26-8(d), states that “[a] developer may surrender control of the board of the association prior to the time as specified [in the foregoing schedule based on the percentage of units sold], provided the owners agree by a majority vote to assume control.” Defendants argued that because there had been no majority vote of unit owners to assume control of this development, plaintiffs’ demand to take control necessarily failed. The Chancery Division agreed.
Judge Sabatino rejected that position. N.J.A.C. 5:26-8(d) would not be construed “to curtail the unit owners’ statutory rights established under N.J.S.A. 46:8B-12.1(a) to have control transferred to them in circumstances where the developer has, in effect, become dormant in ceasing the construction of more units or in marketing unsold units.” That statute authorizes a court, when such dormancy is present, “to strip the developer of control involuntarily.” The regulation, in contrast, properly construed, addresses only “a developer’s voluntary decision to relinquish control over the condominium association” (emphasis in original), before the time that the developer would have to turn over control based on the milestones represented by the increasing percentages of units sold. The regulation could not be read to override the statute and, therefore, could not bar, as a matter of law, the unit owners’ claim to control of the board. Judge Sabatino remanded the case to the Chancery Division with directions to consider, under “the current circumstances,” the disputed factual issue of whether defendants are constructing or offering units for sale “in the ordinary course of business.”