Opposition Brief — Derby Associates v. Seashore Club Condominium Ass'n

EILED *

2) FEB 2 196?

- JOSEPH F. SPANIOL, JR,

No. 86-1111 ’ NIOk,

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1986

DERBY ASSOCIATES, A PARTNERSHIP OF

THE STATE OF NEW JERSEY

Petitioner,

v.

SEASHORE CLUB CONDOMINIUM ASSOCIATION, INC.,

A CORPORATION OF THE STATE OF NEW JERSEY;

THE BoaRD OF TRUSTEES OF SEASHORE CONDOMINIUM

ASSOCIATION, INC., AND GNOC Corp. t/a GOLDEN

NuGceT, A CORPORATION OF THE STATE OF NEW

JERSEY, GOLDEN NUGGET, INC., j/s/a

Respondents.

BRIEF IN OPPOSITION TO PETITION

FOR WRIT OF CERTIORARI TO THE

SUPERIOR COURT/APPELLATE DIVISION

OF THE STATE OF NEW JERSEY

STEPHEN N. DRATCH*

MARTIN L. GREENBERG

GREENBERG, MARGOLIS, ZIEGLER,

SCHWARTZ, DRATCH, FISHMAN,

FRANZBLAU & FALKIN, P.A.

Attorneys for Respondents

Three ADP Boulevard

Roseland, New Jersey 07068

(201) 992-3700

*Counsel of Record

PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203

QUESTION PRESENTED

Whether the Appellate Division of the Superior

Court of the State of New Jersey in its one paragraph

affirmance of the Trial Court’s lengthy opinion cor-

rectly held that P.L. 1985, c. 3 (providing that a

condominium association may be dissolved by agree-

ment of 80% of the unit owners, unless a higher

percentage is required in the master deed) is consti-

tutional in the face of an attack upon the amendment

to the statute as being violative of the contract clause

of the federal constitution because of its expressly

retroactive nature.

ii

PARTIES TO THE PROCEEDINGS

All parties to this proceeding are listed in the cap-

tion.

TABLE OF CONTENTS

Page

QUESTION PRESENTED .0000000.......cccccccseseeeeseeeees i

PARTIES TO THE PROCEEDINGS .................... ii

TABLE OF AUTHORITIES ....0...........cccccccssseeeees iv

SI EEA cs. scncccancocssdesecesenenisecosasoonscoeses

I ics Ancien. dpuderdwiunieapibecenskbathiabatedsenses 2

CONSTITUTIONAL AND STATUTORY PROVI-

Eel calinstksceuhissdessdnssveiacencsecssbsnccbatecesnens 3

COUNTERSTATEMENT OF THE CASE ............

SUMMARY OF ARGUMENT 2... eeeeseseeees

REASONS WHY THE WRIT SHOULD BE DE-

cE saat wiipscnshunninsnenndilanedesteiasesebe 8

iv

TABLE OF AUTHORITIES

CASES: Page

Allied Structural Steel Co. v. Spannaus, 438 U.S.

234, 57 L.Ed.2d 727, 98 S.Ct. 2716 (1978) 16

Berkley Condominium Association v. Berkley Con-

dominium Residences, Inc., 185 N.J. Super.

313, 448 A.2d 510 (Ch. Div. 1982) ......0000.... 14

Berman v. Parker, 348 U.S. 26, 99 L.Ed.2d 27, 75

aA I EI: hietcctinndaniig cdnisalensiocababaihinasies 9

Centex Homes Corp. v. Boag, 128 N.J. Super. 385,

320 A.2d 194 (Ch. Div. 1974) ..........cccccccseees 14

Edgewater Investment Associates v. Borough of

Edgewater, 103 N.J. 227, 510 A.2d 1178

CRIED. sreadodidensiinitcaencaianleotnibainaiadcanlindbdignadidine 8

Energy Reserves Group, Inc. v. Kansas Power &

Light Co., 459 U.S. 400, 74 L.Ed.2d 569, 103

eee: PE CD: tiicuinesscosiecmchcnebenaninaas 7,8,11,14,15,18

Hawaii Housing Authority, et al. v. Midkiff, et al.,

467 U.S. 229, 81 L.Ed.2d 186, 104 S.Ct. 231

1: SDS eae ae PT Oe RO 9

Home Building and Loan Association v. Blaisdell,

290 U.S. 398, 78 L.Ed. 413, 54 S.Ct. 231

CRITI ied sens chisel cendinmiehindilaniielinetieaeiaustinassocans 10

Male v. Renda Contracting, 64 N.J. 199, 314 A.2d

EE PII assis ids cbicaasiais Seainducptaaainanitalsidgtcerbales &

Restaurant Enterprises, Inc. v. Sussex Mutual In-

surance Co., 52 N.J. 78, 248 A.2d 808

CSU <aitirinnkbbhdiiiataaatesecnbicinblnliaiiaibisninecssanes 9

Treigle v. Acme Homestead Association, 297 U.S.

189, 80 L.Ed. 575, 56 S.Ct. 408 (1936) _...... 16,17

Troy Ltd. v. Renna, 727 F.2d 287 (8d. Cir.

Ne 8,10,16

Usery v. Turner Elkhorn Mining Co., 428 U.S. 1,

49 L.Ed.2d 752, 96 S.Ct. 2882 (1976) _......... 9

U.S. Trust Co. v. N.J., 431 U.S. 1, 52 L.Ed.2d 92,

OF BAA. Tee GROTTE. Biiceiuinn, 16

OS 2 laa a gan eae

Table of Authorities Continued

Page

Veix v. Sixth Ward Building & Loan Association,

310 U.S. 32, 84 L.Ed.2d 1061, 60 S.Ct. 792

CRIPEIT .-: cossakcaciusisidiabiccenntitltmeiienstaliandsipiaiconkns 14

W. B. Worthen Co. v. Kavanaugh, 295 U.S. 56, 79

L.Ed.2d 1298, 55 S.Ct. 555 (1935)... 16,17

W. B. Worthen Co. v. Thomas, 292 U.S. 426, 78

L.Ed. 1344, 54 S.Ct. 816 (1934)... 16

STATUTES:

Be MGs BONE asdidccccoustsnaccsidachicdeaixsicalsatacsesiaaseonds 2

Pi cla Se EEE, © pliivcnsceinadichisssspithcncmnsveciols 10

FU es, PE OE I, sntdentenicclansrssabacinsetions 10

Nd els: TE | pskcticsbeinnscstesiercssanericiina vas 2,3,5,6,8,11,12

PV at hates: MI NE cieciinetcandsbiictcnsasdndeidaacebak 8

CONSTITUTIONAL PROVISIONS:

United States Constitution, Article I,

SR I ascends sas pachdcewaadecdaccrwainesadacces 3

"a

ee a

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1986

NO. 86-1111

DERBY ASSOCIATES, A PARTNERSHIP OF THE STATE OF

New JERSEY

Petitioner,

Vv.

SEASHORE CLUB CONDOMINIUM ASSOCIATION, INC.,

A CORPORATION OF THE STATE OF NEw JERSEY;

THE BoarD OF TRUSTEES OF SEASHORE CONDOMINIUM

ASSOCIATION, INc., AND GNOC Corp. t/a GOLDEN NUGGET,

A CORPORATION OF THE STATE OF NEw JERSEY,

GOLDEN NuccET, INC., j/s/a

Respondents.

BRIEF IN OPPOSITION TO PETITION

FOR WRIT OF CERTIORARI

OPINIONS BELOW

The denial of certification by the Supreme Court

of the State of New Jersey is, as yet, unpublished

and is reprinted in the Appendix hereto (App.) at la.

The opinion of the Superior Court of New Jersey,

Appellate Division, is reprinted at App. 2a.

The opinion of the Superior Court of New Jersey,

Chancery Division, is unreported and is reprinted at

App. 4a.

2

The Order of the Superior Court of New Jersey,

Chancery Division, is reprinted at App. 20a.

JURISDICTION —

On February 4, 1985, petitioner filed a Verified

Complaint and Order to Show Cause with the Su-

perior Court of New Jersey, Chancery Division, al-

leging as unconstitutional the retroactive effect of

Public Law 1985, c. 3, which amended N..J.S.A. 46:8B-

26 to the end that condominium property could be

removed from the provisions of the Condominium Act

by agreement of at least 80% of the members of the

condominium association, unless a higher percentage

is required in the master deed.

Respondent filed an Answer and cross-moved for a

declaration that the retroactive effect of the amend-

ment was constitutional. On May 14, 1985, an Order

and Judgment was entered by the Superior Court,

Chancery Division, declaring that the retroactive ef-

fect of the statute was constitutional. (App. 20a).

Petitioner appealed this decision to the Superior Court

of New Jersey, Appellate Division, by way of a Notice

of Appeal dated June 26, 1985. On June 18, 1986,

the Superior Court, Appellate Division, issued its per

curiam opinion affirming the judgment of the Superior

Court, Chancery Division. (App. 2a).

Petitioner ihen filed a Notice of Petition for Cert-

ification with the Supreme Court of New Jersey on

July 17, 1986. That petition was denied on October

7, 1986. (App. 1a).

The jurisdiction of this Court is invoked under 28

U.S.C. 1257.

— we ee

CONSTITUTIONAL AND STATUTORY PROVISIONS

Article I, Section 10 of the United States Consti-

tution provides that ‘‘no state shall. . .pass any. . .Law

impairing the Obligation of Contracts... .”

N.J.S.A. 46:8B-26 was amended on January 8, 1985

by Senate Bill 2141. The amendment, which was ex-

pressly made retroactive, provided that a condomi-

nium property could be removed from the provisions

of the Condominium Act by agreement of at least

80% of the votes of the unit owners unless a higher

percentage is required by the master deed. Prior to

amendment, the statute required agreement of all unit

owners to remove a property from the provisions of

the Condominium Act. Petitioner challenges the ret-

roactive application of the amendment. The text of

Senate Bill No. 2141, which was unanimously adopted

by each House of the New Jersey Legislature and

signed into law by the Governor as N.J.S.A. 46:8B-

26, is set forth in the Appendix at App. 22a.

COUNTERSTATEMENT OF THE CASE

The relevant facts as found by the Trial Court are

as follows:

The factual background that gives rise to

this particular application and this lawsuit

generally is essentially, at least for present

purposes, undisputed. The plaintiff, which as

I indicated, is a limited partnership, pur-

chased a condominium unit in the premises

' Petitioner alleges various “facts” u. its Statement of the

Case which “‘facts’’ are not only irrelevant, but were not men-

tioned by the Trial Court in its opinion. Respondent does not

concede the accuracy of any of those alleged facts.

known as the Seashore Club here in Atlantic

City in June of 1984. The Seashore Club, like

a number of condominiums in this City and

elsewhere, was formerly a motel consisting,

I believe, of one hundred units, primarily, if

not exclusively, efficiency units, and was con-

verted to a condominium pursuant to the

statutes of the State of New Jersey.

Sometime in the early part of 1984 there

was activity between the respective unit own-

ers and the owners of a neighboring casino,

the Golden Nugget, regarding the sale of

these condominium units with the expectation

that if the entire premises of the Seashore

Club could be purchased, that it would be

used for a certain expansion needed of that

casino.*

There is some dispute as to who initiated

this effort, but it does not matter for pur-

poses of what the Court has to decide today.

The fact is that the effort was commenced

and quite successfully, and negotiations were

completed with the overwhelming majority of

the unit owners, and at the present this num-

ber has been changed since this lawsuit was

initiated. But it will appear at least 85 of the

2In June, 1984, the Executive Vice President of the Golden

Nugget, Alfred J. Luciana, sent the letter referred to in

petitioner’s brief to all condominium owners. Inasmuch as this

letter or its contents do not represent a material issue in the

case sub judice (despite plaintiff's attempt to elevate it to such),

and was never mentioned by the Courts below, respondent will

not clutter the record with an interpretation of the letter and

the context within which it was written.

|

Fs

100 units have already been titled in the

defendant, Golden Nugget, and that con-

tracts for all of the remaining units except

one are expected shortly.

The one remaining unit for which there has

been an inability to obtain a contract is the

one which is owned by Derby Associates.

Derby Associates is also the owner of a park-

ing lot in the same vicinity, and there have

been some negotiations between the parties

in which an effort has been made to reach

a sale of both the condominium unit and the

parking lot, but that effert has thus far failed

with the position of the parties being signif-

icantly apart in terms of price.

.. .[IJn January of 1985, the Governor of the

State of New Jersey signed legislation which

had been passed unanimously by both Houses

of the Legislature amending the Condomi-

nium Act, and in particular that provision

dealing with the steps necessary to complete

a revocation of the condominium status. That

is N.J.S.A. 46:8B-26. Under that amendment

whereas there had previously been a require-

ment of 100% participation by all condomi-

nium unit owners in order to achieve a

revocation, it would now be possible that such

a step could be completed upon the agree-

ment of at least 80% of the unit owners.

In completing that legislative step, New

Jersey came into line with the recommen-

dations of the National Committee on Uni-

form Laws, and the entity that is active in

the condominium field, the name of which I

6

cannot now recall for the moment, but I will

mention it later in my opinion, again being

a uniform law group dealing in particular

with condominiums. It would appear that the

legislative step that was just described was

initiated in part, if not in whole, by the ef-

forts of Martin Greenberg as counsel for the

defendants and as a result of a recommen-

dation by him to the members of the Senate

and in particular, John Russo, who, I believe,

sponsored this legislation. As I mentioned,

however, initiated efforts, and the efforts met

with unanimous approval of various legisla-

tors who are involved in the effort, and that

it does, indeed, bring New Jersey into con-

formity with the recommendations of the

group that I mentioned.

This lawsuit was initiated thereafter in an

effort in part to obtain a determination by

this Court that the legislation was unconsti-

tutional. App. 5a to App. 7a.

The Trial Court framed the issue as “‘one that seeks

a determination regarding the constitutionality of that

statutory amendment, and in particular that portion

of the amendment that seeks to make its provisions

retroactive.” App. 7a.

The Trial Court ruled that the amendment to

N.J.S.A. 46:8B-26 was constitutional. (App. 20a). The

Appellate Division “‘{a}ffirmed substantially for the

reasons expressed by Judge Gibson on April 25,

1986... .”” (App. 2a). The New Jersey Supreme Court

; denied certification by Order dated October 6, 1986.

(App. 1a).

et

: SUMMARY OF ARGUMENT

This Court should deny petitioner’s Petition for Writ

of Certiorari because the question presented for re-

view is neither special nor important and is not in

conflict with the decisions of this or any other Court.

Additionally, the question presented, in analogous cir-

cumstances, has already been answered by this Court

in numerous cases to be discussed infra, as well as

by the Third Circuit Court of Appeals. The decision

in this case is in accord with those authorities. Spe-

cifically, the Trial Court properly applied the test as

set forth in Energy Reserves Group, Inc. v. Kansas

Power & Light Co., 459 U.S. 400, 74 L.Ed.2d 569,

103 S.Ct. 697 (1983), and found the amendment to

the statute to be constitutional.

* While not part of the record below, in its Statement of the

Case, petitioner makes reference to a partition of the condom-

inium facility. Respondent filed a Complaint for partition by sale

in May of 1985. Respondent moved for summary judgment, which

Motion was granted by the Court on January 28, 1986. Petitioner

moved for a Stay of that Order, however that Motion was denied

by the Trial Court by Order dated April 17, 1986. Appellate

review of that decision was not sought by the petitioner. On

July 29, 1986, the Trial Court entered a Judgment for Sale. The

property was sold at a public sale where respondent was the

highest bidder. Thereafter, a hearing was held at which time

the sale of the property was confirmed by the Trial Court by

Order dated October 24, 1986. Petitioner did not seek Appellate

review of any of the Orders of the Trial Court regarding the

partition sale.

2

ell

REASONS WHY THE WRIT SHOULD BE DENIED

The question presented to the Courts below was

whether retroactive legislation which provides that

80% of the unit owners in a condominium develop-

ment may vote to remove the development from the

confines of the Condominium Act, N.J.S.A. 46:8B-1

et seqg., satisfies the three prong test as enunciated

in Energy Reserves Group, Inc. v. Kansas Power &

Light Co., 459 U.S. 400, 74 L.Ed.2d 569, 103 S.Ct.

697 (1983), [and adopted by the New Jersey Supreme

Court in Edgewater Investment Associates v. Borough

of Edgewater, 103 N.J. 227, 510 A.2d 1178 (1986)).

The question on a Petition for Certiorari is whether

the petitioner’s arguments raise a substantial question

as to the correctness of the decisions in the Courts

below such that a question of general public impor-

tance is raised which requires this Court’s supervi-

sion.

Respondents assert that the authorities relied on

by the Courts below, particularly this Court’s decision

in Energy Reserves Group, Inc. v. Kansas Power &

— Light Co., 459 U.S. 400, 78 L.Ed.2d 569, 103 S.Ct.

697 (1983) and the Third Circuit Court of Appeals’

decision in Troy Ltd. v. Renna, 727 F.2d 287 (38d.

Cir. 1984) compel the conclusion that the retroactive

application of N.J.S.A. 46:8B-26, as amended, is not

violative of the contract clause of the Federal Con-

stitution, and thus petitioner has not presented a

question of general public importance which should

be settled by this Court and the instant Petition for

Certiorari should be denied.

Courts have long held that all statutes enjoy a

strong presumption of constitutionality. Male v. Renda

siti hie apap F oo ocar~ alll

:

Contracting, 64 N.J. 199, 314 A.2d 361 (1974). It is

“well established that legislative Acts adjusting the

burdens and benefits of economic life come to the

Court with a presumption of constitutionality and the

burden is on one complaining. . .to establish that the

Legislature has acted in an arbitrary and irrational

way.” Usery v. Turner Elkhorn Mining Co., 428 U.S.

1, 15, 49 L.Ed.2d 752, 766, 96 S.Ct. 2882 (1976). This

heavy burden results from the fact that a statutory

challenge questions the expertise of the Legislature,

which is presumed to act with reason and good dis-

cretion. Restaurant Enterprises, Inc. v. Sussex Mutual

Insurance Co., 52 N.J. 78, 243 A.2d 808 (1968). In-

deed, this Court in examining the constitutionality of

a legislative act, recently reaffirmed the principal that,

‘“.,.when the Legislature has spoken, the public in-

terest has been declared in terms well-neigh conclu-

sive.’’ Hawati Housing Authority, et al. v. Midkiff,

et al., 467 U.S. 229, 81 L.Ed.2d 186, 104 S.Ct. 231

(1984) quoting from Berman v. Parker, 348 U.S. 26,

31, 99 L.Ed.2d 27, 75 S.Ct. 98 (1954). The Trial Court

correctly held that this burden had not been met by

petitioner. In his opinion placed on the record on

April 25, 1985, he stated,

It is, again, important to emphasize that in

reaching that judgment, the strong presump-

tion of constitutionality must be overcome by

a clear showing of an abuse, or in the al-

ternative a clear showing of arbitrariness, or

a clear showing that the balance struck was

so unreasonable as to fail constitutional mus-

ter.

I am not satisfied that the burden has been

established here, and accordingly I am con-

10

vinced that this statute and its amendment

is indeed constitutional and requires the sup-

port of this Court (App. 18a).

In a “contract clause’’ case:

The question is not whether legislation af-

fects contracts incidentally or directly or in-

directly, but whether the legislation is

addressed to a legitimate end and the meas-

ures taken are reasonable and appropriate to

the end. Home Building and Loan Associa-

tion v. Blaisdell, 290 U.S. 398, 437-38, 54

S.Ct. 231, 239-40 (1934).

As correctly held by the Courts below, the ques-

tioned legislation is reasonably addressed to a legit-

imate end, and plaintiff has failed to meet its heavy

burden of proving abuse or arbitrariness by the Leg-

islature.

The case of Troy Ltd. v. Renna, 727 F.2d 287 (3d.

Cir. 1984) is substantially similar to the case at bar.

In that case, the owners of an apartment complex

which had been converted to condominium status

sought to question the constitutionality of the New

Jersey Senior Citizens and Disabled Protected Ten-

ancy Act, codified at N.J.S.A. 2A:18-61.22 et seq. The

Tenancy Act provided protected tenancy status to el-

igible senior citizens and disabled tenants where the

building was transformed from a rental property to

a condominium property. In particular, the owners of

the building argued that the retroactive application

of the Act in certain circumstances violated the con-

tract clause. See, N.J.S.A. 2A:18-61.11(d). In essence,

the condominium owners argued that the retroactive

application of the Protected Tenancy Act deprived the

11

owners of the use of their condominiums as they saw

fit, much as petitioner argues in the case at bar.

Relying on Energy Reserves Group, Inc. v. Kansas

: Power & Light Co., 459 U.S. 400, 74 L.Ed.2d 569,

103 S.Ct. 697 (1983), the Third Circuit had no doubt

that the Tenancy Act was constitutional. The Court

held that there was no substantial impairment of the

contractual relationship, that there was a broad re-

medial purpose to the statute in protecting the mental

and physical health of citizens who could suffer greatly

by evictions and that it was proper for the Court to

defer to the legislative judgment as to the necessity

and reasonableness of the Act.

The Trial Court reached a similar decision in the

case at bar. While the Trial Court held that the ret-

roactive application of the amendment to N.J.S.A.

46:8B-26 operated as a substantial impairment of

petitioner’s rights, (although the Court recognized that

“a significant and strong argument can be made to

the contrary. . .however, that in reaching this conclu-

sion I am at least in part influenced by the fact that

I am satisfied that the second and third parts of this

test can be met, and that the constitutional language

on the federal level can be satisfied by the second

and third inquiries that are necessary’’) (App. 13a),

the Court held that the Legislature had a legitimate

purpose in enacting this particular law, App. 13a. The

Court noted the almost unanimity in the literature

with regard to the desirability of a majority of the

unit owners of a condominium development to be able

to remove themselves from condominium status. Un-

der the prior law, as has happened in the case at

bar, one unit owner could attempt to blackmail the

majority of the unit owners by attempting to thwart

if OAD Mid ced KY BR

|

12

the majority’s ability to terminate the condominium

association. The retroactive application of the amend-

ment to N.J.S.A. 46:8B-26 eliminates that possibility

of blackmail as to all condominium associations in this

State, including the over 100,000 condominium units

in existence prior to the enactment of the statute in

question, and enables the majority of the unit owners

to take steps to act in their best interests regarding

their property.

While petitioner argues that it obtained traditional

fee simple interests when it purchased its unit, this

argument is without merit and was rejected by the

Trial Court. The Court stated:

. . [A]gain reference can be made to the Con-

dominium Act and what the reasonable ex-

pectations of the parties would have been.

Because when one examines the contract

rights and what might be considered

‘‘vested’”” and what loss may be considered

as being manifestly unjust, again using one

of the labels that is frequently seen, it is

again helpful to recognize the heavy regu-

lations that exist in the condominium field

and the already existing significant restric-

tions on the individual rights of property

owners in a condominium setting. It is simply

a different animal and in some ways bears

little resemblance to the classic ownership in-

terest in real estate as it existed over the

years.

The definitions that have been used by the

commentators in describing what a condom-

inium is helps to identify in part that unique-

ness.

13

As was mentioned in one of the quotes that

was submitted by the plaintiff, a condomi-

nium is generally defined as an estate in real

property consisting of a separate interest in

a residential building on such real property

together with an undivided interest-in-com-

mon in other portions of the same property.

In its legal structure a condominium first

combines elements from several concepts—

unincorporated association, separate prop-

erty, and tenancy in common—and then seeks

to delineate separate privileges and respon-

sibilities on the one hand from common priv-

ileges and responsibilities on the other.

.. [I]ncluded within this point is the obser-

vation that when parties enter into contracts

to purchase these units they recognize those

limitations. Whether they think about them

or not, they are presumed to understand

them and proceed with full knowledge of

them. They are also presumed to understand

that given the regulations that they are in

and given the fact that the rights that they

enjoy are creatures of the Legislature and

subject to continuing regulations that those

rights may be modified from time to time.

One might question this for how realistic per-

manent expectation can be in the field of

condominiums at all, and it is also important,

I think, that assessing what has occurred here

to remember that condominiums do not have

the same unique qualities as real estate. Al-

though in a sense there is a right not to sell

that is common. Cases have identified this

14

lack of uniqueness, including the Sencit (sic)

Homes‘ case which is a case involving specific

performance where specific performance was

denied in the condominium setting, at least

in part, because of lack of uniqueness, and

as was pointed out by this Court in the Berk-

ley Condominium case,5 and that is to say

that what can be realistically expected by

contracting parties is significantly impacted

by the considerations I just mentioned, and

that is the regulated nature of this field. App.

16a-18a. (Emphasis added).

As has been stated by this Court:

When [a party] purchased into an enterprise

already regulated in the particular to which

he now objects, he purchased subject to fur-

ther legislation upon the same topic. (Em-

phasis added).

Energy Reserves, 459 U.S. at 411, 74 L.Ed.2d at 580,

citing Veix v. Sixth Ward Building & Loan Associ-

ation, 310 U.S. 32, 38, 84 L.Ed.2d 1061, 60 S.Ct.

792 (1940), in which the Court had upheld the validity

of a statute retroactively modifying the method of

withdrawal from a building and loan association. See

also, Berkley Condominium Association v. Berkley

Condominium Residences, Inc., 185 N.J. Super. 313,

448 A.2d 510, 514 (Ch. Div. 1982) at 319-320, where

‘ The correct citation is Center Homes Corp. v. Boag, 128 N.J.

Super. 385, 320 A.2d 194 (Ch. Div. 1974).

5 Berkley Condominium Association v. Berkley Condominium

Residences, Inc., 185 N.J. Super. 313, 448 A.2d 510 (Ch. Div.

1982).

15 rm

the Court applied the above principle to retroactive

legislation affecting condominiums.

It is clear that petitioner’s interest in a condomi-

nium is not coextensive with the bundle of rights

enjoyed by the owner of a detached, single family

dwelling, and in any event, the Legisiature has the

power to modify those rights for a legitimate public

purpose without running afoul of constitutional pro-

hibitions.

As identified by the Trial Court, the legitimate pub-

lic purpose underlying the statute in issue is as fol-

lows:

... what the State of New Jersey here con-

cluded was that the danger of enabling a

single individual to force the will of the over-

whelming majority and to create the act to

blackmail all or one co-owner was a danger

that justifies the removal in a limited way of

the right that I had previously identified.

That is the right to decide not to sell. App.

14a.

Balancing petitioner’s loss of the right to decide

not to sell against the possible threat of blackmail by

one unit owner both the Trial Court and the Appellate

Division held that the public interest in permitting a

majority of unit owners to terminate a condominium

overroad the loss to one unit owner of his right not

to sell. Furthermore, in accordance with this Court’s

statement in Energy Reserves, the Trial Court “‘prop-

erly [deferred] to legislative judgment as to the ne-

cessity and reasonableness of a particular measure”

(App. 14a). Accordingly, the legislation was held to

be constitutional.

16

While petitioner argues, as it did below, that the

cases of Allied Structural Steel Co. v. Spannaus, 438

U.S. 234, 57 L.Ed.2d 727, 98 S.Ct. 2716 (1978), U.S.

Trust Co. v. N.J., 481 U.S. 1, 52 L.Ed.2d 92, 97

S.Ct. 1505 (1977), Treigle v. Acme Homestead Asso-

ciation, 297 U.S. 189, 80 L.Ed. 575, 56 S.Ct. 408

(1936), W. B. Worthen & Co. v. Thomas, 292 U.S.

426, 78 L.Ed. 1344, 54 S.Ct. 816 (1934) and W. B.

Worthen & Co. v. Kavanaugh, 295 U.S. 56, 79 L.Ed.2d

1298, 55 S.Ct. 555 (1935) are controlling authorities,

those cases, as the Courts below held, are readily

distinguishable and simply do not provide guidance in

the case at bar.

U.S. Trust Co. v. N.J., 481 U.S. 1, 52 L.Ed.2d 92,

97 S.Ct. 1505 (1977) involved a contract between two

states and not between a state and a private individual

or two private individuals. Accordingly, the Court ap-

plied a higher standard of scrutiny than is applicable

in the case at bar. The case of Allied Structural Steel

Co. v. Spannaus, 438 U.S. 234, 57 L.Ed.2d 727, 98

S.Ct. 2716 (1978) is also inapplicable. The Minnesota

law which was struck down in that case did not op-

erate in an area already subject to state regulation

at the time the contractual obligations were originally

undertaken, and the law was not even purportedly

enacted to deal with a broad, generalized economic

or social problem. The legislation at issue in the case

at bar deals with a minor change in an already highly

regulated area. Accordingly, the Spannaus case sim-

ply does not apply to the situation at bar. See, Troy

Ltd. v. Renna, 727 F.2d 287, 299 (3d. Cir. 1984).

In W. B. Worthen Co. v. Thomas, 292 U.S. 426, 78

L.Ed. 1344, 54 S.Ct. 816 (1934) the Court struck

down as violative of the contract clause a statute

17

which exempted the proceeds of life insurance policies

from judicial process to secure the payment of any

debt. The Court held that the statute substantially

impaired the contractual relationship since it con-

tained ‘“‘no limitations as to time, amount, circum-

; stances or need.”’ 292 U.S. at 434, 78 L.Ed. at 1347.

; The Court further held that the relief afforded by the

i statute did not have a reasonable relation to the le-

; gitimate end to which the State is entitled to direct

5 its legislation. 292 U.S. at 482-433, 78 L.Ed. at 1347.

Similarly, W. B. Worthen Co. v. Kavanaugh, 295

: U.S. 56, 79 L.Ed. 1298, 55 S.Ct. 555 (1935), is a case

4 where the change in the statute left mortgagees with-

out any effective remedy. The Court stated that ‘‘so

viewed [the changes in the statute], they are seen to

be an oppressive and unnecessary destruction of

nearly all the incidents that give attractiveness and

value to collateral security.’”’ 295 U.S. at 62, 79 L.Ed.

at 1302. Clearly, the changes in the statute operated

as substantial impairments to the contractual rela-

tionship. While the statutory changes were purport-

edly enacted in the face of an emergency ‘‘which was

stated to endanger the peace, health and safety of a

multitude of citizens’, 295 U.S. at 59, 79 L.Ed. at

1301, the practical nullification of the rights of mort-

gagees resulted in the statutory changes being held

to be violative of the contract clause.

In Treigle v. Acme Homestead Association, 297 U.S.

189, 80 L.Ed. 575, 56 S.Ct. 408 (1936), the statutory

changes at issue, as a practical matter, prohibited a

member of a building and loan association from being

able to withdraw his investment. The Court held that

the statutory changes operated as a substantial im-

pairment of the contractual relationship, that the state

pliteieeetmall

18

did not have a significant and legitimate public pur-

pose behind the statute, and that the statutory

changes were arbitrary and oppressive. Accordingly,

the statute in issue was struck down.

Petitioner attempts to distinguish Energy Reserves

on the basis that the legislation in question in that

case was a temporary measure. This attempted dis-

tinction is without legal basis as this Court has pre-

viously stated ‘‘that the public purpose [of the

legislation in question] need not be addressed to an

emergency or temporary situation.”’ Energy Reserves,

459 U.S. at 412, 74 L.Ed.2d at 581. (Citations Omit-

ted).

CONCLUSION

The cases relied upon by petitioner are distinguish-

able because in those cases the questioned legislation

substantially affected the contractual relationship

without having any significant or legitimate public

purpose. In this case the Courts below correctly found

that a legitimate public purpose was served by amend-

ing the Condominium Act to provide that less than

a unanimous vote of the unit members would be re-

quired to remove a condominium association from the

Act. Furthermore, the Courts below correctly applied

the three prong test set forth in the Energy Reserves

case and there is no substantial question as to the

correctness of those decisions. The question presented

by petitioner is neither special nor important and is

not in conflict with the decisions of this or any other

Court. Therefore, the Petition for Certiorari should

be denied.

19

Respectfully submitted,

STEPHEN N. DRATCH*

MARTIN L. GREENBERG

GREENBERG, MARGOLIS, ZIEGLER,

SCHWARTZ, DRATCH, FISHMAN,

FRANZBLAU & FALKIN, P.A.

Three ADP Boulevard

Roseland, New Jersey 07068

(201) 992-3700

Counsel for Respondents

*Counsel of Record

APPENDIX

A-l

SUPREME COURT OF NEW JERSEY

C-159 SEPTEMBER TERM 1986

25,930

DERBY ASSOCIATES, etc.,

Plaintiff-Petitioner,

Us. pee ON PETITION FOR

CERTIFICATION

SEASHORE CLUB CONDOMINIUM

ASSOCIATION, INC., etc., et al,

Defendants-Respondents.

To the Appellate Division, Superior Court:

A petition for certification of the judgment in A-4809-84T7

having been submitted to this Court, and the Court having con-

sidered the same:

It is ORDERED that the petition for certification is denied

with costs.

WITNESS, the Honorable Robert N. Wilentz, Chief Jus-

tice, at Trenton, this 6th day of October, 1986.

Clerk of the Supreme Court

A-2

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE COMMITTEE ON OPINIONS

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

A-4809-84T7

DERBY ASSOCIATES, a partnership

of the State of New Jersey

Plaintiff-Appellant,

ct.

SEASHORE CLUB CONDOMINIUM

ASSOCIATION, INC., a corporation

of the State of New Jersey; THE

BOARD OF TRUSTEES OF SEASHORE

CONDOMINIUM ASSOCIATION, INC.,

and GNOC CorpP. t/a GOLDEN

NUGGET, a corporation of the

State of New Jersey, and GOLDEN

NUGGET, INC., a Nevada

Corporation, j/s/a,

Defendants-Respondents.

Argued June 9, 1986 — Decided June 15,1986

Before Judges Morton I. Greenberg, J. H. Coleman and Long.

On appeal from the Superior Court. Chancery Division, Atlantic

County.

Howard E. Drucks argued the cause for appellant (McGahn,

Friss & Miller, attorneys: Mr. Drucks on the brief).

Martin L. Greenberg argued the cause for respondents

(Greenberg, Margolis, Ziegler. Schwartz, Dratch & Fishman,

attorneys; Mr. Greenberg, of counsel; Stephen M. Holden, on

the brief).

A-3

PER CURIAM

!

The order and judgment on May 14, 19835 is affirmed sub-

stantially for the reasons expressed by Judge Gibson on April, 25,

1986 with the following reservation. Judge Gibson indicated that

a condominium cannot exist at common law and thus is of stat-

utory creation. While it is undoubtedly true that the rights of

condominium owners are regulated by statute, we are hot nec-

essarily in agreement that at common law prior to the enactment

_ of condominium legislation parties could not create condomini-

ums. However, as we do not regard that statement by Judge

Gibson as necessary to his decision it does not impact on our

result.

Affirmed.

A-4

SUPERIOR COURT OF NEW JERSEY

CHANCERY DIVISION

COUNTY OF ATLANTIC

Docket No. C-1435-85-E

DERBY ASSOCIATES, a partnership : TRANSCRIPT

of the State of New Jersey,

Plaintiff, — : OF

Us. ; OPINION

SEASHORE CLUB CONDOMINIUM

ASSOCIATION, INC., a corporation

of the State of New Jersey;

THE BOARD OF TRUSTEES OF : Date: April 25, 1985

SEASHORE CONDOMINIUM

ASSOCIATION, INC., and

GNOC CORPORATION t/a

GOLDEN NUGGET,

Defendants.

BEFORE:

L. ANTHONY GIBSON, JSC

APPEARANCES:

GREENBERG, MARGOLIS, ZIEGLER & SCHWARTZ, ESQS.

Attornevs for GNOC & Nugget

By: Martin L. Greenberg, Esq.

MCGAHN, FRISS & MILLER, ESQs.

Attorneys for Plaintiff

By: Patrick McGahn, Esq. and

Howard Drucks, Esq.

FRED P. CAMPO, OCR

A-5

THE COURT: Today is the adjourned day of an Order To

Show Cause arising out of efforts by the plaintiff, Derby Asso-

ciates, a partnership of the State of New Jersey, to obtain certain

preliminary restraints regarding actions by the defendant, Sea-

shore Club Condominium Association, Inc., and others.

As part of that effort, and as a result of a cross-motion for

Summary Judgment which has been filed by the defendant, Sea-

shore Club Condominium, et als, it is necessary for the court to

decide whether a recent amendment to the Condominium Act is

constitutional.

As part of that same inquiry, the court has also been asked

to review a Resolution that was passed by the Condominium

Association in September of 1984 which initiated certain steps

regarding the termination of the Seashore Club Condominium.

The factual background that gives rise to this particular ap-

plication and this law suit generally is essentially, at least for

present purposes, undisputed. The plaintiff, which as I indi-

cated, is a limited partnership, purchased a condominium unit in

the premises known as the Seashore Club here in Atlantic City

in June of 1984. Tne Seashore Club, like a number of condo-

miniums in this City and elsewhere, was formerly a motel con-

sisting, I believe, .of one hundred units, primarily, if not

exclusively, efficiency units, and was converted to a condomin-

ium pursuant to the statutes of the State of New Jersey.

Sometime in the early part of 1984 there was activity be-

tween the respective unit owners and the owners of a neighbor-

ing casino, the Golden Nugget, regarding the sale of these

condominium units with the expectation that if the entire pre-

mises of the Seashore Club could be purchased, that it would be

used for a certain expansion needed of that casino.

There is some dispute as to who initiated this effort, but it

does not matter for purposes of what the court has to decide

today. The faci is that the effort was commenced and quite suc-

cessfully, and negotiations were completed with the overwhelm-

ing majority of the unit owners, and at the present time this

_ number has been changed since this law suit was initiated. But

it will appear at least eighty-five of the one hundred units have

already been titled in the defendant, Golden Nugget, and that

A-6

contracts for all of the remaining units except one are expected

shortly.

The one remaining unit for which there has been an inability

to obtain a contract is the one which is owned by Derby Asso-

ciates. Derby Associates is also the owner of a parking lot in the

same vicinity, and there have been some negotiations between

the parties in which an effort has been made to reach a sale of

both the condominium unit and the parking lot, but that effort

has thus ‘ar failed with the position of the parties being signifi-

cantly apart in terms of price.

On September 3rd, 1984, the Condominium Association

met and approved by a majority vote a number of actions that

eventually resulted in the revocation of the condominium status

of this building, and presumably its sale under the various agree-

ments that were being negotiated with the Golden Nugget. That

Resolution also authorized the Board of Trustees to institute lit-

igation against any member of the Association who refused to

sign an agreement so that presumably that litigation. if success-

ful, would have achieved the goal of that determination by the

Association.

It was also agreed at that time to amend the Master Deed

to give the Board of Directors the right to terminate the condo-

mniniums upon the vote of eighty percent of unit owners and to

authorize the sale, lease, grant or license of the common ele-

ments and to permit the disassemblage of some of those common

elements, or all of them, as part of that effort.

In January of 1985, the Governor of the State of New Jersey

signed legislation which had been passed unanimously by both

Houses of the Legislature amending the Condominium Act, and

in particular that provision dealing with the steps necessary to

complete a revocation of the condominium status. That is

N.J.S.A.46:8b-26. Under that amendment whereas there had

previously been a requirement of one hundred percent partici-

pation by all condominium unit owners in order to achieve a

revocation, it would now be possible that such a step could be

completed upon the agreement of at least eighty percent of the

unit owners.

A-7

In completing that legislative step, New Jersey came into

line with the recommendations of the National Committee on

Uniform Law, and the entity that is active in the condominium

field, the name of which I cannot now recall for the moment, but

I will mention it later in my Opinion, again being a uniform law

group dealing in particular with condominiums. it would appear

that the legislative step that was just described was initiated in

part, if not in whole, by the efforts of Martin Greenberg as coun-

sel for the defendants and as a result of a recommendation by him

to the members of the Senate, and in particular, John Russo,

who, I believe, sponsored this legislation. As I mentioned, how-

ever, initiated efforts, and the efforts met with unanimous ap-

provai of various legislators who were involved in the effort, and

that it does, indeed, bring New Jersey into conformity with the

recommendations of the group that I mentioned.

This law suit was initiated thereafter in an effort in part to

obtain a determination by this court that that legislation was un-

constitutional.

Passing from those brief factual elements that bring this

matter to the court's attention, let me now identify the legal is-

sues with some additional particularity.

As I have mentioned, the primary issue is the one that seeks

a determination regarding the constitutionality of that statutory

amendment, and in particular that portion of the amendment

that seeks to make its provisions retroactive.

Assuming the court determines that it is unconstitutional.

certain consequences flow. Even if the court does not determine

that it is unconstitutional, there is a separate question as to

whether the Resolution that was enacted bv the Association back

in September of 1984 was valid and in conformity with the law.

As part of the sub issues involved in the constitutional ques-

tion, there are a number of things that need to be addressed.

Primarily, what needs to be addressed is the assertion by the

plaintiff that the retroactive nature of this legislation is uncon-

stitutional under the contract laws of both the federal constitu-

tion and the constitution of the State of New Jersey. Those

provisions are Article 1, Section 10 of the United States Consti-

tution, and Article IV, Section 7, paragraph three of the New

A8

Jersey Constitution. Both of those provisions bear similar lan-

guage and have basically the same input. Their interpretations

are parallel in both state and federal courts.

Basically, those provisions say that the legislature should

not pass any law impairing objectives of contracts. The broad

language of those provisions, however, is highlighted by the

many exceptions that have been developed over the years since

those provisions were originally adopted.

The analysis that this court must make of whether those

exceptions cover the circumstances before this court require

some division of attention between the federal and the state con-

stitutional provisions.

Beginning with the federal constitution, it is, I think, per-

haps helpful to mention that the law in this area has changed

somewhat over the vears and evolve in a way that does have

some impact on the approach this court must take to the reso-

lution of this quesiton. Before reviewing that history briefly,

however, let me mention what the framework is with which this

court begins in assessing these various questions. What I am

referring to is the burden that plaintiff has in establishing un-

constitutionality. The plaintiff in this case, as in any case who

seeks to declare legislation of this state or in any state unconsti-

tutional, bears a heavy burden because the court begins with the

strong presumption of constitutionality. This is true whether one

is talking about a statute that is prospective in nature, or one

which is retroactive as this one.

When the court is dealing with economic and social legis-

lation, which is what that is, it is customary for the court to defer

to the legislative judgment that had been made regarding the

value and the wisdom of that legislative effort.

New Jersey Courts have long held that all statutes enjoy a

strong presumption of constitutionality, and the plaintiff's bur-

den is to establish with clarity that that presumption has been

overcome in order to achieve a successful result.

As some of the cases have said, before that presumption can

be overcome a court must be satisfied that the balance in favor

A-9

of constitutionality is clear and beyond a reasonable doubt. Ci-

tations for the proposition that I have just mentioned are nu-

merous, but let me mention some: Raybestos- Manhattan, Inc. v.

Glaser, 144 N.J.S. 152, achancery division case decided in 1970,

United Advertising Corporation v. Borough of Metuchen, 42

N.J. 1. The Berkley Condominium case decided by this court,

with full citation being The Berkley Condominium Association v.

The Berkley Condominium Residences, 185 N.J.S. 313, a chan-

cery decision 1982.

Having stated that framework, let me now pass to the fed-

eral case law on this subject. As I indicated, the law has evolved

in this area in a way that has some impact on the outcome here.

Initially, and even to this dav, some distinction has been drawn

by the federal case law when dealing with contracts in which a

state is a part as opposed to contracts between private individ-

uals. The difference has been one of degree of deference.

The case law that has been cited in this case in oral argu-

ment, which I will mention again here today, outlines that de-

velopment, and I am referring to cases such as Energy Reserves

Group, Inc. v. Kansas Power & Light, 103 Supreme Court 697,

Allied Structural Steel Co. vs. Spannaus. 438 U.S. 234, (1978)

Supreme Court case, and most recently the case of Trov Limited

\. Renna, 727 Federal 2d 287, (1984).

The point to be made about that evolution is that with re-

spect to private contracts as opposed to those involving the State

itself, or subdivisions thereof, the court has over the vears en-

larged the degree of deference accorded to the legislative efforts

that are made as part of the regulations of what private people

can do with respect to contract rights.

I have not mentioned it so far, but probably the turning

point in that development was the Blaisdell case, or the case

known as Home Building & Loan Association v. Blaisdell, 290

U.S. 398, (1934) case. The other cases that I have mentioned are

really the progeny of Blaisdell.

As the court in Troy points out: “Under these post-Blaisdell

authorities, the contract clause placed only limited inhibitions on

A-10

the ability of state legislatures to address significant social prob-

lems by legislation affecting existing contractual undertakings

between parties.”

The Troy case is also beneficial in taking this court to the

so-called three part test that must be examined in order to de-

termine whether or not under the federal contract clause pro-

vision, that is the federal constitutional contract clause provision,

the presumption previously mentioned has been overcome. And

as the court in Troy mentions, the threshhold inquiry under that

three-part test is first to determine whether or not the law has

operated “as a substantial impairment of a contractual relation-

ship.”

If the state law is found to be a substantial impairment, the

second inquiry that is required is whether the State has estab-

lished a significant and legitimate public purpose behind the reg-

ulation, such as the remedying of a broad and general social or

economic problem.

Finally, if such a legitimate public purpose is identified, a

third query is posed. The next inquiry is whether the adjustment

of the rights and responsibilities of contracting parties is based

upon reasonable conditions and is of a character appropriate to

the public purpose justifying the legislation’s adoption.

That third area has been further refined as follows: “Unless

the State itself is a contracting party—” which it is not here in the

case before me— “as is customary in reviewing economic and

social regulation, courts properly defer to legislative judgment as

to the necessity and reasonableness of a particular measure.”

Passing now to an examination of the three-part test just

mentioned, the first judgment that must be made is whether or

not the impairment that occurs and is before the court can be

considered substantial regarding the contractual relationship ef-

fected. If the court determines that that impairment is not sub-

stantial, the inquiry ends at that point, and the provisions under

inquiry would then be found to have overcome the challenge.

Determining whether the impairment here is substantial, it

is necessary to examine what it is that has occurred. And, of

course, as can be determined inquiry by examining the oral ar-

gument in this case, there can be significant disagreement as to

A-l]

what, if any significance, has occurred here that would impact on

the contractual relationship.

There is a substantial question as to what the contract really

is that is being impaired, and whether the contract is being im-

paired at all, at least as between the contracting parties.

In order to answer this question it is necessary to examine

the Condominium Act of New Jersey because the Condominium

Act of New Jersey really creates and regulates quite heavily what

the purchasers of condominium units can do with their units and

can expect in this area. This same regulation, particularly given

the breath of it, impacts on other issues the court has to address,

but for the moment I mention it because it helps to identify the

rights which the parties might have expected to have in this set-

ting, and then determine what of those rights has been lost by

this provision, assuming it is enforced.

I will not in this examination attempt to identify everything

that the legislation has said can and cannot be done. It is suffi-

cient, I think, to point out that a condominium itself cannot exist

at common law. There was no such property right in existence

until the legislature of this state said that it did. When the leg-

islature of this state said that it did, it created a hybrid form of

property ownership because it combines a number of aspects of

communal living with the individual rights that every property

owner should traditionally have in a real estate field but with

certain, of course, limitations.

For example, in purchasing a condominium unit, although

the purchaser obtains a fee interest which is exclusive, that fee

interest is subject to a number of communal aspects which con-

trol the enjoinment of that fee interest. The common elements

are obvious examples and how those common elements are used

and the degree to which individual unit owners can enjoy them

is a subject which is one which can be changed and frequently

is changed by the majority vote of the condominium association

which is created as part of that ownership interest.

If this statute is constitutional, therefore, what will be cre-

ated is that although the unit owner will still have the right to

sell, the right to own, and the right to enjoy a particular unit, and

will also have the right to receive fair value for that unit in the

A-12

case of a sale. What will be lost is the right to refuse to sell in face

of overwhelming wishes of the other unit owners within the as-

sociation of which that unit owner is a part.

The question then is whether that loss is substantial,

whether it represents “substantial impairment” under the fed-

eral test that I had mentioned.

It is difficult, frankly, to deal with this question in the con-

dominium setting and to attempt to divorce one’s self from the

traditional notion that we have about ownership in real estate.

We traditionally think that among the various rights that one has

as an owner of a piece of real estate, includes not only the right

to sell it and to obtain fair value for it—I am talking about market

value—but there is also the right not to sell.

Many people do not value their ownership interest in a par-

ticular piece of real estate by what they can get for it if they sell

it, and as has been held by our court over the years, there is a

unique quality to real estate that makes it special. And I think

that unique quality helps to explain why the same courts have

granted specific performance in situations where it would not

otherwise be available. The point being that value is not always

measured in money. Location, history, other things impact on a

person's valuation of the worth of a particular piece of property.

So in that sense a loss through this legislation of that right

in face of an overwhelming view of your condominium owner is

a significant and substantial loss.

One could question, however, how significant do we mea-

sure against the other losses that one assumes when one goes

into that type of ownership effort to begin with? And as I have

already indicated, this is a highly regulated field, and it is a field

where owners are subject to the desires of the majority in a num-

ber of significant areas.

I should also mention on this same subject that even in the

private real estate field, which this is not, at least not in the

classic sense, owners of real estate are not unfettered in their

ability to sell or not sell. And dispite the value elements that I

have mentioned and as unique as it is, there are many examples

of situations that reflect that that is simply not an unfettered

right. That right is subject to a number of police power controls

A-13

and other private interests. For example, zoning and other po-

lice power regulations can affect the manner in which you use

your property. It can in some cases destroy that use entirely,

subject only to compensation under fair market value.

Such controls, however, have long been held to be consti-

tutional. Ownership of private real estate can begin with others.

such as when one owns property as-joint tenants or as tenants in

common. Although all of the elements that traditionally attach to

the ownership fee interest exist in such a setting, a co-tenant can

seek and succeed in a partition action and force the sale of that

property dispite all of the things that I have mentioned.

I mentioned that backdrop only to put in prospective what

I think the reasonable expectation of parties are when they own

real estate and when they entered into contracts to purchase it,

and I put it out to show that there is a good deal of precedence

that impacts on whether the impairment here really is or is not

substantial.

In conclusion on this subject, however, although I recognize

that a significant and strong argument can be made to the con-

trary and one that I think that be readily supported, | would

nevertheless choose to conclude that the impairment here is sub-

stantial. That is that the loss of the right to retain as opposed to

sell is a substantial property right, and that the contractual re-

lationship is substantially impaired by its loss. I think the rea-

sonable expectation of the parties would have included that

right, and I think it is a substantial right. The fact that the Con-

dominium Act itself had previously contained a reference to that

I think underscores this position.

I must confess, however, that in reaching this conclusion |

am at least in part influenced by the fact that I am satisfied that

the second and third parts of this test can be met. and that the

constitutional language on the federal level can be satisfied by

the second and third inquiries that are necessary.

I am referring to the fact that I have concluded that there is

a legitimate purpose that has been identified by this legislation

and that the State has established bv the background that is avail-

able to me here that there is a significant and legitimate public

purpose behind this regulation.

A-14

What aided the State of New Jersey in its adoption of the

Uniform Act was the experience of others and the broad com-

pensation that has existed in this field by those who expressed

opinions on it over the years since the original creation of the

concept of condominiums. The various law review articles and

academic commentaries in this field have been fairly unanimous

in recommending in favor the type of change that New Jersey has

adopted by this amendment.

Plaintiff's brief outlines a number of those sources, includ-

ing a commentary of former Dean Patrick J. Rohan of St. John’s

University. And in referring to his law review article on the sub-

ject in the Columbia Law Review, he also makes reference to the

Model Condominium Code, which is a result of an effort by an

additional group of people who are active and knowledgeable in

this field who likewise have identified that danger and evil that

thev felt existed when the effort to decondominimize can be re-

stricted by a single or few individuals.

What those commentators had concluded and what the

State of New Jersey here concluded was that the danger of en-

abling a single individual to force the will of the overwhelming

majority and to create the act to blackmail all or one co-owner

was a danger that justifies the removal in a limited way of the

right that I had previously identified. That is the right to decide

not to sell.

Given the fact that this is social legislation, the fact that it

impacts on economic concerns, triggers a kind of deference that

the federal and the state cases refer to. The reasonableness of

that judgment has been brought into question here and requires

an additional inquiry by the court, and I will speak more to that

when I review this question from the point of view of state con-

stitution. For the present purpose it is sufficient to repeat what

the court said in Troy and what has been said in the Energy

Reserve Group case, and that is as customary in reviewing eco-

nomic social legislation the court “properly defers to legisla-

tive judgment as to the necessity and reasonableness of a

particular measure.”

A-15

As I will repeat when dealing with this from the prospectus

of state constitution, it is important to remember that in exam-

ining that question and in exercising that deference the court is

not reexamining the issue in a way which would substitute the

court’s judgment for that of the legislature. The legislature is the

appropriate entity for making those judgments and determining

whether that choice was or was not reasonable. The scope of

review by a court is much more limited and not only begins with

the presumption that I have already mentioned, but it also re-

quires that before the court overturns that presumption that it be

satisfied that the unreasonableness of that choice be clear, and

that the impediment outweighs the benefits clearly, and in some

cases say beyond a reasonable doubt.

Whether one approaches this from the state's prospectus or

the federal prospectus, I do not think it can be fairly said here

that .. there is a balance that is unreasonable, that unreason-

ableness is clear. Certainly it cannot be suggested that the choice

was an arbitrary one by the legislature or it was without a factual

base. Given the almost unanimity in the literature on this sub-

ject, it is difficult to suggest that New Jersey was being arbitrary

in choosing to conform to that literature.

Accordingly, it is my judgment that based on the federal

constitutional provisions, contract clause of the federal constitu-

tion, that the three-prong test has been met in that although |

identified a substantial impairment for purposes of this opinion,

that impairment was nevertheless outweighed by the other con-

siderations that I mentioned, at least given the standard that I

feel applies here.

Let me pass now to the New Jersey Constitution. Under the

New Jersey Constitution the approach is not as regimented, but

it involves the same type of considerations. The language that has

been used by the cases over the years is somewhat different, and

when I refer to cases, I am including the case of Gribbons v.

Gribbons, 86 N.J.513, Burton v. Sills, 53 N.J.86, and the

Berkley case that I referred to earlier and others.

A-16

Some of the guidelines that are contained in those cases use

labels such as “vested rights, manifest injustice, and fundamental

fairness.” Those labels, however, are somewhat difficult to apply

with great specificity.

Again, what is necessary is identification as a right that is

being lost and to look at the balance that was struck between that

loss and what the legislature identified as having been gained.

One of the commentaries that has been included in our Su-

preme Court pronouncement in this area and I think it’s worth

quoting. The court said on this same subject: “The most that can

be said with respect to the proofs is that reasonable men that

disagree as to whether the addition of what was at stake there

would serve the general welfare. Such policy questions are com-

mitted to the judgment of the legislature.” And this is a loose

quote: “As we have said so many times with respect to zoning

and other quasi-legislative decisions, a Judge may not interfere

merely because he would have made a different policy decision

if the power to decide had been his. A court can concern itself

only with an abuse of delegated legislative power and may set

aside the legislative judgment only if arbitrariness clearly ap-

peared.”

The question then becomes whether or not this court can

say that arbitrariness clearly appears here as a result of the judg-

ment made by the legislature of this State and by the Governor

of this State in passing the Amendment that I have mentioned.

It is my judgment that such a conclusion cannot fairly be

reached. As part of this same inquiry, again reference can be

made to the Condominium Act and what the reasonable expec-

tations of the parties would have been. Because when one ex-

amines the contract rights and what might be considered

“vested” and what loss may be considered as being manifestly

unjust, again using one of the labels that is frequently seen, it is

again helpful to recognize the heavy regulations that exist in the

condominium field and the already existing significant restric-

tions on the individual rights of property owners in a condomin-

ium setting. It is simply a different animal and in some ways

bears little resemblance to the classic ownership interests in real

estate as it existed over the years.

A-l7

The definitions that have been used by the commentators in

describing what a condominium is helps to identify in part that

uniqueness.

As was mentioned in one of the quotes that was submitted

by the plaintiff, a condominium is generally defined as an estate

in real property consisting of a separate interest in a residential

building on such real property together with an undivided

interest-in-common in other portions of the same property. In its

legal structure a condominium first combines elements from sev-

eral concepts — unincorporated association, separate property.

and tenancy in common — and then seeks to delineate separate

privileges and responsibilities on the one hand from common

privileges and responsibilities on the other.

That by the way is a quote from 31 CJS Estates, Section 146.

A separate but not too dissimilar quote is contained in a

writing of Dean Rohan in the Law Review Article that I previ-

ously mentioned.

Included within this point is the observation that when par-

ties enter into contracts to purchase these units they recognize

those limitations. Whether they think about them or not, thev

are presumed to understand them and proceed with full know!-

edge of them. They are also presumed to understand that given

the regulations that they are in and given the fact that the rights

that they enjov are creatures of the legislature and subject to

continuing regulations that those rights may be modified from

time to time.

One might question this for how realistic permanent expec-

tation can be in the field of condominiums at all. and it is also

important I think that assessing what has occurred here to re-

member that condominiums do not have the same unique qual-

ities as real estate. Although in a sense there is a right not to sell

that is common. Cases have identified this lack of uniqueness,

including the Sencit Homes Case, which is a case in specific per-

formance where specific performance was denied in the condo-

minium setting, at least in part, because of lack of uniqueness.

and as was pointed out by this court in the Berkley condominium

case, and that is to say that what can be realistically expected by

A-18

contracting parties is significantly impacted by the consider-

ations that I just mentioned, and that is the regulated nature of

this field.

In sum, dealing now with the constitutional examination, it

is my judgment that the deference that the legislation is entitled

to here is one which overcomes and outweighs the concern that

otherwise exists on the part of this court with respect to the dep-

rivation of rights that these contract holders had.

It is, again, important to emphasize that in reaching that

judgment the strong presumption of constitutionality must be

overcome by a clear showing of an abuse, or in the alternative a

clear showing of arbitrariness, or a clear showing that the balance

struck was so unreasorable as to fail constitutional muster.

I am not satisfied that that burden has been established

here, and accordingly I am convinced that this statute and its

amendment is indeed constitutional and requires the support of

this court.

In reaching that conclusion I do not seek to match my judg-

So

ment as to what would or would not have been the appropriate

balance to be struck by the legislature in reaching this particular

position, but rather I defer to that judgment, and also conclude

that there has been no showing it is clearly wrong or unreason-

able, nor has there been any showing there was not a factual

support for the conclusions that were made by the legislature.

Accordingly, the motion for a partial summary judgment

that has been pursued by the defendants is granted. That judg-

ment does not, however, end the matter, and in particular a

response is required to the question of the bona fides of the res-

olution of November the 3rd, 1984.

It is my judgment in that regard that that resolution should

be stricken as being improper, as being not in conformity with

the law as existed in 1984. The determination made then were,

in fact, opposed to the legislation that then existed under the

Condominium Act insofar as they sought to dissolve or revoke

based on eighty percent. Obviously, legislation has now

changed. It's retroactivity applies to this contract, and the Con-

dominium Association has agreed to re-examine this question

OT eB

A-19

and to act on the same subject if it chooses to do so, which 1

assume it will.

Having reached these conclusions, the plaintiff is entitled to

certain limited injunctive reliefs pending further action by the

Condominium Association. I don’t know as a practical matter

what that would necessitate beyond that which this court has

al:eady done by way of the preliminary order that was entered

at the time that this matter was initially before me.

Frankly, I do not think that anything else is required, but I

do believe that the Order should continue pending any further

action by the Condominium Association, and any further efforts

that may be necessary in the way of a judgment of partition if that

is required.

In closing, I would like to meet with the attorneys briefly so

I can determine what they view to be any remaining attention

that the case will require by the court beyond today’s hearing.

I also want to mention another observation. That is that

there were difficult questions that were involved in this case and

I was very much appreciative of the input that I received from

counsel. The briefs were very good, and the oral argument I

thought was exceptionally good, and I want to compliment both

Mr. Drucks and Mr. Greenberg on their presentations because

it was very helpful to the court.

Also. on the record, I wish to reserve the right to expand my

opinion in the event of an appeal, or convert it to writing if |

choose to do so.

. * ”

I, Fred P. Campo, an Official Court Reporter of the State of

New Jersey, certify that the foregoing is a true and accurate tran-

script as taken from my stenographic notes.

Date: 5-28-85 /s/)_ Fred P. Campo

FRED P. CAMPO, OCR

A-20

GREENBERG, MARGOLIS, ZIEGLER ANC SCHWARTZ

P.A.

THREE A. D. P. BOULEVARD,

ROSELAND, N. J. 07068

(201) 992-3700

ATTORNEYS FOR DEFENDANTS, GNOC CORP. AND

GOLDEN NUGGET, INC.

DERBY ASSOCIATES, : SUPERIOR COURT OF

a partnership of the NEW JERSEY

State of New Jersey, : CHANCERY DIVISION

Plaintiff: ATLANTIC COUNTY

: Docket No. C-1435-85E

VS.

SEASHORE CLUB CONDO.

MINIUM ASSOCIATION, CIVIL ACTION

INC., a corporation of the :

State of New Jersev:

THE BOARD OF TRUST-

EES OF SEASHORE CON- ;

DOMINIUM ASSOCIATION, : ORDER AND JUDGMENT

INc., and GNOC Corp. va.

GOLDEN NUGGET,

a corporation of the

State of New Jersey,

GOLDEN NUGGET, INC.,

a Nevada Corporation, j/s/a.

Defendant

This matter having been opened to the Court by way of

Order to Show Cause brought by McGahn, Friss & Miller,

Esqs., (Patrick T. McGahn, Jr., Esq. and Howard E. Drucks.

Esq. appearing), attorneys for the plaintiff, and by Cross-Motion

for Summary Judgment brought by Greenberg, Margolis,

Ziegler & Schwartz, P.A. (Martin L. Greenberg, Esq. and

Jeffrey D. Light, Esq.. appearing), attorneys for defendants.

GNOC, Corp. and Golden Nugget, Inc.; Rothenberg, Hyett &

EE

A-21

Eisen, Esqs. (Robert Lang, Esq., appearing), attorneys for de-

fendants, Seashore Club Condominium Association Inc., and

Board of Trustees of Seashore Condominium Association, Inc.,

and having considered the papers presented and having heard

argument of counsel and for good cause appearing. now. there-

fore,

IT IS on this 14th day of May, 1985

ORDERED that the application by the plaintiff for a dec-

laration that the retroactive application of P.L. 1985, c. 3.

amending N.].S. 46:8B-26 is unconstitutional is denied and, it is

further

ORDERED that the application by the plaintiff for tempo-

rary, interlocutory and permanent injunctive relief prohibiting

the defendants from filing a Deed of Revocation not containing

the signatures of each of the condominium owners, is denied

and, it is further

ORDERED that the application by the plaintiff for a dec-

laration that the September 3, 1954 amendment to the Seashore

Club condominium Master Deed giving the defendant Board of

Directors of the Seashore Club Condominium Association the

right to terminate the condominium upon the affirmative vote of

80% of the unit owners is invalid is granted and, it is futher

ORDERED that the Motion for Partial Summary Judgment

by the defendants for a declaration that the retroactive applica-

tion of P.L. 1985, c. 3, amending N.J.S. 46:8B-26. is constitu-

tional, is granted and, it is further

Ordered and adjudged that P.L. 1985, c. 3, amending

N.].S. 46:8B-26 is consititutional.

HON. L. ANTHONY GIBSON, J.S.C.

A-22

SENATE, NO. 2141

STATE OF NEW JERSEY

INTRODUCED SEPTEMBER 13, 1984

By Senator RUSSO

Referred to Committee on Judiciary

AN ACT concerning condominum properties and amending

1969, c. 257.

BE IT ENACTED by the Senate and General Assembly of

the State of New Jersey:

1. Section 26 of P. L. 1969, c. 257 (C. 46:8B-26) is

amended to read as follows:

26. Any condominum property may be removed from

the provisions of this act by agreement of unit owners of

units to which at least 80% of the votes in the association

are allocated, or any larger percentage that the master deed

or any amendment thereto specifies. Termination shall be

effective upon the filing of a deed of revocation duly ex-

ecuted by [all] unit owners of units to which at least 80%

of the votes in the association are allocated, or any larger

percentage that the master deed or any amendment thereto

specifies or the sole owner of the property [and the holders

of all mortgages or other liens affecting all units] and

recorded in the same office as the master deed.

2. This act shall take effect immediately and shall apply

to all condominiums heretofore or hereafter created pur-

suant to P. L. 1969, c. 257 (C. 46.8B-1 et seq.).

ee

A-23

STATEMENT

This bill will bring New Jersey law with regard to the

percentage of ownership needed to terminate a condomi-

nium into conformity with the applicable provision of the

Uniform Condominium Act as drafted by the National Con-

ference of Commissioners on Uniform State Laws.

Explanation—Matter enclosed in bold-faced brackets

[thus] in the above bill is not enacted and is intended

to be omitted in the law.

Matter printed in italics thus is new matter.