Title: Aqua Beach Condominium Assn. v. Dept. of Community Affairs, etc., et. al.

State: new-jersey

Issuer: New Jersey Supreme Court

Document:

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). In 1978, the Legislature adopted the New Home and Warranty Builders Registration Act (Act). The Act establishes the Home Warranty Security Fund (Fund), whose source is payments from the builders of new homes. In the event the builder fails to make repairs within a reasonable time or are not satisfactory to the owner, homeowners are permitted to make claims against the Fund. The Commissioner of DCA has adopted regulations governing claims procedures. The procedures require a five-step process when there has been a default by the builder: 1. the owner may file a request for payment in which event the DCA inspects the house to determine if the defect is covered by the warranty; 2. if the DCA determines the defect is covered, the owner is obligated to submit two or more bona fide estimates for the work intended to be covered; 3. the DCA must then select the lower or lowest of the estimates and 4. certify the amount of the award to the Treasurer; 5. payment from the Fund is permitted only for work authorized in writing by the DCA and upon completion to the DCA s satisfaction. Aqua Beach Condominium Association (Aqua Beach) is a condominium association in North Wildwood. The condominium complex was constructed in 1989. At that time, Aqua Beach applied for and was certified as eligible to participate in the Fund. In 1998, Aqua Beach requested that DCA pay, through the Fund, sums needed to effect repairs in the condominium complex. The Bureau inspected the complex and determined that the covered repairs would be reimbursed by the Fund in the same proportion as the warranty units bore to the total number of units affected. The Bureau requested that Aqua Beach present the required minimum of two repair estimates. Aqua Beach did nothing. Despite repeated requests and the setting of a deadline in August 1999, Aqua Beach continued to do nothing. The Bureau closed its file after Aqua Beach failed to complete the claim submission process by the August deadline. Aqua Beach requested a hearing on the denial of the claims. Aqua Beach also hired a contractor, and, at some time during the first half of 2001, completed the repair work. In August 2001, Aqua Beach notified the Bureau that the repair work had been completed. The Bureau moved before the Administrative Law Judge (ALJ) to dismiss Aqua Beach s claims. Aqua Beach s counsel asserted, in reply, that, in a conversation he had with the Bureau s engineer in February of 2001, the engineer authorized the work. In July of 2002, the ALJ granted the Bureau s motion to dismiss. With two minor modifications, the Commissioner of DCA adopted the ALJ s decision. Aqua Beach appealed. While the appeal was pending, the ALJ held, on temporary remand, that Aqua Beach failed to demonstrate authorization from the Bureau to proceed with emergency repairs. The Appellate Division also rejected as meritless Aqua Beach s assertion that the record established that it obtained authorization to proceed with repairs. The panel affirmed the Commissioner s decision. This Court granted Aqua Beach s petition for certification. HELD: The Bureau s regulations requiring that a claimant under the Home Warranty Program submit to the Bureau two or more bona fide estimates for the work intended to be covered as a condition precedent to certification by the Director to the State Treasurer for payment from the Fund are neither arbitrary, nor capricious, nor unreasonable, either as written or applied here; under the circumstances presented in this appeal, there was no legally competent evidence on which to base any equitable estoppel claim against the Bureau . When considering the actions of administrative agencies, our scope of review is narrow. Ordinarily, we will not upset a determination by an administrative agency in the absence of a showing that it was arbitrary, capricious or unreasonable, or that it lacked fair support in the evidence, or that it violated legislative policies expressed or implicit in the enabling legislation. Thus, we grant administrative agency action a strong presumption of reasonableness. It is through this prism that the Commissioner s denial of Aqua Beach s claim for reimbursement must be gauged. (pp. 13-15) 2. There is nothing arbitrary, capricious or unreasonable in the procedures outlined in the DCA regulations requiring that a claimant against the Fund make a claim , submit to an inspection, submit at least two estimates of the repair work to be performed, and await the DCA s approval before barging ahead. In the absence of any claim of untoward behavior by the DCA, a homeowner s informed decision to contract for repairs without the Bureau s pre-authorization voided any obligation on the part of the Fund to reimburse the homeowner. (pp. 18-19) 3. We reach Aqua Beach s last argument: that it had received oral authorization from the Bureau s engineer to proceed with the repairs and, hence, the Bureau is equitably estopped from asserting a failure to comply with the repair pre-authorization requirements of the regulations. Although the doctrine of equitable estoppel is rarely invoked against a governmental entity, this Court has long held that the prevention of manifold injustice provides an exception to the general rule. Assuming that Aqua Beach can demonstrate a manifest injustice, in order to assert the defense of estoppel, Aqua Beach must show that the DCA engaged in conduct, either intentionally or under circumstances that induced reliance, and that Aqua Beach acted or changed its position to its detriment. Aqua Beach can vault neither obstacle. (pp. 19-20) 4. Clearly, the even-handed application of fairly adopted and clear regulations debunks any claim of manifest injustice. Furthermore, as the ALJ held, Aqua Beach presented no competent proofs to support its equitable estoppel allegations. The facts supporting Aqua Beach s assertion of the doctrine of equitable estoppel simply do not rise to the level of a manifest injustice. (pp. 20-21) 5. The Bureau s regulations requiring that a claimant under the Home Warranty Program submit to the Bureau two or more bona fide estimates for the work intended to be covered as a condition precedent to certification by the Director to the State Treasurer for payment from the Fund are neither arbitrary, capricious, nor unreasonable, either as written or applied here. Under the circumstances presented in this appeal, there was no legally competent evidence on which to base any equitable estoppel claim against the Bureau. (p. 21) The judgment of the Appellate Division is AFFIRMED. CHIEF JUSTICE PORITZ and J USTICES LONG, LaVECCHIA, ZAZZALI, ALBIN, and WALLACE join in JUSTICE RIVERA-S OTO s opinion. SUPREME COURT OF NEW JERSEY A- 111 September Term 2004 AQUA BEACH CONDOMINIUM ASSOCIATION, a not-for-profit Corporation of the State of New Jersey, Petitioner-Appellant, v. DEPARTMENT OF COMMUNITY AFFAIRS, BUREAU OF HOMEOWNER PROTECTION, NEW HOME WARRANTY PROGRAM, Respondent-Respondent. Argued September 28, 2005 Decided January 18, 2006 On certification to the Superior Court, Appellate Division. Norman W. Briggs argued the cause for appellant (Frey Petrakis Deeb Blum Briggs & Mitts, attorneys; Mr. Briggs and Michele L. Weckerly on the brief). Patricia E. Stern, Deputy Attorney General, argued the cause for respondent (Peter C. Harvey, Attorney General of New Jersey, attorney; Patrick DeAlmeida, Assistant Attorney General, of counsel). JUSTICE RIVERA-SOTO delivered the opinion of the Court. This appeal requires that we address two related issues that arise out of the operation of the New Home Warranty Program administered by the Bureau of Homeowner Protection (Bureau) of the Department of Community Affairs (DCA). First, we must address whether, under the circumstances presented, the Bureau s processing and ultimate denial of certain home warranty claims was arbitrary, capricious or unreasonable and, second, whether there is legally competent evidence in this record to support the claimant s assertion that it had received oral authorization from a representative of the Bureau to proceed with the repairs and, hence, the Bureau is equitably estopped from asserting a failure to comply with the repair pre-authorization requirements of the governing regulations. See footnote 1 We hold that the Bureau s regulations requiring that a claimant under the Home Warranty Program submit to the Bureau two or more bona fide estimates acceptable to the Division [of Codes and Standards of the DCA] for the work intended to be covered, N.J.A.C. 5:25-5.5(e)2, as a condition precedent to certification by the Director of the Division to the State Treasurer for payment from the Home Warranty Security Fund (Fund), N.J.A.C. 5:25-5.5(e)1, for work authorized in writing by the [DCA] and upon completion to the [DCA s] satisfaction, N.J.A.C. 5:25-5.5(e)2, are neither arbitrary, nor capricious, nor unreasonable, either as written or a s applied in this instance . We further hold that, under the circumstances presented here, there was no legally competent evidence on which to base any equitable estoppel claim against the Bureau. [Id. at *15 (citing Elliott v. Cmty. Affairs Dep t, 95 N.J.A.R 2d (CAF) 81 (1995)).] Because of that conclusion, the Administrative Law Judge did not reach the second issue raised by Aqua Beach: that it had been authorized to proceed with the repair work during the February 6, 2001 telephone conversation with the Bureau s engineer. On September 30, 2002, the Commissioner of DCA modified the Administrative Law Judge s initial decision in two corrective but minor respects, and adopted the same as the Commissioner s final decision. On November 15, 2002, Aqua Beach appealed the Commissioner s final decision to the Appellate Division. R. 2:2-3(a)(2). While that appeal was pending, the Bureau moved for a limited remand to the OAL for the sole purpose of determining whether, on the existing record and as alleged by Aqua Beach, the Bureau s engineer authorized the repair work during his February 6, 2001 telephone conversation with Aqua Beach s counsel. In a November 14, 2003 initial decision on temporary remand, the Administrative Law Judge held that Aqua Beach s failure to submit [the] two bids required by N.J.A.C. 5:25-5.5(e)1 and 2 obviated further consideration of the contents of the telephone conversation between [the] attorney for Aqua Beach, and [the] Supervising Project Engineer with the Department of Community Affairs. I have now reviewed the hearing transcripts, in particular the hearing on August 27, 2001, and [the] undated Certification [of Aqua Beach s counsel] filed after August 27. The only factual finding I can make relative to the remand is that I cannot make a finding of fact based upon the hearing record. Re-reading [the Bureau engineer s] testimony of his recollection of his telephone conference with [Aqua Beach s counsel] is not useful. [The Bureau engineer] recalled [his supervisor] telling [the Bureau engineer] to call [Aqua Beach s counsel], that s just very clear to my mind. (T. Feb. 6, 2002, p. 75, 1.5). Thereafter, [the Bureau engineer s] memory faded to a total lack of recall. Beyond telling the other person to the conversation to send in whatever he wished, [the Bureau engineer] could not provide further detail. [The] Certification [of Aqua Beach s counsel] specifies the message he received from [the Bureau engineer]: Aqua Beach was to obtain a minimum of two bids for the work, the bids were to delineate what work was being done that addressed repair of the major structural defects, and the bids were to include the quantity of the materials. [Aqua Beach s counsel] did not certify he had received any verbal authorization to proceed. The omission from the Certification of the words of authorization is not material to my inability to make factual findings regarding the contents of the telephone conversation. The problem in this matter is the lack of some legally competent evidence in the hearing record to support a finding that [the Bureau engineer] verbally authorized Aqua Beach, through its lawyer, to proceed with emergency repairs to the condominium structure. N.J.A.C. 1:1-15.5(a) allows the administrative law judge the discretion to admit hearsay evidence into the hearing record. However, N.J.A.C. 1:1-15.5(b), the residuum rule, requires some legally competent evidence to exist to an extent sufficient to provide assurances of reliability and to avoid the fact or appearance of arbitrariness. . . . . The burden of proof of all the material elements necessary for relief under the New Jersey Home Warranty and Builder s Registration Act rests upon the warranty claimant. That burden must be established by the preponderance of the legally competent, credible evidence in the hearing record. I CONCLUDE petitioner did not meet that burden to demonstrate authorization from the respondent to proceed with emergency repairs of the major structural defects in the condominium property threatening the health, safety, or welfare of the persons using the condominium property. [Aqua Beach Condo. Ass n. v. Bureau of Homeowner Prot., 2003 N.J. Agen Lexis 761, at **2- 4 (emphasis supplied). ] In an unpublished decision, the Appellate Division affirmed the Commissioner s final decision barring Aqua Beach s claims. The panel noted that Aqua Beach conceded that it did not submit the bids prior to effectuating the repairs or prior to the hearing on August 27, 2001. Relying on Fisch v. Bureau of Constr. Code Enforcement, 238 N.J. Super. 410 (App. Div. 1990), the Appellate Division reaffirmed that a homeowner s informed decision to contract for repairs without the Bureau s pre-authorization voided any obligation on the part of the Fund to reimburse the homeowner for those repairs. The panel distinguished Lakhani v. Bureau of Homeowner s Prot., 356 N.J. Super. 132 (App. Div. 2002), by noting that, in Lakhani, the actions of the Commissioner in denying the homeowners claim were arbitrary and unreasonable, circumstances that were absent here. Applying both Fisch and Lakhani to this case, the Appellate Division concluded that the record does not support Aqua Beach s contention that the Bureau prevented Aqua Beach from obtaining authorization by arbitrary handling of the claim or otherwise acting unreasonably. The panel also noted that Aqua Beach never sought emergent relief pursuant to N.J.A.C. 1:1-12.6, even though an ALJ was assigned and Aqua Beach was aware that the issues were to be bifurcated, with the issue of the extent of the common element warranty to be heard first by way of cross motions for partial summary judgment in October 2000, followed by hearings on the costs of those repairs that qualified as major structural defects. More importantly, as of April 5, 2001, when the ALJ rendered his opinion on the cross motions, Aqua Beach was admittedly aware of its need to make emergent repairs, but nevertheless failed to notify either the Bureau or the ALJ or seek emergent relief to effectuate the repairs pursuant to the regulations. Instead, Aqua Beach remained silent, effectuated the repairs, and did not advise the Bureau that the repairs had been made until it informed the DAG just prior to the initial August 2001 hearing that was scheduled to determine the repairs necessary to cure major structural defects and the associated costs. The Appellate Division also rejected as meritless Aqua Beach s assertion that the record established that it obtained authorization to proceed with repairs. The panel concluded that it is neither unfair nor inequitable to deny Aqua Beach s claim on the basis that it effectuated unauthorized repairs and that there was sufficient credible evidence in the record to support the agency s conclusions and the Commissioner s final decision was not arbitrary, capricious, unreasonable, or violative of any legislative policy, either expressed or implied in the Home Warranty Act. We granted certification, 183 N.J. 256 (2005), and, for the reasons that follow, we affirm the judgment of the Appellate Division. [Williams v. Dep t of Human Servs., 116 N.J. 102, 107 (1989) (citing Dougherty v. Dep t of Human Servs., 92 N.J. 1, 12 (1982).] As Williams, supra, makes clear: [T]he judicial role is restricted to three inquiries: (1) whether the agency s action violated the enabling act s express or implied legislative policies, (2) whether there was insubstantial evidence in the record to support the findings on which the agency based its actions, and (3) whether in applying the legislative policies to the facts, the agency clearly erred by reaching a conclusion that could not reasonably have been made after weighing the relative factors. [Id. at 108.] Thus, we grant administrative agency action a strong presumption of reasonableness. Newark v. Natural Res. Council, 82 N.J. 530, 539 (1980). In the review of administrative agency action, [a]ppellate courts must defer to an agency s expertise and superior knowledge of a particular field. Thus, if substantial credible evidence supports an agency s conclusion, a court may not substitute its own judgment for the agency s even though the court might have reached a different result. Agencies, however, have no superior ability to resolve purely legal questions, and that a court is not bound by an agency s determination of a legal issue is well established. [Greenwood v. State Police Training Ctr., 127 N.J. 500, 513 (1992) (citations omitted).] It is through this prism that the Commissioner s denial of Aqua Beach s claim for reimbursement from the Fund must be gauged. [Ibid.] The res of the Fund is provided by payments from the builders of new homes, and, in the event the builder fails to make repairs within a reasonable time or are not satisfactory to the owner, N.J.S.A. 46:3B-7c, participating homeowners are permitted to make claims against the Fund for defects caused by (1) faulty workmanship and defective materials due to noncompliance with the building standards, (2) faulty installation of plumbing, electrical, [and] heating and cooling delivery systems, or major construction defects. N.J.S.A. 46:3B-3b(1), (2) and (3). Section 3a of the Act specifically authorize[s] and direct[s] [the Commissioner of DCA] to prescribe by rule or regulation . . . procedures for the implementation and processing of claims against the new home security fund as provided for in section 7a. of this act. N.J.S.A. 46:3B-3a. In compliance with that statutory mandate, the Commissioner of DCA has adopted a series of regulations concerning the implementation and processing of claims against the [Fund]. Ibid. In particular, the Commissioner has adopted regulations that govern the claims procedure under the Act. See N.J.A.C. 5:25-5.5. Those procedures require a five-step process for implementation when, as here, there has been a default by the builder. First, the owner may file a request for payment with the [DCA]. N.J.A.C. 5:25-5.5(e)1. If the owner takes that step, then the DCA shall inspect the home for the purpose of determining if the defect is covered by the warranty. Ibid. If the DCA determines that the defect is covered by the warranty, the owner is obliged to submit to the DCA two or more bona fide estimates acceptable to the Division for the work intended to be covered. N.J.A.C. 5:25-5.5(e)2. If the owner satisfies that obligation, the DCA must select the lower or lowest of the estimates. Ibid. Once the DCA accepts an estimate, the DCA shall certify the amount of the award to the Treasurer, who shall make payment from the fund. N.J.A.C. 5:25-5.5(e)1. As a final safeguard for the trust funds held by the Fund, the regulations make clear that [p]ayment shall be made only for work authorized in writing by the [DCA] and upon completion to the [DCA s] satisfaction. N.J.A.C. 5:25-5.5(e)2 (emphasis supplied). Here, Aqua Beach completed the first step: upon a default by its builder, See footnote 3 Aqua Beach, as the representative of the condominium owners, requested that DCA pay, through the Fund, the sums needed to effect the repairs to the Aqua Beach condominium complex. Faced with that request, the Bureau inspected the condominium complex and determined that the covered repairs would be covered by the Fund in the same proportion as the warranty units bore to the total number of units affected. Having taken the correct first step, and having received a positive, albeit partial, response from the DCA, Aqua Beach s efforts went awry. Although the Bureau specifically requested in writing that Aqua Beach present the required minimum two estimates of the repair work to be performed, Aqua Beach did nothing. Despite repeated requests and the setting of a deadline, Aqua Beach did nothing. It was only after Aqua Beach sought review of the denial of its claim that it submitted the required minimum two estimates. However, even that effort was ill-fated, as Aqua Beach did not do so until almost three months after first advising the Bureau that the repair work had been completed, until at least five months after the repair work had been completed, and until nine months after, according to Aqua Beach s counsel, the Bureau purportedly authorized Aqua Beach to proceed with the repair work. SUPREME COURT OF NEW JERSEY NO. A-111 SEPTEMBER TERM 2004 ON CERTIFICATION TO Appellate Division, Superior Court AQUA BEACH CONDOMINIUM ASSOCIATION, a not-for-profit Corporation of the State of New Jersey, Petitioner-Appellant, v. DEPARTMENT OF COMMUNITY AFFAIRS, BUREAU OF HOMEOWNER PROTECTION, NEW HOME WARRANTY PROGRAM, Respondent-Respondent. DECIDED January 18, 2006 Chief Justice Poritz PRESIDING OPINION BY Justice Rivera-Soto CONCURRING/DISSENTING OPINIONS BY DISSENTING OPINION BY