The case involves a federal bankruptcy court ruling in the District of New Jersey that has potentially widespread and damaging consequences to community associations.
The ruling centers on the Association's claims for common element construction defects against the Debtor's successor in interest, Madison Crossing at Birch Hill, LLC ("Madison"). Madison claimed these defects represented pre-petition bankruptcy claims discharged by the Debtor's 2007 confirmed Chapter 11 plan. In response, the Association argued that the defects claims were post-petition claims unaffected by the Debtor's Bankruptcy Case. In such case, the Association could pursue these claims against Madison in New Jersey State Superior Court, where the Association could seek recovery against available insurance policies. The Court ultimately rejected the Association's arguments and accepted Madison's.
Specifically, in an Order dated April 20, 2017, the Bankruptcy Court concluded that the Association was aware of the construction defects before the date of the confirmation of the Debtor's plan. The Association thus had authority to hire engineers, attorneys, and a property manager prior to the period of transition in 2013. According to the Court, the Association had fair opportunity to protect their own interest regarding the impact of the Section 363 sale. Accordingly, the Association's construction defect claims had accrued prior to confirmation of the Debtor's bankruptcy plan, and the plan's discharge barred the Association's claims.
In essence, the Court held that the applicable state law deadline to initiate and prosecute construction defect claims was replaced by the date a sponsor/developer debtor confirms a Chapter 11 plan and receives a discharge. Such a decision has potentially devastating consequences to community associations in general.
Amicus Brief: Pending
Brief Author: Mr. J. David Ramsey, Esq.
CAI Amicus Review Committee: Robert Diamond, Esq. (VA), Chair of Amicus Committee, Jim Strichartz, Esq. (WA), Henry Goodman, Esq. (MA), Greg Daddario, Esq. (NH)