Opinion of the Honorable Susan L. Reisner, P. J. Ch.

In the Matter of

James Novack, et al


Upper Greenwood Lake Property Owners Association, Inc.






DOCKET NO. C-36-98









Decided: July 19, 2001

Renee Steinhagen (Public Interest Law Center of New Jersey, Inc.) and Cecilia
Lindenfelser (Law Offices of Charles A. Rosen) for Plaintiffs.

Karyn Kennedy (E. Richard Kennedy Attorneys at Law) and Lawrence Tosi (Warren &
Tosi) for Defendants.


This is the court’s decision on the parties’ motions and cross-motions for
summary judgment in the above captioned case. After extensive discovery and voluminous
briefing, all parties agreed at oral argument that there are no material disputes of fact
and this case is ripe for summary judgment. Having reviewed the extensive record, read the
briefs and heard oral argument, this court also concludes that the material facts are not
in dispute, although the parties vigorously disagree about the legal conclusions to be
drawn from those facts.

The Parties

The above captioned case arises from a series of disputes over the governance of a lake
community. Plaintiffs own property on or near Upper Greenwood Lake and have easement
rights to use the lake for bathing, boating and fishing. Defendant Upper Greenwood Lake
Property Owners Association (Association or UGLPOA) owns the property over which
plaintiffs hold the easement, consisting of the land under the lake and a strip of land
around the water’s edge (known as “parklands”).The complaint was filed in
1998. On June 9, 2000, this court granted plaintiffs’ motion for certification of a
class consisting of all easement holders who are not also members of the Association.

Background of the Dispute

Passaic County is home to a large number of lake communities, that is, unincorporated
developments of homes located around an artificially-created lake. Generally, the
homeowners have easements in their deeds which allow them to use the lake for recreational
purposes. In return, they pay a fee which is used to maintain the easement (i.e., the lake
and beaches). Some of these lake communities were created in such a way that by virtue of
their deeds all easement holders were automatically also members of an association
responsible for maintaining the easement. However, a number of lake communities including
Upper Greenwood Lake have no such deed provisions. Instead, an independently-created
association bought the lake from the developer and then through legal action successfully
sought contributions from the easement holders to maintain it. The easement holders are
thus obligated to pay fees to an association over which they have no control.

These lake communities have generated considerable litigation. Unfortunately, there is
no legislation governing the relationship between the associations and the easement
holders, and reported decisions are few and far between. Previous decisions of this court
and of the Appellate Division have established the right of the Association to assess
easement holders for the cost of maintaining the lake and the parklands and to assess
those who use the private roads in Upper Greenwood Lake. People Against Easement v.
Upper Greenwood Lake Property Owners Ass’n
, Docket No. W-5829-86 (Order for
Partial Summary Judgment, October 11, 1988); Island Improvement Ass’n v. Ford,
155 N.J. Super. 571 (App. Div. 1978). Easement holders cannot avoid paying the
easement fee by surrendering their easements. People Against Easement v. Upper
Greenwood Lake Property Owners Ass’n
, Docket No. W-5829-86 (unpublished letter
opinion, February 7, 1989). However, these decisions have not held that paying the
easement fees entitles or requires the easement holders to become association members, see
Island Improvement, supra.

As noted above, the requirement to pay easement fees to an Association to which they do
not belong, without the power to control the Association’s budget process, has led
easement holders to raise issues of “taxation without representation.” In a case
involving Lindy’s Lake Association, this court entered an order providing that the
easement holders have the right to approve each year’s proposed easement budget at an
annual public meeting. Lindy Lake Community Ass’n v. Lindy’s Lake Corp.,
Docket No. C-1009-71 (Final Judgment, June 29, 1973). The Upper Greenwood Lake Property
Owners Association adopted the same procedure in 1984. The Association also created a
separate account for the monies collected to support the easement (the easement fund).

Contentions of the Parties

In this case, the easement holders ask the court to take what they assert are the next
logical steps to make the easement budget process as fair as possible. They seek to have
the actual control of the easement and the budget-creation process turned over to a
committee which would be part of the Association but which would be elected by the
easement holders. In the alternative, they ask the court to order that an entirely new
organization be created solely to maintain the easement and collect fees for that purpose.

In support of their claims, they accuse the existing Association of violating its
fiduciary duties to the easement holders in a number of respects, including alleged
commingling of easement funds with other Association funds, and appropriation of easement
property for the exclusive use of the Association or its members. They claim that the
Association has improperly required easement holders to join the Association (entailing
payment of a membership fee in addition to the easement fee) in order to use the Lake’s
only improved beach or to use a dock. They also contend that the Association improperly
built its new clubhouse on easement property. They further contend that any fees for the
use of docks built on parklands should go to the easement fund, rather than for the
general support of the Association, and that any other money collected from persons who
encroach on parklands should also go to the fund instead of to the Association.

The Association contends that the plaintiffs are confusing easement with ownership.
They contend that the fact that plaintiffs have the right to use the lake for bathing,
boating and fishing does not mean that the Association cannot use the lake property, which
it owns, for other purposes not inconsistent with plaintiffs’ easement. They argue
that the existence of the clubhouse, the beach and the docks on parkland does not
interfere in any significant way with the right of the easement holders to bathe, boat or
fish in the lake. They contend (and there is no dispute) that the indenture under which
they acquired the lake and parklands requires the Association both to maintain the lake
and parklands for the benefit of all homeowners and to maintain a clubhouse for the
benefit of Association members. They further contend that the beach in question has been a
“membership only” beach since the Association was created in 1933 and that the
indenture does not preclude the Association from requiring a membership fee for the use of
this particular beach.

Further, they contend (and there is no dispute) that any easement holder can become an
Association member for an additional fee and thereby obtain the right to use the improved
beach and the docks. They contend, and the easement holders do not deny, that there are at
least 25 access points around the lake which can be used for swimming, fishing and
boating. These access points are not improved with lifeguards or docks; access to improved
facilities is available by paying the Association membership fee.(1) The Association
contends that most easement holders want the easement fee to be kept as low as possible,
since they cannot avoid paying it. In that connection, they argue that if the cost of the
improved beach and docks were included in the easement fee, the fee would go up and
easement holders who did not necessarily want to use the beach or the docks would be
forced to pay for them. By collecting the fee for the improved beach and docks separately,
through Association membership, they avoid forcing all easement holders to pay for these

The easement holders reply that the Association membership fee covers more than the
beach and docks. It also pays for social events which easement holders may not be
interested in. They argue that the Association should either offer “beach only”
and “dock only” memberships, or should simply make these facilities available
for a separate fee without requiring membership. They further contend that the Association
has an inherent conflict between its duties to its members and its duties to the easement
holders, and that the Association cannot be trusted to maintain the easement for the
benefit of the easement holders. It will always be looking for ways to use the parklands
to raise money for the support of the Association, and will in essence divert for the
benefit of the Association revenue-raising opportunities which should benefit the easement

Findings of Fact

The following facts are material and undisputed. Upper Greenwood Lake was created by
the Mirror Holding Corporation (Mirror Holding), a land development company. Mirror sold
lots around the lake to individual owners. The deeds to these lots gave the owners an
easement to use the lake for bathing, boating and fishing in common with all other
easement holders.

In February 1933, a group of lot owners created the Upper Greenwood Lake Property
Owners Association, Inc. as a nonprofit corporation. The stated purposes of the
Association according to its certificate of incorporation were

(a) To own, maintain, improve, beautify and keep the beaches and parks at Upper
Greenwood Lake. . . for the benefit of the property owners at said Upper Greenwood Lake.

(b) To maintain, improve, beautify the streets, roads, avenues in said Upper Greenwood
Lake. . . for the benefit of the inhabitants, residents, property owners and the general
public of said Upper Greenwood Lake.

(c) To own, operate and maintain at said Upper Greenwood Lake. . . a club or community
house or social or civic center for social, civic and recreational purposes for the
benefit of the members of the Association.

In September 1933, for the sum of one dollar, Mirror Holding conveyed to the
Association title to the parkland property around the shore of the lake, the streets and
roads in the Upper Greenwood Lake development, the land under the lake, the dam which
created the lake, and the existing clubhouse. The Indenture between Mirror Holding and the
Association gave the Association an easement to “use in common with others, the
waters of Upper Greenwood Lake for boating, bathing and fishing,” subject to the
rights of all of the other property owners at the lake to use the lake for the same
purposes. The Indenture also obligated the Association to “properly keep and maintain
the said Club House for the benefit and use of the members of said Association as a Club
House or social centre (sic) or for general recreation purposes.” the Association was
also required to “at all times keep, maintain and improve the parks and other
property herein conveyed for the benefit and use of the residents and lot owners at Upper
Greenwood Lake.”

The Indenture by its terms contemplated that at some point Upper Greenwood Lake would
become a municipal corporation and that the Association would then convey the property to
the municipality, upon its agreement to take over the Association’s responsibilities
for maintaining the property for the benefit of the residents and lot owners. A letter
dated September 6, 1935 from the manager of Upper Greenwood Lake conveying a contract of
sale for lots at the Lake to Daniel and Anna Dunne, recited that “The clubhouse and
community grounds together with all right title and interest, if any, in the streets and
roads have been conveyed to an association of lot owners who will hold same for the lot
owners until a municipal corporation is formed, when the same shall be conveyed to said
municipal corporation. You are entitled to become a member of this association subject to
its by-laws.” To date, however, Upper Greenwood Lake has not become a municipal
corporation, and the Association continues to be responsible for the maintenance of the
lake, dam and parklands as well as the surrounding streets and roads .

There is no dispute that from 1933 on, a beach existed at Upper Greenwood Lake which
was used by members of the Association and that this beach was a “members only”
beach, in the same way that the clubhouse was only available to Association members.
Association membership was available to all of the lot owners at Upper Greenwood Lake. In
other words, while all lot owners had an easement to use the lake for bathing, boating and
fishing, access to the additional facilities of a developed beach and a clubhouse were
only available to them by joining the Association. This situation remains the same today.

Based upon the entire record including the above quoted documents, I find that access
to the property managed by the Association, including the clubhouse and beaches, was
intended to be one of the amenities of property ownership at Upper Greenwood Lake and was
one of the inducements for prospective purchasers to buy lots there. In fact, I find that
the very existence of the Association, with the beach and clubhouse, was intended to be
one of the amenities available to lot owners. However, it was the intent of the
Association as clear from the terms of its incorporation document, and the intent of the
Indenture by its terms, that different privileges of lot ownership be available to lot
owners on different terms. The basic privileges of ownership were the easement to fish,
boat and swim in the lake, and the right to join the Association. Association membership
carried with it the further privilege of using the beach and clubhouse. Thus, lot owners
had the choice of paying to join the Association in order to use its facilities, or not
joining the Association if they did not wish to pay to support the beach and clubhouse.

Until 1984, the Association carried the entire financial burden of maintaining the
lake. In 1984, the Association imposed an easement fee on all easement holders to defray
the cost of insurance, taxes and maintenance attributable to the lake and parklands. In
response to a challenge by easement holders, this court ruled in 1988 that “all
owners of improved and unimproved property are obligated to contribute their fair share of
the repair and maintenance costs of their easement to use Upper Greenwood Lake for
bathing, boating and fishing, as determined annually by the Upper Greenwood Lake Property
Owners Association in accordance with the common law of New Jersey.” People
Against Easement v. Upper Greenwood Lake Property Owners Ass’n
, Docket No. W
5829-86 (Order for Partial Summary Judgment, October 11, 1988).

The Association created a separate easement fund, into which it deposits the fees
collected from the easement holders. The Association also creates an easement budget every
year, consisting of the projected expenses to maintain the easement. This budget forms the
basis for the easement fee for the following year. The budget is discussed at an annual
meeting of all easement holders and must be approved at that meeting by a majority vote of
all easement holders. The voters do not have the choice of voting for no easement budget.
Rather, they are presented with a basic budget, which the Association deems to be the
absolute minimum needed to maintain the easement, and a second budget containing proposed
increases in the basic budget and proposed expenditures for new items. The easement
holders vote “yes” or “no” on the items in the second budget. If the
second budget is defeated, the Association implements the fall-back or minimum budget.

This process has thus far produced relatively modest annual assessments to the easement
holders. The 1997 assessment, for example, was $77.78. The 2000 assessment was $96.85. The
easement budget for 2001 was a total of $265,594.50. Dividing the budget among 2093
easement holders produced an assessment of $126.90. The Association membership fee for
2001 was $205.55. Thus any easement holder could become an Association member for that
additional fee.

Other than an objection to the inclusion in the budget of attorney fees for certain
litigation, plaintiffs have not raised any issues concerning the reasonableness of any
budget item. They do not, for example, question the amounts spent for insurance, weed
control, stump removal, environmental water testing, dam maintenance or other costs
connected with maintaining the lake. Rather, they challenge the concept of a budget
created by the Association without sufficient input or control by those who are paying for

In 2000, the Association created an informal volunteer easement committee, whose
membership is open to all easement holders regardless of Association membership. This
committee is responsible for overseeing the maintenance of the easement and putting
together the annual easement budget. The committee’s existence is not reflected in
the Association’s by-laws and therefore the committee has no official status. The
by-laws provide that a budget committee composed of Association members shall make budget
decisions. The easement committee members, as volunteers, are not elected by the easement
holders. They are a self-selected group and it is not clear that membership is genuinely
open to all who are interested.

It is undisputed that non-member easement holders outnumber members. In 1997 (the only
year for which there are figures in the record) there were 556 Association members out of
2100 easement holders.

Conclusions of Law

Plaintiffs have raised a plethora of legal issues. After reviewing the briefs, the
court concludes that most of the cases plaintiffs cite in support of their contentions are
not on point and most of their legal contentions are without merit.

In this jurisdiction, there is little relevant precedent concerning the governance of
common interest communities such as Upper Greenwood Lake. There are cases
confirming an association’s power to make assessments and obligating the association
to submit the annual budget to a vote of the easement holders. Island Improvement, supra;
Lindy Lake Community Ass’n v. Lindy’s Lake Corp., Docket No. C-1009-71
(Final Judgment dated June 29, 1973); People Against Easement v. Upper Greenwood Lake
Property Owners Ass’n
, Docket No. W- 5829-86 (Order For Partial Summary Judgment
dated October 11, 1988). Beyond these cases lie uncharted waters. The court has therefore
looked to cases from other jurisdictions and to the Restatement (Third) of Property

There is no dispute in this case that Upper Greenwood Lake is a common interest
community. The Restatement contains an extensive discussion of common
interest communities, including residential developments with “social and
recreational facilities built on land that is conveyed in fee simple to the owners’
association.” Restatement, supra, § 6.2 at 79. The Restatement
recognizes that in some older communities, membership in the association and the
obligation to pay assessments for the upkeep of the easement property are independent. Id.,
§ 6.2(d). Nonetheless, the association has the power to assess owners who are not
association members for the cost of keeping up the common property. Id. In this
case, plaintiffs do not contest their obligation to pay an assessment for the upkeep of
the lake and parklands.

The Restatement also recognizes the authority of an association to raise funds
to carry out its functions by making assessments and by “charging fees for services
or for the use of common property,” so long as the fees are reasonably related to the
cost of providing the service or the cost of maintaining the common property or the value
of the use or service. Id., § 6.5 at 94-95. Assessments may be allocated “on
any reasonable basis,” for example, a flat rate per lot or on a basis differentiating
between improved and unimproved lots. Id., § 6.5 at 98.

The duties of a common interest community to its members include the obligation (a) to
use ordinary care and prudence in managing the community’s property and finances; (b)
to treat members fairly; (c) to act reasonably in the exercise of its powers; and (d) to
provide members reasonable access to information about the association, the common
property and the financial affairs of the association. Restatement, supra,
§ 6.13 at 233; see also Griffith v. Rittenhouse Park Comm. Ass’n, 215 N.J.
444 (Ch. Div. 1986). A member who challenges an action of the association has
the burden of proving a breach of duty and that the breach caused or threatened to cause

The purpose of this subsection is to protect the collective decision making processes
of common-interest communities from second- guessing by the judiciary and to protect the
community from the expenses of too-ready resort to litigation by disgruntled community
members, while at the same time protecting individual members from improper management and
imposition by those in control of the association. [Restatement, supra, §
6.13, at 235]

Use of Easement Money to Pay Association

Plaintiffs contend that the Association has spent easement money to pay taxes and
mortgage payments attributable to Association property. Defendants, however, have produced
legally competent evidence, which plaintiffs did not rebut, to establish that any use of
easement funds to pay obligations of the Association was done in error and that the
amounts have been fully repaid to the easement fund. I find that defendants are entitled
to summary judgment on this issue.

I also find no merit to plaintiffs’ contention that defendants have improperly
collected easement fees to pay for the clubhouse mortgage. Defendants produced undisputed
evidence that the Association lent money to the easement fund (totaling over $100,000) to
make up shortfalls in the fund. The Association also produced undisputed evidence that the
loan is being repaid from overdue easement fees as they are collected from recalcitrant
easement holders in court actions. The Association has earmarked the loan repayments for
the clubhouse. Thus, while some easement fees are in a sense being used to support the
clubhouse, those fees are monies to which the Association is entitled since they represent
repayment of an Association loan to the easement fund. Defendants are currently paying
voluntarily for an audit of the membership fund and the easement fund. That audit will
include a review of the loan and repayment. Plaintiffs are to receive a copy of the audit
when it is completed. The court concludes that no further relief is warranted with respect
to this issue.

Commingling of Association Dues and Easement Fees

Plaintiffs contend that defendants improperly commingle easement fees collected from
Association members with Association dues collected from those members. Defendants admit
that Association members pay their easement fee and their Association dues in one check,
which is deposited in the Association operating account. At some future point (sometimes
as long as a month later), the portion attributable to the easement fee is withdrawn from
the Association account and deposited in the easement account. I find that this system is
improper, even if created without any intent to misuse easement funds, since the
Association obtains the use of the easement money until it is re-deposited in the easement
fund. The easement fund is a trust which should be kept separate from the membership fund.
See Kirby v. Frank, 132 N.J. Eq. 378 (Ch. 1942). The Association will
be ordered to require Association members to pay the easement fee and the Association dues
by separate checks. The easement fee check shall be deposited in the easement account,
instead of being deposited in the Association account and then withdrawn and re-deposited
in the easement account.

Alleged Misuse of Easement Property by the Association

Based on the findings of fact set forth above, I conclude that there is no merit in
plaintiffs’ objections to the Association’s construction of a new clubhouse on
easement property and to the requirement that easement holders must join the Association
in order to use the beach. As set forth above, the availability of the Association and its
clubhouse and beach was intended to be one of the benefits of property ownership in Upper
Greenwood Lake. Rather than requiring all property owners to join the Association and pay
for its amenities, the Indenture (as implemented by the Association since 1933) required
the Association to provide these amenities for those who wished to pay for them. There is
nothing unreasonable in such an arrangement. Using a limited amount of easement property
to build a better clubhouse, which is available to all easement holders for the price of
Association dues, is consistent with the Indenture. See Restatement (Third) of Property
) § 6.6(c) (2000) (association authorized to improve existing common
property and to charge fees to those who use the improvements); Wisniewski v. Kelly,
437 N.W.2d 25 (Mich. Ct. App. 1989) (association which was open to all easement
holders but as to which not all easement holders were members had power to improve the
easement). Likewise, charging Association dues for the use of the beach, instead of
building the cost of the beach into the basic easement assessment, is not unreasonable or
inconsistent with the Indenture. The fact that plaintiffs would prefer a different fee
structure does not amount to a cause of action.

The court has approved the use of easement property for the clubhouse and beach,
because those uses are clearly consistent with the Indenture. However, since a majority of
the easement holders do not belong to the Association, there is a need to ensure that the
Association gives sufficient consideration to the interests of all easement holders in
making future decisions on setting aside easement property for use by the Association.
Therefore in the future, no additional easement property may be set aside for the
exclusive use of Association members without the approval of a majority of the non-member
easement holders. Restatement, supra, § 6.6(c) (altering or improving
common property ordinarily requires approval of the membership).

Further, since there may be an interest among the non-member easement holders in having
additional improvements to the easement which will be open to all easement holders (e.g.,
an additional improved beach, additional boat launches, etc.), the Association will be
required to consult with the easement holders concerning those issues. At the next budget
meeting, or at another meeting of all easement holders, the Association shall take
comments on whether a majority of the easement holders wish to increase the easement fee
for the specific purpose of having the Association create additional amenities for use by
all easement holders.

Requirement of Association Membership to Use a Dock

Plaintiffs contend that the Association is wrongfully requiring easement holders to
join the Association in order to maintain a dock on the lake. Plaintiffs had the burden of
proving wrongdoing by the Association on this issue, but they presented the court with a
very sketchy record. What evidence there is on this issue is as follows. There are
approximately 500 dock spaces around the lake. The court infers from the record that there
are not 500 docks; rather, there are docks containing enough mooring spaces for 500 boats.
There are approximately 2100 easement holders. Hence there are not enough dock spaces for
all easement holders. Some of the docks are constructed entirely on parklands separate
from any private home. Other docks are constructed in back of homes located on the lake.
Since the parklands ring the lake shore, a homeowner wishing to construct a dock in back
of his or her property cannot do so without building the dock across Association property.
The Association restricts the right to build docks anywhere on the parklands and requires
anyone who builds or uses a dock to join the Association and pay a membership fee for each
dock space.

It is undisputed that this has not always been the Association’s policy. Prior to
1977, any easement holder could build a dock for a fee of $10. In 1977, before the
Association began assessing the easement holders for the cost of maintaining the lake, the
Association began requiring membership as a condition of using a dock. No one challenged
the policy at the time.

Plaintiffs now claim that using a dock should be considered one of the incidents of
their easement and that they should not have to join the Association to use a dock. They
are willing to pay a separate fee for dock use, but they do not want to have to join the
Association. They also contend that since the docks are built over the parklands, on which
they have an easement, any fees collected for using the docks should be allocated to the
easement fund and not to the Association. The Association, relying on Camp Clearwater,
Inc. v. Plock
, 52 N.J. Super. 583, 601 (Ch. Div. 1958), aff’d, 59 N.J.
1 (App. Div. 1959), cert. denied, 32 N.J. 348 (1960), contends
that an easement to boat and fish on a lake does not include the right to erect a dock.
Hence, defendant contends that as the fee simple owner of the lake and parklands, the
Association has the right to charge a separate fee or create a separate requirement for
the use of a dock on its property.

On the record before me, I conclude that the Association has the better argument. As
the owner of the parklands and the soil beneath the lake, the Association “has the
right to control the use of the waters of the lake, subject only to the right of the
adjoining property owners to use the lake for boating, bathing and fishing.” Upper
Greenwood Lake Property Owners Ass’n v. Grozing
, 6 N.J. Super. 538,
541 (Ch. Div. 1949). Plock also supports defendant’s contention that an
easement to use a body of water for boating and fishing does not by implication include
the right to construct a dock. That right is reserved to the owner of the servient
property. Further, in this case, there is at least one improved boat launch area which is
open to use by all easement holders without any fee. There are also at least twenty-five
unimproved access points along the shore of the lake. Hence, there is no dispute that boat
owners can use the lake without having a dock.

As noted above, the availability of the Association itself is one of the amenities of
property ownership in Upper Greenwood Lake. That is, for the price of $200 any easement
holder can join a beach and boating club, with a clubhouse, improved beach, access to a
dock, and social activities. Easement holders who do not want to spend the extra money can
pay the basic assessment, which is also quite modest, and use only those amenities which
are available to non-members. If there were evidence that Association membership was
prohibitively expensive or that it was set at a level clearly unrelated to Association
expenses for the purpose of excluding easement holders (e.g., so as to keep control of the
Association in a limited group or for any other reason), the court might reach a different
conclusion. However, there is no evidence or even suggestion that easement holders cannot
afford Association dues, and the record plainly supports the conclusion that the
Association welcomes new members.

The Association is entitled to summary judgment on this issue.

Governance of the Easement/Creation of the Budget

Plaintiffs contend that the Association should not be permitted to control the easement
because there is an inherent conflict between the obligation of the Association to its
members and its obligation to the non-member easement holders. In support of this
position, plaintiffs rely heavily on their arguments concerning all of the alleged
wrongdoing committed by the Association, discussed above. The court has already rejected
those arguments.

Plaintiffs also contend that the present arrangement encourages the Association to use
the lake property in ways which benefit its members and do not serve the interests of the
non- member easement holders. If the availability of Association membership were not a
benefit of property ownership in Upper Greenwood Lake pursuant to the Indenture, or if
membership were made prohibitively expensive or not open to all easement holders, the
court might perceive greater merit in plaintiffs’ position. However, such is not the
case. Any easement holder can join the Association and thereby obtain its benefits.

This court has already held that the easement holders are entitled to vote on the
annual easement budget. No party disputes that requirement, however, the plaintiffs raise
certain concerns about the process by which the budget is created and adopted. Plaintiffs
contend that the right to vote on the budget is not meaningful because they have no input
into the creation of the budget. Defendant contends that the Association recently created
a volunteer easement committee, open to all easement holders. Defendant represented to the
court that one of the functions of the easement committee is to create the annual easement
budget. If defendant’s representation is accurate, the court would conclude that the
creation of the committee adequately addresses plaintiffs’ concerns. The court
concludes that the only way to ensure that all easement holders have the opportunity which
defendant claims to have extended to them is to require defendant to amend its by-laws to
clearly specify the make-up and functions of the easement committee. Defendant shall adopt
by-law amendments within 120 days.

Plaintiffs contend that adoption of the budget at an annual meeting of all easement
holders is insufficient. They seek the right to vote by proxy. Defendant contends that
proxy voting is cumbersome and would add expense to the process. Plaintiffs produced no
proof that the current system does not allow all easement holders who wish to cast a vote
to do so. In order to be sure that the process is meaningful, however, the court will
require defendant to incorporate into its by-laws a detailed description of how the budget
will be voted on at the annual meeting. At a minimum, the process must allow the easement
holders to vote separately, yes or no, on any proposed increased expenditure for any line
item, and on any expenditures for new items not previously appearing in the budget. If
decisions need to be made about the easement which could result in substantial increases
to the assessment (e.g., if there is a structural problem with the dam and choices need to
be made as to how to fix it) those choices must be presented to the easement holders and
they must be allowed to vote on the available options. All expenditures proposed to
be made from the easement fund, including repayments of loans, must be disclosed in the
proposed budget.

Plaintiffs also object to defendant’s use of the easement fund to pay counsel fees
for this litigation and various other lawsuits. In light of the history of disputes
between the Association and non-member easement holders, the use of the easement fund to
pay the Association’s legal bills poses a potential for abuse. Easement monies are
only to be used to support the easement and to carry out the Association’s
responsibilities respecting the easement. Therefore, the Association may only charge legal
fees to the easement fund if the legal work was incurred in connection with the
Association’s responsibility for the easement. The easement fund is not to be charged
for other legal work performed for the Association. See Bruno v. Mundy, 127 N.J.
84, 87 (App. Div. 1973), mod. and aff’d, 64 N.J. 337 (1974).
For example, if there is a lawsuit (such as this lawsuit) over the easement or its
maintenance, legal fees for that litigation would be properly charged to the easement
fund. On the other hand, if a visitor falls in the clubhouse and sues the Association for
negligence, the Association’s legal fees must be paid by the membership and not by
the easement fund.

The court notes that a large percentage of the recent increases in the easement
assessments are attributable to counsel fees. The year 2000 budget, for example
appropriates $10,294.10 ( $4.93 per easement holder) for legal fees. The year 2001 budget
contains $32,398 for legal fees, or $15.48 per easement holder. Both of these budgets were
approved by the easement holders. See Bruno v. Mundy, supra, 127 N.J.
at 87 (union trust funds may not be used to pay counsel fees without
authorization of a majority of union members). Nonetheless, in order to ensure
prospectively that those who are voting on the budget understand exactly what they are
voting for, the court will require that legal fees be subject to a separate vote at the
budget meeting. Moreover, prior to the meeting all easement holders must receive a written
explanation of each separate case or matter for which legal fees are sought, the total
amount of fees sought for each case or matter, and a written justification for why the fee
in each case or matter is being charged to the easement fund. In the event that any legal
fee line item is voted down, either the Association must pay the fee from its own budget
or the Association may seek permission from this court pursuant to R.4:42-9(2) to
pay the fee from the easement budget. Any such application shall be filed by order to show
cause, with notice by regular mail to all easement holders.

Finally the court notes that although it is not required, nothing in this opinion
precludes the Association from amending its by-laws to offer a basic membership to any
easement holder whose assessment is paid in full. Compare Weatherby Lake
Improvement Co. v. Sherman
, 611 S.W.2d 326 (Mo. Ct. App. 1980) (voluntary
homeowners’ group later incorporated into non- profit corporation whose membership
consisted of all homeowners having an easement to use the lake). A basic membership might
allow the member to vote for Association trustees, nominate trustees and stand for
election to the board. This would permit those who support the easement financially to
participate in the governance of the Association and might obviate future litigation over
governance issues. A social membership might be offered to those willing to pay the
current Association dues in exchange for the additional privileges now associated with
membership, such as access to the clubhouse, beach and docks.

(1)It is undisputed that there is a boat launch, located near the beach, which all
easement holders can use without paying a fee.