JERRY ALLOCO, ET AL. VS. OCEAN BEACH AND BAY CLUB, ET AL. (C-000015-14, OCEAN COUNTY AND STATEWIDE) (A-0922-16T3)
Plaintiffs challenged rule changes by made by the board of trustee of a common-interest community, claiming they were incompetent and thus not protected by the business judgment rule. Plaintiffs cited a case stating: "Courts will not second-guess the actions of directors unless it appears that they are the result of fraud, dishonesty or incompetence." Papalexiou v. Tower W. Condo., 167 N.J. Super. 516, 527 (Ch. Div. 1979). The Appellate Division disapproves this statement in Papalexiou, and reiterates that the business judgment rule protects an authorized action by a board from judicial scrutiny unless the plaintiff shows that the challenged "action is fraudulent, self-dealing or unconscionable." E.g., Seidman v. Clifton Sav. Bank, 205 N.J. 150, 175 (2011). Plaintiffs failed to carry that initial burden.
