Client Advisory - May, 2007 PDF Appellate Division Affirms Termination of Proprietary Lease for Offensive Conduct Including Long History of Litigation The Appellate Division, First Department, recently affirmed a lower court's determination upholding a Cooperative Board's authority to evict a shareholder-tenant couple for objectionable conduct due to "their chronic withholding of maintenance and other payments, the nuisance of installing and refusing to dismantle a water-cooled air conditioning system that caused damage to their downstairs neighbor, and [a history of] protracted litigation in which [their] arguments were repeatedly found to be meritless and in bad faith." 1050 Tenants Corp. v. Lapidus, 2007 WL 1991028, 2007 N.Y. Slip Op. 3558 (App. Div. 1st Dep't Apr. 24, 2007). In this case, the history of disputes between the defendant shareholders and the Cooperative spanned 15 years. Among other things, defendants litigated a series of cases against the Cooperative in which they were repeatedly unsuccessful, violated court-ordered stipulations that the parties entered into to resolve the litigations, refused to pay maintenance and other expenses, and installed the unauthorized air conditioning system and then refused to remove it. Eventually, the exasperated Board of Directors convened a special meeting of shareholders to consider termination of defendants' proprietary lease. After defendants threatened to sue any shareholder who voted to terminate their lease, the Board voted to indemnify any shareholders named in such a lawsuit. At the shareholder meeting, defendants' counsel was permitted to appear to present defendants' position. A shareholder vote was then held at which 98% of the shareholders voted to terminate defendants' proprietary lease. Defendants refused to move out of their apartment, and the Board brought an ejectment proceeding to force them to leave. The lower court ruled in favor of the Board (see discussion in the June 2006 issue of this Client Advisory). In affirming the lower court's decision, the Appellate Division reemphasized that "[d]ecisions of residential cooperative corporations, including termination of a shareholder's tenancy for objectionable conduct, are assessed under the business judgment rule. The courts will not substitute their judgment for that of a cooperative's board of directors and shareholders, so long as the corporate action is authorized, in furtherance of the cooperative's legitimate interests, and taken in good faith." In finding that this standard was satisfied, the court rejected, among other things, defendants' argument that examples of "objectionable and undesirable conduct" set forth in the proprietary lease were meant to be an exclusive list, finding that the list was merely illustrative. The court also rejected defendants' argument that the term "objectionable and undesirable conduct" was so vague that it could not be used as a basis for terminating the lease. Also rejected was defendants' argument that termination under the proprietary lease would "violate public policy by restricting access to the courts." In the Appellate Division's words, "[t]here is no public policy favoring the repeated assertion of unsustainable arguments, a pattern of delaying tactics designed to inflict extensive costs on the adversary, dishonesty or disingenuousness with the court, disregard of so-ordered stipulations, or contempt of court orders." The court also rejected defendants' argument that the Board had improperly "bought" the shareholders' votes by promising to indemnify any shareholders who were sued. The court found that this was merely a response to defendants' own, arguably unlawful threat to sue all shareholders who voted against them. The court went on to hold that there was no evidence of bad faith or discrimination, and that the Cooperative was entitled to have the litigation resolved without further discovery proceedings. Court Holds Cooperative Shareholder Who Acquired Unit at a Foreclosure Sale Is Not a Holder of Unsold Shares Owners of shares appurtenant to a cooperative apartment acquired at a foreclosure sale were not "holders of unsold shares" entitled to sell the apartment without Board approval, according to the recent decision in Sassi-Lehner v. Charlton Tenants Corp., 15 Misc. 3d 1112(A), 2007 WL 926221 (Sup. Ct. N.Y. Co. Mar. 28, 2007). The shares in question were originally transferred by the sponsor of the cooperative conversion to an individual who undisputedly was a holder of unsold shares. That person failed to pay his maintenance, and the shares were sold at a foreclosure auction to the parents of the current shareholders, who transferred them to their daughters, the current shareholders. None of the shareholders ever resided in the apartment, which was occupied by an unrelated rent-regulated tenant. When the shareholder-plaintiffs sought to sell their apartment, they claimed the status of holder of unsold shares, which would give them the right to sell without Board approval. The Board denied that they enjoyed such status and insisted that its approval was required. In reviewing the Offering Plan and the proprietary lease to resolve this issue, the court found that the documents were not completely clear. On the one hand, the proprietary lease provided that "Unsold Shares retain their character as such (regardless of transfer)" until the holder of the shares occupies the apartment. On the other hand, the Offering Plan defined a holder of unsold shares as someone "designated by [the sponsor]" as a holder. (Emphasis added.) The court observed that the sponsor had a legitimate interest in limiting holders of unsold shares to persons it had designated, because the sponsor was required to guarantee any such holder's financial obligations to the Cooperative. The court held that the Offering Plan controlled and that plaintiffs, who had never been designated or approved by the sponsor, were not holders of unsold shares. Condominium Not Required to Employ a Resident Janitor The New York City Housing Maintenance Code and New York State Multiple Dwelling Law do not require a condominium apartment building to employ a resident janitor, as interpreted by the Appellate Division in Hatcher v. Board of Managers of 420 West 23rd Street Condominium, 2007 WL 1217884, 2007 N.Y. Slip Op. 3750 (App. Div. 1st Dept Apr. 26, 2007), affirming 12 Misc. 3d 78, 819 N.Y.S.2d 374 (App. Term 1st Dep't 2006). The Multiple Dwelling Law provides that in a building containing 13 or more families, where the owner of the building does not reside there, a janitor must be employed who resides in the building or within 200 feet. The Housing Court ruled that a condominium was required to hire a resident janitor under this provision. The Appellate Term of Supreme Court reversed, holding that in a condominium, the Board of Managers qualifies as a "resident owner" of the premises, so that the statutory requirement of employing a resident janitor does not apply. The court also found that the janitor that the condominium did employ was competent and did not service more than the legal maximum number of units. IMPORTANT NOTE: The material in this newsletter is provided for information purposes only and should not be construed as legal advice. Because the particular facts and circumstances of every situation differs, you should not act or refrain from acting on the basis of this information without consulting an attorney. |
