First published: Dec 2024
The Do-Over That Didn’t Work
TAKEAWAY A court will not give a defaulting unit owner a free pass and will not allow the revocation of a settlement agreement presumably made in good faith. A “do over” will also not be permitted by a court when, in the “glaring light” of hindsight, a delinquent shareholder changes his mind about a settlement agreement. A promise made by a shareholder to pay an agreed upon monetary amount for the violation of the cooperative’s bylaws and occupancy agreement can be reasonably relied upon by a board of directors. That promise, if broken, can also be the basis for liability and a monetary judgment.
BD. OF MANAGERS OF THE KINGS OAK TERRACE CO-OP APARTMENTS. V. KHOVAN
WHAT HAPPENED Ihor Khovan and Olena Khovan, a divorced couple, live in different apartments at Kings Oak Terrace Cooperative Apartments in Brooklyn. They are on friendly terms, however, and in May 2022 Ihor did some renovations in Olena’s apartment including removing walls, floors, and plumbing fixtures. The couple did not obtain permission from the board for these alterations, although Kings Oak’s bylaws and occupancy agreement require board approval. The board notified the couple that each of them would be fined $25,000 for violating these rules. Subsequently, the board held a grievance proceeding at which Ihor appeared, and at the meeting the board reduced the fines to $15,000 per individual. The Khovan’s agreed to pay through a payment plan, but later refused to pay. The board then filed suit in November 2022.
IN COURT The Supreme Court granted the Board's motion for summary judgment, and this decision was affirmed on appeal. The court's reasoning relied on the "business judgment rule," which requires courts to defer to cooperative board decisions as long as the board acts within its authority, in good faith, and for the cooperative's benefit. The court found that the board had established its case by showing the unauthorized alterations, its authority to assess fines, proper procedure in imposing the fines, and good faith in its actions. The defendants failed to raise any legitimate challenges to these findings.
COUNSEL for the co-op board & corporation JAIME LATHROP Law Offices of Jaime Lathrop; for the Khovan’s GERALD PIGOTT Law Office of Gerald Pigott; Justice Robin K. Sheares
