First published: Dec 2022
The Well-Documented Process Wins
The famous Pullman case, decided by New York’s Court of Appeals in 2003, confirmed a co-op’s right, as contained in most proprietary leases, to terminate a shareholder for objectionable conduct. Termination sometimes requires a vote by shareholders but other times only the vote of the board, as occurred here. Provided that all necessary steps in the process are followed, that there are facts showing objectionable conduct, and that there are no other indications of chicanery (a board motivated by personal gain, or acting in a legally discriminatory manner such as racial bias), the business judgment rule will insulate from judicial review the termination of a shareholder’s lease. Here, the plaintiff tried to get the court to stop the process from moving forward, which was denied. The hallmark of co-operative living is that all members of the community have agreed, by binding contract, to follow the rules or suffer the consequences, one of which is removal from the community. Whether the co-op’s termination of the lease is upheld remains to be seen, but things are not looking good for this shareholder.
HAIMOVICI V. CASTLE VILLAGE OWNERS CORP.
What Happened Mr. Haimovici has lived in Castle Village since the 1970’s, prior to its conversion to a co-op, and bought his apartment in 2020. The five-building complex with seven and half acres of greenery is located in Manhattan’s Hudson Heights neighborhood overlooking the Hudson River. In December 2021 the co-op announced a maintenance increase and shortly thereafter Mr. Haimovici demanded to inspect the books and records of Castle Village. Among the issues prompting Mr. Haimovici’s request was the loss of cooking gas in one of the buildings, and his purported concern that this would happen to his building also.
In court papers, the board stated that it had been concerned about Mr. Haimovice’s conduct for many years. The board said he had threatened to “break” board members’ heads and “paint the walls red” with blood; he had wrongfully accused another shareholder of spitting on his child, which security footage revealed was untrue; he had shouted profanities and rude comments at others; and he had taken cellphone pictures of a three-year old boy when his pants were down. In June 2022 the board held a special meeting with Mr. Haimovice to consider his conduct in the community, and subsequently voted to terminate his tenancy because of it.
After receiving the notice of termination, Mr. Haimovice filed a preliminary injunction to stop the co-op from moving forward with it. He claimed that the alleged conduct was not true, and that the co-op was motivated against him because he asked to inspect the co-op’s books and records, and because he complained about neighbors who smoke marijuana that allegedly harmed his autistic child.
In the Court A preliminary injunction is an extraordinary remedy that requires a likelihood of success on the merits, irreparable injury if denied, and a balance of equities in favor of the movant. The court found no basis for injunctive relief, and the business judgment rule compelled it to defer to the board’s determination, made at a special meeting upon due notice in accordance with the proprietary lease, that Mr. Haimovici engaged in objectionable conduct. He was able to present his case to the board at the meeting, but the board found against him after considering his documented history of extraordinarily aggressive and nasty behavior spanning many years. The business judgment rule was intended to prevent “judicial second-guessing” of the co-op’s board, so the motion was denied.
REPRESENTATION: For the co-op and individual board directors SEYFARTH SHAW and ABRAMS GARFINKEL MARGOLIS BERGSON / For Shareholder Haimovici GREGORY A. SIORIS, ESQ. / Judge ARLENE P. BLUTH
