First published: Feb 2024
You Don’t Have The Votes!
TAKEAWAY This case is a reminder that co-ops and condominiums are ultimately political organizations controlled by the majority interest of their owners. Particularly in small buildings, where just a few owners can constitute a majority, the majority owners have a substantial ability to control the building’s leadership and operations. Unless there are protections for minority interests in the bylaws or other governing documents, minority owners may be frozen out by a coalition holding a majority. Additionally, lawyers can be focused on bringing claims based on procedural issues in providing notice of and conducting meetings. However, this case points out that if the procedural issues can be shown not to make a difference in the ultimate result, courts can properly ignore them.
CHURCH STREET APARTMENT CORP. V. LIEBERT
THE INEVITABILITY OF IT ALL In “Cabinet Battle #1” from the musical Hamilton, Thomas Jefferson and James Madison taunt Alexander Hamilton about his inability to get his financial program passed because: “You don’t have the votes!” More than two centuries after the events that were sung about, and in a much less nationally significant context, Justice Lyle E. Frank used the same logic to deny a legal request from two board members to stay on the board despite the procedural irregularities used to remove them. Because the unit owners who engineered the ouster controlled a majority of the co-op’s shares, Justice Frank found the ouster inevitable.
WHAT HAPPENED 257 Church Street, a five-story small Tribeca co-op, has four shareholder units and one commercial space. For a decade the board consisted of three board members who lived in Units 2, 4, and 5 respectively. The co-op had cycled through a variety of management companies, and in 2020 the co-op made the decision to self-manage. The president and vp/treasurer began to manage the building. A year later, the son of the board secretary (who had become unresponsive and uncommunicative) presented the board with a power of attorney allowing him to act for his mother in a personal capacity. In 2023 the board removed her from her officer position but she remained as a director. That same year the son wanted to sell his mother’s unit to an LLC, but the board objected to the prospective purchaser.
Working around the rejection, the son and the only other shareholder not on the board (Unit 3) requested a special shareholder meeting to remove the president and vp/treasurer and to elect successors. These two units owned 52 of the 92 co-op shares, or more than 56 percent. Even though the president and vp/treasurer didn’t attend the meeting, a quorum was met, the motion to remove the two passed, and a new board was elected consisting of the son, his mother, and the Unit 3 shareholder. This newly constituted board approved the sale that the old board had rejected. COUNSEL for the co-op ANDREAS KOUTSOUDAKIS, MATTHEW ZWIREN Koutsoudakis & Iakovou Law Group MICHAEL LEON, KAREN CANALES-REYES KI Legal / for the defendants/respondents LESLIE GALES-BROWN, ZACHARY KUPERMAN Abrams Abrams Fensterman / Justice Lyle E. Frank
IN COURT The ousted board president brought an action in the name of the co-op corporation against the new board directors and Unit 5’s new LLC owner and its principals to enjoin them from interfering with the co-op board. The injunction motion claimed that there were a variety of procedural irregularities in the calling and conduct of the shareholders meeting. The defendants responded citing some procedural irregularities in the bringing of the case, including that it was brought after the four-month statute of limitations and that it was improperly brought by the corporation without naming the ousted board members as parties in interest. The judge found that the ousted board president had failed to establish a likelihood of success on the merits and, more pointedly, did not have the votes to remain in her board position. Additionally, the court noted the “potential statute of limitations issue” of the case and denied injunctive relief.
