First published: Dec 2023
You Like Beige, I Hate It
TAKEAWAY Boards and shareholders alike should read this decision (and the lower court decision) as cautionary tales of how a seemingly innocuous issue can snowball into a complete breakdown in communication and trust, and ultimately result in costly litigation. While it may be too late for the parties involved, boards and shareholders who find themselves in similar situations should consider mediation as a first attempt to resolve these “domestic” disputes amicably. In particular, boards should consider encouraging shareholders to submit their disputes with neighbors to mediation so that the parties are afforded an opportunity to communicate their concerns and interests. Ideally, having been given an opportunity to do so, they will be able to develop their own mutually agreeable resolutions without the board’s involvement and legal expense (let alone without resorting to litigation). Boards seeking to require mediation of disputes among residents should work with their attorneys to develop and implement appropriate changes to house rules and other governing documents.
KLARI NEUWELT v 33072 OWNERS CORP.
WHAT HAPPENED At 330 West 72nd Street, a co-op in Manhattan’s Lincoln Square neighborhood, a legal battle has raged for the past two and a half years over the decorations in an elevator landing and who has the ultimate authority to make the design decision. The story begins amicably enough when the penthouse north (PHN) shareholders placed a classic doormat in front of its door and purchased a small table, a mirror and an overhead lighting fixture for the landing, finding these pieces to be “good-quality historically appropriate reproductions.” In 2016, however, neighboring PHS was sold and the new owner had his own design ideas, including new paint colors, new furniture and a very distinctive multi-colored doormat reading “BE LOVED.” The design divergence caused the neighbors to argue about how the landing should look. Finally, the cooperative stepped in and asserted its authority. The cooperative’s house rules regulated such decorations, providing that “[n]o common hall above the ground floor of the building shall be decorated or furnished by any Shareholder or other resident in any manner without the prior consent of all of the Shareholders to whose apartments such hall serves as a means of ingress and egress; in the event of a disagreement among such Shareholders, the Board of Directors shall decide.” The board took this step, replacing the decorations with those of its own choosing.
IN COURT The PHN shareholders sued the cooperative seeking (i) injunctive relief pertaining to the scope and permanence of decorations to be installed in the elevator landing; and (ii) damages for various breaches of contract by the cooperative. In May 2023 the lower court granted the defendant-cooperative’s partial motion to dismiss all claims related to the house rule, holding that the court’s interpretation of the house rule requires the removal of any such decorations if any current shareholder objects. PHN shareholders appealed the lower court’s partial motion to dismiss but lost in the Appellate Division. The Appellate Division held that the house rule was “unambiguous,” affirming that the intentions of the rule could “be determined from the four corners of the document.” The remaining breach of contract claims (which were not the subject of the partial motion to dismiss) are pending. COUNSEL for Klari Neuwelt MARTE ACEVEDO, ARIANA PENELOPE Wasserman Grubin & Rogers / for the co-op JACQUELINE AIELLO, FREDERICK SUNG Boyd Richards Parker & Colonnelli / Justices Webber, J.P., Oing, Gesmer, Rodriguez, Rosado, JJ.
