Case Notes
Case Notes provides insight on one particularly relevant co-op or condo case—clearly explaining what happened, why it’s important, and what lessons can be learned within.
Category
- Access
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First published: Jul 2021
Weinstein v. Board of Directors of 12282 Owners' Corp.As stated decades ago, without a showing of a breach of fiduciary duty, judicial inquiry into the action of directors is prohibited – even if the board’s decision was unwise or inexpedient. Broad statements accusing a board wrongdoing will not suffice; the plaintiff must state with particularity that the actions of the board were taken in bad faith, showed self-dealing, discrimination or misconduct, or otherwise fell outside the scope of the business judgment rule. Weinstein failed to show any of the above, and thus the court dismissed his case. Management contended that its actions were also shielded by the business judgment rule. The court disagreed. However, bringing an action against management was a decision for the board to make, and the board’s decision not to bring such an action was also protected by the business judgment rule. Therefore, the derivative claims against management were also dismissed. This case is a useful reminder that the decisions of co-op and condo boards will be respected by the courts – provided there is no bad faith or self-dealing and provided the decisions are made within the scope of the board’s authority. The business judgment rule is alive and well. But the lesson to be learned is that no matter how often the courts uphold this rule, shareholders will continue to attack their boards’ decisions. Therefore, every board should be forewarned to always make educated and well-documented decisions and to always act within the scope of its authority.
Read full articleFirst published: Jun 2021
Dubin v. GlasserThe standard New York cooperative proprietary lease does not expressly state that a tenant-shareholder is a third-party beneficiary of another tenant-shareholder’s lease with the cooperative corporation. Therefore, if a board fails to take action against a shareholder for violation of the proprietary lease or house rules, another shareholder cannot independently bring his or her own action against a shareholder. In addition, the standard lease has a provision that states the co-op is not responsible to the lessee for the non-observance of the lease or house rules. Thus, to remedy a bad situation, the shareholder in a cooperative is dependent on the board to enforce the lease provisions and house rules. If the board refuses, based on the Ran v. Weiner decision, there is nothing for the injured shareholder to do. (Interestingly, the Condominium Act would allow an aggrieved condo unit-owner to bring an action if the condo board does not, but there is no such parallel provision in any laws applicable to cooperatives.) But perhaps the door has opened slightly by the decision in Dubin v. Glasser. Perhaps common practice in cooperatives will change. Stay tuned, as we may not have heard the last of this from the courts. A shareholder may indeed have the right to enforce the lease or house rules when the board refuses.
Read full articleFirst published: Jun 2021
Dubin v. GlasserThe standard New York cooperative proprietary lease does not expressly state that a tenant-shareholder is a third-party beneficiary of another tenant-shareholder’s lease with the cooperative corporation. Therefore, if a board fails to take action against a shareholder for violation of the proprietary lease or house rules, another shareholder cannot independently bring his or her own action against a shareholder. In addition, the standard lease has a provision that states the co-op is not responsible to the lessee for the non-observance of the lease or house rules. Thus, to remedy a bad situation, the shareholder in a cooperative is dependent on the board to enforce the lease provisions and house rules. If the board refuses, based on the Ran v. Weiner decision, there is nothing for the injured shareholder to do. (Interestingly, the Condominium Act would allow an aggrieved condo unit-owner to bring an action if the condo board does not, but there is no such parallel provision in any laws applicable to cooperatives.) But perhaps the door has opened slightly by the decision in Dubin v. Glasser. Perhaps common practice in cooperatives will change. Stay tuned, as we may not have heard the last of this from the courts. A shareholder may indeed have the right to enforce the lease or house rules when the board refuses.
Read full articleFirst published: May 2021
Village Mall at Hillcrest Condominium v. BanerjeeThis case’s first lesson is simple: if written consent is granted, it’s best to keep it in a very safe place. You cannot trust that the management files are current and accurate. After all, boards often switch management companies, and it’s not safe to assume that all companies pass on complete files to their successors. Secondly, condo and co-op boards should be vigilant in enforcing their rules. If a board knows (or should have known) that there is a violation, it cannot wait to enforce such rules. Courts have been known to rule that waiting to enforce a rule prejudices the owner, and if nothing is done, the court may not allow enforcement years later. The Wong and Pasapula cases emphasize that this is especially true if there is a sale. Finally, there are not many courts that would refuse to allow a condominium or cooperative to do what is required under the law. The overriding fact is that certain laws are meant to protect the public, and FISP is one such law. It seems clear that a court will put the safety of the public over any rights a unit-owner or a shareholder may claim to have.
Read full articleFirst published: Apr 2021
Olcott v. 308 Owners CorpThere are two lessons in the story of the Olcotts. The first is that one must consider the precise language of the proprietary lease, and if a provision contains the word “reasonable,” the protection afforded by the business judgment rule is lost, and the courts will review the board’s decision and make its own decision based upon what it believes to be reasonable. The other lesson is more abstract. In this case, a man and his family had lived in a co-op apartment in his father’s name for many years, without incident and without a history of arrears. Suddenly, there is an issue about whether he would be worthy of being a shareholder. Is a judge really going to evict the family? Boards must consider all of the facts. What is legally correct and what is fair given all of the facts are often two different things. And if the matter lands in court, a judge, who is only human, may make a determination based on what’s reasonable rather than on what’s purely legal.
Read full articleFirst published: Mar 2021
Voron and Argiris v. Newswalk CondominiumThere are three important lessons here. First, condo unit-owners who need access to neighboring apartments can find relief from Section 881 if access is denied. A more important lesson is the need to carefully and realistically weigh the risks and rewards of any legal action. Had the owners of Unit 415 calculated the cost of this litigation and appeal, they may have decided to grant the license. After all, if they had negotiated, perhaps the owners of Unit 515 would have agreed on a higher access fee and slightly better terms. Instead, the result was having to cover legal fees and other expenses, plus spending countless hours on meetings, testimony, phone calls and emails. Finally, when a building gets a request from a neighbor for access, it’s best to attempt to create a reasonable agreement for two reasons. First, if you allow the court to decide, you never know what it will do. Second, though your neighbor may need you this year, next year you may need your neighbor. In the world of constant façade inspections and repairs, neighboring buildings should establish a working relationship rather than a hostile one.
Read full articleFirst published: Feb 2021
Keeling v. Salvo, et al.It is wise to recognize that although everyone has a right to express opinions, there is often a fine line between derogatory opinions and defamation. No one should assume that the court will agree with your analysis of your own statements. Further, the “common-interest” privilege should not be relied upon when making derogatory remarks. Spewing falsehoods, innuendos or even dangerously reckless statements is not only inappropriate, it can also be very costly if the court rules against the party making such statements. It is by far a better approach to carefully consider any statement about another person before uttering it. Your thoughts, including your criticisms, should be constructive, not belligerent, and they should be made in the spirit of cooperation. After all, people living and working in a housing community should have the same goal: to govern and operate the community in an appropriate and efficient manner for the good of all of the residents. Tossing verbal grenades rarely helps achieve this goal.
Read full articleFirst published: Jan 2021
Platt v. Windsor Owners Corp.The war between Elaine Platt and the Windsor Towers co-op board is a long, complicated and expensive tale. Yet there are lessons here. Perhaps the first is that before commencing any legal action, especially one in which personalities are involved, a careful review is required. Can it blow up? Can it entangle the parties for years? Is it worth a decade of legal fees? The second lesson involves the use of committees by the board. The New York Business Corporation Law states that a board can establish a committee of board members, which can be given all of the powers of the board. Many co-op bylaws contain a similar provision. Committees can be useful in numerous ways. If there is a legal action involving one or more board members, for example, a committee might be formed to make all decisions in regard to the matter. If the cooperative is undertaking a large capital improvement, perhaps a committee of engineers and people with financial backgrounds might be given the power to negotiate, execute and oversee the project. The third lesson is really the important one. Platt disclosed communications from the attorneys hired by the board. She was privy to the information only in her capacity as a board member. Information received that has been sent as an attorney-client communication, which is considered privileged under the law, should be kept confidential, unless the board decides to disseminate the communications to the shareholders. Further, the fact that Platt used this information for her own purposes and for her own benefit – hoping to be re-elected to the board – was certainly not for the benefit of the cooperative. This was doubly improper. Many cooperative corporations and condominium associations have adopted not only a policy for keeping information confidential but also a confidentiality form to be signed by each board member, acknowledging that he or she is aware such policies exist. As a general rule, information that a board member has learned in the role as a board member should not be repeated or forwarded to non-board members. Clearly, there are exceptions – if, for example, a board member learns that the board is doing something illegal or potentially dangerous. Even then, it is probably best to contact the board’s manager or attorney first. The fact that a board member does not agree with the judgment of the rest of the board is not reason enough to breach the responsibility of a board member to abide by the policies established by the board. Failure to heed this lesson is sure to generate bad blood.
Read full articleFirst published: Dec 2020
Francis v. Kings Park Manor, Inc.The Kings Park decision is a warning to all co-op boards that no complaint between neighbors should be ignored. In the past, many boards took the position that these were personal disputes and that the neighbors should work out a solution between themselves. While this might be the ultimate solution, the board (and management) should not take this stance immediately. The board should take every complaint seriously, and some investigation should take place. While it might be difficult to take action, a co-op board has a few remedies available. Most proprietary leases have provisions that require tenants to act in a cooperative manner and not do anything to disturb or interfere with other tenants’ enjoyment of their homes. Some leases even provide for fines in the event of certain violations of the lease. And, importantly, most leases have a provision (sometimes referred to as the Pullman clause) that states that the board may terminate the lease if it deems actions of the tenant to be objectionable. This advice does not apply only to complaints relating to racial or religious matters. If a tenant objects to noise or smoke from another apartment and the board refuses to get involved, the complaining neighbor might seek a partial abatement of maintenance due to a breach of the warranty of habitability (even though the condition was not caused by the co-op). No court would be sympathetic to the co-op board if it did nothing to investigate or attempt to remedy the problem. Finally, directors are fiduciaries who should be acting in good faith for the good of the co-op and its tenant-shareholders. To fully ignore any complaint is not acceptable. While it may not be necessary to act every time a complaint is received, the best practice is for a board to consider the complaint and to do some investigating in an effort to understand the validity of the complaint, the degree of the problem and possible solutions.
Read full articleFirst published: Oct 2020
Board of Directors of Big Deal Realty on Greene St., Inc. v 60G 133 Greene St. Owner, LLCThere is an important lesson to be learned here. It is currently common for shareholders to request that their shares be transferred into the name of an entity. While in most cases a trust is the entity in question, we have received many requests for transfers to an LLC. Every board should be aware that regardless of the entity, special care should be given to the effect that this latest court decision might have on such a transfer. The board should insist that as a condition to any approval for the transfer to any entity, that it be clear, in a written agreement, that the transfer of the ownership interest or beneficial interest in the entity will be deemed a transfer of the apartment itself. In the case of a transfer to a trust, special care should be taken in regard to the party who has the right to use the apartment. Without this type of agreement, the cooperative risks having a transfer that has not been approved by the board and, perhaps worse, a transfer for which a required transfer fee has not been paid.
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