View all case notes
Case Notes by

Richard Siegler & Dale Degenshein, Stroock & Stroock & Lavan

Category
Author
Select Year
First published: Mar 2013
The Board of Managers of the Lore Condominium v. Steven Gaetano and Lore Gaetano

This case is significant because it addresses many of the issues typically raised in a case where a plaintiff claims construction defects, and does so in a circumstance where the Gaetano family played many roles in the conversion, something that is, in our experience, not the norm. The court discussed the impact and import of Mr. Gaetano signing certifications that are required by the Office of the Attorney General – both in his capacity as sponsor and in his capacity as architect. Consistent with other cases we have seen, the court found that the architect’s certification did not expose Mr. Gaetano to liability for fraud in his capacity as an architect and determined that only the attorney general had the right to sue him for fraud, in accordance with the Martin Act. However, when Mr. Gaetano signed a certification in his capacity as a principal of sponsor, it did expose him to potential liability for breach of contract, consistent with other case law. Here, the court not only held that there was potential personal liability relating to alleged construction defects, but also to the sponsor’s failure to pay common charges. These claims were not precluded by the Martin Act. As to the fraud claims, they were duplicative of the breach of contract claims and were dismissed for that reason.

Read full article
First published: Feb 2013
Reinhard v. Connaught Tower Corporation

This is one in a series of cases – most at the lower court level – where the courts are grappling with secondhand smoke. Breach of warranty of habitability and constructive eviction are issues that have an impact on leased properties, including co-ops. The court here determined that there were issues of fact as to whether there was a breach of the warranty, and it will presumably determine at trial whether the infiltration of secondhand smoke was so pervasive as to breach the warranty. Similarly with respect to the breach of contract (lease) cause of action, the court must determine at trial whether the board maintained the building in “good repair,” as it is required to do under the lease. Breach of warranty of habitability and constructive eviction are claims that are not available to condominium owners, and we have seen courts consider claims of nuisance where condo owners complain of secondhand smoke. While in certain respects secondhand smoke cases can be analogized to cooking odor cases, as we understand the latest studies, secondhand smoke is a health hazard so that the level of responsibility to abate the smoke infiltration may be greater. This is an evolving area and we await direction from appellate level cases. As to individual director liability, we note that this decision is dated before the decision in Fletcher v. Dakota, Inc. (previously reported) and cannot comment as to whether the decision would have been different had Fletcher already been decided. It appears from the decision, however, that the board member sued did nothing more than sit on the co-op’s legal committee and sign a letter addressed to plaintiff.

Read full article
First published: Jan 2013
Joanne Payson v. 50 Sutton Place South Owners, Inc. and Brown Harris Stevens Residential Management, LLC

By reviewing the insurance policy in its entirety, the court disregarded “form over substance,” and concluded that the policy’s references to the “condominium” were applicable to the insured cooperative. Setting aside the question of how or why a policy issued to a cooperative referred repeatedly to the insured as a condominium, it is important to note that an insurance professional as well as the managing agent should review any policy before it is purchased by the board. The court also pointed out, through its reference to another case, that there are circumstances where shareholders/lessees could waive their right to recover from the cooperative, but their insurance policy might retain that right. The statute of limitations holding is also significant. In most instances, a statute of limitations begins to run on the date of the occurrence of the harm. Consistent with other cases we have seen in the cooperative context, however, this case explained that each recurrence of the same leak constitutes a new occurrence, allowing the statute to begin anew. Consequently, although the plaintiff could not recover for damage that occurred more than three years before the action started, she could recover for any damage that occurred within the three-year period, even if from the same continuing leak.

Read full article
First published: Dec 2012
Cogut v. 1220 Park Avenue Corporation and Brown Harris Stevens, LLC

This case reminds us that agreements entered into between shareholders and their co-op boards are contracts and the courts will treat them as legally binding. It has long been the law that one is presumed to have read what one signs. Plaintiffs’ argument that they had not read the final version of the alteration agreement before signing it was of no moment. Nor could they successfully argue that they reasonably relied on the managing agent’s alleged representations that the agreement was substantially the same as the prior version the plaintiffs had signed. As to electricity, boards do have the discretion to take the needs of all shareholders into consideration when deciding how to allocate services such as electricity. Plaintiffs’ claim that increased amperage had been approved in their alteration application was belied by documentary evidence. Importantly, boards also have the right – found in statute and case law – to rely on the advice of their experts. Finally, although we have seen other decisions where the court did not permit liquidated damages, the court here upheld the liquidated damages provisions of the alteration agreement, rejecting arguments that they should be invalidated as an impermissible penalty. The court specifically noted that the amounts charged – $250/day for the first five days; $500/day for the next five days; and $1,000/day thereafter – were not unconscionable or in violation of public policy, particularly given the scope of the project.

Read full article
First published: Oct 2012
CIA Naviera Financiera Aries, S.A. v. 50 Sutton Place South Owners, Inc.

This case presents an interesting fact pattern and reminds us that, unless a share transfer is recorded in the corporation’s books and records, the corporation will not be required to acknowledge the transfer. We note that court records reflect that Xenakis’s estate intervened in this action. While this decision is obviously binding on Aries and the cooperative, we do not know whether this decision will be dispositive of claims made by Xenakis’s beneficiaries, if any, against Aries and Anastasakis for the right to receive the proceeds from any sale of the apartment. The lease provision here apparently required the board to “not unreasonably withhold” its consent to a transfer, which is a provision we do not normally see in the context of transfers (more often, boards can withhold consent for any reason or no reason, absent discrimination). Notwithstanding, the court applied the Business Judgment Rule and determined to give deference to the board’s long-standing, yet apparently unwritten, rule that prevented corporations from owning shares. The court also discussed and acknowledged the board’s legitimate reasons for the rule. This case is a good reminder that co-ops need to exert control over their shareholders and, to a degree, those people who are entitled to live in the building. Shares may not be sold freely and shareholders must comply with the provisions of their co-op’s governing documents in order to make sure any transfer is effective for the protection of all shareholders because of their economic interdependence.

Read full article
First published: Sep 2012
Fletcher v. The Dakota Inc.

While this decision is being reported by some as a departure from prior decisions, and it does specifically “overrule” the Pelton v. 77 Park Avenue Condominium decision in which it was found that board members were not liable for discrimination, it is our belief that in many respects the appellate court is merely reiterating long-standing corporate law, i.e., that in the context of a tort or a claim of discrimination (and not contract claims), if a board member acts in furtherance of that tort, he or she may be liable. This is consistent with such well-known cases as the Broome v. Biondi (Beekman Hill Apartments) matter, where board members were held personally liable for refusing to allow a mixed-race couple to sublet based upon actions taken by board members, who, according to testimony, took the husband’s African-American race into consideration when rejecting the couple. Indeed, the court is clear that board members will not be responsible for the co-op’s breach of contract. What is of concern is whether board members may be held liable for torts committed by their co-op, such as negligence. While certain provisions of the decision would lead one to believe that this may be the case, the court specifically dismissed the claim of tortious interference with contract against a board member, stating that “the complaint does not allege that [the board member] committed independent tortious conduct outside of his role as a board member.” We believe these aspects of the case will be reviewed and interpreted by the courts in future decisions. As to the defamation claims, while there is a qualified privilege that permits board members and shareholders to discuss information about their building without being subject to a claim for defamation, that privilege will not apply in the event there is a claim of “malice,” i.e., that the statement was made with knowledge that it was false or with reckless disregard of whether it was true. In this case, it appears that certain statements were alleged to have been made to the press, and were not subject to the privilege in any event. Other statements made to board members and shareholders were alleged to have been made with malice and therefore were not dismissed. We note that the motion to dismiss the claims was made at the early stage of the case so that discovery may shed a different light on certain allegations and defenses.

Read full article
First published: Jul 2012
Bregman v. 111 Tenants Corp.

This decision addresses myriad issues concerning the rights of boards and shareholders who have engaged in a course of conduct over many years. Factually, the plaintiff could not demonstrate that she was given additional rights when she purchased at the time of conversion in 1972. Although the court addressed this point, it is not clear that it would have made a difference in the outcome. Earlier appellate cases held that, where sponsors of co-op conversions gave special rights to “original purchasers,” i.e., those who purchased from the sponsor, those rights were invalidated based upon the Business Corporation Law’s provisions requiring that all shares be treated equally. (We note that the Business Corporation Law does not apply to condominiums.) The Bregman court explained that, even if the sublet resolutions were passed in light of the prior treatment of plaintiff, the resolutions were applicable to all shareholders who wished to sublet. The fact that the plaintiff may have been the reason the issue came to the board’s attention was of no moment and did not serve as a basis to invalidate the resolution.

Read full article
First published: Jun 2012
Fair Hous. Justice Ctr., Inc. v. Edgewater Park Owners Coop., Inc.

The court discussed intentional discrimination and the way in which the actions of an independent real estate broker can be used as circumstantial evidence of discrimination. Specifically, the court found that a jury could determine that the broker’s actions, even though she was not an agent or employee of the co-op, were evidence of intentional discrimination. The court also discussed “disparate impact” discrimination and cited statistics offered by the plaintiff based on census data. The statistics were glaring: the percentage of blacks who owned homes at Edgewater (to the extent there were any – the decision was not entirely clear on this point, apparently because Edgewater was not clear) was far less than the percentage of black homeowners in the Bronx and in New York City. Further, the court considered that the board members could not agree on who was eligible to give a reference under the three-reference rule. It is important for boards to remember that when a rule is in place, it must be applied uniformly, unless there is a good and identifiable reason for deviation. As we set forth in our November 2010 “Case Notes” comment, this case reminds us that it is important for all co-ops and condos to review their policies and procedures to ensure that they comply with all discrimination laws. There should not be a situation where members of a protected class are treated differently, even if the disparate treatment is unintentional and solely as a result of a policy that has been in place many years.

Read full article
First published: Apr 2012
Grubin v. The Gotham Condominium

This case reminds us that when making a motion to dismiss the complaint – as opposed to a motion for summary judgment – courts will adhere to and enforce the rule that provides that, if the facts asserted in the complaint set forth any theory of law, the complaint will not be dismissed. The court does not determine any facts; it merely looks to whether there is enough information in the complaint that, if ultimately proven to be true, would sustain a recognizable legal theory. While the plaintiffs here were able to make such a demonstration with respect to all claims against the board and the managing agent, they could not do so as to most of the individual board members. When suing a board member, an apartment owner must allege – with specific details – why the actions of the board member, if proven to be true, would subject that person to individual liability. As this court explained and as we have seen, cooperative and condominium board members are volunteers who serve with no remuneration. It would be untenable to subject them to personal liability and exposure merely because they serve on a board or take action as a board member. That is why it is necessary for a plaintiff to allege (and ultimately demonstrate) that the board member’s conduct was separate from his actions as a board member and that such action is tortious.Without such a rule, we submit, it would be virtually impossible to convince any apartment owner to serve on a board. This rule is most important in a case such as this, where plaintiffs are seeking punitive damages. In New York, the law is clear that if punitive damages are assessed against an individual, the board member cannot be indemnified or reimbursed by the cooperative or condominium or the board’s insurance carrier. Thus, if a board member is ultimately determined to be liable for punitive damages, the board member would be solely responsible to pay those damages to a plaintiff.

Read full article
First published: Mar 2012
Weston Murphy v. 14 Sutton Tenants Corporation

As we can see from the NAR decision, issues concerning pets are often litigated. Here, the plaintiff believes she was being singled out for improper treatment by the board and its individual directors when the board demanded that she use the service elevator when traveling with her dog. However, her suit against the individual board members was dismissed since she did not plead that any of them did anything other than act in their capacity as board members. Without allegations of personal wrongdoing, courts readily grant motions to dismiss claims against the individuals and – as it did here – permit the case to proceed against the co-op corporation.

Read full article

© 2022 The Carol Group, Ltd. All rights reserved