Case Notes in


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.

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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.

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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.

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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.

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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.

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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.

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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.

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First published: Mar 2012
NAR Apartments, LLC v. Ippolito

Although this particular case is between a residential landlord and rental tenant, it is applicable to co-ops and condos and their apartment owners. Cases in which apartment residents who live in “no pet” buildings and request the right to maintain a pet as a reasonable accommodation because they serve as emotional support animals are often complicated. The matters are usually decided on a case-by-case basis, and the rules are evolving. In some matters, courts (and the State Division of Human Rights and city Commission on Human Rights – both venues where residents can file a complaint) may elect not to pursue an inquiry if the resident submits a letter from a doctor or psychologist asserting that the resident requires a pet as a reasonable accommodation and as an emotional support animal. Here, the court made clear that it was permitting the landlord to obtain discovery – both in the form of medical/psychological records and a deposition of the resident’s psychologist – so that the court could make an ultimate determination as to “the existence and/or extent of [the resident’s] purported disability, as well as the necessity of harboring a dog as an emotional support animal, assuming [the resident] is in fact disabled.” Further, this case raises an important issue for lessors and boards – to what extent can they rely on an agreement made with an occupant who later asserts that she is disabled and requires the very thing that they agreed to forego in the agreement as a reasonable accommodation. This issue, too, will be decided on a case-by-case basis, although we do not know the weight given by this court to the fact that the defendant signed the letter agreement without counsel. Nevertheless, it is apparent that, upon assertion of a claim of disability, the courts will allow further inquiry so that a resident may or may not be held to their agreement.

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First published: Feb 2012
Riverbay Corp. v. New York City Commission

Our experience has been that the courts have been somewhat inconsistent in determining what constitutes a reasonable accommodation and, more to the point, who gets to determine what is “reasonable” – the person requesting the accommodation or the building owner. The court here adopted the commission’s determination that, in a circumstance where material differences were found between gaining access through the front door and the side door and where the resident objected to access through the side door, it was improper for the cooperative corporation to fail to modify the front door. We are inclined to believe that, although it is only briefly mentioned in the decision, the statement made by Riverbay’s architect that access could have been obtained through the front entrance was an important factor in the commission’s decision to reject the administrative law judge’s recommendation and hold that Riverbay failed to provide a reasonable accommodation. We have found that courts often give weight to the opinions of a board’s professional, and further, that boards are often protected – both in the context of reasonable accommodation matters and claims of breach of fiduciary duty – when they act in accordance with the findings of their experts. Here, it appears as if Riverbay’s architect stated that access could be available through the front entrance at a cost of approximately $20,000, yet Riverbay elected to provide side-door access notwithstanding Rose’s objection. While case law is not entirely clear when it comes to reasonable accommodation requests, we do believe that a cooperative or condominium must consider the specific request of the resident and the advice of the building’s expert when making its determination concerning a reasonable accommodation.

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First published: Jan 2012
Hubshman v. 1010 Tenants Corp. and Carroll v. Radoniqi

These two cases discuss, among other things, a board’s duties to its apartment owners and, we believe, turn in part on procedural issues. The court in both of these actions (the same judge decided both within a month of each other) considered the procedural posture of the motions. Where a motion to dismiss is made, every favorable inference in the pleadings must be given to the plaintiff; when a motion for summary judgment is made, the court has the right to look beyond the pleadings and determine if there are any triable issues of fact that would preclude a grant of judgment. A motion to dismiss is a more difficult standard for a defendant, whereby a motion for summary judgment allows the court to search the record. In addition, the court dismissed the derivative claims brought by the plaintiffs in both actions “on behalf of” their respective co-op and condominium, acknowledging the deference that must be provided to the board under the Business Judgment Rule and, in the Carroll case, the condominium’s bylaws. The court made what we believe is an interesting distinction concerning the breach of fiduciary duty claims in the Hubshman case. There, the court determined (as have other, recent cases) that the cooperative housing corporation owes no fiduciary obligation to its shareholders. Further, the individual board members could not be found to have breached their fiduciary obligations absent allegations that they engaged in inappropriate conduct separate and independent from their actions as members of the board. Yet the court sustained an action against the cooperative “board,” having found that a board owes a duty to the shareholders, which we believe is a novel holding in the cooperative corporation field. We are not certain how this claim will ultimately be determined.

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