CNYC thanks Marc J. Luxemburg,
Esq., for this column. A partner in the law firm of Snow Becker
Krauss, Mr. Luxemburg was a founder of CNYC and serves as
its president. At CNYC's 16th Annual Cooperative Housing Conference,
Mr. Luxemburg presented an analysis of court cases decided
during 1996 that involved New York cooperatives and condominiums.
The following summary is abstracted from his seminar.
LEGAL SCORECARD FOR 1996: NOT A WINNING SEASON
The year 1996 wasn't the worst of times, but it certainly
wasn't the best of times either-at least in terms of winning
court battles for cooperatives and condominiums. More often
than not, boards came out on the losing side of litigation
over matters such as attorneys fees and noisy neighbors. The
reasons for these decisions were as varied as the facts in
DISREGARDING CASE LAW,
COURT REINTERPRETS PROPRIETARY LEASE
In Black v. Alexander House Residences, Inc., 640 N. Y. S. 2d
528 (1st Dept. 4/11/96), the board refused to allow the plaintiff to close
the sale of his apartment until he paid certain attorneys' fees, which
the cooperative had previously incurred in prosecuting a summary proceeding
against the plaintiff for non-payment of maintenance. The cooperative
had obtained a default judgment, but this had been subsequently vacated
on appeal for lack of jurisdiction.
The court held that the cooperative acted in bad faith by continuing
to withhold approval because of the attorneys' fees after the summary
proceeding was dismissed, and that therefore the board was not protected
by the business judgment rule. According to the court, the cooperative's
conduct constituted "tortious interference" with the contract
The court awarded the plaintiff the difference between the original contract
price and the price for which the unit was subsequently sold, plus legal
fees for the plaintiff in overturning the summary proceeding, plus restoration
of maintenance for the period during which the sale was refused -- a total
of nearly $32,000.
To reach this decision, the court very narrowly construed the proprietary
lease, and appears to have ignored relevant precedent. The lease provides
that the cooperative should be compensated for its legal fees in bringing
an action against a shareholder by reason of a default. It says nothing
about whether or not the action has to be successful. The court reinterpreted
the proprietary lease to restrict the board's right to receive attorney's
fees to actions with successful outcomes.
Secondly, it is well established law that a breach of contract does not
constitute a tort unless there is some independent duty breached. In this
case, it is difficult to conceive of what duty to the shareholder the
board breached, independent of the rights and obligations under the proprietary
lease. Finally, the First Department has, in prior cases, established
that it is the shareholder's duty to mitigate its damages, and that if
an erroneous fee is claimed, as a condition of approval, the shareholder
should pay the fee and then sue for a refund. In this case, the court
seems to have overlooked the necessity to mitigate damages.
NOISE MAKER BYPASSED AS COURT PUNISHES THE
Equally disturbing is Nostrand Gardens Co-op v. Howard, 634 N.Y.S.
2nd 505 (2d Dept 11/27/95). The court found that there was "excessive
noise emanating from an apartment that neighbored the respondents' apartment
throughout the late night and early morning hours," and held that
the cooperative, despite having had notice of the noise, failed to take
any "effective steps" to abate the nuisance. The court found
that the shareholder was entitled to a 50% abatement of maintenance.
This case is disturbing because it once again demonstrates the judicial
tendency towards misplaced liability; i.e., a victim of wrongdoing, and
not the actual wrongdoer, is made to pay. In this case, the wrongdoer
was the neighbor who was causing the noise. There is not even a suggestion,
much less a requirement, that this person either be subject to an injunction
or be required to pay damages to the cooperative or to the wronged tenant.
FLOOD SOURCE IGNORED AS COURT PUNISHES THE
Another peculiar case in this regard is Silverman v. 145 Tenants Corp.
, Sup. Ct. , N. Y. Co. Index No. 102913/94, decision of 10/7/96. This
was an action against an upstairs neighbor and the cooperative for water
damage, which was caused by overflows from the upstairs neighbor's apartment.
The case was dismissed against the upstairs neighbor who caused the floods,
but continued against the cooperative. The reason: the fact that water
was coming from the upstairs apartment was insufficient to warrant a trail
against the upstairs neighbor, but was enough for a trial against the
SPONSOR'S RIGHT TO VOTE CANNOT BE CURTAILED CONTRACTUALLY
In Madison v. Striggles, 644 N. Y. S. 2d 6 (1st Dept. 6/4/96),
the offering plan said the sponsor must vote its shares so that "unsold
shares will not elect the majority of the board of directors." The
court held that this does not prohibit the sponsor from combining votes
with those of resident shareholders to elect a majority. It explained
that to hold otherwise would deprive the sponsor of the right to vote,
and any restriction on the right to vote must be set forth in the Certificate
of Incorporation. According to the court, contractual restrictions imposed
by reason of the provisions of the offering plan cannot be enforced unless
they are also specifically set forth in the Certificate of Incorporation.
EXTREME CONDUCT CURTAILED BY COURT
Not all cases went against cooperatives and condominiums in 1996. On
the good side of the ledger was Phoenix Owners Corp. v. Weitzner,
648 N. Y. S. 2d 2 (1st Dept. 9/17/96). Alan Fried, attorney for Phoenix
Owners Corp. and a partner in the law firm of Schwarzfeld Ganfer &
Shore, provided details on this case, where a shareholder's unacceptable
conduct, including screaming and yelling at all hours of the day and night,
pounding on the ceiling and banging on pipes and other actions, had seriously
affected this shareholder's neighbors. The cooperative sought an injunction
in the State Supreme Court enjoining the offending shareholder from violating
the House Rules and Proprietary Lease and from interfering with other
tenants' rights to quiet enjoyment of their apartments.
After the lawsuit began, the shareholder began to threaten to burn down
the building and to cause physical harm to employees and building residents.
In response, the cooperative applied to the court for a preliminary injunction,
directing that the shareholder be removed from the building and not be
permitted to return before being so authorized subsequent to a psychiatric
At the hearing, the shareholder argued that the cooperative corporation's
remedy was limited to terminating the proprietary lease and commencing
an eviction proceeding in housing court. The Supreme Court ruled that
such remedy was inadequate in the face of the type of conduct alleged
in the action and in light of the time-consuming process involved in terminating
The court concluded that the cooperative corporation had demonstrated
the urgency of the situation, and it issued an injunction enjoining the
shareholder from continuing verbal abuse, requiring that a responsible
individual live with and restrain the shareholder's conduct. It also required
that the shareholder undergo psychiatric treatment. The shareholder appealed
to the Appellate Division, which affirmed the Supreme Court's use of a
preliminary injunction in this situation.
JUDGE PREVENTS CO-OP BOARD FROM BLOCKING ESTATE
The year 1997 dawned with another disturbing decision eroding the rights
of cooperatives, Cavanagh v. 133-2nd Street Jackson Heights, Inc.
Sup. Ct. Queens Co. 1A Part 13, which was reported in the New York Law
Journal of 1/3/97. In the decision, Justice Dye granted summary judgment
to the executrix for an estate, who had asked for an order declaring that
the co-op's consent was not necessary for the assignment of the decedent's
proprietary lease and shares of stock in the cooperative. She claimed
that she had presented potential buyers to the board and it had rejected
all of them. The judge concluded that the executrix was not bound by the
provisions of the lease. He wrote: "To hold otherwise would create
potential obstacles without redress that are inconsistent with an executor's
obligation to administer and settle an estate with due diligence."
The terms of this cooperative's proprietary lease stated that "all
provisions. . . shall be binding upon or enure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors and
assigns or their successors in interest." The judge did not interpret
this seemingly exhaustive list to apply to an executor.
REVIEW PROPRIETARY LEASE
CNYC members are advised to check their own proprietary leases to ensure
that adequate language is included to prevent this problem. The rules
applicable to the transfer of a decedent's stock and proprietary lease
vary considerably from one proprietary lease to another. The "assignment"
and "transfer" provision of each co-op's proprietary lease (generally
paragraphs 16(e), 17 or 18) should be carefully scrutinized to determine
if the word "executor" has been included in the string of words
cited by the court ("heirs, legal representatives, successors and
assigns"). Most proprietary leases contain the reference to the "executor",
which the court found missing in this case.
Most of the newer proprietary leases which cover executors in their requirements
for board approval of transfers also contain a provision which prohibits
the co-op from "unreasonably" withholding its consent to transfers
to family members or from withholding its consent to a transfer to a spouse
(a term which under current law includes "life partners"). It
is probable that the multiple rejections in the reported case "poisoned
the well" for this co-op and provided an incentive for this bad decision.
If your proprietary lease does not contain all references, it should
be amended with the help of your attorney. Amendments to proprietary leases
usually require the consent of two-thirds of the lessees, but in most
cases this may be done by written consent over a reasonable period of
time. The written consent can be as simple as the following: "The
undersigned proprietary lessee does hereby consent to the following amendment
to the proprietary lease of the ABC Cooperative Corporation: Section 16
(e) is amended by the addition of the words 'nor his executor, nor his
administrator' after the word 'Lessee' in the second line thereof."
BUT see your attorney before amending your proprietary lease.