CNYC president Marc J. Luxemburg,
Esq. is an attorney specializing in cooperative
and condominium law. Each
year at CNYC's annual Conference, he
reviews recent court cases that have the
potential to answer questions commonly
faced by Boards as part of their responsibilities
or raise new issues of concern.
This article features cases highlighted
at CNYC's 32nd annual Housing Conference.
At CNYC's 33rd annual Housing
Conference on Sunday, November
17th, Mr. Luxemburg will again present
this morning class, for which CNYC has
made application for CLE credit.
Gotham Condominium, 946 NYS2d
66 (Sup. Ct. NY Co. 12/21/2011), involved
a bitter dispute arising out of
damage to the apartment caused by
the Board's alleged failure to repair
leaks, and use of a terrace as a staging
area for exterior work causing damage
to the terrace. The unit owner alleged
8 causes of action arising out of both
tort and breach of contract. Individual
claims against the directors were dismissed,
except claims against 2 directors
alleged to have made fraudulent
statements to plaintiff.
The Court explained why individual
directors should not be sued personally:
"[v]ery strong protections for board
members are there for a very good
reason. It is important that shareholders
be willing to participate in the governance
of their corporations. Shackling
them with individual liability for the
board's actions would deter them from
participating. Only individual and separate
acts of self-dealing or other personally
corrupt activities should burden
them with liability.
However, a motion to dismiss by the
Condominium was denied – the complaint
must be accepted as true and
stated causes of action.
BUSINESS JUDGMENT RULE
The continued applicability of the
business judgment rule to Boards
was affirmed in 1812 Quentin Road,
LLC v. 1812 Quentin Road Condominium, 943 NYS2d 206 (App. Div.
2d Dept. 4/24/2012), a unit owner's
action against the Board and a director
for breach of contract, which was
dismissed on summary judgment.
The Court stated: "Under the business
judgment rule, the court's inquiry
is limited to whether the board acted
within the scope of its authority under
the bylaws (a necessary threshold inquiry)
and whether the action was taken
in good faith to further a legitimate
interest of the condominium. Absent a
showing of fraud, self-dealing or unconscionability,
the court's inquiry is
so limited and it will not inquire as to
the wisdom or soundness of the business
However, in Fletcher v. The Dakota,
Inc., 948 NYS2d 263 (1st Dept.
7/3/2012), an action by an African-
American shareholder based on alleged
racial discrimination in the
rejection of his purchase of an adjacent
apartment, the Court sua sponte
limited the protection for individual
Board members to claims of breach
of contract. It held that the participation
of a director in a corporation's
tort is sufficient to give rise to individual
liability. While "participation"
was not specifically defined, it might
include no more than being involved
in, approving or ratifying the decision
that led to the discrimination claim.
Liability is not limited to cases of individual
tortious conduct. This case
represents a serious adverse change
in the law.
We strongly recommend that if
your cooperative or condominium becomes
involved in a tort case where
Fletcher becomes an issue, you immediately
advise CNYC, as we may
be interested in writing a brief amicus
curiae to limit the damage that may be
caused by this case.
UNIFORM ENFORCEMENT OF
ALSO: COLLECTING LEGAL FEES
White v. Gilbert, [Mid-83 House
Corp.], 2012 WL 3260300 (Sup. Ct.
NY Co. 7/24/2012), was an action by
a shareholder against the coop and
the individual board members for unequal
shareholder treatment in assessing
fines. Plaintiff was fined for
not recycling trash, for not removing
construction trash and for removing
kitchen cabinets. Plaintiff's claim
that other shareholders and board
members were not fined for similar
incidents stated a claim for unequal
shareholder treatment, and raised a
triable issue of fact sufficient to defeat
the cooperative's motion for summary
judgment. The action was dismissed
against the individual board members
for failure to assert individual tortious
conduct. This case demonstrates the
importance of enforcing the rules on a
The court also held that the standard
form of proprietary lease does not authorize
recovery of legal fees incurred by
the cooperative in attempting to cure a
shareholder's default until a court action
or proceeding is instituted. The cooperative
breached the lease by requiring
payment of fees as a condition to granting
consent to an alteration.
Cooperatives should consider amending
their form of lease to specifically allow
for legal fees incurred prior to an action
In Hubshman v. 1010 Tenants
Corp., 2012 WL 4472559 (Sup. Ct. NY
Co. 9/19/2012) the Eleventh cause of
action in the second action between
the shareholder and the cooperative
was a derivative claim alleging waste
by the board in bringing the first suit,
which the shareholder won. The derivative
action was dismissed on summary
judgment – because the shareholder
displayed hostility and lack of
objectivity and was not a proper plaintiff
to bring an action allegedly on behalf
of her fellow shareholders.
FOR BOARD DECISIONS
Board of Managers of the 4260
Broadway Condominium, v. Caballero, 2012 Slip Op. 51402 (Sup Ct. NY Co.
7/20/2012), was an action to foreclose
a lien for unpaid assessments totaling
$900,000. The By-laws require unit
owner approval for improvements over
$25,000 per year, but not for repairs.
The Board was required to demonstrate
that assessments were for repairs, or
obtain approval, and the Board's payment
records were inadequate to show
amounts due. Summary judgment for
board denied. This case again demonstrates
the necessity of proper support
and documentation of the basis for
PRESERVE ALL MINUTES
Norton v. 360 Riverside Owners
Corp., 2011 WL 6445231 (Sup. Ct. NY
Co. 12/4/2012), was an action by a
shareholder to recover a transfer fee
paid at closing against the cooperative
and the individual directors. The
action was dismissed against the individuals
for failure to allege independent
torts. The motion to dismiss by
the cooperative was denied because,
despite general authority in the offering
plan, proof of collection for the entire
existence of the cooperative, and
ratification by board 10 years earlier,
the minutes of the original meeting at
which the transfer fee was passed in
the 1980s was missing. Blatant misrepresentation
to the Court by the
plaintiffs – former treasurers of the cooperative
– that they were unaware of
the transfer fee was ignored, but the
loss of a 40 year old set of minutes
was deemed significant.
Himmelberger v. 40-50 Brighton
First Road Apartments Corp, 943 NYS2d 118 (App. Div. 2d Dept.
4/10/2012), was an action by a cooperative
to recover from the proceeds of
the sale of the apartment the costs of
a security guard allegedly necessitated
by the presence of an unauthorized occupant
(the son of the deceased shareholder).
The court held that Paragraph
19 concerning the right to recover the
expenses of removing an objectionable
condition requires the service of
a notice to cure the condition, in order
to allow the shareholder an opportunity
to cure, before the cooperative could
recover its expenses.
RE : NOISE,. SMOKE, MOLD, ETC.
Williams v. Esplanade Gardens Inc., 2012 WL 3164286 (Sup. Ct. NY Co.
7/23/2012), was an action by a shareholder
against the upstairs neighbor and
the cooperative for making unreasonable
noise – thumping, dragging heavy
objects, tapping. The shareholder's motion
for preliminary injunction was denied
because there are issues of fact as
to whether any noise caused a substantial
and unreasonable interference with
plaintiff's use of her apartment.
In Reinhard v. Connaught Tower
Corporation, 2011 WL 6119800 (Sup.
Ct. NY Co. 11/30/2011), the unit
owner sued the cooperative and the
president for failure to remedy second
hand smoke in plaintiff's apartment.
Various experts disagreed as
to whether there was smoke in the
apartment and if so how it got there.
Summary judgment motion for the
cooperative was denied because
there are triable issues of fact as to
whether there was sufficient smoke
to support the complaint. Motion for
summary judgment by the president
was granted – there was no evidence
of any independent tortious conduct.
In Cornell v. 360 West 51st Street
Realty, LLC, 939 NYS2d 434 (App.
Div. 1st Dept. 3/6/2012) (3-2 decision),
the tenant's action against a
landlord for personal injuries due to
mold exposure, summary judgment
for the landlord was reversed. The
court held that there is sufficient scientific
evidence that mold can cause
In Pechman v. Vista at Kingsgate
Section II, 948 NYS2d 662 (App. Div.
2d Dept. 7/18/2012), a unit owner
slipped on a door mat placed in the
stairway by another unit owner. Summary
judgment motions by the unit
owner and the board were denied.
The door mat constituted a dangerous
condition, the Unit Owner had
placed it there, and the board failed
to show when the stair had last been
inspected, and thus did not show it
lacked constructive notice of the dangerous
condition. This case raises
the question of whether a door mat
placed in an elevator landing would
also be considered a dangerous