Published: Autumn 1997

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. His workshop discussing legal decisions of the prior year is featured at each year's Cooperative Housing Conference. To review previous decisions discussed in this column, visit the Newsletter Archive.

COURTS CONSIDER BOARD LIABILITY

The cooperative may be subject to liability for damages, as seen in the following cases.

CO-OP HELD LIABLE IN SLIP-AND-FALL
In Salah v. 2061 Linc Owners Corp., NYLJ, 8/12/97, p.25, c.2 (Sup. Ct. Queens Co.), a pizza chef slipped while carrying a pot of hot tomato sauce down a stairway from the ground floor to the basement in a commercial space owned by the sponsor. The pizza maker brought suit against the cooperative, the owner of the building, claiming that the building was defective, even though the staircase had been constructed by the sponsor. The court refused to dismiss the case against the cooperative, holding that there was a triable issue of fact as to whether the cooperative had actual or constructive notice of the defects. The cooperative's claims for indemnification against the sponsor were also set down for trial since the cooperative could not produce conclusive proof that the sponsor had agreed to indemnify the cooperative for such claims.

The cooperative cannot take for granted that the sponsor, as owner of a commercial space that is not a separate condominium unit, but is leased from the cooperative, is properly maintaining or operating the space, and must add such areas to its list of places to inspect on a regular basis. In addition, the cooperative should review its organic documents to ascertain the extent of any indemnity that may exist on the part of a commercial unit owner.

CO-OP ENTITLED TO ENFORCE ITS RULES
On the other side of the ledger, in Sayview Gardens Ltd. v. Sperrazza, NYLJ, 9/19/97, p-29, c.1 (Civ. Ct. Kings Co.), the cooperative brought a holdover proceeding against a shareholder who had installed a through-the-wall air conditioner adjacent to a fire escape in violation of the building's rules and regulations. The shareholder raised the defenses that this was a retaliatory action because she had been a tenant activist, and that her air conditioner was not in fact obstructing the fire escape and was otherwise properly installed.

The court ruled that the cooperative was entitled to enforce its rules. The shareholder had notice of the rules and regulations, deliberately chose to disregard them, did not seek any consent for her work or notify the board of what she was proposing to do. The court held that her conduct constituted a breach of the proprietary lease and the cooperative was awarded a judgment of possession.

BOARD HELD LIABLE FOR DISPROPORTIONATE SHARE ALLOCATION
In Goodman v. 225 East 74th Apartments Corp., NYLJ, 8/19/97, p.22, c.6 (Sup. Ct. NY Co.) the plaintiffs brought an action to compel a reallocation of shares and for damages for overpayment of maintenance for 10 years. It appears that the plaintiffs had purchased an apartment from the sponsor in 1985, subject to the tenancy of a rent-regulated tenant. When the tenant moved out 10 years later, the plaintiffs claimed that for the first time they discovered that they had purchased a studio apartment, not a two bedroom apartment as described in the offering plan. They brought an action against the board to compel a reallocation of shares. The cooperative argued that the complaint did not state a cause of action because it had not been a party to the contract of sale, and that any complaints arising out of a 1985 purchase were long since time-barred.

The court disregarded these defenses. The cooperative's motion to dismiss on the ground of failure to state a cause of action was denied and the case was ordered to go to trial. The court reasoned that the cooperative board had breached its fiduciary duty and hadn't treated all shareholders equally because the shares were not properly allocated. The business judgment rule did not prevent the court from inquiring into the board's action, because the directors' maintenances were affected by the outcome of the matter, and therefore they were not disinterested. The plaintiffs were also allowed to proceed on a theory of mistake because the bylaws allow reallocation of shares under certain circumstances.

While it is clear that the concept of treating all shareholders equally is a fundamental principle of cooperative living, perhaps the court could have acted more equitably by correcting the maintenance allocation prospectively and requiring the shareholder to sue the sponsor for prior inequities.