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