Publication Date: Spring 2000
CNYC thanks Marc J. Luxemburg for
this article. A founder and president of CNYC, Mr. Luxemburg
is a partner in the New York law firm of Snow Becker Krauss.
He presents a workshop every year at CNYC's Housing Conference
reviewing court decisions that have particular significance
for cooperatives and condominiums. Water problems are a frequent
theme. In this article, Mr. Luxemburg examines a recent case
where the plaintiffs used a buckshot approach to challenging
their cooperative, and the Court carefully examined each aspect
of their contentions. At CNYC's 20th annual Conference on
Sunday, November 12, 2000, Mr. Luxemburg will again present
Current Significant Legal Issues.
WATER, WATER EVERYWHERE
Water leaks frequently present great difficulties to a Board
of Directors. It is often difficult to diagnose the source
of water leaks, and expensive and time consuming to repair
leaks involving the exterior shell of the building. The Board
has a duty to take reasonable action to cure a water leak,
although it many be faced with the prospect of spending a
large amount of money to prevent a small amount of water from
coming into an apartment; and the effort may not meet with
success. What is reasonable in any given circumstance is in
part a matter of business judgment but it also turns on the
practical issues of whether the steps taken by the Board in
fact cure or abate the leaks.
The recent case of Schimmel v Ritz Tower, Inc., NYLJ, 2-9-2000, p.28,c.6 (Sup Ct NY Co.) presents a virtual smorgasbord of issues relating to the Board's obligation to manage the Cooperative. The plaintiffs, who had sold their apartment prior to the time the suit was brought, had had water repeatedly leak into the apartment through the ceiling causing damage to the apartment as well as to their personal property for a period of six years while they had owned the apartment. Although the Cooperative was notified of these leaks, it failed to repair the problem. Suit was brought against the cooperative and the individual members of the Board of Directors. The suit contains several causes of action, each of which is independently worthy of comment.
INDIVIDUAL LIABILITY REJECTED
The Court first noted that individual officers and directors of a corporation
may not be subject to individual liability for action which they take,
or fail to take, with respect to repairs without a showing that they engaged
in "independent tortuous conduct".. There was no allegation that the defendant
board members individually committed any independent tortuous acts. The
complaint was dismissed against the individual directors.
It appears that prior to the Plaintiff's purchasing the apartment the
board had written two documents which informed shareholders of prospective
work that would be undertaken to renovate the structure of the building.
The reports described the projected work and included a schedule of the
work and the projected costs. The Plaintiffs assert that they purchased
the apartment in reliance on the representation that this work would be
performed and that their apartment would be watertight. This claim was
dismissed on Summary Judgment because mere unfulfilled promissory statements
as to what would be done in the future are not actionable as fraud unless
the promise was made for the specific purpose of inducing the Plaintiffs
to enter into a contract, without any intent of carrying out the work.
There was no evidence that the reports to the shareholders were issued
for the purpose of inducing non-shareholders to buy apartments in the
Cooperative, or that the Board had no intention of carrying out the proposed
DISCLOSURE OF LEAKS
The second claim for fraud was based on the claim that the Cooperative
did not inform the Plaintiff prior to the purchase that there had been
a number of leaks into her apartment. This was also dismissed because
the Cooperative and the individual Directors were not selling the apartment
and did not stand to benefit from any such sale and the seller was under
no duty to speak when the parties deal at arms length. Mere silence dos
not amount to actionable fraud. In addition, the fraud claims were barred
by the statute of limitations since more than six years had elapsed after
the apartment has been purchased and the Plaintiffs were well aware of
the problems in the apartment at a much earlier date.
The Plaintiffs further alleged that the Cooperative and the individual Directors failure to disclose the leaks in Plaintiff's apartment and failure to cure the leaks which occurred after they moved in was intended to cause them emotional distress. No evidence was submitted to support this charge and it was dismissed.
COOPERATIVE IS RESPONSIBLE
FOR A BUILDING IN GOOD REPAIR
The Plaintiff's fourth claim was that the cooperative had breached its obligation under the Proprietary Lease, which require it to keep the common areas of the building, such as the roof, gutters, and pipes, in good repair. The cooperative argued that there was no evidence that the leak came from a common are of the building in need of repair. The court held that the cause of the leak was a 'triable issue of fact' to be litigated.
WARRANTY OF HABITABILITY
The court also reviewed a claim for breach of Warranty of Habitability (Real Property Law Section 235 (b). The court held that repeated water leaks causing extensive damage to the ceiling, the floors and personal property does constitute a breach of the Warranty of Habitability. The Court noted that a failure to repair or protect against repeated water leaks may constitute a breach of the Warranty of Habitability, however, whether the facts of this case constitute such a breach is a matter to be resolved at trial.
PUNITIVE DAMAGES REQUIRE
EVIDENCE OF WILLFULNESS
With respect to the claim for punitive damages, the court held that there has to be a submission of willful or wantful negligence or recklessness. There was no evidence indicating whether the defendant was even responsible for repairing the leaks into the Plaintiff's apartment, therefore there was certainly no evidence whether its failure to do so was willful or reckless. The court said it was inappropriate at this time, before trial, to determine whether the matter should be submitted to the jury or whether it should be dismissed. The Court held the issue in abeyance until trial.