CNYC president Marc J. Luxemburg, Esq. is an attorney specializing
in cooperative and condominium law. In each issue of the
CNYC Newsletter he reviews recent court cases that have
the potential to answer questions commonly faced by boards
as part of their responsibilities. At CNYC’s 22nd
annual Housing Conference in November, 2002, Mr. Luxemburg
presented his annual review of the year's Significant Legal
Decisions. The article that follows features highlighted
cases from this seminar. To review previous decisions he
has discussed, please visit our archive.
What is a board to do with a difficult shareholder whose
behavior only gets worse with time? That was the focus of
40 West 67th Street v. Pullman 742 NYS2s 264 (1st Dept.
15/23/02), one of the more controversial cases of the past
The defendant was accused of "objectionable conduct"
by his fellow shareholders, who asserted a long list of
offenses by Mr. Pullman. They claimed that from the time
he moved in, Mr. Pullman began insisting that numerous changes
be implemented to the building’s facilities and services.
He started by requesting that the lobby mailboxes be replaced,
a video camera be installed, and 24-hour door attendance
But it didn’t stop there. Soon Mr. Pullman began
complaining about noise in the apartment above him. In 16
written complaints to the managing agent sent in October
1999, Mr. Pullman claimed that there was a banging noise
emanating from above that kept him up at night. He accused
the residents in the apartment above of housing a commercial
bookbinding business. The upstairs neighbors were, the board
found, a retired college professor and his wife with no
bookbinding business. Mr. Pullman insisted that they operated
their stereo and television at high decibel levels, and,
in an affidavit in yet another action, he stated that the
prior lessees of his apartment had also complained about
the apartment above. The board investigated Mr. Pullman’s
claims and found them to be unsubstantiated.
In the course of the year 2000, Mr. Pullman instituted
four lawsuits – two against his upstairs neighbors,
the first for noise and nuisance and the second seeking
an injunction. His third action was against the cooperative
president, alleging a breach of fiduciary duty for not stopping
the noise. The fourth was against the managing agent for
allowing breaches of the warranty of habitability relating
to the noise. Mr. Pullman also attempted to start two other
lawsuits with orders to show cause, but the Court refused
to sign the orders.
Mr. Pullman circulated leaflets to the other shareholders,
as well. In one, he claimed that the upstairs neighbor should
be evicted because, he said, the neighbor "had the
makings of a psychopath". During this time, the board
sent Mr. Pullman a letter saying he had violated the proprietary
lease by renovating his kitchen, installing soundproofing
inside his windows and employing a construction worker on
a Sunday, all without board consent. Mr. Pullman ignored
all these claims and refused to allow an inspection of his
A special meeting of shareholders was convened on June
27, 2000, to discuss Mr. Pullman’s conduct, and to
determine whether it was considered "objectionable"
within the meaning of the proprietary lease. Like most proprietary
leases, theirs included a provision allowing shareholder’s
lease to be terminated for "objectionable conduct"
by vote of a supermajority of all outstanding shares. All
those who attended this meeting (75% of the shareholders)
voted in favor of terminating Mr. Pullman’s proprietary
lease. Mr. Pullman had been invited to defend himself, but
he declined to attend.
The crucial question considered by the Court was whether
a trial had to be held to determine the truth of all these
allegations and counter-allegations before eviction could
The Court found that the business judgment rule rendered
a trial on the truth of the allegations unnecessary, because
there was no allegation that the board's decisions were
made in bad faith or in violation of the other protective
standards of the business judgment rule. The Court upheld
the vote of the shareholders, stating that Mr. Pullman had
not provided any evidence for his allegations that he was
evicted based on illegal or impermissible considerations.
Although the Court found that under the business judgment
rule the determination of the board was binding on Mr. Pullman,
the Court also seemed to conclude that on the facts presented,
Mr. Pullman was the objectionable party.
It should be noted that this cooperative patiently exercised
all of its responsibilities in dealing with the extreme
conduct of Mr. Pullman: 1) his various complaints were investigated;
2) notices advised him of his violations of building rules
and tried to bring him into compliance; 3) when this failed,
a meeting of shareholders was called, where he was invited
to defend his conduct, and; 4) the requisite 2/3 supermajority
vote for termination of his proprietary lease was obtained.
Actions that will result in the eviction of shareholders
are quite serious and should not be taken lightly.
Two cases in 2002 highlighted ongoing and diverse issues
surrounding apartment transfers. In Wiener v. 150 West End
Owners Corp., 2002 WL 31249545 (A.D. 2d Dept. 10/7/2002),
the Court determined that the managing agent had not acted
improperly by withholding consent to the transfer of a foreclosed
unit. The corporate documents stated that consent of the
managing agent was necessary for such a transfer. Mr. Wiener,
a sponsor/investor had purchased the unit at auction, intending
not to live there but to sublet. Had management routinely
consented to this sale, this cooperative, which was still
almost 50% sponsor owned, would have increased, not decreased,
the percentage of apartments that were not occupied by shareholders.
The managing agent deemed that this would not have been
in the best interest of the cooperative in terms of operations
or financial well-being, and that the plaintiff’s
stated intention to sublet the apartment violated the board’s
policy against selling to non-resident owners.
Mr. Wiener complained that the managing agent had consulted
with the co-op's attorney in coming to that conclusion.
But the Court found there was no prohibition against the
managing agent consulting with the cooperative or with the
cooperative’s counsel concerning what kind of policy
In Seif v. 72 Horatio Street Owners Corp, NYLJ, 2/6/2002,
p. 18, c. 5 (Sup. Ct. NY Co.), the Court dealt with the
effect of a transfer fee in a small (8-unit) cooperative.
On March 29, 2000, less than two months after the death
of a shareholder, the remaining seven shareholders held
a special meeting in which they voted to impose a transfer
fee of 3% of the sales price exclusively on the sale of
apartments belonging to deceased shareholders. Of course,
there was only one at the time; given that this was an eight-unit
cooperative, the likelihood of another shareholder death
in the immediate future was slim.
When this was challenged, the Court found that there were
problems with the imposed transfer fee. First, the executors
of the estate were not invited to the meeting. Thus the
meeting was invalid, and the transfer fee had not been properly
adopted. The more significant point was that the Court then
considered the fee on the merits, and said that the majority
shareholders – the people who have the power and authority
to direct and control the affairs of a cooperative –
have a fiduciary duty to all shareholders to adhere to a
code of conduct requiring that all shareholders be treated
equally. If the shareholders had enacted a transfer fee
that was applicable only to the estate of any shareholder
who subsequently died, it is possible that the action might
have been lawful. But in this instance, enacting the fee
targeting a specific estate right after the shareholder
died fell right within one of the exceptions to the business
judgment rule – specifically trying to harm a particular
SPONSORS' DUTY TO SELL
One of the most publicized and talked-about cases of 2002
was 511 W 232nd Owners Corp v. Jennifer Realty Co. ( 746
NYS 2d 131 (Ct. Apps. 6/10/2002), which involved a sponsor's
obligation to sell apartments. This sponsor converted the
building to a cooperative in the late 1980s, sold 25 apartments
out of 66, and essentially stopped selling around 1990.
According to the shareholders, this perpetuated a litany
of problems that arise out of a situation where less than
50 percent of the apartments are sold. The Appellate Division
held that the sponsor had a duty to sell all of the units
in a reasonable period of time.
Jennifer Realty appealed, and The Court of Appeals, remanding
the case to the Appellate Division, upheld the shareholders'
claim: that the offering plan required that the sponsor
had an obligation, at the very least, to sell a sufficient
number of shares in a timely manner so as to create a "viable
cooperative". The Court stated this was a valid cause
One remarkable element of the Jennifer case is that three
of the terms used in the case remained undefined by the
Court: 1) "timely manner", 2) "sufficient
number of shares", and 3) "viable cooperative".
Nor did the Court deal with the applicability of this situation
to "holders of unsold shares" who were not sponsors.
In effect, the Court held that the shareholders had the
right to proceed with their case, and, at some future point
these ambiguities would likely be resolved.
We are not aware of any prior case, statute or document
that uses the phrase "viable cooperative", and
would thus help define the term. And, while it is possible
to infer through reading the decision what the Court may
have meant, the Court did not expressly define it.
The bottom line in the Jennifer case is that the Court
of Appeals was feeling its way into a new area, and declined
to set a more definitive rule. It opted instead to place
the case before a trial Court for the issues to be considered
in greater detail than available to an appellate Court before
For more information on the Jennifer case, see the Archive
section.. Click here for
CNYC’s position paper on what makes a cooperative
or condominium "viable".