Scott E. Mollen

Co-Ops—Court Upholds Co-Op's Termination of Proprietary Lease Based on Objectionable Conduct—Business Judgment Rule

A petitioner cooperative housing corporation (co-op) commenced an "objectionable conduct holdover proceeding" to recover possession of the respondent shareholder's co-op apartment. The apartment was "exempt from rent control and rent stabilization pursuant to General Business Law §352-eeee." The co-op alleged that "after approximately 20 years of objectionable conduct, and repeated written notices, the board of Directors held a special meeting to discuss whether respondent's tenancy should be terminated for objectionable conduct pursuant to…respondent's proprietary lease." Following deliberations, the shareholder's proprietary lease (lease) was terminated by a unanimous vote of the board of directors (board). The shareholder refused to vacate the apartment and the co-op commenced the subject summary holdover proceeding. The co-op moved for summary judgment seeking a final judgment of possession, dismissal of the shareholder's defenses and counterclaims, jury demand and for attorney fees.

The co-op alleged that it acted "within its authority and in good faith" in terminating the shareholder's tenancy and that the court should "defer to the board vote and issue a warrant of eviction…." The shareholder opposed the co-op's motion and cross moved for summary judgment. The shareholder argued that the co-op had acted "outside the scope of its authority by not precisely following the procedure prescribed by the co-op for sending notices," acted in "bad faith by deliberating 'off the record' at the special meeting," had failed to state "the factual basis in support of its decision to terminate respondent's tenancy based on objectionable conduct" and that the notice of termination failed to state a cause of action because it was "factually deficient." The shareholder also sought attorney fees and costs.

The co-op asserted the shareholder's bad behavior included "repeatedly banging and knocking on the floors, walls and ceilings of his apartment at all hours of the day and night; violently pounding and kicking the doors of other apartments; continually buzzing and banging on the door of (an upstairs apartment); speaking to building residents in an abusive, threatening and rude manner; playing his radio loudly and incessantly; blaring his television volume at all hours of the day and night for weeks at a time, causing the police to be called to the building as a result of excessive noise; and he damaged the door and door frame to (an apartment below his) by beating it with a baseball bat." Since 1998, neighbors complained about the shareholder on a "regular basis." "At times, complaints were logged on a daily and monthly basis throughout most years of respondent's tenancy."

The co-op alleged that it sent numerous warnings to the shareholder asking him to comply with the lease and house rules. The co-op attached to its pleading, 15 letters and notices which had been sent to the shareholder regarding his behavior. The letters included notices to cure. In certain years, the notices led to mediation with a neighbor. Some letters included bills for alleged property damage.

The co-op had scheduled a special meeting of the board for the purpose of determining whether to terminate the tenancy based on objectionable conduct. The lease authorized such termination based on objectionable conduct which included, without limitation, repeatedly violating or disregarding the house rules. The co-op had sent the shareholder a Notice of special meeting which included the "proposed resolution that the board would be asked to vote on to terminate respondent's…lease."

In accordance with the co-op's bylaws, the board held such meeting. The co-op had sent the shareholder a notice of opportunity to attend special meeting of board of directors and the cooperative. That notice advised the shareholder that he could attend the special meeting with or without an attorney and that he had the opportunity to be heard before the board voted. The shareholder was also given a copy of the proposed resolution that the board would be asked to vote on. The notice of opportunity to attend the special meeting contained 28 paragraphs setting forth instances where the shareholder violated the lease and house rules from August 2017 through Sept. 18, 2018. That notice also included approximately 15 letters and notices previously sent to the shareholder concerning the alleged objectionable conduct.

The lease specified that shareholders would not "permit or suffer any unreasonable noise or anything that will interfere with the rights of other lessees or unreasonably annoy them or obstruct the public halls or stairways." The lease further obligated the shareholders to "in good faith endeavor to observe and promote the cooperative purposes for the accomplishment of which the Lessor is incorporated," to comply with the house rules and provided that breach of the house rules would be default under the lease. The house rules were attached to the lease.

The house rules prohibited shareholders from making "disturbing noises" or to otherwise "interfere with the rights, comfort or convenience of other lessees or residents." They also specifically embodied limitations on the hours when stereo systems, radios, televisions or video game loudspeakers could be used, "if the same shall disturb or annoy other occupants in the building."

The shareholder failed to attend the special meeting. All five board members attended the special meeting and voted unanimously to pass the resolution which terminated the shareholder's lease for objectionable conduct. The notice of termination included the stenographer's "official transcript" from that special meeting.

The court explained that the New York Court of Appeals in 40 West 67th Street Corp. v. Pullman provides the "legal framework for analysis" and that Pullman is "an extension of Levandusky v. One Fifth Ave. Apt. Corp., which established that the "business judgment rule is the proper standard of review when evaluating a decision rendered by a co-op."

The business judgment rule "prevents judicial interference and second-guessing of corporate decisions made in good faith and in furtherance of the corporate purpose." Decisional precedent held that courts should accord the same level of deference to a board of Directors vote as to a shareholder vote. To invoke "further judicial scrutiny," an aggrieved shareholder must show that the board acted "outside the scope of its authority," "in a way that did not legitimately further the corporate purpose" or "in bad faith." If a shareholder meets its burden, then courts will conduct an "independent evaluation, from competent, admissible evidence, or whether the shareholder committed objectionable conduct."

The court struck the shareholder's jury demand since the lease contained a jury waiver as to any proceeding or counterclaim brought by either party in connection with the lease.

The court rejected the shareholder's arguments that the board failed to comply with procedural requirements relating to notices, that the co-op had acted in bad faith by deliberating "off the record" at the special meeting and failed to state the "factual basis in support of its decision to terminate respondent's tenancy based on objectionable conduct."

The shareholder had failed to appear at the special meeting and the allegations therefore were "undisputed." The shareholder asserted that he did not attend the meeting because he thought it would be "futile." The court stated that "all parties were aware that the proposed resolution would be voted on at the special meeting, which respondent admittedly did not attend. The proposed resolution was circulated, the issue was clearly framed, and the board took reasonable steps to make sure that respondent was apprised as to what was at stake at the special meeting."

The court rejected the assertion that the board had acted "off the record" since the shareholder failed to identify any "requirement in the…lease, the by laws or the New York Business Corporation Law that the board must conduct their deliberations on the record." Moreover, the co-op had given the shareholder numerous "letters, meetings, warnings," there had been mediation efforts, and such was "prima facia evidence that the board acted in good faith."

The court rejected the shareholder's allegations that neighbors and the board "conspired to terminate his tenancy" since such allegations were not supported by "any of the evidence and is not persuasive." The court further stated that "a bona fide ground upon which a cooperative renders a determination against a shareholder prevails over an allegation of the shareholder that personal animosity was the real reason for the adverse determination." Thus, the court rejected the shareholder's claim that the co-op acted in bad faith.

Additionally, the court held that the notice of termination satisfied the "reasonableness test and the board's vote is entitled to deference." The court also rejected the shareholder's counterclaim for attorney fees and costs. However, the lease entitled the co-op to recover reasonable attorney fees.

Since the holdover proceeding had been commenced in March 2019, the court held that the NYS Housing Stability and Tenant Protection Act of 2019, which became effective of June 14, 2019 and which made changes as to attorney fees and charges recoverable in summary proceedings was inapplicable.

Thus, the court found that the co-op's termination of the shareholder's lease was authorized, "made in good faith, and in furtherance of the co-op's legitimate interests." Based on the business judgment rule, the court was required to "defer to the good faith decision by the board" and therefore granted summary judgment to the co-op and awarded it a final judgment of possession.

The court stayed its decision for several months in order to "allow time for a sale" by the shareholder of his cooperative shares and to secure an alternate residence. If the parties could not agree on the amount of the co-op's legal fee entitlement, the court directed the co-op to restore the proceeding by motion on notice for determination of such legal fees. If the proceeding is not restored by a certain date, the co-op's claim for legal fees and costs will be severed for a plenary action.

Surfair Equities Inc. v. Marin, Civil Court, Queens Co., Case No. 56048/19, decided Jan. 15, 2020, Poley, J.

Landlord-Tenant—Succession Right to Rent Controlled Apartment—Decedent's Homecare Attendant Held to be Non-Traditional Family Entitled to Succession Rights

A petitioner commenced a licensee holdover proceeding seeking possession of a rent-controlled apartment. The tenant of record (tenant) had died on August 12, 2018. The respondent asserted a succession right as a non-traditional family member. The court conducted a trial.

The respondent testified that she met the tenant in 2012 through a church they both attended. In 2014, she was hired as one of three homecare attendants by the tenant. She had been hired by the tenant's "power of attorney." Following a period of time, the power of attorney advised her that the tenant was "out of funds to pay the caretakers, so she would have to be placed in a nursing home." The respondent testified that she chose to stay with the tenant, without compensation since she "felt sorry for her and cared for her greatly."

The respondent further testified that she gave up her own apartment to move in with the tenant in 2015 and that she and the tenant "joined their finances and eventually opened a joint bank account in 2016." The respondent claimed that the power of attorney had "squandered" the tenant's funds and that "she brought her to an attorney who was able to retrieve a portion of the money." In May 2015, the tenant executed a "Durable Special power of attorney for Healthcare" which appointed the respondent as her agent. The tenant also executed a power of attorney appointing the respondent as her agent and the respondent became the executor of the tenant's will.

The respondent testified that she and the tenant were "more like sisters" than an employer and an employee. They shared "social events, holidays and life's daily routine." The respondent explained that she had taken care of the tenant's "personal and physical needs after she broke her hip and later, as she was dying." The respondent took the tenant for "doctors' appointments, manicures and hair appointments," as well as on visits to the park and "family functions." The tenant did not have family in the United States and "so she was brought into (respondent's) family." The respondent submitted multiple photographs of the tenant at various venues and testified as to having shared whatever money the respondent had in order to permit the tenant "to enjoy simple pleasures like manicures."

The respondent called three witnesses in support of her testimony, including a volunteer minister at her church, a registered nurse who knew the tenant since late 1970s and was also a member of the same congregation and the nephew of the tenant. The nephew lives in France and his testimony was taken "via skype." He explained that he and the tenant spoke every six weeks for three years before her death and that the tenant had told the nephew that the tenant considered the respondent to be like her sister or a daughter and that although there "really were no assets in her estate," the tenant named the respondent as the executor of her will. He knew that the respondent and the tenant had spent holidays together and testified about a vacation the two women had taken to North Carolina.

In order to establish succession rights, respondent had to demonstrate that she resided with the tenant in the apartment as a primary residence during the requisite time period and that she and the tenant had an "emotional and financial commitment, and interdependence" between her and the tenant. The court noted that no single factor is to be "solely determinative" and evidence may include, without limitation, such factors as longevity of the relationship, sharing of or relying upon each other for payment of household or family expenses and/or other common necessities of life, intermingling of finances, engaging family type activities, formalizing of legal obligations, holding themselves as family members to other family members, friends and members of the community or society in general, regularly performing family functions, such as caring for each other's extended family members or relying on each other for daily family services and engaging in other "pattern of behavior, agreement or other action which evidences the intention of creating a long-term, emotional and committed relationship."

The court found that the "un-rebutted testimony and evidence supports a finding that the respondent's relationship with the deceased falls within the definition of a non-traditional family member and that they co-resided in the apartment for the requisite time period that would entitle (respondent) to succeed to the rights of the tenant of record." The court cited the joint bank account, documents "formalizing legal obligations, years of sharing family functions and holding themselves out to members of the community and church as having an emotionally committed relationship." The court also cited photographs of the tenant together with the respondent's family.

The court concluded that the undisputed testimony demonstrated that the respondent cared for the tenant in the apartment until she passed away and the tenant had provided "credible supporting testimony from a clergy, a friend and the closest relative" of the tenant. Accordingly, the court dismissed the petition with prejudice and held that the respondent is entitled to "all the rights, obligations and rent regulatory status afforded the deceased tenant of record…."

6914 Ridge Blvd LLC v. Delao, Civil Court, Kings Co., Case No. 86571/18, decided Jan. 6, 2020, Kuzniewski, J.

Landlord-Tenant—Tenants Granted Mistrial Based on Landlord's Improper Conversation of Case with a Witness—Witness Tampering and Obstruction of the Trial Process

A landlord commenced a non-primary residence holdover proceeding. A trial had been scheduled for December 2018. Following several trial dates, the tenants moved for a mistrial, based on the landlord's "conversation with a witness who was scheduled to testify at trial." The court conducted a hearing with respect to such motion.

A tenant witness (witness) testified that approximately one week prior to the trial date, she had called the landlord's managing agent (agent) with respect to a repair and the agent "questioned her about the instant matter." The agent asked the witness if "she was coming to court." The agent then advised the witness that "it was a difficult case." The agent also questioned the witness as to how long she had known the tenant and how she would prove that the tenant had lived in the building between 2014 and 2016. Additionally, the agent advised the witness that the landlord had "video cameras." The witness testified that she "felt intimidated by the conversation with the landlord." The witness also reported that the agent advised her that the agent did not "want to continue with the case because it was costing a lot of money," and the (agent) thought it was a waste" of her time and the court's time.

On cross examination, the witness acknowledged that the agent never "raised her voice" and had remained "professional throughout their conversation." However, the witness felt intimidated when the agent mentioned the video cameras. The agent had also said that she would see the witness in court. However, she had not made any threats during the conversation, nor had made any promises to her if she did not appear in court.

The agent acknowledged the foregoing conversation and claimed that she was a relatively new manager at the building, that she did not know any of the tenants and she wanted to know whether the respondent tenant lived in the building "and if it was a worthwhile case."

The agent admitted that she asked the witness the aforementioned questions, but denied that she had said that the case was a "waste of time." She also denied asking the witness if she had any evidence. She emphasized that she was merely seeking to "determine if it was a worthwhile case."

The court found the witness to be "reliable and credible." The court noted that the agent "largely collaborated" the witness's version of the subject conversation.

The court explained that the fact that the witness had not been "dissuaded from coming to court is not relevant to a determination that (the agent) tampered with the witness and attempted to obstruct the trial process." The court noted that the agent had discussed "details of the case and the evidence which was improper." The court found that the agent's "misconduct is prejudicial to respondent because of its impact on the witness who reported that she was intimidated."

Since the court found that the agent's discussion with the tenant's witness was "clear misconduct which intrudes on respondent's right to a fair trial," the court granted the tenant's motion for a mistrial and set a date for a new trial.

8th St. Assocs. LLC v. Ortiz, Civil Court, Kings Co., Case No. 63952/16, decided Jan. 6, 2020, Gonzales, J.

Scott E. Mollen is a partner at Herrick, Feinstein.