Lawsuits from cooperative shareholders and condominium unit owners opposing their boards' conduct have become commonplace. When confronted with such challenges to their authority, boards, of course, may defend their position on the merits, or they may seek legal vindication under the Business Judgment Rule.

However, pitched legal battles of this nature, which often entail costly and protracted litigation over hotly contested factual issues, tend to plunge a residential community into civil war and impede a board's overall ability to manage building affairs.

Fortunately, boards in New York have a little known but widely effective alternative for defending their conduct while averting communal fratricide. Most lawsuits challenging the propriety of decisions by cooperative and condominium boards are subject to a four-month statute of limitations in accordance with CPLR Section 217 (1). As a practical matter, by the time an aggrieved owner decides to sue, procures counsel, and prepares and files the summons and complaint, the four-month statute of limitations may well have elapsed. Thus, only the swiftest acting plaintiffs can sidestep a solid statute of limitations defense. By filing a procedural motion to dismiss rather than defending on the merits or asserting a substantive Business Judgment Rule defense, a board may avert a costly public conflagration.

The vast majority of complaints by aggrieved shareholders and unit owners challenging the propriety of board decisions are styled as actions for declaratory judgment. In our experience, nearly all defense counsel accept the characterization at face value and assume that the six-year statute of limitations for this relief denominated in CPLR Section 213 governs.

However, in a triad of decisions, the New York Court of Appeals has decreed that, regardless of how styled, if an action could lawfully be commenced as an Article 78 Proceeding, then the four-month statute of limitations applicable to these proceedings applies, as set forth in CPLR Section 217 (1).

'Solnick'

The seminal case on this subject is Solnick v. Whalen, 49 N.Y.2d 224, 401 N.E.2d 190, 425 N.Y.S.2d 68 (1980). That case entailed an action for declaratory relief by a private nursing home operator challenging a determination by the State Commissioner of Health adjusting Medicaid reimbursement rates on the ground that the process by which the rate reductions were determined violated due process.

The plaintiffs commenced the declaratory action more than four months but less than six years after applying for the rate reduction at issue.

The Health Commissioner moved to dismiss on the ground that the action was time-barred because the four-month statute of limitations for Article 78 Proceedings as set forth in CPLR Section 217 (1) had elapsed. The nursing-home operator maintained that the six-year statute of limitations denominated in CPLR Section 213 applied to her declaratory judgment action.

The Solnick decision hinged upon the manner in which limitations periods are ascribed to various substantive causes of action under Article 2 of the CPLR. The article assigns different specific limitations periods (i.e. 120 days, one year, two years, three years, etc.) to various substantive causes of action recognized under the law. Relevantly, CPLR Section 213 ascribes a six-year limitations period for, among other specifically defined substantive causes of action, those claims "not otherwise provided for." Commentators often refer to this miscellaneous six-year limitations designation as the "catch-all provision."

While acknowledging that declaratory judgment actions fall within this "catch-all" six-year limitations category, a unanimous Court of Appeals decreed that this designation is not dispositive as to the governing limitations period for any particular declaratory judgment action. The court concluded that declaratory judgment actions are different from other types of actions listed in CPLR Article 2 because they seek declaratory rather than "coercive" relief.

Accordingly, whereas Article 2 delineates statutes of limitations for causes of action seeking coercive relief "by reference to the gravamen of the claim or the status of the defendant party" therein, it does not do the same for actions merely seeking declaratory relief, suggesting that such actions must be treated differently for purposes of determining what limitations period governs. Based on this distinction, the court determined that whenever a particular declaratory judgment action is reviewed for purposes of determining its governing statute of limitations, courts are required to "examine the substance of that action to identify the relationship out of which the claim arises and the relief sought." Solnick, 49 N.Y.2d at 229.

Upon such examination, to the extent that the action, though styled as a claim for declaratory judgment, could have been commenced as another form of action to which a specific limitations period has been ascribed under Article 2 of the CPLR, the specifically denominated statute of limitations must be found to govern. If no other form of proceeding exists for the claims depicted in the declaratory judgment complaint, then the six-year statute of limitations set forth in CPLR Section 213 governs. Solnick, 49 N.Y.2d at 229-30.

The Court of Appeals concluded that the allegations in the Solnick declaratory judgment complaint were amenable to resolution as an Article 78 Proceeding. As such, it found the action to be governed by four-month limitations period for Article 78 Proceedings under CPLR Section 217 (1).

Subsequent Decisions

This reasoning was echoed by the Court of Appeals in two subsequent decisions, Board of Education v. Ambach, 49 N.Y.2d 986, 406 N.E.2d 1061, 429 N.Y.S.2d 167 (1980) (involving a challenge to manner in which education aid was allocated), and New York City Health and Hospitals Corp. v. McBarnette, 84 N.Y.2d 194, 639 N.E.2d 740, 616 N.Y.S.2d 1 (1994) (involving challenges to state-administrative-agency-promulgated rules concerning Medicaid reimbursement rates on the basis they represented an irrational construction of the governing statutes).

Courts have held that the doctrine requiring courts to scrutinize the substance of declaratory judgment actions in order to determine the applicable statute of limitations and timeliness of claims applies not only to challenges to government action, but also to suits by residents challenging actions of their cooperative and condominium boards.

In Buttitta v. Greenwich House Cooperative Apts., Inc., 11 A.D.3d 250, 783 N.Y.S.2d 26 (1^st Dept. 2004), the First Department sua sponte applied the four-month Article 78 limitation period to bar what was styled as a declaratory judgment action by a cooperative shareholder challenging the propriety of the Board's redemption of his stock and lease.

In Katz v. Third Colony Corp., 101 A.D.3d 652, 957 N.Y.S.2d 330 (1^st Dept. 2012), The First Department dismissed as time-barred a declaratory judgment action by a cooperative shareholder challenging the validity of a flip tax provision, commenced three years after its enactment, "because they [we]re required to have [challenged the proprietary lease amendments] via a proceeding pursuant to CPLR Article 78 within four months [of their enactment]." Katz, 101 A.D.3d at 653.

Similarly, in Ciccone v. One W. 64^th St., Inc., 171 A.D.3d 481, 98 N.Y.S.3d 21 (1^st Dept. 2019), the First Department dismissed a declaratory judgment action challenging the validity of a cooperative board's amendment to a proprietary lease provision concerning occupancy of the building's residential units on the ground that it was "barred by the four month-statute of limitations on proceedings against bodies such as cooperative boards." Ciccone, 171 A.D.3d at 481.

While it might seem surprising that Article 78 proceedings can lie against private entities like cooperative and condominium boards, the statute prescribes proceedings against "bodies" in general which make "determinations." Courts have held that such "bodies" include non-governmental agencies which "have powers akin to a government, to affect the rights of a constituent member…." See Matter of Okslen Acupuncture P.C. v. Dinallo, 25 Misc. 3d 637, 641, 884 N.Y.S.2d 804, 809 (Sup. Ct., N.Y. County 2009). That designation applies to cooperative and condominium boards, as the Court of Appeals has termed them "quasi governments." See Matter of Levandusky v. One Fifth Ave. Apt. Corp., 75 N.Y.2d 530, 536, 553 N.E.2d 1317, 554 N.Y.S.2d 807 (1990).

In each of the above-cited cases, the allegations set forth in the declaratory complaint were amenable to commencement as an Article 78 Proceeding in accordance with CPLR Section 7803 (3). That provision allows challenges to "a determination … made in violation of lawful procedure, … affected by an error of law or … (which is) arbitrary and capricious or an abuse of discretion…."

When the Shoe's on the Shareholder's Foot

Declaratory judgment actions against a cooperative or condominium board whose gravamen is something other than the grievances depicted in CPLR Section 7803 cannot be maintained as an Article 78 proceeding. Accordingly, they are governed either by the "catch-all" six-year statute of limitations (CPLR Section 213) or by one of the other specifically allocated limitations periods. Thus, in Konigsberg v. 333 East 46^th St. Apt. Corp., 2016 N.Y. Slip. Op. 31180 (U), 2016 WL 3455940 (N.Y. Sup. Ct., N.Y. County), the Court refused to apply the four-month Article 78 limitations period to an action against a cooperative alleging breach of an alteration agreement by reneging on its approval of installation of a washer and dryer in the shareholder's apartment.

The Konigsberg court found the gravamen of the complaint sounded in contract, rather than alleging that the cooperative was acting in violation of its own governing documents. See also Wolf v. 570 Park Ave. Apts. Inc., 2017 N.Y. Slip Op. 31435(U), 2017 WL 2880362 (Sup. Ct., N.Y. County) (denying that branch of the defendant cooperative's motion to dismiss asserting that the four-month statute of limitations should be found to apply on the basis that that the claim sounded in breach of contract, rather than alleging action in contravention of governing documents).

The availability of a short statute of limitations defense for declaratory judgment actions aimed at cooperative and condominium board "determinations" is not widely known. Yet, such a defense effectively cuts off claims by the vast majority of aggrieved owners because so few actually mobilize to sue within four months of accrual. Resort to this defense as opposed to litigating on the merits or mounting a Business Judgment Rule defense averts a prolonged legal battle with its attendant expense and disruption to the community. It is a secret weapon that boards should deploy with abandon.

Bruce A. Cholst is a shareholder and Devin W. Ness is an attorney in Anderson Kill's New York office. Both authors concentrate their practice in real estate, litigation and cooperative and condominium law.