Scott E. Mollen

Condominiums—Declaratory Judgment Action Challenging 2015 Bylaw Barred by Statute of Limitations—Challenge Could Have Been Commenced by an Art. 78 Proceeding Within Four Months of the Bylaw's Enactment—Complaint Served One Day Late Barred Since It Failed To Assert a Meritorious Claim—Demand for Books and Records, Including Names of Other Unit Owners and Injunction Requiring board To Provide Such Documents for Inspection Denied—Plaintiffs Failed To Show Prior Proper Demand for Those Records—Claim for Books and Records Based on Bus. Corp. L. §624 and Under Common Law Failed Based on Plaintiffs' Failure To Allege "Demand Futility"

Plaintiffs are unit owners of a condominium managed by the Defendant Board of Managers (board). They commenced an action on behalf of themselves and derivatively on behalf of similarly-situated owners seeking (1) a declaratory judgment that a 2019 Amendment to the condominium's declaration is void because it violates Real Property Law (RPL) §339-v; (2) a declaratory judgment that the board must maintain certain books and records and an injunction directing the board to give plaintiffs access to those books and records; (3) a declaratory judgment that the board election held in December 2018 was invalid; and (4) an injunction barring the board from holding a meeting of unit owners until there is a valid election.

The plaintiffs had filed a summons with notice on July 28, 2019 and then served it on the board by service on the Secretary of State on Sept. 30, 2019. On Oct. 18, 2019, the board served a demand for a complaint. The plaintiffs were required to serve their complaint by Nov. 7, 2019. However, they served their complaint one day late, on Nov. 8, 2019. The board had moved to dismiss the complaint based on late service of the complaint. The plaintiffs moved for a preliminary junction to enjoin the board from holding any meetings of unit owners until the "validity of the 2015 amendment to the bylaws can be determin[ed] and for immediate access to defendant's books and records, including the names of all unit owners."

The court explained that with respect to the plaintiffs' motion to have its complaint deemed served under CPLR 3012(d), a court must consider "the length of the delay, the excuse offered, the extent to which the delay was willful, the possibility of prejudice to adverse parties, and the potential merits of any claim." The court noted that of those five factors, "the lack of a potential meritorious claim is the most notable."

The plaintiffs sought a declaratory judgment that a 2019 amendment to the condominium's declaration was void because it violates RPL §339-v, which requires that the terms of at least one-third of the board's members expire annually. The "sole purpose of the 2019 Amendment to the declaration was to memorialize an amendment to the bylaws which was passed by the board in 2015 but was inadvertently not recorded in the declaration."

The bylaws amendment had been passed at a "duly noticed annual meeting of the board in 2015." "The unit owners, including the plaintiffs, were then subsequently notified of the amendment's passage by email on January 4, 2015." In essence, the plaintiffs "are challenging the bylaws amendment, which was passed in 2015."

The board argued that the declaratory judgment claim as to the bylaws amendment was time-barred since it should have been brought as an Article 78 proceeding, which pursuant to CPLR 217, has a four-month statute of limitations (SOL). "Although declaratory judgment claims generally get a six-year period (SOL) under CPLR 213(1), if an action for declaratory judgment could have been litigated in a different type of proceeding with a shorter (SOL), then that shorter period will apply to the declaratory judgment claim." To ascertain whether a declaratory judgment claim could have been brought in another form, courts will "examine the substance of the claim to identify the relationship out of which the claim arises and the relief sought."

The court found that the challenges to the bylaw amendment constituted a challenge to an "administrative act of a 'body or officer' that could have been asserted in a CPLR Article 78 proceeding and are therefore subject to a four-month (SOL)." Thus, the court held that the plaintiffs' challenge to the 2015 bylaw amendment "is time-barred." The court further noted that the plaintiffs cannot salvage their claim by relying on the "the inadvertently belated recording of the 2015 bylaw amendment on March 27, 2019 to cure their claims' untimeliness as they were on notice of the bylaw amendment in 2015 and recording delays do not nullify bylaw amendments." Moreover, the plaintiffs' claims as to the December 26, 2018 board election were also untimely.

The court also denied the plaintiffs' claims for a declaratory judgment relating to the condominium's books and records, including the names of other unit owners and an injunction requiring the board to provide plaintiffs with documents for inspection.

The plaintiffs had "failed to show that they have previously demanded these documents from the board." Although a request had been made by letter in March 2019, that request had been from the plaintiffs' attorneys, stating that they "represent another law firm which represents certain unidentified unit owners at the condominium." The letter did not provide "proof of ownership nor even an identification of who these unit owners were" and thus, that request had been rejected.

The court held that since the plaintiffs had failed to "properly demand these records, their claim for declaratory judgment and an injunction is premature to the extent they seek access to records under RPL §339-w." Moreover, to the extent that the plaintiffs' "claim for books and records is premised under Bus. Corp. L. §624 or under the common law, the claim fails based on plaintiffs' failure to allege demand futility."

Accordingly, court granted the board's motion to dismiss the action for failure to serve a complaint, and denied the plaintiffs' cross motion to deem their complaint served and denied the plaintiffs' motion for a preliminary injunction as "moot."

Comment: Dani Schwartz, a partner at Wachtel Missry, counsel for the Board of Managers in the subject case, stated his firm's belief that this is the first decision in New York's history that dismissed on the merits a complaint that was served one day late. He believes that "most lawyers would not have even made the motion to dismiss after the complaint was one day late." Here, the court concluded that the default should not be excused because the claims lacked merit. Mr. Schwartz has advised that a notice of appeal has been filed.

Andrew D. Stern of Tane Waterman & Wurtzel, counsel for the plaintiffs, expressed his belief that "the court applied the wrong statute of limitations for a challenge to an amendment to a declaration based on illegality." He asserted that "the challenge was not based on the propriety of the board's decision or its manner of execution, but rather the amendment's failure to comply with statute. Here the amendment to the declaration failed to comply with Real Property Law Section 339-v(1)(a)) and strips the owners of their ability to hold annual elections. An Article 78 is not an appropriate proceeding for resolving this type claim. "

Gharai v. Board of Mgrs. of the Atelier Condominium, Supreme Court, New York Co., Case No. 654306/2019, decided March 4, 2020, Goetz, J.

 

Landlord-Tenant—Holdover Proceeding—Court Rejected Tenant's Defense Which Alleged That Landlord Accepted Rent—Waiver—Tenant Had Paid Rent Through An "Online Banking Application"—There Was No Evidence That the Rent Payment Had Been Solicited By Landlord

This decision involved a holdover proceeding involving an apartment located in a three-family home. The landlord alleged that the tenant had occupied the apartment pursuant to a month-to-month tenancy and such tenancy had been terminated. The tenant alleged that the landlord had provided insufficient heat and cited the "presence of a sewage issue, holes in the floors and walls in the foyer, as well as mold and mildew in the apartment." Additionally, the tenant asserted that the landlord had accepted rent and such acceptance constituted a waiver.

The court considered the issue of whether the landlord had accepted rent and had thereby waived its right to proceed with the holdover proceeding.

The tenant had paid rent directly to the landlord's bank account "exclusively via Zelle," an online payment system. The tenant's rent payments for the months of November 2019, December 2019, and January 2020 had been returned to her "with letters explaining the returned funds."

The court explained that "[a]cceptance of rent during the window period, the period that comes 'after the termination of the tenancy but before the commencement of the proceeding' may result in waiver…." The court further stated that "waiver is the voluntary abandonment or relinquishment of a known right." Furthermore, where "'rent is remitted to a bank through use of a lock-box', it is not sufficient to vitiate a predicate notice…." Prior judicial precedent held that a landlord did not waive its right to pursue its proceeding by an "inadvertent 'acceptance' through a lock-box of a 'rent' payment, a payment expeditiously returned to tenant.'"

A prior case also held that a landlord's "acceptance of rent for three months following termination of the tenancy and prior to the commencement of the holdover petition did not require a finding that landlord vitiated or waived its notice of non-renewal—at least in circumstances where there was 'credible evidence' that landlord's housing complex, which receives thousands of rent checks, continued to bill the tenants because of a computer malfunction…." The prior case also noted that the landlord's lack of intention to relinquish its right was evidenced by the landlord not tendering a renewal lease or billing at an increased rent when the lease had expired.

The court then explained in the present case that according to the landlord's bank's website, Zelle "is a convenient way to send and receive money…. By using Zelle, you can send money to almost anyone with an eligible U.S.-based account using their email address or U.S. mobile phone number, and once the recipient registers, payments are typically delivered within minutes…."

The court observed that "[s]imilar to payments made via lockbox, payments made through Zelle, once established, can be unsolicited payments as they require nothing more than a few clicks and may even be made through an application on a cellular telephone."

A landlord witness provided credible testimony that it takes "great effort to disable payments received through this service which does not permit that feature to be disabled for specific senders as a result of which he had to disable the feature from the account altogether."

Here, the notice of termination was dated Sep. 26, 2019 and had terminated the tenancy effective Oct. 31, 2019. The petition had been filed on Nov. 14, 2019. Thus, the "relevant period for the purpose of determining whether there has been a waiver is thus the period between Nov. 1, 2019 and Nov. 13, 2019."

The court found that with the exception of the security deposit and first rent payment, the tenant had "exclusively paid rent through Zelle." The court noted that there was "no evidence to establish that the rent payment made during the window period was a payment solicited by (landlord)." Moreover, the tenant's payment during the window period had been "promptly returned" to the tenant. A landlord witness had testified that it was not the landlord's "intention to waive any rights to proceed herein and to continue its relationship with (tenant)."

Additionally, the court stated that the fact that the returned funds remained in the landlord's account was of "no consequence for the purposes of this analysis and may give rise to a claim for the return of said funds which is beyond this court's jurisdiction."

Thus, the court held that the landlord had established its prima facie case by preponderance of the evidence and the tenant failed to establish the defenses. With respect to the tenant's claims as to the conditions of the apartment and the building, such claims were "dismissed without prejudice as (the landlord) did not seek an award for use and occupancy and no counterclaim for same was interposed." Accordingly, the court granted the landlord a final judgment of possession.

1371 Franklin Ave. LLC v. Pugh, Civil Court, Bronx Co., Case No. 50230/19, decided Feb. 24, 2020, Garland, J.

 

Landlord-Tenant—Rent Control—Succession—Respondent Demonstrated Succession Rights Notwithstanding Extensive Travel

A landlord appealed from a trial court judgment, which followed a non-jury trial. The trial court found in favor of the tenant and dismissed the landlord's holdover summary proceeding. On appeal, the Appellate Term affirmed.

The trial court held that the tenant, grandson of the deceased rent-controlled tenant, "met his affirmative obligation to establish succession rights to the subject apartment…."

The court found that the testimony of the respondent and his eleven witnesses, including two landlord employees, "amply supports the finding that respondent moved into his grandfather's apartment in 2010 after graduating from college and remained there until tenant's death in 2016, including the requisite 2-year period immediately prior to his death." The court further found that such finding was also supported by "'significant documentary evidence,' including respondent's voting records, driver's license, and motor vehicle registration."

The court explained that the respondent's "extensive travel did not sever his primary ties to the subject apartment, which the court expressly found was respondent's 'primary residence' and his only residence from late 2010 through the date Tenant died…."

The court reasoned that the fact that the respondent "spent less than 183 days per year in the apartment in the two years prior to his grandfather's sudden illness and death, was one of many factors to be considered in determining (respondent's) primary residence; it is not a dispositive factor…and, on this record, did not preponderate over the 'overwhelming evidence showing that respondent maintained an ongoing substantial physical nexus with the apartment for actual living purposes.'"

The landlord had asked the court to substitute "its own findings of fact for those of the trial court, whose decision was based on the evidence presented, as well as the credibility of the witnesses presenting such evidence." However, the court stated that its review of the record "convinces us that the decision of the trial court should not be disturbed…." Accordingly, the court affirmed.

Westman Realty Co. v. Cookson, Appellate Term, 1st Dept., Case No. 570636/19, decided Feb. 24, 2020, Shulman, P.J., Cooper, Edmead, JJ. All concur.

 

Landlord-Tenant—Rent Stabilization—Tenant's Successor-In-Interest Prevailed on Succession Defense but Was Not Entitled To Recover Legal Fees

A landlord appealed from an order of the Civil Court of the City of New York, which granted the tenant's motion to restore the proceeding for a hearing to determine her reasonable attorney fees in a holdover summary proceeding. The Appellate Term (court) reversed and denied the tenant's motion for attorney fees.

The tenant had prevailed on her succession defense for possession of a rent-stabilized apartment. She thereafter moved for attorney fees. The landlord did not dispute that the tenant was the prevailing party and that the deceased tenant's lease embodied a provision entitling the landlord to legal fees. However, the landlord contended that the tenant was not entitled to legal fees because "the deceased tenant's lease did not contain any provision making it binding on successors, such as respondent."

The trial court had held that the respondent was entitled to legal fees pursuant to Real Property Law (RPL) §234. The trial court reasoned that since the respondent was entitled to a renewal lease "which must be on the same terms as the expired lease …, she is entitled to attorney fees." However, the Appellate Term reversed and denied the respondent's motion.

The court explained that "in order for the tenant to be eligible for attorney fees pursuant to RPL §234, 'the party's lease must permit the landlord, in any action or summary proceeding, to recover attorney fees as a result of the tenant's breach. Where a lease so provides, the court must interpret the lease to similarly permit the tenant to seek fees incurred as a result of the landlord's breach of tenant's successful defense of proceeding by the landlord.'"

Here, the respondent based her attorney fee claim upon a paragraph of the lease between the landlord and the now-deceased tenant, as renewed, and the reciprocal provisions of RPL §234. However, the court explained that the respondent "derived no rights or obligations from the 1969 lease to which she was not a party and did not sign." The court emphasized that the respondent is not a "tenant" under the deceased's tenant's lease "as such is defined in the Rent Stabilization Code, which correlates that status with the persons named on the lease or parties to a rental agreement…." Rather, the respondent's "status at all relevant times is that of a 'successor-in-interest' to the deceased tenant…."

The court further stated that "unlike respondent's right to succession, which arose by statute, her right to attorney fees arose under the lease. Therefore, unless the deceased tenant's lease specifically contemplated the extension of benefits to a successor-in-interest, such as respondent, she cannot rely upon the lease as a basis for attorney fees." Moreover, the general rule is that attorney fees are not recoverable "by a prevailing party from the loser, unless authorized by agreement between the parties or by statute or court rule."

The court noted that a prior appellate opinion had granted a successor's application for attorney fees because the lease involved therein included a provision making it binding on those who succeed to the tenant's interests. Here, "the deceased tenant's lease contained no similar provision making it binding on those who succeed to the rights of the tenant." Therefore, the court held that the respondent "was neither a tenant under a lease, nor a person upon whom the lease was binding, may not rely upon this lease as a basis for legal fee award…."

Additionally, the court stated that the respondent cannot rely on the legal fee provision contained in the lease which the landlord had tendered after she prevailed on her succession defense since, among other reasons, the respondent had not executed such lease. Lastly, the court stated that the respondent's claim, "made for the first time on appeal, that the apartment is subject to rent control and that she is therefore entitled to attorney fees pursuant to the broad definition of tenant under rent control…is unavailing."

530 Second Ave. Co. LLC v. Zenker, Appellate Term, 1st Dept., Case No. 570722/19, decided March 4, 2020, Shulman, P.J., Cooper, Edmead, JJ. All concur.

 

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