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Because of the unique form of ownership in cooperative housing corporations, boards have a weapon in its arsenal to enforce shareholder obligations – the nonjudicial foreclosure sale. In cooperatives, owners are shareholders in the cooperative corporation and lessees under a property lease with the cooperative. Because of this ownership structure, proprietary leases contain provisions allowing for termination of the lease for breaches and because shares are security interests, they can be sold by the board at a nonjudicial foreclosure sale. This weapon was confirmed by Appellate Division, Second Department in a decision a few weeks ago in Hargraves v. Tyler Towers Owners Corp.
The facts of that case were a bit complicated but in the end, the cooperative shareholder withheld paying maintenance because he didn’t agree with the coop board’s position on an agreement with the shareholder, and ended up in a lot of hot water. The coop served the shareholder with a notice to cure and after the cure period expired without the shareholder paying, the cooperative terminated the proprietary lease and then notified the shareholder under the lease that it was considering the shares for the apartment forfeited and sold at a nonjudicial foreclosure sale.
When receiving the last notice of sale, the shareholder woke up and brought suit to try to stop the weapon from being used by the cooperative, but the Court held that the shareholder was too late. Like a commercial lease where a Yellowstone Injunction could be sought before the cure period expired, the shareholder couldn’t bring a preliminary injunction demand against the cooperative after the cure period expired. It was too late and the shareholder should have done so before the cure period expired.
You snooze, you lose and in this case, the cooperative board used a powerful weapon of a nonjudicial foreclosure sale, to address its dispute with a nonpaying shareholder.
Many bylaws include an arbitration provision. Something like, any dispute between the Unit Owners and the Condominium shall be submitted to binding arbitration in accordance with the rules of the American Arbitration Association and that the decision in any arbitration shall be binding upon all of the parties thereto and may be entered in any court of appropriate jurisdiction. Complaining unit owners often overlook it and boards may stay away from it. Some argue that an arbitration agreement in the condos governing documents only applies to breaches under the governing documents and not disputes outside the four corners of the documents; however, the usual “any dispute” and “shall be submitted” language in an arbitration provision, is awfully broad and arguably goes beyond the four corners.
That said, there are drawbacks of arbitration. For example, discovery is not a right of the parties (that is, unless the arbitration provision covers discovery. Instead, an arbitrator or even a arbitration panel of several decision makers, decides whether the parties need discovery. Another issue is getting discovery from third parties. Although an arbitrator or panel can subpoena third parties to testify at an arbitration hearing, there is no right to subpoena third parties for pre-arbitration discovery. The third party can simply ignore a subpoena and unlike a court, an arbitrator is essentially powerless to compel compliance.
Some people believe that arbitration is a less expensive approach that a litigation, but that is not always the case. Some arbitrations can be as contentious as litigations and sometimes take longer than a court lawsuit.
Unit owners and boards should consider what their governing documents say about arbitration and if appropriate in a given case, consider arbitration instead of litigation. Consulting with counsel who is experienced in both litigation and arbitration like Colbert Law, is always recommended.
Right before the pandemic started and we weren’t compelled to quarantine and stay closer to our neighbors for longer period of time, a Federal Court made a decision that makes it’s harder for cooperative boards to stay out of neighbor-neighbor disputes without risk of liability.
The case involved Kings Park Manor, a rental building owner, and complainant, Donahue Francis. The bickering between Francis and his neighbor Raymond Endres was unbelievable. The Court described it as a “brazen and relentless campaign of racial harassment, abuse, and threats.” In the parties’ words, according to the Court, “Francis heard Endres say ‘Jews, fucking Jews,’ while standing in front of their apartments Endres then called Francis, who is black, a ‘fucking nigger’. It got worse and worse and the building owner decided to stay out of it and directed management (who also ended up sued) to do the same.
The lawsuit was in Federal Court and ended up on appeal where the Second Circuit in Manhattan issued a decision which should make coop boards think twice before deciding not to intervene in disputes between shareholders; or at least ones that rise to the level of the Francis-Endres dispute. If a coop board decides to stay out despite the Court decision it ought to create a proper and thorough record vetted by counsel so that it can defend it if sued.
In the Kings Park case the Court ruled that the Fair Housing Act requires a landlord (like a coop) to take racial harassment as seriously as it takes other tenant misconduct, and that it constitutes intentional discrimination for a landlord to selectively ignore misconduct. The court held that the act covers discrimination not only when renting an apartment to a tenant but also extends to the relationship after the tenant moves in. Thus, a landlord is not allowed to harass or otherwise discriminate against a tenant because of race by failing to address complaints. The court reasoned that the landlord had remedies, such as terminating the lease, and it should have taken action rather sticking its head in the sand.
Most lawsuits challenging the propriety of decisions by cooperative and condominium boards are subject to a four-month statute of limitations. So if a complainant doesn’t start a lawsuit within four months of the board decision, they are time barred. Thus, boards have a solid statute of limitations defense unless a plaintiff acts really quickly. If sued past the four months, the board can move for dismissal and if presented properly, the lawsuit should be dismissed. It is critical for boards to maintain substantial records of such business decisions in minutes so that the timing for the four month start can be established and when suit is filed, help counsel present an effective dismissal motion.
The vast majority of complaints by aggrieved shareholders and unit owners challenging the propriety of board decisions are presented as actions for declaratory judgment. Crafty plaintiff’s lawyers probably do so because they do not specialize in condo/coop and business law, or they are trying to lawyer around the short statute of limitations. The New York Court of Appeals, however, 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). Armed with this knowledge and well-documented board business decisions, an aggressive condo/coop attorney should be able to effectively put an end to a lawsuit.
The Porter House Condominium Board seems to be a classic example of waiting to see what happens because we don’t want to incur the cost right now. Without professional management and seasoned counsel to advise them how to protect unit owners (which is a part of the board’s fiduciary duty by the way) boards wait too long to act and then end up spending more money to undue what they could have avoided had they acted as required.
Porter House is now tangled up in a multi-party lawsuit against a neighbor who build a building arguably in violation of an easement for light and air, and for restricted elevations. Trouble is, the building was built. The Board acted after the fact and now is trying to undo what was already done. This is a tough way to solve a problem like this. It is not clear whey the board didn’t act before the building was built, but clearly the strategy of let us wait and see is turning into a very expense course that this Board charted.
The Supreme Court in New York County just decided motions about the case and it is going to move into a discovery stage once all the parties and the new ones (the next door developer is pointing the finger at other now) join in the litigation.
Aggressive action at the inception, before or while the building was being built to enforce the easement would have been a better course. With constructions like this, there are often access agreements for protections that the Building Department requires. The Porter House Condominium Board seems to have dropped the proverbial ball by not taking action at that time when it had more leverage. Here’s more on the case.
Insulating Yourself from Personal Liability for Your Business
September 23rd, 2020 3:00-3:45PM| Q&AtoFollow
Many people know that in order to protect their personal assets, they need to incorporate their businesses. For example, forming an LLC for their business is a good first step. However, much more is necessary. Owners often fail to appreciate that if they do not observe corporate formalities and operate their businesses in a particular way, their personal assets could be exposed irrespective of the initial incorporation. Attorney Joe Colbert who serves as general, corporate and litigation counsel for many businesses will discuss the exposure points and how to avoid them so your personal assets are protected.
Joseph Colbert has practiced business law for over twenty five years. Among New York?s and Connecticut?s most successful and prominent attorneys, Joe has been identified among the top attorneys in the tri-state area. He is a general practitioner who focuses on the representation of organizations and individuals as general, corporate and litigation counsel. Joe taught as an Adjunct Professor Law for many years and also serves as a mediator and arbitrator. Colbert Law has various practice areas with offices in New York and Connecticut (www.colbertlaw.us).
Register at Link Below: https:/ / serendipitylabs.zoom.us/ webinar/ register/ WN_pPJzAP0ORtyOIbdEXNrcJQ
Justice Lebovits of the Supreme Court, New York County, just decided that a cooperative shareholder who is facing an award of legal fees against him, must appear at a virtual hearing on the amount of the legal fee award. The cooperative at One West 64th Street in Manhattan won the case and the Court decided that the shareholder’s continued seeking books and records in the lawsuit was in bad faith and warranted an award of legal fees to the coop under the proprietary lease.
After Covid-19, an in person hearing was not possible. The coop pressed on and wanted a virtual hearing on the attorney fees award. The motion practice proceeded, resulting in Justice Lebovits’ decision on September 4, 2020. The Court recognized that:
This court is aware of only one New York case addressing the issue of virtual hearings since the beginning of the pandemic. In A.S. v N.S., Justice Tandra L. Dawson of Supreme Court, New York County, carefully considered the issue and held that under the circumstances of the case before her (a contentious custody dispute), holding a virtual hearing was feasible, fair, and preferable to further postponing trial. (See 2020 NY Slip Op 20161 [Sup Ct, NY County July 1, 2020].)
Justice Lebovits agreed with that conclusion and ordered a virtual hearing. According to the Court:
Judiciary Law § 2-b (3) confers power on this court “to devise and make new process and [*3]forms of proceedings, necessary to carry into effect the powers and jurisdiction possessed by it.” This statutory provision “explicitly authorize[s] the courts’ use of innovative procedures where “necessary to carry into effect the powers and jurisdiction possessed by” the court. (People v Wrotten, 14 NY3d 33, 37 [2009] [internal quotation marks omitted].)
With politics and world events heating up, people have a lot to say and want to publish it out loud. If they live in a coop, condo, HOA or other community association, however, can a board restrict their free speech? John wants to put a “Black Lives Matter” sign on the lawn of his HOA home. Tim prefers an “All Lives Matter” sign. Sarah wants to put up a Trump Pence sign and Tara would prefer a Biden Harris sign or the above “Everybody Sucks” sign. In a high-rise condo or coop, the Jones family wants to put a sign with their political views in their window and so do 100 other families that live in the building with differing views. Association boards would likely want to govern these types of actions or one could imagine a huge mess of signage and neighbor against neighbor disputes and escalations.
Free speech? First Amendment right under the Constitution? Not unless the association seeking to govern is considered a “state actor”. There are all sorts of legal cases regarding what is state action covered by the Constitution. If there is a “state actor” the First Amendment prevents the state actor from limiting the right to freedom of speech unless such limitations are narrowly tailored and otherwise proper. This is especially true when the speech that is the subject of regulation is political in nature.
Those trying to argue against board regulation may come up with creative ways of arguing that the regulation is unenforceable or inappropriate. For example, its on the HOA member’s lawn which she owns as opposed to common element. The condo owner is responsible for windows so putting the sign in his window is on his property which you can’t govern. They can try, but as long as the proposed rule is applied consistently and without discrimination (a No Trump sign rule or a No Biden sign rule won’t pass muster) and the rule is within the board’s authority under the governing documents to make and is in the best interests of the entire association community, as opposed to the self interest of a particular board member, the board action should be enforceable and/or defensible. The business judgment rule is really helpful here. That said, there are enough moving considerations for boards that want to govern in this area to seek counsel from their attorney to make sure they are within their right to do so.
