Community associations are quasi governments which can make their own rules provided that they don’t run afoul the law. Whenever changing rules, coop, condo, HOA and other community association boards must make sure that their good intention rule changes aren’t going to get them into trouble. With a litigious owner (especially one who is an attorney, “professional plaintiff”, a person without financial constraints or maybe just with strong principles), a board could end up in litigation which spans years and even after the board members are no longer even board members.
A good example of rule making gone wild happened in a New York cooperative called Woodstock Owners Corp. The coop enacted a no sublet policy but only with respect to owners who bought after a certain date (in that case October 2002). Bianca Razzano, a shareholder, was not allowed to sublet under that rule and she sued in 2009 and continued litigating, appealing, discovering, and fighting on and on for years. Eleven years later, the parties were still litigating with an order just being issued this year in 2020. She sued the coop Board, the management company and an individual board member.
On one appeal, the Court struck down the sublet policy, declaring it violative of Business Corporation Law Section 501(c) which essentially prohibits unequal treatment of shareholders. The litigation continued with Ms. Razzano trying to expand her case to include emotional distress damage claims. The Court put a stop to that, but this was years after the genesis of the dispute.
It is not clear whether the cooperative obtained legal advice regarding its sublet policy but it should have. In some instances, boards try to avoid incurring legal fees on rule making and take a let’s do it and see if anyone objects strategy. This is not advised. Experienced community association counsel should be able to advise a board and keep it out of trouble like the trouble experienced by the Woodstock cooperative got into, without incurring substantial legal expenses. The legal expenses that the cooperative, management and board member in the Woodstock case experienced, pales in comparison to the expenses of experienced legal advice.
Read the Bianca Razzano v. Woodstock Owners Corp. decision here and keep your board out of similar trouble. Don’t let matters spiral out of control.
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.
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.
Owners are not allowed to defame board members and a defamation claim is a way condos can address bad owners. There have been a lot of articles about the limits on condominiums addressing bad owners and how they are more difficult to address than bad shareholders in cooperatives. This is true, but there are ways that experienced counsel can employ. Where a bad owner is defaming a board member, a defamation claim may be a useful way to proceed. However, this course of action is tricky and has to be done in an experienced way or dismissal like the Board of Brightwater Towers Condominium’s case may result. The owner in that case was making all sorts of really obnoxious and bad statements but the Court that “[s]ome of the allegedly defamatory statements do not have a precise meaning, while others are hyperbolic and incapable of being proven true or false. The context of the statements was such that a reasonable reader would have concluded that he or she was reading an opinion, and not a fact, about the plaintiff.” However, were the statements were such that a reasonable reader would conclude that the reader was reading a fact about the defamed party, you’re heading in the right direction. In the Brightwater case, the owner were spewing that the condo board “is corrupt, fakes financials, spies and eavesdrops on residents, charges unlawful and unjustified fee increases, and acts in a manner that will lead the condominium complex to financial ruin and bankruptcy.” Those type of statements weren’t enough, but we’ve seen many a case where an owner makes very specific statements about board members and boards and in those instances, a defamation claim is definitely a viable option. If an owner accuses a board member of committing a serious crime, such statement may result in something called defamation per se which means a huge problem for the accuser owner.
Here is the Brightwater decision. Don’t make the same mistake as this condo board.
Common charge lien collection sometimes takes a long time and even more so during a pandemic. But, in the end condo boards may have to pull the trigger on foreclosure. Deals can be negotiated during the process while the heat is turned up on delinquent owners, or a new owner who can pay their share of common charges can be substituted once foreclosed. The foreclosure process takes time, but in the end it may be the only way to resolve delinquencies. There are nuances that a condo board can take advantage of during the process and experiences counsel can guide you through them.
Common charge lien collection sometimes takes a long time and even more so during a pandemic. But, in the end condo boards may have to pull the trigger on foreclosure. Deals can be negotiated during the process while the heat is turned up on delinquent owners, or a new owner who can pay their share of common charges can be substituted once foreclosed. The foreclosure process takes time, but in the end it may be the only way to resolve delinquencies. There are nuances that a condo board can take advantage of during the process and experiences counsel can guide you through them.
The 4260 Broadway Condominium case is a good example. In the beginning of 2019, the condo board was faced with a unit owner with over $10k in arrears. A common charge lien was filed. A few months later, a foreclosure action started. A lot of paperwork followed and then a year later the court just issued a decision granting a default against the owner for not responding and the process goes on. Here is the decision. Getting caught in the process and just forging ahead without taking advantage of other things a condo board and management can be doing while the process goes on and on, would be a mistake.
