This was originally posted on the SGR Blog.
Some coop disputes rival for longevity the infamous “War of the Roses” (1455-1485). A recently litigated summary “nuisance” holdover proceeding, that followed the termination of a residential proprietary lease for “objectionable conduct”, was the end result of more than twenty years of complaints.
Surfair Equities, Inc., a cooperative housing corporation, filed an objectionable conduct holdover proceeding to recover possession of Apt. 3A located at 35-30 73rd Street, Jackson Heights, NY 11435 from Alberto Marin, the shareholder of Apt. 3A.
Surfair alleged that, after approximately 20 years of objectionable conduct, and repeated written notices, the Board of Directors held a Special Meeting to discuss whether Marin’s tenancy should be terminated for objectionable conduct pursuant to Paragraph 31(f) of his proprietary lease. After deliberations, the lease was terminated by a unanimous vote by the Board of Directors. Marin failed to vacate and this summary holdover proceeding ensued.
Two motions were before the Court. Surfair moved for summary judgment granting a final judgment of possession and dismissing Marin’s defenses and counterclaims, including striking his jury demand. Surfair contended that the co-op acted within its authority and in good faith, properly terminating Marin’s tenancy, and therefore the Court should defer to the Board vote and issue a warrant of eviction to recover the premises. Surfair also asked the Court to schedule a hearing to determine attorneys’ fees and costs to be awarded.
Marin opposed, and cross-moved for summary judgment dismissing the proceeding for failure to state a cause of action. He argued that: (1) the co-op acted outside the scope of its authority by not precisely following the procedure prescribed by the co-op for sending notices; (2) the co-op acted in bad faith by deliberating “off the record” at the Special Meeting and by failing to state the factual basis in support of its decision to terminate his tenancy based on objectionable conduct; and (3) the Notice of Termination fails to state a cause of action because it was factually deficient. He also sought an award for attorneys’ fees and costs.
Surfair submitted that Marin engaged in objectionable conduct throughout his tenancy which began in 1994. Surfair asserted alleges that for more than 20 years Marin had been making excessive noise in the building and behaved in a manner that was objectionable and interfered with the quite enjoyment of other shareholders and tenants’ properties. Some of this 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; continuously buzzing and banging on the door to Apartment 4A; 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 the excessive noise; and damaging the door and door frame to apartment 2A by beating it with a baseball bat.
Beginning in 1998 building residents lodged complaints against Marin on a regular basis. At times complaints were logged on a daily and monthly basis throughout most years of his tenancy. Surfair alleged sending numerous warnings to Marin asking him to conform his conduct to the proprietary lease and House Rules. Attached to the pleadings were 15 letters and notices to Marin regarding his behavior. The letters included notices to cure, and in some years the notices resulted in mediation with a neighbor. Additionally, some letters included invoices for the alleged property damage.
Ultimately, Surfair scheduled a Special Meeting of the Board of Directors for January 10, 2019 for the specific purpose of deciding whether to terminate Marin’s proprietary lease due to objectionable conduct. Paragraph 31 of the proprietary lease authorized the Board to terminate the proprietary lease if Marin engaged in objectionable conduct. Paragraph 31(f) of the proprietary lease provides in pertinent part:
In advance of the Special Meeting, Surfair sent Marin a Notice of Special Meeting of the Board of Directors of Surfair Equities, Inc., dated December 14, 2018 . The Notice included the proposed resolution that the Board would be asked to vote on to terminate Marin’s proprietary lease.
Pursuant to the By Laws of Surfair, Special Meetings of the Board shall be held at the co-op and may be called by the co-op President on two days’ notice to each director, either personally or by mail or by telegram. The Special Meeting was called by the President of the co-op, provided more than two days’ notice, and designated the meeting place at the Basement Meeting Room of the co-op. There was no dispute concerning the election or standing of the then President of the co-op.
The Board also sent Marin a Notice of Opportunity to Attend Special Meeting of Board of Directors and the Cooperative, dated December 14, 2018 which informed Marin that he could attend the Special Meeting with or without an attorney, and that he had the opportunity to be heard prior to the Board vote.
The Notice of Opportunity also provided Marin with the proposed resolution that the Board would be asked to vote on. In addition, the Notice of Opportunity contained 28 paragraphs alleging instances in which Marin violated the proprietary lease and the House Rules from August 2017 through September 18, 2018. Copies of approximately 15 letters and notices previously sent to Marin concerning alleged objectionable conduct were also annexed to the Notice of Opportunity.
Surfair alleged that Marin’s conduct violated Paragraph 18(b) of the proprietary lease [“The Lessee shall not permit or suffer any unreasonable noise or anything which will interfere with the rights of other lessees or unreasonably annoy them or obstruct the public halls or stairways”].
The Board also alleged that Marin’s conduct violated Paragraph 24 of the proprietary lease entitled “cooperation,” which provides that “The Lessee shall always in good faith endeavor to observe and promote the cooperative purposes for the accomplishment of which the Lessor is incorporated.”
Paragraph 13 in the proprietary lease provides that the co-op has adopted House Rules and that shareholders covenant “to comply with all such House Rules and see that they are faithfully observed by the family, guests, employees and subtenants of the Lessee.” The paragraph further provides that “Breach of a House Rule shall be a default under this lease.” The House Rules, dated September 20, 2013, are attached to the proprietary lease. House Rule 15 provides:
Marin failed to attend the Special Meeting on January 10, 2019. The Board contended that there were 5 members of the Board. Pursuant to the By Laws of Surfair Equities, Inc., the Board must consist of at least 3 and not more than 7 directors. There was no dispute concerning the number, election or standing of the then existing Board of Directors. All 5 members of the Board attended the Special Meeting and voted unanimously in favor of the resolution to terminate Marin’s proprietary lease for objectionable conduct.
The proprietary lease was terminated on February 28, 2019 pursuant to the Notice of Termination of Proprietary Lease. The Notice of Termination included the stenographer’s official transcript from the January 10, 2019 Special Meeting.
Both parties agreed that when a co-op elects to terminate a shareholder’s proprietary lease for objectionable conduct the business judgment rule is the proper standard of review.
The business judgment rule prevents judicial interference and second-guessing of corporate decisions made in good faith and in furtherance of the corporate purpose.
If the business judgment rule applies, the court must grant summary judgment to the cooperative corporation if the cooperative moves for it, and, otherwise, must grant a final possessory judgment after trial without requiring the cooperative corporation to prove whether the shareholder-tenant is innocent or guilty of the purported objectionable conduct. It is the shareholder-tenant’s burden to show that the board vote is not entitled to deference.
Under this deferential standard, if the business judgment rule applies, Courts defer to a decision rendered by a co-op as “competent evidence” that a shareholder’s conduct is objectionable under RPAPL § 711(1). The Court affords the same level of deference to a Board vote as a shareholder vote.
To trigger further judicial scrutiny, an aggrieved shareholder-tenant must make a showing that the board acted (1) outside the scope of its authority, (2) in a way that did not legitimately further the corporate purpose or (3) in bad faith. As such, it was Marin’s burden to persuade the Court why it should not apply the business judgment rule and defer to the co-op’s decision to terminate Respondent’s proprietary lease for objectionable conduct. If he satisfied his burden, only then would the Court conduct an independent evaluation, from competent, admissible evidence, of whether the shareholder committed objectionable conduct.
Paragraph 27 in the proprietary lease provides that any notice by or demand from either party shall be sent in writing by certified or registered mail, return receipt requested. Marin alleged that the co-op acted outside the scope of its authority by not precisely following the procedure prescribed by the co-op for sending notices. Upon review, the Court found that all three notices were sent to Marin by Certified Mail, Return Receipt Requested and by First Class Mail in accordance with Paragraph 27 of the proprietary lease.
Paragraph 31 in the proprietary lease provides the Notice of Termination from “the Lessor shall give to the Lessee a notice stating that the term thereof will expire on a date at least five days thereafter”. The Notice of Termination, which is dated February 11, 2019, and which was mailed to Marin on February 11, 2019 by Certified Mail, Return Receipt Requested and by First Class Mail, notified Marin that the term of his proprietary lease would expire on February 28, 2019. Even when adding 5 days for mailing, the Board provided Marin with the requisite 5 days’ notice pursuant to Paragraph 31 in the proprietary lease.
Concerning the Special Meeting, the By Laws require that a Special Meeting called by the President of the co-op provide at least 2 days’ notice to each director. The Notice of Special Meeting, dated and sent on December 14, 2018, provided the requisite 2 days’ notice as the Special Meeting took place on January 10, 2019. All 5 members of the Board attended the Special Meeting. The Court found that Marin failed to raise an issue of fact concerning service of the notices
And the Court was not persuaded that the Board acted outside the scope of its authority.
The Court turned to Marin’s to second argument, that the co-op acted in bad faith by deliberating “off the record” at the Special Meeting and by failing to state the factual basis in support of its decision to terminate his tenancy based on objectionable conduct.
Marin’s argument concerning the Board’s “off the record” deliberations was not persuasive. Marin did not identify any requirement in the proprietary lease, the By Laws or the New York Business Corporation Law that the Board must conduct their deliberations on the record. Rather than acting in bad faith, the record indicated that the co-op gave Respondent numerous chances prior to seeking termination. The twenty years of letters, meetings, warnings and mediation Was prima facie evidence that the Board acted in good faith.
Marin’s allegations that the neighbors and the Board all conspired to terminate his tenancy was not supported by any of the evidence and was not persuasive. The number of letters sent to Marin alleging numerous complaints some on a daily and monthly basis as well as numerous shareholder meetings dedicated to his alleged behavior over 20 years coupled with Marin’s admission that he decided to ignore notices and intentionally not attend the Special Meeting supported that the Board acted in good faith and in furtherance of the co-op’s legitimate interests in adopting the resolution to terminate Marin’s tenancy.
Conclusory and speculative allegations of bad faith, self-dealing, and other wrongdoing did not suffice to raise a triable issue of fact.
A bona fide ground upon which a cooperative renders a determination against a shareholder prevailed over Marin’s allegation that personal animosity was the reason for the termination. The Court concluded that Marin failed to demonstrate that the co-op acted in bad faith when terminating his proprietary lease for objectionable conduct.
Marin’s third argument was that the proceeding should be dismissed because the Notice of Termination failed to state a cause of action because it was factually deficient. In evaluating the sufficiency of a predicate notice in a summary proceeding, the appropriate test is one of reasonableness in view of the attendant circumstances. And a notice which provides the necessary additional information to enable the tenant to frame a defense is adequate to meet the tests of reasonableness and due process.
The Notice of Termination informed Marin that his proprietary lease was being terminated pursuant to Paragraph 31 and Paragraph 31(f) of his proprietary lease for objectionable conduct. It explained that he continued to engage in objectionable conduct after receiving written notices, and that on December 14, 2018, the co-op sent him the Notice of Opportunity to attend the Special Meeting, which was scheduled for January 10, 2019. The Notice of Termination further explained that Marin failed to attend the Special Meeting, and that the Board voted and passed a resolution to terminate his proprietary lease at that Special Meeting. The resolution passed at the Special Meeting Was included in the Notice of Termination, and a transcript from the Special Meeting was also attached. The court found that the Notice of Termination provided Marin with the necessary information to frame a defense and was reasonable in view of the attendant circumstances. In any event, the Board vote was competent evidence And whether allegations of objectionable conduct contained in and annexed to a termination notice were specific enough to enable a respondent to mount a defense to allegations of misconduct was relevant only if a board’s vote was not entitled to deference. The Notice satisfied the reasonableness test and the Board’s vote was entitled to deference. So the Court rejected Marin’s argument that the Notice failed to state a cause of action. And dismissed Marin’s affirmative defenses and counterclaims.
Both parties sought attorneys’ fees. The proprietary lease provides:
The Court found that the co-op’s decision to terminate Marin’s proprietary lease was authorized, made in good faith, and in furtherance of the co-op’s legitimate interests. As such, applying the business judgment rule, the Court was required to defer to the good faith decision made by the Board. Therefore, Surfair’s motion for summary judgment was granted to the extent that the Board awarded a final judgment of possession against Marin euthanasia the warrant to issue forthwith, and execution stayed to June 30, 2020 for Marin to vacate the premises. The stay allowed time for Marin to find a new home.
As the prevailing party, Surfair was entitled to demand from Marin reimbursement for reasonable attorneys’ fees and disbursements pursuant to Paragraph 28 of the proprietary lease. If, after making such demand in writing pursuant to the proprietary lease, the parties were unable to agree upon a reasonable dollar amount, Surfair may restore this proceeding by motion on notice for the sole purpose of seeking a judicial resolution as to attorneys’ fees and costs to be awarded. If the proceeding is not restored by June 30, 2020 then the Board’s claim for attorneys’ fees and costs will be severed for a plenary action.