I’m on the board of my co-op, which has almost 200 units, about 80 percent owner-occupied. From time to time, shareholders complain about noise and other annoyances from their neighbors. But usually this gets resolved. There’s one resident, a single male, who regularly complains about every last thing to the board and gets into confrontations with the residents living around him. He even takes his aggravations out on the building staff. My fellow board members try to appease him but it never works for long. They are afraid of legal action. To make matters worse, he is a rent-stabilized tenant and the investor-owner of his apartment will not help. I told my board that last year I read about a big-deal court decision that might be able to help us. Do you know about this case and can we use it to solve our problem?
Before responding to your question, you should know – if you don’t already – that a high proportion of New York City co-ops have at least one nuisance resident whose conduct, in degree or duration, or both, seems to far exceed the norm. On the other hand, you must understand that courts will, in most cases, judge nuisance against what one should reasonably expect in New York City, not necessarily compared to other conduct in your building. So if the conduct at issue is merely extreme compared to other residents of your “well-behaved” building, then historically, a co-op (or any other landlord) has faced an even steeper “uphill” battle in court to remove or restrain the offending resident.
The case that you’ve described is probably 40 West 67th Street vs. Pullman, in which New York’s highest court, the Court of Appeals, unanimously upheld a judgment equivalent to eviction against a resident-shareholder whom a Manhattan co-op accused of objectionable conduct.
The unique feature was that the 2003 Pullman decision sanctified stripping the shareholder of his occupancy and ownership of a valuable apartment with no court determination that the conduct constituted a nuisance by any particular standard. Instead, the high court was content that the co-op’s shareholders had voted to declare the tenancy undesirable, and that the shareholder was unable to establish that the co-op acted outside of its authority, without valid corporate purpose, or in bad faith. In other words, it seemed that co-ops now could set their own standard of conduct even if more stringent than the norm for New York City.
Pullman thus seemed like a Godsend to co-ops like yours, and many others, dealing with nuisance residents. But like many things that first appear wonderful, brief reflection revealed some flaws. Why did the Pullman board feel the need to secure a vote of shareholders – and a super-majority vote at that? And, given the difficulties and uncertainties of securing any shareholder vote – even for a simple board election – can a co-op use the Pullman precedent without securing shareholder approval? The answers that have emerged are cautiously encouraging.
The Pullman board apparently was required, under the objectionable conduct provision of the proprietary lease, to secure shareholder approval to terminate the offending shareholder’s tenancy. By contrast, most co-op proprietary leases require only the super-majority (usually two-thirds) vote of board members to terminate a shareholder’s lease for objectionable conduct. The Pullman court was impressed that the co-op “unfailingly followed the procedures contained in the lease when acting to terminate the defendant’s tenancy.” So it seems that, if a co-op’s proprietary leases require only board vote, the Pullman decision on its face will uphold a lease termination for nuisance without the need to secure shareholder approval.
This issue was hotly debated. Judge Gerald Lebovits of co-op/condo Part C of the Landlord-Tenant Court issued two extended decisions regarding them. In a June 2004 decision, 13315 Owners Corp. vs. Kennedy, he surveyed the arguments pro and con and seemed to be leaning against finding the “board only” action sufficient under Pullman (“… greater potential for abuse arises in a board vote than a shareholder vote”). But he dodged the issue by holding that, even if a board vote were enough, the board in Kennedy acted “outside the scope of its authority” by failing to meet the Pullman standard of “unfailingly following” the co-op’s procedures (e.g., the termination notice misstated the co-op’s name and was not properly signed, and the board was not properly elected); and acted in “bad faith” because it “unfairly silenced” the shareholder during the meeting at which the board vote was taken.
Six months later, Judge Lebovits confronted the issue head on. In London Terrace Towers v. Davis, he noted, as he did in the Kennedy case, that Pullman involved a shareholder vote, and that the court’s language seemingly also approving “board only” terminations was merely “dicta” (translation: extraneous musings not part of the holding and therefore not completely binding on subsequent courts).
But then, Judge Lebovits opened the throttle to “board only” terminations: “Dicta or no…the Court of Appeals reasoning in Pullman applies here and is persuasive.” He did so, however, with one very large qualification: in addition to having “unfailingly followed the procedures contained in the [proprietary] lease,” and although not required to by the lease or other law, the board gave the shareholder notice of the board meeting and an opportunity to be heard, by himself or through his attorney, before the board vote. In fact, in London Terrace, the board did so twice.
So, getting back to the question at hand, it may seem that your co-op might be able to evict the offending shareholder without taking the issue to shareholders and not undertaking a court trial with the need to establish by “competent evidence” that the shareholder’s conduct is objectionable. But before your board, and all other similarly situated boards, rise in collective applause, I have two “dampers,” and for your situation, one significant “bummer.”
Damper One is that Judge Lebovits is not the final word on this issue. In fact, as a trial-level civil court judge, he’s just the first word. And while Pullman was a unanimous Court of Appeals decision, the appellate division decision that Pullman affirmed had two dissenters. So, there is some chance that when it inevitably gets an opportunity to decide the “board only” variation on Pullman, the appellate division will not be as moved by the Pullman dicta as ultimately was Judge Lebovits. And worse yet, it is not entirely certain that the Court of Appeals would be required, or if not required would decide, to review any appellate division limitation of extending Pullman to “board only” votes.
So, if risk-averse, a co-op board might decide to secure shareholder approval even though not required to do so by the proprietary lease and in spite of the London Terrace license not to do so. But, if you do so and fail (because shareholders feel bad for, or fear retribution from, the offending shareholder, whether or not the approval is forthcoming, or as usual for any shareholder vote, they just don’t want to get involved), then beware. You will have a much harder time relying on a subsequent “board only” termination, whether based on a pre- shareholder vote they conduct or not. Because then it could appear that the board is acting beyond its authority to perform a drastic action that its shareholders would not support.
Damper Two is that, if you are going to rely on Judge Lebovits’s London Terrace interpretation of Pullman, then you had better think long and hard before not “unfailingly following” all proprietary lease procedures and the “due process” type (notice and opportunity to be heard) procedures that tipped the balance for him in favor of the co-op in London Terrace.
In other words, do not forget the “heightened vigilance” standard from Pullman that he applied in Kennedy to invalidate a “board only” termination for what some would otherwise deem technicalities, regarding the notice and board composition, and dubious findings that a lawyer for the offending shareholder was limited in his objections. And remember that the London Terrace board gave the offending shareholder two bites of the apple.
Last but not least is the “bummer.” Your situation – involving a rent-stabilized offending tenant of an investor-shareholder – involves a wrinkle that may make the application of Pullman, whether by shareholder or “board only” vote, entirely unavailable. Pullman noted that “the procedural vehicle driving this case is RPAPL, 711(1), which requires ‘competent evidence’ to show that a tenant is objectionable.” In other words, that is the statutory standard for landlord-tenant nuisance matters. Pullman later held, “While RPAPL 711(1) applies to the termination before us, we are satisfied that the relationships among shareholders in cooperatives are sufficiently distinct from traditional landlord-tenant relationships that the statutes ‘competent evidence’ standard is satisfied by the business judgment rule.” In other words, co-op shareholders, in subjecting themselves to governance by co-op boards and their fellow shareholders, have surrendered the right to court review of co-op decisions absent proof 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.”
But can the same be said for a rent-stabilized tenant of a co-op investor/shareholder? It is true that objectionable conduct cases frequently involve the offending conduct of a subtenant or “live-in” friend of a co-op shareholder who may or may not also be residing in the apartment at issue. But those offending residents almost always derived the right of occupancy directly from the shareholder. For those situations, if the shareholder’s lease and tenancy are terminated, under the Pullman precedent, then this terminates all underlying subleases or rights to occupancy including those of the offending resident, who has no greater rights than the shareholder who, according to Pullman, surrendered his RPAPL 711(1) right to court review of the “competent evidence” against him.
Rent-stabilized tenants, however, are no ordinary subtenants. Their rights do not derive from the investor-owners of the apartments in which they reside. Investors acquire these apartments subject to the statutory rights of rent-regulated tenants. So it is unlikely that a court would apply Pullman to deprive such residents of their RPAPL 711(1) right to a court determination concerning the “competent evidence” of their objectionable conduct.
Translation: while you can likely terminate the investor’s rights by “board only” (or at worst, shareholder) vote, a court determination will probably be required to evict the offending rent-regulated tenant. And, if that is the case, your board had better prepare for such a court battle by gathering ample “competent evidence” before proceeding, and continue to do so throughout the proceedings.
There is one bright note for your co-op and perhaps for co-ops generally. Six months after Pullman, the Court of Appeals decided Domen Holding Co. vs. Aranovich. There, a building owner (not a co-op) sued to evict a rent-stabilized tenant for the objectionable conduct of the tenant’s live-in friend. In a 3-2 decision, the appellate division affirmed the trial court’s grant of summary judgment to the tenant dismissing the landlord’s case. It held that the three specific instances of objectionable conduct, spanning five years, in the termination notice are insufficient as a matter of law (i.e., do not even warrant jury or other trier of fact determination) and that the tenant’s conduct following the notice cannot be considered.
The Court of Appeals modified that decision, holding that the objectionable conduct in the notice was sufficient for consideration by a jury or other trier of fact, and that conduct outside of the notice could be considered. The court’s language is worth quoting at some length because of the rarity of New York’s highest court expressing itself on quality of life issues in multifamily dwellings (which include co-ops).
“The allegations of [objectionable] conduct are of the type that may render the enjoyment of the building especially uncomfortable indeed, that may even be threatening and frightening for other tenant’s and building staff,” wrote the court. “[T]heir severity and the circumstances under which they allegedly took place tend to support [the] contention that [the offending tenant] displays intolerance and aggression toward those living and working within the building. The allegations further may suggest that [the offending tenant] is easily incensed and prone to violent outbursts from time to time and, therefore, that his continued residency in the building places the comfort and health of others in the building at a constant risk.”
This means that your co-op can probably secure a jury or other trier-of-fact determination about the resident’s conduct in spite of the protection of the rent-regulation laws, and even though the incidents are sporadic and Pullman may not be available. Your lawyer should be able to counsel you about which court is best and how you can get a jury determination, if you want one.
More importantly, Domen serves as a perfect complement to Pullman. If a co-op is unwilling or unable to secure shareholder approval for the termination of a nuisance resident’s lease, and is concerned about whether “board only” approval is sufficient, or is unwilling or unable to subject its “board only” termination procedures to the “heightened vigilance” that Pullman and London Terrace mandate, then the co-op can feel secure that, under Domen, the courts will seriously view the allegations of objectionable conduct and, in most instances of colorable claims, allow a jury or other trier of fact to make the ultimate determination. In other words, with the one-two punch of Pullman and Domen, New York’s highest court has resoundingly indicated that co-op boards (and other landlords) should have ready means to regulate nuisance conduct with impact not seen in the city for decades.