May a co-op notify a tenant that her conduct is objectionable and then, three years later, seek to terminate that shareholder’s tenancy based on such conduct? That was the question in F.T. Apartments Corp. v. Barbara L.
F.T. Apartments Corp., a co-op, began a holdover proceeding against Barbara L. (whose full name was not disclosed by the court) to recover possession of the co-op apartment in which Barbara resided (the court also did not disclose the address of the property). The court determined that Barbara required a guardian and appointed the Jewish Association for the Services of the Aged as the guardian.
In 2004, the co-op received complaints from the shareholder below Barbara about her erratic behavior, overflow of water, and noise. The co-op did not talk to Barbara about these issues, but rather informed her cousin. On one isolated occasion, the co-op also contacted her brother, Bruce L., who resides in California. One letter, dated July 12, 2004, was addressed to Barbara. It stated that she was in breach of her proprietary lease because of her objectionable conduct. While not entirely clear from the decision, it appears that the letter stated that, if Barbara did not notify the co-op that the conduct would cease, the board would hold a meeting for the specific purpose of terminating her tenancy.
The lease at issue contained a clause which stated that a lease can be terminated, “If at any time the Lessor shall determine, upon the affirmative vote of two-thirds of its then-Board of Directors, at a meeting duly called for that purpose, that because of objectionable conduct on the part of the Lessee...repeated after written notice from Lessor, the tenancy of the lessee is undesirable.”
Roughly six months after that, in January 2005, the co-op sent a letter to a Mr. S asking him to intervene and have Barbara see a professional before the co-op had to incur additional legal fees.
More than a year-and-a-half passed before the co-op’s agent sent a letter to Mr. S in August 2006 expressing his belief that Barbara needed medical attention and should not be alone in the apartment. The co-op’s attorney sent Mr. S a letter, dated February 8, 2007, reiterating his letter of two-and-a-half years earlier that the board authorized counsel to begin the process to hold Barbara in default under the lease.
More than three-and-a-half years from the only time the co-op notified Barbara directly of her objectionable conduct, the board held a meeting on August 30, 2007, and voted to terminate her tenancy, calling it undesirable. Barbara was not notified of this meeting in advance. The co-op served a notice of termination on the grounds that Barbara’s conduct was undesirable and not on any independent specific nuisance grounds.
The co-op moved for summary judgment. The court discussed the long-standing rule that the party moving for summary judgment has the burden of proving it is entitled to such judgment. It explained that summary judgment should only be granted where there is no doubt as to the existence of an issue that could be debated at a trial.
The court then discussed the Business Judgment Rule and the Court of Appeals case, Levandusky v. One Fifth Avenue Corporation. There, the court applied the corporate Business Judgment Rule to co-ops and held that, as long as the board acted for the purpose of the co-op, within the scope of its authority, and in good faith, courts will not substitute their judgment for that of the board. In 2003, the Court of Appeals expanded the rule in 40 West 67th Street v. Pullman. There, the Court of Appeals allowed a co-op to terminate a shareholder’ s tenancy based on objectionable conduct. The court explained that, in the usual residential case, Real Property Actions and Proceedings Law Section 711 requires courts to determine if conduct was objectionable. In the context of a co‑op, however, the vote to terminate the tenancy is based upon the Business Judgment rule and the courts will defer to the co-op board. The court explained that in Pullman, the shareholder had been afforded notice and an opportunity to be heard and emphasized that in dealing with termination, courts must use a “heightened vigilance in examining whether the board’s action meets the Levandusky test.”
The court next discussed a case decided by the appellate division (an interim appellate court) – Trump Plaza Owners v. Weitzner. There, the co-op sent a shareholder a letter dated October 29, 2002 notifying her that she had engaged in objectionable conduct and that, if she did not cease the conduct, the co-op would terminate the tenancy. Thereafter, the board received a letter from a tenant complaining about Weitzner. On March 11, 2003, the board decided to hold a special meeting to discuss whether to terminate the tenancy. The board also voted that a subcommittee would meet with the shareholder and her counsel prior to the special meeting. On March 12, 2003, the board’s counsel sent a letter to the shareholder’s lawyer requesting a meeting so that the shareholder could respond to the complaints.
On March 19, counsel stated that the shareholder did not want to meet with the board’s subcommittee and that her position was set forth in counsel’ s correspondence. On April 4, notice of the special meeting was circulated to the board. On April 8, the board voted to terminate the shareholder’ s tenancy based on objectionable conduct. On April 21, the board served a notice of termination.
On June 5, the co-op in Trump Plaza Owners started an action to terminate the lease. The co-op also moved for an order enjoining Weitzner from conducting certain objectionable behavior, including harassing other shareholders. The shareholder moved to dismiss the case because the co-op failed to serve her properly. The lower court granted the motion for a preliminary injunction as to Weitzner’s conduct, and dismissed the co-op’s claims (without prejudice) based on improper service.
The appellate division reinstated the claims, holding that proper notice was served. The appellate division found that the co-op board acted for the purposes of the co-op, within the scope of its authority and in good faith. The appellate court also sent the matter back to the lower court to specifically set forth in the injunction the tenant’s conduct and to require the co-op to post a bond.
In the lower court, the shareholder and co-op both moved for summary judgment. The shareholder argued that the co-op lacked authority to terminate her tenancy because it did not hold a “special meeting” as required by the lease and because it vitiated its notice of termination. The co-op argued that the appellate division had already determined that its board acted properly. The lower court in Trump Plaza granted the co-op's motion for summary judgment. The appellate division agreed.
After the court’s discussion of the prior cases, the court explained that the novel issue in the Barbara L case was whether the gap of more than three years from the time the co-op provided Barbara with direct notice of her alleged objectionable conduct deprived her of “notice and opportunity to be heard,” as contemplated by Pullman, to satisfy the “heightened vigilance” requirements.
The court did not believe that Mr. S or Mr. L were Barbara’s agents. The fact that they were family members was irrelevant. In addition, the letters the co-op sent to Mr. S and Mr. L did not comply with the notice provisions in the proprietary lease. Importantly, Barbara did not designate them as agents for service of notices.
As to the “notice” which was sent to Barbara, the court discussed when notices may become “stale.” The court cited a case which said that: “it was not intended that [the landlord’ s notice] could hang like a sword of Damocles over the head of the tenant, to be used at some future date.” In Barbara’ s case, the co-op waited more than three years from the time it provided Barbara with the only direct notice of her conduct to serve the notice of termination. Based on a review of other cases, the court found that, given a lapse of time of more than three years, the notice was stale and ineffective.
The court also explained that, implicit in the Business Judgment rule, is that the co-op must ensure that the shareholder is provided with due process prior to the termination of the proprietary lease. “The dichotomy of the cooperative enforcing its rights under the Business Judgment Rule and the significant impingement on the shareholder’s property interests that could culminate with an eviction and sale of the cooperative apartment led the Court of Appeals to impose 'heightened vigilance’ in examining whether the board's action meets the Levandusky test The court also noted that, in Pullman, the court inferred that such due process was satisfied when the co-op minimally provided the shareholder with notice and an opportunity to be heard.
The court explained that the facts underlying the recent appellate ruling in Trump Plaza Owners v. Weitzner reflected an emphasis in guaranteeing the shareholder's fundamental due process rights. In Weitzner, the board invited the shareholder, her counsel ,and the complainant to a meeting with a board subcommittee. Thus, the court in Barbara L concluded that, while the shareholder may not have had a right to be present during the actual deliberations of the board, she did have a right to be informed in a timely fashion of the allegations and be given an opportunity to be heard and respond to the complaints.
In this case, the co-op failed to satisfy these minimal due process requirements as Barbara was never informed in a timely way of the allegations of objectionable conduct and was not timely provided with an opportunity to be heard. Thus, the co‑op could not terminate her lease at this time.
Comment: The law has been evolving since the Court of Appeals decision in Pullman, in an effort to insure that boards do not abuse their business judgment when determining that a shareholder has engaged in objectionable conduct. Here, the proprietary lease specifically required that the shareholder’s conduct be “repeated, after written notice.” However, the co-op’ s only valid notice to the shareholder was three years prior to the decision to terminate her tenancy and the court determined – consistently with landlord/tenant cases evaluating notices of termination – that the notice was “stale” as so much time had elapsed.
In addition, the court determined that the co-op was required to allow the shareholder to attend a meeting and give her an opportunity to answer the complaints about her. While in many of the post-Pullman cases shareholders have been invited to meetings to address the charges, there are some cases where this has not happened. We believe that we will have to wait for an appellate court to address the issue directly before we know whether such an invitation is necessary. In the interim, and in the interest of fairness as a fiduciary obligation to all shareholders, we recommend that boards invite shareholders to a meeting to discuss complaints about their objectionable conduct prior to starting a Pullman-type action for lease termination and eviction.
Cutler, Minikes & Adelman
Goldberg, Scudieri, Lindenberg & Block
The Law Office of Jules Sherman