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When does a co-op need to be aggressive in dealing with a problematic shareholder?
AUTHORElliott Meisel, Partner, Brill & Meisel
I represent an Upper East Side co-op with through-the-wall air conditioners, which are the responsibility of the shareholders. One of the apartments had the original air conditioners, which were worn out and vibrated and made a racket that was disturbing to several surrounding tenant-shareholders. Despite several requests to the offending shareholder to replace his air conditioners, and the offer by the downstairs neighbor to replace the air conditioners at her expense, he refused.
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BACKSTORY I represent an Upper East Side co-op with through-the-wall air conditioners, which are the responsibility of the shareholders. One of the apartments had the original air conditioners, which were worn out and vibrated and made a racket that was disturbing to several surrounding tenant-shareholders. Despite several requests to the offending shareholder to replace his air conditioners, and the offer by the downstairs neighbor to replace the air conditioners at her expense, he refused. He then ignored our 30-day default notice and subsequent warnings. It was only after we had terminated his proprietary lease for failure to cure that he hired an attorney go to court to seek a (failed) injunction against the termination. Then after further legal work, he replaced his air conditioners – depriving the co-op of the need for an order compelling him to do just that.
As a result, we severed our claim for legal fees, which were then around $10,000, and put them on his maintenance bill for later collection or payment upon a sale, refinancing, or other opportune time. The shareholder protested the charges and demanded they be removed from his account several times over a few years. The co-op refused, and ultimately the shareholder sued to have the fees removed, and the co-op counterclaimed for their collection. After extensive motion practice, discovery, and preparation for trial, the Supreme Court justice who was to conduct the trial gave a warning to the shareholder’s counsel. Unless he settled with the co-op before the trial began the following week, “your client is going to get whacked.”
The shareholder did not offer a single dollar in settlement of what by now had become an amount that had grown to $100,000. On the morning of the trial, I arrived expecting to end the matter with a substantial judgment but instead was stunned when the judge advised us that he was sending the case down to civil court for trial. As a result, we had to start all over with a new judge, and on the eve of trial in civil court, that judge suggested we each make opposing motions for summary judgment, which we did.
The judge then decided the case entirely in favor of the co-op and set the matter down for a hearing on our legal fees, which were then $172,000. After further skirmishes and obstructionist tactics by the shareholder, we were awarded $167,000 at the fee hearing. The shareholder is appealing, although I am confident we will survive the appeal and collect, if necessary, by foreclosing on the apartment.
COMMENT The lesson to be taken from this case, which though extreme is not unique, is that people have very bad judgment, and the legal system is a dysfunctional way to resolve disputes. This matter has dragged on for more than six years and is not over. Despite our having been awarded $167,000 of $172,000 in legal fees (because of an arrogant individual’s refusal to replace four air conditioners at a cost of less than $4,000 at someone else’s expense), the case has frustrated and drained the board’s and our energy, distracting us from more important matters.
There was no practical way to avoid litigation with this shareholder; he had been a constant source of trouble even before the air conditioner incident. But I believe a faster, less expensive, and more effective result would have been achieved had the co-op allowed us to bring a “Pullman” action to evict the shareholder for objectionable conduct. There were ample facts to support that idea.
In the end, as long as the co-op is meticulous in following relatively simple procedures and properly documenting the incidents, the courts will not second-guess the board. Although the board felt that would have been a harsh approach, as often happens, “no good deed goes unpunished” and showing restraint to some individuals only strengthens their resolve to ignore good citizenship.
From the Desk of EM:
I like taking quick jaunts to the Canadian border from East Hampton in my Cessna Skyhawk.