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An injunction can be a powerful tool for boards, but it may have unintended consequences.
AUTHORHoward Schecter, Armstrong Teasdale
When a shareholder or a unit-owner is causing a serious problem, getting an injunction can be a speedy — if drastic — remedy. But you recently helped a co-op find a smart workaround.
It was a Fifth Avenue building. A shareholder had a penthouse with a large terrace, and the apartment below was experiencing leaks from the roofing on that terrace — and also from a greenhouse that had been added by a predecessor of the shareholder. The building wanted to do the corrective work, but the shareholder was resisting because the board was claiming that she should pay for it. Obviously, we could not allow the leaks to continue, and we were looking for the fastest method of gaining access so that we could perform the necessary repairs. We talked about the possibility of going to court to compel the shareholder, but that was going to take time. And it meant that we would have to prove certain items to get the court to issue the order that would allow us to go onto the terrace. So we came up with an alternate approach.
What was that?
Under the proprietary lease, the building has a right of access upon notice to the shareholder, and it does not require the shareholder’s consent. That’s potentially a problem in many instances, because you’re obviously not going to break the door down to get in if it’s not an absolute emergency. But in this case, it was possible to access that terrace without going through the apartment. So we gave notice to the shareholder that we would access her terrace — not through the apartment but by other means — on a particular date to perform the required repairs. And we specified we were going to charge it back to her. If she wanted to defend her claim that she should not be responsible or stop us from doing the work, she was the one who would have to go to court to get a preliminary injunction. And that’s exactly what happened.
Would there be legal hurdles she would have to clear?
There is a three-pronged standard for obtaining a preliminary injunction. First, you have to show a likelihood of success based on the merits of the case. Second, there has to be what’s called irreparable harm, meaning that if the other person is not stopped from doing what they intend to do, that you will suffer harm that can’t be compensated with money. And three, there has to be a balancing of the equities. Since we’re talking about stopping somebody from doing something rather than paying damages, the court weighs which side has the more compelling story. So the benefit of our strategy was that she had to prove these three elements. We always felt that we had the better case on balancing the equities. And in case of a tie, the person who’s seeking the relief is the loser because they have to win by a preponderance of the evidence.
How did things turn out?
The court denied the preliminary injunction. As a result, we had a court determination in a matter of weeks that allowed us to go on the terrace and do the work. We still were at risk that at the end of the day we would lose the lawsuit over who was responsible for paying for it. But we had achieved our primary goal, which was to get the roofers up there and to put down the new membrane that would stop the leak into the apartment below. That was a big win for the building.
After the repairs were done, was it determined that the shareholder was in fact responsible to pay for the work?
That remained a disputed issue because the shareholder said she bought the apartment this way and didn’t have anything to do with the original work. We knew she was thinking about selling in the near future, so we took the position that if she was correct that it was the building’s responsibility to maintain and repair the greenhouse and the roof, then we also had the discretion to remove that greenhouse and put down a lesser grade covering of the roof membrane, which would be less desirable from her point of view.
So we asserted that claim in the litigation. I don’t know that we ultimately would have won on that. But a potential purchaser made it very clear to her that he wanted to keep the greenhouse. The attraction of the apartment was that it has a terrace overlooking Fifth Avenue. So the seller needed to get this issue resolved, and she came to us saying she was willing to settle. We came to a number for her to pay for the cost of work, and we got the purchaser to sign on for the responsibility of maintaining the greenhouse and roof going forward.
In this case you were able to box the troublemaker into seeking the injunction. But what should boards know before they go to court to get one?
People assume that an injunction is easy to obtain and that there are not necessarily problems that come along with it. But even though you think you’re in the right and that a court should be giving you a specific relief in the form of an order preventing somebody from doing something or requiring somebody to do something, you really need to think through what all the steps are and where are you going to end up if you get what you’re asking for from the court. No. 1, can you prove the three elements that you need to prove in order to get the injunction issued? And No. 2, what kind of undertaking might be required of you, what is it going to cost, and is the building willing to bear that cost?
Another aspect people should be aware of is that a preliminary injunction is what’s called a provisional remedy, meaning it’s temporary during the time that the litigation is taking place. And it’s possible that the person obtaining that relief may ultimately lose the case. If a preliminary injunction is granted, the court is required to set an undertaking, which is a bond or a posting of resources that would compensate the restrained party to collect the damages they suffered if they ultimately win the case. And so that’s another problem with being the party seeking the injunction. If we had gone to court and been granted an injunction allowing us to access the terrace, the court would have been required to impose upon us the burden of posting an undertaking, and that would have been another expense.
In other words, when it comes to injunctions, boards need to tread very carefully.
It’s a powerful tool. It’s for an emergency in which irreparable harm is going to occur. If you can convince the court that that’s the case, you get a disposition on a preliminary injunction motion within weeks. It’s very quick, but you want to be careful that you don’t have unintended consequences.