EVICTING A SHAREHOLDER UNILATERALLY, P.2

 

Another recent case, however, shows the court possibly having second thoughts. In 565 Tenants Corp. vs. Adams (2007), the co-op terminated a shareholder's proprietary lease, but then entered into a settlement under which the shareholder agreed, mainly concerning his dogs, to "certain terms relating to the upkeep and cleanliness of his apartment." Yet even though the stipulation also provided that a violation would be treated with "zero tolerance," the court here refused to enforce that stipulation. It took the appellate term to reverse the court's decision, enforce the stipulation, and reinstate the lease termination.

Finally, in a decision rendered in late January 2008, Trump Plaza Owners vs. Weitzner, the appellate division affirmed a lower court's grant of a preliminary injunction to a co-op that enjoined a shareholder's misconduct. In doing so, the appellate division cited both Pullman and Levandusky for its finding "that, in voting to terminate the tenant's lease, the Cooperative's board acted for the purposes of the Cooperative, within the scope of its authority and in good faith..."

Bouncing the Rubber Stamp

With regard to that "good faith" standard, the Pullman court had stated that there was not the "slightest indication of any bad faith, arbitrariness, favoritism, discrimination or malice on the cooperative's part..." But the high court cautioned that courts should not use the Business Judgment Rule "as a rubber stamp for cooperative board actions, particularly those involving tenancy terminations." So a board contemplating a termination of this type must thoroughly vet its own actions to wring out any conceivable bad faith.

All is not lost if a co-op attempts a termination and gets knocked down because no shareholder vote was taken or for some other procedural reason. I recently had success taking the longer route — of introducing evidence and testimony that the conduct of an investor- shareholder's rent-stabilized subtenant was objectionable and required her removal, based on years of harassing board members, management, fellow shareholders and staff. After the investor-shareholder's surrender of the unit and payment of a substantial amount to the co-op midway through a nine-day trial, a jury of her peers ordered her ouster from the apartment in which she had resided for over 35 years. The co-op thus was able to remove this tenant and, from the sale of the apartment, recoup its expenses.

Pullman is nice if you can achieve it, but boards should remember that they should always be gathering the evidence necessary to defend themselves in court, just in case they fall prey to Pullman's uncertainties.

Robert Tierman, a longtime co-op and condo attorney, is a partner at Litwin & Tierman .

Adapted from Habitat March 2008. For the complete article and more, join our Archive >>

Art by Danny Hellman