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With Objectionable Shareholders, You Can Consider Alternatives to Pullman

Frank Lovece in Board Operations on January 30, 2014

New York City, New York State

Jan. 30, 2014

Whatever "objectionable" is. "Objectionable behavior is in the minds and hearts of board members," warns Adam Leitman Bailey, founder of his namesake law firm, who has represented both boards and shareholders in what he estimates as more than 20 Pullman trials. Unless co-op boards behave responsibly, Pullman "means they can act like dictators. They can be like the Salem Witch Trials."

"I counsel my board clients that you can litigate and you will end up quote unquote winning," says John LaGumina of The LaGumina Law Firm in Westchester County, "but it may be at a significant cost." Going the full Pullman is "expensive and time-consuming," says attorney Steven Wagner, a principal at Porzio, Bromberg & Newman. And it takes an emotional toll.

"The morale of a small building where Pullman is used, it's terrible," says Bailey. "It's a bad thing to live in a building where you're afraid of being evicted." And that fear extends to board members, who are shareholders themselves. "Today it may be you," he says metaphorically. "Tomorrow it may be me."

Two-Step Process

And it's a long process: Even after a successful vote to terminate a lease, a co-op still has to file a lawsuit to evict the offending tenant-shareholder. That's why some board chose as an alternative "a motion for declaratory judgment and injunction," says Wagner. "That's a Supreme Court action, as opposed to a Housing Court proceeding, in which a board alleges you have a rule prohibiting whatever the conduct is, that this shareholder or family occupiers are ignoring it, and that in essence the shareholders are challenging the board's effort to enforce. You're asking the court to declare the validity of the rule, the board's right to enforce it, and to enjoin the tenant-shareholder from further similar conduct."

Whatever the case, and whether you pursue Pullman later or not, the first step is to establish that you have continuing, repeated issues with a given shareholder, because judges will look askance at a board going nuclear over one-off problems or if negotiation hasn't been tried. "There has to be documented, longstanding problems that just won't go away," says Bruce Levinson, a veteran Manhattan attorney in private practice, "leaving other occupants frustrated and legitimately feeling someone should be cast out."

Close Scrutiny

 "Courts don't like forfeitures," says LaGumina. "If you're taking away someone's significant asset, courts are going to look a little more closely than with other cases." His advice: "You first want to try to enforce the house rules in a civil manner. So informal notice is a good step. If that doesn't result in any meaningful change, then do a formal written one."

See also... 

For the next step, "Somebody who knows the person should try to talk to them" on behalf of the board and the other residents, says Wagner. "If they've lawyered up, then it's [the board's] lawyer to [the shareholder's] lawyer."

If these steps fail to change the offending behavior, "A lot of boards do a ‘probationary stipulation,' where typical provisions include giving the tenant-shareholder a second chance," Bailey says. A stipulation such as this may state that the shareholder agrees to behave for two years without problems, and if he or she continues the disruptive conduct, they'll be evicted.


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