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Suing Your Co-op: Lose and You May Have to Pay Its Attorney Fees

A shareholder who had waged a losing battle with a co-op in a dispute over apartment alterations was ordered by the court to reimburse the co-op for its legal expenses. That decision in Silverman v. 875 Tenant Corp. (2006) may cause shareholders to think twice before bringing a suit against a co-op. Here's what happened in that specific case, which illustrates when and how a co-op shareholder may find him/herself in similar straits.

John and Isabelle Silverman were the owners of a unit at 875 Tenant Corp., a co-op at 875 Fifth Avenue in Manhattan. The Silvermans alleged that the co-op had breached its obligations under the proprietary lease, the co-op's bylaws and an alteration agreement related to construction that the Silvermans wished to undertake. In addition, they maintained that the co-op constructively evicted them from their apartment and committed fraud. The co-op asserted counterclaims for breach of contract, fraud, and attorneys' fees under the lease and alteration agreement.

After several years of litigation, the appellate division of the Supreme Court upheld a lower court's dismissal of the bulk of the Silvermans' claims and dismissed the remaining causes of action.

The terms of the proprietary lease provided that "if the [co-op] shall successfully defend any action or proceeding (or claim therein) commenced by [the Silvermans], [the Silvermans] will reimburse the [co-op] for all expenses (including but not limited to) attorneys' fees and disbursements thereby incurred by the [co-op], so far as the same are reasonable in amount, and the [co-op] shall have the right to collect the same as additional rent."

Thus, the quoted language unambiguously provided for an award of reasonable attorneys' fees if two conditions were met: an action begun against the co-op by the Silvermans and the co-op's successful defense of that action. Both conditions were satisfied here. In the court's view, there was no merit to the Silvermans' claim that the attorneys' fees provision in the proprietary lease was unconscionable or against public policy. Although the quoted language could arguably cover any type of suit brought by the Silvermans against the co-op, there was no dispute that the action at issue involved matters clearly within the parties' landlord-tenant relationship. Moreover, there were no overriding policy issues here that would insulate the Silvermans from their contractual obligations.

Prevailing Winds

Nor, said the court, was there any merit to the Silvermans' contention that there was a factual issue as to who the prevailing party was. The court noted that the lease did not even use the term "prevailing party"; it mandated a fee award if the co-op successfully defended an action brought by the Silvermans. Even if the "prevailing party" analysis applied, there was no doubt that the co-op had prevailed.

The fact that the co-op had outstanding counterclaims that could eventually be dismissed did not prevent this court from determining that the co-op successfully defended the Silverman's causes of action and thus was the prevailing party for purposes of this fee application. Likewise, the Silvermans' contention that the co-op's motion was premature and must await the outcome of the counterclaims was without merit.

The court said that it would hold a trial on damages to determine the amount and reasonableness of the attorneys' fees incurred by the co-op. Since its potential entitlement to attorneys' fees could not be determined at this stage, the court said that it would not make any award relating to them. The Silvermans' allegations that the co-op engaged in bad faith tactics of unduly delaying and protracting this litigation would be considered by the court in determining the reasonableness of the fees and whether all the fees sought were for appropriate services involved in the defense of the action.

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