HABITAT

WHEN BOARDS CAN DEFAME YOU

When Boards Can Defame You

A co-op officer who makes illegal, defamatory comments about you as a prospective purchaser may be setting himself or herself up for a defamation lawsuit. But otherwise, there's nothing you can do about such falsehoods if you don't pass the admissions process. The existence of defamatory comments, in other words, isn't a passport for admission.

Such was the upshot of Simon v. 160 West End Avenue Corporation (2003). Jean C. White had a co-op apartment at 160 West End Avenue, in Manhattan. In June 1999, she applied for an inter vivos transfer — making a gift of the apartment, essentially — to plaintiffs Barbara Simon and Skipp Porteous, as joint tenants. Attorney Gerald Ross, an officer of both the co-op and its then managing agent, the now-defunct Insignia Residential Group, advised White that her transfer was legally and morally improper. In a September 29, 1999, letter submitted to the court during the transfer attempt, Ross and Insignia claimed that Simon, an attorney, improperly represented clients, including White; preyed on the elderly; and attempted to obtain advantages from West End by false representations. Ross also complained that Porteous, an investigator, conspired with Simon in preying on the elderly.

Based on Ross's accusations, West End refused to consider White's application. Afterward, however, in March 2000, the court dismissed Ross's complaint.

In June 2000, White died, and her will, naming Simon as executrix, bequeathed the apartment to Simon and Porteous. Simon and Porteous subsequently applied for a transfer of the apartment pursuant to the will, but their application was rejected, based on the false information supplied by Ross. Porteous thereafter applied for a transfer to himself, but withdrew his application four months later.

In September 2001, the estate, through Simon, applied for a transfer to herself individually but was also denied as a result of an alleged false accusation made by defendants that she was "not a good neighbor," as well as the allegations in Ross' 1999 complaint letter. Simon was also denied access to the list of shareholders necessary to appeal the board's decision. In July 2002, Ross told a resident that he had a "lot of information about" Simon, and that Simon had acted "improperly" in that "she was the lawyer for the lady who left the apartment and she wound up getting the apartment." It was also alleged in the complaint that Ross also told the resident that Simon had "acted improperly and unethically as a lawyer." Two months later, Ross allegedly told another resident he had a "lot of information" about Simon, that she was "manipulative" and that there were "bad reports" about her from her present building.

[Note from the Web editor: Porteous and Simon were founders of the Institute for First Amendment Studies, which, until its demise in 2001, was an outspoken critic of religious fundamentalism.]

Simon eventually filed a lawsuit against West End, Ross, and Insignia, claiming Ross made false accusations "to the building staff, to the Board of Directors and to others including [the court]" that "the Plaintiffs were acting illegally and unethically in their dealings with" White and "were attempting to improperly influence the elderly to turn over property to them." She requested:

(1) money damages arising from West End's and Ross' breach of fiduciary duty, resulting when West End used confidential information to falsely attack a member and a prospective transferee and interfered with an agreement between the shareholder and a proposed transferee;

(2) as a result of the false statements by West End resulting in denials of plaintiffs' applications to take title, an order directing West End to transfer shares under the terms of the will; and

(3) an injunction on behalf of the estate requiring West End to provide the shareholder list in order for the estate to appeal the board's denials; and other relief including damages.

The court said that the plaintiffs' first cause of action for breach of fiduciary duty against West End and Ross arose from West End's alleged improper reliance on false statements and its failure to act in 1999 on White's application; West End's alleged improper reliance and denial of Simon's and Porteous' transfer applications some time prior to September 2001; West End's failure to act on Porteous' subsequent transfer application; and West End's improper reliance upon and making of defamatory statements to deny the estate's transfer application in September 2001. Plaintiffs' breach of fiduciary duty claim against Ross was based on his alleged false accusations.

The court said that cooperative corporations and their boards of directors owe a fiduciary duty to their shareholder-tenants and have a duty to act in an appropriate and reasonable manner. It was undisputed that Simon, in her individual capacity, and Porteous were not shareholders of the subject apartment in 1999 when White applied for the transfer, or in the period prior to September 2001. Thus, West End and Ross did not owe a fiduciary duty to them during this time.

 

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