My opening words come from that famous children's classic, Charlotte’s Web: "Where's papa going with that ax?" Well, we have a similar story, but we could rephrase it: “Where's that lady going with that broomstick?"
We have a cooperative apartment corporation where the proprietary lease and house rules prohibit excessive noise and unreasonable conduct that disturbs the residents. There was a shareholder tenant who took a broomstick and banged on the walls in her apartment, then took the broomstick into the hallways and banged on the walls, rang the doorbells of other residents, yelled and screamed at neighbors, and placed a boombox and played loud music in the hallways.
In this landmark 2003 ruling, the state Court of Appeals upheld a co-op board’s right to terminate a proprietary lease for objectionable conduct by a shareholder. The ruling affirmed that co-op boards are protected by the Business Judgment Rule, which says the courts will not second-guess board decisions, provided they’re made “in good faith and in honest judgment in the lawful and legitimate furtherance of corporate purpose.” (40 West 67th Street v. Pullman)
She did this at all hours of the day and night. And these things resulted in several police visits to the property.
The board asked the managing agent and me to send letters to the shareholder and then to her attorneys to get her to cease this conduct. Now this tenant-shareholder is a senior citizen and otherwise a very nice person – except for this crazy behavior.
Over the course of five years, the board issued three notices to cure to her. Each of those notices detailed at least 50 different instances of strange conduct. In fact, this shareholder yelled at another shareholder that she hoped she’d have a heart attack and die. Then the board said, “What do we do?” So I read their organizational documents and suggested to them that they conduct a special meeting of the board to consider whether or not this kind of conduct was so unreasonable that her tenancy was undesirable.
This procedure was sanctioned by New York's highest court in a case called 40 West 67th Street vs. Pullman. And that court basically said that it would defer to the board or the cooperative's business judgment when it comes to sanctioning or evicting tenant shareholders for such unreasonable conduct.
The board did call such a special meeting and, in accordance with the Pullman ruling, it invited the shareholder and the shareholder's attorney to come and participate, which they did. The board heard about two hours of statements from the managing agent and from various tenant-shareholders about this woman’s conduct. The meeting was videotaped by a professional videographer, and the videotape showed the tenant-shareholder repeatedly interrupting the other speakers and the managing agent, yelling at them and calling them liars. The tenant-shareholder denied all of these hundreds of allegations – claimed that the board was ganging up on her, that other residents were controlling the heat within her apartment, and that other people were causing noises inside her apartment – all claims that she could not substantiate. The board heard all of this and voted to terminate the proprietary lease.
One interesting thing was that one of the board members recused herself from the deliberations and the voting. Why? Because she wanted to be a witness. She was the one whom the tenant-shareholder hoped would have a heart attack and die. So ultimately the board brought an eviction proceeding. We were fortunate to end up with a judge who was knowledgeable about the Pullman case, and the court ordered the tenant-shareholder’s eviction.
There were some hiccups along the way. First of all, when you issue a notice to terminate, from the date of the termination to the date when you commence a proceeding to evict, you're not allowed to accept rent or maintenance charges. Even though the managing agent was told this, not once, not twice, but three times he accepted maintenance charges. Consequently, board had to issue four notices to terminate. Finally, on the fourth notice, the board was allowed to proceed with the eviction case.
Why is this important? First of all, it delayed the eviction case by about nine months. Second, the court – and it was a very knowledgeable judge – did grant some of the co-op board’s attorney’s fees, but he said, “I'm not granting you attorney’s fees from all those times where you accepted rent and maintenance because it was your negligence in doing it.” Other than that, he granted all the other attorney’s fees and the disbursements.
What do you take away from this? First of all, Pullman is very potent weapon when you're dealing with what is probably the most difficult issue for boards – and that's quality-of-life concerns. Second, the proprietary lease that I dealt with said it was the board that would decide the matter. But in many proprietary leases it is the other shareholders who have to decide. So you have to be very careful in following the letter of your governing documents and the dictates of Pullman.