Co-op Boards and Shareholder Evictions: New Court Ruling Limits Pull of 'Pullman'
Jan. 18, 2010 — A major, recent judicial ruling seriously affects the Business Judgment Rule and what's referred to as the "Pullman decision," more formally known as 40 West 67th Street v. David Pullman — two cornerstones of a co-op board's ability to manage a cooperative apartment building and to terminate the lease of an undesirable co-op shareholder.
"The Business Judgment Rule and Pullman already made clear that the board doesn't have carte blanche to do whatever it wants," notes attorney William J. Robbins, a partner at Rosenberg & Estis, which was not involved in the case. Here's what's changed ... and what you need to know.
The issue in the June 2009 ruling F.T. Apartments Corp. v. Barbara L. (a co-op shareholder identified in public records as Barbara Lerner) first arose in mid-2004. The shareholder in apartment 6C, a floor below Lerner's, sent the board written complaints about Lerner's "erratic behavior, overflow of water, and noise," according to the ruling. The co-op sent Lerner a letter to notify her that her "objectionable conduct" was a breach of the proprietary lease.
And that's the last she ever formally heard of it until the co-op — the 350-unit Fort Tryon Gardens (click on image below to enlarge), a complex of seven co-op buildings at Broadway and Bennett Avenues between West 192nd and West 193rd Streets, in Hudson Heights — began eviction proceedings three years later, in December 2007.
The court would eventual determine that Lerner was incapacitated and would require a guardian under the city's Division of Mental Hygiene laws. Unfortunately, the co-op board and the managing agent, Harry Eisenstein, vice president of Manhattan's David Eisenstein Real Estate, made their own armchair medical diagnosis that Lerner wouldn't understand their notifications. Because of this, they instead sent sporadic letters to her cousin, identified only as Dennis S., and to her brother, Bruce.
"I didn't want to throw her out," Eisenstein says. Yet the family, he goes on, would not help her.
Unexplained Gap
He offers no explanation, however, why this took from mid-2004 until August 2007 to discover. It's also unclear why the board did not, as a matter of course, send Lerner or her attorney, if she had one, a certified letter to notify her so that she could defend herself before the board if she desired, as the Pullman decision dictates.
More pointedly, if the board and its agents felt Lerner was so incapacitated she wouldn't understand a notification, why didn't they contact either the state agency Protective Services for Adults (PSA) or the city's Adult Protective Services (APS)? Anybody can do it; the latter just takes a call to 311, some questions, and maybe some paperwork — all a lot less costly and time-consuming than the rigamarole the co-op went through, and certainly more humane and beneficial to the shareholder.
"If the [co-op] corporation was concerned that the shareholder was incapacitated, the corporation could have gone so far as to seek a guardian appointed, or to seek an evaluation," advises attorney Marc A. Landis, a partner at Phillips Nizer, which is unaffiliated with the case. "You can contact APS and it will send its trained people, get an evaluation, and, if need be, have a guardian appointed." In November 2008, in the course of this eviction proceeding, Judge Shlomo S. Hagler did, in fact, appoint the Jewish Association for the Services for the Aged as Lerner's guardian.
Such a guardianship is ultimately beneficial to a co-op board. "You have a responsible party acting on behalf of an incapacitated person," says Landis, "who can potentially cure defaults, whether it's fixing a leak or attempting to change behavior. The corporation's first goal," he points out, "is usually to have the faulted situation brought into compliance" rather than jumping to eviction — especially in a case like this. "When the shareholder suffers from some degree of incapacity, and is ultimately determined by the court to be incapacitated, a judge will bend over backwards to make sure that a person's rights are not violated."
Stale Notice
In the end, the court ruled that, according to precedent, notices can go "stale" in as little as 11 months. While a shareholder, he wrote, "may not have a right to be present during the actual deliberations and vote of the cooperative board, she does have to be timely informed of the allegations and [to have] an opportunity to be heard to respond to the complaints."
"I wasn't happy with the outcome," says Eisenstein. "The stipulation is not exactly what I wanted. It's costing the co-op a lot of legal fees." Lerner was temporarily relocated, under the guardian's care. "She was out for awhile and now she's back on a trial basis," he says.
The case, says Robbins of Rosenberg & Estis, clarifies that even when a co-op board wants to play doctor and make medical assumptions, "You have to notify the tenant. If you want to notify a relative you think might better realize the significance at issue, that's fine. But you still have to communicate with the shareholder." It's not due process if there's a three-year gap between when notice is given and when the shareholder meeting to evict someone takes place.
Adapted from Habitat January 2010. For the complete article and more, join our Archive >>
Illustration by Marcellus Hall