Ask Habitat: We Terminated a Lease, but Shareholder Won't Leave. Now What?
June 16, 2014 — A BUYER ASKS: Our co-op board documented hundreds of instances of a shareholder and his family doing unspeakable things in the hallways and elevators. Urinating? Hah! As if that were the only way they were relieving themselves in public! Security cameras showed them selling drugs, having sex in the stairwells, you name it. We sent notices and finally had the shareholder appear at a meeting to determine whether to evict him under a Pullman action. He really had no defense for his family's behavior, and so the board voted unanimously to terminate the lease. But they won't leave! What happens now?
HABITAT ANSWERS: You're not alone, and you have precedent on your side. The board at the Housing Development Fund Corporation (HDFC) co-op at 1855 Seventh Avenue (a.k.a. Adam Clayton Powell Jr. Blvd.) had much the same issue. When the recalcitrant shareholder, one Lethea Wigfall, refused to vacate after the lease-termination vote, the board had to file in Housing Court to evict her.
There, six witnesses testified that the proprietary lease and the house rules prohibited certain behavior, and that the building staff kept logs of the behavior of the apartment's six (at least) occupants — with everything confirmed by security-video footage.
Wholly the Trinity
The court found that the co-op met each of the three elements of the Business Judgment Rule: acting for the purposes of the co-op, within the scope of its authority and in good faith. And the court specifically rejected Wigfall's claim that she was denied due process because she was not told she could have a lawyer with her at the board meeting. The court said nothing requires a co-op board to inform shareholders they can have a lawyer present at a meeting.
The case was so clear-cut it didn't even have to go to trial. In fact, the court said the co-op even had the right to seek attorneys’ fees.
The Takeaway
So, to recap: The co-op gave the court a copy of the proprietary lease and the house rules; there was testimony about the board's procedure and documentation that recorded the misconduct (including entry into a log book and review of security footage); and Wigfall had received earlier notices telling her the behavior had to stop.
With this information, the court did not need to satisfy itself that the conduct was objectionable, but instead found that the Business Judgment Rule applied and so the court was bound to defer to the board’s decision. Always remember: One of the key factors of the Business Judgment Rule is that the person challenging the board's decision has the burden of showing that what the board did was improper.
Richard Siegler is a partner in the New York City law firm of Stroock & Stroock & Lavan. Dale J. Degenshein is a special counsel for that firm. Josie Morris, an associate at the firm, assisted in the preparation of this article.
Illustration by Liza Donnelly. Click to enlarge.
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