From the Court to the Board Lessons from Recent Decisions

In this and in future columns, I will be examining decisions of interest to co-ops and condo boards and suggesting what valuable lessons can be learned from these legal decisions.

Recently, there were several interesting court decisions that imparted valuable lessons. Perhaps, the most notable is the 49 West 12 Tenants Corp., which was rendered in mid-April. That decision is the first reported decision since the infamous Pullman decision concerning lease terminations for a shareholder's "objectionable conduct." And, speaking of Pullman, another chapter in the Pullman saga - this time over a board president's defamation claims against Mr. Pullman - was closed. In Pusch v. Pullman and Cooper, we learn more about the "common interest" privilege. In addition, I discuss a few other decisions that caught my eye.

49 West 12 Tenants Corp. v. Pearl Seidenberg Lesson: Shareholders participating in "objectionable conduct" beware; the spirit of the Pullman decision is alive and well. Cooperatives terminating the leases of those shareholders should also take heed; you must strictly follow the letter of the lease in terminating a lease based upon "objectionable conduct."

This Appellate Division, First Department decision is only four paragraphs long, but very important because it sends a warning to shareholders engaging in "objectionable conduct" that the principles established in the Pullman decision have plenty of legs. Many of you may already know, that the New York Court of Appeals in 2003 upheld a cooperative's termination of a shareholder's proprietary lease on the ground that the shareholder engaged in "objectionable conduct." A supermajority of the Pullman cooperative's shareholders voted to direct their board of directors to terminate Mr. Pullman's proprietary lease. Many were surprised by the court's decision which made the "business judgment rule" defense that much stronger, and many questioned how the courts would treat the next Mr. Pullman. Well, we now have an answer.

In 49 West 12 Tenants Corp., the shareholder engaged in unsafe behavior in her apartment that endangered other shareholders' lives, apartments, and person property. It seems that there was a history of gas odors, smoke and fires in the shareholder's apartment that the shareholder ignored. For example, there was a fire in her apartment - she didn't call the Fire Department, but simply left the apartment. Her dog even died in one of the fires.

The board decided that a lease termination was in order and a special meeting of shareholders was held during which more than two thirds of outstanding shares voted to oust the offending shareholder. The co-op's proprietary lease required written notice of the co-op to the shareholder that the shareholder's tenancy is "undesirable" and repeated "objectionable conduct" takes place after that notice.

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