Uncertainty on Evictions in Co-ops

[consigliere]

Uncertainty on Evictions in Co-ops, by Jay Romano, from the Real Estate section of the December 15, 2002 online edition of The New York Times:
 
 
Last month, a Manhattan Housing Court judge issued a ruling that could make it more difficult for co-op boards to evict tenant shareholders who violate a co-op's proprietary lease.
 
In the case of Woodrow Court vs. Levine, decided on Nov. 8, Judge Larry S. Schachner ruled against a co-op corporation that attempted to evict three tenant-shareholders from their apartment without a vote of the co-op's shareholders and without giving the shareholders being evicted an opportunity to present evidence in their own defense.
 
And while some lawyers say the case will have little impact on a co-op board's power to evict tenants who violate the proprietary lease, others say it undercuts a recent appellate decision that gives co-op boards the power to evict problem tenant-shareholders without the board's decision being second-guessed by the courts.
 
"If Judge Schachner's decision stands as is, a co-op probably won't be able to use the speed and efficiency of a summary eviction proceeding to evict a proprietary lessee by simply waltzing into court with a board's resolution authorizing the termination of the tenancy," said Eduardo A. Fajardo, a Manhattan lawyer who represented the tenant-shareholders in the case decided in Housing Court last month.
 
"Instead, a co-op will have to prove its case at trial, which, any litigator would agree, is extremely difficult to do in New York City."
 
Mr. Fajardo said that in the case just decided, the board of Woodrow Court Inc., a 53-unit co-op on West 169th Street, attempted to evict three shareholders from their apartment in the building. (The co-op claimed that one party started a fire in a public area of the building.) To start the eviction, he said, the co-op served the tenant-shareholders with a Notice to Quit and Surrender, a legal notice that is required before an eviction proceeding can begin. When the shareholders refused to vacate their apartment, Mr. Fajardo said, the co-op started an eviction action in the Housing Part of Civil Court.
 
"Bringing a summary eviction proceeding in Housing Court is the quickest way to get a tenant out of an apartment," he said. "But if you bring your case there, you have to do it pursuant to statute, you can't just rely on a board's determination."
 
Mr. Fajardo explained that there are basically two ways for a landlord — including a co-op corporation — to evict a tenant. The quickest way, he said, is for the landlord to file what is known as a summary eviction proceeding in Housing Court. After that, Mr. Fajardo said, the Housing Court, which specializes in landlord-tenant matters, generally resolves the case relatively quickly by applying the Real Property Actions and Proceedings Law. That law, he said, was intended to make the administration of landlord-tenant cases more efficient, less time-consuming and less costly to the parties.
 
It is also possible, however, for a landlord to evict a tenant by bringing a "common-law ejectment action" in State Supreme Court. Such an action basically views the occupant as someone who has no right of possession to the landlord's property and is governed by common law principles of property law. In that court, however, it can take years — and considerable expense — to obtain a final decision.
 
The choice of which court to file in, Mr. Fajardo said, could affect the way the case is decided. To understand why, it is necessary to be familiar with a Supreme Court case decided earlier this year.
 
In May, he said, the Appellate Division, First Department — which handles appeals from courts in Manhattan and the Bronx — issued a ruling in a case known as 40 West 67th Street v. Pullman. In that case, a co-op board brought an ejectment action in State Supreme Court against a tenant-shareholder who the board determined had violated the proprietary lease on a number of occasions in a number of ways.
 
Acting in accordance with requirements of the co-op's proprietary lease, the board first called for a vote of the shareholders — more than 75 percent of the shareholders voted to direct the board to terminate the tenant-shareholder's tenancy — and then gave the shareholder an opportunity to present his case. (The tenant-shareholder did not do so.)
 
The trial judge in the case ruled the tenant-shareholder was entitled to a judicial ruling before he could be evicted, but the appellate court reversed the finding and ruled that the co-op board's decision was not subject to review by the court. (This, co-op lawyers said at the time, was a powerful affirmation of the power of a board to conduct the affairs of a co-op without judicial interference under the "business judgment rule." The case is now on appeal to the Court of Appeals, the state's highest court.)
 
In the Woodrow Court case, Mr. Fajardo said, the co-op attempted to rely upon the ruling in the Pullman case to evict the tenant-shareholders. The co-op, however, started the eviction action without first conducting a vote of the co-op shareholders — a step not required by the proprietary lease — and without giving the defendants an opportunity to be heard. When the defendants refused to vacate their apartment, the board started a summary eviction proceeding in Housing Court.
 
Ruling on motions in the case, Judge Schachner pointed out that while he was "bound to follow the holding in Pullman," the factual differences between the cases made the Pullman case inapplicable. The judge also noted that while the Pullman case was an ejectment action in Supreme Court, the Woodrow Court case was a summary holdover proceeding in Housing Court. And that distinction, Mr. Fajardo said, was critical because the Housing Court must apply the Real Property Actions and Proceedings Law — which requires judicial review of the grounds for an eviction. (Trial is scheduled for next month, on Jan. 14.)
 
"What this case does is limit the effect of the Pullman decision," Mr. Fajardo said. "If co-ops could use Pullman in Housing Court, it would be a huge hammer for the co-ops because they could get evictions very quickly. But this case makes it more difficult to argue that Pullman is applicable in Housing Court."
 
Samuel Himmelstein, a Manhattan landlord-tenant lawyer, agreed. "When you bring a summary proceeding in Housing Court, you have to have strict compliance with the statute," Mr. Himmelstein said. And strict compliance with the Real Property Actions and Proceedings Law, he said, requires a judicial determination that an eviction is warranted — the very thing that the Pullman court said was not necessary.
 
Not all lawyers agree with that conclusion.
 
"It doesn't make sense to me to have one law that applies in the Supreme Court and another that applies in Housing Court," said John Van Der Tuin, a Manhattan lawyer who represented the co-op board in the Pullman case. "That would invite all sorts of forum shopping and races to the courthouse."
 
Instead, Mr. Van Der Tuin said, he believes that Judge Schachner ruled against the board not because of the court he was sitting in — Housing Court — but because of the facts of the case.
 
"Judge Schachner seems to take the view that since there was no provision for notice and an opportunity for the tenant-shareholders to be heard, the board's decision was not governed by the business judgment rule," he said, adding that since the ruling hinges on the unique facts of the case, it should not be interpreted as an attack on the Pullman case.
 
Arthur I. Weinstein, vice president of the Council of York Cooperatives and Condominiums, agreed.
 
"I don't think Judge Schachtner was wrong," Mr. Weinstein said. "He was not reviewing the co-op board's determination of the facts that formed the basis for the eviction; he was reviewing the procedures that the board used to come to that determination."
 
In other words, Mr. Weinstein said, since the business judgment rule requires a co-op board to observe certain standards before its decisions will be insulated from judicial scrutiny — one of which would be to act in "good faith" by offering an opportunity for a hearing to tenant-shareholders charged with violating the proprietary lease — the actions of the Woodrow Court board probably would not be protected by the business judgment rule no matter what court the case was heard in.
 
At the same time, he said, if the board had provided notice and a hearing to the Woodrow Court shareholders, it is likely that the business judgment rule — and the Pullman case — would apply in Housing Court even though the Housing Court judge was applying the Real Property Actions and Proceedings Law.
 
And that, he said, is of considerable importance to co-op boards.
 
"The extent of a board's immunity from judicial review is of vital interest to co-ops," Mr. Weinstein said. "Boards need the freedom to act in the best interests of the co-op without having to worry about every decision being second-guessed through expensive litigation."