40 West 67th Street v. Pullman

[consigliere]

The case of 40 West 67th Street v. Pullman was summarized in TenantNet's Housing Court Decisions for the week ended May 31, 2002.

Here's The New York Times' take on the case, from the June 9, 2002 Real Estate Section:

Court Backs An Eviction From Co-op

by Jay Romano

A Manhattan appellate court ruling that a co-op corporation can evict a tenant-shareholder without first obtaining judicial review of the reason for the eviction has generated "visceral" reactions among co-op and landlord-tenant lawyers.

Some co-op lawyers say that while the decision authoritatively ratifies a co-op board's power to manage the affairs of its building without judicial interference, there is a good possibility the case will be overturned on appeal.

And while some landlord-tenant lawyers say the ruling improperly denies tenant-shareholders a judicial review of an eviction, others say the decision may very well be affirmed on appeal.

The ruling in the case of 40 West 67th Street v. Pullman, issued on May 23 after a 3-to-2 vote of the Appellate Division, First Department, is binding on courts in Manhattan and the Bronx.

"This is a fabulous decision for co-ops," said Stuart M. Saft, a Manhattan lawyer who is chairman of the Council of New York Cooperatives and Condominiums. "I'm just not so sure that it's correct."

According to the decision written by Justice Angela M. Mazzarelli, David Pullman purchased an apartment in 40 West 67th Street, in October 1998. Shortly thereafter, Mr. Pullman began making numerous requests to change the facilities or services. He asked, for example, that lobby mailboxes be replaced and that 24-hour door attendants be hired. Those requests were considered and rejected by the co-op board.

At the same time, the decision relates, Mr. Pullman "repeatedly complained and threatened to sue" the co-op's managing agent and board president for their failure to abate an alleged noise problem from the apartment above his. In October 1999 alone, Justice Mazzarelli noted, Mr. Pullman sent at least 16 written complaints to the managing agent about the alleged noise.

In 2000, Mr. Pullman filed four lawsuits against the upstairs neighbor and the co-op and its management — all of which were still pending at the time of last month's appellate decision.

That same year, the co-op board advised Mr. Pullman that he had violated his proprietary lease by renovating his kitchen, installing soundproofing inside his windows, employing a construction worker on a Saturday and refusing to allow an inspection of his apartment.

On June 27, 2000, in accordance with the proprietary lease, the shareholders of the co-op corporation held a special meeting to determine whether Mr. Pullman's tenancy in the building was "objectionable."

"After discussion of the issues," Justice Mazzarelli wrote, "a supermajority, the holders of 75 percent of the outstanding shares in the co-op, voted in favor of a resolution detailing how Pullman's continued tenancy was objectionable and directing the board to terminate Pullman's proprietary lease."

The vote, the court noted, was 2,048 shares in favor of termination, zero opposed and 542 shares not present and not voting. Mr. Pullman did not attend.

On July 7, 2000, the board terminated Mr. Pullman's lease effective Aug. 31. When he remained in the apartment after that date, the co-op sued to have him ejected. A lower court judge dismissed the suit — ruling that it was the court's job to determine whether a tenancy should be terminated for objectionable conduct — but the appellate division reversed that ruling and said the co-op's decision to terminate Mr. Pullman's lease was not subject to review by the courts.

(The court noted that the termination of the tenancy would not cause Mr. Pullman to lose the value of his apartment since his shares would be sold by the co-op and the proceeds turned over to him after the costs of the sale, litigation expenses and other amounts due have been deducted.)

Arthur I. Weinstein, a Manhattan lawyer who is vice president of the Council of New York Cooperatives and Condominiums, said the court based its decision on a 1990 case known as Levandusky vs. One Fifth Avenue Apt. Corp. In that case, Mr. Weinstein said, the Court of Appeals, the state's highest court, applied the "business judgment rule" to co-ops.

"The Levandusky case stands for the principle that the courts generally will not seek to substitute their judgment for the judgment of a co-op's board," Mr. Weinstein said, adding that for the business judgment rule to apply, the board must be acting in good faith for a legitimate corporate purpose. Since there was no showing that the board had acted otherwise, he said, the termination of Mr. Pullman's lease was protected by the business judgment rule.

Indeed, Mr. Weinstein said, Justice Mazzarelli pointed out in her decision that by becoming a shareholder, Mr. Pullman agreed to be bound by the co-op's rules and regulations.

Daphna Zekaria, a Manhattan tenants' lawyer, called the Appellate Court decision outrageous.

"What they've done here is effectively deny tenant shareholders who are considered to be troublemakers by the board from having an objective third party review the grounds for their eviction," Ms. Zekaria said. "They've made it possible for the co-op board to make the rules and enforce the rules, without ever having their decisions reviewed by a court."

Lucas Ferrara, a Manhattan tenant lawyer, said that the decision seemed to make sense to him.

"What we're talking about here is a tenant who is also a landlord," he said, referring to the defendant's status as a tenant under the proprietary lease, but a co-owner of the building as a shareholder. "This is not a case of an owner of a rental building saying, `Get out of my building; I don't like you.' This is a group of owners getting together and voting one of the other owners out of the corporation for breaking rules that all the owners agreed upon."

Mr. Ferrara said that after reading the case — and getting some "visceral reactions" about it from other lawyers — he believes the decision will be upheld on appeal.

Richard Siegler, a Manhattan co-op lawyer, disagreed. "Normally, I would be in favor of broadening a board's powers," he said. "But this is a case of fundamental rights."

In fact, Mr. Siegler said, he agrees with the dissenting opinion of Justice David B. Saxe, who argued that a co-op tenant shareholder, like any other tenant, is entitled to judicial review of the basis for an eviction and that the Levandusky case does not apply in such circumstances.

Mr. Saft, the chairman of the Council of New York Cooperatives and Condominiums, said that while he welcomes the court's strict application of the Levandusky case, he is not confident the decision will be upheld.

"My feeling is that the court was swayed by the fact that the action was based upon a vote of the shareholders," he said. He added, however, that since the termination of the proprietary lease was the result of a vote of the shareholders, it could be argued that the business judgment rule — which covers actions by the co-op's board — does not apply.

John T. Van Der Tuin, a Manhattan lawyer who represented 40 West 67th Street, said that since it was the co-op board that officially terminated Mr. Pullman's proprietary lease in accordance with the vote of the shareholders, the business judgment rule properly applies. In fact, Mr. Van Der Tuin said, if there had been any significant dispute about whether Mr. Pullman engaged in the conduct he was alleged to have engaged in, he would have been entitled to a judicial hearing, notwithstanding the business judgment rule.

"The court always has the power to determine whether or not certain conduct took place," he said. "What the court can't do is second-guess the co-op as to whether conduct that did take place is objectionable or not."

Steven Altman, the Manhattan lawyer who represented Mr. Pullman, said that his client has appealed and applied for a stay of the eviction.

"If this decision is affirmed by the Court of Appeals, the implications will be enormous and potentially horrendous for all co-op owners," he said. "But I'm confident that it will be overturned."

.

[consigliere]

Peter S. Herman, a senior partner with McLaughlin & Stern in New York, wrote this article in the June 7, 2002 edition of the New York Law Journal, expressing his dissatisfaction with the Appellate Division, First Department majority's decision in 40 West 67th Street v. Pullman:

No Judicial Review for Co-Op's Eviction of 'Objectionable' Tenant

by Peter S. Herman

The Appellate Division, First Department last month, in 40 West 67th Street v. Pullman (N.Y.L.J., May 29, 2002, p.18), held that the "good faith" determination of a co-op board to evict a tenant for "objectionable behavior" is not subject to judicial review in accordance with the "business judgment rule" promulgated by the Court of Appeals in Levandusky v. One Fifth Avenue Apt. Corp., 75 NY2d 530 (1990). By a 3-2 vote, the court deprived thousands of co-op tenants of minimal due process protection from the threat, or actuality, of eviction by a co-op board or super-majority of shareholders. Moreover, as the dissent argued, the majority disregarded § 711(1) of the Real Property Actions and Proceedings Law which prohibits eviction of a tenant based on objectionable behavior "unless the landlord shall by competent evidence establish to the satisfaction of the court that the tenant is objectionable."

Concededly, the tenant in Pullman,appears to have made life difficult for the co-op board. Soon after moving in, he made numerous requests to change the building's facilities or services, all of which were denied. In short order came a flood of complaints and threats to sue the board and its president over its failure to abate a claimed noise problem from the apartment directly above. The board investigated and found these complaints to be "unsubstantiated." The tenant then brought criminal charges against the upstairs tenant for an alleged assault in the building which were adjourned in contemplation of dismissal. He commenced no less than four lawsuits against the upstairs neighbor, the co-op board, its president, and the co-op's managing agent, all of which are still pending and undecided. He also distributed allegedly defamatory leaflets about the upstairs neighbor and the co-op's president, charging the latter with conflict of interest, and he refused to allow an inspection of his apartment by the board. Finally, the tenant failed to attend the meeting of the shareholders at which the fateful vote was taken by more than 75 percent of the shareholders then present, which unanimously declared him "objectionable."

The board then commenced a common-law ejectment action in the Supreme Court rather than a summary proceeding in the Civil Court. Relying upon RPAPL § 711(1), the motion court denied plaintiff's motion to dismiss and defendant's cross-motion for summary judgment, declaring that it was the court's function to determine whether defendant's conduct was "objectionable" so as to terminate his lease, and found issues of fact to be decided at a trial. The Appellate Division reversed, granted plaintiff summary judgment on its first cause of action based on termination of the lease, and remanded for a hearing on use and occupancy and attorney fees.

The majority held that the case was governed by the "business judgment rule" announced in Levandusky, supra, and that Levandusky prohibits judicial scrutiny of actions of co-op board directors "taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes." The majority did not hold that RPAPL § 711(1) was inapplicable in a Supreme Court ejectment action, but held that the statute does not require judicial scrutiny of the basis of the tenant's ejectment because, they said, the case is governed by Levandusky.

This holding appears to be an unwarranted extension of the "business judgment rule" adopted in Levandusky. The issue there was the standard of review to be applied to a determination of the board of a co-op in the context of its right to approve renovations to a tenant shareholder's apartment. Chief Judge Judith S. Kaye wrote that the case "fundamentally present[ed] the legal question if what standard of review should apply when a board of directors of a cooperative corporation seeks to enforce a matter of building policy against a tenant-shareholder." 75 NY.2d at 533. There is a giant leap, however, between a board's power to enforce matters of building policy and a board's preemption of the judicial power under RPAPL § 711(1). The majority in Pullman defers not only to the board's power, seconded by 75 percent of the shareholders, to declare the tenant to be objectionable, and to commence litigation thereon, but also accords them the ultimate powers of judge and jury respectively.

The Dissent

The dissent aptly points out that Levandusky has been limited to decisions of co-op boards regarding management issues and the enactment and enforcement of house rules; it has never been previously applied to the "qualitatively different" decision to evict a tenant-shareholder from his home. Two lower court decisions had held that RPAPL § 711(1) required the co-op in a holdover proceeding based on the tenant's alleged objectionability, to submit proof of the objectionable conduct to the satisfaction of the court, Adams Hotel Owner, Inc. v. Wolf, 64 Misc.2d 614 and Brisbane House, Inc. v. Sims, 122 Misc.2d 46. In Adams, the Appellate Term held that RPAPL 711(1) applies to a holdover proceeding by a cooperative against a tenant-stockholder under a proprietary lease providing for termination of tenancy upon a finding of undesirability by the board of directors, noting that an "objective standard" would be applied to measuring the conduct of the alleged objectionable tenant.

In Brisbane, the court reasoned that to permit the board to make a binding determination of undesirability would "invest the shareholders with powers of forfeiture that belong clearly to a court of law." The majority dismisses these decisions with the observation that they preceded Levandusky. However, those decisions did not rest upon a pre-Levandusky standard as to the weight to be accorded decisions of a co-op board, but upon the explicit command of the statute.

Agreeing to Eviction

The majority in Pullman places heavy emphasis upon the circumstance that defendant and all other shareholders agreed that they could be evicted when they purchased shares in a co-operative, and that the tenant "voluntarily 'agree[d] to submit to the decisionmaking authority of the cooperative board" when he agreed to buy his apartment, again citing Levandusky. Such reasoning is circuitous because prior to Pullman, the authority of a co-op board had never included the power of finally determining a tenant-shareholder's "objectionability." To the contrary, purchasers of co-op apartments presumably agreed only to be evicted, based on objectionability in accordance with the requirements of RPAPL § 711(1); i.e., only upon presentation of competent proof in a court of law to the satisfaction of an impartial judge.

It will come as a shock to thousands of cooperative tenants who have invested thousands, if not millions, of dollars in purchasing and renovating their homes, that according to the majority in Pullman, they have less protection from eviction, based on the loosely worded standard of "objectionability," than a tenant of an unregulated rental unit who has invested nothing in his apartment. Indeed, the ramifications of this decision may also cause concern to lenders who finance cooperative apartments at favorable rates on the presumed basis of the stability of such investments.

Economic Impact

Not only does the decision award eviction of the tenant-shareholder without a trial on the merits, it ignores the economic impact of the lease termination. The majority fails to mention that not only is the tenant to be evicted, but he has also lost the power to sell the apartment. Under the standard proprietary lease, once the lease has been terminated, it is the co-op which conducts any re-sale. Such an artificial sale will likely yield far less than market value. The majority refers, without analysis, to the affidavit of the co-op's managing agent that upon a sale of the apartment, the co-op will turn over to the tenant all proceeds "after deduction of unpaid use and occupancy, legal fees and costs of sale."

Nor does the the majority appear troubled by the due process implications of its ruling. The opinion recites that the board "investigated" the tenant's complaints, and "determined" that they had no validity, but there is nothing to indicate that the the board deliberations, or the "proceedings" at the shareholder meeting, had even the most basic attributes of quasi judicial proceedings. It does not appear that sworn testimony was taken, or that the tenant was accorded the right to be represented by counsel, or permitted to cross-examine witnesses against him, or call witnesses on his behalf, or that there was an impartial finder of the facts.

That the tenant refused to attend under such circumstances is understandable. Moreover, as a matter of substantive due process, the majority opinion never defined an "objective standard" of conduct of a tenant-shareholder that would be deemed objectionable. Here, again, the majority defers to the "business judgment" of the board, the presumed "sincerity" of the "consensus" of 75 percent of the shareholders, and the tenant's failure, in the view of the majority, to establish "improper motive" by the co-op board.

The majority's sense of balance between the power of the board, and the rights of individual shareholders, is tilted in favor of the "protection of the interest of the entire community." But each tenant-shareholder acquires, at great personal cost, property rights in the form of shares of stock and a long term proprietary lease. According to the Corcoran Report, for the year 2001, the average sale price of a cooperative apartment on the Eastside of Manhattan was $911,000; on the Westside, $674,000. Yet to the majority, protection of such valuable property rights must yield to the greater good of the community as a whole, unless the shareholder establishes that the board has acted in an "illegal, discriminatory or bad faith manner." This narrow exception fails to address the possibility, among others, that the board may have acted on incomplete facts or erroneous assumptions, or that some shareholders or board members were motivated by the opportunity to buy the apartment for themselves at substantially below market value.

Support for Allegations

The majority wrote that the tenant in Pullman had failed to provide factual support for his allegations that he was evicted based upon "impermissible considerations." In this respect, the majority improperly shifted the burden of proof from the plaintiff co-op to the defendant tenant. It also glosses over the practical difficulties of a tenant trying to mount such a defense, especially where the board's deliberations have been private, and the shareholders have merely ratified the board's recommendation. Furthermore, the dissent pointed out that the tenant's submissions had created an issue of fact as to whether his objectionable conduct was necessitated by the co-op's "complete failure to take reasonable action" in response to his complaints about excessive noise from his upstairs neighbor, and that he had submitted an affidavit from an acoustical expert showing that sounds from the upstairs apartment were measured at levels exceeding the permissible level under the N.Y.C. Administrative Code.

Although some of the tenant's actions appear to have been "over the top," it bears mentioning that none of the lawsuits he filed had been decided against him, and that the adjournment of the criminal charge was certainly not a determination that the upstairs neighbor was innocent. But assuming that the majority was convinced by the overwhelming shareholder vote and the objective evidence, that the tenant was "objectionable" as a matter of law, then the court nevertheless could have applied RPAPL § 711(1), and granted summary judgment to the co-op on the second cause of action. Such a line of reasoning would not have eviscerated statutory protections, nor deprived the tenant of his day in court on the merits. It was, in sum, unnecessary for the court to declare, over a vigorous dissent, that Levandusky rendered the statute inapplicable, or that the court was relinquishing its tradtional, historic role of determining on the merits whether or not a tenant should be evicted from his or her home.

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[consigliere]

Here's the original article about the case of 40 West 67th Street v. Pullman, from the May 24, 2002 edition of the New York Law Journal:

Co-op Board Needs No Judicial Review to Oust Bad Tenant

by Tom Perrotta

A co-op board's good-faith determination to evict a tenant for objectionable behavior is insulated from judicial review, a split appellate panel ruled Thursday.

The 3-2 ruling from the Appellate Division, First Department, found that a board's vote is shielded by the "business judgment rule" as identified in Levandusky v. One Fifth Avenue Apt. Corp., 5 NY2d 530, a 1990 Court of Appeals ruling.

The majority said the actions of a board are presumed to be in good faith and for the benefit of the co-op community, and should not be reviewed absent a showing of a breach of fiduciary duty or impropriety.

"Levandusky explicitly precludes judicial inquiry into the lawful actions taken by a co-op board of directors," the court said.

Justice Angela M. Mazzarelli, writing for the majority in 40 West 67th Street v. David Pullman, 135, said that the tenant, David Pullman, did not establish any improper motive by the board, and failed to show that his eviction was not in the interest of the cooperative.

In a dissenting opinion, Justice David B. Saxe said that the majority's ruling was "not only unfair but wrong" and represented a misapplication of Levandusky.

The judge said the high court's ruling should be construed more narrowly to apply only to day-to-day business or financial decisions, not determinations that evict tenants.

Justice Saxe said that Pullman was entitled to judicial review because the eviction proceeding was governed by Real Property Actions and Proceedings Law § 711. The statute, the judge said, requires that competent evidence be shown to the court to sustain an eviction for objectionable behavior.

Pullman's dispute with his building began as soon as he moved there in October 1998.

Pullman, who owns 80 shares in the co-op, made numerous requests to change the building's facilities and services, all of which were considered but ultimately rejected by the board.

He also threatened to sue the board's president and the building's managing agent for failing to abate a noise problem in the apartment directly above his.

Pullman claimed the upstairs tenants were running a book binding business and often turned up the volume on their television or radio. The co-op investigated and found no television, stereo or evidence of book binding. Despite Pullman's claims to the contrary, the former tenants of his apartment said they never heard excessive noise from the upstairs neighbors.

As tension built between Pullman and the tenants upstairs, the court said, Pullman was apparently assaulted in the building's elevator, leading to the arrest of one of the upstairs tenants. Criminal charges were brought but later adjourned.

Vote to Evict

During 2000, Pullman filed four lawsuits against the upstairs tenants, the co-op and its management. He passed out leaflets to his fellow tenants, decrying the assault by his neighbor and urging the other tenants to evict the man.

At the same time, the board notified Pullman that he was not in compliance with his lease, owing to illegal renovations and his failure to carpet the floor.

The board voted 2,048 shares to zero, with 542 not present or abstaining, to evict Pullman. Each tenant's lease provided that evictions for objectionable conduct could be sustained by a vote of at least two thirds of the shareholders. Pullman was notified of the special proceeding where the vote was taken, but he did not attend.

When Pullman refused to leave, the co-op sued for possession. Manhattan Supreme Court Justice Marilyn Shafer denied the co-op's motion for summary judgment, finding that it was the place of the court to determine whether a tenant should be evicted for objectionable behavior.

Business Judgment Rule

Thursday the First Department modified that ruling, granting the co-op's motion for summary judgment and remanding for a hearing on use, occupancy, legal fees and costs.

Justice Mazzarelli wrote that while the action reviewed in Levandusky was the denial of a tenant's application for a variance, "its holding has repeatedly been applied" to a board's determination on appropriate policies.

"The majority decision in Levandusky explicitly stated that the business judgment rule should be applied to all co-op board determinations," Justice Mazzarelli wrote. "The Court found universal application of this standard of review appropriate because 'unnecessary confusion [would be] generated by prescribing different standards for different categories of issues that come before cooperative boards.' "

Justice Saxe disagreed, saying the only possible grounds for the majority's ruling was a determination that Levandusky had "overruled" RPAPL § 711, or that Pullman had waived the statute's protections by signing his lease.

Instead, Justice Saxe said, the majority opinion "glosses over the glaring applicability of RPAPL § 711" by finding that the board's vote was the functional equivalent of competent evidence.

"Under this view, once the supermajority of shareholders has spoken, there is nothing left for the court to do but rubber-stamp that decision," Justice Saxe wrote.

Justice Mazzarelli rejected the idea that the majority ruling undermined the "important policy underlying RPAPL § 711(1), which is to prevent arbitrary self-help evictions."

Following Levandusky, she wrote, "does not mean that tenants are without protection if a board acts in an illegal, discriminatory, or bad faith manner."

Noting Pullman's numerous lawsuits, threats and violations of building rules, the judge added that were the court "to look behind [the board's] actions, we would find that the record amply supports the determination that [Pullman's] tenancy is 'objectionable.' "

Justices Joseph P. Sullivan and David Friedman concurred with Justice Mazzarelli's opinion. Justice Richard W. Wallach joined Justice Saxe in dissent.

John T. Van Der Tuin of Balber Pickard Battistoni Maldonado & Van Der Tuin represented the co-op board. Steven Altman of Ziegler, Ziegler & Altman represented Pullman.

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[consigliere]

Below are the majority and dissenting opinions in 40 West 67th Street v. Pullman:
 
 
40 West 67th Street,
Plaintiff-Appellant,

v.

David Pullman, etc., Defendant-Respondent.

Cal. No. 135

Supreme Court, Appellate Division, First Department, New York

Decided on May 23, 2002

Angela M. Mazzarelli, J.P., David B. Saxe, Joseph P. Sullivan, Richard W. Wallach, David Friedman, JJ.

Plaintiff appeals from an order of the Supreme Court, New York County (Marilyn Shafer, J.), entered July 12, 2001, which, inter alia, granted defendant's motion to dismiss the first cause of action of the amended complainand denied plaintiff's cross motion for summary judgment pursuant to CPLR 3211(c) on its first and third causes of action.

APPEARANCES OF COUNSEL

John T. Van Der Tuin, of counsel (Balber Pickard Battistoni Maldonado & Van Der Tuin, PC, attorneys) for plaintiff-appellant,

Steven Altman, of counsel (Ziegler, Ziegler & Altman LLP, attorneys) for defendant-respondent.

MAJORITY OPINION

MAZZARELLI, J.P.

In October 1998, defendant David Pullman bought a co-op apartment at 40 W. 67th Street. Plaintiff corporation owns the building, which contains 38 apartment units. Appurtenant to the proprietary lease for his apartment (7B), defendant holds 80 shares of capital stock in plaintiff corporation. Article III (first) (f) of each tenant's lease provides that the co-op may terminate a tenancy on 30-days' notice if a lessee is found to be undesirable because of "objectionable" conduct. This requires a vote of at least 2/3 of the shareholders of the corporation, at a duly called meeting. At issue on appeal is the termination of Mr. Pullman's lease.

Soon after Pullman moved into his apartment, he began to make numerous requests to change the building's facilities or services. According to the affidavit of the building's managing agent, Pullman requested that the lobby mailboxes be replaced, that video camera security be installed in the building, and that 24-hour door attendants be hired. The managing agent also stated that each of Pullman's requests was considered by the board, and deemed inadvisable, for architectural, technical, financial, or other substantive reasons. Pullman also repeatedly complained and threatened to sue the co-op's managing agent and the co-op board's president for failure to abate a claimed noise problem emanating from apartment 8B, directly above Pullman. Apartment 8B had been leased for more than 20 years by a retired college professor and his wife. In the month of October 1999 alone, Pullman sent at least 16 written complaints to the co-op's managing agent about noise from this apartment.

He said that there was banging in the middle of the night from machines that were used in a commercial book binding business. Pullman also complained of a blasting stereo or television. The co-op board investigated Pullman's complaints, which it found to be unsubstantiated.

Upon examination of apartment 8B, the members of the co-op board did not find a television or stereo. They also found no evidence that these tenants were involved in a book binding business or any other commercial enterprise. In an affidavit in a related action, Pullman stated that the prior lessees of his apartment had complained about the noise from apartment 8B. This was shown to be false. The former tenants of apartment 7B submitted an affidavit in one of the related lawsuits denying Pullman's assertions, and stating that in the over 40 years that they occupied the apartment, they never heard unreasonable or excessive noise coming from apartment 8B. Tension between Pullman and the apartment 8B tenants continued to build, and Pullman was apparently assaulted by the husband in an elevator. This resulted in criminal charges against the husband, which were ultimately adjourned in contemplation of dismissal.

In the year 2000, Pullman instituted four lawsuits against his upstairs neighbors and the co-op and its management. The first lawsuit was brought against the apartment 8B tenants. It is still pending and seeks money damages for the nuisance allegedly created by the noise, and for injuries resulting from the husband's assault on defendant. The second lawsuit, also against the upstairs tenants and still pending, seeks injunctive relief in the form of an order to compel them to control the noise from their apartment. The third pending action is against the co-op president. It alleges a breach of fiduciary duty for not acting to stop the upstairs tenants' alleged transgressions. The fourth action, also still continuing, was instituted against the co-op and its managing agent. It alleges a breach of lease and violation of the warranty of habitability for failing to address the noise problem. Pullman attempted to commence two other actions against the various defendants by order to show cause. However, the IAS court refused to sign the orders when presented with them.

Pullman also circulated leaflets to the other co-op shareholders. One of these, entitled "ATTACK CRIME," detailed the assault by the upstairs tenant and urged the shareholders to evict him, stating that he "has the makings of a psychopath in
our midst." Another leaflet urged the ouster of the president of the co-op board for a conflict of interest. During this same period, the co-op board sent Pullman a letter stating that he was not in compliance with the terms of his lease.

The letter informed Pullman that he had already violated a number of the terms of the proprietary lease by renovating his kitchen, installing soundproofing inside his windows, and employing a construction worker on a Saturday. The letter requested that Pullman either install carpeting in his bedrooms, or submit a waiver of the carpeting requirement to the Board signed by his downstairs neighbors. Pullman ignored the board's requests that he "furnish a list of all renovations and redecorating to [his] apartment" from the date of his purchase of shares, and he refused to allow an inspection of his apartment.

On June 27, 2000, the shareholders held a special meeting pursuant to Article I, section 1 of the corporation's by-laws. The purpose of the meeting was to determine whether Pullman's tenancy in the building was "objectionable." Pullman was notified of the meeting, but did not attend. After discussion of the issues, a super-majority, the holders of 75% of the outstanding shares in the co-op, voted in favor of a resolution detailing how Pullman's continued tenancy was objectionable, and directing the Board to terminate Pullman's proprietary lease. The vote was 2,048 shares in favor of termination, 0 opposed, and 542 shares not present and not voting. The Board delivered the notice of termination to Pullman, dated July 7, 2000, and effective August 31, 2000. Pullman ignored the notice and continued to reside in the apartment after its effective date.

In October 2000, plaintiff brought this action. The amended complaint contains five causes of action. The first and second seek ejectment and possession of the apartment. The second cause of action specifically alleges that Pullman's tenancy is "objectionable." The third cause of action is for a declaratory judgment canceling Pullman's stock. The fourth cause of action prays for a money judgment for use and occupancy from September 1, 2000. The fifth cause of action seeks reasonable attorneys' fees and costs of the litigation.

Pullman moved to dismiss the complaint for failure to state a claim (CPLR 3211(a)(1) and (7)). In opposition, plaintiff sought summary judgment pursuant to CPLR 3211(c). The Court dismissed plaintiff's first claim, denied dismissal of the remainder of the complaint, and denied plaintiff's motion for summary judgment. The court reasoned that under RPAPL 711(1), it was the province of the court, not the co-op board, to determine whether a tenancy should be terminated based upon "objectionable" conduct. It found numerous disputed factual issues surrounding the termination of Pullman's tenancy which would require a trial. The motion court also determined that among the issues to be tried were the question of whether the eviction was retaliatory, as proscribed by Real Property Law § 223-b.

We reject Pullman's argument, adopted by the dissent, that RPAPL 711(1) requires judicial scrutiny of the basis for this tenant's ejectment. This case is governed by the holding of the Court of Appeals in Levandusky v One Fifth Avenue Apt. Corp. (75 NY2d 530), which applied the "business judgment rule" to explicitly "prohibit[] judicial inquiry into actions of corporate directors ' taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes' (Auerbach v Bennett, 47 NY2d 619, 629, supra)." Levandusky generally prohibits judicial scrutiny of the actions of the board of directors, and its holding insulates the determination of this co-op board from judicial review. The Board's action here was premised upon the unanimous vote of a supermajority of the shareholders at a duly called meeting. It terminated the defendant's lease for breach of a provision requiring that shareholders not engage in "objectionable conduct," inimical to the welfare of the co-operative community.

The dissent argues that the Levandusky rule should not apply in this case because the defendant-tenant faces the loss of his home. However, the defendant, as did all the other shareholders, agreed to just such a sanction when he purchased shares in a co-operative. By doing so, Pullman voluntarily "agree[d] to submit to the decisionmaking authority of the cooperative board" (Levandusky, supra, at 536). Prior to his purchase, Pullman was aware of the restrictions on his behavior and limitations on the ownership of his shares, and, nonetheless chose to buy his apartment. Pursuant to the Court of Appeals holding in Levandusky, "would-be apartment owners must generally acquiesce [to] ... a governing board['s] ... significant[] restrict[ion] [of] the bundle of rights a property owner normally enjoys" (id.). Any other result would undermine the purpose of this unique form of shareholder- lease, in which the paramount interest of the Board of Directors is the welfare of the "entire community of residents in an environment managed by the board for the common benefit" (id. at 536-537).

In Levandusky, a cooperative tenant sought to renovate his kitchen. The proposed renovation necessitated the realignment of a steam riser in the kitchen, and the lease specifically provided that this type of alteration required the co-op board's prior written consent. The board's consulting engineer advised that any change in the building's old piping system risked causing difficulties, or awakening "gremlins." The board thus conditioned its approval of the renovation upon submission of a revised plan which would not involve moving the steam riser. Notwithstanding the board's determination, the tenant hired a contractor who moved the steam riser.

The board issued a "stop work order," and the tenant brought an Article 78 proceeding to have the stop work order set aside. The Court of Appeals concluded that "the business judgment rule applies to the decisions of cooperative governing associations enforcing building policy, and that the action taken by the board in [that] case [fell] within the purview of [that] rule" (id. at 535). Significantly, the Court (at 536) described the co-op association as,
a quasi-government a little democratic sub society of necessity ... the proprietary lessees or condominium owners consent to be governed, in certain respects, by the decisions of a board. Like a municipal government, such governing boards are responsible for running the day-to-day affairs of the cooperative and to that end, often have broad powers in areas that range from financial decisionmaking to promulgating regulations regarding pets and parking spaces (citation omitted).... Through the exercise of this authority, to which would-be apartment owners must generally acquiesce, a governing board may significantly restrict the bundle of rights a property owner normally enjoys.

The Court of Appeals said that the need for a "check [against abuse of a board's] potential powers to regulate residents' conduct, life-style and property rights" must be balanced with the desire to promote the primary objective of the cooperative structure, which is "protection of the interest of the entire community of residents in an environment managed by the board for the common benefit." To best achieve this balance, the Court determined that the deferential business judgment rule was the appropriate standard for judicial review (id. at 537; Sirianni v Rafaloff, 284 AD2d 447; Jones v Surrey Coop. Apts., Inc., 263 AD2d 33, 36). The majority specifically adopted the business judgment rule as preferable to a "reasonableness" rule, which would have allowed the court to independently evaluate the merits of a board's decision (Levandusky, supra, at 535).

Under the business judgment rule, it is presumed that the actions of a co- operative's directors are "taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes" (Auerbach v Bennett, 47 NY2d 619, 629). Absent a showing of a breach of fiduciary duty, "the exercise of [the co-op board's powers] for the common and general interests of the corporation may not be questioned, although the results show that what they did was unwise or inexpedient" (Pollitz v Wabash R. R. Co., 207 NY 113, 124).

While the action reviewed in Levandusky was the denial of a tenant's application for a variance to move a steam riser in a tenant's kitchen, its holding has been repeatedly applied to boards' determinations of what are appropriate policies and procedures (see, e.g., Jacobs v 200 East 36th Owners Corp., 281 AD2d 281 [1st Dept.][rule regulating procedure for handling food deliveries]). The majority decision in Levandusky explicitly stated that the business judgment rule should be applied to all co-op board determinations.

The Court found universal application of this standard of review appropriate because "unnecessary confusion [would be] generated by prescribing different standards for different categories of issues that come before cooperative boards" (id. at 541). The deference granted to the board under this rule is consistent with the settled notion of a co-op as a voluntary association of individuals who agree to compromise their rights to obtain the benefits of living in a cooperative type of community. This includes choosing "with whom they wish to share their elevators, their common halls and facilities, their stockholders' meetings, their management problems and responsibilities and their homes" (Weisner v 791 Park Ave Corp., 6 NY2d 426, 434).

Two recent cases from this Court have applied the business judgment rule to insulate co-op boards' valuations of tenants' shares in co-operative corporations. In Jones v Surrey Co-op Apts, Inc. (263 AD2d 33), upon termination of a tenancy, the co-op board exercised an option in its by-laws to repurchase the tenant's shares at book value. The tenant sued to recover market value of the stock, which was considerably higher. We granted the board's motion for summary judgment. We found that the plaintiff failed to meet the burden of showing that the board of directors breached its fiduciary duty by engaging in discrimination, self-dealing, or other misconduct. We held that under Levandusky, the absence of these factors prohibited judicial inquiry into the actions of the co-op's directors (id. at 36). More recently, in Schultz v 400 Coop. Corp. (__ AD2d __, 2002 NY App Div LEXIS 164), the plaintiff sought redress for the alleged over-allocation of shares to its apartment, asserting unequal treatment between the plaintiff and another apartment owner on the same floor. We found that "although 'unequal treatment of shareholders is sufficient to overcome the directors' insulation from liability under the business judgment rule...'... the disparate treatment alleged to comprise a breach of the fiduciary duty [did not] result in [any] injury to [plaintiff], the complaining tenant" (id. at 13 (internal citations omitted)). We concluded that "[p]laintiffs have not been subjected to discriminatory treatment, and they have set forth no other basis warranting departure from the application of the business judgment rule to subject the actions taken by the cooperative board of directors to judicial scrutiny" (id. at 15).

Also of note is the Second Department's recent application of Levandusky in Sirianni v Rafaloff (284 AD2d 447). In that case, the Second Department upheld a co-op board's decision to terminate a tenancy for breach of a lease provision prohibiting the use of a residential unit for commercial purposes (see, Sirianni, supra, at 448). There, as in Jones, and Schultz, the court found no basis to intrude upon the board's decision to enforce a lease provision.

The lease provision at issue in this case requires that the termination of a tenancy because of undesirability be based not only upon a board's resolution, but upon the vote of 2/3 of the shareholders. Thus, the decision here was not made by a small group of people, but reflects the consensus of 75% of the shareholders. In fact, every shareholder who attended the meeting agreed that Pullman "has engaged in repeated actions inimical to cooperative living and objectionable to the cooperation and its shareholders."

The affidavit of the managing agent of the co-op, submitted in opposition to Pullman's motion for summary judgment, emphasized that the termination of his tenancy will not cause Mr. Pullman to forfeit the economic value of his apartment. He states that upon sale of the apartment, the co-op will "turn over [to Pullman] all proceeds after deduction of unpaid use and occupancy, costs of sale and litigation expenses incurred in this dispute."

Contrary to the dissent's analysis, RPAPL 711(1) does not preclude our deference to the co-op board's determination to terminate Pullman's tenancy in this plenary ejectment action. While RPAPL 711(1) provides that a landlord may terminate a tenancy in a summary holdover proceeding, upon a showing "to the satisfaction of the court that the tenant is objectionable" (emphasis supplied), Levandusky explicitly precludes judicial inquiry into the lawful actions taken by a co-op Board of Directors. As applied here, the Levandusky holding is in complete harmony with RPAPL 711(1), the vote of the supermajority of the shareholders of the co-op providing, in the realm of co-op governance, the functional equivalent of "competent evidence [which would] establish to the satisfaction of the court that the tenant is objectionable" (see, RPAPL 711(1)).

Moreover, the Court of Appeals explicitly addressed the limitations on deference to co-op board action, and the role of the court in such situations when it wrote that the business judgment rule, "permits review of improper decisions, as when the challenger demonstrates that the board's action has no legitimate relationship to the welfare of the cooperative, deliberately singles out individuals for harmful treatment, is taken without notice or consideration of the relevant facts, or is beyond the scope of the Board's authority" (id. at 540) (emphasis supplied).

Further, our holding also does not eviscerate the important policy underlying RPAPL 711(1), which is to prevent arbitrary self-help evictions. This is certainly an important consideration which applies equally to co-op tenants.

However, following Levandusky does not mean that tenants are without protection if a board acts in an illegal, discriminatory, or bad faith manner. Under the facts presented, no improper motive has been established on the part of the co-op board. Pullman has not provided any factual support for his allegations that he was evicted based upon illegal or impermissible considerations (see, Walentas v Johnes, 257 AD2d 352, lv dismissed 93 NY2d 958). In the absence of such evidence, we must presume that the consensus of 75% of the shareholders that the respondent's conduct was "objectionable" was sincere. Moreover, the presumption of regularity applies, and respondent has failed to rebut it. He has not provided any basis to show that the determination to terminate his tenancy was without a "legitimate relationship to the welfare of the cooperative" (Levandusky, supra, at 540). Thus, we defer to the unanimous vote of assembled shareholders to terminate respondent's tenancy, without passing on the merits of that decision. We also note that while Adams Hotel Owners Inc. v Wolf (64 Misc 2d 614) and Brisbane House Inc. v Sims (122 Misc 2d 46) both applied RPAPL 711(1) to preclude the termination of tenancies pursuant to a provision in a co-operative leasehold, these cases were decided prior to Levandusky.

However, were we to look behind plaintiff's actions, we would find that the record amply supports the determination that Pullman's tenancy is "objectionable." He attempted to institute six lawsuits based upon an unsubstantiated noise complaint; he bombarded the managing agent with demands and complaints, in rapid sequence and accompanied by threats; he distributed leaflets containing offensive personal allegations against another leaseholder; and he violated building rules by failing to install carpeting and making unauthorized alterations. These actions have had a negative effect on all of the 37 other leaseholders including making them responsible for the payment of thousands of dollars in unnecessary legal fees.

Accordingly, the order of the Supreme Court, New York County (Marilyn Shafer, J.), entered July 12, 2001, which, inter alia, granted defendant's motion to dismiss the first cause of action of the amended complaint and denied plaintiff's cross motion for summary judgment pursuant to CPLR 3211(c) on its first and third causes of action, should be modified, on the law, to grant plaintiff summary judgment on its first, third, fourth and fifth causes of action, to remand for a hearing on use and occupancy, legal fees and costs, to dismiss plaintiff's second cause of action, and otherwise affirmed, without costs.

All concur except Saxe and Wallach, JJ. who dissent in an Opinion by Saxe, J.
 
 
SAXE, J. (dissenting)

To the cooperative shareholders of 40 West 67th Street in New York City, defendant David Pullman, the proprietary lessee of apartment 7B, is a difficult tenant, so difficult that the shareholders of his co-op by resolution voted to terminate his lease and seek his ouster from possession. The propriety of this termination is the subject of this appeal.

The story of the relationship between Mr. Pullman and the plaintiff cooperative corporation is one of accusations, recriminations and, not surprisingly, litigation. Problems began soon after Mr. Pullman moved into his apartment, when he began to complain of unreasonable noise coming from apartment 8B, immediately above his, in the form of excessively loud footsteps, stereo and television sound. His subsequent complaints included a claim of an illegal book binding business being run out of 8B, and another that toxic and flammable chemicals were being stored there. He complained first to the managing agent, but was dissatisfied with the responses he received--that 8B had been inspected and there was no evidence of any illegal business being conducted there, nor was there a lack of bedroom carpeting as he had claimed. Pullman thereafter addressed his complaints of unreasonable noise to the cooperative board's president, but was not satisfied with the response.

Failing to resolve his complaints, Pullman commenced four lawsuits against the cooperative corporation, its managing agent, its president, and his upstairs neighbors. He also circulated flyers to building residents complaining of his treatment and of other perceived misconduct. In addition, he claimed that in an altercation with his upstairs neighbor, he was physically assaulted, resulting in his neighbor's arrest.

The proprietary lease between the cooperative corporation and Pullman contains a provision allowing for termination of the lease upon the occurrence of specified events:

If, upon, or at any time after the happening of any of the events mentioned in subdivisions (a) to (g) . . . the Lessor shall give to the Lessee a notice stating that the term hereof will expire on a date at least thirty days thereafter, . . . this lease shall expire on the date fixed in the notice, it being the intention of the parties hereto to create hereby a conditional limitation, and it shall thereupon be lawful for the Lessor to reenter the apartment and to remove all persons and personal property therefrom, either by summary dispossess proceedings, or by any suitable action or proceeding at law or in equity, or by force or otherwise, and to repossess the apartment in its former estate as if this lease had not been made;
* * * (f) if at any time the Lessor shall determine, upon the affirmative vote of ... at least two-thirds of ... [the proprietary lessees] at a meeting of such stockholders duly called to take action on the subject, that because of objectionable conduct on the part of the Lessee, . . . the tenancy of the Lessee is undesirable . . . .

Pursuant to this provision, plaintiff cooperative called a special meeting of shareholders and held a vote at which over two-thirds of the other proprietary lessees concluded that Pullman had engaged in objectionable conduct and therefore his tenancy was undesirable. A notice was then sent to Pullman terminating his lease as of August 31, 2000 and asking him to surrender his apartment by that date. Thereafter, following his failure to do so, the co-op corporation brought this ejectment action in the Supreme Court on the ground that Mr. Pullman's proprietary lease had been terminated due to his pattern of objectionable conduct.

Defendant sought dismissal pursuant to CPLR 3211 for failure of the co-op to comply with the directives of RPAPL 711(1), and plaintiff cooperative corporation cross-moved for summary judgment under CPLR 3211(c) on its ejectment claim, relying on the standard of review established for the decisions and conduct of a co-op's board of directors in Levandusky v One Fifth Ave. Apt. Corp. (75 NY2d 530).

The IAS court granted defendant's motion to dismiss only as to the cause of action based upon the business judgment rule, and denied summary judgment to plaintiff on its remaining causes of action.

I would affirm the order on appeal, dismissing the cause of action that relies upon application of the business judgment rule, and leaving the remainder of plaintiff's causes of action to be decided at trial. In my view, the motion court properly held that the Levandusky rule is inapplicable in these circumstances, and that the co-op corporation has the obligation to demonstrate its entitlement to possession of the apartment by proving to the satisfaction of the court that the lessee had engaged in objectionable conduct. Moreover, based upon an examination of this record, I would hold that material issues of fact exist, precluding the grant of summary judgment.

Application of Levandusky v One Fifth Ave. Corp.

I respectfully disagree with the position taken by the majority, namely, that application of the rule enunciated in Levandusky v One Fifth Ave. Apt. Corp. (75 NY2d 530) precludes the court from considering the evidence and determining independently whether the plaintiff co-op corporation has established the right to eject the proprietary lessee from his home on grounds of objectionable conduct. I suggest that the proprietary lessee, like any other tenant, is entitled to judicial scrutiny of the basis of the ejectment sought against this allegedly undesirable tenant (see, RPAPL 711[1]).

In Levandusky, supra, a residential cooperative corporation sought to enforce its determination prohibiting a proprietary lessee from realigning the steam riser in his kitchen as part of his renovation plans. The Court explained that such a board must be given broad leeway in order to enable it to manage the day-to-day affairs of the cooperative, to make business and financial decisions, to make and enforce building policy, and to promulgate house rules and regulations, for the benefit of its residents as a whole (id. at 536- 537).

Focusing on the most appropriate standard of court review for challenges by tenant-shareholders to the actions of cooperative boards, the Court held that:
So long as the board acts for the purposes of the cooperative, within the scope of its authority and in good faith, courts will not substitute their judgment for the board's. Stated somewhat differently, unless a resident challenging the board's action is able to demonstrate a breach of this duty, judicial review is not available (id. at 538).

Therefore, when tenant-shareholders challenge the business and financial decisions of a cooperative board, under Levandusky, the board will not be required to prove in court the reasonableness of its actions unless the tenant shows that (1) the board was acting other than to further the interests of the corporation, (2) the action taken by the board was outside the scope of its authority, or (3) the board was acting in bad faith (id. at 538).

The types of disputes to which Levandusky has generally been applied have usually involved shareholder challenges to board decisions regarding management of the building and the enactment and enforcement of house rules (see, e.g., Katz v 215 W. 91st St. Corp., 215 AD2d 265 [restrictions of placement of planters on roof]; Nuzzo v Board of Mgrs. of Jefferson Village, 228 AD2d 568 [motorcycle ban within condominium development]; Longo v Town 'N Harbor Owners Corp., 180 AD2d 779, lv dismissed 80 NY2d 924 [dumpster placed near proprietary lessee's apartment]; Rubinstein v 242 Apt. Corp., 189 AD2d 685 [common usage of roof garden expanded]). It has also been applied regularly with regard to decisions rejecting prospective apartment purchasers (see, e.g., Cooper v Greenbriar Owners Corp., 239 AD2d 311; Simpson v Berkley Owner's Corp., 213 AD2d 207).

The foregoing types of day-to-day business or financial decisions are qualitatively different from a decision to evict a tenant-shareholder from his home. While it is eminently reasonable to impose Levandusky's severely limited form of judicial review upon co-op shareholders' challenges to business decisions by their elected Boards of Directors, this limited type of review is simply too narrow a prism to protect tenants against the loss of their homes. While the ordinary management decisions of a co-op board may result in some sort of negative impact upon an individual tenancy, they cannot compare to the loss of a person's home. Nor may we equate a board's decision to reject a proposed purchaser with an eviction of a present tenant; a proposed purchaser has no present possessory interest in the property, and is merely being prevented from obtaining it.
However, it is not merely on policy grounds that we should require a co-op board to offer evidence in court proving the allegations that formed the predicate for the proceeding before permitting it to evict an allegedly undesirable tenant-shareholder. It is also because the Levandusky rule, which provides co-op boards with the broadest possible leeway to manage their property without undue interference, must yield to a statute which specifically controls the actions of a co-op board in a particular circumstance.

Notably, despite the apparent breadth of
the Levandusky rule, it has never been used to permit a co-op board to avoid the application of an otherwise applicable statute. Its intended application is in regard to the types of actions by cooperative boards that are not controlled by statute.

It would violate both law and logic to allow a co-op board to use Levandusky as a shield to avoid a shareholder's challenge if that challenge was based upon an alleged violation of law. For example, if a co-op board should decide to undertake some form of construction on its property in violation of applicable building codes or zoning laws, it is readily apparent that a tenant-shareholder would not be prevented by the Levandusky rule from challenging such planned construction on the ground that it was illegal. Indeed, some might argue that such actions should be considered to be outside the scope of the board's authority, because a board cannot have the authority to act illegally.

If we were merely presented with a claim that the cooperative corporation failed to follow the agreed-upon procedures for termination, namely, the board's calling a meeting, presenting its position to the tenants, and conducting a shareholder vote, Levandusky would indeed apply to any challenge that the Board had conducted itself improperly, absent a showing of bad faith or discrimination (see, Sirianni v Rafaloff, 284 AD2d 447, 448; Cannon Point N. v Abeles, 160 Misc 2d 30, 31). However, this is an action to recover possession of Pullman's apartment.

"The relationship between a shareholder-tenant and the cooperative is that of landlord and tenant" (1 Rasch, Landlord & Tenant, § 4:26, p. 197 [4th ed.]). Once the corporation, in the position of landlord, proceeds to seek a court order ejecting the proprietary lessee from his home, the rights and obligations of the parties are dictated by statute, and the lessee, like any other tenant, is entitled to the statutory protections designed to ensure that an assertedly objectionable tenant is not ejected from his home without a court's review of the evidence. The protections provided by law to tenants facing eviction must apply with equal force whether the tenant is a renter or a proprietary lessee of a cooperative apartment.

Applicability of RPAPL Section 711(1)

The articles of the RPAPL that provide for recovering possession of real property (see generally, RPAPL Articles 6 & 7) reflect the recognition that our law must protect tenants' rights as well as the rights of property owners. These statutes provide for the simplest possible means by which landlords may regain possession of property wrongfully held by a tenant (see, New York University v Farkas, 121 Misc 2d 643), while at the same time protecting tenants who are peaceably in possession of real property from unilateral entry by the landlord to retake possession (see, DeGraffe, The Development of Unlawful Evictions and Tenant Remedies for Injurious Conduct in New York, 41 Syracuse L Rev 1179, 1181).

Depending upon the provisions of the parties' lease, a lessor seeking to recover possession of property may be entitled to proceed by summary holdover proceeding, such as where a tenant remains in possession of premises following the expiration or automatic termination of his lease term resulting from an occurrence set forth in a conditional limitation; or, if circumstances do not warrant treating the tenant as holding over past the expiration or automatic termination of the lease, the lessor must commence an ejectment action in the Supreme Court (see, Perrotta v Western Regional Off-Track Betting Corp., 98 AD2d 1, 2, 5; see generally, 2 Rasch, Landlord & Tenant, § 23:28 [4th ed.]). In this instance, whether for a perceived strategic advantage or otherwise, plaintiff proceeded by an ejectment action rather than by summary holdover proceeding. In any event, however, plaintiff's legal position is the same either way: the lease term was terminated simply by the shareholders' vote deeming Pullman an undesirable tenant and the subsequent 30-day notice sent to him pursuant to that vote.

Notwithstanding the form and setting of the present action, the dictates of the RPAPL § 711(1) are directly applicable to these circumstances. The language of the statute provides in relevant part that:
[a] proceeding seeking to recover possession of real property by reason of the termination of the term fixed in the lease pursuant to a provision contained therein giving the landlord the right to terminate the time fixed for occupancy under such agreement if he deem the tenant objectionable, shall not be maintainable unless the landlord shall by competent evidence establish to the satisfaction of the court that the tenant is objectionable [emphasis added].

Although the statute specifically applies to summary holdover proceedings, I agree with the motion court that it must apply to an ejectment action as well. If the cooperative corporation would be required to comply with the dictates of RPAPL 711(1) in the context of a summary holdover proceeding, it should not be permitted to avoid those requirements by proceeding in the non-summary, less streamlined context of a common-law ejectment action.

The cooperative corporation stands in the exact position contemplated by the statute: that of a landlord "seeking to recover possession of real property," having terminated the lease after deeming the tenant "objectionable." From the language of section 711(1), and in accordance with its underlying policy of having a court ensure that a claim of objectionable conduct is established by competent evidence, the statute's protections must be applied in an ejectment action as well as in a summary holdover proceeding. The form of the lawsuit should not determine whether a proprietary lessee may be evicted based solely upon a resolution of shareholders. Indeed, plaintiff has not disputed that aspect of the motion court's holding.

If RPAPL 711(1) must apply regardless of the form of the action against an objectionable tenant, the only possible grounds for declining to apply it to the present action would be either that the Levandusky rule somehow "overruled" the statute, or that by signing the proprietary lease the lessee waived the statute's protections. Yet, neither of these approaches provides a viable basis for disregarding the statute.

There can be no waiver of a statutory protection without a clear, unequivocal, and deliberate acknowledgment that this particular protection is known and that its relinquishment is intentional (see City of New York v State of New York, 40 NY2d 659, 669; Matter of Civil Serv. Employees Assn. v Newman, 88 AD2d 685, 685-686, affd 61 NY2d 1001; Matter of Columbus Park Corp. v Department of Hous. Pres. and Dev. of the City of New York, 170 AD2d 145, 149, revd on other grounds 80 NY2d 19). And, a ruling by the Court of Appeals regarding a standard of review of corporate decision-making simply may not be relied upon to eliminate the applicability of a statute that would otherwise apply.

The majority glosses over the glaring applicability of RPAPL 711(1) by stating that the vote of the supermajority is "the functional equivalent of ' competent evidence [which would] establish to the satisfaction of the court that the tenant is objectionable' (see, RPAPL 711[1])."

Under this view, once the supermajority of shareholders has spoken, there is nothing left for the court to do but rubber-stamp that decision. But, of course, that is not what RPAPL 711(1) says or requires.
Applying RPAPL 711(1) to this ejectment action requires that the plaintiff present competent evidence, as opposed to its mere conclusion, establishing to the satisfaction of the court that the tenant is objectionable (see, Brisbane House, Inc. v Sims, 122 Misc 2d 46; Adams Hotel Owners, Inc. v Wolf, 64 Misc 2d 614). The question is not whether the conclusion was arrived at by the proper employment of the requisite procedures; that the Board handled the process properly is unassailable at this time. However, the conclusion the cooperative corporation arrived at by shareholder vote as to Pullman's undesirability as a tenant, is merely the equivalent of a unilateral assessment by an individual landlord that a particular tenant is objectionable. The question for the court to answer is whether the cooperative corporation, as lessor, having come to that conclusion, is now able to establish that fact before the court by competent evidence, just as would any lessor seeking to oust a tenant it found to be objectionable.

For all the foregoing reasons, in my view Levandusky cannot be relied upon to definitively establish the cooperative corporation's entitlement to recover possession of Pullman's apartment without the in-court evidentiary review contemplated by statute.

This does not mean the co-op is prevented from ridding itself of objectionable tenants or objectionable activity. It merely requires the cooperative to follow the steps set out in the law to accomplish its purpose.

Summary Judgment

In concluding that summary judgment should be denied in this instance, I do not suggest that the showing made by plaintiff corporation is insufficient as a prima facie showing entitling it to judgment. In contrast to such cases as Douglas L. Elliman & Co. v Karlsen (59 Misc 2d 243), the cooperative has made a sufficient showing that Pullman had engaged in objectionable conduct. However, Pullman's submissions create issues of fact as to whether his increasingly disputatious conduct was the result of, and made necessary by, the cooperative's complete failure to take reasonable action to respond to his legitimate complaints regarding unreasonable noise in the apartment above his.

With his own affidavit as well as that of an expert in the area of acoustics, Pullman has shown that the noises emanating from apartment 8B, directly above Pullman's, comprised of banging and rolling sounds and excessively loud footsteps, were measured at the rate of 58-66 decibels, which he states is well in excess of the 45-decibel maximum set by city regulation for low-frequency sounds such as those heard. The expert expressed the view that these noises, as measured, are per se unreasonable under New York City Administrative Code section 24-218. He also explained that a sound level of 66 decibels is subjectively experienced as approximately four times as loud as the maximum decibel level set forth in the Code specification. Finally, he explained several reasons why the mitigating measure offered by the Board, namely blowing foam insulation into the ceiling above Pullman's apartment, would merely transform the booming sounds into thudding sounds, and would cause other disadvantages to Pullman as well.

While a reading of the escalating dispute
between Pullman and the Board seems to raise serious questions as to the propriety of his conduct at the cooperative, it appears, upon more careful scrutiny, that there was a factual predicate to his noise complaints. Accordingly, it is my belief that the view espoused by my colleagues here, that Pullman's responsive conduct was so unreasonable as to warrant, as a matter of law, summary judgment on the objectionability of his conduct, resulting in the termination of his tenancy, is not only unfair but wrong. Put another way, whether his conduct was a reasonable response to his experience with excessive noise and the cooperative's failure to come up with a workable solution, presents a question of fact necessitating a trial, as the motion court concluded.

For the foregoing reasons, I would affirm the dismissal of the first cause of action and the denial of summary judgment.
 
 
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: MAY 23, 2002

CLERK

2002 N.Y. Slip Op. 04295
2002 WL 1040301
 

[consigliere]

Here's a story, by Blair Golson, from the Manhattan Transfers column in the June 3, 2002 edition of The York York Observer, about 40 West 67th Street v. Pullman, Tyson Bites on 64th Street:


Judge Kicks Bowie Bond Banker Out Of West 67th Street Co-op

David Pullman, the man who invented the Bowie Bond, may have to do his dancing in the street now that a judge has ruled that his co-op board was within its rights to kick him out of his Upper West Side apartment.

But the court's split decision means Mr. Pullman will automatically get to make his case to the State Court of Appeals, where he said he will knock down the co-op board's charges against him.

"It's absurd!" Mr. Pullman told The Observer when asked about Friday's ruling. "[If they win] it would mean that anyone who litigates, [the co-op board] would try to terminate their lease. Like, 'Hey, wouldn't it be great to get rid of all these "objectionable" people?' If you're going to keep your principles, you can't allow this kind of thing to go on."

The ruling, on an appeal by the co-op board of 40 West 67th Street, completes the latest round of a years-long dispute between Mr. Pullman and his neighbors that started with complaints that an elderly couple had their TV on too loud and peaked with charges of anti-Semitism and assaults in the building's elevator.

A State Court of Appeals on Friday ruled, by a margin of 3-2, that Mr. Pullman's tenancy, and the motives for his behavior towards his neighbors, were "objectionable" and that the board was within its rights to kick him out.

The problems with Mr. Pullman, who just this month saw his story turned into a novel by international best-selling author Linda Davies with the book Something Wild, began soon after he moved into his apartment on 40 West 67th Street in October 1998, a year after he made financial history by raising $55 million through the issuance of previously unheard-of bonds backed by David Bowie's future royalties. According to documents filed by representatives of the co-op board with the court, Mr. Pullman made repeated noise complaints against the elderly couple who lived in the apartment above him, accusing them, among other things, of turning the volume up on their TV and stereo, and of making loud banging sounds stemming from a commercial book-binding business which he claimed they were operating from their apartment. A subsequent investigation by the co-op found no evidence to support such a claim, and previous occupants of Mr. Pullman's apartment said that they'd never heard any such noises.

"The whole thing is like a satire, like a skit," Mr. Pullman told The Observer. In documents Mr. Pullman has filed with the court, he claims the co-op board ignored his complaints because the board's president, Brian Pusch, is friendly with his chief antagonist among his neighbors, Norman Indictor. "You live in a building, you complain about the noise? The guy upstairs, he buries it because he's the guy's best friend. He swept it under the carpet."

Mr. Pullman continued to make repeated complaints to the building manager, "in rapid sequence and accompanied by threats," according to the documents.

Papers filed by the co-op board go on to say that Mr. Pullman distributed leaflets to other tenants in the building that made slanderous accusations against the couple above him. The "slanderous" leaflets, Mr. Pullman told The Observer, simply accused Mr. Pusch of siding with Mr. Indictor against him, and ignoring Mr. Pullman's complaints, and accused his neighbor of assaulting him in the elevator. The leaflets were titled, "Push Pusch Out, Evict Indictor."

Criminal charges were filed against Mr. Indictor, a retired college professor, but were later adjourned in contemplation of dismissal.

Mr. Pullman was riding high on his Bowie Bonds and issued similar bonds for James Brown, the Isley Brothers and the estate of Marvin Gaye, among others. And though his critics claim that the supposed multibillion-dollar market for Bowie Bonds has never materialized, Mr. Pullman has continued to ride high on his creation, even as the tensions with his neighbors mounted.

In 2000, Mr. Pullman filed four lawsuits against various people in the co-op, including suits against the building's managing agent and Mr. Pusch, for failing to abate the noise above his apartment.

Around the same time, the shareholders in the co-op had decided that they'd had enough. The lawsuits and threats notwithstanding, court documents claim that Mr. Pullman had made illegal renovations to his apartment and had failed to carpet it, which meant that he was now the one disturbing his downstairs neighbors.

Mr. Pullman rejected those claims, saying that he did indeed have carpeting in his apartment, and that the only "renovations" he had made were to paint the walls and to add a new light switch to an existing outlet.

"It wasn't even against the rules to do those things," Mr. Pullman said.

The board notified him that a meeting would be held to decide upon his eviction. A clause in every lease in the building, which Mr. Pullman signed, allows for such an eviction if two-thirds of the shareholders agree. He was not in attendance when the shareholders voted him out by 2,048 shares to 0, with 542 not in attendance or voting.

"I wasn't going to show up to something that was obviously one-sided," Mr. Pullman explained. "It was a joke at that point."

Mr. Pullman, who is Jewish, also claimed in court documents that there was an unmistakable strain of anti-Semitism on the co-op board. They "discriminate religiously, as demonstrated in the way they decorate the building during the year-end holidays," Mr. Pullman alleged in documents filed in court. "They refuse to put up Jewish decorations, including menorahs to represent the holiday of Chanukah, and only display Christmas decorations."

Mr. Pullman's brief also alleged that a picture of Adolph Hitler on the wall of a first-floor apartment whose door is often ajar is visible from the building's public area. Mr. Pullman wrote that the owner of the apartment "wears a "self-imposed dress code of a fascist" and is a best friend of Mr. Indictor.

"Hogwash!" said Mr. Van Der Tuin. "If you saw the picture you would know it's not anti-Semitic, and there has not been religious decorations in the building of any sort."

When the co-op sued to have him removed from the building -- you need a sheriff's warrant to actually evict someone -- Supreme Court Justice Marilyn Shafer ruled that the board had exceeded its authority in evicting Mr. Pullman, saying that something as drastic as an eviction must be subject to judicial review rather than the mandate of a co-op board.

Friday's appeal, brought on behalf of the co-op board by Manhattan attorney John Van Der Tuin, in effect reversed that ruling, finding that according to what's known as the "business judgment rule," a co-op board is well within its rights to force someone out of his apartment.

The majority in Friday's decision wrote, "were we to look behind [Mr. Pullman's] actions, we would find that the record amply supports the determination that Pullman's tenancy is objectionable ... These actions have had a negative effect on all of the 37 other leaseholders, including making them responsible for the payment of thousands of dollars in unnecessary legal fees."

Robert Braverman, who represented the co-op board and its then board president in two lawsuits that Mr. Pullman filed against them in 2000, was gratified by the recent ruling.

"The court looked at the record and found that there was no question Mr. Pullman's conduct rose to the level of justifying the shareholders' decision to have him ousted from this building," Mr. Braverman said. "It's well established that absent a showing of bad faith or discriminatory conduct, the actions of a co-op board of directors will not be subject to judicial review."

Before Friday's ruling, the statute that allowed co-op boards to mandate decisions affecting a single shareholder had only applied to actions of lesser import, such as routine business decisions. Mr. Van der Tuin said that Friday's ruling was something of a landmark, because it now expanded the scope of that statute to encompass full-out evictions.

"This is a significant case for co-op board/shareholder relations because it determines whether shareholders [can decide] objectionable grounds for termination of lease."

Lawyers for the co-op board at West 67th Street conceded that Mr. Pullman probably had grounds for an appeal, given the 3-2 split ruling. Writing for the minority, Justice David B. Saxe said that a co-op board review is "simply too narrow a prism to protect tenants against the loss of their homes. While the ordinary management decisions of a co-op board may result in some sort of negative impact upon an individual tenancy, they cannot compare to the loss of a person's home ... the proprietary lessee, like any other tenant, is entitled to judicial scrutiny of the basis of the ejectment sought against this allegedly undesirable tenant."

Despite his recent loss, Mr. Pullman was upbeat, and spoke as though it was he who had the co-op board on the run.

"This thing will take years to get through the courts, and my apartment appreciates every year," he said. "So what's the downside?"

.

[mjr203]

Mr Pullman sounds like a right f***in a**hole

[mbrenner]

If anyone has lived surrounded by NOISES
created by others...they can understand
WHY someone was driven to distraction.

Especially if the building involved DOES
NOTHING.

[consigliere]

The article below, Board Issues: Voting Out Your Neighbor, from Habitat magazine, was written by Robert J. Braverman, the attorney for the co-op:
 
One of the cornerstones of cooperative housing law is that owners of co-op apartments and their boards of directors enjoy extremely broad discretion in choosing with whom they wish to share their elevators, their common halls, and facilities and their homes." Indeed, New York City co-ops are famous - some would say infamous - for the level of scrutiny given to prospective purchasers.
 
What happens, though, when admitting someone to the "club" turns out to be a mistake because the individual engages in a pattern of objectionable conduct antithetical to cooperative living? Can the shareholder's proprietary lease be terminated and the shareholder ejected from the building based solely on the vote of a super-majority of shareholders? Or, more simply stated, can an objectionable shareholder be thrown out of the building without first having a court trial? The answer is "yes," according to a sharply divided decision issued in May by the Appellate Division, First Department, in 40 West 67th Street Corp. v. Pullman. However, the case will be heard by the Court of Appeals later this year and the decision from the high court could potentially change the landscape of co-op law for years to come.
 
The underlying dispute in the Pullman case began when, shortly after moving into 40 West 67th Street, David Pullman, a well-known financier and the inventor of the "Bowie Bond," began complaining about the building's facilities and services.  
 
Shortly thereafter, he began to incessantly complain and threatened to sue the co-op's managing agent and the co-op board president for failing to abate an alleged noise problem emanating from the apartment directly above his. That apartment had been owned and occupied for over 20 years by a retired college professor and his wife without incident. Pullman alleged that there was banging in the middle of the night from machines that were used in a commercial book-binding business and that there was a blaring stereo or television. After receiving these complaints, the co-op board conducted an investigation and found Pullman's complaints to be unsubstantiated.
 
Tensions in the building continued to increase at the end of 1999 when Pullman claimed his upstairs neighbor assaulted him. Shortly after that incident, Pullman circulated a leaflet to other shareholders titled "Attack Crime," urging the other shareholders to evict his upstairs neighbor, stating that he "has the makings of a psychopath in our midst." Another leaflet urged the ouster of the president of the co-op board for a conflict of interest and contained scurrilous remarks about the one of his upstairs neighbors and another occupant of the building.
 
In early 2000, Pullman asserted four lawsuits against his upstairs neighbors, the co-op and its managing agent, claiming a host of wrongdoing. Many of those claims were dismissed. In addition, he sought, unsuccessfully, to assert at least two other actions against those various defendants.
 
During this same period, the co-op board sent Pullman a letter stating that he was not in compliance with the terms of his proprietary lease because he had performed alterations to his apartment without first obtaining the board's consent and because he had failed to install carpeting in his apartment. Pullman ignored the board's requests that he "furnish a list of all renovations and redecorating to [his] apartment" and he refused to allow an inspection of his apartment.
 
Not surprisingly, these events greatly troubled the owners of what had previously been a relatively sleepy 37-unit building. Accordingly, a number of shareholders decided to take action.
 
Using a provision commonly found in many co-op bylaws, a group of shareholders signed a petition demanding that the board of directors call a special meeting to determine whether Pullman's tenancy in the building was "objectionable."  
 
In June 2000, such a meeting was held and, after a discussion of the issues, the shareholders voted by a count of 2,048 shares to none in favor of a resolution detailing how Pullman's continued tenancy was objectionable, and directed the board to terminate Pullman's proprietary lease. Although Pullman was notified of the meeting, he declined to attend.
 
Pullman's proprietary lease was terminated and, after he refused to vacate his apartment, the co-op began an action in Supreme Court, New York County, to eject him. Justice Marilyn Shafer refused to issue an order ejecting Pullman from the apartment without a trial to determine if the board was justified in terminating Pullman's proprietary lease. She reasoned that it was the province of the court, not the co-op board, to determine whether a tenancy should be terminated based upon objectionable conduct.
 
The co-op appealed and, in an unusual 3 to 2 split decision, the appellate division reversed that portion of Judge Shafer's decisions that refused to grant the co-op a judgment ejecting him. The three-judge majority found that the case was governed by the holding of the Court of Appeals decision in Levandusky v. One Fifth Avenue Apt. Corp., which applied the "business judgment rule" to expressly prohibit judicial inquiry into actions of corporate directors "taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes."
 
The Levandusky court explicitly stated that the business judgment rule should be applied to all co-op board determinations. Over the years, courts following the precedent established by Levandusky have protected co-op boards from judicial review of their good faith decisions in connection with a wide range of issues, ranging from the imposition of rules regulating procedure for the handling of food deliveries to disputes concerning the valuation of shares. The Pullman majority found no basis to carve out an exception for a board's decision to terminate a shareholder's lease based upon "objectionable conduct." The court specifically noted that, "The lease provision at issue in this case requires that the termination of a tenancy because of undesirability be based not only upon a board's resolution, but upon the vote of two-thirds of the shareholders. Thus, the decision here was not made by a small group of people, but reflects the consensus of 75 percent of the shareholders."
 
Furthermore, the court found that Pullman failed to provide any evidence that his proprietary lease was terminated based upon "illegal or impermissible considerations" or that the board's decision did not have a "legitimate relationship to the welfare of the cooperative." Accordingly, the court found that there was nothing improper about the termination of Pullman's proprietary lease and that the co-op was, therefore, entitled to an order ejecting the shareholder.
 
In dissent, two judges on the five-judge panel argued, among other things, that the business judgment rule was not so broad so as to preclude Pullman from having a court consider Pullman's conduct warranted his ouster from the building.
 
In support of this argument, the dissent relied primarily upon a statue which prohibits a tenant from being evicted based upon objectionable conduct, "unless the landlord shall by competent evidence establish to the satisfaction of the court that the tenant is objectionable."
 
The dissent further urged that Pullman had not waived the protections afforded by the statute and that the business and financial decisions which have historically been protected by the business judgment rule, "are simply too narrow a prism to protect tenants against the loss of their homes." Based on that, the dissent ultimately concluded that the business judgment rule must "yield" to the statute.
 
Pullman has already placed an appeal to the state's highest court, which will probably hear argument later this year. Since the decision was issued, many experts, on both sides of the case, have weighed in on whether it will be affirmed by the Court of Appeals.
 
Naturally, from the point of view of many members of the co-op community, the decision should be upheld. Such a result would further solidify the notion that when an individual voluntarily decides to become part of a cooperative housing community, he or she agrees to be bound by whatever obligations are contained within the governing documents. Under this analysis, the appellate division's decision would not be disturbed, since there is no dispute that Pullman entered into a contract (the proprietary lease) which expressly contemplated his being ejected from the building in the event a super-majority of his fellow shareholders construed his conduct to be objectionable.  
 
This result would also be entirely consistent with one of - if not the - major theme of cooperative living; i.e., the "would-be apartment owners must generally acquiesce [to]...a governing board's... significant restrict[ion] [of] the bundle of rights a property owner normally enjoys."
 
On the other hand, an extremely troubling result would be if the Court of Appeals reversed the decision based upon a rationale that the business judgment rule does not apply to the facts and circumstances of the Pullman case. The business judgment rule, as it currently exists, both in its application to business organizations and cooperative apartment corporations, does not make an exception from its protections any particular class of decisions. Any chipping away or weakening of this protection could potentially threaten the now-exclusive province of co-op boards to carry out decisions in furtherance of their corporation's best interests.
 
The Court of Appeals will have the difficult task of balancing the co-op's fundamental right of carrying out the terms of a proprietary lease, with a host of competing rights of a tenant. One thing just about everyone agrees on, it's a close call.
 
Finally, co-op boards and shareholders who may be thinking that the Pullman case finally gives them the opportunity to oust the shareholder whose dog keeps urinating in the planters should, at minimum, discuss taking any action with the building's attorney. Needless to say, protracted litigation with fellow shareholders is both unpleasant and costly. Moreover, the outcome can never be predicted with certainty. Efforts to resolve these disputes through means short of litigation should usually be undertaken.
 
 
Robert J. Braverman is a member of the law firm of Braverman & Associates, specializing in cooperative and condominium law. He represents 40 West 67th Street Corp. in related lawsuits started against it.
 

[consigliere]

The article below, Co-op Board's Vote to Evict Tenant for "Objectionable" Conduct Is Insulated from Judicial Review, was written by Peter S. Herman, of McLaughlin & Stern, LLP:
 
In On Liberty, the great liberal political philosopher, John Stuart Mill, warned of the need to protect individuals against the "tyranny of the majority." That admonition was ignored by a thin majority of the First Department in 40 West 67th Street v. Pullman (N.Y.L.J. May 29, 2002, p.18). By a 3-2 vote the Court held that the "good faith" determination of a co-op board to evict a tenant for "objectionable behavior" is not subject to judicial review in accordance with the "business judgment rule" promulgated by the Court of Appeals in Levandusky v. One Fifth Avenue Apt. Corp., 75 N.Y.2d 530 (1990). The Court thereby deprived thousands of co-op tenants of minimal due process protection from the threat, or actuality, of eviction by a co-op board or super-majority of shareholders. Moreover, as the dissent argued, the majority disregarded § 711(1) of the Real Property Actions and Proceedings Law which prohibits eviction of a tenant based on objectionable behavior "unless the landlord shall by competent evidence establish to the satisfaction of the court that the tenant is objectionable."
 
Concededly, Pullman is every co-op board's worst headache. Soon after moving in, he made numerous requests to change the building's facilities or services, all of which were denied. In short order came a flood of complaints and threats to sue the board and its president over its failure to abate a claimed noise problem from the apartment directly above. The board investigated and found these complaints to be "unsubstantiated."
 
Pullman then brought criminal charges against the upstairs tenant for an alleged assault in the building which were adjourned in contemplation of dismissal.
 
He commenced no less than four lawsuits against the upstairs neighbor, the co-op board, its president, and the co-op's managing agent, all of which are still pending and undecided. He also distributed allegedly defamatory leaflets about the upstairs neighbor and the co-op's president, charging the latter with conflict of interest, and he refused to allow an inspection of his apartment by the board. Finally, Pullman failed to attend the meeting of the shareholders at which the fateful vote was taken by more than 75% of the shareholders then present, which unanimously declared him "objectionable."
 
The board then commenced a common-law ejectment action in the Supreme Court rather than a summary proceeding in the Civil Court. Relying upon RPAPL § 711(1), the motion court denied plaintiff's motion to dismiss and defendant's cross-motion for summary judgment, declaring that it was the Court's function to determine whether defendant's conduct was "objectionable" so as to terminate his lease, and found issues of fact to be decided at a trial. The Appellate Division reversed, granted plaintiff summary judgment on its first cause of action based on termination of the lease, and remanded for a hearing on use and occupancy and attorney fees.
 
The majority held that the case was governed by the "business judgment rule" announced in Levandusky, supra, and that Levandusky prohibits judicial scrutiny of actions of co-op board directors "taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes." The majority did not hold that RPAPL § 711(1) was inapplicable in a Supreme Court ejectment action, but held that the statute does not require judicial scrutiny of the basis of the tenant's ejectment because, they said, the case is governed by Levandusky.
 
This holding appears to be an unwarranted extension of the "business judgment rule" adopted in Levandusky. The issue there was the standard of review to be applied to a determination of the board of a co-op in the context of its right to approve renovations to a tenant-shareholder's apartment. Chief Judge Kaye wrote that the case "fundamentally present[ed] the legal question if what standard of review should apply when a board of directors of a cooperative corporation seeks to enforce a matter of building policy against a tenant-shareholder." 75 N.Y.2d at 533.
 
There is a giant leap, however, between a board's power to enforce matters of building policy and a board's pre-emption of the judicial power under RPAPL § 711(1). The majority defers not only to the board's power, seconded by 75% of the shareholders, to declare the tenant to be objectionable, and to commence litigation thereon, but also accords them the ultimate powers of judge and jury respectively.
 
The dissent aptly points out that Levandusky has been limited to decisions of co-op boards regarding management issues and the enactment and enforcement of house rules; it has never been previously applied to the "qualitatively different" decision to evict a tenant-shareholder from his home. Two lower court decisions had held that RPAPL § 711(1) required the co-op in a holdover proceeding based on the tenant's alleged objectionability, to submit proof of the objectionable conduct to the satisfaction of the court. Adams Hotel Owner, Inc. v. Wolf, 64 Misc.2d 614 and Brisbane House, Inc. v. Sims, 122 Misc.2d 46. In Adams, the Appellate Term held that RPAPL 711(1) applies to a holdover proceeding by a cooperative against a tenant-stockholder under a proprietary lease providing for termination of tenancy upon a finding of undesirability by the Board of Directors, noting that an "objective standard" would be applied to measuring the conduct of the alleged objectionable tenant. In Brisbane, the Court reasoned that to permit the board to make a binding determination of undesirability would "invest the shareholders with powers of forfeiture that belong clearly to a court of law." The majority dismisses these decisions with the observation that they preceded Levandusky. However, those decisions did not rest upon a pre-Levandusky standard as to the weight to be accorded decisions of a co-op board, but upon the explicit command of the statute.
 
The majority places heavy emphasis upon the circumstance that defendant and all other shareholders agreed that they could be evicted when they purchased shares in a co-operative, and that Pullman "voluntarily 'agree[d] to submit to the decisionmaking authority of the cooperative board" when he agreed to buy his apartment, again citing Levandusky. Such reasoning is circuitous because prior to Pullman, the authority of a co-op board had never included the power of finally determining a tenant-shareholder's "objectionability." To the contrary, purchasers of co-op apartments presumably agreed only to be evicted, based on objectionability in accordance with the requirements of RPAPL § 711(1); i.e., only upon presentation of competent proof in a court of law to the satisfaction of an impartial judge.
 
Undoubtedly it will come as a shock to thousands of cooperative tenants who have invested thousands, if not millions, of dollars in purchasing and renovating their homes, that according to the majority in Pullman, they have less protection from eviction, based on the loosely-worded standard of "objectionability," than a tenant of an unregulated rental unit who has invested nothing in his apartment. Indeed, the ramifications of this decision may also cause concern to lenders who finance cooperative apartments at favorable rates on the presumed basis of the stability of such investments.

Not only does the decision award eviction of the tenant-shareholder without a trial on the merits, it completely ignores the economic impact of the lease termination.  
 
The majority fails to mention that not only is the tenant to be evicted, but he has also lost the power to sell the apartment. Under the standard proprietary lease, once the lease has been terminated, it is the co-op which conducts any re-sale. Such an artificial sale will likely yield far less than market value. The majority merely refers, without analysis, to the affidavit of the co-op's managing agent that upon a sale of the apartment, the co-op will turn over to Pullman all proceeds "after deduction of unpaid use and occupancy, legal fees and costs of sale."
 
Nor is the majority troubled by the due process implications of its ruling. The opinion recites that the Board "investigated" Pullman's complaints, and "determined" that they had no validity, but there is nothing to indicate that the the Board deliberations, or the "proceedings" at the shareholder meeting, had even the most basic attributes of quasi-judicial proceedings. It does not appear that sworn testimony was taken, or that the tenant was accorded the right to be represented by counsel, or permitted to cross-examine witnesses against him, or call witnesses on his behalf, or that there was an impartial finder of the facts. That the tenant refused to attend under such circumstances is understandable.
 
Moreover, as a matter of substantive due process, the majority opinion, never defined an "objective standard" of conduct of a tenant-shareholder would be deemed objectionable. Here, again, the majority simply defers to the "business judgment" of the board, the presumed "sincerity" of the "consensus" of 75 percent of the shareholders, and the tenant's failure, in the view of the majority, to establish "improper motive" by the co-op board.
 
The majority's sense of balance between the power of the board, and the rights of individual shareholders, is tilted almost entirely in favor of the "protection of the interest of the entire community," a slogan suggesting a socialist form of governance.  
 
A co-op, however, is not a kibbutz or Amana Society. Each tenant-shareholder acquires, at great personal cost, property rights in the form of shares of stock and a long-term proprietary lease.
 
According to the Corcoran Report, for the year 2001, the average sale price of a cooperative apartment on the Eastside of Manhattan was $911,000; on the Westside, $674,000. Yet to the majority, protection of such valuable property rights must yield to the greater good of the community as a whole, unless the shareholder establishes that the board has acted in an "illegal, discriminatory or bad faith manner." This narrow exception fails to address the possibility, among others, that the Board may have acted on incomplete facts or erroneous assumptions, or that some shareholders or board members were motivated by the opportunity to buy the apartment for themselves at substantially below market value.
 
The majority wrote that Pullman had failed to provide factual support for his allegations that he was evicted based upon "impermissible considerations." In this respect, the majority improperly shifted the burden of proof from the plaintiff co-op to the defendant tenant. The majority also glosses over the practical difficulties of a tenant trying to mount such a defense, especially where the board's deliberations have been private, and the shareholders have merely ratified the board's recommendation.  
 
Furthermore, the dissent pointed out that Pullman's submissions had created an issue of fact as to whether his objectionable conduct was necissitated by the co-op's "complete failure to take reasonable action" in response to his complaints about excessive noise from his upstairs neighbor, and that Pullman had submitted an affidavit from an acoustical expert showing that sounds from the upstairs apartment were measured at levels exceeding the permissible level under the N.Y.C. Administrative Code.
 
Although some of Pullman's actions appear to have been "over the top," it bears mentioning that none of the lawsuits commenced by Pullman had been decided against him, and that the adjournment of the criminal charge was certainly not a determination that the upstairs neighbor was innocent. But assuming that the majority was convinced by the overwhelming shareholder vote and the objective evidence, that Pullman was "objectionable" as a matter of law, then the Court nevertheless could have applied RPAPL § 711(1), and granted summary judgment to the co-op on the second cause of action. Such a line of reasoning would not have eviscerated statutory protections, nor deprived the tenant of his day in court on the merits. It was, in sum, unnecessary for the Court to declare, without any support other than its own say-so, and over a vigorous dissent, that Levandusky rendered the statute inapplicable, or that the court was relinquishing its tradtional, historic role of determining on the merits whether or not a tenant should be evicted from his or her home.
 

[consigliere]

COOPERATIVES AND CONDOMINIUMS  
 
'Levandusky' Update: Slim Odds on Reversing Board Decisions
 
BY RICHARD SIEGLER AND EVA TALEL
 
New York Law Journal, September 4, 2002
 
 
In the 1990 seminal Court of Appeals decision, Levandusky v. One Fifth Avenue, FN1 Chief Judge Judith S. Kaye found that maintaining the stability of the common living arrangement that typifies co-ops and condominium associations requires that co-op and condominium board decisions be protected by the business judgment rule, which prohibits judicial inquiry into actions of corporate directors taken in legitimate furtherance of corporate purposes. Absent a showing of bad faith, discriminatory conduct or illegality, an owner who is simply dissatisfied with a particular board action cannot obtain judicial review.
 
Courts continue to apply this reasoning to determine challenges to board decisions. This column examines 14 appellate cases decided since March 1998, when a previous column appeared, FN2 dealing with the application of Levandusky to challenged board determinations.
 
These cases demonstrate continued adherence to the Levandusky principle of judicial deference to discretionary board decisions. However, where board action contravenes a co-op or condominium's contractual obligation, courts have uniformly rejected use of the business judgment rule to shield such board action from judicial scrutiny.
 
Eviction for Objectionable Conduct
 
No discussion of recent case law under Levandusky would be complete without addressing the May 2002 decision of the First Department in 40 West 67th Street v. Pullman. FN3 In a 3-2 ruling, the court summarily held that a co-op board's
determination to evict a shareholder for objectionable behavior, based on an overwhelming vote of the co-op's shareholders under a proprietary lease provision permitting such evictions, is
insulated from judicial review by
Levandusky. The Pullman majority held that the business judgment rule is the standard of review to be applied to all co-op board determinations. The majority noted that a shareholder sought to be evicted was not without remedy if
the shareholder could show that the
board action was illegal, discriminatory or in bad faith - the touchstone elements that remove a determination from the protection of Levandusky.
 
The Pullman minority argued that
Levandusky was inapplicable because
eviction proceedings for objectionable conduct are governed by Real Property Actions and Proceedings Law §711, which requires a judicial hearing - not a shareholder vote - to establish
objectionable conduct sufficient to sustain an eviction. The minority urged that Levandusky should be construed narrowly, to apply only to day-to-day business or financial decisions.
 
Pullman has been appealed to the
Court of Appeals and will likely be heard in the fall of 2002. The Court of Appeals' decision will provide important guidance as to the applicable scope of Levandusky. In the interim, a number of intermediate appellate courts have
addressed the scope of the Levandusky doctrine.
 
Managerial Prerogative
 
In Schultz v. 400 Co-op Corp., FN4 the First Department applied Levandusky but rejected the shareholders' disparate treatment claim for an over-allocation of co-op shares to their apartment
because there was no demonstrable
injury - there was no significant
discrepancy between the challenged
allocation and shares allocated to
comparable apartments.
 
In this case, the shareholders
purchased 250 shares allocated to a
ground-floor unit for professional office use. The shareholders were initially required to pay a $300-per-month "professional fee," which was subsequently eliminated and 75 additional shares were allocated to the unit in lieu of this fee. Thereafter, theshareholders desired to discontinue professional use and sought a reduced share allocation;
the board refused. The shareholders sued and sought to avoid the business judgment rule by alleging unequal treatment between them and another unit owner, a former president of the co-op board, to whose unit only 220 shares were allocated. The IAS Court summarily awarded plaintiffs judgment,
declaring the proper share allocation to be 200 shares. The First Department reversed, holding that because the shareholders demonstrated no injury, the
application of the business judgment rule insulated the board's discretionary exercise of management prerogative.
 
In Hidden Ridge at Kutsher's Country Club Homeowner's Ass'n, Inc. v. Chasin, FN5 the Third Department found that the business judgment rule protected a determination by the board of a homeowners association because it was within the scope of its authority - to administer and enforce restrictions on the use of "common land." The homeowner sought permission to build a 12-foot by 16-foot wooden deck; the board only approved a 10-foot by 12-foot removable wooden deck. The homeowner, nonetheless, built a concrete block patio measuring 10-feet by 20-feet. The Third
Department, finding no evidence that the board acted in bad faith or beyond its authority, invoked Levandusky and held that the propriety of the board's decisions
was not subject to judicial review.
 
Similarly, in Vink v. N. Y. State Div. of Hous. & Cmty. Renewal, FN6 the First Department shielded the board's actions under the business judgment rule. This case involved New York's Private Housing Finance Law, which established partially subsidized co-op apartments to
promote rehabilitation and attract
middle-income city dwellers. Higher-income residents were not excluded; however, tenants with incomes above agency guidelines were to be surcharged up to 50 percent above normal rent. The board imposed a surcharge of 20 percent. The lower-income tenants sought to compel the board to raise the surcharge to the statutory 50 percent maximum, while the higher-income tenants challenged the 20 percent increase.
 
The First Department sustained the
20 percent surcharge and held that the failure to impose a 50 percent surcharge was not arbitrary or capricious. The statute gave co-op boards responsibility for determining surcharges; so long as
the board complied with the statute, its business judgment in making such determinations would not be questioned.
 
Additionally, in Jacobs v. 200 E. 36th Owners Corp., FN7 the First Department held that a board's prohibiting food delivery by placing packages on the elevator floor and sending it, unattended, up to the appropriate resident was not
subject to judicial review. The board required that food deliveries be picked up in the lobby of the building. The court found no evidence that this rule was not made to further the legitimate concerns of safety and cleanliness; therefore, the business judgment
rule governed and the court would not intervene.
 
Finally, in Kleinman v. Point Seal
Restoration Corp., FN8 the Second
Department held that a board's retention of contractors is governed by the business judgment rule. The board acted within the scope of its authority under the bylaws and in good faith selected a contractor; no evidence to the contrary was submitted. The court held that the board's selection was not reviewable.
 
Bad Faith
 
In Jones v. Surrey Coop. Apts. Inc., FN9 the First Department rejected a shareholder's challenge to a board
determination allegedly based on "bad faith." There, an evicted shareholder sought to recover from the co-op the market value of the shares allocated to the apartment. Under the co-op bylaws, upon termination of a tenancy, the co-op
had the option of repurchasing those shares at book value, which it did. The shareholder alleged that the option allowed the co-op to be arbitrary in determining whether a shareholder would be paid market or book value. The court held that without a showing of a breach of a specific fiduciary duty to these shareholders, which had not been made, the business judgment rule
precluded court intervention.
 
Similarly, in Cooper v. 6 West 20th St. Tenants Corp., FN10 the First Department rejected a bad faith claim. There, plaintiffs' shares were purchased in a foreclosure sale by a co-op director. Plaintiffs sued the co-op, alleging that it impeded plaintiffs' efforts to sell their
shares in order to enable a board member to purchase them at a below-market price. The court held that the co-op's actions were protected by the business judgment rule because there was no evidence, after substantial discovery, that the board acted in "bad faith."
 
House Rules
 
Generally, the actions of a co-op or condominium board in enacting, repealing, and enforcing house rules will be protected from challenge. FN11 However, if the aggrieved owner can demonstrate that such actions were improper, the courts will not hesitate to review them.
 
In Vacca v. Board of Managers of
Primrose Lane Condo., FN12 the Second Department refused to allow a board's conduct to be shielded from judicial review. There, owners of single-family units in a condominium development placed religious statues outside of their units. These statues remained undisturbed for more than six years until the condominium board notified the unit owners that, pursuant to a new
regulation, all religious statues must be removed. When this regulation was challenged, the board repealed it, and then asserted that the statutes violated an existing house rule, which provided that the common elements were not to be obstructed.
 
The court acknowledged Levandusky,
but found that the board acted in bad faith. The board had allowed the statues for six years and had not construed the house rule to prohibit them. By enacting (and repealing) a regulation and then
to achieve the same result, the court held that the board acted in bad faith and its decision was not protected by the business judgment rule.
 
In contrast, in W. O. R. C. Realty Corp. v. Carr, FN13 the Second Department upheld a board's right to enforce house rules and regulations. There, the board of plaintiff recreation club terminated
defendants' membership for failing to comply with its winter occupancy rules and regulations. The court summarily held that defendants failed to support their allegations of disparate treatment or selective enforcement. The board's decision was therefore protected by the
business judgment rule, having been
made in good faith and within the scope of the board's authority.
 
Finally, in Sirianni v. Rafaloff, FN14 the Second Department held that, notwithstanding allegations of racial discrimination, the board's termination of a proprietary lease was protected by the business judgment rule. There, the shareholders sued the board for wrongful termination, alleging that it was motivated by racial discrimination. The board demonstrated that the basis for the
termination was the shareholders' failure to discontinue their business use of the premises, notwithstanding the service of two notices to cure. Invoking
Levandusky, the court unanimously
dismissed the claims. FN15
 
Breach of Contract
 
The one area where courts have made clear that the Levandusky doctrine has no place is where board action breaches a contractual obligation of the co-op or condominium. Simply put, the business judgment rule will not insulate a board from liability for breach of a contract.
 
In Dinicu v. Groff Studios Corp., FN16 plaintiff purchased a co-op for use as a residence and dance studio. The offering plan stated that the co-op would seek a zoning variance to permit such use. Initially, the Board of Standards and Appeals denied the variance. Thereafter, the Zoning Resolution was amended and provided for amnesty for existing dwelling units provided that an application to permit such use was filed with the Department of Buildings. The co-op's amnesty application was granted, but it incorrectly listed plaintiff's use as exclusively residential, as did the new certificate of occupancy.
 
A couple subsequently moved into the unit above plaintiff's, which was still being used as a dance studio. The couple objected to the noise and complained to the board that the mixed use was illegal; they also complained to the Department of Buildings, which issued a notice of
violation. Documentation was prepared by the co-op's architect to amend the certificate of occupancy to show a lawful mixed use. However, it required the co-op's signature. The co-op board did not execute the document. Instead, it referred the matter to the shareholders, who twice voted to deny approval. Plaintiff thereupon obtained space in another building (at a substantial cost) and sustained losses for several years in
subletting her unit, finally selling it at a loss. Plaintiff sued the co-op for these financial losses.
 
The IAS court found that the business judgment rule did not protect the board from liability because the failure to execute the documentation legalizing plaintiff's mixed use, as specifically contemplated by the offering plan,
breached a contract. The court allowed the claim to proceed and also remanded the case to determine damages and plaintiff's legal fees, as the prevailing litigant under Real Property Law §234.
 
Similarly, in Whalen v. 50 Sutton Place S. Owners, Inc., FN17 the First Department did not defer to a co-op board's decision on a breach-of-contract claim. There, a co-op board approved plaintiffs' plans to renovate their apartment, including an increase to the apartment's electrical supply, and provided plaintiffs with an alteration agreement and authorized them to commence work. However, on the same day, the co-op verbally revoked its approval, because it desired to preserve the building's electrical reserves. Plaintiffs abandoned the renovation, sold the apartment in a demolished state, and sued the co-op for breach of contract and damages, including their expenses in the aborted renovation and their loss on the re-sale.
 
The court rejected the co-op's claim that the decision to rescind approval was a valid exercise of discretion protected by the business judgment rule.
 
However, in Sherry Assoc. v. Sherry-Netherland, Inc., FN18 the First Department held that the mere characterization of a claim as one for "breach of contract" does not defeat the operation of the business judgment rule. There, plaintiffs owned transient units in a co-op and challenged, as a breach of contract, the manner in which the board was managing the co-op's transient operations. The court summarily found that plaintiffs did not demonstrate the breach of any specific obligation, but
challenged only the manner in which the co-op operated the transient operation, as to which the proprietary lease afforded the board "discretion." Because judicial review of discretionary co-op management determinations is precluded, the court summarily dismissed plaintiffs' "breach of contract" claims.
 
Conclusion
 
Despite the passage of time and emergence of new challenges to board action, the Levandusky standard prevails: the odds of reversing a discretionary board decision are slight. However, where board actions are not discretionary and breach a co-op's or condominium's contractual undertakings, courts do not hesitate to apply settled contract law principles and assess damages, including statutorily mandated attorneys fees to the prevailing party.
 
 
Footnotes:
 
(1) 75 N. Y. 2d 530 (1990).
 
(2) See Siegler, "Levandusky Revisited," The New York Law Journal, March 4, 1998, at 3, col. 1.
 
(3) 742 N. Y. S. 2d 264 (1st Dept. 2002).
 
(4) 292 A. D. 2d 16 (1st Dept. 2002).
 
(5) 289 A. D. 2d 652 (3rd Dept. 2001).
 
(6) 285 A. D. 2d 203 (1st Dept. 2001).
 
(7) 281 A. D. 2d 281 (1st Dept. 2001).
 
(8) 267 A. D. 2d 430 (2d Dept. 1999).
 
(9) 263 A. D. 2d 33 (1st Dept. 1999).
 
(10) 258 A. D. 2d 362 (1st Dept. 1999).
 
(11) See Siegler, "House Rules: The Impact of Levandusky," NYLJ, March 6, 1991, at 3, col. 1.
 
(12) 251 A. D. 2d 674 (2d Dept. 1998).
 
(13) 262 A. D. 2d 310 (2d Dept. 1999).
 
(14) 284 A. D. 2d 447 (2d Dept. 2001).
 
(15) See also, Rahman v. Bd. of Mgrs. of Yardam Condo, Index No. 96-6390 (Sup. Ct. Suffolk Co., May 7, 2002), where the court relied on Levandusky and refused to inquire into the wisdom or soundness of a condominium board's decision to purchase full replacement cost insurance (as required by the bylaws) which did not include coverage for additional costs required to comply with updated building codes. As a result, the condominium unit owners were assessed $4.3 million to rebuild in compliance with updated building codes after a fire destroyed a substantial portion of the complex. Nonetheless, the court held that the actions of the board in placing insurance coverage that later proved to be inadequate cannot be challenged. A notice of appeal has been filed.
 
(16) 257 A. D. 2d 218 (1st Dept. 1999).
 
(17) 276 A. D. 2d 356 (1st Dept. 2000).
 
(18) 273 A. D. 2d 14 (1st Dept. 2000).
 
 
Richard Siegler is a partner in the firm of Stroock & Stroock & Lavan and is an adjunct professor at New York Law School where he teaches a course on cooperative housing and condominium law.
 
Eva Talel is also a partner in Stroock & Stroock & Lavan, specializing in litigation involving co-ops and condominiums.
 
Kimberly Sparagna, a student at New York Law School, assisted in the preparation of this article.
 

[consigliere]

Here's a related article, 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."
 

[Grace Wu]

I would like give thanks to Consigliere.
All your postings are very informative and
educational. When will be the court day
of Pullman case?

[consigliere]

This is all of the relevant information that appears on the website of the New York Court of Appeals:
 
COURT OF APPEALS NEW FILINGS
 
A list of appeals with short title, jurisdictional predicate, subject matter and key issues is prepared each week.
 
Some of these filed appeals may never reach decision on the merits because of dismissal on motion, sua sponte, or for time deficiencies or because of stipulated withdrawals by the parties. Also, some counsel fail to file timely jurisdictional statements and thus the list should not be treated as comprehensive for any particular week.
 
For June 7, 2002 through June 13, 2002 the following jurisdictional statements for appeals were filed:
 
40 WEST 67TH STREET CORPORATION v PULLMAN:
 
1ST Dept. App. Div. order of May 23, 2002; modification with dissents; sua sponte examination whether the order appealed from finally determines the action within the meaning of the Constitution;
 
CONDOMINIUMS AND COOPERATIVES - TERMINATION OF TENANCY; JUDICIAL REVIEW OF CO-OP BOARD ACTION;
 
Supreme Court, New York County, inter alia, granted defendant's motion to dismiss the first cause of action; App. Div. modified and inter alia, granted plaintiff summary judgment as the first, third, fourth and fifth causes of action, remanded the matter for a hearing on use and accuracy, legal fees and costs and dismissed plaintiff's search cause of action.
 

[consigliere]

The article below, by John Caher, appeared in the May 14, 2003 online edition of the New York Law Journal:
 
Co-op Boards Given Broad Power to Evict
 
Business judgment rule applies to terminations
  
In a decision that gives co-op boards the upper hand in dealing with recalcitrant residents, the Court of Appeals Tuesday held for the first time that the business judgment rule applies to the termination of a cooperative tenancy. It said that while the competent evidence standard applies, courts should generally defer to the findings of the shareholders.
 
40 West 67th Street v. Pullman, 55, was eagerly awaited by the co-op community, and Tuesday's decision strives to strike a balance between protecting the collective rights of the shareholders and shielding unpopular residents from the wrath of their neighbors.
 
In the opinion by Judge Albert M. Rosenblatt, the Court unanimously affirmed a slender 3-2 majority of the Appellate Division, First Department, and clarified a 1990 precedent, Levandusky v. One Fifth Ave. Corp., 75 NY2d 530. In Levandusky, the Court declared that the business judgment rule is the appropriate standard when scrutinizing decisions of a residential co-op corporation. The case decided Tuesday provided the Court with an opportunity to apply Levandusky to tenancy terminations — the functional equivalent of evictions.
 
The co-op case arose after David Pullman bought an apartment at 40 West 67th Street in Manhattan in 1998. Mr. Pullman soon became an annoyance to his neighbors with perpetual complaints about the building and the people residing there.  
 
He made spurious allegations against an elderly couple living above him, sent a series of offensive letters to the cooperative, filed at least four lawsuits against neighbors, engaged in a physical altercation with another tenant, distributed flyers claiming that a retired professor living in the building was a psychopath, altered his apartment without board approval, and violated his lease by refusing to allow the co-op board to inspect the unit.
 
In June 2000, the shareholders voted to terminate Mr. Pullman's lease. Mr. Pullman ignored the notice of termination and refused to leave, prompting an action by the co-op corporation to eject him from the apartment and force the sale of his shares.
 
Supreme Court held that the co-op could not oust Mr. Pullman and declined to apply the business judgment rule, which generally stands for the proposition that courts ordinarily will not review determinations of corporate board members and their officers in the performance of their duties. The First Department reversed in a 3-2 opinion affirmed Tuesday.
 
Tuesday's holding creates a presumption that the shareholders or the board acted properly, but did not rule out the possibility of judicial review.
 
Judge Rosenblatt wrote that Levandusky, while requiring a deferential stance on the part of the judiciary, "should not serve as a rubber stamp for cooperative board actions, particularly those involving tenancy terminations." He said that while cooperative living requires shared control over numerous matters — including composition of the community — "courts must exercise heightened vigilance in examining whether the board's action meets the Levandusky test."
 
John T. Van Der Tuin of Balber Pickard Battistoni Maldonado & Van Der Tuin in Manhattan, counsel for the cooperative, said the ruling is a clear victory for co-op residents.
 
"This is a good decision for cooperatives in the sense that it should enhance the value of co-op living and assure people who live in co-ops that they have some protection against out-of-control neighbors," Mr. Van Der Tuin said. "At the same time, the Court of Appeals is very careful to underscore that if you do have a situation in which there is a vendetta against a particular shareholder, there are still plenty of tools for the shareholder to use in terms of the good faith requirement and the fiduciary duty requirement."
 
Gary M. Rosenberg and Jeffrey Turkel of Rosenberg & Estis in Manhattan represented Mr. Pullman.
 
Mr. Turkel said the implications of the ruling are broad, and as a practical matter co-op residents who ruffle feathers are in jeopardy. He said that while the Court clearly said judicial review is available, the standard is so high that in effect co-op boards have nearly unbridled power.
 
"The implications are bad for unpopular tenants — tenants who make waves and seek to fight what they perceive as injustices within a co-op," Mr. Turkel said.
 

<small>[ May 14, 2003, 05:26 PM: Message edited by: consigliere ]</small>

[consigliere]

The story below, by David Chen, appeared in the May 14, 2003 online edition of The New York Times:
 
Co-ops Win Right to Evict Tenants Without First Taking Court Action
 
It is a familiar New York complaint. You live in a co-op. Your neighbor is a nightmare. You want the co-op board to evict him. So does everyone else. But to do that, you are told, the board must take the neighbor to housing court and prove that he is worthy of eviction — an excruciating process that could take months.
 
But maybe not for much longer.
 
Yesterday, the Court of Appeals, New York's highest court, ruled unanimously that the board of one building on the Upper West Side was, in fact, entitled to evict an unruly tenant without the judicial review typically used by landlords and tenants.
 
Technically, the court said, the decision by the co-op board of the building, 40 West 67th Street, to evict one tenant, a high-profile bond salesman named David Pullman, without going to housing court was legal because co-op boards are akin to boards of corporations, which are supposed to act in the best interests of the organization, and their tenants are shareholders.
  
But more significantly, the court's decision could have a major effect on the complicated and sometimes petty relationships in building after building because it effectively shifts the balance of power from tenants to co-op boards.
 
Stuart M. Saft, a Manhattan lawyer who is chairman of the Council of New York Cooperatives and Condominiums, said he welcomed the decision, with reservations.
 
"It's extraordinarily important," he said, "because it's difficult enough for boards to manage these multimillion-dollar corporations without a court looking over their shoulder at every opportunity. But as delighted as I am with the decision, I am just as concerned that this is read too broadly, and boards read this as saying they can do anything at any time."
 
Forty West 67th Street is a nine-story prewar building with 38 apartments that have commanded prices of up to $900,000, according to John T. Van Der Tuin, a lawyer who represented the co-op board.
 
Mr. Pullman, 41, is a postwar financier with a Wharton business degree who created what are known as Bowie bonds, raising $55 million by issuing bonds backed by the rock musician David Bowie's future royalties.
 
Almost immediately after Mr. Pullman moved into the building in October 1998, he began to irritate board members by making numerous requests to change the facilities or services, like hiring 24-hour doormen, according to court papers. He also sent at least 16 written complaints to the managing agent about the noise from the apartment above his.
 
In June 2000, the shareholders voted to terminate Mr. Pullman's lease and sued to oust him. But in rejecting Mr. Pullman's arguments yesterday, the court said, "The very concept of cooperative living entails a shared control over rules, maintenance and the composition of the community."
 
Not surprisingly, Mr. Van Der Tuin said the co-op board was heartened by the decision. "It means the residents of co-ops can set the standards," he said, "and there's some protection against the out-of-control neighbor."
 
But Jeffrey Turkel, a lawyer for Mr. Pullman, said that the court's message was chilling. "If you're a co-op tenant," he said, "and you're advocating an unpopular opinion or stepped on the wrong political toes, there's not much you can do."
 
For his part, Mr. Pullman, who has remained in his apartment, said he was shocked by the decision. He added that he has lawsuits pending against his upstairs neighbor and members of the co-op board.
 
If nothing else, the board members will have much to talk about at their next meeting, which is tonight, at which they will be electing a new board of directors.
 

<small>[ May 14, 2003, 05:36 PM: Message edited by: consigliere ]</small>