Cannings v. East Midtown Plaza Hous. Co., Inc.

Full title: JAMES CANNINGS, Plaintiff, v. EAST MIDTOWN PLAZA HOUSING COMPANY, INC, and…

Court: Supreme Court of the State of New York, New York County

Date published: Oct 18, 2011

2011 N.Y. Slip Op. 51947 (N.Y. Sup. Ct. 2011)

2011 N.Y. Slip Op. 32787

Opinion

401071/2010.

October 18, 2011.

[EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.] JOAN A. MADDEN, Judge.

Defendant East Midtown Plaza Housing Company, Inc. (the "Cooperative" or "Cooperative corporation") moves for an order pursuant to CPLR 3212 granting summary judgment dismissing the complaint, and for a money judgment in its favor for the attorney's fees incurred in the defense of this action. Plaintiff James Cannings, appearing pro se, opposes the motion.

The following facts are not disputed unless otherwise noted. Plaintiff James Cannings is the tenant and cooperative shareholder of apartment 22C in the building located at 400 Second Avenue, New York, New York, which is part of a six-building development situated between First and Second Avenues and 23^rd and 25^th Streets (collectively the "property" or "development"). Defendant Cooperative corporation, as the owner of the buildings, is a limited profit housing company organized under the New York State Private Housing Finance Law, which is commonly known as the Mitchell-Lama Law. As a Mitchell-Lama cooperative, defendant is subject to supervision by the New York City Department of Housing Preservation and Development ("HPD") and the United States Department of Housing and Urban Development ("HUD").

On April 1, 2004 and February 21, 2006, the New York City Housing Development Corporation ("HDC") conducted inspections of the development, and determined that the windows in the buildings were "beyond the end of their useful lives" and "strongly" recommended "total replacement." Jerrold Fox, the President of defendant Cooperative corporation, submits an affidavit stating that pursuant to the HDC reports, the Cooperative's Board of Directors (the "Board") "decided that was in the best interest of the Cooperative to replace the windows at the Property," and the "Cooperative set about engaging a vendor to perform the work and obtaining the appropriate financing." Explaining that HPD oversees this process with HUD's approval of the vendor, Fox states that "[i]n accordance with HPD regulations, bids were solicited from various vendors, and ultimately Skyline Windows was selected." He states that "[b]ecause HDC holds the underlying mortgage for the Cooperative, HDC had to approve, and did approve, the selection of Skyline Windows."

To finance the project, the Cooperative secured a loan in the amount of $5 million from Amalgamated Bank, which according to defendant was approved by HUD, HPD and HDC. Fox explains that to "repay the loan, the board voted to impose an assessment on each of the shareholders over a five-year period, which was similarly approved by HUD." Defendant submits an October 20, 2010 letter stating that HUD "has no objection to the proposed financing." Defendant also submits an October 14, 2010 letter from HUD acknowledging receipt of the "Board of Directors resolution duly adopted by a positive vote of the majority of the shareholders at a special meeting held on July 21, 2010. The majority vote (308 positive, 154 negative) has been certified by the Board of Directors and the Honest Ballot Association. We [HUD] are therefore approving a $30.75 per share capital repairs assessment to be collected over a sixty month period."

In the meanwhile, since in or about November 2005, defendant Cooperative has been engaged in efforts to withdraw from the Mitchell-Lama program and privatize the development. Such action requires approval of two-thirds of the shareholders, and a dispute arose as to the method for counting the shareholders' votes. The Cooperative took the position that the votes should be counted on a per-share basis. HPD and the Attorney General asserted that HPD's regulations required that the votes be counted on a per-apartment basis, i.e. one vote for each shareholder. The Cooperative commenced an Article 78 proceeding seeking to compel HPD's approval of its privatization plan, and to compel the Attorney General to accept for filing, its Second Amendment to Cooperative Offering Plan. On March 9, 2010, the Hon. Emily Jane Goodman issued a decision rejecting the Cooperative's position and denying Article 78 relief. East Midtown Plaza Housing Co., Inc v. Cuomo, 2010 WL 1169622 (Sup Ct, NY Co, 2010). On appeal, the Appellate Division First Department affirmed the denial, East Midtown Plaza Housing Co, Inc v. Cuomo, 85 AD3d 485 (1^st Dept 2011), determining that "[t]he court properly determined that HPD's method for counting dissolution votes, i.e., one vote per shareholder, was rational and lawful," reasoning as follows:

Petitioner's Certificate of Incorporation specified that each shareholder shall be entitled to one vote, regardless of the number of shares held by such holder, "except as otherwise provided by statute." The court properly concluded that no statutes, including Business Corporation Law § 612 and § 1001, provide otherwise. Contrary to petitioner's contention, HPD's rule regarding dissolution, 28 RCNY 3-14(i)(7), is not a statute and, in any event, does not provide that dissolution votes should be counted per share. Contrary to the intervenor-appellant's contention, HPD did not change its policy or rule regarding dissolution in 2008, prior to the shareholder vote on dissolution and/or reconstitution of petitioner. HPD merely clarified its rule. After the shareholders' vote, HPD properly amended the rule pursuant to the City Administrative Procedure Act in order to eliminate any ambiguity created by the wording of the original rule.

On April 26, 2010, plaintiff pro se commenced the instant action, seeking various declaratory and injunctive relief, including, inter alia, a judgment declaring the defendant "violated statutes, by-laws and Certificate of Incorporation," and a stay of the window replacement project until defendant has complied with "all applicable laws," a "vote by cooperators is taken," HPD authorization is obtained, and defendant has explored all "possible means of financing" and has offered the shareholders "various choices of financing." The complaint also seeks a stay of the HPD eviction proceedings against plaintiff, and the "removal" of the Cooperative's Board.

Specifically, plaintiff objects to defendant's decision to finance the window replacement project with a loan from Amalgamated Bank to be repaid by a shareholder assessment, and alleges that the windows could have been "replaced for free," by securing a $6 million grant from HDC. Plaintiff asserts that defendant is "in default" of the Certificate of Incorporation, the by-laws, the Business Corporation Law and the RCNY, and that defendant is "forcing" him to comply with its "unauthorized program," which involves a capital improvement that must be approved by the shareholders, HPD and HUD. Plaintiff also asserts that defendant's financial decision violates 28 RCNY § 3-1(d)(4), which requires the board to provide the "most economical operation of the development." Alleging that defendant has engaged in a "consistent pattern" of willful disregard and "flaunting" of the law, plaintiff refers to defendant's decision to privatize the development, and Justice Goodman's denial of the Cooperative's Article 78 petition, which he characterizes as "stopp[ing] the board from violating its Certificate of Incorporation." Plaintiff also alleges that the Board's decisions are self-serving, as they serve interests of privatization, rather than the common interests of the Cooperative. He objects to the Board's use of "our money" to litigate privatization issues and notes that the Board admits that it would not consider an HDC loan or grant because the Cooperative would have to remain in the Mitchell-Lama program for 15 more years. Plaintiff asserts that he is the "victim" of discrimination and retaliation, based on his opposition to the window replacement project and privatization, and alleges that he is the "only shareholder brought before HPD for a letter of eviction."¹ He further alleges that the buildings are not properly maintained, and submits photos and a DVD "as evidence of litter."

1 Plaintiff admits that he refused to provide access to his apartment to inspect and measure the windows. For that reason, defendant commenced a proceeding before HPD for a Certificate of Eviction, which was settled pursuant to a stipulation dated August 4, 2010, in which plaintiff agreed to provide access. According to defendant, plaintiff thereafter provided access, and his windows were measured and replaced. Thus, to the extent the complaint seeks a stay of the eviction proceeding, such relief is now moot.

Defendant's answer asserts the affirmative defenses of lack of personal jurisdiction, failure to state a cause of action, lack of subject matter jurisdiction, unclean hands and the business judgment rule. Defendant is now moving for summary judgment dismissing the complaint, on the grounds that the business judgment rule shields the Board's decision to finance the window replacement project through a bank loan and shareholder assessment. Defendant also seeks an award of attorney's fees based the attorney's fees provision in the Occupancy Agreement.

On a motion for summary judgment, the proponent "must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case." Winegrad v. New York University Medical Center. 64 NY2d 851, 852 (1985). Once the proponent has made this showing, the burden of proof shifts to the party opposing the motion to produce evidentiary proof in admissible form to establish that material issues of fact exist which require a trial. Alvarez v. Prospect Hospital, 68 NY2d 320, 324 (1986).

Defendant's decisions regarding the window replacement project are protected by the business judgment rule, which provides that the court should defer to a cooperative board's determination "[s]o long as the board acts for the purposes of the cooperative, withing the scope of its authority and in good faith." Levandusky v. One Fifth Avenue Apartment Corp, 75 NY2d 530, 538 (1990); accord 40 West 67^th Street Corp v. Pullman, 100 NY2d 147, 153 (2003); Pelton v. 77 Park Avenue Condominium, 38 AD3d 1, 7-9 (1^st Dept 2006). Under the business judgment rule, the court will not inquire as to the reasonableness of a cooperative board's decision, but that rule is "is not an insuperable barrier," Barbour v. Knecht, 296 AD2d 218, 224 (1^st Dept 2002), as further judicial scrutiny is triggered in instances of breach of fiduciary duty, as evidenced by fraud, self-dealing, unlawful discrimination, bad faith or other misconduct by the Board, see 40 West 67^th Street Corp v. Pullman, supra at 155-157: Perlbinder v. Board of Managers of 411 East 53^rd Street Condominium, 65 AD3d 985 (1st Dept 2009); Pelton v. 77 Park Avenue Condominium, supra at 8-9; DeSoignies v. Cornasesk House Tenants' Corp, 21 AD3d 715, 718 (1^st Dept 2005).

The record establishes that defendant through its Board of Directors acted within the scope of its authority to plan and arrange for the replacement of the windows in the development, to finance the project with a loan from Amalgamated Bank, and to provide for repayment of the loan through the imposition of an assessment paid by the shareholders over a five-year period. The record further establishes that defendants's actions were undertaken pursuant to a legitimate corporate purpose to maintain the structure of the buildings, and that it acted in good faith in fulfilling its obligations. See Levandusky v. One Fifth Avenue Apartment Corp, supra at 537-538; Katz v. Board of Managers, 83 AD3d 501 (1" Dept 2011); Skouras v. Victoria Hall Condominium, 73 AD3d 902, 903 (2^nd Dept 2010), lv app dism 16 NY3d 729 (2011); Lorne v. 50 Madison Avenue, LLC, 65 AD3d 879 (1^st Dept 2009), lv app dism 15 NY3d 732 (2010).

Specifically, 28 RCNY § 3-07 governs the management and operation of Mitchell-Lama companies, and provides in pertinent part that "[e]ach housing company shall maintain its structures, grounds, elevators, boilers and other equipment either by contract or by qualified employees in such manner as to preserve the property, to protect the health and safety of the residents and employees, and to provide economical operation of the development." In accordance with that obligation, 28 RCNY § 3-14(f)(1) gives the Cooperative, through the discretion of its board of directors, to determine that a capital assessment is necessary. 28 RCNY § 3-14(f)(1) provides that "[a] mutual housing company may, by vote of its directors followed by a vote of the shareholders, assess all shareholders on an equitable basis in order to undertake a program of major capital improvements or major repairs approved by HPD. A mutual housing company must obtain a majority of votes at a meeting of shareholders for this purpose and obtain HPD's approval for the assessment."

In opposing the motion, plaintiff has failed to establish the existence of a genuine issue of material fact. Contrary to plaintiff's assertions, the record shows that defendant secured the necessary approvals for the financing and the assessment. At a special meeting held on July 21, 2010, a majority of the shareholders voted to approve "an assessment in the amount of $30.75 per share to be collected over a sixty month period." By letter dated October 14, 2010, HUD advised defendant of its approval of that "capital repairs assessment." By letter dated October 20, 2010, HUD advised defendant that it "had no objection" to the proposed financing though a loan from Amalgamated Bank; by letter dated December 21, 201, HPD approved the loan. The fact that defendant chose one method of financing over another is consistent with the broad powers of the board to operate and manage the buildings. Plaintiff's conclusory allegations of discrimination, self-dealing, fraud and bad faith are insufficient to overcome the presumption of regularity created by the business judgment rule. See Skouras v. Victoria Hall Condominium, supra at 904; Sayeh v. 66 Madison Ave Apartment Corp. 73 AD3d 459 (1st Dept 2010); Katz v. Board of Managers, supra; Pelton v. 77 Park Avenue Condominium, supra. Notwithstanding the Appellate Division's affirmance of Justice Goodman's decision and the outstanding issue, if any, as to whether defendant has sufficient shareholder votes to proceed with privatization, defendant had discretion to choose the method of financing the window replacement project, and was not required to apply for an HDC loan or grant and commit to remain in the Mitchell-Lama program for an additional 15 years. Notably, HPD and HUD both approved the financing and the assessment, which a majority of the shareholders also approved, and neither HPD nor HUD indicated that defendant was required to consider alternative methods of financing, such as an HDC loan or grant.

Plaintiff also argues that summary judgment is premature since defendant has not provided any discovery. Plaintiff's argument is without merit, as he fails to show that facts essential to oppose the motion are in defendant's exclusive knowledge, or that discovery might lead to facts relevant to the issues. See Woods v. 126 Riverside Drive Corp, 64 AD3d 422, 424 (1^st Dept 2009), lv app den 14 NY3d 704 (2010); Silverstein v. Westminster House Owners, Inc., 50 AD3d 257 (1^st Dept 2008). The additional issues raised by plaintiff are likewise without merit.

Based on the foregoing, defendant is entitled to summary judgment dismissing the complaint. However, the portion of defendant's motion for an award of attorney's fees is denied. Citing paragraph 16(c) of the Occupancy Agreement, defendant asserts that it is entitled to a money judgment in its favor for the attorney's fees incurred in defense of this action. Paragraph 16 of the Occupancy Agreement is entitled "Defaults and Consequences Thereof," and subdivision 16(c) states in relevant part as follows: "In case of any such default, re-entry, expiration or dispossess by summary proceedings other otherwise, (i) the rental charge shall become due thereupon and be paid up to the time of such re-entry, dispossess or expiration, together with such expenses as the company may incur for legal expenses, attorney's fees . . ." This provision does not entitle defendant to recover attorney's fees in this action, since this action does not include a claim that the plaintiff tenant/shareholder, who sued the Cooperative for violating the by-laws, the certificate of incorporation and certain statutes and regulations, was in default of his obligations under the Occupancy Agreement. See Jackson v. Westminster House Owners Inc, 52 AD3d 404 (1^st Dept 2008); Depuis v. 424 East 77^th Owners Corp, 32 AD3d 720 (1^st Dept 2006); Spinale v. 10 West 66^th St Corp, 193 AD2d 431 (1^st Dept 1993). Defendant's reliance on plaintiff's default in refusing to permit access to his apartment is misplaced, as that default is not at issue in this action, but rather was the subject of the Cooperative's HPD eviction proceeding against tenant/shareholder Cannings, which the parties settled pursuant to a stipulation. Notably, that stipulation does not contain any agreement by Cannings to reimburse the Cooperative for the attorney's fees it incurred in prosecuting that proceeding.

Accordingly, it is

ORDERED that defendant's motion for summary judgment dismissing the complaint is granted, and the complaint is dismissed, and the Clerk is directed to enter judgment in defendant's favor dismissing the complaint in its entirety; and it is further

ORDERED that the portion of defendant's motion for a money judgment for attorney's fees is denied and such claim is dismissed.