Opinion
103689/11.
May 10, 2011.
DECISION AND JUDGMENT
In this Article 78 proceeding commenced by Order to Show Cause, petitioner, Susan Perry, seeks a judgment setting aside Respondent's, 61 Jane Street Tenants Corp., determination to terminate petitioner's proprietary lease in a cooperative apartment, and vacating the Notice of Termination, dated December 29, 2010.
This Court granted without opposition respondent's motion to amend the caption (mtn seq. no. 002), which sought the removal of the individuals who are members of respondent's cooperative board.
Respondent interposed counterclaims for a declaratory judgment that it properly terminated petitioner's proprietary lease, and that, as a consequence, her current occupancy and possession of the unit is unlawful. In that regard, respondent seeks a judgment of possession and a warrant of ejectment to remove petitioner from her apartment unit.
Background
Petitioner was previously a tenant in a rent stabilized apartment. In 2002, petitioner entered into a written agreement with her then-landlords, whereby in exchange for her giving up the rent stabilized apartment, petitioner's landlords would purchase a Manhattan cooperative apartment at 61 Jane Street (the "co-op"), Unit 8S (the "apartment unit") to be used as her residence. Respondent is the co-op board.
Because the co-op's rules prohibit petitioner from occupying the co-op apartment unit on a long term basis, petitioner was given one share in the co-op, thus becoming a proprietary lessee, along with her former landlords, who held the remaining 370 shares.
Petitioner has resided in the co-op since 2002. In 2009, the co-op board began receiving complaints about petitioner. The initial complaints involved petitioner's dog walking business, which she operated from her apartment unit, as well as a dispute between petitioner and building maintenance staff over chemicals used to clean the building, which petitioner claims to be allergic to. The complaints then evolved to include petitioner causing several disturbances in the building lobby, including one incident, on or about January 15, 2010, in which petitioner allegedly physically and verbally accosted the doorman, requiring the police to be called. In another incident, on or about July 5, 2010, petitioner came into the building lobby at 1:15 a.m. and insisted on sleeping on the lobby couch "in protest" of the building. Despite being repeatedly asked to leave, petitioner slept on the lobby couch until 6:10 a.m.
Residents and staff also reported various confrontations with petitioner, wherein she, inter alia, allegedly screamed at residents and staff, or blocked residents' egress from the elevator. Another complaint concerned a disturbance caused by petitioner walking in and out of the lobby for at least an hour, while behaving erratically and allegedly holding a knife. Other complaints involved petitioner's loud music and various other disturbances coming from petitioner's apartment.
Respondent addressed these complaints to petitioner and/or her counsel in a series of at least eight letters, written over the course of almost a year, from December 2009 through October 26, 2010 (Verified Petition, Ex. D). Despite some assurances that petitioner would modify her behavior, the co-op board continued to receive complaints about petitioner's disruptive and disturbing behavior from both residents and staff. In a letter dated October 26, 2010, respondent notified petitioner that it would hold a meeting to consider terminating petitioner's proprietary lease, notifying petitioner of the date and time of the meeting so that she may attend and be heard.
Petitioner attended the meeting with her counsel on December 14, 2010. After her counsel was given an opportunity to speak, the co-op board met privately, and voted unanimously to terminate petitioner's proprietary lease and cancel the shares to her unit. Following the vote, respondent issued a notice of termination, dated December 29, 2010, and petitioner was given until January 31, 2011 to vacate her unit. She continues to occupy the premises.
The Article 78 Proceeding
In support of her petition, petitioner argues that respondent's determination to terminate her proprietary lease was arbitrary; that the complaints against her were vague; that she was not given the opportunity to confront her accusers or to even know who made the complaints against her; and, that, the opportunity to be heard at the co-op board meeting was illusory as respondent had already made its decision to terminate her lease at that point.
Discussion
The Court of Appeals has held that a residential cooperative may properly terminate the proprietary lease of a tenant-shareholder who engages in a course of objectionable conduct, and that such a decision will be presumptively protected from judicial scrutiny by the business judgment rule (40 West 57 th Street Corp. v Pullman, 100 NY2d 147, 152). "The business judgment rule is a common-law doctrine by which courts exercise restraint and defer to the good faith decisions made by boards of directors in business settings" (Id. at 153). Thus, a court will defer to a cooperative board's decision to terminate a tenant-shareholder's proprietary lease and cancel his or her shares as a result of "objectionable conduct" without scrutinizing the underlying facts of such a decision, as long as the board has acted: (1) within the scope of its authority; (2) in the interests of the cooperative; and (3) in good faith (Id. at 154). Once these conditions have been satisfied, a co-op board's decision to terminate a proprietary lease is given deference.
On the other hand, "[t]o trigger judicial scrutiny, an aggrieved shareholder-tenant must make a showing that the board acted (1) outside the scope of its authority, (2) in a way that did not legitimately further the corporate purpose, or (3) in bad faith (Id. at 155). As such, a tenant-shareholder bears the burden of first establishing that the board acted in one of these three impermissible ways.
In proceedings involving traditional landlord-tenant relationships, RPAPL § 711 requires judicial review of "competent evidence" in determining whether tenant's alleged conduct is objectionable. Where proceedings involve cooperatives, as here, section 711[1]'s "competent evidence" review is conducted within the context of the broad business judgment rule.
Here, respondent's decision to terminate the proprietary lease and cancel petitioner's shares is clearly protected by the business judgment rule. Paragraph 31(f) of the proprietary lease at issue authorizes respondent to terminate a tenant-shareholder's lease "at any time" if respondent has determined that such tenant-shareholder's "objectionable conduct" has rendered his or her continued tenancy in the cooperative "undesirable" (Verified Answer, Ex. B).
To terminate a tenancy, the proprietary lease requires: (1) that, to be objectionable, the conduct must be repeated after the tenant-shareholder first receives written notice thereof, and (2) that the co-op board must vote by two-thirds affirmative vote to terminate the lease at a meeting duly called for such purpose (Id., ¶ 31[f]).
Here, the record clearly demonstrates that both of these criteria have been satisfied. Notably, petitioner had not one, but at least eight different written notices of her objectionable conduct (Verified Petition, Ex. D). Nowhere does petitioner claim that she did not receive these notices. Moreover, the board voted unanimously to terminate petitioner's tenancy, at a duly called meeting, during which petitioner was able to be heard and present her side of the story. Indeed, petitioner's interest and rights were safeguarded by the presence of her counsel. Under these circumstances, respondent co-op board clearly acted within the scope of its authority.
Additionally, the termination of petitioner's proprietary lease was clearly in furtherance of a legitimate corporate purpose. Respondent co-op board has a fiduciary duty and obligation to act in the collective interests of the cooperative and all of its shareholders. In voting to terminate petitioner's tenancy as a result of almost a year's worth of disruptive and disturbing conduct, a decision not done lightly as the record demonstrates, respondent co-op board's decision clearly bore an obvious and legitimate relation to the cooperative's avowed ends — namely to ensure the well being and safety of all of its shareholders. Indeed, the record leaves this Court with the inescapable conclusion that respondent co-op board has been frustrated and exasperated with addressing this issue. Absent from this record is any meaningful and clear efforts from petitioner herself to de-escalate the tensions between her and her fellow cooperative shareholders.
Finally, petitioner has failed to demonstrate that respondent co-op board acted in bad faith, arbitrarily, or with discrimination or malice. Indeed, the record indicates the contrary. As evidenced by the multiple letters sent to petitioner, respondent co-op board clearly attempted to resolve the issues concerning petitioner's behavior prior to making its decision to terminate the proprietary lease. In each letter, respondent co-op board warned petitioner of the dire consequences that would follow if she failed to rectify her behavior. Nevertheless, after each letter, respondent co-op board would receive fresh complaints of new incidents involving petitioner.
Based on the foregoing, I am compelled to find that petitioner has failed to raise any factual issue "as to whether in voting to terminate her lease, [respondent] did not act for the purposes of the cooperative, within the scope of its authority, and in good faith" (Trump Plaza Owners, Inc. v Wietzner, 61 AD23d 480, 480 [1st Dept 2009]).
To the extent that petitioner argues that Pullman and its progeny conflict with RPAPL § 711, and, thus, violate her due process and equal protection rights, that argument is unpersuasive. The Pullman Court considered and rejected the argument that application of the business judgment rule to a cooperative's decision to terminate a tenant-shareholder's lease is inconsistent with RPAPL § 711 explaining that "the relationships among shareholders in cooperatives are sufficiently distinct from traditional landlord-tenant relationship [such] that the statute's `competent evidence' standard is satisfied by application of the business judgment rule" (40 West 57 th Street Corp. v Pullman, 100 NY2d at 155).
Moreover, contrary to petitioner's contention, the mere fact that terminating a proprietary lease involves state court proceedings does not raise respondent co-op board's conduct to the level of state action (Harvey v 320 Owners Corp., 2009 WL 1110794, 2009 US Dist LEXIS 61007 [SD NY 2009]) (citing Lugar v Edmonson Oil Co., 457 US 922).
Accordingly, it is
ADJUDGED that the petition is denied, and it is further
ADJUDGED and DECLARED, with respect to respondent co-op board's counterclaim, that respondent co-op board properly terminated the proprietary lease for petitioner's unit and the shares appurtenant thereto; and it is further
ORDERED that, with respect to respondent co-op board's counterclaim for an Order of Ejectment, this Court grants respondent the relief it seeks; and it is further
ORDERED that a warrant of ejectment shall issue forthwith. Execution of the warrant shall be stayed for ten (10) days from service of a copy of this order with notice of entry. Prior to the expiration of the stay, petitioner and/or her counsel may make a letter application to this Court on notice for an extension of the stay. At any time during the stay period, respondent co-op board and/or its counsel may make an immediate application to this Court by facsimile or telephone call for vacatur of the stay based on conduct and behavior exhibited by petitioner that respondent co-op board deems to be detrimental to the cooperative and its shareholders. Petitioner shall pay her monthly use and occupancy in accordance with any existing agreements for the duration of her occupancy in the apartment unit.
This memorandum opinion constitutes the decision and judgment of the Court.