Opinion
113590/2010.
Decided May 24, 2011.
Barry Mallin Associates, P.C. (Barry Mallin, of counsel) for petitioners.
Hoey, King Epstein (Rhonda L. Epstein, of counsel) for respondents Daniel Benedict, Barry Sendrovic, Karen Jaroneski, Maureen Burnley, Navid Maquami, Kathryn O'Brien Bordonaro, June Polichetti and WVH Housing Development Fund Corp.
George Locker, Esq. for respondent Honest Ballot Association.
Petitioners, three non-candidate shareholders of a residential housing cooperative known as the "West Village Houses" ("WVH"), brought on this special proceeding, pursuant to Business Corporation Law ("BCL") § 619 , by Order to Show Cause, dated October 15, 2010, seeking to declare null and void the election for Board of Directors of WVH (the "Board") conducted on June 17, 2010 (the "Election"), and directing that a new election be held on the ground that the manner in which the election was conducted casts doubt on the ultimate vote count (Motion Sequence No. 001). Petitioners claim that the incumbent directors on the Board, assisted by the Honest Ballot Association ("HBA"), conspired to preserve control over the board. Petitioners sought a temporary restraining order ("TRO") enjoining and directing HBA to preserve and keep in their original condition all voting records of the election, to deposit those voting records in court for safekeeping, and to permit all parties and their respective attorneys to inspect those records. The court granted the TRO to the extent of directing HBA to preserve in their original condition all the voting records of the Election.
Specifically, BCL § 619 states:Upon the petition of any shareholder aggrieved by an election, and upon notice to the persons declared elected thereat, the corporation and such other persons as the court may direct, the supreme court at a special term . . .shall forthwith hear the proof and allegations of the parties, and confirm the election, order a new election, or take such action as justice may require.
Petitioners move for an order, pursuant to CPLR §§ 408 and 3102, permitting them to depose certain of the named individual respondents and certain identified members of HBA and to conduct discovery and inspection of the voting records, including ballots, proxies, sign-in sheets, and tabulation sheets (Motion Sequence No. 002).
HBA cross moves for an order, pursuant to CPLR §§ 3211 (a) (10) and 3212, dismissing the petition with prejudice for failure to join an indispensable party, namely, the WVH Housing Development Corporation (the "Corporation"). The seven individual respondents, as well as non-party Corporation, also cross move for an order, pursuant to CPLR § 3212, granting summary judgment dismissing the petition with prejudice, and separately cross move for summary judgment dismissing the amended petition with prejudice on the grounds that: (1) the amended petition is void for failure to obtain leave of the court for such amendment; (2) petitioners failed in the first instance to join the Corporation, a necessary party to the proceeding, and should not be permitted to cure this defect by adding the Corporation in the amended petition as a new party to the proceeding long after the Statute of Limitations has expired ( see CPLR §§ 217, 1001 and 1003); (3) service of the amended petition upon the Corporation was defective; and (4) petitioners have failed to meet their burden of demonstrating that the Election was so clouded with error or tainted with fraud such that it should be set aside and a new election ordered.
It appears from review of the record that issue was joined as to HBA by filing and service of its answer on or about November 10, 2010, but that no answer was filed on behalf of the individual respondents. Thus, technically, the cross motions filed by the individual respondents are in the nature of pre-answer motions to dismiss, rather than cross motions for summary judgment, and will be treated as such.
The parties appeared before the Court for oral argument on January 25, 2011. At that time, the proceeding as against HBA was dismissed on consent. Motion Sequence Nos. 001 and 002 are consolidated for purposes of disposition and are decided as follows:
Factual Background
The Corporation is a New York cooperative apartment housing corporation that owns WVH. The complex is comprised of approximately 417 occupied cooperative units, situated in 42 buildings, and is located in the Greenwich Village section of New York City.
Respondents Kathryn O'Brien Bordonaro ("Bordonaro"), Maureen Burnley, Karen Jaroneski, Navid Maqami and June Polichetti are shareholders and members of the Board who were elected as directors at the June 17, 2010 annual meeting of shareholders. Bordonaro has been the Board President since the cooperative conversion of the property in March 2006. Two others were also re-elected. Two newly elected persons were part of a new slate of candidates. Respondents, Daniel Benedict and Barry Sendrovic, sit on the Board as representatives of shareholder, BRG Realty.
HBA is an organization hired by the Board to examine the by-laws of the Corporation, supervise the election, collect the proxies and ballots, count the votes and certify the results. Since 1909, HBA has been asked to plan, conduct, supervise and certify elections for a variety of organizations including labor unions, credit unions, co-op and condo associations, tenant groups and school boards (http://www.honestballot.com/services.html [April 26, 2011]). Linda Gibbs is the President of HBA. She was present on the night the contested election took place.
On June 17, 2010, shareholders met to elect directors at the Village Community School, located at in Greenwich Village. Shareholders checked in at the balcony area of the school auditorium, received a ballot and then proceeded to the main auditorium to participate in the annual meeting. In an action ratified by the shareholders, the Chair of the meeting appointed two shareholders, Erv Raible ("Raible") and Jennie Zletz ("Zletz"), to serve as election inspectors. In accordance with the by-laws, a quorum was reached by 160, 541 shares of the corporation (or 80% of the total shareholders). Eighty-eight shareholders cast their vote in person.
The counting of ballots took place on June 18, 2010 at the offices of HBA in Floral Park, Queens. According to the Corporation's by-laws, election votes are counted by the number of cumulative shares. Under cumulative voting, each shareholder is entitled to cast as many votes as the shares she owns multiplied by the number of directors to be elected. Each shareholder has the right to cast his or her shares of votes for a single candidate or to distribute them among the number of candidates. HBA certified the results of the election on June 28, 2010.
Parties' Contentions
Petitioners allege that there was a lack of transparency in the election process and a deliberate effort to create a "veil of secrecy" that prevented the election inspectors, Raible and Zletz, from carrying out their duties to ensure that the election was conducted in a fair and impartial manner. As grounds for annulling the election, petitioners allege that: (1) while the polls were open, HBA personnel engaged in private conversations with the incumbent President and the Board's attorney to which the opposition slate was not privy; (2) during the vote count on June 18, 2010, HBA personnel barred the two election inspectors from monitoring the counting of the votes, verifying the vote totals, validating the accepted proxies and disqualifying certain ballots and proxies; (3) HBA refused to tell any member of the opposition slate the total number of shares in the house, thereby preventing opposition slate shareholders from allocating their proxies; (4) HBA personnel used "white-out" on items relating to "election materials"; (5) HBA personnel discarded in a trash bin a tabulation sheet taken from the ballot box; (6) HBA personnel segregated the ballot/proxy bundle submitted by the incumbent President and processed them differently than the other ballots; and (7) the actions of HBA show a clear bias and favoritism toward the incumbent directors.
Approximately 80, 836 votes were disallowed by HBA and 1,101,548 valid ballots were cast. Six proxies representing 2, 512 shares, were found void for ineligibility and lateness. However, 166 proxies representing 119, 604 shares, were accepted;
Specifically, the bundle was processed behind closed doors in a room barred to the election inspectors. The election inspectors were not allowed to inspect the bundle to determine what exactly it contained.
Based on these allegations, petitioners contend that the Election was tainted and request that the Election be voided and a new election ordered.
Respondents identify the Corporation as an indispensable party who was not joined in the original petition. They contend that petitioners' failure to seek leave of the court prior to filing the Amended Petition naming the Corporation as a party mandates dismissal of the petition pursuant to CPLR 3211 (a)(10). In addition, respondents argue that petitioners' failure to bring their claims against the Corporation within the applicable Statute of Limitations bars adjudication of the claims.
Discussion
A. Standard for Motion to Dismiss
CPLR § 3211(a)(10) states: "A party may move for judgment dismissing one or more causes of action asserted against him on the ground that: . . . the court should not proceed in the absence of a person who should be a party." The statute provides that non-joinder ("failure to join a person who should be a party") may be asserted as an affirmative defense in the answer or by way of a motion that may be made at any time. CPLR § 3211 (a) (10) must be read together with the provisions on "parties who should be joined" found in CPLR §§ 1001 and 1003 . The courts are afforded broad latitude in determining whether parties are to be added to a proceeding pursuant to CPLR §§ 1001 and 1003, which provisions should be liberally construed ( see Gross v BFH Co., 151 AD2d 452 [2d Dept 1989); Micucci v Franklin General Hospital, 136 AD2d 528, 529 [2d Dept 1988]. If a person who should be made a party was not, the court may simply order joinder ( see CPLR 1001 [b]) or it may allow the case to proceed without the necessary party.
Under CPLR 1003, "[n]onjoinder of a party who should be joined under section 1001 is a ground for dismissal of an action without prejudice unless the court allows the action to proceed without that party under the provisions of that section."
It is well settled that dismissal for failure to join a necessary party should be granted only as a "last resort" ( see Saratoga Conty Chamber of Commerce, Inc. v Pataki, 100 NY2d 801, 821 2003], cert denied 540 US 1017; l-3 Communications Corp. v SafeNet, Inc. ,45 AD3d 1, 11 [1st Dept 2007]) under circumstances such as when the unnamed party is not subject to the jurisdiction of the court and will not appear voluntarily, no remedy is available under CPLR § 1001(b) and the party which is not named is so essential to the litigation that the action cannot proceed in the absence of that party ( see In re Redhook/ Gowanus Chamber of Commerce v New York City Bd. of Stds. Appeals , 5 NY3d 452 , 457-459; Siegel, Practice Commentaries McKinney's Cons Laws of NY, Book 7B, C3211:34, p. 53; 1 New York Civil Practice: CPLR ¶ 1003.04 and 1 New York Civil Practice: CPLR ¶ 3211.39).
When the issue is raised, the Court must first determine whether the missing party is a necessary party under CPLR § 1001 (a) ( see Joanne S. v Carey, 115 AD2d 4 [1st Dept 1986]). Then, the court must determine whether the party can be joined, and if that is not possible, whether non-joinder should be excused under CPLR § 1001 (b). If the court determines that the missing party is necessary and that joinder of that party is not excusable, the action must be dismissed for failure to join an indispensable party.
B.The Corporation as a Necessary and Indispensable Party
BCL § 619 provides that when a corporate shareholder is aggrieved by an election, notice of the petition challenging the election must be given to the "persons declared elected thereat, the corporation and such other persons as the court may direct." Originally, the only respondents to the action were HBA and the seven directors who were elected on June 17, 2010. Petitioners did not notify or join the Corporation.
CPLR § 1001 (a) mandates joinder of a party in two situations: (1) where that party is necessary if complete relief is to be accorded between the persons who are parties to the action; or (2) where the unnamed party might be inequitably affected by a judgment in the action ( see Castaways Motel v CVR Schuyler, 24 NY2d 120 [non-parties are "indispensable" where the determination of the court will adversely affect their rights]). "The primary reason for compulsory joinder of parties is to avoid multiplicity of actions and to protect nonparties whose rights should not be jeopardized if they have a material interest in the subject matter" ( Joanne S., 115 AD2d at 7; see Calderone v Wiemeier ,77 AD3d 1232, 1233 [3d Dept 2010]).
CPLR § 1001 (b) directs that any party who should be joined pursuant to subdivision (a) and is subject to the jurisdiction of the court be named and joined by the court. To determine in the instant proceeding whether the Corporation is an indispensable party, subdivision (b) provides that the court must consider: (1) whether petitioners have another effective remedy if the action is dismissed for non-joinder, (2) prejudice which may accrue to the respondents or the Corporation, (3) whether and by whom prejudice might have been avoided or may in the future be avoided, (4) feasibility of protective orders, and (5) whether an effective judgment may be rendered in the absence of the Corporation. No single factor is determinative.
In Llana v Town of Pittstown ( 245 AD2d 968 [3d Dept 1997], lv denied 91 NY2d 812), the Appellate Division determined that dismissal was the only practicable alternative on the specific facts of that case. Petitioner sued to annul a local law regarding property development. The petition, however, failed to join several necessary parties, all of whom were property owners who had been granted subdivision approvals. The owners' interests were not likely to be adequately protected by the municipal parties, the petitioners could easily have joined the owners in the first instance (they were few in number and readily identifiable), and the injunctive relief requested, prohibiting the clearing of the land, would not be effective relief to make it solely prospective. The court found no authority supporting the idea that a group of persons could be exempted from the nullification of a local law ( see also Estate of Prospect v New York State Teachers' Retirement System , 2004, 13 AD3d 699 [3d Dept 2004] [dismissal ordered primarily because nonparty's financial interests would not be adequately protected by government party]).
In support of their position, petitioners cite Cylich v Riverbay Corporation ( 74 AD3d 646 [1st Dept 2010]). In Cylich, the court was confronted with a joinder issue, strikingly similar to the instant matter, within the context of an Article 78 proceeding challenging respondent's determination that petitioners were not qualified candidates to respondent's board of directors. Petitioners, resident shareholders of the respondent residential housing cooperative cooperation, failed to notify five persons who were elected to the board, as required under BCL § 619, including two persons who were elected as a result of the petitioners' disqualification. The Appellate Division, First Department, found that the interests of those two directors could be inequitably affected by a judgment in favor of petitioners, thus they were necessary parties. Those individuals could not be joined, absent their consent, because the Statute of Limitations had run. The Appellate Division further found that joinder could not be excused since,
[A]lthough petitioners have no other effective remedy if the proceeding is dismissed, the prejudice that could accrue to the individuals not joined is substantial, and petitioners had ample opportunity to avoid this result by taking steps to notify and join those individuals after respondent served its answer pleading the failure to join necessary parties as a defense requiring dismissal [citations omitted]. Nor does it appear that any other effective judgment could be rendered in the absence of the necessary parties or that a protective order could avoid prejudice to them (CPLR 1001 [b]). Accordingly, dismissal is required due to the failure to join necessary parties [citations omitted].
( Id. at 647).
Here, petitioners do not have another effective remedy if this action is dismissed. Prejudice to the Corporation, however, would result if the action proceeded in its absence. Primary among the factors the court has considered, is the reason petitioners failed to name the Corporation as a party to the action in the original petition. Significantly, petitioners had enough time prior to commencing this action to notify and join the Corporation. No adequate explanation has been offered for the oversight. More importantly, the Corporation's presence in the lawsuit is statutorily required thus rendering it an indispensable party that should have been joined in the proceeding at its inception ( see BCL § 619). A corporation's rights are so tied to corporate shareholders that its presence in the lawsuit is statutorily mandated. Additionally, an action for declaratory judgment is brought to settle the rights of all interested parties. Consequently, all parties who may be affected must be joined ( see Hausman v Royal Insurance Co., 153 AD2d 527 [1st Dept 1989]). If a necessary party is not joined, a court may refuse to render a declaratory judgment since the judgment would be without judicial consequence or weight ( see e.g. National Grange Mutual Ins. Co. v Ogassian, 45 Misc 2d 729 [Sup Ct, Bronx County 1965], affd without opinion 26 AD2d 908 [1st Dept 1966]). Based on these considerations, the court concludes that the Corporation is an indispensable party. Having found that the Corporation is an indispensable party, the court turns to the validity of the Amended Petition.
C. The Procedure for Bringing In New Parties Through an Amended Petition
Petitioners' attempt to add the Corporation as a named respondent by filing an Amended Petition must fail. Absent leave of court, the Amended Petition is void. Failure to obtain the court's permission renders the pleadings jurisdictionally defective ( see CPLR 1003; see also Perez v Paramount Communications, Inc., 92 NY2d 749 ; Crook v E.I. DuPont De Nemours Co., 81 NY2d 807, affg 181 AD2d 1039 [4th Dept 1993]). As stated in Perez v Paramount Communications, Inc. ( 92 NY2d 749), "unless a separate action is filed, a plaintiff seeking to add a defendant in most cases must first apply for, and then await, judicial permission" ( Id. at 754). "Where the motion, including the proposed supplemental summons and amended complaint, is filed with the court within the applicable limitations period, but the ruling by the court does not occur until after expiration, dismissal is inappropriate and would offend the CPLR's liberal policies of promoting judicial economy and preventing a multiplicity of suits" ( Id. [internal citations omitted]). CPLR 1003 applies to special proceedings as well as actions ( see CPLR 103 [b], 105 [b]; American Transit Insurance Co. v Carillo,, 307 AD2d 220 [1st Dept 2003] [in special proceeding to stay arbitration, newly added respondents had to be served with supplemental notice of petition and supplemental petition]).
CPLR § 401 states: "After a proceeding is commenced, no party shall be joined or interpleaded and no third-party practice or intervention shall be allowed, except by leave of the court." The addition of a new defendant to a pending action, if not made as a matter of right during CPLR 1003's prescribed period, requires a court order granting permission for the joinder or a "stipulation of all parties who have appeared" in the action. A defendant's failure to timely object to such defect constitutes a waiver ( see Gross v BFH Co.,, 151 AD2d 452 [2d Dept 1989]).
In Marin v Board of Elections ( 67 NY2d 634), petitioner sought a declaratory judgment to nullify, for alleged improprieties, a slate of candidates selected by a political party at an organizational meeting. The New York Court of Appeals affirmed the lower court's dismissal of the action because there was a failure to join necessary parties within the time frame required under the applicable provisions of the Election Law.
In Mekkelson v Morris L. Cleverly Engineering, P.C. ( 179 AD2d 1056 [2d Dept 1992]), plaintiff served an amended summons and complaint without leave of the court within the applicable Statute of Limitations period. Plaintiffs did not bring the motion for leave to serve an amended complaint until after the Statute of Limitations had run. The Appellate Division found that plaintiff's complaint was time-barred and their motion should have been denied.
In the present case, it is undisputed that petitioners failed to obtain leave pursuant to CPLR § 1003, prior to serving the amended petition to join the Corporation as a respondent. Unless the Corporation waived its right to object, failure to obtain leave of the court constitutes a jurisdictional defect mandating dismissal of the action against the new party who has been joined ( see Crair v Brookdale Hosp. Med. Center, 259 AD2d 586 [2d Dept 1999]; Crook v E.I. du Pont de Nemours Company, 181 AD2d 1039 [4th Dept 1992]; Camacho v New York City Transit Authority, 115 AD2d 691 [2d Dept 1985]). The documentary evidence before the court shows that the Corporation strenuously objected to being joined and therefore there was no waiver. The Amended Petition must be rejected.
D. Statute of Limitations and "Relation Back" Doctrine
The court's jurisdiction flows from BCL § 619 to which a four-month Statute of Limitations applies. Respondents argue that the proceeding against the Corporation, an indispensable party, is time-barred because it was commenced more than four months after the election was held (see Windy Ridge Farm v Assessor of the Town of Shandaken , 11 NY3d 725 ). Petitioners assert that even though the Statute of Limitations has expired, the Amended Petition is not barred because it relates back to the original petition pursuant to CPLR 203. The court disagrees.
The general rule is that the supplemental summons must be filed on or before the last day of the limitations period. If a motion must be made for permission to add a party, the statute of limitations is tolled pending the court's determination of the motion. The toll takes effect upon the filing of the motion provided the filed papers include a copy of the proposed supplemental summons and complaint ( see Perez v Paramount Communications Inc., 92 NY2d 749; see also Practice Commentaries on CPLR 305, at C305:2; and 1999 Practice Commentaries on CPLR 203, at C203:11, at 187-188). The filing of the supplemental summons marks the interposition of the claim against the newly joined defendant for Statute of Limitations purposes ( see e.g. Trioche v Warner Amex Satellite Entertainment Co. , 48 AD3d 671, 672 [2d Dept 2008]).
At the earliest, the Statute of Limitations began to run on June 17, 2010, the date of the election; at the latest, the action accrued on June 18, 2010 when HBA certified the election. The four-month statute of limitations expired in October 2010 but the Amended Petition was not filed until December 7, 2010. Petitioner asserts that it was served upon a clerical worker in the corporation's managing office on November 24, 2010 ( see affidavit of Davis). Petitioners never requested or received permission from the court to join a new respondent. Under any of these scenarios, the Amended Petition is time-barred.
Petitioners seek to avoid dismissal by arguing that amendment of the petition should be permitted under the "relation back" doctrine ( see CPLR 203). This is a doctrine that, as the Court of Appeals noted, "continues to bedevil the courts" ( Buran v Coupal ( 87 NY2d 173, 175). In order for petitioners to avail themselves of this doctrine, they must satisfy the three-part test set forth in Buran. The test requires a showing that: (1) both claims arise out of the same conduct, transaction or occurrence, (2) the new party is united in interest with the original respondent such that their respective defenses are the same and they stand or fall together; and (3) the new party knew or should have known that but for a mistake by petitioner in failing to identify all proper parties, the action would have been brought against him as well ( see id.; see also CPLR 203 [c]; Brock v Bua, 83 AD2d 62 [2d Dept 1981]). The Buran court eliminated the requirement that the mistake referred to in the third prong be excusable ( Buran, 87 NY2d at 176 ["New York law requires merely mistake-not excusable mistake-on the part of the litigant seeking the benefit of the doctrine"]). The Court of Appeals also stated that "[w]hen a plaintiff intentionally decides not to assert a claim against a party known to be potentially liable, there has been no mistake and that plaintiff should not be given a second opportunity to assert that claim after the limitations period had expired" ( id. at 181). The overriding concern is whether the party that is sought to be added had timely notice of the underlying dispute which forms the basis of the claim in the amended pleading ( see id., at 180; Hemmings v St. Marks Housing Assoc. L.P., 169 Misc 2d 155 [Sup Ct, Kings County 1996]). Thus, the linchpin of the relation back doctrine is whether the new defendant had notice within the applicable limitations period ( Buran, 87 NY2d at 180).
In Buran, the Court of Appeals explained that the "relation back doctrine allows a claim asserted against a defendant in an amended filing to relate back to claims previously asserted against a co-defendant for Statute of Limitations purposes. . . ." ( 87 NY2d 177; see also CPLR 203 [b]). The relation back doctrine attempts to liberalize strict formalistic requirements while acknowledging the important policies inherent in the Statute of Limitations ( id.).
In the present case, it is clear that both claims arise out of the same occurrence, the Election. However, the evidence indicates that the parties are not united in interest ( see Mercer v 203 East 72 Street Corp., 300 AD2d 105, 106 [1st Dept 2002] [plaintiff's showing that the proposed defendant and the named defendant had common shareholders, officers and comptroller was insufficient to establish that two entities were united in interest]; compare Schiavone v Victory Memorial Hosp., 300 AD2d 294,295 [2d Dept 2002]] [physician was united in interest with hospital and the hospital could be held vicariously liable for physician's alleged negligence in providing care to patient]).
While there was a mistaken failure to join the Corporation as a party to the original action, the facts do not establish a basis for applying the relation back doctrine. By failing to obtain the court's permission to amend the petition, petitioners' claims against the Corporation were not timely interposed and accordingly, petitioners' mistake to in failing join the Corporation was never cured. More importantly, the Corporation did not have actual notice of the pending action until December 2010, after the Statute of Limitations had expired. Lastly, petitioners' mistake was one of law, which is not the kind of mistake contemplated under the relation back doctrine ( see Brucha Mortgage Bankers Corp. v Commission of Labor of State of New York, 266 AD2d 211 [2d Dept 1999]); Somer Wand v Rotondi, 251 AD2d 567 [2d Dept 1998]; State v Gruzen Partnership, 239 AD2d 735 [3d Dept 1998]). Because the action against the Corporation was not properly commenced in a timely manner, petitioners may not take advantage of CPLR § 203. The motion to dismiss the petition on Statute of Limitations grounds is therefore granted.
E. Motion for Discovery
With regard to the discovery motion, petitioners sought an order permitting them to take the deposition upon oral examination of respondents Linda Chiarelli-Gibbs, Kathryn O' Brien Bordonaro and Karen Jaroneski and two HBA employees whose last names are unknown. Petitioners also sought the voting records of the election, including, but not limited to ballots, proxies, sign-in sheets, tabulation sheets, handwritten and typed notes, and email correspondence with the board of directors, managing agent, and respondents. As a general rule, election records constitute corporate records, and therefore are subject to the right of inspection by a shareholder in accordance with the provisions of BCL 624 (b) and (d). In any event, the motion for discovery has been rendered moot as a result of the court's granting of respondents' motion to dismiss the petition.
Conclusion
Based upon the foregoing discussion, it is
ORDERED that respondents' motion to dismiss the petition (Motion Sequence No. 002) is GRANTED; and it is further
ADJUDGED that the petition is hereby DENIED AND DISMISSED (Motion Sequence No. 001); and it is further
ORDERED that petitioners' motion for discovery is DENIED as moot.
This constitutes the decision and order of the court.