Disability Discrimination

May a co-op board rescind a prior approval for a buyer of an apartment when it learns that the purchaser needs a washer and dryer installed in the apartment because of bowel incontinence? The answer was probably “no” because of prohibited disability discrimination in Hirschman vs. Hassapoyannes although without further evidence the court refused to issue a mandatory preliminary injunction to force the sale.

This action and a third-party action arose from a decision of the board of a co-op apartment building to withdraw its approval of the sale of a unit to a disabled individual, upon the individual’s request for a reasonable accommodation for his disability. The seller of the co-op apartment brought this action, seeking a declaration that under the contract of sale she was entitled to keep the buyer’s deposit, in light of the co-op board’s decision. In the third-party action, the buyer alleged that the co-op board discriminated against him based on his disability, in violation of the Fair Housing Act and state and city human rights laws.

The defendant and third-party plaintiff Constantine Hassapoyannes moved by order to show cause for a preliminary injunction directing the sale of the apartment and to dismiss the second, third, and fourth causes of action of the complaint. The plaintiff, Merle Hirschmann, and the third-party defendant, Jon Schechter, each cross-moved for summary judgment dismissing the third-party complaint against them. The decision addressed both the motion and the cross-motions.

Hirschmann was the owner of co-op shares in Unit 183 of the apartment building at 201 East 66th Street, Manhattan. Under a contract of sale dated April 8, 2004, he agreed to sell the unit to Constantine Hassapoyannes for $265,000, with a closing set for June 8, 2004. Hassapoyannes claimed that he wanted the apartment because of its proximity to Memorial Sloan Kettering Hospital, where he had been regularly receiving cancer treatments. Hassapoyannes had undergone resection of primary rectal cancer and had part of his liver removed because of metastasis of the cancer.

Members of the board of the cooperative apartment building interviewed Hassapoyannes on May 24, 2004. At the interview were third-party defendants Roberta E. Tarshis, S. Barry Winet, and Rujeanne Bleemer. The board gave him information about the building’s house rules, which prohibited laundry equipment in the apartments. The board members allegedly asked him if he understood the building’s policies and asked if he had any questions or problems, to which he allegedly responded, “No, I think you have answered all my questions.” On May 25, 2004, the board approved the sale of the co-op shares to Hassapoyannes.

On the day of the closing, Hassapoyannes asked Jon Schechter, the building’s managing agent, if he could install a washer/dryer in the apartment as a reasonable accommodation for bowel incontinence that resulted from cancer surgery. Schechter then allegedly called Tarshis, who was upset that Hassapoyannes had not revealed at his interview that he wanted his own washing machine. By his attorney, Hassapoyannes then offered to provide an affidavit stating that he would no longer need a washer and would not install it. However, the closing was adjourned until the board’s next meeting on June 15, 2004, during which the board resolved to rescind its approval of the sale. The board believed that Hassapoyannes should have informed the board during the interview that he needed a washing machine in his apartment, and that he therefore “lied” at the interview.

On June 18, 2004, without any explanation, the board notified Hassapoyannes that it did not approve of the sale of the apartment. On June 23, Hassapoyannes filed a complaint with the Department of Housing and Urban Development, Fair Housing Enforcement Center (HUD), claiming discrimination. By a letter dated June 29, 2004, Hassapoyannes’s attorney informed Hirschmann that she could not advertise or promote the sale of her apartment while the HUD complaint was pending, or else Hassapoyannes would consider it a breach of the contract of sale.

HUD transferred the complaint to the New York State Division of Human Rights (NYSDHR) on July 9, 2004. Before NYSDHR, both the board and Hirschmann argued that Hassapoyannes should have informed the board at the interview that he wanted to install a washing machine.

On August 11, 2004, Hirschmann began this action against Hassapoyannes, who then brought a third-party action against the board and Hirschmann. On February 13, 2005, NYSDHR issued a finding of probable cause that the board had unlawfully discriminated against Hassapoyannes. Hirschmann was then willing to sell the apartment to Hassapoyannes, but found the board unwilling to settle the dispute.

In evaluating the merits of the parties’ positions, the court noted that the Fair Housing Act permits a court to craft a temporary injunction as it deems appropriate, if it finds that a discriminatory housing practice has occurred or is about to occur. To be entitled to a preliminary injunction, the court said that Hassapoyannes must show a likelihood of success on the merits, the danger of irreparable injury in the absence of an injunction, and a balance of the equities in his favor.

The Fair Housing Act provides that it is unlawful to refuse to sell or rent or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of a handicap and that it applies to cooperative apartment buildings.

In the absence of direct evidence of discrimination, the court noted that Hassapoyannes had to establish a prima facie case of housing discrimination using the familiar burden-shifting framework. He had to show: (1) membership in a protected class; (2) that he had sought and was qualified to rent or purchase the housing; (3) that he was rejected; and (4) that the housing opportunity remained available to other renters or purchasers. Once he established a prima facie case, the court said that the burden then shifted to the board to show a legitimate, nondiscriminatory reason for the challenged decision. Regardless of the burden-shifting, the ultimate burden in proving that the defendant had intentionally discriminated against the plaintiff remained at all times with the plaintiff.

Here, the court concluded that Hassapoyannes was likely to establish a prima facie case of housing discrimination. There was sufficient evidence to show that he was in a protected class, i.e., that he had a disability, which the Fair Housing Act defines as “a physical or mental impairment which substantially limits one or more of such person’s major life activities.” The inability to control one’s bowel movements constituted a physical impairment.

In this case, Hassapoyannes said that he soiled his trousers, bed sheets, towels, and carpets, even though he wore sanitary pads (diapers) and changed them several times a day. The court noted that a jury could reasonably find that his condition therefore substantially limited his major life activities.

The remaining elements of the prima facie case were not in dispute. The parties did not dispute that Hassapoyannes applied for, and obtained the board’s approval initially, and that the board later withdrew its approval at closing. After the rejection, Hirschmann wanted to keep Hassapoyannes’s deposit and find another buyer for the apartment. Therefore, the court found that Hassapoyannes was likely to establish a prima facie case of housing discrimination based on a disability.

In opposition, the board argued that it had rejected Hassapoyannes because he did not disclose his disability and his need for a reasonable accommodation at the interview. This argument was unavailing. The regulations of the Fair Housing Act explicitly prohibit any inquiry into whether an applicant for housing has a handicap, or the nature or severity of a handicap. As a corollary, the U.S. Equal Employment Opportunity Commission (EEOC) takes the position that an employer may also not inquire into an applicant’s need for a reasonable accommodation.

Of course, the board did not, in fact, inquire into Hassapoyannes’s disability at the interview. However, because the Fair Housing Act expressly prohibited such inquiry, it was illogical to impose on the applicant a concomitant duty to disclose that handicap. Otherwise, the court concluded that those protections would be circumvented and rendered meaningless.

The board also argued that it could inquire into an individual’s handicap to fulfill its fiduciary obligations to its shareholders. In an earlier case, the plaintiffs had alleged that the board of a cooperative apartment violated the Fair Housing Act by refusing to sublet to a family based on familial status, i.e., because they had four children. However, the family had lied about the status of the mother’s employment, and had lied about the number of occupants, which exceeded the allowable number of persons under the occupancy code of the village of Patchogue. The court there denied the plaintiffs’ request for an injunction, finding that the board offered a legitimate, non-discriminatory reason for evicting the sublettors. This case was not a good precedent in the current action, said the court, because, although the Fair Housing Act prohibits discrimination based on familial status, it does not prohibit inquiry regarding the number of occupants who intend to reside in an apartment.

Thus, in the earlier case, the court had found that the plaintiff had failed to demonstrate that discrimination occurred given the board’s claim that its refusal to sublet was based on the plaintiffs’ violations of the occupancy code and upon the plaintiffs’ misrepresentations concerning the number of occupants, which was not protected under the Fair Housing Act. To the extent that the board here had argued that its fiduciary duties entitled it to inquire into a person’s handicap, the court noted only that its fiduciary duties can never trump the obligation to act lawfully, i.e., without violating the Fair Housing Act. The fact that the board had allowed other persons with wheelchairs and “emotional support animals” to live in the building was not a defense.

In sum, the board offered no legitimate, non-discriminatory reason to rebut a prima facie case of housing discrimination. The board’s erroneous understanding of the law, even if in good faith, was not a defense to liability in a discrimination action. Therefore, the court held that Hassapoyannes had established a likelihood of success on the merits.

The court next noted that appellate courts had held that irreparable injury was presumed once a person alleging discrimination had established a violation of the Fair Housing Act. In any event, the court said that the record established that the apartment was unique because of its proximity to a cancer hospital where Hassapoyannes needed to go for specialized medical care. Therefore, money damages would not be an adequate remedy for him if the board allowed Hirschmann to transfer or sell the apartment to a third party while the action was pending.

The court said that the balance of the equities tipped in Hassapoyannes’s favor. The injury he would suffer if the injunction were not granted could not be redressed with money damages. By contrast, Hirschmann would suffer only the lost opportunity of selling the apartment at this time, which, at most, was an economic injury.

Notwithstanding the above, the court held that Hassapoyanne was not entitled to a preliminary injunction at this time because, generally, the court could not grant the ultimate relief that he sought under the guise of a preliminary injunction. “A mandatory injunction should not be granted, absent extraordinary circumstances, where the status quo would be disturbed and the plaintiff would receive the ultimate relief sought...”

Nor, as a general rule, would a court issue a mandatory preliminary injunction requiring one person to surrender the possession of real estate or other property in dispute to another. Thus, this branch of the motion was denied with leave to renew within 45 days. The record was not clear as to whether the case presented the extraordinary and very rare situation where a mandatory preliminary injunction should be granted.

In the second cause of action, Hirschmann sought a declaration that he did not breach the contract of sale, and that she was entitled to keep Hassapoyannes’s deposit. Because there were questions as to whether the board had discriminated against Hassapoyannes, it concluded that he was not entitled to dismissal of this cause of action as a matter of law.

In the third cause of action, Hirschmann sought “extra-contractual” damages from Hassapoyannes because he “blocked” her from selling the apartment, in that he filed a housing discrimination complaint, and notified her that he would consider her in breach of the contract of sale if she sold the apartment to another buyer. Damages included the monthly maintenance paid to the co-op, and damages for “lost opportunity.”

The court determined that Hassapoyannes had established that this cause of action lacked merit as a matter of law. It noted that the only discernible theories of liability against Hassapoyannes that these allegations raised were abuse of process and prima facie tort, both of which could not be sustained. Thus, the letter from Hassapoyannes’s attorney directing Hirschmann not to advertise or promote the sale of her apartment while the HUD complaint was pending did not constitute process susceptible of abuse.

Moreover, no claim for abuse of process could be sustained in the absence of any evidence that Hassapoyannes’s counsel issued process with an ulterior motive to cause harm, or that it was completely devoid of social or economic justification. The NYSDHR had determined that Hassapoyannes had shown probable cause that the board had engaged in housing discrimination. As for prima facie tort, the court said that New York courts have consistently refused to allow retaliatory lawsuits based on prima facie tort predicated on the malicious institution of a prior civil action.

The fourth cause of action, for attorneys’ fees and exemplary damages, was equally without merit in the court’s view, noting that, under the general rule, attorney’s fees are incidents of litigation and a prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties, by statute, or by court rule. Hirschmann did not cite any agreement or statute that would entitle her to legal fees from Hassapoyannes. Nor did she articulate any valid basis to impose exemplary damages against him. The fact that Hassapoyannes did not disclose his handicap or his request for a reasonable accommodation did not constitute fraudulent concealment, but rather reflected the valid exercise of his rights under the Fair Housing Act. Therefore, the court dismissed this cause of action.

The first, second, third, sixth, and seventh causes of action of the third-party complaint were dismissed as against Hirschmann. The fourth cause of action, for tortious interference, was clearly directed against the board, and not Hirschmann. Therefore, this cause of action against her was also dismissed. However, the fifth cause of action, for breach of contract against her, could not be dismissed. Whether Hirschmann was entitled to cancel the contract of sale depended upon whether the board’s decision to withdraw its approval was a discriminatory act.

The remaining branches of the cross-motion were otherwise denied. The remainder of the cross-motion did not seek any affirmative relief, but rather opposed Hassapoyannes’s motion for a preliminary injunction and for dismissal of Hirschmann’s complaint against him.

The defendants argued that Jon Schechter had no liability for housing discrimination because he allegedly acted as an agent for the board. The defendants argued that an agent was not liable for the actions of a disclosed principal. Schechter stated that he first met Hassapoyannes when he arrived for a closing at Schechter’s office on June 8, 2004. Schechter called the board president when Hassapoyannes allegedly announced that he was disabled and requested installation of a washer/dryer in the apartment. Schechter told Hassapoyannes that the president wanted to adjourn the closing until the board’s next meeting, which Schechter later attended.

In opposition, Hassapoyannes argued that Schechter was liable for housing discrimination because he participated in the board’s discussions at its board meeting. The court said that summary judgment was premature. Because Schechter attended the meeting during which the board decided to withdraw its approval, discovery was necessary to reveal whether Schechter had any authority to influence the board in any manner, or if he was nothing more than a conduit or avenue of communication between the board and Hassapoyannes. The cross-motion was therefore denied.

Comment: Under federal, state, and city laws, disability is one of some 13 protected categories under which claims can be brought against a co-op if an apartment transfer was disapproved because of perceived discrimination. Although the aggrieved purchaser did not get the relief he sought here, the decision suggests that, with further discovery and testimony, there is a good chance that the plaintiff will ultimately prevail. The lesson here is that it is very difficult for a co-op to reject a someone with a disability once the co-op learns of the disability.