How Not to Discriminate

Two days before Thanksgiving, the Supreme Court’s appellate division, New York State’s second highest court, gave a gift to cooperative and condominium boards for which all boards should offer thanks. In reversing the New York County Supreme Court and dismissing the complaint brought by a condominium unit-owner with muscular dystrophy in Pelton v. 77 Park Avenue Condominium, the court clarified the obligations and potential liability for cooperative and condominium boards in actions brought for discrimination.

Dean Pelton, the owner of a unit at the 77 Park Avenue Condominium, sued the condominium, the members of the board of managers, and the managing agent, seeking $23.5 million in compensatory and punitive damages based on an alleged failure to make the entrance and lobby of the building handicapped-accessible. The building was constructed with one step without a handrail at its street entrance, and three additional steps leading from the lobby to the passenger elevator, and five more steps from the passenger elevator hallway to the freight elevator, which residents were required to use while the passenger elevator was being renovated. There are also steps leading to the laundry room and to Pelton’s storage area.

In June 2002, Pelton advised the board president that he had muscular dystrophy and asked if the building could be made more handicapped-accessible. Although the board president said he would look into it, nothing was done and, in June 2003, Pelton contacted the New York City Commission on Human Rights (HRC), which, after an investigation, determined that the building could accommodate handicapped-access by having a code-compliant ramp. The managing agent advised HRC that the condominium had retained architects to investigate the possibility of modifying the building access, and the following month the condominium’s attorneys notified HRC that two architects had determined that, in terms of both physical impracticality and cost, the installation of ramps would not be reasonable. The attorney’s letters also indicated that the lobby had not been modified since the building had been constructed in 1924. Therefore, the condition existed when the building became a condominium and also when Pelton bought the unit.

In June 2004, the board of managers advised Pelton that it would pursue a plan for handicapped access “to the extent that [the plan] is legally, mechanically, and economically feasible.”

The short-term solution involved a portable wheelchair lift to be operated by building personnel, and the long-term solution involved providing access through the snowblower storage room and the installation of platform lifts in both the passenger and service elevators. The board also offered to swap Pelton’s storage area for a new one that would be easily accessible and to permit the installation of a washing machine in the apartment. The board asked Pelton to sign a letter confirming the steps the board was prepared to take, which Pelton refused to do. Pelton then began the lawsuit. The board purchased the chair lift for $13,000 and placed it in operation. Thereafter, the board sought and received unit-owner consent to spend $130,000 to implement its plan to make the building more handicapped-accessible.

The board next moved for summary judgment dismissing the complaint, which the Supreme Court denied and the appellate division reversed, citing Matter of Levandusky v. One Fifth Ave. Apt. Corp., from 1990: “A…condominium is by nature a myriad of often competing views regarding personal living space, and decisions taken to benefit the collective interest may be unpalatable to one resident or another, creating the prospect that board decisions will be subjected to undue court involvement and judicial second-guessing. Allowing an owner who is simply dissatisfied with a particular board action a second opportunity to reopen the matter completely before a court, which – generally without knowing the property – may or may not agree with the reasonableness of the board’s determination, threatens the stability of the common living arrangement. Moreover, the prospect that each board decision may be subjected to full judicial review hampers the effectiveness of the board’s managing authority.”

The appellate division noted that, in order to have a court look beyond the board’s decision, the aggrieved party had to make a showing that the board acted outside the scope of its authority in a way that did not legitimately further the corporate purpose or was done in bad faith. Pelton did not demonstrate the existence of any of these elements. The appellate division stated that the steps were in place long before the passage of the Human Rights Law and that the board acted reasonably by permitting Pelton to have a washing machine in his apartment, agreeing to change the location of his storage locker so as to eliminate any inconvenience to him, spending $13,000 on a chair lift, and obtaining the unit-owners’ consent to spend $130,000, as required by the condominium’s bylaws. “The individual board members thus established that the board, in reliance upon advice of its architect and counsel, satisfied the Business Judgment Rule’s requirement of taking action in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of the condominium’s purposes.”

The burden then shifted to Pelton to prove unlawful discrimination, which he failed to do because, to defeat the Business Judgment Rule, he would have had to plead on independent acts by each board member.

The court then noted that neither the complaint nor Pelton’s submissions asserted a specific claim against any of the individual defendants and noted: “Courts must hold those who would challenge the decisions of condominium and cooperative boards to the requirement of pleading with specificity claims of discriminatory conduct or wrongdoing. Otherwise, the threat of baseless litigation, with its attendant serious financial and personal burdens, would pose a formidable obstacle to those willing to volunteer their talent, experience, and knowledge for the common good of their homeowner communities by serving on such a board.”

The court also dismissed the claim against the managing agent because an agent for a disclosed principal is not liable to a third person for nonfeasance. An agent is only responsible to its principal, here the condominium board, and not to third parties (unless the agent specifically agreed to be so bound; Pelton did not demonstrate that he had). Moreover, the managing agent lacked any authority to make the building handicapped-accessible.

Finally, the court, in a footnote, provided some solace to board members who, after the finding of personal liability in Biondi v. Beekman Hill House Apt. Corp. in 2000, noted that “Here, Pelton seeks the outrageous sum of $23.5 million in punitive and compensatory damages, a figure that may surface as a contingent liability on the individual board members’ personal financial reports or have other adverse collateral consequences to them.”