The Restaurant and the Shadow Board

If you think smaller co-ops are necessarily better – more prone to harmony, intimacy, and neighborly cooperation – you obviously haven’t heard about the fireworks taking place at 188 Eighth Avenue in Manhattan.

Think of this as the little co-op that couldn’t.

It couldn’t agree on whether a commercial tenant should stay or go. It couldn’t agree on who had the power to issue a commercial lease. It couldn’t even agree on who sat on the co-op’s board of directors.

To begin at the beginning, this modest eight-unit Chelsea walk-up, located between 19th and 20th Streets, went co-op in 1988 through the Housing Development Funding Corporation, which helps low- and middle-income residents convert buildings from rentals to co-ops. Paul Naranjo, a native of Ecuador who had lived in the building with his parents for a dozen years, was elected president of the co-op’s first board of directors.

When Naranjo moved out, his mother, Allegria, was elected to the board along with Jimmy Roldos and Jessy Moya. When Kamala Jefferson, the daughter of Roldos’s wife, Sandy, tried to buy a vacated apartment, Paul Naranjo sued, arguing that the price was artificially low. The courts ruled that Jefferson’s entry to the co-op was legal. But the first shots had been fired in a feud that was about to turn ugly.

In 2002, the co-op elected a new three-member board: Kamala Jefferson, Jimmy Roldos, and Jessy Moya. It was the last time a quorum gathered to provide candidates with the necessary five-vote majority. And so, five years later, the three board members contend they’re still the co-op’s legitimate governing body.

But Paul Naranjo, who had since moved back into the building, disagrees. “For many years, they kept re-electing themselves,” says Naranjo, the chief financial officer for a nonprofit company called Quality Services for the Autism Community. “I became aware that we can call for a special election if there has not been a proper election in more than 13 months.”

And so, at a meeting in November 2006, Naranjo and fellow shareholders Diane Lopinto and Maria Gallardo contended that they had become the co-op’s new board. The existing board dismissed them as the “shadow board.” Explains Naranjo: “We thought we were elected, and they thought they were elected.”

This awkward arrangement, predictably enough, soon produced a serious problem. Back in 2004, the original board had offered a new five-year lease to one of its two commercial tenants, Havana Chelsea Luncheonette, provided the restaurant cleaned up certain conditions during the first year. The eatery wanted a 10-year lease. The dispute wound up in court.

After a protracted court battle, the shadow board issued the restaurant a new lease. When a city marshal arrived to execute an eviction order, the restaurant staff showed the marshal the lease, and he left without evicting anyone. “The shadow board did not have the authority to extend the lease,” says Sandy Roldos, who is the board’s one-woman legal committee.

The issue went back to the courts yet again. On January 18 of this year, Civil Court Judge Cynthia S. Kern denied Havana Chelsea’s request to vacate the eviction order. On March 26, Kenneth Litwack, an attorney who represents the city marshals, wrote to the attorneys for the two warring boards that he had ordered marshals not to evict the restaurant until one of two things happens: either the Supreme Court determines which board is legitimate or the Civil Court directs the marshals to perform the eviction.

The second condition was apparently met on April 9, when Civil Court Judge Anil Singh granted the co-op $23,400 from Havana Chelsea for “use and occupancy” of the restaurant space from October 2006 through March 2007. He also granted the restaurant a seven-day stay of the eviction, which could take place anytime after April 17.

Now, as both sides wait for the other shoe to drop, lessons for other co-ops have begun to emerge. “This is not about the shadow board or the Cuban restaurant,” says Arthur Davis, a business consultant who frequently advises co-ops. “Proper management is the issue. By not getting the required quorum at annual elections, there’s a cloud over the board’s authority. The failure to get a quorum is why they have a shadow board.”

Ironically, the co-op’s small size makes the matter of a quorum a huge issue. “In small buildings,” Davis says, “you need to be super-diligent on this stuff.”

Board member Kamala Jefferson responds that the board did everything in its power to get a quorum – to no avail. “We attempted to have elections every year, but they didn’t show up, so we continued to run the building,” she says. “Unless somebody was voted in, we weren’t voted out.”

Perhaps the one thing that remains certain is that years of acrimony will not vanish with a new court decision or a long-delayed eviction. The parties continue to hurl charges and countercharges. Naranjo claims the board has given no-bid repair work totaling $70,000 to board members and their spouses. The board responds that the men performed all work at far below market value on a “sweat equity” basis for the good of the co-op.

Naranjo also argues that Sandy Roldos is in for a personal $50,000 windfall if the owner of a nearby French restaurant is allowed to open a new eatery in the Havana Chelsea space. Roldos responds that the restaurateur signed a lease on November 1, 2006, including a $50,000 “key fee” and a monthly rent of $8,500 compared to Havana Chelsea’s $3,900 rent.

“This has been hell,” Roldos says. “Their stalling tactics cost everyone so much money. We’re already at the $50,000 mark for legal fees over the fraudulent lease. The board is going to assess those three shareholders for those legal fees. They’re liable for it because of their reckless actions.”

To Roldos, this story boils down to a five-letter word. “What it comes down to is power,” she says. “Paul wants to be president of the board.” Not so, says Naranjo. “This comes down to a dispute between the haves and the have-nots,” he counters. “Some people in the building are old and ill, and they have a hard time understanding their rights under the bylaws. I will not allow anyone to be stepped on just because they are ignorant.”

This tale has many ingredients, but it lacks that satisfying thing called closure. As of early May, the co-op still had its elected board and its shadow board. Havana Chelsea was still serving up its popular Cuban sandwiches and octopus salads. “And the lawyers,” says board member Jackson, “are laughing all the way to the bank.”