Awful Conditions

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Will the court dismiss an action in which condominium owners alleged abhorrent living conditions, fraud, and misrepresentation by the condominium board, board members, and the managing agent? That was the question in Grubin v. The Gotham Condominium. Sharon Grubin and Deborah Lans owned a condominium unit at The Gotham Condominium, located at 170 East 87th Street, in Manhattan. The court described the matter as a “bitter dispute” wherein the unit-owners sued for compensatory and punitive damages for what they described as “abhorrent” living conditions and treatment by the condominium. Grubin and Lans sued the condominium, individual board members, and the managing agent. The defendants made a motion to dismiss certain claims. The complaint alleged that since 2004, Grubin and Lans’ apartment had a defective security system; holes in the walls from failed attempts by the defendants to repair the security system; buckling and deteriorating floors that had been inadequately corrected with non-matching wood and dangerous wood panels; inadequate heat; dirty tap water; damage to the walls, floors, and terrace railings; and a non-functioning air-conditioning unit. Grubin and Lans claimed that the defendants agreed to repair the conditions but did not do so. They also complained that because Local Law 11/98 (exterior repairs) work had to be performed, the contractors and agents used their terraces as a staging area and scratched, dented, and severely damaged the terraces. Workers left coffee cups and garbage on the terraces. Grubin and Lans asserted that, as a result of these conditions, they could not use the terraces for two years. They asserted that they could not use their bathrooms from 8 A.M. to 5 P.M. because workmen were watching them. While the workers put up a blue tarp to give them privacy, the tarp was frequently blown down. The workmen left the stairwells to the terraces unlocked, creating a security problem. Grubin and Lans asserted that the defendants agreed to remedy these conditions but did not do so. Further, they alleged that the defendants allowed the workmen to leave without repairing the damage to the terraces or cleaning the terraces. Further, Grubin and Lans complained that there were continuous leaks into the kitchen and dining room during rainstorms such that the superintendent placed industrial-size garbage cans to collect the water. They claimed that the defendants knew the leaks were caused by structural defects in the roof flashing. The defendants allegedly just spackled the damaged areas and claimed the condition had been fixed – until it rained again. Grubin and Lans asserted that they did not sue for damages earlier because the defendants had agreed to fix the terraces and the apartment. The board promised to fix the railings, but it was decided that the roof and flashings would be repaired first. As the roof project continued, Grubin and Lans complained that the terraces were being further damaged, as portions of the terraces that had not been damaged were now being bombarded with garbage, equipment, workers’ clothing, and debris. Grubin and Lans complained that, to prevent them from bringing an action, the defendants falsely told them that the railings had been delivered, when in fact they had not even been ordered. Further, the defendants’ lawyer asked that Grubin and Lans not bring suit while counsel brought in a construction expert to take charge of the repairs. Grubin and Lans continued to pay common charges. On October 28, 2008, the defendants wrote to Grubin and Lans and stated that they would not repair the conditions in the apartment (apparently other than repair of the parapet railing) unless Grubin and Lans released the defendants from all claims. As to the railings, Grubin and Lans complained that they were not installed properly, so that they were actually deprived of the use of their terrace for seven years. Grubin and Lans asserted several causes of action against the condominium, its individual board members, and its managing agent. The individual board members made a motion to dismiss all claims against them. The other defendants moved to dismiss several causes of action, as well as the claim for punitive damages. The court dismissed the complaint against all board members except two. The court explained that this was a motion to dismiss and that, therefore, the allegations in the complaint were deemed to be true. So long as the facts fit within any cognizable legal theory, the complaint would not be dismissed. The court discussed the Business Judgment Rule, set forth by New York’s highest court in 1990 in Levandusky v. One Fifth Avenue Apartment Corp. In that decision, the court held that the same rule that governed decisions of the board of corporate entities applied to cooperative and condominium boards. This court explained that to hold an individual board member liable, the complaint had to plead that the board member engaged in independent tortious acts. Thus, while an allegation of unequal treatment may have been sufficient to maintain the case against the board, the failure of the complaint to allege any tortious acts against individual board members results in dismissal. The court explained that these strong protections were in place for good reason: owners had to be willing to participate in governance, and “shackling” them with individual liability would deter them from participating. Thus, only individual and separate acts of self-dealing or other personally corrupt activities should burden them with liability. The complaint here alleged specific and separate tortious acts by only two board members. It was alleged that one represented to Grubin and Lans that the flooring companies he contacted no longer manufactured the proper flooring to replace Grubin and Lans’ flooring and that he sent an e-mail with the names of companies he had contacted. However, Grubin and Lans asserted in the complaint that many of those companies continued to manufacture the proper flooring. Another board member – the complaint alleged – advised that terrace railings had been paid for and delivered; however, one month later, the board’s counsel stated that the railings had not been ordered. According to the complaint, the board member also asserted that the water was entering the apartment as a result of weeds and not by failings in the roof and flashing. Keeping in mind the burden on a motion to dismiss and the showing required for suing individual board members, the court dismissed the complaint against all individuals except the two about whom Grubin and Lans had made these specific allegations. As to claims against the board, the court recited the rule set forth in Levandusky – so long as the board acted in good faith within its corporate powers and in furtherance of its corporate purposes, its actions will not be second-guessed. However, on a motion to dismiss, the allegations of the complaint must be construed as true – the court’s only role was to determine whether the facts alleged fit into any recognizable legal theory. The defendants moved to dismiss the claims for fraud and breach of fiduciary duty on the theory that the applicable statute required that the facts be pleaded with specific allegations of wrongdoing. The court found, however, that the factual background for each claim was set forth in the complaint in sufficient detail. As to fraud, Grubin and Lans detailed that the board misrepresented material facts that the defendants knew were false and that Grubin and Lans relied on the misrepresentations to their injury. The court also found that, with respect to the fraud claim, it not only duplicated the breach of contract claim as the defendants asserted; the necessary proof for each of the two claims was different. The breach of contract claim, which alleged a breach of the bylaws, was also not dismissed. As to breach of fiduciary duty, the elements of the claim required Grubin and Lans to plead that there was a fiduciary relationship and that their damages were the result of the misconduct of the fiduciary (the board). The court determined that facts that could support this claim were pleaded. Finally, the defendants claimed that the statute of limitations (the time within which one must sue) required dismissal of certain claims. In response, Grubin and Lans alleged that they did not bring an action earlier because of the representations made by the defendants, which included out-and-out misrepresentations that certain items were on order or unavailable when, the complaint alleged, both statements were false. The court did not dismiss any claims based on the statute of limitations, both because the motion required the court to accord every favorable inference to Grubin and Lans, and also by invoking the doctrine of equitable estoppel, which prevented enforcement of the statute of limitations based on the allegations of deception set forth in the complaint. Comment: This case reminds us that when making a motion to dismiss the complaint – as opposed to a motion for summary judgment – courts will adhere to and enforce the rule that provides that, if the facts asserted in the complaint set forth any theory of law, the complaint will not be dismissed. The court does not determine any facts; it merely looks to whether there is enough information in the complaint that, if ultimately proven to be true, would sustain a recognizable legal theory. While the plaintiffs here were able to make such a demonstration with respect to all claims against the board and the managing agent, they could not do so as to most of the individual board members. When suing a board member, an apartment owner must allege – with specific details – why the actions of the board member, if proven to be true, would subject that person to individual liability. As this court explained and as we have seen, cooperative and condominium board members are volunteers who serve with no remuneration. It would be untenable to subject them to personal liability and exposure merely because they serve on a board or take action as a board member. That is why it is necessary for a plaintiff to allege (and ultimately demonstrate) that the board member’s conduct was separate from his actions as a board member and that such action is tortious.Without such a rule, we submit, it would be virtually impossible to convince any apartment owner to serve on a board. This rule is most important in a case such as this, where plaintiffs are seeking punitive damages. In New York, the law is clear that if punitive damages are assessed against an individual, the board member cannot be indemnified or reimbursed by the cooperative or condominium or the board’s insurance carrier. Thus, if a board member is ultimately determined to be liable for punitive damages, the board member would be solely responsible to pay those damages to a plaintiff.

Attorneys

For Plaintiffs

Wasserman, Grubin & Rogers

For Defendants

Anderson & Ochs