CASE OF THE CONTENTIOUS COOPERATOR: THE ATTORNEY'S VIEW

Each proprietary lease is written differently, but a typical provision provides that the lease may be terminated by a vote of the board, the shareholders or both if the person engaged in objectionable conduct (such as creating excessive noise or offensive odors emanating, chronic failure to pay maintenance, commencement of baseless lawsuits about the board or other shareholders) continues to do so after the co-op has sent a notice about the complaint and the consequences if the problem isn't fixed.

This usually requires a supermajority vote (greater than 50 percent) of the board or the shareholders in favor of termination. In 2003, the Court of Appeals held that the Business Judgment Rule allows a cooperative to do so provided the board follows the required procedures set out in its proprietary lease and acts in good faith and for a proper business purpose that serves the shareholder's interests. Unless the offending shareholder proves that the board or shareholders acted in bad faith (for example, a board member wanted to obtain the offending shareholder's apartment); failed to follow its procedures (for instance, the number of votes did not add up to the required supermajority); or did not act for a proper business purpose, the courts will not interfere.

Park Avenue Freeze-Out

My firm, Gallet Dreyer & Berkey, successfully represented the 1050 Tenants Corp. in its lawsuit against Steven Lapidus. For over 15 years, Lapidus failed to pay maintenance for his three-bedroom Park Avenue apartment, claiming the cooperative was responsible for repairs. The cooperative was forced to commence multiple suits against him, each of which went on for years. Each time it sued, the cooperative incurred significant legal fees as Lapidus, a real estate lawyer, launched aggressive defenses — almost all of which he lost — and took multiple appeals all the way up to the Court of Appeals.

In addition, Lapidus had installed an illegal, water-cooled central air conditioning system in his prewar apartment, which leaked into his downstairs neighbor's apartment. When Lapidus failed to rectify the problem and remove the system, the cooperative brought suit against Lapidus to force him to do so, and the neighbor sued both Lapidus and the cooperative for the same purpose. The trial court ordered Lapidus to remove the air conditioning system and held him in contempt three times when he failed to do so.

My firm also counseled the board how to terminate Lapidus's lease based upon his objectionable conduct. This is a drastic remedy because the shareholder does not get the opportunity to defend his conduct in court. Where the proprietary lease requires that the shareholders vote by supermajority to evict the offending shareholder, the board must educate the shareholders as to why their votes are required and then gather sufficient support, in person or by proxy, in order to obtain the supermajority vote required.

The Supermajority Twins

This proprietary lease required both a supermajority vote of the board and of the shareholders. The cooperative prepared a detailed statement of Lapidus' objectionable conduct and its effect, which was given to the shareholders (including Lapidus). The board collected proxies from those who could not attend the special meeting.

Lapidus was given notice of the special meetings and was allowed to attend with his own attorney. He threatened to sue any shareholder who voted to terminate his tenancy. The board protected its shareholders by enacting a resolution providing that the cooperative would indemnify any shareholder so sued.

The board voted unanimously in favor of termination. At the special shareholders' meeting, Lapidus' attorney again threatened to sue anyone who voted to evict Lapidus. Despite this, 98 percent of the shares were voted in favor of terminating Lapidus's lease.

The board then issued a notice to Lapidus terminating his lease — but he did not surrender his apartment. The cooperative therefore brought an "ejectment action" to evict him. The trial court granted the cooperative summary judgment without the need for a hearing or trial. The appellate division affirmed. The courts rejected Lapidus' claim that the co-op violated law by offering to indemnify shareholders who might be sued for their vote to evict. The Court of Appeals, the state's highest court, denied him permission to appeal further.