Worst. Shareholder. Ever. See What Can Happen When You Don't Pull a "Pullman"
Nov. 1, 2011 — I'm an attorney who represents an Upper East Side co-op with through-the-wall air conditioners, which are the responsibility of the shareholders. One of the apartments had the original air conditioners, which were worn out and vibrated, making a racket that was disturbing to several surrounding residents. Despite several requests to the offending shareholder to replace these four A/Cs — and even an offer by the downstairs neighbor to replace the air conditioners at her expense — he refused. He then ignored our 30-day default notice and subsequent warnings. It was only after we had terminated his proprietary lease for failure to cure that he hired an attorney go to court to seek a (failed) injunction against the termination. But after further legal work, he finally gave in and replaced his air conditioners.
As a result, we severed our claim for legal fees, which were then around $10,000, and put them on his maintenance bill for later collection or payment upon a sale, refinancing or other opportune time. The shareholder protested the charges and demanded several times over a few years that they be removed from his account. The co-op refused and ultimately the shareholder sued to have the fees removed; the co-op counterclaimed for their collection. The Supreme Court justice who was to conduct the trial warned the shareholder's counsel that unless the shareholder he settled with the co-op before the trial began the following week, "Your client is going to get whacked."
The shareholder did not offer a single dollar in settlement of what by now had grown to legal fees of $100,000. On the morning of the trial, I arrived expecting to end the matter with a substantial judgment — but instead was stunned when the judge advised us that he was sending the case down to civil court for trial. As a result, we had to start all over with a new judge who, on the eve of that civil trial, suggested we each make opposing motions for summary judgment, which we did.
See also
"Evicting a Shareholder Unilaterally"
using the landmark court decision
40 West 67th Street vs. Pullman
The judge then decided the case entirely in favor of the co-op and set the matter down for a hearing on our legal fees, which were then $172,000. After further skirmishes and obstructionist tactics by the shareholder, we were awarded $167,000 at the fee hearing. The shareholder is appealing, although I am confident we will survive the appeal and collect — if necessary, by foreclosing on the apartment.
COMMENT The lessons to be taken from this case, which though extreme is not unique, is that shareholders can have very bad judgment, and that the legal system is a dysfunctional way to resolve disputes. This matter has dragged on for more than six years and is not over. Despite our having been awarded $167,000 of $172,000 in legal fees because of an arrogant individual's refusal to replace four air conditioners at a cost of less than $4,000 at someone else's expense, the case has frustrated and drained the board's and my energy, distracting us from more important matters.
There was no practical way to avoid litigation with this shareholder; he had been a constant source of trouble even before the air-conditioner incident. But I believe a faster, less expensive and more effective result would have been achieved had the co-op allowed us to bring a "Pullman" action to evict the shareholder for objectionable conduct. There were ample facts to support that idea.
In the end, as long as the co-op is meticulous in following relatively simple procedures and properly documenting the incidents, the courts will not second-guess the board. Although the board felt that would have been a harsh approach, as often happens, "no good deed goes unpunished" and showing restraint to some individuals only strengthens their resolve to ignore good citizenship.
Elliott Meisel is a partner at Brill & Meisel
From the November 2011 issue of Habitat magazine. For print-magazine articles back to 2002, join our Archive >>