CNYC president Marc J. Luxemburg, Esq. specializes in cooperative and condominium law. In the CNYC Newsletter, he reviews recent court cases that have the potential to answer questions commonly faced by Boards. This article features highlighted cases from his annual seminar entitled Current Significant Legal Issues presented at CNYC’s 26th annual Housing Conference in November, 2006. He will offer the next in this series at CNYC’s 27th annual Conference on Sunday, November 11, 2007.
How much litigation is too much? That was the question in 1050 Tenants Corp. v. Lapidus, 2006 WL 2918080 (Civ. Ct. NY Co. 10/5/06), where the shareholder, who happened to be a real estate attorney, kept up 12 years of constant litigation with the co-op. The issues included improper installation of air conditioner, six nonpayment suits, and numerous motions and appeals.
After six nonpayment suits against the shareholder, the Board stated that his constant barrage of litigation constituted objectionable conduct. The shareholder argued that he had the right to go to court to settle his claims. The court took the view that constant litigation of this kind is not appropriate.
If the shareholder had sued and won these cases, it said, the situation might have been different – proof that there was cause to litigate each time. Since that was not the case, the litigation appeared frivolous, and Lapidus was fined $10,000. The court also found that the shareholder had given false testimony at one of the nonpayment trials – a Class D Felony – and the matter was reported to the Bar Association Disciplinary Committee.
SELL FIRST, SETTLE LATER
What happens when a shareholder wants to sell, but has an unresolved claim with the co-op and could be found to owe money? In the matter of the Estate of Schiller, 819 NYS 2d 213 (Surr. Ct. NY Co 5/15/06) addressed this question, and decided in a fashion that stripped the Board of some leverage.
The cooperative had an ongoing claim against the shareholder for fire damage, and the shareholder denied responsibility for the damage. When the shareholder wanted to sell, however, the Board demanded that the shareholder settle the claim before it would grant approval for closing the sale of the apartment.
The court ruled that the Board could not keep the shareholder from going through with the closing, and enjoined the board to allow the closing to proceed. However, it did require the shareholder to post escrow in the amount of the damage claim. As of press time on this Newsletter, the matter of who is responsible for the damages was still not resolved.
With smoking banned in most public places, the battlefront is now turning to apartment buildings. In Poyck v. Bryant, 820 NYS 2d 774 (Civ Ct. NY Co. 8/24/06), the occupant subletting a condo apartment complained about the smell of smoke from another apartment and claimed that the smoke was a health hazard, and that the condition constituted a breach of the warranty of habitability. The subtenant sued the unit owner, not the condominium – since the warranty of habitability does not apply to the condo corporation. This put the unit owner in a difficult position – not collecting rent, with no recourse to make the condo step in and help. The only ray of hope for the unit owner: the court said it was still a triable issue as to whether there was enough smoke coming into the apartment to actually breach the warranty of habitability.
When there is a leak into a shareholder’s apartment, the shareholder is expected to allow the co-op to come in and fix it. That’s not always the case, however, and there have been a surprising number of situations where shareholders delay the repairs or do not allow them to be done at all – and still seek abatements or refuse to pay their maintenance charges.
A prime example arose in the case of 465 WEA Owner’s Corp. v. Strongwater, 809 NYS2d 481 (App. T. 1st Dept. 12/15/05). A leak from the upstairs neighbor had caused damage in the shareholder’s apartment. The board claimed it responded to the situation promptly, offering to pay for the work with a rent abatement. The shareholder, however, did not have the repairs made, and still claimed the right to the abatement.
The court decided that in order to receive the abatement, he must actually make the repair. If the shareholder chooses not repair the damage, then the shareholder is not entitled to an abatement.
BREAKING THE MOLD
Mold is the issue du jour, and has given rise to countless complaints in recent years. In Fraser v. 301-52 Townhouse Corp. 2006 WL 2828595 (Sup. Ct NY Co. 9/27/06), however, a severe blow was dealt to those seeking damages for health problems allegedly caused by the presence of mold.
A leak in the shareholder’s apartment had given rise to mold growing on the walls. The shareholder claimed to have suffered a long list of physical and mental ailments as a result of the mold, including loss of memory. The court, however, found that there was not sufficient evidence to connect the presence of mold with the shareholder’s health problems. It noted that the shareholder could claim property damage due to the mold, but that the facts in the case did not give rise to a claim of personal injury.
CONDO SPONSOR FRAUD
In The Hamlet on Olde Oyster Bay Home Owners Assn, Inc. v. The Holiday Organization, Inc., 2006 WL 1982603 (Sup. Ct. N. Co. 7/7/06), unit owners joined together to bring a claim against the sponsor and related parties for fraud. The charges included fraud in the inducement and negligent misrepresentation of terms found in the offering plan.
The court cited the Martin Act, and found that the unit owners could not bring such fraud claims. Under the Martin Act the Attorney General can bring action for fraud against sponsors who fail to make material disclosures or who make false statements. Individual unit owners cannot. Nor can they bring state anti-trust (Donnelly Act) claims.
The court added, however, that the unit owners could bring claims for breach of contract, false advertising and breach of fiduciary duty.
The other side of the coin was addressed in Caprer v. Nussbaum , 2006 WL 2963128 (2d Dept. 10/17/06). In this case, an individual unit owner made claims of financial mismanagement by the sponsor, as well as principals and affiliates of sponsor, the managing agent, and the accountant.
The court found that Unit owner cannot make an individual claim for damage to common elements of the building, but he can bring a derivative claim on behalf of the Board. It noted that the sponsor is not a fiduciary and can only be sued for breach of contract, and while the managing agent is in fact a fiduciary it cannot be sued by an individual unit owner – instead, it must be sued derivatively. An individual unit owner’s relationship with the accountant is different, the court found – there is sufficient privity for the unit owner to bring an individual action for a false financial statement.
In this case, the other unit owners were third party beneficiaries of the settlement agreement that conferred direct benefits to them. In addition, unit owners had individual claims against the sponsor and its board members for fraud in the operation of the condominium.