Opinion
108653/05.
Decided April 14, 2006.
Background A. The Termination of the Defendants' Tenancy — Section 34(e) of the defendants' proprietary lease with the coop provides that a lease may be terminated and the lessees may be required to surrender their apartment if the coop should determine, upon the affirmative vote of both four-fifths of its Board of Directors and the holders of two-thirds or more of its shares, at meetings of both the directors and the shareholders, that "because of objectionable and undesirable conduct" on the part of the lessees, their tenancy "is undesirable." At a special meeting held on December 8, 2004, the coop's Board of Directors unanimously voted in favor of a resolution terminating the defendants' tenancy, pursuant to section 34(e), on the ground that they had engaged in objectionable and undesirable conduct which made their tenancy undesirable. The defendants, who were given prior notice, were represented at the meeting by counsel. Defendants were also given notice that, on May 24, 2005, there would be a special meeting of the shareholders to vote on the resolution. At that meeting, where defendants were again represented by counsel, the shareholders of 98% of the shares voted in favor of the resolution. By notice dated May 27, 2005, the plaintiff terminated defendants lease, effective June 15, 2005. This action was brought after the defendants refused to vacate and surrender their apartment.
B. The Litigation History Between the Coop and the Defendants — The coop's termination of the defendants' lease was the culmination of almost twelve years of constant litigation between the parties involving the defendants' repeated failure to pay all of the maintenance they were charged and their improper installation of an air conditioning system which caused water damage to the apartment below. The record before the court shows that between 1993 and 2004, the coop brought at least six nonpayment proceedings in Civil Court against the defendants. In each of these cases, the defendants argued that they were justified in withholding their maintenance and were entitled to an abatement of their arrears because of inadequate conditions in their apartment and in the building. In two of these cases, the parties settled their dispute. In one of the cases, the court (Marilyn Shafer, J.), by decision dated April 18, 1993, held that the defendants were not entitled to any abatement and found them to be in arrears totaling approximately $43,834. The defendants' appeal of this decision was unsuccessful. When the coop sought attorney's fees at a separate hearing, based upon the court's direction that such a claim be severed from the coop's claim for rent arrears, the defendants argued that the attorney's fees claim had not been properly severed and was thus lost. After the Civil Court (Arlene H. Hahn, J.) rejected this argument, the defendants took an appeal and the decision was affirmed. The defendants also brought an unsuccessful article 78 proceeding for a writ of prohibition which would prohibit the court from holding any such attorney's fees hearing. Following a hearing, the Civil Court (Martin Shulman, J.), by decision dated October 3, 1996, found that the coop was entitled to attorney's fees in the amount of $336,228, plus interest. In its decision, the court found that the defendants had engaged in "needless and groundless pre-trial motion practice" before Judge Shafer and that the coop had achieved total victory and completely prevailed in the litigation with the exception of a few minor legal skirmishes. The court went on to find that the defendants had acted with "obduracy" in that "Every conceivable motion was made to delay or derail the underlying proceeding, and that their aggressive tactics, which they were able to afford because Mr. Lapidus is an experienced real estate lawyer who could rely on the resources of his law firm to avoid incurring paying out-of-pocket legal expenses, were designed "to economically force the coop to its knees'." On appeal, the award of attorney's fees was reduced to $216,000, plus interest. Ultimately, by stipulation between the parties dated April 25, 2000, the defendants agreed to, and did, pay approximately $328,000 in attorney's fees arising out of the nonpayment proceeding brought before Judge Shafer.
In the meantime, in 1995, the coop brought another nonpayment proceeding against the defendants for approximately $55,680. By decision dated December 5, 1997, the court (Howard Malatzky, J.), after holding a trial which followed what the court characterized as "extensive motion practice," awarded the coop a judgment in the amount of $55,681.81. In its decision, the court found that defendants were entitled to a rent abatement of $3,340.91. Thereafter, the court, upon the coop's application, awarded the coop $15,226.18 for pre-judgment interest and $115,000 in attorney's fees. On appeal, the amount of attorney's fees was reduced to $75,000.
In 1999, the coop brought another nonpayment proceeding which the parties settled by stipulation, dated April 20, 1999. In the stipulation, the defendants agreed they owed maintenance and other charges in the amount of approximately $16,100 and the coop agreed to credit the defendants' account in the amount of $10,000 for repairs in the defendants' premises. In this stipulation, defendants agreed that they would not thereafter withhold maintenance until they had first complied with certain specified procedures.
In 2004, the coop brought yet another nonpayment proceeding against the defendants in which the court (Gerald Lebovits, J.) found that defendants had failed to follow the procedures set forth in the April 20, 1999 stipulation and, on September 2, 2005, issued a judgment against them in the amount of approximately $62,380.
Finally, in an action before this court, the tenant in the apartment below the defendants brought a nuisance action against the defendants and the coop claiming that the water-cooled air conditioning system which defendants installed in their apartment without prior permission had caused water to leak into his apartment, resulting in substantial property damage. On September 30, 2002, the parties entered into a stipulation of settlement, "so-ordered" by the court, which required that the Lapidus defendants disconnect the two air conditioning units in their apartment from the building's water supply and then cap the water supply and the return piping at their respective risers. On February 4, 2003, upon the cooperative's motion, this court found the defendants in contempt because of their failure to disconnect the air conditioning units from the building's water supply, as required under the stipulation. The court directed that the defendants comply with the stipulation. Thereafter, the cooperative brought a second motion for contempt claiming that although they disconnected the air conditioning units from the building's water supply, the defendants failed to cap three of the four pipes serving the units at their respective risers, thereby increasing the danger that the old branch lines would leak into the apartment below. By order and judgment entered October 29, 2004, this court, after a hearing, found defendants, for a second time, in contempt of court by their failure to comply with a stipulation of settlement which this court "so ordered." In the judgment, the court, inter alia, vacated the stipulation, issued a permanent injunction directing the defendants to remove the air conditioning system which is the subject of this action from their apartment and awarded the coop attorney's fees, disbursements and other costs which they incurred in the action.
Discussion
A. Ejectment — This court's review of the coop's termination of the defendants' lease is governed by the principles set forth in Matter of Levandusky v. One Fifth Ave. Apt. Corp. 75 NY2d 530, 538 (1990) and 40 West 67th Street v. Pullman, 100 NY2d 147 (2003). In Levandusky, the Court of Appeals held that a cooperative corporation's promulgation and implementation of by-laws, proprietary lease provisions and policies is governed by the "business judgment rule," which limits a court's inquiry to whether the challenged actions were (1) authorized, (2) taken in good faith and (3) in furtherance of the corporation's legitimate interests. See Levandusky v. One Fifth Avenue Apartment Corp., 75 NY2d at 537-38. In Pullman, the Court of Appeals ruled that the business judgment rule was applicable to decisions by a coop to terminate a tenancy because the tenant had engaged in objectionable conduct making his or her tenancy undesirable. See 40 West 67th Street v. Pullman, 100 NY2d at 153-155.
Here, the defendants argue that the termination of their tenancy was unauthorized because the conduct on which it was based is not the type of objectionable conduct which falls within the scope of section 34(e) of the defendants' proprietary lease. As already noted, section 34(e) provides that a lease may be terminated if the coop should determine a lessee's tenancy is undesirable because of objectionable and undesirable conduct. This section goes on to provide, in parenthesis, that to repeatedly violate or disregard the house rules or to permit a person of immoral character to enter or remain in the building "shall be deemed to be objectionable or undesirable conduct." The defendants contend that this parenthetical statement was intended to provide an exclusive definition of what constitutes "objectionable or undesirable conduct" under section 34(e) and that since it clearly does not apply to their conduct, the coop was without authority to terminate their tenancy. The court disagrees. There is nothing in the parenthetical statement which suggests that it was intended to provide anything more than specific examples of objectionable or undesirable conduct. Indeed, if the drafter of the lease intended to limit the scope of the provision by so confining the broad phrase "objectionable or undesirable conduct," it would not have placed such a definition in a parenthetical sentence which employs no language indicating any exclusivity.
The defendants also argue that, as a matter of public policy, the coop should not be permitted to terminate a tenancy based on objectionable or undesirable conduct where such conduct only involves a tenant's attempt to obtain habitable conditions in an apartment and building through the use of the courts. The record, however, indicates that for more than a decade, the defendants repeatedly withheld maintenance, which led to almost constant and unsuccessful litigation with the coop. In addition, the defendants' unreasonable refusal to eliminate, at little cost, the leakage from their air conditioner which was causing damage to the apartment below and the ensuing litigation unnecessarily burdened the coop with yet additional litigation. The defendants have not cited any authority which suggests that it is against public policy for a coop to determine that a shareholder's tenancy should be terminated as undesirable where, over a twelve-year period, the shareholder refused to remove a nuisance, repeatedly withheld rent without legal justification and caused the coop to engage in almost constant litigation.
The defendants also argue that the shareholder vote on the resolution terminating their tenancy was illegal because, in violation of Business Corporation Law § 609(e), the Board agreed that the coop would indemnify and hold harmless any shareholder who voted in favor of the resolution against any claims thereafter asserted by the defendants. This argument is without merit. Section 609(3) provides that a shareholder shall not sell his vote to any person for a sum of money or for anything of value. This provision merely prohibits a shareholder from obtaining a profit in exchange for his vote. In this respect, a shareholder does not profit from being indemnified against any claim arising out of his or her vote and, by offering such indemnification, the Board did not provide an incentive to vote in favor of the resolution. Rather, it merely eliminated a disincentive. Thus, the Board did not act in violation of section 609(3). The court therefore finds that the coop was authorized to terminate the defendants' tenancy on the asserted grounds.
As to bad faith, the defendants argue that the coop has discriminated against them by using their installation of an air conditioner as a basis for terminating the lease when, in fact, other apartments in the building have installed air conditioners without permission to do so. Irrespective of whether other tenants have installed air conditioners without prior permission, it was entirely proper for the coop to partially base its decision to terminate the defendants' lease on their refusal to remove the air conditioner when it was found to cause water damage in the apartment below, their exposure of the coop to further litigation and their failure to comply with the stipulation of settlement.
Noting that the plaintiff has suggested that it may rent the defendants' apartment at a fair market price in excess of the monthly maintenance which would otherwise be charged, the defendants also argue that the plaintiff's termination of their lease is a bad faith attempt to obtain an apartment which can be used to increase the building's revenue. There is, however, nothing in the record which indicates that the plaintiff's reason for terminating the defendants' lease had anything to do with increasing the building's revenue by being able to charge rent in excess of the amount of monthly maintenance. The court therefore finds that there is no evidence that the coop's termination of the defendants' lease was made in bad faith. Finally, the court notes that a number of the arguments which the defendants have made in support of their contention that the coop's actions were unauthorized and made in bad faith could also be interpreted as suggesting that the termination of their lease was not undertaken in furtherance of the corporation's legitimate interests. Since the court has rejected these arguments and since the defendants have not asserted any other arguments on this issue, the court finds that the termination of the defendants' lease was undertaken in furtherance of the corporation's legitimate interests.
Thus, all three prongs of the business judgment rule have been satisfied and the court is required to defer to the decision of the coop to terminate the defendants' tenancy.
The defendants, however, raise two procedural arguments against an order granting the plaintiff's request for an order of ejectment. First, they argue that the coop's action is barred by the six years statute of limitations applicable to breach of contract claims because many of the grounds for terminating the lease occurred more than six years prior to the commencement of this action. The defendants are mistaken. The termination of their lease was not based on their breach of contract but on the resolution finding that they are undesirable tenants. The cause of action for ejectment accrued when the lease was terminated on June 15, 2005. The action is therefore timely.
The defendants also argue that, by continuing its 2004 nonpayment proceeding against them after the termination of the lease on June 15, 2005 and obtaining a money judgment which included rent through the beginning of September, 2005, the plaintiff waived its right to bring this ejectment action. It is true that the commencement of a nonpayment proceeding vitiates a holdover proceeding since the former acknowledges the continuation of a tenancy by seeking to enforce its terms whereas the latter requires a prior termination of the tenancy. See Metz v. Duenas, 183 Misc 2d 751, 756 (Dist Ct Nassau Co 2000); Harris v. Timecraft Industries, Inc., 132 Misc 2d 386, 389 (Civil Ct NY Co 1986). However, where a nonpayment proceeding is brought prior to a landlord's decision to terminate a lease, there is nothing inconsistent about the landlord's attempt to terminate the tenancy while continuing the nonpayment proceeding. The fact that while a nonpayment proceeding is pending, an event occurs which the landlord believes terminates the tenancy hardly requires that the landlord discontinue the pending proceeding so long as the landlord, after the attempted termination of the lease, does not make any representation or assert any argument in the nonpayment proceeding which suggests that the lease is still in effect. In this respect, the defendants have not provided any evidence that plaintiff made any such representation or argument. On the contrary, the coop claims that it advised Judge Lebovits of its decision to terminate the defendants' tenancy. The defendants have not disputed this assertion. Moreover, there is no significance to the fact that the money judgment issued by the Civil Court on September 2, 2005 included monies due up to and including September 5, 2005. Under RPAPL 711(1), a landlord may accept rent after the commencement of a holdover proceeding without waiving its right to assert that the lease has been terminated. If a landlord may accept rent after commencing a holdover proceeding, a Civil Court may surely issue an order in a pending nonpayment proceeding directing the payment of monies which became due after the commencement of the holdover proceeding. Under the circumstances, the plaintiff's motion for summary judgment granting it an order of ejectment against the plaintiffs must be granted.
B. Attorney's Fees and Costs — In its second cause of action, the plaintiff seeks the attorney's fees and costs which it has incurred in this action through the date of eviction. The plaintiff is clearly entitled under the lease to recover these expenses. However, the plaintiff is not entitled to recover the expenses which it allegedly incurred in preparing and conducting the special meetings at which the Board and the coop's shareholders voted to terminate the defendants' tenancy. There is nothing in the lease which entitles the plaintiff to any such expenses. The second cause of action should be severed from the plaintiff's other claims and referred to a Special Referee for a hearing with respect to the reasonable attorney's fees which it has incurred herein through the date of eviction.
C. Use and Occupancy — In its third cause of action, the plaintiff seeks rent and occupancy through the date that the defendants vacate the premises at a rate reflecting the fair market rental value of the apartment. Alternatively, in the fourth cause of action, the plaintiff seeks to recover the maintenance and electric charges normally due under the lease. The court declines to grant rent and occupancy as sought under the third cause of action. After the surrender of the defendants' shares and their departure from the premises, it will be incumbent upon the coop to sell the shares in a reasonable and expeditious manner, to apply the monies obtained through the sale to any monies owed by the defendants and to then distribute the balance to the defendants. The coop should not be encouraged to hold onto the shares in order to obtain additional revenue in the form of rent in excess of the maintenance which would otherwise be due under the proprietary lease appurtenant to these shares. Nor should the plaintiff be given a windfall arising out of the termination of the defendants' lease. The court notes that the plaintiff is entitled under the lease to recover the expenses it incurs in leasing the apartment. Under the circumstances, the court is persuaded that the plaintiff is only entitled to use and occupancy from the defendants in an amount equal to the maintenance and additional rent, such as electric charges, normally due. The third cause of action is therefore dismissed and summary judgment on the fourth cause of action is granted. Since the plaintiff has already obtained a money judgment in Civil Court for the equivalent of maintenance and additional rent due through September 5, 2005, any money judgment entered herein under the fourth cause of action should only include the period from September 6, 2005 until the date that the defendants vacate the premises.
Accordingly, the plaintiff's motion for summary judgment is granted with respect to the first, second and fourth causes of action. The motion is otherwise denied. The defendants' cross-motion for summary judgment is granted with respect to the third cause of action and this cause of action is hereby dismissed. The cross-motion is otherwise denied.
The second cause of action is hereby severed from the first and fourth causes of action. The issue of the reasonable fees and costs which plaintiff incurred in this action through the date of eviction is hereby referred to a Special Referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine this issue.
A copy of this order with notice of entry shall be served on the Special Referee Clerk at 60 Centre Street, Room 119, New York, New York to arrange a date for the reference to a Special Referee.
The parties shall settle judgment as to the first and fourth causes of action.