Estate of Helen Del Terzo, et al., Respondents,v.33 Fifth Avenue Owners Corp., Appellant.

Brief

N.Y.December 14, 2016

APL-20 16-0011 8 New York County Clerk's Index No. 154950/ 12 Olourt nf J\pp.eals STATE OF NEW YORK -~-------- ESTATE OF HELEN DEL TERZO, MICHAEL DEL 'l'ERZO and JULIUS ROBERT DEL TERZO, Plaintiffs-Respondents, -against- 33 FIFTH AVENUE OWNERS CORP., Defendant-Appellant. BRIEF OF AMICUS CURIAE COUNCIL OF NEW YORK COOPERATIVES AND CONDOMINIUMS IN SUPPORT OF THE APPEAL August 19, 2016 MARC J. LUXEMBURG GALLET DREYER & BERKEY, LLP 845 Third Avenue, 5th Floor New York, New York 10022 Telephone: (212) 93 5-3131 Facsimi le: (212) 935-45 14 Attorneys for Amicus Curiae Council of New York Cooperatives and Condominiums DISCLOSURE STATEMENT The Council of New York Cooperatives and Condominiums has no parent or subsidiary corporations; however it founded and is affiliated with the Action Committee for Reasonable Real Estate Taxes. Officers and directors of CNYC also serve as officers or directors of the National Association of Housing Cooperatives, the Association of Riverdale Cooperatives, and the Federation of New York Housing Cooperatives and Condominiums. The Executive Director of CNYC is a director of the National Cooperative Bank. TABLE OF CONTENTS TABLE OF AUTHORITIES ................................ . ......... i i THE QUESTIONS PRESENTED FOR REVIEW ........... .. ................ 1 PRELIMINARY STATEMENT - POSITION OF THE AMICUS .. .. .... ... . ..... 2 STATEMENT OF FACTS ................ .. .......................... 5 THE DECISIONS OF THE LOWER COURTS .... ... ....................... 7 ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 I. THE DECISIONS BELOW ERRED BY FAILING TO APPLY THE BUSINESS JUDGMENT RULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 II. THE DECISIONS BELOW ERRED BY DISREGARDING THE REASONS GIVEN BY THE BOARD AND SUBSTITUTING THEIR OWN VIEW OF WHAT IS REASONABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 III. THE DECISIONS BELOW ERRED BY FAILING TO APPLY A FOUR MONTH STATUTE OF LIMITATIONS TO THIS ACTION TO SET ASIDE A DECISION OF A BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . 24 CONCLUSION ...... . ..................................... . ....... 28 1 TABLE OF AUTHORITIES Cases 136 East 64th Street, L.P. v. 136 East 64th Street Corp., 2013 N.Y. Misc. Lexis 4237 (Sup. Ct. NY Co. 2013) ............ 25 40 West 67th Street v. Pullman, 100 N.Y.2d 147 (2003) ..................................... 14, 15 Board of Managers of Oceana Condominium No. Four v. Akodes, 71 A.D. 3d 812 (2d Dept. 2010) ................................. 25 Braun v. 941 Park Ave., Inc., 32 A.D.3d 21 (1st Dept. 2006) .................................. 15 Buttitta v. Greenwich House Cooperative Apartments, Inc., 11 A.D. 3d 250 (1st Dept. 2004) ................................. 28 Chateau Owners Corp. v. Monahan, 2016 WL 1438020 (App. T. 2d Dept. 2016) ....................... 24 Dobbins v. Riverview Equities Corp., 64 A.D. 3d 404 (1st Dept. 2009) ................................. 27 Fried v. 20 Sutton Place South, Inc. 1 2 A.D.3d 351 (1st Dept. 2003) .................................. 22 Gleckel v. 49 West 12 Tenants Corp., 52 A.D. 3d 469 (2d Dept. 2008) ................................. 23 In re Schulte, 2016 WL 1546922 (Surr. Ct. N.Y. Co. 4/14/16) .................. 15 Kaplan v. Park South Tenants Corp., 2014 N.Y. Misc. Lexis 1260 (Sup. Ct. NY Co. 2014) ............ 25 Katz v. Third Colony Corp., 101 A.D.3d 652 (1st Dept. 2012) .................... . ........... 27 King v. 870 Riverside Drive HDFC, 74 A.D.3d 494 (1st Dept. 2010) ............................. 23, 24 Konigsberg v. 333 East 46th Street Apartment Corp . , 2016 WL 3455940 (Sup. Ct. NY Co. 2016) ........................ 29 11 Laba v. Carey, 29 N.Y.2d 302 (1971) ...................................... 16, 19 Leonard v, Kanner, 239 A.D.2d 153 (1st Dept. 1997) ................................ 23 Levandusky v. One Fifth Avenue Apartment Corp . , 75 N.Y.2d 530 (1990) ................... . .. 12, 15, 21, 27, 30, 31 Ludwig v. 25 Plaza Tenants Corp., 184 A.D.2d 623 (2d Dept. 1992) ................................ 24 Musey v. 425 East 86 Apartments Corp., 2015 WL 4365395 (Sup. Ct. NY Co. 2015) ...................... . . 28 Rosenberg v. Riverwood Owners, Inc., 304 A.D. 2d 547 (2d Dept. 2003) ................................ 23 Rosenthal v. One Hudson Park, Inc., 269 A,D.2d 144 (1 st Dept. 2000) ................................ 24 Rubenstein v. Berkeley Coop. Towers Sec. II Corp., 2015 N.Y. Misc. Lexis 2071 (Sup. Ct. Queens Co. 2015) ......... 17 Silver v. Murray House Owners Corp., 126 A.D. 3d 655 (1st Dept. 2015) ............. . .................. 24 Simon v. Orsid Realty, 2013 WL 861559 (Sup. Ct. NY Co. 2013) ...... .. .......... . ...... 25 Slatt v. Slatt, 64 N.Y.2d 966 (1985) ............... . ........ ..... ....... .... .. 16 Sowa v. Lowy, 23 N.Y.2d 329 (Ct. Apps. 1968.) .......... ... ..... ............ 23 Steinberg v. Schnapp, 73 A.D. 3d 171 (1st Dept. 2010) ............................ 16, 17 The Kibel Companies, LLC v. Highpoint-on-the-Hudson Owner's Inc., 2015 WL 1814331 (Sup. Ct. NY Co. 2015) ......................... 28 The Seven Park Ave. Corp. v. Green, 2 7 7 A.D. 2 d 12 3 (1st Dept . 2 0 0 0) ................................ 2 4 111 Weiner v. 150 West End Owners Corp., 298 A.D.2d 385 (2d Dept. 2002) .......... .... .............. 22, 23 West v. 332 East 84th Owners Corp ., 68 A.D.3d 499 (1st Dept. 2009) ......... .. .................. 14, 22 Statutes CPLR § 217 ( 1) ....... . ..................................... 2 2 I 2 7 CPLR § 7802 (a) ............................................... 26 CPLR § 7803 ............................................ ... 27 I 29 CPLR § 7 8 0 3 ( 4 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 CPLR § 7803 (3) .................. . ................ .. ... 13, 14, 31 CPLR Article 78 ........ 4, 12, 14, 21, 22, 27, 28, 29, 30, 31, 32 Real Property Actions and Proceedings Law§ 711(1) ............ 14 Other Authorities Black's Law Dictionary, 2d Pocket Edition at 738 (2001) ............................... 19 IV COURT OF APPEALS STATE OF NEW YORK ----------------------- ------ ---- ------X ESTATE OF HELEN DEL TERZO, MICHAEL DEL TERZO AND JULIUS ROBERT DEL TERZO, Plaintiffs-Respondents, -against- 33 FIFTH AVENUE OWNERS CORP., Defendant-Appellant. ---------------------------------------X County Clerk's Index No. 154950/12 APL-2016-00118 BRIEF OF COUNCIL OF NEW YORK COOPERATIVES AND CONDOMINIUMS AS AMICUS CURIAE THE QUESTIONS PRESENTED FOR REVIEW The question presented by this appeal is set forth in the Order of the Appellate Division granting leave to appeal to this court, as follows: "Was the order of the Supreme Court, as modified by this Court, properly made?" In order to answer this question, the Amicus submits this court should consider and answer several questions necessarily encompassed within the question presented, specifically: 1 - Should the decision of the Board of Directors of the Defendant cooperative to reject the joint application for transfer of the apartment in question to two brothers have been governed by the business judgment rule? 2 - When a proprietary lease provides that consent to a transfer shall not be unreasonably withheld, and the board articulates reasons related to the welfare of the cooperative for its determination not to consent, may a court reject those reasons and substitute its own determination of how the board should have decided the application? 3- Should a four month statute of limitations apply to an action to challenge a determination of a cooperative board of directors regardless of the specific form of action brought by the plaintiff? PRELIMINARY STATEMENT - POSITION OF THE AMICUS The Amicus respectfully submits that the above questions should be answered as follows: 1 - The Amicus submits that the business judgment rule should be applied to review the actions of a cooperative board unless the shareholder challenging the board's action can demonstrate that some other standard should apply. In this case it is claimed that paragraph 16(b) of the proprietary lease, which provides that "consent shall not be unreasonably withheld to an assignment ... to a financially responsible member of the 2 Lessee's family", requires that the board's consent not be governed by the business judgment rule. The Amicus submits this clause does not apply in this case, because by its plain language it only covers a transfer by a decedent to "a ... member" of the decedent's family, and here there was a joint application for a transfer to two members of the decedent's family. Accordingly the business judgment rule was not superseded by this clause in this matter and should be applied. 2 - Although in the view of the Amicus, the "not unreasonably withheld" standard does not come into effect in this case, even if it did, the board articulated reasons related to the welfare of the cooperative for rejecting the joint application, specifically that one brother was financially unqualified, and the other brother did not intend to reside in the apartment, or if he did the occupancy would have violated the terms of the lease, all of which are well documented in the record and not subject to dispute. However the courts below rejected the board's decision, and made their own determination of how the application should have been decided - specifically that the finances of the brothers had to be considered jointly even though one of the brothers did not intend to live in the apartment and in fact could not legally live in the apartment 3 while his brother lived there. Your Amicus submits that the "not unreasonably withheld" standard should only authorize a limited review by the court to determine whether the board had articulated reasons related to the legitimate purpose of the cooperative, and it should not be up to the court to disregard such reasons and substitute its own judgment for that of the board and decide what is "reasonable" for the cooperative. 3 - This court has determined that the standard of review of a decision of the board of a cooperative should be the same - i.e. the business judgment rule - irrespective of the happenstance of the form of the lawsuit challenging such decision. The Amicus submits that as a corollary to that principle, the statute of limitations governing the bringing of a suit to challenge a determination of a cooperative board should be the same regardless of the form of lawsuit that is selected by the plaintiff's attorney. Since the cooperative is a corporation, challenges to board decisions should be treated as if they were brought under Article 78, regardless of how they may be pleaded, and thus governed by a four month statute. 4 THE FACTS The decedent shareholder died in November 2010 [R. 18, 61, 90, 734]. Upon her death, her shares passed to her Estate, of which her sons Michael and Robert are beneficiaries [R. 61] . In November 2011, Michael and Robert submitted a joint application asking for the Board to approve the assignment of the Lease and transfer the shares appurtenant to the Apartment from the Estate to themselves jointly [R. 273-464] . The November Application was incomplete, and Robert did not sign the November Application. [R. 275, 277, 279, 464]. Michael and Robert then submit ted a more complete joint application in February, 2012. [R. 465-703]. By the February Application, Michael confirmed that he had no immediate intent to reside in the Apartment. Robert's portion of the February Application was completed on his behalf by the Estate's fiduciary administrator [R. 466-467, 778-779], who admitted in a cover letter that Robert was not financially qualified to purchase the Apartment. Robert also only submitted an incomplete tax return for 2010 [R. 694-699] which listed his home address as Las Vegas. There are three clauses of the proprietary lease governing the rights of the parties which are relevant to the 5 issues, specifically ~~ 14 and 16 (b) and (c) which in relevant part state: Use of Premises. 14: The Lessee shall not, without the written consent of the Lessor ... occupy or use the Apartment for any purpose other than as a private dwelling for the Lessee and Lessee's [family].... In no event, however, shall more than one married couple occupy the Apartment without the written consent of the Lessor. Assignment and Transfer. 16(b): If the Lessee shall die, consent shall not be unreasonably withheld to an assignment of the lease and shares to a financially responsible member of the Lessee's family (other than the Lessee's spouse, as to whom no consent is required) . 16 (c): There shall be no limitation, except as specifically provided, on the rights of Directors or lessees to grant or withhold consent to an assignment 1 for any reason or for no reason, except as required by law. The Board met and reviewed the joint application and rejected it for a number of reasons including: • Robert was not financially responsible [R. 221, 467, 780, 77 9] ; • Michael did not intend to reside in the apartment. [R. 276, 470, 760]; If Michael did reside in the apartment, the occupancy would violate clause 14 of the lease. The cooperative sent a letter on March 19, 2012 rejecting the application. The plaintiffs commenced this action 6 challenging the Board's decision on July 26, 2012, more than four months later. DECISIONS BELOW The Supreme Court Decision The court initially framed the issue in the case as a challenge by two brothers to the refusal of the Board of Directors to let them take joint ownership of their parents' apartment where the family had lived for 57 years, and spent the first two paragraphs of the decision reviewing in detail the history of the family occupancy of the apartment since 1955, including that the two brothers had been born there and spent their childhood there. Although the trial court recognized that in most instances Courts review the decisions of cooperative boards under the business judgment rule, and that under paragraph 16 (c) there is no limitation on the right of the board to withhold consent, the court held that paragraph 16 (b) requires that consent shall not be unreasonably withheld, thus giving family members of a deceased more favorable rights to acquire the apartment. The court . held that as Paragraph 16(b) specifically addresses the circumstance of the death of a shareholder, it takes precedence over general policies and preferences of a co- 7 op. Without dealing with the fact that the exception in paragraph 16 (b) only applies to a transfer to "a ... member" of the decedent's family, the court held that the immediate family members inheriting decedent's share are entitled to preferential consideration. The court recognized that Michael did not intend to reside in the apartment, and that Robert's finances taken alone were insufficient unless Michael became a guarantor of payments, but stated that the application was to approve the "status quo" use of the apartment. The court then held that the brothers were co-applicants, and thus their finances should have been considered together, that the Board acted unreasonably under paragraph 16(b) by rejecting Robert and Michael's joint application, and that approval of their joint application would merely formalize the living arrangements as they existed at the time of their mother's death. It is evident that the fact that there was a long family history of residing in the apartment was a significant factor in swaying the court's decision. 8 The Appellate Division Decision The Majority Decision The three judge majority of the Appellate Division also noted at the outset the family history of residing in the apartment since 1955. The majority recognized that, in general, and in the absence of illegal discrimination, a cooperative corporation is not restricted in withholding its consent to the transfer of an apartment, and that this common-law right is also embodied in paragraph 16(c) of the proprietary lease. The majority noted that, at bar, there is another express contractual provision extending more favorable rights to a family member of a deceased lessee's proprietary lease, specifically paragraph 16(b) which provides that "consent shall not be unreasonably withheld to an assignment of the lease and shares to a financially responsible member of the Lessee's family." The majority stated that this provision was included to more easily allow an existing co-op owner to devise or gift his or her cooperative apartment dynastically, and that although the cooperative contended that its decision to deny the transfer is protected by the business judgment rule, the majority disagreed. The majority did attempt to deal with the limitation in paragraph 16 (b) to a transfer to "a 000 member", as follows: 9 "Paragraph 16(b), however, does not limit the application to "only one" family member and there is no prohibition in the lease against a "Lessee" being more than one person." The majority, however, did not deal with the obvious logical omission in their position that while there may be no limitation on the number of family members who can apply, there is a specific limitation on the number of family members who are entitled to be covered by the exception to the business judgment rule, which only applies if there is an application by "a ... member", and not if there are multiple family members applying. The majority stated: "paragraph 16(b) imposes a heightened standard of reasonableness on the board, and the motion court correctly held that defendant did not satisfy that standard." The majority concluded that "By failing to consider the joint application as a whole, refusing to consider Michael's offer to provide further guarantee of payment, and requiring that each coapplicant be individually financially qualified to meet the carrying expenses of the apartment, even though Michael, alone, can easily afford them, defendant unreasonably withheld its consent to the transfer." The court thus rejected the reasons given by the Board, and substituted its own view of what is reasonable under the circumstances, specifically that the Board was obligated to accept Michael as a guarantor. One can again infer that the family history of residing in the apartment was a substantial factor underlying the court's refusal to accept the Board's decision. 10 The Dissent The two dissenters specifically noted that "The consent sought here was not for a "financially responsible" family member. It was for two adult family members, each of whom has his own family, but only one of whom the corporation considered to be financially responsible - and the intended present occupant was not the financially responsible family member. Moreover, the joint application sought approval for the possible future occupancy by both families. Thus, the Coop was being asked to do several things it had valid reasons to reject: one, to give present possession of the apartment to a family that lacked the requisite financial responsibility; two, to approve part ownership of the apartment by an individual who would not be residing there; and three, to authorize possible future shared possession by two families of what is now a single apartment- a single unit covered by a single lease." The dissent concluded "All that is necessary to justify withholding consent is a reasonable basis for that denial. The Coop had several reasonable grounds to do so." Although the dissent found that the joint application did not come within the exception in paragraph 16(b), it did not explain why it did not apply the business judgment rule. 11 ARGUMENT I. THE DECISIONS BELOW ERRED BY FAILING TO APPLY THE BUSINESS JUDGMENT RULE The business judgment rule was first applied by this court to the actions of a board of directors of a residential cooperative in the landmark decision in Levandusky v. One Fifth Avenue Apartment Corp., 75 N. Y.2d 530 (1990). Over 25 years have elapsed since that decision, so it is appropriate to take a few moments to review it, and to see how it should apply it to the instant case. In Levandusky, the board refused consent to a shareholder's request to move a steam riser . An Article 78 proceeding was brought by the shareholder. The question faced by this court was whether the board's decision was to be measured against a business judgment standard, or a "reasonableness" standard. This court ruled as follows: "[A] standard for judicial review of the actions of a cooperative or condominium governing board must be sensitive to a variety of concerns-sometimes competing concerns. ... At the same time, the chosen standard of review should not undermine the purposes for which the residential community and its governing structure were formed: protection of the interest of the entire community of residents in an environment managed by the board for the common benefit. 12 We conclude that these goals are best served by a standard of review that is analogous to the business judgment rule applied by courts to determine challenges to decisions made by corporate directors." 530 N.Y.2d at 537 Application of ... [this] doctrine is appropriate because a cooperative corporation is-in fact and function-a corporation, acting through the management of its board of directors, and subject to the Business Corporation Law. There is no cause to create a special new category in law for corporate actions by coop boards. Id at 538. So long as the board acts for the purposes of the cooperative, within the scope of its authority and in good faith, courts will not substitute their judgment for the board's. Stated somewhat differently, unless a resident challenging the board's action is able to demonstrate a breach of this duty, judicial review is not available. Ibid. For the guidance of the courts and all other interested parties, obviously a single standard for judicial review of the propriety of board action is desirable, irrespective of the happenstance of the form of the lawsuit challenging that action ... we see no purpose in allowing the form of the action to dictate the substance of the standard by which the legitimacy of corporate action is to be measured. Id at 541. Finally, we reiterate that "business judgment" appears to strike the best balance. It establishes that board action undertaken in furtherance of a legitimate corporate purpose will generally not be pronounced "arbitrary and capricious or an abuse of discretion" (CPLR 7803 [3]) in article 78 proceedings, or otherwise unlawful in other types of litigation. It is preferable to a standard that requires Judges, rather than directors, to decide what action is "reasonable" for the cooperative." Id at 542. 13 This court subsequently considered the application of the business judgment rule in 40 West 67th Street v. Pullman, 100 N.Y.2d 147 (2003). In that case the cooperative voted to evict a shareholder for objectionable conduct. The shareholder argued that pursuant to Real Property Actions and Proceedings Law § 711(1) the court had to make an independent finding that the shareholder's conduct was objectionable, and therefore the statute conflicted with the business judgment rule. This court found no such conflict, and held that the competent evidence that is the basis for the termination will be reviewed under the business judgment rule, which means that the courts will normally defer to the action of the cooperative as the competent evidence that the shareholder is objectionable. 100 N.Y.2d at 100-01. It is evident that, based on Levandusky and Pullman, the business judgment rule should be the presumptive standard for reviewing decisions of a cooperative board, unless the shareholder challenging the board's action is able to demonstrate that some other standard should apply. See Braun v. 941 Park Ave., Inc., 32 A.D.3d 21, 24 (1 8 t Dept. 2006) (business judgment rule is "ordinarily applicable" unless the governing 14 documents require otherwise); In re Schulte, 2016 WL 1546922 (Surr. Ct. N.Y. Co. 4/14/16) ("it is well established that the business judgment rule applies to the decisions of a cooperative corporation where the governing corporate instruments do not supersede the rule with a standard that is more demanding") Since, as Levandusky states, the burden is on the shareholder challenging the board's action to demonstrate a breach of duty; it should equally be the shareholder's burden to demonstrate that some other standard of review should be applied. As this court stated, a single standard for judicial review of the propriety of board action is desirable, and the more limited judicial review embodied in the business judgment rule is preferable to a standard that requires judges, rather than directors, to decide what action is "reasonable". Upon an examination of the proprietary lease in this case, there is no basis for not applying the business judgment rule. The claimed basis in paragraph 16(b) of the proprietary lease on its face does not apply. The applications for transfer in this case were jointly by two members of the decedent's family, and the exemption by its express terms only applies to an application by "a ... member" of the decedent's family. As this court stated in Laba v. Carey, 29 N.Y.2d 302 (1971), the court 15 is required to adjudicate the rights of the parties according to the unambiguous terms of the contract, and must give the words and phrases employed their plain meaning. 29 N.Y.2d at 308. Accord, Slatt v. Slatt, 64 N.Y.2d 966 (1985); Steinberg v. Schnapp, 73 A.D. 3d 171, 175 (1st Dept. 2010). See also Rubenstein v. Berkeley Coop. Towers Sec. II Corp . , 2015 N.Y. Misc. Lexis 2071 (Sup. Ct. Queens Co. 2015) (plaintiff did not come within the requirement of being a distributee of the decedent and thus the business judgment rule was not superseded). Plainly, the claimed exemption does not apply to the joint application in this case. It is not a proper exercise of the judicial function to ignore or rewrite the words of a written agreement. The majority did attempt to deal with the limitation in paragraph 16(b) to a transfer to "a ... member", as follows: "Paragraph 16 (b) , however, does not limit the application to "only one" family member and there is no prohibition in the lease against a "Lessee" being more than one person." The majority is undoubtedly correct when they state that there is no limitation on the number of family members who may apply to have an apartment transferred to them, however they did not deal with the obvious logical omission in their position 16 that while there may be no limitation on the number of family members who can apply, there is a specific limitation on the number of family members who are entitled to be covered by paragraph 16 (b) , namely that the exception to the business judgment rule only applies if there is an application by "a ... member", and not if there are multiple family members applying. It is ironic that both lower courts insisted that the board treat the brothers' application as a joint application - in order to get around the fact that Robert was not financially qualified - but by doing so they necessarily rendered inapplicable the limited exception in paragraph 16(b) . 1 Judging the board's decision by the business judgment rule, there is no basis for overturning it. The plaintiffs have not submitted any evidence that the board did not act for the purposes of the 1 Even if paragraph16(b) were to be held to apply in this case, a plain reading of it shows that the determination of whether a family member is financially responsible is not subject to the "not unreasonably withheld" standard - that standard only comes into play after it is determined by the board that the member is financially responsible. The clause states: "If the Lessee shall die, consent shall not be unreasonably withheld to an assignment of the lease and shares to a financially responsible member of the Lessee's family". There are two determinations that need to be made in order for an applicant to receive consent to a transfer: 1- that the applicant is financially responsible; and 2 - whether there are other reasons to withhold consent. But the plain language of the clause makes these two determinations independent. It is only after a finding by the board that the applicant is financially qualified that the board needs to have a reason for rejecting the application. Accordingly the board's determination of a lack of financial responsibility should be governed by the business judgment rule even if paragraphl6 (b) of the lease were held to apply. 17 cooperative, within its authority, or in good faith, and there was no basis for the courts below to substitute their judgment for that of the board. II. THE DECISIONS BELOW ERRED BY DISREGARDING THE REASONS GIVEN BY THE BOARD AND SUBSTITUTING THEIR OWN VIEW OF WHAT IS REASONABLE FOR THE COOPERATIVE Even assuming that paragraph 16 (b) could be stretched to apply to the instant application for a transfer to two family members, it provides that "consent shall not be unreasonably withheld" to an assignment. To properly interpret and apply this clause, the court should again start by examining its plain meaning. See Laba v. Carey, supra. According to Black's Law Dictionary, the word "unreasonable" means "Not guided by reason; irrational or capricious."2 Black's Law Dictionary, 2d Pocket Edition at 738 (2001). On its face, this is a relatively easy standard to meet - all that is necessary is that the board has a reason or reasons related to the interests of the cooperative for its decision. The Board in this case evidently met that standard and The dictionary definition of "unreasonable decision" goes even further. It refers to a decision "that is so obviously wrong that there can be no difference among reasonable minds about its erroneous nature". Black's Law Dictionary, 2d Pocket Edition at 738 (2001) . 18 much more since it had a number of reasons for its decision, which reasons were prima facie in the best interest of the cooperative. Both of the courts below recognized that the Board had reasons for its rejection of the joint application, including that the proposed resident was not financially responsible, that the financially responsible brother was not intending to reside in the apartment, and that they could not reside there together without violating the terms of the lease. However the lower court refused to credit the board's reasons, and held that since the application was only to formalize the "status quo", and the lease allegedly did not condition approval of a family member's application upon occupancy, the Board acted unreasonably by rejecting a joint application which would merely formalize the living arrangements as they existed at time of the mother's death. The appellate majority also refused to accept the board's reasons, and held that the board acted unreasonably by failing to consider the joint application as a whole, and failing to accept one brother as a guarantor of the other brother and requiring that each applicant be financially qualified. The board's concern about the lack of occupancy for one brother was 19 "not implicated" because the other brother will be living there, and the concern about overcrowding if both brothers attempt to live there was held to be "speculative", and the board's reasoning was held to be "specious". In short, the majority did far more than determine whether the board had reasons related to the interests of the cooperative for its decision. It swept aside the board's reasons and substituted its own analysis of what was reasonable under the circumstances, specifically that the board was obligated to accept a guarantor for a financially unqualified applicant. The scope of the proper review of a board's decision was the subject of a concurring opinion in Levandusky by Judge Titone. 75 N.Y.2d at 542. After noting that "standards for review of decisions made by cooperative apartment boards ... should be guided by the need to afford these boards the greatest possible degree of deference, since excessive judicial interference would unquestionably undermine their effectiveness", 75 N.Y.2d at 542, he noted that a challenge to a Board's decision was properly in form an Article 78 3 proceeding, Id at 543, and stated that review should provide an "objective 3 It therefore follows that the time within which to commence an action to challenge a board's decision would be four months . CPLR § 217 (1). See Point III below . 20 standard and thereby minimize ... the risk of excessive judicial intervention and entanglement in what ... are often highly emotional disputes." 75 N.Y.2d at 545-46. He concluded that the court should apply an arbitrary and capricious standard, because "the judicial role in these cases is limited to ascertaining that an articulable and rational basis for the board's decision exists." 75 N.Y.2d at 548. His views have particular force here because of the confluence between the dictionary definition of "unreasonable" ("irrational or capricious") and his objective standard ("arbitrary and capricious") . In fact, in many instances, the lower courts appear to have applied a limited standard of review that seeks only to determine that the board had a reasonable basis for its decision. See, e.g., West v. 332 East 84th Owners Corp., 68 A.D.3d 499 (1st Dept. 2009); Fried v. 20 Sutton Place South, Inc., 2 A.D.3d 351 (1st Dept. 2003); Weiner v. 150 West End Owners Corp., 298 A.D.2d 385 (2d Dept. 2002); Leonard v, Kanner, 239 A.D.2d 153 (1st Dept. 1997) (the board had "a reasonable basis for rejecting plaintiff"); Gleckel v. 49 West 12 Tenants Corp., 52 A.D.3d 469 (2d Dept. 2008) ("the board's withholding of consent had a legitimate relationship to the welfare of the 21 cooperative, and therefore was reasonable"); Rosenberg v. Riverwood Owners, Inc., 304 A.D.2d 547 (2d Dept. 2003) . 4 The determination would be different if the board failed to articulate any reasons for its action, see King v. 870 Riverside Drive HDFC, 74 A.D.3d 494 (1st Dept. 2010); Ludwig v. 25 Plaza Tenants Corp., 184 A.D.2d 623 (2d Dept. 1992). On the other hand, in some instances where the board has articulated reasons for its action, the courts have required a trial of whether the board's action was reasonable and specifically whether it was reasonably related to the welfare of the cooperative, e.g., Silver v. Murray House Owners Corp., 126 A.D.3d 655 (1st Dept. 2015); The Seven Park Ave. Corp. v. Green, 277 A.D.2d 123 (1st Dept. 2000); Rosenthal v. One Hudson Park, Inc., 269 A,D.2d 144 (1st Dept. 2000); Chateau Owners Corp. v. Monahan, 2016 WL 1438020 (App. T. 2d Dept. 2016) (summary judgment for cooperative was reversed); 136 East 64th Street, L.P. v. 136 East 64th Street Corp ., 2013 N.Y. Misc . Lexis 5851 (Sup. Ct. NY Co. 2013); Accord, Board of Managers of Oceana Condominium No. Four v. Akodes, 71 A.D.3d 812 (2d Dept. 2010) (denial of consent to 4 In an analogous situation, under CPLR § 7803(4), where there is substantial evidence to support a decision a court may not reject a determination of a board, and substitute its own view, even ifthe court would have reached a different conclusion. Sowa v. Lowy, 23 N.Y.2d 329 (1968.) 22 install central air conditioning based on an engineer's report required a trial). And in at least two other cases the reasons given by the board were simply swept aside and the court substituted its own view of what was reasonable. Kaplan v. Park South Tenants Corp., 2014 N.Y. Misc. Lexis 1260 (Sup. Ct. NY Co. 2014); Simon v. Orsid Realty, 2013 WL 861559 (Sup. Ct. NY Co. 2013) (Rule limiting financing to 2/3rds of the purchase price was unreasonable) . Since this Court has held that judicial review and oversight of a cooperative board is limited by the business judgment rule to prevent excessive judicial interference in the operation of the cooperative, if follows that where "not unreasonably withheld" is the standard/ it should be applied following the same governing principle, namely to avoid "excessive judicial intervention and entanglement" undermining the authority of the board to manage the property. The proper role of the court should be to apply objective standards to determine whether the board had a reason or reasons related to the welfare of the cooperative, and not to substitute its judgment for that of the board. The orders of the courts below were not properly made because they overstepped their proper role, and determined that Judges, rather than directors, were to decide what action is "reasonable" for the cooperative. 23 III. THE DECISIONS BELOW ERRED BY FAILING TO APPLY A FOUR MONTH STATUTE OF LIMITATIONS TO THIS ACTION TO CHALLENGE A DECISION OF A BOARD OF DIRECTORS In substance, this action challenges a decision of a corporate Board of Directors as being "unreasonable" - which is another way of saying arbitrary and capricious. Pursuant to CPLR § 7802 (a) and 7803, an action challenging a decision of a corporate board as being arbitrary and capricious is governed by CPLR Article 78. As this Court stated in Levandusky: Application of ... [the business judgment] doctrine is appropriate because a cooperative corporation is-in fact and function-a corporation, acting through the management of its board of directors, and subject to the Business Corporation Law. Id at 538. Since the cooperative is a corporation, a challenge to a Board decision is properly brought under Article 78. The Levandusky case was brought under Article 78. In Katz v. Third Colony Corp., 101 A.D.3d 652 (1st Dept. 2012), the court held that a challenge to the application of a transfer fee was properly governed by Article 78 and was barred by the four months statute of limitations, CPLR § 217(1). Accord, Dobbins v. 24 Riverview Equities Corp., 64 A.D.3d 404 (1 8 t Dept. 2009) (action to set aside a riser policy and obtain reimbursement of an assessment was governed by four month statute); Buttitta v. Greenwich House Cooperative Apartments, Inc., 11 A.D.3d 250 (1 9 t Dept. 2004) (claim that board acted in bad faith by treating shareholders differently was governed by Article 78); Musey v. 425 East 86 Apartments Corp., 2015 WL 4365395 (Sup. Ct. NY Co. 2015) ( challenge to decision requiring the shareholder to put waterproofing on a terrace); The Kibel Companies, LLC v. Highpoint-on-the-Hudson Owner's Inc., 2015 WL 1814331 (Sup.Ct. NY Co. 2015) (Claim that imposition of a sublet fee was a breach of contract was governed by a four month statute) . In the court below, the decision of the board was determined to be a claim of a breach of contract, and not a claim based on an arbitrary decision governed by Art. 78. See also Konigsberg v. 333 East 46th Street Apartment Corp., 2016 WL 3455940 (Sup. Ct. NY Co. 2016) (Board determination not to permit an increase in electric power to an apartment was a claim for breach of contract) . The majority decision did not attempt to distinguish these prior decisions holding that a four month statute did apply, nor did it attempt to explain why decisions involving a transfer fee, a riser policy, an assessment, a 25 discriminatory decision, or imposition of a sublet fee were governed by article 78, but a decision involving an application for transfer of an apartment was to be treated as a breach of the lease. We point out that the majority below determined that the board "unreasonably" withheld its consent - which sounds very much like a determination that the board's decision was arbitrary and capricious and thus violated CPLR 7803. With all due respect to the lower courts here, the determination of when a board action is governed by Article 78 and when it is deemed to be a breach of contract seems to be somewhat subjective, and invites inconsistent decisions, excessive judicial oversight of the decisions of cooperative boards, "undue court involvement and judicial second-guessing", Levandusky, 75 N.Y.2d at540, confusion on the part of boards and shareholders as to what their rights are, and more litigation. Virtually every decision of a cooperative board, when applied to affect the rights of an individual shareholder, can be claimed to be both in violation of Article 78 .and a breach of the proprietary lease. As noted above, this Court held in Levandusky that: 26 For the guidance of the courts and all other interested parties, obviously a single standard for judicial review of the propriety of board action is desirable, irrespective of the happenstance of the form of the lawsuit challenging that action ... we see no purpose in allowing the form of the action to dictate the substance of the standard by which the legitimacy of corporate action is to be measured. 75 N.Y. 2d at 541. This Court continued: By the same token, unnecessary confusion is generated by prescribing different standards for different categories of issues that come before cooperative boards--for example, a standard of business judgment for choices between competing economic options, but rationality for the administration of corporate bylaws and rules governing shareholder-tenant rights .... There is no need for two rules when one will do, particularly since corporate action often partakes of each category of issues. Id. at 541 These principles apply with equal force to the present situation. There should be one statute of limitations for shareholder challenges to all board decisions, regardless of how plaintiff's counsel chooses to frame the complaint. As Justice Titone further pointed out in his concurring opinion, Article 78 is the proper form for a challenge involving the administration of shareholders rights vis a vis the board and the corporation, He explained: The justification for article 78 review in these circumstances is, quite simply, that the authority of corporations and their directors to act is derived directly from franchises issued by the State ... Since the decision of which petitioner complains was a discretionary act affecting shareholders' rights and was made by a board of directors acting pursuant to the bylaws and rules of a 27 franchised corporation, article 78 review was plainly the proper remedy. This Court determined that as a matter of substance, the "arbitrary and capricious" standard of Article 78 was met if the board acted in accord with the business judgment rule. As this Court stated in the Pullman case: "Levandusky ... was framed as a CPLR article 78 proceeding, but we applied the business judgment rule as a concurrent form of "rationality" and "reasonableness" to determine whether the decision was "arbitrary and capricious" pursuant to CPLR 7803(3). Pullman, 100 N.Y.2d at 154. Accordingly, there should be one statute of limitations for all actions challenging decisions of a cooperative board, and Article 78 should supply the standard regardless of the form of the specific lawsuit. CONCLUSION The decision below should be reversed, and summary judgment should be awarded to the Cooperative dismissing the causes of action challenging the decision to deny consent to the transfer of the apartment in question. 28 Dated: New York, New York August 19, 2016 I hereby certify that the is 6008. { Marc J. Luxemburg Attorney for Council of Cooperatives and Condominiums Amicus Curiae Gallet Dreyer & Berkey, LLP 845 Third Avenue, 5th Floor New York, New York 10022 (212) 935-3131 in this document 29