Cooperatives & Condominiums

Condominium Unit Owners May Bring Derivative Action

Caprer v. Nussbaum

NYLJ 10/24/06, p. 22, col. 1

AppDiv, Second Dept

(Opinion by Spolzino, J.)

Condominium unit owners brought an action, individually and derivatively on behalf of the condominium, against condominium board members, the condominium sponsor, the managing agent, and the condominium's accountant, alleging, among other claims, breach of fiduciary duty, breach of contract, fraud, and tortious interference with prospective economic advantage. Unit owners appealed from Supreme Court's grant of summary judgment to defendants on all claims other than a breach of contract claim against the sponsor and a breach of fiduciary duty claim against board members. The Appellate Division modified to restore many of unit owners' claims, holding that unit owners may bring a derivative action to protect their interests in the common elements of a condominium.

Sponsor converted the subject building to condominium ownership in 1987. Principals of the sponsor became members of the condominium board. Principals also own the corporations that have served as managing agents of the condominium since conversion. Unit owners allege that the various defendants ' the sponsor, the board members, the managing agent, and the corporation's accountant ' committed acts of financial mismanagement, concealed financial records, failed to provide accurate records, failed to maintain the reserve fund, misappropriated funds, and engaged in self-dealing. Defendants, however, contended that unit owners lacked capacity to assert derivative claims, and lacked standing to assert many of the individual claims.

COMMENT

Tenants-in-common can bring unilateral actions against a fellow co-tenant to recover damages resulting from waste. See NY CLS RPAPL ' 817 (2006). For example, in Hoolihan v. Hoolihan, 193 N.Y. 197, the court held that an aunt, who owned property as tenants in common with her nephew and other family members, could maintain an action for waste against the nephew, who had cut down trees on the property, without joining the other co-tenants in the action.

However, tenants-in-common cannot bring unilateral actions against third parties to recover damages but rather must join all tenants-in-common in the complaint. Thus, in Eckerson v. Village of Haverstraw, 6 App Div 102, 39 N.Y.S. 635, the court held that the trial court had properly dismissed a co-tenant's complaint in a trespass action when plaintiff co-tenant had not joined all of the co-tenants in the action. The court held that the other co-tenants were necessary parties to the action. More recently, in Vicario v. Raymond, 44 A.D. 2d 863, the court dismissed a co-tenant's action seeking damages against a superintendent who continued to use a residence owned by three tenants-in-common. In dismissing the suit, the court reasoned that the resolution of the dispute could adversely affect the rights of the other tenants-in-common who were not parties to the action.

In Caprer, however, the court indicated that a tenant-in-common, even if barred from bringing a unilateral action against a third party, is entitled to bring a derivative action on behalf of other cotenants. Courts have permitted members of entities such as partnerships, trusts and limited liability companies ('LLC') to bring derivative actions against third parties to recover damages. The court in Riviera Congress Associates v. Yassky, 18 N.Y. 2d 540, held that limited partners were authorized to bring a derivative action to recover unpaid rent on behalf of the partnership when the general partners had wrongfully declined to sue for rent. Similarly, the court held in Velez v. Feinstein 87 A.D.2d 309 that beneficiaries of a trust were permitted to bring a derivative action on behalf of the trust against third parties to recover damages when the trustees had failed to protect the common interests of the beneficiaries. See also Bischoff v. Boar's Head Provisions Co., 436 F. Supp. 2d 626, [ the court held that several members of a LLC could bring a derivative suit on behalf of the LLC].

Conditions Imposed By Condominium Board Entitle Purchaser to Return of Down Payment

Lisenenkov v. Kaszirer

NYLJ 11/2/06, p. 23, col. 3

Supreme Ct., N.Y. Cty

(Lehner. J.)

In an action by condominium purchaser for return of her down payment, purchaser moved for summary judgment. The court granted purchaser's motion, holding that because conditions imposed by the condominium board prevented title insurer from insuring title, purchase was excused from performing the sale contract.

When purchaser contracted to buy the subject condominium apartment, purchaser paid a down payment of $84,000. The contract also required purchaser to accept title subject to matters that a title insurer 'shall be willing, without special or additional premium, to omit as exceptions to coverage … ' Finally, the contract provided that the sale was conditioned upon 'waiver of a right of first refusal to purchase the unit held by the Condominium … ' When purchaser sought a waiver from the condominium board, the board demanded payment of more than $20,000 as an advance of future common charges before the board would execute the waiver (even though, apparently, the board held no right of first refusal). Purchaser refused to pay the advance. As a result, title insurer was unwilling to omit the right of first refusal as an exception, and purchaser's bank was unwilling to complete the loan transaction. Purchaser then brought this action for return of her down payment.

In awarding summary judgment to purchaser, the court held that the action by the condominium board made it impossible for seller to deliver the insurable title required by the sale contract. The court noted that even if the title insurer had been arbitrary in refusing to insure title, it was the seller's burden to secure the performance of the title insurer, and here the seller did not meet that burden. As a result, purchaser was entitled to return of the down payment.

Condominium Unit Owners May Bring Derivative Action

Caprer v. Nussbaum

NYLJ 10/24/06, p. 22, col. 1

AppDiv, Second Dept

(Opinion by Spolzino, J.)

Condominium unit owners brought an action, individually and derivatively on behalf of the condominium, against condominium board members, the condominium sponsor, the managing agent, and the condominium's accountant, alleging, among other claims, breach of fiduciary duty, breach of contract, fraud, and tortious interference with prospective economic advantage. Unit owners appealed from Supreme Court's grant of summary judgment to defendants on all claims other than a breach of contract claim against the sponsor and a breach of fiduciary duty claim against board members. The Appellate Division modified to restore many of unit owners' claims, holding that unit owners may bring a derivative action to protect their interests in the common elements of a condominium.

Sponsor converted the subject building to condominium ownership in 1987. Principals of the sponsor became members of the condominium board. Principals also own the corporations that have served as managing agents of the condominium since conversion. Unit owners allege that the various defendants ' the sponsor, the board members, the managing agent, and the corporation's accountant ' committed acts of financial mismanagement, concealed financial records, failed to provide accurate records, failed to maintain the reserve fund, misappropriated funds, and engaged in self-dealing. Defendants, however, contended that unit owners lacked capacity to assert derivative claims, and lacked standing to assert many of the individual claims.

COMMENT

Tenants-in-common can bring unilateral actions against a fellow co-tenant to recover damages resulting from waste. See NY CLS RPAPL ' 817 (2006). For example, in Hoolihan v. Hoolihan , 193 N.Y. 197, the court held that an aunt, who owned property as tenants in common with her nephew and other family members, could maintain an action for waste against the nephew, who had cut down trees on the property, without joining the other co-tenants in the action.

However, tenants-in-common cannot bring unilateral actions against third parties to recover damages but rather must join all tenants-in-common in the complaint. Thus, in Eckerson v. Village of Haverstraw , 6 App Div 102, 39 N.Y.S. 635, the court held that the trial court had properly dismissed a co-tenant's complaint in a trespass action when plaintiff co-tenant had not joined all of the co-tenants in the action. The court held that the other co-tenants were necessary parties to the action. More recently, in Vicario v. Raymond , 44 A.D. 2d 863, the court dismissed a co-tenant's action seeking damages against a superintendent who continued to use a residence owned by three tenants-in-common. In dismissing the suit, the court reasoned that the resolution of the dispute could adversely affect the rights of the other tenants-in-common who were not parties to the action.

In Caprer, however, the court indicated that a tenant-in-common, even if barred from bringing a unilateral action against a third party, is entitled to bring a derivative action on behalf of other cotenants. Courts have permitted members of entities such as partnerships, trusts and limited liability companies ('LLC') to bring derivative actions against third parties to recover damages. The court in Riviera Congress Associates v. Yassky , 18 N.Y. 2d 540, held that limited partners were authorized to bring a derivative action to recover unpaid rent on behalf of the partnership when the general partners had wrongfully declined to sue for rent. Similarly, the court held in Velez v. Feinstein 87 A.D.2d 309 that beneficiaries of a trust were permitted to bring a derivative action on behalf of the trust against third parties to recover damages when the trustees had failed to protect the common interests of the beneficiaries . See also Bischoff v. Boar's Head Provisions Co. , 436 F. Supp. 2d 626, [ the court held that several members of a LLC could bring a derivative suit on behalf of the LLC].

Conditions Imposed By Condominium Board Entitle Purchaser to Return of Down Payment

Lisenenkov v. Kaszirer

NYLJ 11/2/06, p. 23, col. 3

Supreme Ct., N.Y. Cty

(Lehner. J.)

In an action by condominium purchaser for return of her down payment, purchaser moved for summary judgment. The court granted purchaser's motion, holding that because conditions imposed by the condominium board prevented title insurer from insuring title, purchase was excused from performing the sale contract.

When purchaser contracted to buy the subject condominium apartment, purchaser paid a down payment of $84,000. The contract also required purchaser to accept title subject to matters that a title insurer 'shall be willing, without special or additional premium, to omit as exceptions to coverage … ' Finally, the contract provided that the sale was conditioned upon 'waiver of a right of first refusal to purchase the unit held by the Condominium … ' When purchaser sought a waiver from the condominium board, the board demanded payment of more than $20,000 as an advance of future common charges before the board would execute the waiver (even though, apparently, the board held no right of first refusal). Purchaser refused to pay the advance. As a result, title insurer was unwilling to omit the right of first refusal as an exception, and purchaser's bank was unwilling to complete the loan transaction. Purchaser then brought this action for return of her down payment.

In awarding summary judgment to purchaser, the court held that the action by the condominium board made it impossible for seller to deliver the insurable title required by the sale contract. The court noted that even if the title insurer had been arbitrary in refusing to insure title, it was the seller's burden to secure the performance of the title insurer, and here the seller did not meet that burden. As a result, purchaser was entitled to return of the down payment.