Cooperatives & Condominiums

Shareholder Religious Discrimination Claims

Cohen v. Kings Point Tenant Corp.

NYLJ 3/20/15, p. 28, col. 6

AppDiv, Second Dept.

(memorandum opinion)

In an action by coop shareholders against members of the coop board for breach of fiduciary duty, the board members appealed from Supreme Court's denial of their motion to dismiss the complaint. The Appellate Division reversed, holding that shareholders' claims of religious discrimination were too conclusory to survive a motion to dismiss.

Shareholders alleged that the board members breached their fiduciary duty by failing to address chronic water leakage and mold infestation throughout the building, and particularly in shareholders' apartment. They sought damages, contending that the board members' action was motivated by discrimination based on shareholders' religion. Supreme Court denied the board members' motion to dismiss.

In reversing, the Appellate Division relied on the business judgment rule, which requires courts to defer to a coop board's determinations so long as the board acts for the purposes of the coop, within the scope of its authority, and in good faith. The court acknowledged that decisions made for discriminatory reasons are not protected by the business judgment rule,the court held that a complaint that makes only conclusory allegations of discrimination is not sufficient to overcome the business judgment rule. Here, because the complaint included no factual basis for its allegations of discrimination, the complaint should have been dismissed.

COMMENT

The business judgment rule does not bar a discrimination claim against a co-op board when the complaining shareholder introduces concrete evidence of differential treatment The court in Cohen v. Seward Park Hous. Corp., 7 Misc. 3d 1015(A), 801 N.Y.S.2d 231, denied the coop board's motion to dismiss the shareholders' claim of religious discrimination, when the shareholders introduced evidence that the board denied them the opportunity to purchase an adjoining apartment despite approving similar offers by other shareholders in the past. The court also noted the shareholders ' claims that their offer was reasonable, that they were never in default of any payment, and that shareholders with “personal relationships“ to board members were allowed to make similar purchases of additional apartments for below market value.

Conversely, when a shareholder makes undocumented claims of discrimination, the business judgment rule insulates the board's actions from close judicial scrutiny. The court in Sayeh v. 66 Madison Ave. Apt. Corp., 73 A.D.3d 459, 901 N.Y.S.2d 26 granted summary judgment in favor of the board on the shareholder's undocumented claim of discrimination based on national origin. The board had refused to permit plaintiff shareholder to purchasing an eighth unit in a residential coop, but the shareholder rested his assertion of discrimination entirely upon undocumented claims. The court held that the discrimination claim against the coop management company was conclusory and insufficient to surmount the business judgment rule.

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Condominium Board Properly Exercised First Refusal Right

The South Tower Residential Board of Managers of Time Warner Center Condominium v. The Ann Holdings, LLC

127 A.D.3d 485

AppDiv, First Dept.

(memorandum opinion)

In an action by condominium board to enforce its right of first refusal, unit owner appealed from Supreme Court's grant of summary judgment to the condominium board. The Appellate Division affirmed, holding that the business judgment rule protected the board's exercise of its first refusal right, even though the board exercised the right to benefit the husband of a board member.

The condominium bylaws give the condominium a right of first refusal after any unit owner's execution of a sale contract. The bylaws also authorize the condominium to name a designee to exercise that right. When unit owner arranged a sale of its unit, the condominium assigned its right of first refusal to a corporation whose principal is the husband of a board member. The board member and her husband owned an adjoining unit. As part of the deal, the husband agreed to pay $400,000 to the condominium to license the hallway between the two units. Unit owner objected to the board's exercise, and the board brought this action to enforce its first refusal right. Supreme Court awarded summary judgment to the board.

In affirming, the Appellate Division first concluded that the bylaws permitted the board to assign its first refusal right to any designee, not merely a designee organized and owned by the condominium. The court then rejected unit owner's argument that the business judgment rule was inapplicable because the board had engaged in favoritism on behalf of the board member. The court noted first that the board had a legitimate reason for assigning its right to the board member's husband's corporation: payment of the $400,000 license fee. The court then noted that even if favoritism existed, the unit owner had failed to show prejudice, because unit owner would receive the same price as it would have received from the buyer it had selected.

'

Shareholder Religious Discrimination Claims

Cohen v. Kings Point Tenant Corp.

NYLJ 3/20/15, p. 28, col. 6

AppDiv, Second Dept.

(memorandum opinion)

In an action by coop shareholders against members of the coop board for breach of fiduciary duty, the board members appealed from Supreme Court's denial of their motion to dismiss the complaint. The Appellate Division reversed, holding that shareholders' claims of religious discrimination were too conclusory to survive a motion to dismiss.

Shareholders alleged that the board members breached their fiduciary duty by failing to address chronic water leakage and mold infestation throughout the building, and particularly in shareholders' apartment. They sought damages, contending that the board members' action was motivated by discrimination based on shareholders' religion. Supreme Court denied the board members' motion to dismiss.

In reversing, the Appellate Division relied on the business judgment rule, which requires courts to defer to a coop board's determinations so long as the board acts for the purposes of the coop, within the scope of its authority, and in good faith. The court acknowledged that decisions made for discriminatory reasons are not protected by the business judgment rule,the court held that a complaint that makes only conclusory allegations of discrimination is not sufficient to overcome the business judgment rule. Here, because the complaint included no factual basis for its allegations of discrimination, the complaint should have been dismissed.

COMMENT

The business judgment rule does not bar a discrimination claim against a co-op board when the complaining shareholder introduces concrete evidence of differential treatment The court in Cohen v. Seward Park Hous. Corp., 7 Misc. 3d 1015(A), 801 N.Y.S.2d 231, denied the coop board's motion to dismiss the shareholders' claim of religious discrimination, when the shareholders introduced evidence that the board denied them the opportunity to purchase an adjoining apartment despite approving similar offers by other shareholders in the past. The court also noted the shareholders ' claims that their offer was reasonable, that they were never in default of any payment, and that shareholders with “personal relationships“ to board members were allowed to make similar purchases of additional apartments for below market value.

Conversely, when a shareholder makes undocumented claims of discrimination, the business judgment rule insulates the board's actions from close judicial scrutiny. The court in Sayeh v. 66 Madison Ave. Apt. Corp., 73 A.D.3d 459, 901 N.Y.S.2d 26 granted summary judgment in favor of the board on the shareholder's undocumented claim of discrimination based on national origin. The board had refused to permit plaintiff shareholder to purchasing an eighth unit in a residential coop, but the shareholder rested his assertion of discrimination entirely upon undocumented claims. The court held that the discrimination claim against the coop management company was conclusory and insufficient to surmount the business judgment rule.

'

Condominium Board Properly Exercised First Refusal Right

The South Tower Residential Board of Managers of Time Warner Center Condominium v. The Ann Holdings, LLC

127 A.D.3d 485

AppDiv, First Dept.

(memorandum opinion)

In an action by condominium board to enforce its right of first refusal, unit owner appealed from Supreme Court's grant of summary judgment to the condominium board. The Appellate Division affirmed, holding that the business judgment rule protected the board's exercise of its first refusal right, even though the board exercised the right to benefit the husband of a board member.

The condominium bylaws give the condominium a right of first refusal after any unit owner's execution of a sale contract. The bylaws also authorize the condominium to name a designee to exercise that right. When unit owner arranged a sale of its unit, the condominium assigned its right of first refusal to a corporation whose principal is the husband of a board member. The board member and her husband owned an adjoining unit. As part of the deal, the husband agreed to pay $400,000 to the condominium to license the hallway between the two units. Unit owner objected to the board's exercise, and the board brought this action to enforce its first refusal right. Supreme Court awarded summary judgment to the board.

In affirming, the Appellate Division first concluded that the bylaws permitted the board to assign its first refusal right to any designee, not merely a designee organized and owned by the condominium. The court then rejected unit owner's argument that the business judgment rule was inapplicable because the board had engaged in favoritism on behalf of the board member. The court noted first that the board had a legitimate reason for assigning its right to the board member's husband's corporation: payment of the $400,000 license fee. The court then noted that even if favoritism existed, the unit owner had failed to show prejudice, because unit owner would receive the same price as it would have received from the buyer it had selected.

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