DNCT recently obtained an Order in a Civil Court summary holdover proceeding upholding a Co-op’s termination of a shareholder’s proprietary lease based upon objectionable conduct and ordering the issuance of a warrant of eviction for the removal of the shareholder from possession of her apartment. Windsor Terrace v Advani, Civ. Ct., Queens Co.
The Co-op issued five notices to the shareholder concerning her objectionable conduct granting her the opportunity to cure her objectionable conduct, as a courtesy, although not required by the Co-op’s governing documents. The shareholder failed to cure her objectionable conduct. The Co-op then sent the shareholder a notice inviting her to appear before the Board at a special meeting to respond to the claims of her objectionable conduct; however, the shareholder refused to attend the meeting.
The Board, at a duly called meeting, unanimously voted to terminate the shareholder’s proprietary lease and issued a 5-Day Notice terminating the lease and advising her tenancy would terminate on February 28, 2022. The Shareholder failed to vacate the apartment resulting in the Co-op commencing a summary holdover proceeding seeking her eviction. The Co-op ultimately moved for summary judgment and Judge John Lansden, in an Order dated July 31, 2023 granted the Co-op summary judgment. In granting the Co-op summary judgment, Judge Lansden held that the Court should defer, pursuant to the Business Judgment Rule, to a Board’s vote as competent evidence that the shareholder’s conduct is objectionable. It is then the shareholder’s burden to persuade the Court why the Court should not apply the Business Judgment Rule and, to satisfy that burden, the shareholder must make a showing that the Board (1) acted outside the scope of its authority, (2) in a way that did not legitimately further the Co-op’s purpose, or (3) acted in bad faith.
Judge Lansden held that the Co-op Board followed the termination procedures expressly laid out in the proprietary lease thereby demonstrating that the Board acted within the scope of its authority in terminating the shareholder’s lease. Judge Lansden also held that the Co-op Board established that the shareholder repeatedly acted against the will of the Co-op by repeatedly violating the provisions of the proprietary lease and, therefore, demonstrated that the Board’s decision to terminate the shareholder’s proprietary lease legitimately furthered the Co-op’s corporate purpose. Finally, Judge Lansden found that other than her own conclusory assertions of bad faith, the shareholder failed to proffer any evidence to raise an issue of fact concerning her claim that the Board acted in bad faith. As such, Judge Lansden held that the Co-op was entitled to summary judgment.
While termination of a shareholder proprietary lease based upon objectionable conduct is not easy, if proper procedures are strictly adhered to and documented, the Court is bound, by the Business Judgment Rule, to defer to a Board’s vote as competent evidence that the shareholder’s conduct is objectionable, thereby shifting the burden of proof to the shareholder that the Co-op Board acted in bad faith, which burden cannot be satisfied by mere conclusory, self-serving allegations of bad faith.