Cooperatives – What is the standard “Business judgment rule” or “unreasonably withholding consent”?

Have you purchased a cooperative and own shares and a proprietary lease? Or are you a member of the Board of Directors? Are you represented by lawyers who tell you the standard is the business judgment rule?

Think again, the standard is the contract rule of “unreasonably withholding consent” unless you are suing the individual board members and then the standard is “the business judgment rule”. If the unreasonably withholding consent standard is found in the proprietary lease, the Board must have a reasonable reason to deny the purchase.

See the cases of: Ludwig v. 25 Plaza Tenants Corp.,184 A.D.2d 623 (1992) and 2015 NY Slip Op 25401 MURRAY BERKOWITZ, AS ADMINISTRATOR FOR THE ESTATE OF MARTIN BERKOWITZ and ADMINISTRATOR FOR THE ESTATE OF SYLVIA BERKOWITZ, NOW DECEASED, Plaintiff, v. 29 WOODMERE BLVD. OWNERS’, INC., ALEXANDER WOLF & COMPANY, INC., STEVEN MIRKSY, ERIC J. KINNEY, JEANNE KINNEY, LON SAMUELSON, LISA ARIAN, FRANCINE ROSEN, AND ANGELA DALMAZIO, Defendants. 3203/2012.Supreme Court, Nassau County. Decided December 2, 2015.Mildred J. Michalczyk, Esq., Plaintiff’s Attorney. Ryan Mitola, Esq. of Schneider Mitola LLP, Defendants’ Attorney. by LEONARD D. STEINMAN, J.


Can a cooperative attorney obtain legal fees from you if you sue?

The answer depends on the language found in your proprietary lease. See Justice Sher’s decision in SYLVIA BERKOWITZ, as Executrix for the Estate of MARTIN BERKOWITZ, now deceased, and Individually’ Plaintiffs, – against – 29 WOODMERE BLVD. OWNERS’, INC., ALEXANDER WOLF AND COMPANY, STEVEN MIRSKY, ERIC J. KINSEY, JEANNE KINSEY, LORI SAMUELSON, LISA ARIAN, FRANCINE ROSEN ANd ANGELA DELMAZIO, TRIAL/IAS PART 33 NASSAU COUNTY Index No.: 3203/12 Motion Seq. No.: 04 Motion Date: 05/06/13 Defendants.

Recent appellate authority supports this conclusion. Identical language to that in paragraph twenty-eight (28) of the proprietary lease between the parties hereto has been recently construed by the Appellate Division, Second Department, to provide for recovery of attomeys’ fees by landlords in cases where breaches of proprietary leases by tenants were alleged. See Great NeckTerrace Owners Corp v. McCabe,2O11 WL 3471233 (Supreme Court Nassau County 20ll) af’d 101 A.D.3d 944, 957 N.Y.S.2d2l6 (ZdDept 2012) (failure (sic) to clean cat urine and refusal to provide access). ln St. George Tower & Grill Owners Corp. v. Honig, 232 A.D’zd 475′ 648 N.Y’S.2d 172 (2d Dept. 1996), the Appellate Court quoted paragraph twenty-eight (28) of the lease therein, which is identical to paragraph twenty-eight (28) of the parties’ lease herein. The Court found the lease provision inapplicable because it “applies to actions which are commenced as a result of the tenant’s default.” Id. at 476. There, the underlying actions did not concem the tenant’s default but rather the landlord’s refusal to consent to sublets. The tenant’s motion for judgment dismissing the new complaint by the landlord for recovery of attorneys’ fees in defending the underlying actions was granted pursr.rant to CPLR $ 321 1. See also Maliner-Cohtin v. 85-I0 34’h Ave- Apt. Corp.,284 A.D.2d 434,726 N.Y.S.2d 861 (2d Dept. 2001)(summary judgment dismissing counterclaim for attomeys’ fees affirmed where plaintiff sued for declaration that it is a holder of unsold shares).

This Court determined, in its prior Order, that the Verified Complaint herein alleges claims against defendants for breach of fiduciary duty and breach ofthe implied covenant of good faith and fair dealing. In their Answer with Counterclaim, defendants do not allege any default or breach ofthe lease by plaintiffs. Under these circumstances where no default is alleged, defendants have no cause of action for recovery ofexpenses, including attomeys’ fees, pursuant to paragraph twenty-eight (28) ofthe proprietary lease. Recent appellate authority supports this conclusion. Identical language to that in paragraph twenty-eight (28) ofthe proprietary lease between the parties hereto has been recently construed by the Appellate Division, Second Department, to provide for recovery of attomeys’ fees by landlords in cases where breaches of proprietary leases by tenants were alleged. Finally defendants do not allege the existence ofany other agreement with plaintiffs, any statute or any court rule authorizing recovery of such fees. See Mount Vernon City School Dist. v. Nova Cas. Co., 19 N.Y.3d 28, 945 N.Y.S.2d 202 (2012) citing Maffer of A G. Ship Maintenance Corp. v. Lezak,69 N.Y.2d l, 511 N.Y.S.2d 216 (1986).

Based on the foregoing, on this record, defendants have no cause of action against plaintiffs for recovery ofexpenses, including attorneys’ fees, and tlerefore, plaintiffs are entitled to judgment dismissing the counterclaim for such relief pursuant to CPLR $ 3211(aX7)’

White v. Mazzella White, 60 AD3d 1047 (Appellate Division Second Department [2009]), wherein the Supreme Court erred in determining that the Trustee in bankruptcy had the power to enter into a stipulation determining defendant's equitable interest in the marital residence, in precluding the defendant from being heard on the question of the distribution of that asset, and in entering judgment in accordance with that stipulation. Read full decision: White v. Mazzella White 
Blackman v. Blackman, 131 Ad2d 801, 517 NYS 2d 167 (Appellate Division Second Department [1987]), affirmed in part, reversed in part, directing the father to pay health insurance and medical costs for the infant child, and reversing the vacatur of the income execution. 
Gross, et al.  v. Levine, et al., __ AD2d__, __ NYS2d __ (Appellate Division Second Department [1989]), lv. denied 74 NY2d 610, 545 NE 2d 868, 546 NYS 2d 554 (1989), rearg denied, 74 NY2d 945,549 NE2d 481, 550 NYS 2d 279 (1989). Levine, et al. v. Gross, et al., 177 AD 2d 290, 575 NYS 2d 864 (Appellate Division First Department [1991]), where the Court affirmed an order that granted the law firm's motion for summary judgment that dismissed the beneficiaries' negligence and legal malpractice complaint against the law firm and that denied the beneficiaries' for summary judgment.

Legal Definitions

Will:    A document by which a person (the testator) regulates the rights of other over his or her property or family after death.

Trust: Property held by one for the benefit of another. 
Revocable Trust - A trust instrument that can be changed during the Settler’s lifetime (person creating the Trust). 
Irrevocable Trust- A trust instrument that cannot be changed during the Settler’s lifetime (person creating the Trust.) 
Health Care Proxy- A document appoints an individual (a proxy) to direct health care decisions should be principal be unable to do so.
Power of Attorney- A document in which a person designates another to handle affairs for him or her during certain times during his life. 
Living Will-A document with specific directives as to the course of treatment that is to be taken by caregivers, or, in particular, in come case forbidding treatment and sometimes nutrition and hydration should the principal be unable to give informed consent due to incapacity.

Specifics on Issues

Divorce and Property Settlements and Equitable Distribution:  Mildred Michalczyk has extensive experience in the areas of property settlements and equitable distribution. 

Pension, Profit Sharing, and Retirement Accounts:    Mildred Michalczyk is familiar with  division of pension and profit sharing plans, 401 K plans, and other type of retirement accounts.   
Business Valuations: Mildred Michalczyk is also familiar with complicated  issues involving business valuations, issues regarding distributions, stock in a closely held corporation, and dividends.   
Professional Valuations:  Mildred Michalczyk can also assist with  professional valuations, and other non-tangible assets, such as valuations of educational degrees which have enhanced earnings.   
Court Appointed Neutral Forensic Evaluators:     Mildred Michalczyk is fully familiar with most "Neutral Forensic Evaluators" that the Court Appoints to assist with business valuations and can let you know what documents to allow the valuation to proceed and whether you should hire your own expert. 
Appellate Practice: The reported and unreported decisions of Blackman v. Blackman, Gross v. Levine, In the Matter of Randall v. Randall Comfort v. Lynch. The appeals involve the issues of Family Court Jurisdiction, Relocation, Legal Malpractice, Breach of the Judiciary Law, and Property Settlements and Exclusive Occupancy of the Marital Residence.




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