“Objectionable” Shareholders

signing lease

This memorandum was initially issued by the cooperative/condominium practice group of Balber Pickard Maldonado & Van Der Tuin, PC which joined Smith, Gambrell & Russell, LLP on February 1, 2017 and now practices as part of SGR’s cooperative/condominium practice group.

We are pleased to report that the New York Court of Appeals in 40 West 67th Street Corp. v. Pullman unanimously affirmed the decision our firm obtained last May from an intermediate appellate court.  As you may recall, in that decision, a divided court upheld a cooperative’s right to terminate a shareholder’s proprietary lease on account of “objectionable” conduct.  This unanimous decision from New York’s highest court is a major development for cooperatives.

The opinion has been widely reported in The New York Times, the New York Post, Newsday and the New York Law Journal, as well as local broadcast mediaA copy of the article from the New York Law Journal is enclosed.

The proprietary lease at issue in the litigation provided for termination of the lease by the board of directors after a super-majority vote of the shareholders at a special shareholders’ meeting.  The Court of Appeals held that the termination by the cooperative should be upheld so long as (i) the procedures set forth in the proprietary lease were strictly adhered to, (ii) the board acted within the scope of its authority, (iii) the termination legitimately furthered the corporate purposes of the cooperative, and (iv) the board did not act in bad faith.  The court made clear that, under normal circumstances, the courts should not second-guess the cooperative’s judgment as to whether or not particular conduct is “objectionable”.

The process for ousting a problem shareholder may still be lengthy, expensive and fraught with difficulty.  However, the Court’s opinion in Pullman should provide cooperatives with a powerful tool, if carefully and judiciously used, to protect shareholders and their investments in their apartments from the occasional shareholder who is disruptive and a threat to the social or financial welfare of the cooperative as a whole.

The Pullman case was prosecuted by us as part of our extensive practice representing cooperatives.  If you would like a copy of the complete decision, or would like to discuss the case and its ramifications for your cooperative or a cooperative that you manage, please call any of us.

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