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A LEASE BETWEEN PLAINTIFF CORPORATION AND DEFENDANTS (ONE OF WHOM WAS A MEMBER OF PLAINTIFF’S BOARD) WAS NOT VOTED ON BY A MAJORITY OF DISINTERESTED DIRECTORS AND WAS THEREFORE VOIDABLE UNDER BUSINESS CORPORATION LAW 713(B); DEFENDANTS BREACHED THEIR FIDUCIARAY DUTY TO THE CORPORATION BY SUBLETTING THE LEASED PREMISES FOR A MUCH HIGHER RENT WITHOUT PLAINTIFF’S KNOWLEDGE (FIRST DEPT).

The First Department, reversing Supreme Court, determined plaintiff cooperative apartment corporation (HDFC) demonstrated defendants (one of whom was a member of plaintiff’s board) had entered a lease with plaintiff which was not voted upon by a majority of disinterested directors and was therefore voidable under Business Corporation Law 713(b). In addition plaintiff demonstrated defendants had breached their fiduciary duty to the corporation:

Plaintiff, a low-income cooperative apartment corporation (HDFC), established prima facie that the lease between plaintiff and defendants Thomas Green and A Cup of Harlem was not voted on by a majority of disinterested directors and is therefore voidable under Business Corporation Law § 713(b). A Cup of Harlem is a partnership between Thomas Green and Siwana Green, who are married. Siwana Green is a shareholder in the HDFC and a former officer and member of plaintiff’s board of directors. By lease dated April 1, 2004, while Siwana Green was one of three members of the board, plaintiff leased one of the two commercial spaces in the building to Thomas Green and A Cup of Harlem for a 99-year term, with a monthly rent of $700 for the entirety of the term and an option to extend the lease for a 10-year term at a rate of $800 per month. In support of its motion, plaintiff submitted a former board member’s affidavit that he was elected to a one-year term in February 2004, that he only learned of the lease in 2018, when Siwana Green was removed from the board, and that he never would have approved a lease with such “outlandish” terms. …

The record demonstrates that Siwana Green breached her fiduciary duty to plaintiff by diverting a corporate opportunity without plaintiff’s knowledge or consent and admittedly receiving more than $200,000 profit from the sublessee to whom, in March 11, 2009, Thomas Green sublet the leased premises at a monthly rent of $2,500 for a ten-year term, which was then renewed for a monthly rent of $2,800. 67-69 St. Nicholas Ave. Hous. Dev. Fund Corp. v Green, 2022 NY Slip Op 04087, First Dept 6-23-22

Practice Point: Here a low-rent lease between plaintiff corporation and defendants (one of whom was a member of plaintiff’s board) was voidable because the lease was not approved by a majority of disinterested directors. Defendants sublet the leased premises for a much higher rent without plaintiff corporation’s knowledge and thereby breached their fiduciary duty to the corporation.

 

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THE COVID EXECUTIVE ORDERS REQUIRING A SHUTDOWN AND REOPENING RESTRICTIONS DID NOT TERMINATE PLAINTIFF RETAIL STORE’S LEASE AS A MATTER OF LAW; THE DOCTRINES OF FRUSTRATION OF PURPOSE AND IMPOSSIBILITY DO NOT APPLY (FIRST DEPT).

The First Department determined plaintiff retail store (GAP) was not entitled to a termination of its lease by operation of law based upon the New York governor’s COVID shutdown order and subsequent reopening restrictions. Plaintiff relied on the doctrines of frustration of purpose and impossibility, neither of which was deemed applicable:

Plaintiffs admittedly were allowed to provide curbside and in-store pickup on June 8, 2020, and to reopen at half capacity, with masking and social distancing, on June 22, 2020. Moreover, they represent that they were allowed to reopen fully from June 2021, albeit with the mask requirements reimposed during the winter months. Contrary to plaintiffs’ contention, “frustration of purpose is not implicated by temporary governmental restrictions on in-person operations” … . …

We have already rejected plaintiff Gap’s contention that Executive Order No. 202.8 “rendered it objectively impossible to perform its operations as a retail store” where, as here, Gap filed its complaint after reopening was allowed (Gap, Inc. v 170 Broadway Retail Owner, LLC, 195 AD3d at 577). In addition, even if the reopening restrictions made plaintiffs’ ability to provide a flagship store experience more difficult, the pandemic did not render their performance impossible, as “the leased premises were not destroyed” … . Gap, Inc. v 44-45 Broadway Leasing Co. LLC, 2022 NY Slip Op 03980, First Dept 6-16-22

Practice Point: The COVID executive orders requiring GAP to shutdown its retail store and then imposed restrictions on reopening did not terminate GAP’s lease as a matter of law. The contract-law doctrines of frustration of purpose and impossibility did not apply.

 

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THE TENANT (A NET LESSEE), WHICH WAS OBLIGATED BY THE TERMS OF THE LEASE TO PAY PROPERTY TAXES, CAN CHALLENGE A PROPERTY-TAX ASSESSMENT BY FILING A GRIEVANCE PURSUANT TO REAL PROPERTY TAX LAW (RPTL) 524 (3); THE APPELLATE DIVISION HAD RULED ONLY THE PROPERTY OWNER COULD CHALLENGE THE ASSESSMENT (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Wilson, reversing the Appellate Division, determined a tenant who is obligated to pay property taxes can properly file a grievance contesting a property-tax assessment:

RPTL 524 (3) presents an ambiguity. The clause “person whose property is assessed” is not defined in the RPTL, and it lends itself to more than one reasonable interpretation … . * * *

… [W]e … hold that a grievance complaint filed with the assessor or board of assessment review at the administrative level by a net lessee who is contractually obligated to pay real estate taxes on the subject property satisfies RPTL 524 (3). Matter of DCH Auto v Town of Mamaroneck, 2022 NY Slip Op 03929, CtApp 6-16-22

Practice Point: Clearing up an ambiguity in Real Property Tax Law RPTL section 524, the Court of Appeals held that a tenant (a net lessee), which is obligated by the terms of the lease to pay the property taxes, can file a grievance challenging the property-tax assessment. The Appellate Division had held only the property owner could challenge an assessment.

 

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ALTHOUGH THE PLAINTIFFS’ $96,000, CONSTITUTING TWO MONTHS’ RENT AND A SECURITY DEPOSIT, WAS TRANSFERRED TO DEFENDANT FROM AN ATTORNEY’S IOLA ACCOUNT, THE $96,000 CONSTITUTED AN “IDENTIFIABLE FUND” WHICH DEFENDANT “CONVERTED” WHEN IT WAS NOT RETURNED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Rodriguez, over a two-justice dissent, determined the $96,000 transferred from an attorney’s IOLA account to defendant landlord was an “identifiable fund” which was a proper subject of this conversion action. The fund was for two months rent and a security deposit on a lease. But the lease was never signed. By keeping the $96,000 defendant had converted the “identified fund.” One of the points in the opinion was that the transfer of funds to an attorney’s IOLA account does not necessarily render the funds incapable of being “identified:”

… [W]e now clarify that our prior decision in SH575 Holdings [195 AD3d 429], which found that funds were not specifically identifiable by virtue of being transferred into the IOLA account of an attorney involved in a Ponzi scheme, should not be read to preclude a cause of action for conversion when funds at issue have been commingled to any extent. Here, notwithstanding the funds’ transmission through plaintiffs’ attorney’s IOLA account, the funds’ temporary presence in that account did not constitute commingling under any measure pertinent to this cause of action. While the funds were in plaintiffs’ attorneys’ IOLA account, they remained plaintiffs’ funds. Consequently, this conclusion is not at odds with this Court’s holding in SH575 Holdings. Family Health Mgt., LLC v Rohan Devs., LLC, 2022 NY Slip Op 03796, First Dept 6-9-22

Practice Point: Here the plaintiffs’ security deposit and two-months rent amounting to $96,000 were transferred to defendant landlord from an attorney’s IOLA account. However the lease was never signed and defendant did not return the money. Despite the fact that the money was deposited in the IOLA account, it remained an “identifiable fund” and was therefore a proper subject for this conversion action.

 

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A CORPORATE OFFICER OR SHAREHOLDER CANNOT BE PERSONALLY LIABLE FOR NONFEASANCE (DOING NOTHING), AS OPPOSED MISFEASANCE (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, determined the complaint against the individual defendant, John Milevoi, an officer or shareholder of the  property management company, defendant M&L Milevoi Management, must be dismissed. Plaintiff alleged a leak in the ceiling of her apartment caused her slip and fall:

The complaint should be dismissed against the individual defendant John Milevoi, because there is no allegation that his liability stems from an act of misfeasance or malfeasance, as opposed to nonfeasance. A corporate officer or shareholder may not be held personally liable for a failure to act … . Defendant owner and defendant management company, on the other hand, have not established their entitlement to judgment as a matter of law. De Barcacel v 1015 Concourse Owners Corp., 2022 NY Slip Op 02869, First Dept 4-28-22

Practice Point: A corporate officer or shareholder cannot be personally liable for nonfeasance (doing nothing), as opposed to misfeasance. The complaint against the corporate officer or shareholder here was dismissed. But the complaint against the corporation was not. The corporation is a property management company and plaintiff’s slip and fall complaint alleged there was a water leak in her apartment.

 

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CLASS CERTIFICATION SHOULD NOT HAVE BEEN DENIED ON THE GROUND THE CLASS WAS TOO SMALL; PLAINTIFF-TENANTS ALLEGED THE LANDLORD DEREGULATED APARTMENTS WHILE RECEIVING J-51 TAX BENEFITS (FIRST DEPT).

The First Department, reversing Supreme Court, determined plaintiffs, tenants of a 49-unit apartment building, should have been certified as a class. The complaint alleged the landlord deregulated apartments while receiving J-51 tax benefits:

Supreme Court erred in denying class certification on the ground that plaintiffs failed to show that “the class is so numerous that joinder of all members . . . is impracticable” (CPLR 901[a][1]). Borden v 400 E. 55th St. Assoc., L.P. (24 NY3d 382, 383 [2014]) and subsequent cases, such as Maddicks v Big City Props., LLC (34 NY3d 116 [2019]), make it clear that qualified plaintiffs may “utilize the class action mechanism to recover compensatory rent overcharges against landlords who decontrolled apartments in contravention of Rent Stabilization Law of 1969 (RSL) (Administrative Code of City of NY) § 26-516 (a) while accepting tax benefits under New York City’s J-51 tax abatement program.” The legislature contemplated classes involving as few as 18 members … . Here, as in Borden, plaintiffs allege defendant deregulated apartments while receiving J-51 tax benefits. Construing the class certification statute liberally … given that the asserted class consists of former and current tenants who lived in the 16 units improperly treated as deregulated after November 15, 2013, while defendant was receiving J-51 tax benefits, it is reasonable to infer that some units in this 49-unit apartment building would have had more than one tenant and several tenants would have moved away, making joinder of all members impracticable … . The identity of class members, i.e., which units were treated as deregulated and who leased them during the relevant time period, is within defendant’s knowledge. Hoffman v Fort 709 Assoc., L.P., 2022 NY Slip Op 02510, First Dept 4-19-22

​Practice Point: Here class certification should not have been denied on the ground the class was too small. The plaintiffs are tenants alleging the landlord improperly deregulated apartments while receiving tax benefits. Classes as small as 18 members were contemplated by the legislature.

 

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DEFENDANT OUT-OF-POSSESSION LANDLORD WAS NOT OBLIGATED BY THE LEASE OR ANY STATUTE TO REPAIR THE FLOOR OF A WALK-IN FREEZER IN THE LEASED PREMISES; PLAINTIFF ALLEGED DENTS IN THE METAL FLOOR CAUSED HIS LADDER TO FALL OVER; THE LANDLORD’S MOTION FOR SUMMARY JUDGMENT SHOULD HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant out-of-possession landlord’s motion for summary judgment in this ladder fall case should have been granted. Plaintiff alleged dents in a metal freezer floor caused his A-frame ladder to fall over:

“An out-of-possession landlord is not liable for injuries that occur on its premises unless the landlord has retained control over the premises and has a ‘duty imposed by statute or assumed by contract or a course of conduct'” … . Here, the defendants established, prima facie, that they were out-of-possession landlords which were not bound by contract or course of conduct to repair the allegedly dangerous condition. The plaintiff did not allege that dents in the floor of the walk-in freezer violated any statutes, and therefore the defendants were not obligated to disprove that they had a duty imposed by statute to repair the complained-of condition as part of their prima facie burden … .. Contrary to the plaintiff’s contention, the defendants adequately authenticated that the lease agreement submitted in support of their motion was in effect at the time of the accident … . Lopez v Mattone Group Raceway, LLC, 2022 NY Slip Op 01779, Second Dept 3-16-22

Practice Point: Here the lease did not require the out-of-possession landlord to maintain the leased premises and there was no statute imposing a duty to maintain the premises on the landlord. Therefore the out-of-possession landlord was not liable for dents in the walk-in freezer’s floor (in the leased premises) which allegedly caused plaintiff’s ladder to fall.

 

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TENANTS’ CAUSES OF ACTION FOR TENANT (STATUTORY) HARASSMENT, PRIVATE NUISANCE, ASSAULT, BREACH OF THE WARRANTY OF HABITABILITY, AS WELL AS THE CLAIM FOR PUNITIVE DAMAGES, REINSTATED (FIRST DEPT).

The First Department, reversing Supreme Court, reinstated plaintiffs-tenants’ causes of action for statutory harassment, private nuisance, assault, breach of the warranty of habitability, as well as the demand for punitive damages, in this action by tenants against the landlord alleging both habitability-issues and the landlord’s imminent threat to use force. With respect to the tenant (statutory) harassment cause of action, the court wrote:

Plaintiffs alleged … there were repeated interruptions of essential services such as heat, hot water, gas, and electricity, as well as disruptions in elevator service, phone, television, and internet service; large amounts of construction dust, including lead dust, in the public hallways; flooding and mold on the tenth floor; rat and vermin infestations; a lack of building security in the lobby and a lack of a fire safety system. * * *

The complaint states a cause of action for harassment under Administrative Code of City of NY §§ 27—2005(d) and 27—2115(m), as Supreme Court is “a court of competent jurisdiction” for the purposes of Administrative Code § 27—2115(m)(2) … . Contrary to the motion court’s determination, the statute expressly provides that only claims arising [from conditions in the building, that is, under subparagraphs b, c, and g of Administrative Code § 27-2004(a)(48)(ii), require the existence of a predicate violation to state a claim for harassment. Here, plaintiffs assert their first cause of action under Administrative Code § 27-2004(a)(48)(ii)(a), based on allegations that defendant Chelsea Hotel Owner, LLC’s principal, defendant Ira Drukier, was “making express or implied threats that force will be used” against plaintiffs, and therefore no predicate violation was required for this cause of action. …

On the third cause of action, for harassment arising from deprivation of services, plaintiffs state a claim under the statute by asserting that the alleged conditions were the subject of violations that, if established, would support a claim for harassment (see Robinson v Day, 103 AD3d 584, 587 [1st Dept 2013] [“A complaint need only ‘allege the misconduct complained of in sufficient detail to inform the defendants of the substance of the claims'”]). Evidence of the specific violations issued in connection with the alleged conditions may be obtained in discovery as contemplated by the statute (see Administrative Code § 27-2115[h][2][ii]). Berg v Chelsea Hotel Owner, LLC, 2022 NY Slip Op 01511. First Dept 3-10-22

Practice Point: The courts have recently been fleshing out the proof requirements for tenant (statutory) harassment under the NYC Administrative Code. Here, both the habitability issues and the landlord’s assaultive behavior (imminent threat of force) fit into the criteria for a valid tenant (statutory) harassment cause of action.

 

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THE TENANT HARASSMENT CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED; SUPREME COURT HAD SUBJECT MATTER JURISDICTION FOR THAT CAUSE OF ACTION (SECOND DEPT).

The Second Department, reversing (modifying Supreme Court, determined the tenant harassment cause of action should not have been dismissed, noting that Supreme Court had subject matter jurisdiction for that cause of action:

… Supreme Court erred in granting that branch of the defendants’ motion which was pursuant to CPLR 3211(a)(7) to dismiss the third cause of action, which alleged harassment in violation of Local Law No. 7 (2008) of City of New York (Administrative Code of City of NY § 27-2005[d]). Contrary to the court’s determination, the plaintiffs sufficiently pleaded that cause of action. Furthermore, the court was vested with subject matter jurisdiction to make a determination on that cause of action … .Akter v Zara Realty Holding Corp., 2022 NY Slip Op 01434, Second Dept 3-9-22

​Practice Point: Supreme Court has subject matter jurisdiction over a tenant harassment cause of action pursuant to the the NYC Administrative Code.

 

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THIS ACTION WAS BROUGHT BY THE OWNERS OF RENTAL PROPERTIES IN THE DEFENDANT VILLAGE ALLEGING, AMONG OTHER CAUSES OF ACTION, VIOLATIONS OF THEIR CONSTITUTIONAL RIGHTS BY THE VILLAGE “NUISANCE LAW” WHICH WAS DECLARED UNCONSTITUTIONAL BECAUSE IT INFRINGED ON THE TENANTS’ RIGHT TO CALL THE POLICE (“NUISANCE POINTS” WERE ASSESSED FOR CALLS TO THE POLICE); THE ACTION BY THE RENTAL-PROPERTY OWNERS WAS PROPERLY DISMISSED (THIRD DEPT). ​

The Third Department affirmed the dismissal of this action brought by owners of rental properties in the defendant village asserting, among other causes of action, violations of their constitutional rights stemming from a local law (Nuisance Law) which was declared unconstitutional:

… [This court] declar[ed] that the Nuisance Law was “overbroad and facially invalid under the First Amendment” … . As to the finding of facial invalidity under the First Amendment, this Court held that, because the Nuisance Law did not prohibit the assessment of nuisance points against a property for police involvement thereat, the law violated the right of plaintiffs’ tenants to petition the government for redress of grievances by deterring them from calling the police in response to crimes committed at their properties … . * * *

… Supreme Court properly dismissed the first cause of action for malicious prosecution. * * *

As for the First Amendment claim, Supreme Court found …that plaintiffs lacked standing to assert their tenants’ constitutional rights. * * *

With respect to the selective enforcement claim, nothing in the record suggests that plaintiffs were singled out for enforcement of the Nuisance Law due to the population of tenants to which they rented — i.e., individuals whose rent was paid by the Tompkins County Department of Social Services. * * *

… [P]laintiffs’ due process claim, to the extent based upon defendants’ alleged failure to follow the procedures set forth in the Nuisance Law, is not actionable. Pirro v Board of Trustees of the Vil. of Groton, 2022 NY Slip Op 01358, Third Dept 3-3-22

 

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