JULY 2011

            Our Client Advisory this month will focus on two recent cases in which we successfully represented clients in real estate-related litigation in the Supreme Court, New York County, and then prevailed again in sustaining those rulings on appeal before the Appellate Division, First Department.

 

 

            Many Condominium Declarations and By-Laws provide for the Board of Managers to be comprised of designees of individual Condominium Units, rather than in an election participated in by all the Unit Owners as a whole. For example, in a “Condop” ownership structure, the Cooperative that owns a portion of the Condominium may have the right to designate some Board of Managers members. This method of designating members of a Board of Managers was recently upheld in Board of Managers of the 25 Charles Street Condominium v. Seligson, 2011 WL 2314754, 2011 N.Y. Slip Op. 5132 (1st Dep’t June 14, 2011). 

 

            The Condominium in this case was comprised of two Units – a Residential Unit owned by a Cooperative, and a Commercial Unit owned by an individual. The documents provided that the Residential Unit was to bear 90% of the Condominium’s charges for common expenses and capital improvements, while the Commercial Unit was to bear 10% of such expenses. However, since the current Commercial Unit Owner acquired the unit in 1993, she had never made any payments for common charges, and instead challenged the governance of the Condominium. The By-Laws provided for the Condominium to be governed by a three-member Board of Managers, consisting of two members designated by the Residential Unit and one by the Commercial Unit. A quorum for Board meetings consisted of at least one Board member designated by each unit, and the Commercial Unit Owner refused to attend meetings in an attempt to prevent the Board from functioning. 

 

The Condominium and the Cooperative sued the Commercial Unit Owner to compel payment of her share of the common charges. In an earlier ruling in the case, the Supreme Court ordered that a Board of Managers meeting be convened and directed that the Commercial Unit Owner attend the meeting so that a quorum would be present and business could be transacted. The court-ordered meeting was held, but the Commercial Unit Owner contended that the Board of Managers had not been validly selected because the Board was not “elected” at a meeting of the Unit Owners as required by the Real Property Law, and therefore its actions were invalid. The Appellate Division upheld the composition of the Board and the validity of its actions, holding that the method of selecting board members provided for in the By-Laws was “consistent with the intent behind Real Property Law § 339-v(1)(a), which requires that a condominium’s bylaws provide for ‘the nomination and election of a board of managers.’”

 

            Based on this finding, the Appellate Division held that the Board of Managers meeting “was properly held, and accordingly, the actions of the board are protected by a rule analogous to the business judgment rule.” The court continued that “[p]ursuant to this rule, ‘absent a showing of discrimination, self-dealing or misconduct by board members, corporate directors are presumed to be acting in good faith’ and judicial inquiry into the board’s actions will be prohibited.” In this case, “[t]he nature of the actions taken by the board in operating the property, such as hiring a managing agent and preparing an annual budget, were within the board’s broad authority under the bylaws.” 

 

Accordingly, the Appellate Division affirmed the lower court’s ruling granting summary judgment to the Condominium and the Cooperative regarding the validity of the Board of Managers meeting and related issues. The Appellate Division also held that insofar as the Commercial Unit Owner was challenging the propriety of individual items of expense, the issue was properly referred to a Special Referee for a hearing. Ganfer & Shore, LLP represented the successful Condominium and Cooperative in this case. 

 

The Appellate Division, First Department, has recently declined to find a draft contract that was purportedly “signed” by a signature in an e-mail transmittal communication to be valid and binding. Pollak v. Moore, 2011 WL 2448011, 2011 N.Y. Slip Op. 5351 (1st Dep’t June 21, 2011).

 

The parties had entered into a contract under which they agreed to form a limited liability company for the purpose of purchasing certain parcels of property in Manhattan and developing a mixed-use condominium on the combined site. Under the original deal terms, the plaintiff was to purchase certain commercial space in the condominium. However, plaintiff later changed his mind regarding his participation in the deal and, instead, sought to maintain ownership of one of the buildings that was to be included in the condominium conversion. 

 

The parties discussed amending their agreement and defendants sent plaintiff a draft of a proposed new contract. This draft contract was sent, unsigned, to plaintiff as an attachment to an e-mail. The cover e-mail contained an electronic “signature” of the transmitting party. The plaintiff did not sign this draft agreement, but rather, proposed certain material changes to the contract amendment. Eventually, the plaintiff sued defendants for breach of contract based on the unsigned draft amendment to the original contract. Plaintiff also sought damages on alternative theories including breach of fiduciary duty and fraud.

 

The Supreme Court dismissed all of the plaintiff’s claims, and on appeal, the Appellate Division affirmed the dismissal. With respect to the breach of contract claim, the court held that enforcement of the purported new contract was barred by the Statute of Frauds, which requires that certain contracts, including contracts relating to an interest in real property, must be in writing to be enforceable. The Court noted that the “purported agreement was not signed by all the parties to be charged, the sale terms were modified by plaintiff and the parties had an opportunity to execute plaintiff’s marked-up contract of sale, but did not elect to execute such agreement.” There was no evidence that the parties ever signed the agreement or otherwise intended to be bound by the contract.

 

The Appellate Division also affirmed dismissal of plaintiff’s breach of fiduciary duty, fraud, and other claims because they were supported only by defendants’ purported contractual obligations under the unenforceable draft contract. Ganfer & Shore, LLP represented the defendants in this case.