Opinion
Index No. 654047/2022
12-26-2023
Eleanor Stromberg and DOUGLAS PRICE, Plaintiffs, v. East River Housing Corporation, BOARD OF DIRECTORS OF THE EAST RIVER HOUSING CORPORATION, COOPERATIVE VILLAGE MANAGEMENT, and SHULIE WOLLMAN, Defendants.
Bergstein Flynn Knowlton & Pollina PLLC, New York NY (Lee Bergstein and Brianna Neyland of counsel), for plaintiffs. Sills Cummis & Gross P.C., New York, NY (Mitchell D. Haddad and Lori K. Sapir of counsel), and Kaufman Borgeest & Ryan LLP, New York, NY (Dianna D. McCarthy and Kenneth G. Abeyratne of counsel), for defendants.
Bergstein Flynn Knowlton & Pollina PLLC, New York NY (Lee Bergstein and Brianna Neyland of counsel), for plaintiffs.
Sills Cummis & Gross P.C., New York, NY (Mitchell D. Haddad and Lori K. Sapir of counsel), and Kaufman Borgeest & Ryan LLP, New York, NY (Dianna D. McCarthy and Kenneth G. Abeyratne of counsel), for defendants.
Gerald Lebovits, J.
The following e-filed documents, listed by NYSCEF document number (Motion 003) 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 77, 83, 111, 112, 113, 114, 115, 116, 117, 118, 119, 120, 121, 122, 123, 124, 125, 126, 127, 128, 129, 130, 131, 132, 133, 135, 136, 137, 138, 139, 140, 141 were read on this motion for SUMMARY JUDGMENT.
The following e-filed documents, listed by NYSCEF document number (Motion 004) 91, 92, 93, 94, 95, 96, 97, 102, 103, 104, 105, 106 were read on this motion for ALTERNATE SERVICE.
The following e-filed documents, listed by NYSCEF document number (Motion 005) 78, 79, 80, 81, 82, 90, 98, 107, 108, 109, 110, 134 were read on this motion to DISMISS.
This action arises from a cooperative board's refusal to consent to the sale of an apartment. Plaintiffs, Eleanor Stromberg and Douglas Price, own the shares appurtenant to Apartment F701 in a residential cooperative building located at 577 Grand Street in Manhattan. (NYSCEF No. 46 at ¶ 10.) Defendant East River Housing Corporation is the building's cooperative-housing corporation, operating through defendant East River Housing Corporation Board. (NYSCEF No. 46 at ¶¶ 11-12.) Defendant Shulie Wollman is the Board's vice president and general manager of defendant Cooperative Village Management, East River's management company. (Id. at ¶ 13.)
Plaintiffs have sued East River, its Board, and Wollman, claiming that defendants improperly and arbitrarily refused consent to a proposed sale of plaintiffs' apartment. Defendants have counterclaimed for declaratory relief and attorney fees. The parties now bring several motions and cross-motions, which relate both to the merits of some of plaintiffs' claims (and defendants' counterclaims) and to procedural issues arising from plaintiffs' claims against the Board and against Wollman. The motions and cross-motions are granted in part and denied in part, as set forth further below.
BACKGROUND
According to the allegations of the amended complaint, in January 2022, plaintiffs entered into a contract with a purchaser to sell their unit for $520,000. (NYSCEF No. 46 at ¶ 27.) Plaintiffs allege they relied on an appraisal conducted by a disinterested third-party appraisal service. The appraisal service valued the unit at $525,000. The appraisal was based, in part, on comparable properties in the area that were sold for $514,500-$528,000. (Id. at ¶ 28.)
In February 2022, plaintiffs and purchaser submitted their application for the sale of the unit to the Board for review. (Id. at ¶ 30.) The Board rejected the application by email. (Id. at ¶ 31.) Plaintiffs appealed to the Board to change its mind, but the Board did not do so. (Id. at ¶¶ 36-37.) Through their real estate broker, plaintiffs asked Cooperative Village whether the Board would approve the sale with an increased sales price. (Id. at ¶ 38.) Plaintiffs and the purchaser then amended the contract, increasing the purchase price from $520,000.00 to $540,000.00. (Id. at ¶ 42.) They submitted the amendment to the Board as part of a second appeal. (Id. at ¶ 43.) Cooperative Village advised plaintiffs' broker that the amended purchase price "was still too low" and that "the Board would not approve a sale with a purchase price lower than $600,000.00...." (Id. at ¶¶ 44-45.) The purchaser cancelled the contract after the Board failed to consent to the sale within a reasonable period of time. (Id. at ¶ 49.)
Plaintiffs brought this action in October 2022 against East River, the Board, and Cooperative Village. (See NYSCEF No. 1.) Plaintiffs' initial complaint asserted a breach-of-contract claim against East River and against the Board, a breach-of-fiduciary-duty claim against the Board and an aiding-and-abetting claim against Cooperative Village, and an unreasonable-restraint-of-alienation claim against the Board. (See id. at 11-14.)
In December 2022, defendants moved to dismiss all of plaintiffs' claims for failure to serve properly the summons and complaint (mot seq 001). (See NYSCEF No. 5.) Plaintiffs cross-moved for an extension of time to serve process. (NYSCEF No. 29.) In May 2023, this court granted defendants' motion with respect to Cooperative Village, and denied it with respect to East River and the Board. (NYSCEF No. 43.) The court granted plaintiffs' cross-motion to the extent of affording plaintiffs an additional 60 days to serve the Board. (Id.)
In April 2023, while motion sequence 001 was pending, plaintiffs submitted a new sale application to the Board "with a proposed sales price in excess of the $600,000.00 minimum price required by the Board." (NYSCEF No. 46 at ¶ 67.) In May 2023, East River and the Board responded that they required an amended application and more information on the applicant's financial state. (Id. at ¶ 72.) Plaintiffs allege that this response was intended "as retaliation" for "commencing the instant proceeding." (Id. at ¶ 73.)
According to the affidavit of Board president Gary Altman, the purchase price of the pending application is $620,000.00, "with a $100,000.00 credit to the purchase price from [p]laintiffs to the [c]urrent [a]pplicants at closing." (NYSCEF No. 64 at ¶ 46.)
In May 2023, after the request for an amended application (and this court's decision on motion sequence 001), plaintiffs filed an amended complaint. (NYSCEF No. 46.) The amended complaint added a second breach-of-fiduciary-duty claim against the Board for its alleged retaliation with respect to the April 2023 sales application, and an aiding-and-abetting claim against Wollman. Defendants answered and asserted two counterclaims. (See NYSCEF No. 48.) The first counterclaim seeks a declaratory judgment that the Board may properly consider an apartment's proposed sale price when determining whether to grant or refuse consent to a sale of the apartment's shares and lease. (Id. at 18-20.) The second counterclaim seeks an award of attorney fees under the proprietary lease. (Id. at 21.) Plaintiffs' answer to defendants' counterclaims raises the affirmative defense that the lease's attorney-fee provision is unenforceable as unconscionable to the extent that it "require[s] reimbursement of the Lessor's professional fees and disbursements in a legal action brought by Lessee against Lessor based on Lessor['s] default." (NYSCEF No. 54 at 4.)
On motion sequence 003, East River moves for summary judgment (i) dismissing plaintiff's breach-of-contract claim against it; (ii) granting judgment in East River's favor on the declaratory-judgment counterclaim; (iii) granting judgment in East River's favor on liability on the attorney-fee counterclaim; and (iv) dismissing plaintiffs' unconscionability defense to that counterclaim. Plaintiffs cross-move for summary judgment (i) granting judgment in their favor on their breach-of-contract claim against East River; and (ii) dismissing East River's counterclaims.
Motion sequence 002 dealt with a request by East River to seal materials related to the sales application submitted in April 2023, which East River had included as exhibits to their summary-judgment motion. (See NYSCEF No. 86 [order to show cause]; NYSCEF No. 145 [order resolving motion].)
On motion sequence 004, plaintiffs move for leave to effect alternative service on the Board or, alternatively, for a further extension of time to serve the Board.
On motion sequence 005, Wollman moves under CPLR 3211 (a) (8) to dismiss plaintiffs' amended complaint against him for lack of personal jurisdiction. Plaintiffs cross-move under CPLR 1003 and CPLR 3025 for leave to join Wollman as a defendant.
Motion sequences 003, 004, and 005 are consolidated here for disposition. East River's motion for summary judgment (mot seq 003) is denied. Plaintiffs' cross-motion (mot seq 003) is denied with respect to their request for judgment on their breach-of-contract claim and granted with respect to East River's counterclaims. Plaintiffs' motion for expedient service on the Board and more time to serve (mot seq 004) is denied. Plaintiffs' cross-motion (mot seq 005) is granted; Wollman's motion (mot seq 005) is denied as academic.
DISCUSSION
I. The Parties' Motion and Cross-Motion for Summary Judgment (Mot Seq 003)
On motion sequence 003, East River moves, and plaintiffs cross-move, for summary judgment. The parties' motion and cross-motion are each granted in part and denied in part.
A party bringing a motion for summary judgment "must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact." (Alvarez v Prospect Hosp., 68 N.Y.2d 320, 324 [1986].) Once the movant establishes its prima facie entitlement, the opposing party must tender evidence showing the existence of a triable factual issue, with inferences drawn in the nonmoving party's favor. (See Zuckerman v City of New York, 49 N.Y.2d 557, 560 [1980].)
A. The Branch of East River's Motion Seeking Summary Judgment Dismissing Plaintiffs' Breach-of-Contract Claim Against It
Plaintiffs contend that East River's Board breached the co-op's governing documents and acted contrary to applicable law by failing to approve plaintiffs' 2022 application to sell their unit. (NYSCEF No. 46 at ¶ 83.) East River moves for summary judgment dismissing this claim. East River asserts that the business-judgment rule protects its "good faith, rational" decision to withhold consent to the 2022 application based on the proposed sale price for that unit. (NYSCEF No. 135 at 5.) This branch of East River's motion is denied.
Under the business-judgment rule, a court may not inquire "into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes." (Matter of Levandusky v One Fifth Ave. Apt. Corp., 75 N.Y.2d 530, 537-38 [1990] [internal citation and quotations omitted].) Therefore, unless there is "illegal discrimination, the respondent members of the board of directors of the respondent cooperative corporation ha[ve] the right to withhold their approval of petitioners' purchase for any reason or no reason." (Simpson v Berkley Owner's Corp., 213 A.D.2d 207, 207 [1st Dept 1995]; accord Singh v Turtle Bay Towers Corp., 74 A.D.3d 568 [1st Dept 2010] [finding it proper for a co-op board to reject a purchase application when "the decision to deny the purchase application was based upon the determination that the purchase price for the subject unit was significantly below market value"].)
The proprietary lease provides that "[t]here shall be no limitation, except as specifically provided therein, on the right of the Board of Directors to grant or withhold consent to an assignment, for any or for no reason." (NYSCEF No. 66 at 9.) East River claims that its decision to withhold consent was based on the fact that the 2022 application's proposed sales price for plaintiffs' unit was lower than the prices of previous sales-not because East River set an arbitrary minimum price floor that is materially above market value. (NYSCEF No. 135 at 5; see also NYSCEF No. 71 [prior sales data].)
In opposing East River's summary-judgment motion and cross-moving for summary judgment, plaintiff contends this data is faulty because it includes the sales prices of units that are not comparable to plaintiffs' unit. (See NYSCEF No. 112 at 6-7; 71, 114.) And plaintiffs argue that this sales data does not reflect sellers' concessions, which assertedly inflated the nominal sales price of the unit without changing the post-concessions amount that sellers actually received from buyers. (NYSCEF No. 112 at 7.)
Plaintiffs also submit evidence of their own about the market value of their unit and East River's denial of sales applications.
Plaintiffs' Appraisal.
One piece of evidence submitted by plaintiff was a 2022 appraisal of their unit. (NYSCEF No. 118.) Plaintiffs submit an appraisal of their unit. This appraisal-which plaintiffs represent they submitted as part of the 2022 application (NYSCEF No. 113 at ¶ 11)-valued the unit at $525,000 (NYSCEF No. 118 at 4).
East River argues that the appraisal is "irrelevant," because East River "was not in possession of [it] at the time it withheld consent to the [2022] [a]pplication" and because it "was prepared for a different user and for a different purpose." (NYSCEF No. 135 at 8.) East River also contends that the appraisal is inadmissible hearsay because "[i]t is an out-of-court statement of a third party being offered for the truth of the valuation and comparable sales information contained therein" and that it is not authenticated because it "was not conducted by or on behalf of Plaintiffs." (NYSCEF No. 135 at 11.)
East River does not, however, demonstrate definitively that Stromberg is incorrect in representing that the appraisal was provided to East River before it denied the 2022 application, and thus that the appraisal would have been incorporated into East River's records and decision-making with respect to the application. If credited, that representation would establish the relevance of the appraisal; and, indeed, its admissibility. (See State v 158th St. & Riverside Dr. Hous. Co., 100 A.D.3d 1293, 1296 [3d Dept 2012] [explaining that "[p]apers received from other entities... may be admitted into evidence" upon a showing that the "the records provided by the maker were incorporated into the recipient's own records or routinely relied upon by the recipient in its business"].) On the current procedural posture, construing the record in the light most favorable to the nonmoving party, the court concludes that Stromberg's representation provides a sufficient basis to put the appraisal properly before this court on the current motion.
Plaintiffs' Broker's Affidavit.
Plaintiffs also submit an affidavit and chart of sales data created by their real estate broker, Jacob Goldman. Goldman says that a majority of East River property sales from June 2022 until December 2022 contained "artificially inflated prices with seller concessions applied at closing." (NYSCEF No. 114 at 5, 124.) Plaintiffs submit Goldman's affidavit and chart to show that "the 'sales data' offered by [East River] in its motion is extremely flawed and is not an accurate depiction of the market value of the Unit or of other similar units being sold in [East River's] buildings." (NYSCEF No. 112 at 7.)
East River contends that the affidavit and chart are self-serving because Goldman stands to earn a commission on the sale of plaintiffs' unit. (NYSCEF No. 135 at 12.) But "[t]hat an affidavit is submitted by a party or other interested person does not detract from its sufficiency as competent evidence." (Miller v City of New York, 253 A.D.2d 394, 395 [1st Dept 1998].)
East River further contends that ¶¶ 37 and 39 of Goldman's affidavit, and an attached email, are inadmissible hearsay and that the accompanying chart is inadmissible because it is not necessarily based on personal knowledge nor qualifies as a business record. The court agrees with respect to ¶ 37, the email, and the chart. But East River does not argue that the rest of the affidavit is inadmissible or irrelevant. (See NYSCEF No. 135 at 10-12.) And this court concludes that the undisputed portions of the affidavit, coupled with the appraisal, raise a material dispute of fact about whether East River denied the 2022 sales application for an assertedly insufficient sales price-despite having reason to believe that the proposed sales price was in line with the unit's market value. Moreover, a party opposing summary judgment may properly rely on hearsay evidence, as long as it is not the only evidence submitted. (Koren v Weihs, 201 A.D.2d 268, 269 [1st Dept 1994].) Taking into account the other portions of the Goldman affidavit and the appraisal, the court concludes that a material dispute of fact exists about whether East River denied the 2022 sales application for being below an arbitrary price floor-a ground for denial that would not be shielded by the business judgment rule. (See Chappell v Trump Plaza Owners, Inc., 2011 NY Slip Op 32661[U], at *6-11 [Sup Ct, NY County 2011].)
East River also suggests in passing that the business-judgment rule shields East River's decisions with respect to the 2023 sales application. (See NYSCEF No. 135 at 2, 9-10.) But those decisions are the subject only of plaintiffs' third cause of action, for breach of fiduciary duty based on retaliation-not the first cause of action, for breach of contract. (Compare NYSCEF No. 46 at ¶¶ 83-84 [first cause of action] [alleging breach of contract based on the denial of a sales application], with id. at ¶¶ 95-102 [alleging breach of fiduciary duty based on an alleged "refus[a] to properly consider" the 2023 sales application].) And East River does not seek relief on this motion related to the third cause of action. (See NYSCEF No. 55 [notice of motion].) This court therefore does not reach East River's business-judgment-rule arguments with respect to the 2023 application.
Given the court's conclusion that East River's summary-judgment motion with respect to plaintiffs' breach-of-contract claim should be denied because a material dispute of fact exists, the court does not reach plaintiffs' alternative argument that summary judgment should be denied as premature. (See NYSCEF No. 112 at 10.) The court notes, though, that East River moved for summary judgment in July 2023-only two months after this court denied East River's CPLR 3211 (a) (8) motion to dismiss, and before plaintiff had served discovery requests. Thus, in responding to East River's motion, plaintiff did not have the benefit of discovery to obtain Board minutes, Board member communications, and depositions to "to test the veracity of ERHC's representations regarding its practices and policies." (NYSCEF No. 112 at 13; cf. Barreto v City of New York, 194 A.D.3d 563, 563-564 [1st Dept 2021] [finding summary judgment premature when movant has not been not deposed, parties lack evidence to oppose the motion, and evidence may lie within the opposing party's "exclusive knowledge or control"].)
B. The Branch of Plaintiffs' Cross-Motion Seeking Summary Judgment in Their Favor on the First Cause of Action
As discussed above, this court concludes that plaintiffs' evidentiary showing raises disputes of material fact with respect to plaintiffs' first cause of action. The court is not persuaded, however, that the admissible portions of that showing establish as a matter of law that East River's actions were outside the protections of the business-judgment rule. Plaintiff's cross-motion for summary judgment on the first cause of action is denied.
C. The Parties' Motion and Cross-Motion for Summary Judgment on East River's Declaratory-Judgment Counterclaim
East River also moves for summary judgment in its favor on its counterclaim for a declaratory judgment that the Board may consider an apartment's sale price when considering whether to consent to a sale. Plaintiffs cross-move for summary judgment dismissing this counterclaim. This branch of East River's summary-judgment motion is denied; and this branch of plaintiffs' cross-motion is granted. The declaratory-judgment counterclaim is dismissed.
A declaratory judgment "having the effect of a final judgment as to the rights... of the parties" is available only where a justiciable controversy exists. (CPLR 3001.) A declaratory judgment must address "a legally protectible interest[] that is in direct issue or jeopardy." (Matter of Ideal Mut. Ins. Co., 174 A.D.2d 420, 421 [1st Dept 1991] [internal citations and quotation marks omitted].) A controversy is justiciable only if it "involve[s] present, rather than hypothetical, contingent or remote, prejudice to [the claimant]." (Am. Ins. Ass'n v Chu, 64 N.Y.2d 379, 382 [1985].)
East River seeks a declaratory judgment that it "can consider the [a]partment's sale price in determining whether to grant or withhold consent to the Prior Application." (NYSCEF No. 135 at 4 [emphasis omitted].) Plaintiffs contend, however, that no judiciable controversy exists. Plaintiffs do not dispute that East River can consider the purchase price; rather, they contend it cannot be the sole criterion considered in approving or denying an application. (NYSCEF No. 112 at 14.) And plaintiffs allege that East River abused its discretion by considering only whether the sale price satisfied an arbitrary price floor unrelated to the unit's market value.
The court agrees with plaintiffs. East River's right to consider the unit's sale price in determining whether to grant or withhold consent to the prior application is not in dispute. The only question is whether the particular manner in which East River considered the unit's sales price was legally impermissible. But East River has not requested a declaratory judgment on that issue. The declaratory-relief request that East River does make would not address a justiciable controversy. That request is therefore subject to dismissal.
D. The Parties' Motion and Cross-Motion for Summary Judgment Relating to East River's Attorney-Fee Counterclaim
East River further moves for summary judgment in its favor on liability on its attorney-fee counterclaim, and to dismiss plaintiffs' fifth affirmative defense that the attorney fees provision in the lease is unenforceable as unconscionable. Plaintiffs cross-move for summary judgment dismissing East River's counterclaim for attorney fees. East River's motion is denied. Plaintiffs' cross-motion is granted.
In Krodel v Amalgamated Dwellings Inc, the First Department held that a proprietary lease provision requiring the lessee to pay the co-op's legal fees incurred in connection with an action brought by the lessee against the co-op, which relates to the lease "or to any alleged failure by the [l]essor to perform any act which the [l]essor is required to perform" is unconscionable and, therefore, unenforceable. (166 A.D.3d 412, 412 [1st Dept 2018].) The Court reasoned that "[t]o enforce such a provision would produce an unjust result because it would dissuade aggrieved parties from pursuing litigation and preclude tenant-shareholders from making meaningful decisions about how to vindicate their rights in legitimate instances of landlord default." (Id. at 414.)
Here, the lease provides that if East River incurs legal fees "in connection with any action or proceeding brought by the Lessee against the Lessor" that is based on "any other matter or thing relating to" the lease or to East River's" Bylaws, Certificate of Incorporation, House Rules, or regulations duly adopted by the Board of Directors," the lessee must pay East River's fees. (NYSCEF No. 66 at 26.)
Plaintiffs' first cause of action for breach of contract and defendants' counterclaim for declaratory relief both arise out of alleged violations of the bylaws and proprietary lease. Plaintiffs' claims thus fall within the scope of this attorney-fee clause. But the clause would require plaintiffs to pay East River's attorney fees although plaintiffs commenced the action based on East River's alleged violations of its bylaws and applicable law. The clause is therefore unenforceable under Krodel.
East River attempts to distinguish Krodel on the ground that the co-op in that case had moved for summary judgment on an attorney-fee counterclaim in advance of a determination on the merits of its claims, whereas in this case, East River has asserted substantive counterclaims in addition to its fee request, and "is not seeking to recover its attorney fees prior to obtaining a merits-based dismissal of Plaintiffs' claims." (NYSCEF No. 56 at 15-16.) But Krodel 's holding did not rest on the fact that the co-op's fee request was its only counterclaim, nor the timing of the co-op's summary-judgment motion on that fee request, but instead on the fact that the fee provision, if given effect, would, as here, "permit[] the landlord to recover attorney fees when the tenant brings an action against the landlord even when the landlord is in default." (166 A.D.3d at 414.) Indeed, were East River correct about the basis for the ruling in Krodel, that basis would have supported only affirming the denial of the co-op's motion for summary judgment on the fee counterclaim. But the Krodel Court went on to affirm the grant of the lessee's cross-motion for summary judgment dismissing that counterclaim altogether. (See id. at 413-414.)
Given the court's conclusion on this point, the court does not reach plaintiffs' alternative argument that the court should, in effect, imply a reciprocal fee provision for plaintiffs' benefit under the principles of Real Property Law § 234.
East River's motion for summary judgment on liability on its attorney-fee counterclaim, and dismissing plaintiff's fifth affirmative defense, is therefore denied. For the same reasons, plaintiffs' cross-motion for summary judgment dismissing East River's attorney-fee counterclaim is granted
Even if the attorney-fee clause that East River relies on were enforceable, East River has not, on this motion, established that it is the prevailing party, given the denial of its motion for summary judgment dismissing plaintiff's first cause of action, and the dismissal of its declaratory-judgment counterclaim. East River would thus not be entitled in any event to summary judgment on liability on its attorney-fee counterclaim.
II. Plaintiffs' Motion for Leave to Serve the Board by Alternative Means or for an Extension of Time to Serve (Mot Seq 004)
Plaintiffs move by order to show cause for leave to effect alternative service on defendant Board by email to the Board's counsel, certified mail to the office of East River, and/or delivery to the New York Secretary of State. Plaintiffs also ask this court under CPLR 306-b to grant a second extension of time to serve the Board. The motion is denied.
Defendants oppose plaintiffs' motion on several grounds.
First, defendants argue that this court lacks jurisdiction to entertain the motion because Plaintiffs did not comply with this court's order to show cause. This argument is unpersuasive. Plaintiffs sufficiently complied with the requirements of the order to show cause when they filed on NYSCEF an entered copy of the signed order to show cause before the deadline set in the OSC itself. (See NYSCEF No. 97.)
Second, defendants contend that plaintiffs cannot obtain a further extension of time to serve the Board, because plaintiffs did not serve the Board (or seek a further extension) within the 60-day additional period afforded them by this court's order resolving motion sequence 001. (See NYSCEF No. 43 [order].) But an extension of time to serve under CPLR 306-b may be sought-and granted- after plaintiff's initial deadline to serve, or an earlier extension of time to serve, has expired. (See Estey-Dorsey v Chavez, 27 A.D.3d 277, 278 [1st Dept 2006] [affirming order deeming timely service effected after expiration of first extension of time to serve].)
Regardless, this court agrees with defendants' third argument: that plaintiffs have not, and cannot, establish a legal basis for alternative service on the Board. Plaintiffs seek leave to serve the Board by alternative, court-ordered means-presumably under CPLR 308 (5), CPLR 311 (b), or Business Corporation Law (BCL) § 306 (b). None of those provisions, however, applies to a request to serve the board of directors of a private corporation, as plaintiffs would have it.
Other CPLR provisions allowing for expedient service would be facially inapplicable here. (See CPLR 310 [e] [partnerships]; 310-a [b] [limited partnerships]; 311-a [b] [limited liability companies].)
CPLR 308 is inapplicable here. It governs service on natural persons and unincorporated associations-not corporations or corporate entities. (See Macchia v Russo, 67 N.Y.2d 592, 594 [1986] [holding that CPLR 308 governs service on natural persons]; Makhnevich v Board of Mgrs. of 2900 Ocean Condominium, 217 A.D.3d 630, 631 [1st Dept 2023] [explaining that General Associations Law § 13, governing service on unincorporated associations, incorporates by reference CPLR 308].)
CPLR 311 and BCL § 306, on the other hand, do govern service on a corporation. The question, then, is whether a corporation's board constitutes a distinct, related corporate entity that may also be served under CPLR 311 or BCL § 306. The court concludes that it does not.
BCL § 202 (a) (2) provides that corporations may "sue and be sued in all courts." But no BCL provision describes a corporation's board as a distinct, suable entity. Under the BCL, the board, acting through its members, manages the corporation. (See BCL § 701; Matter of Holmes v United Mut. Life Ins. Co., 286 AD 500, 502 [1st Dept 1955] ["Directors are the exclusive, executive representatives of the corporation and are charged with the administration of its internal affairs and the management and use of its assets"] [internal quotation marks omitted].) Board members are agents of the corporation and operate on its behalf. (See Application of Vogel, 25 A.D.2d 212, 215 [1st Dept 1966] ["Directors in their dealings with third persons are, in law, considered somewhat as agents for the corporation..."]; Clifford v Press Publ. Co., 78 AD 79, 84 [1st Dept 1903] ["[T]hough a board of directors or the executive officers are of a higher grade, they are still but the agents of the corporation..."]; but see Restatement [Third] of Agency § 1.01 Comment f (2) ["The fact that a corporation statute may refer to directors as the corporation's 'agents' for a particular purpose does not place directors in an agency relationship with shareholders for purposes of the common law of agency."].)
Courts have often assumed that a co-op board is a proper defendant because plaintiffs tend to name co-op boards as defendants as a shorthand way of suing co-ops for the actions of their boards or board members. (E.g. Perez v Garcia, 2005 NY Slip Op 50902[U], at *3 [Sup Ct, Bronx County 2005] [defendants named as defendants the cooperative corporation, its board of directors, and an individual director; the court dismissed the claims against all three because the requirements for service on a corporation were not met].) Indeed, this frequent assumption led this court, in resolving motion sequence 001, to reject defendants' argument that the Board may not be named, and served, as a separate defendant. This court now concludes, based on its review of statutory and decisional law, that its initial rejection of that argument was mistaken-and that no basis exists to treat the board of a cooperative corporation as a juridical entity distinct from the cooperative itself.
Plaintiff is attempting to sue both the cooperative corporation and the co-op's board as a separate legal entity. This court has found no cases expressly approving-or even expressly discussing-a suit brought against both a co-op and also the co-op's board as an entity (as opposed to claims against the co-op and some or all of the board's members). At most, courts have decided claims brought against co-op boards without considering, or having occasion to consider whether the board was a proper defendant. (See e.g. Fuisz v 6 E. 72nd St. Corp., 2023 NY Slip Op 06213 [1st Dept Dec. 5, 2023] [co-op board did not contend it was an improper defendant, and consented to email service]; Matter of Cohan v Board of Directors of 700 Shore Rd. Waters Edge, Inc., 108 A.D.3d 697 [2d Dept 2013] [co-op board did not contend it was an improper defendant].)
This court concludes that a plaintiff claiming to be aggrieved by decisions of a co-op board may not sue the board itself as an entity. The court's conclusion, to be clear, would not leave a plaintiff in this scenario without means of obtaining redress. A plaintiff could sue the co-op directly, seeking to hold it liable for the actions of its board-as plaintiffs are already doing here. A plaintiff could also sue the board members individually, in appropriate cases. (See BCL § 720 [permitting an action to be "brought against one or more directors or officers of a corporation"] ; Weinreb v 37 Apts. Corp., 97 A.D.3d 54, 57 [1st Dept 2012] ["[I]ndividual board members may be validly sued for breach of fiduciary duty if the complaint pleads independent tortious acts on the part of those individual directors."].) But a co-op board, as a board, is not amenable to suit.
Because the Board is neither a natural person, a government instrumentality nor a business corporation, it may not be served under CPLR 308, CPLR 311, CPLR 312, or BCL § 306. For the same reasons, plaintiffs may not effect alternate service upon the board under CPLR 308 (5), CPLR 311 (b), or BCL § 306 (b).
Plaintiffs' requests to effect alternate service on the Board, and for more time to serve the Board, are denied.
III. The Parties' Motion and Cross-Motion Relating to Defendant Wollman (Mot Seq 005)
On motion sequence 005, defendant Wollman moves under CPLR 3211 (a) (8) to dismiss plaintiffs' amended complaint against him for lack of personal jurisdiction. (NYSCEFF No. 78.) Plaintiffs oppose Wollman's motion and cross-move, in the alternative, for leave under CPLR 1003 and CPLR 3025 to join Wollman as a defendant. (NYSCEF No. 107 at ¶ 2.) Plaintiffs' cross-motion is granted; Wollman's motion is denied as academic.
The parties hotly contest whether a stipulation between the parties that extended the time for plaintiffs to amend their complaint also encompassed adding Wollman as a new defendant. The text of the stipulation does not itself resolve this disagreement. (See NYSCEF No. 42.) And even assuming defendants' position on the scope of the stipulation is correct, this court concludes that plaintiffs' cross-motion under CPLR 1003 for an order permitting them to add Wollman as a defendant should be granted.
Under CPLR 1003, "[p]arties may be added at any stage of the action by leave of court"-such as the grant of a CPLR 3025 (b) motion for leave to amend. Leave to amend "shall be freely given absent prejudice or surprise resulting directly from the delay." (McCaskey, Davies and Assoc., Inc. v New York City Health & Hosps. Corp., 59 N.Y.2d 755, 757 [1983] [internal quotation marks omitted].) Prejudice requires a showing by the nonmovant that it "has been hindered in the preparation of [its] case or has been prevented from taking some measure in support of [its] position." (Kimso Apartments, LLC v Gandhi, 24 N.Y.3d 403, 411 [2014] [internal quotation marks omitted].) This court agrees with plaintiffs that defendants have not established that they would be prejudiced or surprised due to any delay in adding Wollman as a party-particularly given that plaintiff first disclosed its claims against Wollman in the amended complaint filed in May 2023. (NYSCEF No. 107 at ¶¶ 19-24.)
Defendants argue that granting the cross-motion would permit plaintiffs to get around the requirements of CPLR 1003 by having successfully moved for leave to amend well after serving Wollman with the supplemental summons. The solution to this problem is to require plaintiffs to re-serve Wollman now with a supplemental summons and amended complaint.
For the same reason, this court is unpersuaded that Wollman's request for dismissal should be granted on the ground that the previous supplemental summons served on him "incorrectly identifies the original [c]omplaint as the pleading to which Wollman is required to answer." (NYSCEF No. 79 at ¶ 11.)
Accordingly, it is
ORDERED that the branches of East River's motion, and plaintiffs' cross-motion, respectively, seeking summary judgment on plaintiff's breach-of-contract claim (mot seq 003), are each denied; and it is further
ORDERED that the branches of East River's motion seeking summary judgment in its favor on its counterclaims, and seeking dismissal of plaintiffs' fifth affirmative defense to East River's counterclaims (mot seq 003), are denied; and it is further
ORDERED that the branches of plaintiffs' cross-motion seeking summary judgment dismissing East River's counterclaims (mot seq 003) are granted, and the counterclaims are dismissed, with costs and disbursements as taxed by the Clerk upon the submission of an appropriate bill of costs; and it is further
ORDERED that the balance of the claims in this action are severed and shall continue; and it is further
ORDERED that plaintiffs' motion for leave to serve the Board by alternative means, and for an extension of time to serve the Board (mot seq 004), is denied; and it is further
ORDERED that plaintiff's cross-motion for leave to add Wollman as a party defendant in this action (mot seq 005) is granted, and the amended complaint appearing at NYSCEF No. 46 is deemed the operative pleading in this action with respect to plaintiffs' claim against Wollman, on condition that within 30 days of service of a copy of this order with notice of its entry, plaintiff serve a supplemental summons and a copy of the amended complaint on Wollman by the means set out in CPLR article 3; and it is further
ORDERED that Wollman's motion to dismiss plaintiff's claim against him (mot seq 005) is denied as academic; and it is further
ORDERED that plaintiffs shall serve a copy of this order with notice of its entry on all parties; and on the office of the County Clerk (in accordance with the court's e-filing protocol, which may be accessed on the e-filing page of the court's website, www.nycourts.gov/ supctmanh), which shall enter judgment accordingly.