Franklino v. Tides At Charleston Homeowners Ass'n

Full title: JOHN FRANKLINO, SUSAN FRANKLINO VINCENT SALLUSTRO, ROSEMARIE SGARLATO…

Court: SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF RICHMOND Part- IAS 11

Date published: Dec 24, 2020

2020 N.Y. Slip Op. 34411 (N.Y. Sup. Ct. 2020)

Opinion

Index No. 150313/2020

12-24-2020

JOHN FRANKLINO, SUSAN FRANKLINO VINCENT SALLUSTRO, ROSEMARIE SGARLATO DEBRA SPINELLA, LOUIS CONSOLI, JOANNE LOPORCARO, GERARD MURPHY and ANGELA SARNI v. THE TIDES AT CHARLESTON HOMEOWNERS ASSOCIATION, INC., ASSOCIATION ADVISORS NJ LIMITED LIABILITY COMPANY, ASSOCIATION ADVISORS, LLC, CARL NAPOLITANO, LOUIS LAROSSA, MARY ANN CIACIA, GARY WALLACE And GLORIA D'ACUNTO Defendants.

Hon. Catherine DiDomenico

NYSCEF DOC. NO. 32 Present:

DECISION AND ORDER

Motion Sequence Nos.: 001 Recitation as required by CPLR 2219(a) of the papers considered in the review of Motion Sequence Number 001

	Numbered
Notice of Motion by Defendants (001),	1
Memo of Law in Support	2
Affidavits and Affirmation in Opposition by Plaintiff	3
Reply Memorandum by Plaintiff	4
Supplemental Affirmation in Opposition by Plaintiff	5
Supplemental Affirmation in Support by Defendant	6
Transcript of Proceedings September 17, 2020	7

Upon the foregoing cited papers, the Decision and Order is as follows:

Defendant's Motion

Defendants, The Tides at Charleston Homeowners Association, Inc. et.al. ("Defendants") move by notice of motion (Seq. No. 001) for an order dismissing the three causes of action asserted by the Plaintiffs in their Verified Summons and Complaint pursuant to CPLR 3211(a)(1) and (a)(7). Plaintiffs, in opposition, argue that the allegations raised are sufficient to survive this pre-answer motion to dismiss. The present motion was argued on September 17, 2020. During oral argument a legal issue was raised as to whether a dismissal, if granted, would be with or without prejudice. Supplemental briefing on that specific issue was filed by both parties and the motion was submitted for decision thereafter.

Relevant Facts

Plaintiffs, and the individual Defendants, are all homeowners in an "active 55-year-old plus community" known as "The Tides at Charleston." This community, which is located in Staten Island, New York, utilizes a homeowner's association to oversee and maintain the common assets of the property, manage its finances, run its business affairs, and to establish and enforce rules. The homeowner's association is run by a Board of Directors. The individual Defendants named above are all members of the Board. The remaining named Defendant, Association Advisors NJ LLC, is a company that manages the property. The Board of Directors, and the community at large, are governed by a set of By-Laws which, among other things, control how elections should be held.

In their Summons and Complaint, the Plaintiff homeowners assert three causes of action. The first requests a declaratory judgment declaring the most recent Board of Directors election to be null and void, and for a receiver to be appointed to oversee a new election. The second alleges that the Board of Directors have acted outside the scope of their duties and with malice towards the Plaintiff's in violation of their "fiduciary duty." The third cause of action is for an award of counsel fees for the necessity of having to bring the current lawsuit.

Applicable Law

When considering a motion to dismiss for a failure to state a claim pursuant to CPLR §3211, the complaint is to be afforded a liberal construction and any facts asserted therein are to be accepted as true. See Benitez v. Bolla Operating LI Corp., 2020 NY Slip Op 07342 (2d Dept. 2020). A motion to dismiss pursuant to CPLR §3211(a)(1) may only be granted where the documentary evidence before the court utterly refutes the plaintiffs' allegations, thereby conclusively establishing a defense as a matter of law. See Ajaka v. Mount Sinai Hosp., 2020 NY Slip Op 07338 (2d Dept. 2020). Generally, Affidavits submitted in support of the motion that include allegations of fact are not sufficient documentary evidence within the meaning of CPLR §3211(a)(1). See Hartnagel v. FTW Contr., 147 A.D.3d 819 (2d Dept. 2017). However, official documents such as deeds, contracts, or by-laws may be considered. See Altman v. New York Bd. Of Trade , Inc., 52 A.D.3d 396 (1^st Dept. 2008).

When considering a motion to dismiss pursuant to CPLR §3211(a)(7), the court must accept the facts alleged by the Plaintiff as true, and liberally construe the complaint, according it the benefit of every possible favorable inference. See Tsatskin v. Kordonsky , 2020 NY Slip Op 07617 (2d Dept. 2020). The court's function on a CPLR §3211(a)(7) motion is only to determine whether the facts as alleged fit within any cognizable legal theory. See Mendelovitz v. Cohen , 37 A.D.3d 670 (2d Dept. 2007).

Decision

Individual Defendants

Defendants' first argue that all claims raised in the Verified Complaint must be dismissed as a matter of law as they relate to the individually named Defendants in this action ("Individual Defendants"). In support of this position, they argue that in order to support a lawsuit against individual members of a board of directors there must be specific allegations plead that relate to those individual defendants. Allegations asserted against a board in general are insufficient to sustain a cause of action alleging a breach of fiduciary duty against the individuals that make up that board.

As a general matter, courts are prohibited from inquiring into the propriety of actions taken by an individual director on behalf of a residential cooperative corporation. See Levandusky v. One Fifth Ave. Apartment Corp., 75 N.Y.2d 530 (1990); see also 40 W. 67^th St. Corp. v. Pullman , 100 N.Y.2d 147 (2003). The "business judgment rule" protects those individual board members from being held liable for decision that were made by the board within the scope of its authority. See Weinreb v. 37 Apts. Corp., 97 A.D.3d 54 (1^st Dept. 2012). In order to be sued as individuals for breach of fiduciary duty, a complaint must plead independent tortious acts on the part of those individual directors. See Avramides v. Moussa , 158 A.D.3d 499 (1^st Dept. 2018); see also Hill v. Murphy , 63 A.D.3d 680 (2d Dept. 2009).

Here, a review of the Plaintiffs' Summons and Complaint reveals that the causes of action contained therein are devoid of allegations that any of the Individual Defendants acted tortiously other than allegations made collectively against the Board. Accordingly, the causes of action asserted against the Individual Defendants¹ must be dismissed pursuant to CPLR §3211(a)(7). See Meadow Land Equities Corp. v. Hill , 63 A.D.3d 699 (2d Dept. 2009); see also Pelton v. 77 Park Ave. Condominium , 38 A.D.3d 1 (1^st Dept. 2006). This dismissal is without prejudice and may be re-filed in accordance with applicable law if individual tortious acts are alleged to have been committed by individual board members. Association Defendants

1 Defendants "Carl Napolitano, Louis Larossa, Mary Ann Ciaccia, Gary Wallace and Gloria D'Acunto."

Similar to the individuals named in the caption, the Defendants argue that the claims asserted against the "Association Defendants" must also be dismissed as a matter of law. Defendants claim that both "Association Advisors NJ, LLC" and "Association Advisors, LLC" are property managing agents for The Tides at Charleston. As such, they assert that the only fiduciary duty that they have is to the Board, not to any individual unit holders (shareholders).

As a general rule, the managing agent of a cooperative corporation is a fiduciary as to that corporation and its board, but not to any individual unit holders. See Caprer v. Nussbaum , 36 A.D.3d 176 (2d Dept. 2006); See also Berkowitz v. 29 Woodmere Blvd. Owner's , Inc., 50 Misc.3d 843 (Sup. Ct. Nass. Cty. 2015). An exception to this rule may arise if there is evidence that a managing agent has "aided and abetted" a breach of fiduciary duty committed by a board of directors. See Lama v. 3681 Broadway HDFC , 2019 NY Slip Op 31061(U) (Sup. Ct. NY Cty. 2019).

Here, the Plaintiffs' Complaint, read in a light most favorable to them, and considering the allegations therein as true, fails to make any specific allegations against either of the Association Defendants that would amount to aiding and abetting. Moreover, the sole allegation raised in opposition to the present motion, that the Association Defendants were "present" and "intimidating" when the Plaintiffs came to inspect books and records is insufficient to sustain a breach of fiduciary duty cause of action. Accordingly, all causes of action raised against the Association Defendants must be dismissed as a matter of law pursuant to CPLR §3211(a)(7) . However, this dismissal is without prejudice to refiling in accordance with applicable law. Notably, any cause of action sounding in breach of fiduciary duty must be pleaded with specific particularity. See Burry v. Madison Park Owner LLC , 84 A.D.3d 699 (1^st Dept. 2011); See also CPLR §3016(b). The Board

With all claims against the Individual Defendants and Association Defendants having been dismissed, the remaining causes of action are asserted against the Board of Directors, identified as "The Tides at Charleston Homeowners Association" ("the Board"). In their Summons and Complaint, the Plaintiffs allege a history of alleged intimidation and wrongdoing on the part of the Board. Moreover, they allege that the most recent board election was held by simple vote, without a quorum, in violation of the By-Laws.² Plaintiffs ultimately seek, among other things, a new election conducted in accordance with the appropriate rules.

2 See By-Laws Article VII, Section 1, Pl. Ex. 6, NYSCEF No. 6.

"The board of directors of a cooperative corporation owes its shareholders a fiduciary duty." Stinner v. Epstein , 162 A.D.3d 819 (2d Dept. 2018); see also Murphy v. State , 14 A.D.3d 127 (2d Dept. 2004). "In the context of cooperative dwellings, the business judgment rule provides that a court should defer to a cooperative board's determinations so long as the board acts for the purposes of the cooperative, within the scope of its authority and in good faith." 40 W.67^th St. Corp. v. Pullman , 100 N.Y.2d 147 (2003). However, unequal treatment of shareholders may be sufficient to overcome the insulation provided by the business judgment rule. See Meadow Lane Equities Corp. v. Hill , 63 A.D.3d 699 (2d Dept. 2009). Whether or not the business judgment rule applies is generally a question of fact. See Bryan v. West 81 Street Owners Corp., 186 A.D.2d 514 (1^st Dept. 1992).

After considering the Plaintiffs' Complaint, and accepting the facts alleged therein as true, and according the Plaintiffs the benefit of every favorable inference, this Court finds the facts alleged sufficient to state a cause of action for a breach of fiduciary duty. See Hasson v. S.B.J. Assoc., LLC , 117 A.D.3d 904 (2d Dept. 2014). This Court is not tasked with determining whether that cause of action has a likelihood of success, but only if the facts fit within any cognizable legal theory. See Patel v. Gardens at Forest Hills Owners Corp., 181 A.D.3d 611 (2d Dept. 2020).

Moreover, Business Corporation Law §619 gives the Supreme Court the authority to "confirm an election, order a new election, or take such other action as justice may require." Lago v. 87-10 51^st Ave. Owners Corp., 301 A.D.2d 527 (2d Dept. 2003); see also Ronnen v. Ajax Elec. Motor Corp., 88 N.Y.2d 582 (1996). Here, after according the Plaintiffs the benefit of every favorable inference, this Court finds that there are enough questions of fact relating to irregularities in the election proceedings to survive a pre-answer motion to dismiss. Specifically, the Defendants admit that they failed to establish a quorum on November 19, 2019 as required by the By-Laws. However, it appears that rather than adjourning the meeting as required by Article VII Section 1, they instead took a simple vote and re-elected the incumbent Board.³ Accordingly, for the reasons set forth above, the Defendants' motion to dismiss the claims against the Board is hereby denied. Attorneys Fees

3 Under the "Quorum" Clause of the By-Laws, a quorum is established when 51% of the members are present. If a quorum is not established the meeting is adjourned to a second meeting where a quorum is established when 33.33% of the members are present. If a quorum is not established at the second meeting it is adjourned a second time where a quorum may be established by 25% of the members present.

Finally, the Defendants move to dismiss the cause of action for "attorneys fees" in its entirety. It is well settled law that counsel fees are not recoverable absent express statutory authority, or a contractual provision providing for the same. See Hempstead Gen. Hosp. v . Allstate Ins. Co., 106 A.D.2d 429 (2d Dept. 1984); see also Lansco Corp. v. World Zionist Org. Am. Section , 198 A.D.2d 176 (1^st Dept. 1993). As there is no such provision here, the Defendant's motion to dismiss is granted and the application for counsel fees dismissed with prejudice.

Conclusion

This constitutes the Decision and Order of the Court on all issues raised in relation to motion sequence number 001. As the motion has been granted in part, all claims raised against the individual defendants Carl Napolitano, Louis Larossa, Mary Ann Ciaccia, Gary Wallace and Gloria D'Acunto and the association defendants Association Advisors NJ LLC and Association Advisors LLC are hereby dismissed as indicated herein. The remaining Defendants are hereby directed to file an Answer within 30 days of this Decision. The matter shall then appear for a preliminary conference which shall be held remotely on February 26, 2021 at 11AM by telephone.

Dated: December 24, 2020

/s/_________