Opinion
57401/2019
02-27-2020
TOMFOL OWNERS CORP., Petitioner, v. Sally WALKER, Respondent. Tomfol Owners Corp., Petitioner, v. Sally Walker, Respondent. Tomfol Owners Corp., Petitioner, v. Sally Walker, Respondent. Tomfol Owners Corp., Petitioner, v. Sally Walker and Carle Walker, Respondents.
Tomfol Owners Corp., the petitioner in these four proceedings ("Petitioner"), commenced three summary proceedings against Sally Walker ("Respondent"), a respondent in all of these proceeding, seeking a money judgment and possession of 206 East 7th Street, Apt. 7/8, New York, New York ("206 No.7/8"), 204 East 7th Street, Apt. 8, New York, New York ("204 #8"), and 206 East 7th Street, Apt. 1, New York, New York ("206 #1"), and another summary proceeding against Respondent and Carle Walker ("Co-Respondent"), another respondent in that proceeding (collectively, "Respondents"), seeking a money judgment and possession of 204 East 7th Street, Apt. 7, New York, New York ("204 #7")(collectively, "the subject premises") on the basis of nonpayment of rent. Respondents interposed an answer with defenses of payment and a dispute over the validity of an increase in maintenance pursuant to Petitioner's bylaws. The Court held joint trials of these matters on September 18, 2019, January 31, 2020, February 5, 2020, and February 6, 2020 and then adjourned the trial for post-trial submissions to February 24, 2020.
The Court also will refer to 204 #7 and 204 #8 collectively as "204 #7/8".
Preliminary documentary evidence
Petitioner proved that it is the proper party to commence this proceeding; that it is a residential cooperative corporation ("co-op"); that Respondents are shareholders in the co-op and their shares entitle them to proprietary leases in the subject premises; that Petitioner complied with the registration requirements of MDL § 325 ; and that Petitioner properly and timely demanded payment of rent pursuant to RPAPL § 711(2) before commencing these proceedings.
No party disputed that Respondents have continued to pay maintenance at a rate Petitioner had in effect as of December of 2018. The parties dispute three aspects of concerning maintenance on and after January of 2019: (1) the difference between the rate of the prior maintenance and the rate of monthly maintenance upon which Petitioner sues for a judgment herein; (2) an assessment that Petitioner purports to have imposed on Respondents; and (3) fines Petitioner placed on Respondents for using the subject premises for short-term rentals. The Court refers to the disputed maintenance increase and the assessment, collectively, as "the Increases."
The difference between the maintenance that pre-dated January of 2019 and the maintenance that Petitioner claims was in effect as of January of 2019 for 206 #1 is $201.92 which, for the ten months from January through October of 2019 totals $2,019.20. In addition to that, Petitioner claims an assessment in the amount of $920.01 for 206 #1, representing three months of $306.67 per month. The total amount of maintenance plus assessment in controversy for 206 #1 is $2,939.21.
The maintenance before January of 2019 was $454.08 and Petitioner claims it was $656.00 after January of 2019.
The difference between the maintenance that pre-dated January of 2019 and the maintenance that Petitioner claims was in effect as of January of 2019 for 204 #7 is $403.84 which, for the ten months from January through October of 2019 totals $4,038.40. In addition to that, Petitioner claims an assessment in the amount of $1,839.99 for 204 #7, representing three months of $613.33 per month. The total amount of maintenance plus assessment in controversy for 204 #7 is $5,878.39.
The maintenance before January of 2019 was $908.16 and Petitioner claims it was $1,312.00 after January of 2019.
The difference between the maintenance that pre-dated January of 2019 and the maintenance that Petitioner claims was in effect as of January of 2019 for 204 #8 is $227.16 which, for the ten months from January through October of 2019 totals $2,271.60. In addition to that, Petitioner claims an assessment in the amount of $1,035.00 for 204 #8, representing three months of $345.00 per month. The total amount of maintenance plus assessment in controversy for 204 #8 is $7,245.81.
The maintenance before January of 2019 was $510.84 and Petitioner claims it was $738.00 after January of 2019.
The difference between the maintenance that pre-dated January of 2019 and the maintenance that Petitioner claims was in effect as of January of 2019 for 206 #7/8 is $403.84 which, for the ten months from January through October of 2019 totals $4,038.40. In addition to that, Petitioner claims an assessment in the amount of $1,839.99 for 204 #7/8, representing three months of $613.33 per month. The total amount of maintenance plus assessment in controversy for 206 #7/8 is $5,878.39.
The maintenance before January of 2019 was $908.16 and Petitioner claims it was $1,312.00 after January of 2019.
Petitioner introduced evidence that it had imposed a total of $9,500.00 in fines on Respondents for short-term leasing of the subject premises in violation of MDL § 4(8)(a).
Witness testimony
Petitioner's managing agent testified on cross-examination that the shareholders voted for the Increases at a meeting that took place in August or September of 2018; that he did not remember how many board members were at that meeting; that ballots on the maintenance and assessment votes were counted at the meeting; that some ballots were submitted by email; that he did not think that he was the only one who counted the votes; that he "imagined" that there was a quorum at that meeting; and that he did not know how minutes were taken.
Respondent introduced into evidence minutes from a meeting of Petitioner's shareholders on September 18, 2018 ("the Meeting"). The minute states that eight shareholders were present; that 248 shares voted in favor of the maintenance increase and assessment; that 70 shares voted against the maintenance increase and assessment; and that 131 shares abstained. Respondent introduced into evidence a note Petitioner sent to shareholders in advance of the Meeting, which stated that voting in person or by proxy allowed, including by an email ballot and by a mail ballot. A ballot is attached to the notice.
Petitioner's president ("the President") testified that the shareholders voted for the Increases at the Meeting. Petitioner introduced into evidence a financial report that the president testified was provided to all shareholders before the Meeting. The financial report stated that Petitioner operated at a loss in 2017 and had not paid property taxes since 2012 and states proposed maintenance increases and assessments. The President testified that he prepared the minutes for the Meeting; that he caused the minutes to be delivered to all the shareholders; and that some ballots submitted that night and were added to the total submitted by mail or email. Petitioner introduced into evidence an email sent to the shareholders on September 24, 2018 with the results of the vote from the Meeting.
The President testified that he got complaints from shareholders about hotel-like activity at the subject premises; that he found advertisements on websites that provide platforms for short-terms rentals; that he saw evidence on security cameras of people coming and going to the building in which the subject premises is located ("the Building") with luggage; that he sent emails complaining to Respondents; and that Respondents did not respond to his complaints.
The President testified on cross-examination that there was a quorum at the Meeting because ballots were provided in advance; that no document requires a shareholder to be present at the meeting; that a majority of board members do not have to be at the meeting; that a quorum of shares is needed at the meeting, including by proxy or ballot by email or mail before the meeting; that Petitioner has 449 shares; that he tallied votes; that an abstention means that a shareholder did not vote; that no one other than Petitioner's board and management checked ballots or verified the vote; and that an unsigned ballot would count if emailed from a verified email address.
Respondent testified that she was at the Meeting; that three out of nine board members were present at the Meeting; that ballots were not counted that night; that she was suspicious; that she got notice of maintenance increase; that she did not pay the maintenance increase because there was no quorum at the Meeting; that she never received a violation for a short-term rental; that she hasn't advertised the subject premises for short-term rental; that her agent advertises for short-term rentals; that she doesn't have control over her agent; that she lives in all the apartments that comprise the subject premises; and that one of the units is for meditation.
Respondent testified on cross-examination that her agent rented the subject premises according to the agent's needs; that she didn't accept a majority of offers to rent out the subject premises on a short-term basis; that she accepted three tenants; that one stayed for 29 days; that another stayed for 14 days; that a third tenant stayed for three days; and that Petitioner did not give her permission to advertise the subject premises for short-term rentals.
Respondent testified on redirect examination that she shared short-term rentals with her guests.
Co-Respondent testified that he wasn't at the Meeting; that he got the email with minutes; that he did not pay the Increases because the minutes say that the ballots were removed; that he asked several times to see the ballots to verify the vote; that Petitioner did not show him the ballots; and that three ballots representing 39 shares were not signed.
Another shareholder of Petitioner testified that she was at the Meeting; that all she saw was a managing agent looking at a computer screen and a few people bringing in walk-in votes; that it looked like he was calculating a vote; that she did not get a tally; that she did not know how many shares were at the meeting; that she had mailed a ballot in; that she was told to notarize the ballot; that it used to be that shareholders counted the ballots themselves; and that she used to be a board member.
A witness who testified that she is a potential distributee of an estate of a deceased shareholder of Petitioner testified that she was not present at the Meeting; that, on two occasions she asked to review ballots and Petitioner withheld the ballots from her; that one ballot had no name or shares written on it; that another ballot was a proxy given by someone and no boxes were checked off; that one ballot had a named stamped, not signed, on it; and that one ballot did not have the number of shares written on the ballot.
One of Petitioner's board members testified in rebuttal that he voted for the Increases and that he did not sign the ballot. A shareholder in Petitioner with a proprietary lease for commercial premises at the Building ("the commercial tenant") testified that she voted for the Increases.
Petitioner introduced into evidence an email sent by Petitioner's board alerting shareholders to house rules, which included fines for advertisements for short-term rentals and fines if the advertisement is not removed after five days. Petitioner introduced into evidence advertisements and still photographs from security cameras of people going to the subject premises with luggage.
The President testified on rebuttal that he was at the Meeting; that people submitted ballots in person at the meeting, by mail, and by email; that they tallied the ballots and then the meeting was adjourned; that he knew the results of vote at the end of the night; that he asked management to check the count as well; that he waited till September 24, 2018, six days after the Meeting, to notify shareholders because the management company didn't get back to him; and that he went out of the country to attend his brother's wedding in the interim.
The President testified on cross-examination that ballots that were not signed were counted as voting in favor of the Increases; that he did not require two signatures for shares with co-shareholders; that he did not go to the subject premises to inquire about what he saw in the security cameras; that he did not follow up with guests who responded to advertisements for the subject premises; that Petitioner's board imposed the fines for short-term rentals; and that one of the board members who gave rise to a quorum at the board meeting where the board set the fine did not have his name written in a notice of new board members who were elected as a mistake because that board member's spouse and co-shareholder's name was written there instead.
Petitioner's governing documents and ballots taken at the Meeting
The proprietary leases, in evidence, state that an imposition of an assessment or increases in the rent or maintenance shall require the approval of holders of 51% of the shares issued and outstanding.
Petitioners by-laws ("the By-Laws"), in evidence, state that, "[a]t any meeting of the shareholders, except as otherwise provided by statute, the holders of a majority of the shares entitled to vote shall constitute a quorum"; that "[s]hareholders may vote in person, by proxy or by ballot" on "questions of imposition of assessment" and "increases in rent or maintenance"; and that shareholders voting by proxy must appoint a proxy by a writing subscribed by the shareholder.
The ballots on the question of the Increases show that at least 232 shares voted in favor of the Increases. In addition to that, a ballot in favor of the increase in the name of "Stacy L. Pitt" does not indicate how many shares she has, although a tally introduced into evidence indicates that she has 8 shares. One ballot in favor of the Increases is signed, although it does not have a printed name or a number of shares on it. This is the ballot apparently submitted by the commercial tenant, who testified that she voted for the increases. The tally in evidence shows that the commercial tenant has 8 shares. Whether the Court counts these 16 shares or not, 51% of the 449 shares in Petitioner rounds up to 229 shares, so the 232 shares voting in favor of the Increases represents a majority of the outstanding shares in Petitioner, not to mention a majority of the shares voting at the Meeting.
The names of the shareholders on ballots voting in favor of the increases and the number of shares indicates for those shareholders on those ballots are: Kim Keever, 20 shares; Evan Crane, 10 shares; Jose Rivera, 9 shares; Vannett Li, 8 shares; Sheila Mc Laughlin, 33 shares; Luis Sturla, 7 shares; Kevin Davey, 22 shares; John Zorn, 32 shares; John and Elizabeth Lafortune, 8 shares; Faten Alawadhi, 10 shares; Elliott Sharp, 22 shares; David Kirkpatrick, 16 shares; Gregory Heffron, 9 shares; Daniel Baum, 17 shares; and Anthony Coleman, 9 shares.
Discussion
Respondents object to the results of the vote at the Meeting first on the ground that there was no quorum at the Meeting. Respondents focus on the presence of board members at the Meeting. However, the By-Laws provide that at any meeting of the shareholders, the holders of a majority of those entitled to vote shall constitute a quorum. Respondents' assertions about the effect of the presence of board members on a quorum have no textual support in the By-Laws. See BCL § 608(a) (the holders of a majority of the votes of shares entitled to vote thereat shall constitute a quorum at a meeting of shareholders for the transaction of any business).
With regard to a quorum of shareholders, corporations should conduct elections so as to afford all shareholders the fullest liberty in expressing their wishes. Smith v. Orange & Rockland Utils. , 162 Misc 2d 606, 608 (S. Ct. Rockland Co. 1994). Accordingly, a corporation may implement reasonable measures to provide shareholders who are not physically present at a shareholders' meeting with a reasonable opportunity to participate, including by means of electronic communication. BCL § 602(b)(i). In this matter, Petitioner permitted shareholders to vote by ballots submitted by email.
In particular, the By-Laws permit shareholders to vote at a shareholders meeting in person "or " by a ballot (emphasis added). The Court construes a corporate by-law as being in the nature of a contract among shareholders. In re Am. Fibre Chair Seat Corp. , 241 A.D. 532, 535 (2nd Dept. 1934). Cf. Murphy v. State , 14 AD3d 127, 133 (2nd Dept. 2004) (the by-laws of a condominium association are, in essence, an agreement among all of the individual unit owners as to the manner in which the condominium will operate). The Court must construe contracts so as to give effect to every word contained therein. See Spaulding v. Benenati , 57 NY2d 418, 425 (1982), Gessin Elec. Contrs., Inc. v. 95 Wall Assoc., LLC , 74 AD3d 516, 519 (1st Dept. 2010), J.P. Doumak, Inc. v. Westgate Fin. Corp. , 4 AD3d 62, 64 (1st Dept.), appeal dismissed , 3 NY3d 635 (2004), Taylor v. Muss , 13 AD2d 245, 249 (1st Dept. 1961), aff'd , 11 NY2d 685 (1962). The Court finds instructive that, in statutory construction, the word "or" is "a disjunctive particle indicating an alternative and it often connects a series of words or propositions presenting a choice of either." In re Gerald R.M. , 12 AD3d 1192, 1194 (4th Dept. 2004), Festa v. Leshen , 145 AD2d 49, 59 (1st Dept. 1989). Accordingly, the when By-Laws permit a shareholder to attend a meeting in person "or" by a ballot, the By-Laws give shareholders the choice to appear by ballot only. Shareholders therefore need not have been physically present at the Meeting in order to obtain a quorum. See BCL § 602(b)(i) (a shareholder participating in a shareholders' meeting by electronic means is deemed to be present in person at the meeting). As more than half of the shares voted by a ballot, as demonstrated above, the Meeting had a quorum.
Respondents also challenge the form of some submitted ballots, such as whether they were signed, whether they were notarized, or whether they stated a number of shares on them. Respondents also challenge the manner in which Petitioner counted the ballots. A cooperative may impose requirements for both balloting and tallying on voting if they wish to. See , e.g. , Mishaan v. 1035 Fifth Ave. Corp. , 47 Misc 3d 930, 939 (S. Ct. NY Co. 2015). Petitioner, however, has not imposed such requirements according to its By-Laws, depriving Respondents' argument of support.
Taking a broader view, Respondents do not prove that any of the shareholders who voted for the Increases actually opposed them. Petitioner is not a publicly-traded corporation with thousands of shareholders. Petitioner is a relatively small cooperative. The shareholders who voted for the Increases, listed above, add up to seventeen households. On this scale, irregularities that would change the substantive outcome of the vote at the Meeting should be readily ascertainable, and the absence of proof as such is particularly glaring. Id. at 937. Respondents' process-focused arguments do not otherwise warrant the interference of the Court into the internal affairs of a corporation. Cf. Thompson v. Bd. of Dir.(s) 800 Grand Concourse , 2015 NY Slip Op. 31897(U), ¶ 3 (S. Ct. Bronx Co.), citing Auerbach v. Bennett , 47 NY2d 619, 629 (1979) (upon voting for an increase of maintenance, in accordance with the proprietary lease and by-laws, the decision of the cooperative board is preserved by the business judgment rule doctrine, which bars judicial second guessing of corporate decisions so long as the decision is made in good faith and after reasonable investigation). The Court therefore dismisses Respondents' defenses with regard to the Increases.
Respondents oppose the imposition of fines related to short-term rentals in part because the policy implementing the fines was set by a cooperative board composed of members whose legitimacy Respondents dispute. However, the exclusive means by which to challenge an election of an officer to a corporate board, is by a proceeding instituted pursuant to BCL § 619. Chiulli v. Reiter , 130 AD2d 617, 618 (2nd Dept. 1987) In re Schmidt , 97 AD2d 244, 249 (2nd Dept. 1983), Brady v. 450 W. 31st St. Owners Corp. , 2014 NY Slip Op. 31879(U), ¶¶ 20-21 (S. Ct. NY Co.). Accordingly, Respondents may not challenge the board's policy on those grounds in the context of a summary proceeding in Civil Court.
Respondents also oppose the imposition of fines related to short-term rentals on the grounds that the shareholders did not approve such a policy. Rather, Petitioner's board implemented the policy.
Generally, a landlord may seek a judgment for money in a nonpayment proceeding for money owed as rent. Binghamton Hous. Auth. v. Douglas , 217 AD2d 897, 898 (3rd rd Dept. 1995). In the context of a co-op, the monthly maintenance means the same thing as "rent." 1990 Seventh Ave. Co-operative Corp. v. Edwards , 133 Misc. 831 (App. Term 1st Dept. 1929), Earl W. Jimerson Housing Co. v. Butler , 102 Misc 2d 423, 424 (App. Term 2nd Dept. 1979). Residential cooperative corporations enjoy a distinctive privilege of self-determination, 930 Fifth Corp. v. King , 71 Misc 2d 359, 364 (App. Term 1st 1972), 111 Tenants Corp. v. Stromberg , 168 Misc 2d 1014, 1019 (Civ. Ct. NY Co.), which intuitively includes the means by which cooperatives determine an amount of rent. The Court therefore takes seriously the requirement in the proprietary lease reserving to the shareholders the imposition of assessments and increases in the rent or maintenance. As Petitioner's board, and not the shareholders, determined that a fine to be imposed for short-term rentals was additional rent or maintenance, Petitioner's own by-laws preclude the treatment of such a charge as rent. Accordingly, the Court dismisses so much of the petition as seeks a judgment for nonpayment of fines charged for short-term rentals, without prejudice to Petitioner's plenary non-possessory cause of action for such charges in the appropriate forum, and without prejudice to Respondents' defenses thereto.
While the dissenting opinion of this case stated this proposition of law, the Court deems the position of the dissent to have eventually prevailed, as the Appellate Division reversed the majority opinion, 40 AD2d 140 (1st Dept. 1972), appeal dismissed , 31 NY2d 1046 (1973).
--------
The Court awards Petitioner a judgment for the Increases from January of 2019 through October 2019 for the four apartments that comprise the subject premises. The final judgment is $2,939.21 for Index # L/T 58222/2019 (Civ. Ct. NY Co.). The final judgment is $5,878.39 for Index # L/T 63191/2019 (Civ. Ct. NY Co.). The final judgment is $7,245.81 for Index # L/T 57403/2019 (Civ. Ct. NY Co.). The final judgment is $5,878.39 for Index # L/T 57401/2019 (Civ. Ct. NY Co.). Issuance of the warrant of eviction on all cases is stayed through March 3, 2020 for payment of all of the judgment amounts. Upon any default, the warrant may issue.
This order is without prejudice to the causes of action and defenses of all parties to this proceeding in other litigation between them except as to the amounts of rent/maintenance in arrears determined above.
The parties are directed to pick up their exhibits within thirty days or they will either be sent to the parties or destroyed at the Court's discretion in compliance with DRP-185.
This constitutes the decision and order of this Court.