Sale at 420 East 72nd Street #1D

Curious to see how this turns out! I don't see how that apartment is going to be a very attractive gym, and have an ongoing curiosity about how much 'in building' gyms get used, and whether they really add much to the value of an apartment (over and above their maintenace cost, and loss of income to the co-op).

Well, we are only getting one side of the story here, but if true - that’s an unpleasant board.

As far as I can tell the Board hasn't disputed the fact pattern.

The fact that the Board let it get to 296 entries on the index number tells you all you need to know. A reasonable Board would have settled this years ago. In denying the motion for summary judgment, the judge made clear that the self-dealing claims could have merit and are worth exploring. Reason #893 never to buy a coop.

My guess is that this is another example of a Coop Attorney telling a Board they can do WTF they want.

That may be the case, but the Board was greedy from the start. If they had offered fair market value (maybe minus 6% for the avoided broker fee), not rejected a buyer with a net worth of $8 million, and then not tried to cover it up, maybe there never would have been a lawsuit and no lawyer to hoodwink the board into lengthy and expensive litigation.

This situation is insane. Attorneys’ fees alone could bankrupt the coop; they may well have to pay theirs and the shareholders. Thank you for highlighting this case. I am going to dig into the pleadings because this case contains many issues that are ripe for judicial correction. Real Estate law community (I am not part of it; this is what I hear from a prominent member) has been waiting for the right case to test existing precedent and make necessary corrections to make coop more attractive form of ownership. As matters stand, I completely understand why the Georges of the world are saying “no thank you; no discount of any size could sway me to this ownership structure.” However, for those of us who see its benefits, take heart; it is only a matter of time before a correction to Levandusky is issued by the courts.

I think it depends on the coop. There are indeed stuffy coops and non-stuffy coops with situations above due to irresponsible board members. I do not view that as poor advice by coop’ attorney. They would usually figure out a way to agree with what the board wants to do. The issue is the board and I am glad they got sued.

I also place blame on shareholders who let board stay in power. I am hoping that board has since been voted out. Too many shareholders pay no attention until it is too late, but again, times are changing with the population of the city. The market will ultimately ferret out those coops that fail to make necessary adjustments to outdated norms. As always, I advise anyone contemplating coop ownership to research board and shareholder composition. An increasing number of coops are making necessary changes.

As crazy as this sounds I have personally been involved in worse, and you can believe it or not at the door of it, it is always Coop attorneys telling the Board they can do anything they want no matter what the courts are actually doing/saying.

Agree re Coop Attorneys, but their self-interested advice only prevails if there is no in-house counsel (i.e., no attorney on the board or no board member with family access to solid attorney).. A plus for any board (IMHO) is a respected Big Law partner on the board. For locals, there are likely many more firms whose partners they would trust on the board, but a board without an in-house counsel is a babe in the woods.

Babe in the woods? Why? If this coop board had simply offered the same price as the bona fide arms-length contract, there wouldn't have been a lawsuit. Instead they offered $100K less, then rejected the buyer for being too low, then rejected the revised higher offer too. You don't need a lawyer for that. Just offer a fair price to the seller, and you won't have legal trouble!

I'm not sure what part of "Coop Boards think they can do WTF they want to and Coop Attorneys encourage acting accordingly" isn't clear.

"Can do" and "Should do [to thy neighbor]" are different concepts.

MCR,
Notice how this relates to the discussion we had in the other thread?

I feel like this discussion relates to discussions we’ve had in multiple threads.

Can any one please conclude the result of the lawsuit? This shareholder is the role model of tenants.

It is true that Coop Boards think they can do WTF they want to, and it is very pricey for shareholders to fight back. But if the shareholders do fight back, it'd better be a full strike to blow those motherfvckers' a** off

Case went to full trial last summer; looks like it was bench trial and the parties are waiting for judge’s decision. Coop could end up paying Plaintiff an insane amount of money. Seriously insane.

Typical NY Supreme Court Justice taking more than 90 days to issue a ruling on a fairly simple case. Probably waiting to be told by whoever their "sponsor" is how they should rule on the case.

I'm not sure how insane an amount of money in damages could be awarded, though. Aside from attorney's fees, what are plaintiff's actual damages? They don't look like they are taking any loss from what the sale would have been. Even at $40,000 a year carrying that's $200,000 (and I think a reasonable argument that plaintiff had some responsibility to attempt to mitigate their damages could be made). What am I missing?

Read the plaintiff’s post trial memorandum, one of the last entries on the docket. I did not dig into cited cases,, but she is seeking punitive damages on top of attorneys’ fees (and attorneys’ fees after two MSJs and a trial could easily be hundreds of thousands of dollars). Either way, interesting reading (they fully brief price protection issue with citation to the chappell v trump tower case). I am now tracking the case and will report back when the judge rules. Not my area and I did not read cited cases or the filed excerpts from the trial transcript from either post trial memorandum, so I don’t have an informed opinion as to how this technically should come out.

Plaintiff claims $448k of legal expenses. Board's main defense is the business judgment rule, which any halfway competent corporate Director knows is far from absolute and doesn't protect against self-dealing.

Plaintiffs memo:

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=y1Zwt0Y9M9/tRQldbU/hcg==&system=prod

Defendants memo

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=4p5VAEMFRJcPqnsOFHaoAg==&system=prod

@George - Agree re what any half-way competent corporate director should know and do, and I also agree that therein lies the problem with many coops. The board our building recently voted out in the last election (which was the only election the building has ever had to anybody’s knowledge) had a socialite from a bygone era as its President flanked by a few never-employed-outside-the-home-with-no-training-in-financial-management cronies. Truly lovely individuals, but not competent corporate directors.

Even the stupidest Director can save their Board a lot of trouble by simply being nice to their neighbor, employee, or fellow Director.

Fair enough. I do think this case is am aberration; many coop boards are inept, but this one seems like a true piece of work. My sense (not overly informed - I only skimmed both post trial memoranda) is that this board president is a particularly bad actor and the rest of the board, as well as the shareholders, were/are asleep at the wheel (he was still President as of the trial!). Forget about punitive damages; coop could end up paying close to $1 million in attorneys’ fees alone between coop’s fees and shareholders’ fees. I don’t know enough about D&O liability or insurance to know whether board members can be held personally liable here.

Have you seen Coop cases where courts have awarded either punitive damages or plaintiff's attorneys fees against the Coop?

I'm not arguing the Coop isn't in the wrong, but Manhattan courts have been letting Coops get away with horrendous shit under the Business Judgement Rule for a long time. Perhaps that tide is starting to turn as Coops are getting more ridiculous. There was a ruling against 1 5th Avenue a few years ago (ironic because that's where Levandusky was) where they were denied a BJR defense against a Warranty of Habitability claim https://www.leagle.com/decision/innyco20160510299
Nevertheless, I wouldn't be surprised by any rulings here due to the history of ridiculous rulings on such cases. Is Crane even in the Commercial Division?

As far as Board Members go MCR already knows my opinion:
Way to many don't even know what a Fiduciary Duty is or that they have to put the Shareholders as a whole interest in front of their own. The vast majority don't even glance at the monthly financials they are sent. Example: in the last building I was in, in one month's financials there was a questionable bill for an elevator repair which was paid by the managing agent, but rather than questioning it myself I decided to wait a couple of months just to satisfy my curiosity as to whether I was the only Board member looking at the financials. Of course no one else said anything. BTW the reason the elevator repair bill was questionable was that the building didn't have an elevator.

@30yrs - Interesting color you have provided on NY trial court system/judges. I have definitely come across more than one opinion in doing coop research that raised my eyebrows where it seemed judge was engaging in crazy analytical gymnastics to avoid the right/just result. I have heard that the real estate bar (plaintiff attorneys, defense attorneys and judges) might all be in agreement that some correction is in order. I can’t wait for ruling here. Hopefully we will get one; more likely that a confidential settlement agreement will be struck and a dismissal will ensue.

I wouldn't count on a settlement. I won't go through the entire insanity in my last Coop, but here is a very small part of it:
The Coop was suing myself and the former Vice-president because they didn't feel like paying the legal bill for some litigation we (the Coop) were involved in. After about 6 months it was so obvious that they had absolutely no case that the judge called the parties in and basically said she was tired of this bullshit and the case would be settled for $625,000. She specifically got the current President, Vice-president and attorney to agree, but said she understood that they would need approval from the Shareholders which she gave them 1 month to get.

They called a Shareholders meeting and then the Coop Attorney called our attorney to "explain" that it would be easier to convince the shareholders to go along with the settlement if we weren't there. I immediately said "No way, they are about to pull some bullshit" but acquiesced to the pleadings of my attorney and co-defendant to go along with it.

Of course the President, Vice-president and attorney did exactly the opposite and convinced the shareholders to reject the settlement. So at the next court date the judge immediately issued a Summary Judgement ruling and awarded $985,000.

As an aside, at the Shareholders meeting which kicked off the lawsuit, the Coop Attorney got the shareholders to agree to the lawsuit by saying he guaranteed a win. I ran into his partner several times in the normal course of business while this was going on and chided him over his partner's actions. The first time I brought it up he accused me of making it up because no attorney would ever do that. However subsequent times he stood mute, didn't respond, and merely gave me dirty looks. Their firm disbanded shortly after the ruling.

I had not heard that about the Real Estate Bar, but I certainly hope it's true and that it will result in both different rulings and behavior in Coop/Condo Boards and attorneys.

BTW back to your previous D&O insurance:
It's a major impediment to Boards acting reasonably. If they get sued over something, the insurance company defends so they don't pay for it, and rightly or wrongly they believe that even if they lose the insurance company will cover that as well. So there is zero downside (except for premiums going up, but NO ONE looks at the financials closely enough to even notice).

As to personal liability of Directors I am not aware of an judgements like that except in cases of race based discrimination or physical harm due to neglect (window guards).

D&O doesn't cover defense costs of lawsuits against the board itself, only against individual members to the extent they are sued as individuals. A general liability policy defends the Board for certain matters like someone slipping in the lobby or a burst pipe, but typically excludes coverage for Boards doing stupid stuff. A Board should also have employment practices insurance and workman's comp if they directly employ anyone. Crime and fidelity cover can help if, for example, the Treasurer absconds with the capital fund. And of course property cover.

Bottom line, if the Board engages in self-dealing and the Board itself gets sued, there is a high chance that the Board itself is not covered for legal fees or the settlement.

To be more specific on general liability insurance, remember that it covers only losses due to bodily injury or property damage unless other causes are specifically named, eg slander. The lawsuit that started this thread alleges neither BI nor PD but rather a financial loss.

Also remember that punitive damages are never insurable (at least not with US-based carriers) since insurance defeats the purpose of being punitive.

That sounds great in theory but in practice almost every shareholder suit gets picked up by insurance. And if a claim of self dealing alone was enough for insurance to disclaim coverage then every suit would include that cause of action and insurance companies would never defend anything. Now if a court actually ruled that a Board member had committed self dealing the insurance company might try and recover whatever they might have laid out. Perhaps you can list for us a bunch of cases where courts made such conclusions of Board self dealing so we can see what the results have been?

You're right... some D&O is comprehensive of a wide variety of losses paid by the Board itself, while other policies exclude non-monetary losses or might cover only individuals' liability. The policies vary widely so must be read carefully. If the Directors aren't very sophisticated, who knows what they have. It's important to note that courts can assess punitive damages against individual directors, as in the Biondi case. The case that started this thread also seeks punitive damages. It's unclear if an insurer is involved there.

You are also correct that policies won't cover punitive damages because they exclude intentional bad acts. But I also think that is why it's so rare that NY judges award them against volunteer Coop Board Members. I think if it was more common that they did we would see A LOT less abjectly horrible and inexcusable behavior by Coop Boards.

I have not read the pleadings (yet) but on it's face it looks like the Board was looking to unjustly enrich the Coop, as opposed to lining the pockets of an individual member. In the past courts have seemed to be "engaging in crazy analytical gymnastics to avoid the right/just result" in order to give them a pass for such behavior.
That is why while I hope this judge eviscerates the defendants here I'm not being particularly sanguine about the potential ruling.

I'd also like to say this case highlights how utterly broken our system is here. At a minimum we are going to see a million dollars spent between the parties plus significant court resources, people's time, etc over what was less than $100,000 disagreement.

Wonder why govt does not pass a new law that coops can only reject based on requirements defied by law and the criteria can not be overly restrictive:
1. Financial: Max 30 percent down payment and 2 years of maintenance and mortgage payments of which max 6 months can be escrowed.
2. Pendant criminal cases
and a few others.

Wonder why govt does not pass a new law that coops can only reject based on requirements DEFINED by law and the criteria can not be overly restrictive:
1. Financial: Max 30 percent down payment and 2 years of maintenance and mortgage payments of which max 6 months can be escrowed.
2. Pending criminal cases
and a few others.

No politician really cares about the sort of discrimination that happens regularly at certain Manhattan addresses. People who suspect they will be discriminated against buy condos or go to integrated buildings, so it's questionable if even they care.

Meanwhile, I thought that some of TRD's predictions are good ideas. A pied-a-terre tax is sorely needed, as is a lower mortgage tax at the lower end, and the only downside of a flip tax is restricting i-buyers (so it feels like a handout to realtors).

https://therealdeal.com/2020/01/01/five-ways-that-albany-could-punish-real-estate-in-2020-2/

For a long time there has been a somewhat significant difference between First Department and Second Department decisions. A very prominent Coop Attorney explained to me a couple of decades ago that as long as those siting on the bench live in stuffy Coops the likelihood of decisions going against them is pretty small (in the same way as single family home owners got "protected" in the Second Department). We're worried about the self interest of Coop Boards, but ignoring the self interests of judges handing down these decisions.

George,
For a long time State legislators believed that if they voted against the interests of Big Deal Estate that it would be a personal disaster for them. Then last June came and the unthinkable happened; but what was the resulting fallout? If anything the message sent by their constituents to most NYC based State legislators was "you finally got something right." So what lesson do you think they learned from that?

I don't think the socialists care about rich people discriminating against each other. They will spend their time and political capital to raise revenue and to curry votes among the lower classes.

Actually George, people who suspect they will be discriminated against don't always buy condos -- they often hire me to get them into co-ops. That's a not-insignificant portion of my business.

This is a very interesting case.

The negative attention from this case will surely have a negative impact on share prices in the entire building, no? Seems like the board loses either way.

I know there are two sides to every story but this seems like an obvious case of petty retaliation. I would be fearful of buying in a co-op. Condo seems so much better as a buyer.

Ali - the Ray Donovan of Coop Brokers ;)

Tomnevers,
I think you'd be surprised at the lack of research buyers do into such matters.

front_porch, that's only because those people don't know the fact that most coops are run or managed by morons

Per Notice of Remittur (256 in the index), complaint was dismissed against all individual defendants by appellate court in its affirmation of denial of MSJ against the coop itself. A lot of interesting issues presented by this case. Can’t believe they took it to trial after appellate court affirmed denial of MSJ. I would not be surprised to see either party appealing whatever decision the judge issues.

Per Notice of Remittur (256 in the index), complaint was dismissed against all individual defendants by appellate court in its affirmation of denial of MSJ against the coop itself. A lot of interesting issues presented by this case. Can’t believe they took it to trial after appellate court affirmed denial of MSJ. I would not be surprised to see either party appealing whatever decision the judge issues.

Per Notice of Remittur (256 in the index), complaint was dismissed against all individual defendants by appellate court in its affirmation of denial of MSJ against the coop itself. A lot of interesting issues presented by this case. Can’t believe they took it to trial after appellate court affirmed denial of MSJ. I would not be surprised to see either party appealing whatever decision the judge issues.

Per Notice of Remittur (256 in the index), complaint was dismissed against all individual defendants by appellate court in its affirmation of denial of MSJ against the coop itself. A lot of interesting issues presented by this case. Can’t believe they took it to trial after appellate court affirmed denial of MSJ. I would not be surprised to see either party appealing whatever decision the judge issues.

Per Notice of Remittitur (256 in the index), complaint was dismissed against all individual defendants by appellate court in its affirmation of denial of MSJ against the coop itself. A lot of interesting issues presented by this case. Can’t believe they took it to trial after appellate court affirmed denial of MSJ. I would not be surprised to see either party appealing whatever decision the judge issues.

Can I say it.... please, please, please, please, please?

Right? My comment was not that astute; certainly not worth SE posting 5 times.

You underestimate my ego... Lol.

@30yrs - I reviewed the pleadings and orders in the case you referenced above. You have not only seen it all in your 40+ years in the industry but appear to have lived it all and played virtually every role there is to play. That was some CRAZY! Ridiculous that you had to go through that, but at least you prevailed and that coop attorney seems to have made himself scarce since then.