A tenant-shareholder’s lawsuit seeking to invalidate two amendments to the By-Laws of a Cooperative has been dismissed as untimely, under the four-month statute of limitations applicable to Article 78 proceedings. Herriott v. 206 W. 121st Street, 2017 N.Y. Misc. LEXIS 399, 2017 N.Y. Slip Op. 30218(U) (Sup. Ct. N.Y. Co. Feb. 1, 2017).
The plaintiff in this case was the administrator of the estate of a deceased tenant-shareholder in the Cooperative. In October 2011, the tenant-shareholders voted at a special meeting to amend the By-Laws so as to (i) fix a maximum sum for which shares and the proprietary lease pertaining to an apartment may be sold, and (ii) grant the Cooperative a right of first refusal on any proposed sale or transfer. In 2015, the tenant-shareholder attempted to sell her apartment and accepted a cash offer of $200,000. The Cooperative notified the tenant-shareholder that it was exercising its right of first refusal to purchase the apartment and that it was doing so at the maximum sale price permitted under the amended By-Laws, which allegedly was just $7,500. The would-be purchaser then withdrew its offer.
In 2016, the tenant-shareholder’s executor sued the Cooperative seeking to invalidate the By-Law amendments and to recover $180,000 in lost profits from the aborted sale. The executor asserted that the amended By-Laws violate the New York Business Corporations Law (BCL) and that the special shareholder meeting at which the amendments were adopted was held without sufficient notice and lacked a quorum. The executor further asserted that the amendments did not receive enough votes to be adopted and that they had not been approved by the New York City Housing Preservation Department, as required for this Cooperative.
The Cooperative moved to dismiss the lawsuit under the statute of limitations. The court held that allegations that a Cooperative has acted “in violation of its own governing documents” are governed by the four-month statute of limitations for Article 78 proceedings. The court also cited precedent that challenges to actions that allegedly violate the BCL are likewise governed by the four-month statute of limitations. Here, although plaintiff categorized her claims as primarily seeking a “declaratory judgment,” the court concluded that “the thrust of plaintiff’s entire action is premised upon claims that the Co-op’s actions violated the BCL and its own governing documents.” Because the amendments were adopted in 2011, plaintiff’s action commenced in 2016 was well outside the applicable limitations period, requiring dismissal.