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Cooperative Board Properly Disapproved Sale of Unit Where Seller’s Ownership of Unit Was Unclear

A cooperative board may disapprove the proposed sale of a unit where the documents are unclear as to whether the would-be seller has full ownership of the unit.  Young v. 101 Old Mamaroneck Road Owners Corp., 2022 N.Y. App. Div. LEXIS 6781, 2022 N.Y. Slip Op. 06955 (2d Dep’t Dec. 7, 2022). 

            In this case, the plaintiff and her father entered into a contract to purchase shares corresponding to a unit in the cooperative.  Plaintiff and her father allegedly stated at the closing that they intended to take title as joint tenants with rights of survivorship, and they so stated on their mortgage application.  However, the cooperative issued a stock certificate that named plaintiff and her father without any language reflecting that they were joint tenants with rights of survivorship.

Plaintiff’s father died in 1997, survived by plaintiff, his three other children, and plaintiff’s stepmother (from whom plaintiff’s father was either divorced or estranged).  Plaintiff subsequently asked the board to re-issue the shares in her name alone, on the ground that she was the surviving joint tenant, to enable her to obtain a second mortgage.  In 2004, the Board issued a replacement stock certificate naming plaintiff as the sole owner of the shares, after plaintiff supplied proof that her siblings waived any interest in the apartment. 

            In 2017, plaintiff entered into a contract to sell her shares to a third party.  The board initially approved the sale, but a week later the board reversed its decision on the grounds, “among other things, that it viewed the 1993 certificate as conveying a tenancy in common, it considered the 2004 certificate to be invalid, and it would not consent to a sale unless a court-appointed representative of the plaintiff’s father’s estate authorized the transfer of the estate’s interest in the shares represented by the 1993 certificate.”  The plaintiff sought to obtain such authorization from the Surrogate’s Court, but dropped that proceeding after learning that the cooperative shares at issue might be encumbered by a Medicaid lien against her stepmother’s estate. 

            In 2019, plaintiff sued the cooperative and its board of directors on claims for conversion, estoppel, breach of fiduciary duty, tortious interference with contract, and negligence.  Plaintiff sought a court order directing the board to approve her sale of the apartment, as well as monetary damages.  A lower court granted the cooperative’s and board’s motion to dismiss plaintiff’s claims, and an appellate court affirmed.  The court observed that “[i]n the context of cooperative dwellings, the business judgment rule provides that a court should defer to a cooperative board’s determination so long as the board acts for the purposes of the cooperative, within the scope of its authority and in good faith.”  Here, plaintiff did not furnish any specific facts or documents evidencing that the cooperative acted in bad faith or breached any duty to plaintiff.

Plaintiff’s lawsuit also asserted claims against the cooperative’s former legal counsel, which also acted as the transfer agent.  The courts dismissed these claims as well.  “Absent fraud, collusion, malicious acts, or other special circumstances, an attorney is not liable to third parties not in privity, or near-privity, for harm caused by [alleged] professional negligence.”  Here, the plaintiff, as an individual tenant-shareholder, did not have an attorney-client or similar relationship with the cooperative’s law firm.  Moreover, by the time of the events that took place in 2017, the law firm was no longer involved with the cooperative.