Imani Hous. HDFC v Wilson

[*1] Imani Hous. HDFC v Wilson 2007 NY Slip Op 52405(U) [18 Misc 3d 1104(A)] Decided on June 15, 2007 Civil Court Of The City Of New York, Kings County Fiorella, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on June 15, 2007
Civil Court of the City of New York, Kings County

Imani Housing HDFC, Petitioner,

against

Teri Wilson, Philip Wilson, Respondents.



L & T 106740/06

Anthony J. Fiorella, J.

Petitioner moves by Notice of Motion seeking summary judgment in this holdover proceeding pursuant to CPLR Rule 3212 upon the ground that petitioner, a Housing Development Finance Corporation (HDFC), elected to terminate respondents proprietary lease pursuant to the Pullman "business judgment rule." Respondents cross-move by Notice of Motion pursuant to CPLR §1001 and §3211 for an order dismissing the petition on the grounds that an indispensable party was not joined, that the Court lacks subject matter jurisdiction over the proceeding, and that petitioner lacks capacity to bring this proceeding.

Essential Facts

The respondents reside in an apartment at 1285 Dean Street, Brooklyn, NY pursuant to a proprietary lease with the petitioner, a Housing Development Fund Corporation ("HDFC") incorporated pursuant to the Public Housing Finance Law of New York State. Under said lease, respondents are the leaseholders/shareholders of record. Respondents have resided in the subject premises since 1987. After allegedly accruing over $11,000 in obligations under the proprietary lease and after allegedly ignoring a notice to cure and notice of termination, respondents' proprietary lease was terminated and the instant proceeding was commenced. Respondents were alleged to be more than two months in arrears on maintenance payments, resulting in the termination of the lease after a special meeting called by the board of directors and the institution of this holdover.

Respondents cross-moved to dismiss the proceeding, claiming the premises were sold to a corporation whose sole shareholder is an officer of the Imani Housing without the knowledge nor consent of the Commissioner of the DHCR, resold the building to two officers of Imani Housing as tenants in common, the survivor of whom resold her one-half interest back to Imani. Respondents claim that the estate of the other tenant in common is an indispensable party to the resolution of this proceeding. Further, they claim that petitioner's status as an "HDFC" and standing to sue as such are questionable, that the board of directors is illegally configured and that the current board members are or should be disqualified from holding office.

Legal Analysis

Petitioner, arguing that no triable issue of fact exists, relies on 40 West 67th Street v. [*2]Pullman, 100 NY2d 147 (2003) for the proposition that its decision to terminate the proprietary lease was a good faith, honest exercise of corporate judgment in furtherance of legitimate corporate purposes, thereby precluding the Court's inquiry into its actions against respondents. A shareholder challenging said action(s) has the burden of proof to demonstrate that good faith was not involved and that the action(s) did not constitute honest judgment in furtherance of legitimate corporate purposes, Jones v. Surrey Cooperative Apartments, Inc., 263 AD2d, 1st Dept., (1999); Crouse-Hinds Company v. Internorth, Inc., 634 F.2d 690, 2d Cir., (1980).

It is well settled that summary judgment is a drastic remedy which the courts are loathe to grant, favoring litigating matters on the merits whenever serious doubt exists as to any material issue of fact. Moskowitz v. Garlock, 23 AD2d 943, 259 NYS2d 1003 (3rd Dept., 1965). Courts will not and should grant such a motion where triable issues of fact remain Falk v. Goodman, 7 NY2d 87, 195 NYS2d 645, 163 NE2d 871. Only the existence of a bona fide issue raised by evidentiary facts as opposed to conclusory or irrelevant allegations suffices to defeat a motion for summary judgment, Mallad Construction v. County Federal Savings and Loan Association, 32 NY2d 285, 290. In the instant proceeding, respondent has not adduced sufficient evidence to justify summary judgment on the issue of petitioner's HDFC status. An allegation of nomenclature status is conclusory at this time. This issue would have to be resolved at a trial. That branch of respondents' motion seeking dismissal of the petition on the basis of petitioner not being a true HDFC is denied.

The issue of the transfer and the propriety thereof is supported by evidence; viz., the deeds evincing transfer of title. Business Corporation Law §717 requires board members to perform their duties in good faith and with that degree of care which an ordinary, prudent person would exercise under similar circumstances. This provision is applicable to cooperative and condominium apartments, Levandusky v. One Fifth Avenue Apartment Corp., 75 NY2d 530 (1990). HDFC's are designed to provide affordable housing to low- and moderate income tenants who were formerly tenants of the City of New York. The not-for-profit cooperative corporation may not alienate title for a number of years. Where as here, allegations are raised implying self-serving, improper alienation of title by board members for their own benefit as well as allegations of actions taken by improperly constituted boards that backed by evidentiary proof, these allegations are sufficient to defeat the motion for summary judgment. The board's actions, if the allegations are sustained, are contrary to public policy and probably ultra vires. Therefore, the Court finds that respondents raised a factual allegation, supported by evidence, which rises to a level sufficient to defeat summary judgment based upon the "business judgment rule."

CPLR §1001 prescribes when a party is necessary for complete adjudication of the claims of all parties and potential stakeholders and claimants. Such party is necessary when if said person may be "inequitably affected by a judgment in the action. . . ." Failure to join an indispensable party may result in dismissal of the complaint or petition. Notwithstanding, a court may permit an action or proceeding to go forward without such party. The considerations in deciding whether to proceed are enunciated in CPLR §1001(b). They are:

"1. whether the plaintiff has another effective remedy in case

the action is dismissed on account of nonjoinder;

2. the prejudice which may accrue from nonjoinder of the

defendant or to the person not joined; [*3]

3. whether and by whom prejudice might have been avoided

or may in the future be avoided;

4. the feasibility of a protective provision by order of the court

or in the judgment; and

5. whether an effective judgment may be rendered in the absence

of the person who is not joined."

If the proceeding is dismissed for nonjoinder, said dismissal would be without prejudice to commencing a proceeding wherein all proper parties are named, either as petitioners or respondents. Failure to permit the estate to address allegations of impropriety or illegality by present or former board members at this stage could clearly result in prejudice inuring against the estate if the matter is investigatedfor criminal fraud or other wrongdoing.Prejudice can be avoided if the estate is joined as either a petitioner or respondent in a properly brought proceeding. The estate surely would want to be involved in a matter which, if nothing else, could result in proceeds derived from the sale of shares or the recovery of maintenance in which it allegedly holds a one-half interest. Therefore, the Court finds that the estate of Margaret Wilson is an indispensable party. Further, the Court finds that failure to name and serve the estate of Margaret Wilson was a fatal error requiring dismissal of the petition.

Conclusion

Based upon the foregoing analysis, the Court grants respondent's motion for summary judgment and dismisses the instant holdover proceeding. Petitioner failed to join an indispensable party to this proceeding. Petitioner's motion for summary judgment on the ground that the board of directors properly exercised the business judgment rule is denied for the aforementioned reasons. The remaining issues in the parties' papers constitute matters that could be resolved at trial and are not sufficient bases for granting of summary judgment to either side. Particularly troubling to the Court is the affidavit of Earline Davis which neither included the index number nor the date that it was verified, the failure to attach a copy of the notice of the special meeting and the failure to annex to the petition or moving papers a copy of the board's resolution from the special meeting terminating the proprietary lease.

This constitutes the decision and order of the Court.

Dated: Brooklyn, NY

June 15, 2007

________________________________

ANTHONY J. FIORELLA, JR., J.H.C.