Board of Mgrs. of the Chelsea 19 Condominium v Chelsea 19 Assoc.

[*1] Board of Mgrs. of the Chelsea 19 Condominium v Chelsea 19 Assoc. 2009 NY Slip Op 52809(U) Decided on March 13, 2009 Supreme Court, New York County Tolub, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 March 13, 2009
Supreme Court, New York County

The Board of Managers of the Chelsea 19 Condominium, DAVID C. FREIDMAN, MARK RICHARDSON and MARIO PLATTERO, Plaintiffs,

against

Chelsea 19 Associates, DONALD ZWEIBON, and GEORGE SCHWARTZ, Defendants.



105347/08

Walter B. Tolub, J.

This is a motion by defendants Chelsea 19 Associates and Donald Zweibon for dismissal of the complaint, as against them, pursuant to §§ 3211(a)(1), (3), (5), (7) and § 3016(b).

FactsThe Chelsea 19 Condominium ("the Condominium") is a condominium association, located at 251 West 19th Street, New York, New York. Plaintiff Board of Managers of the Chelsea 19 Condominium ("the Board") was established to govern the affairs of the Condominium. The individual plaintiffs each own one or two units in the Condominium [FN1]. Plaintiff and Mark Richardson is also the president of the Board.

Defendant Chelsea 19 Associates ("the Associates") is a partnership, and was the owner of the building at issue prior to its conversion to condominium ownership. As such, it was the sponsor of the offering plan pursuant to which units in the Condominium were sold to the public. Defendant Donald Zweibon is a partner, manager and controlling principal of the Associates. Defendant George Schwartz is the architect who provided the report, entitled the "Description of Property, Specifications and Building Conditions," dated December 29, 2000, and an addendum to same, dated December 5, 2001, regarding the property and condition of the building (collectively, "the Architect's Report"). The Architect's Report was included in the offering plan for the sale of units in the Condominium ("the Offering Plan").

The Associates had purchased the building at issue in 1978. In 1980, a penthouse was constructed on the roof of the building. Thereafter, alterations were made to the penthouse and the roof of the building. The Associates converted the building to a condominium in 2002. Units in the Condominium were sold pursuant to a purchase agreement ("the Purchase Agreement"), which incorporated the Offering Plan. Haskell Aff, Exh E, ¶ 1. [*2]

Plaintiffs contend that unit owners, or their predecessors in interest, purchased units in the Condominium in reliance on the terms of the Offering Plan and the Purchase Agreement. They claim that defendants advanced false representations therein regarding the description of the building, including its general condition and any known material defects or needs for major repair. They claim that defendants made these allegedly false representations knowingly, intentional and/or negligently.

In the complaint, plaintiffs detail numerous structural and maintenance problems with the building. They claim, inter alia, that: the construction of the penthouse, and the alterations thereafter, were made without the necessary applications and approvals from the government, and was otherwise done without compliance with the applicable laws; the Associates failed to provide and maintain adequate drainage on the roof, or to sufficiently protect against water and moisture infiltration from same, resulting in interior damage, rusting and corrosion of the building's steel structural supports, and the need to completely replace the building's support system; the water tower on the roof was not properly constructed or maintained, has deteriorated and now needs to be wholly replaced; the ventilation stacks on the roof were not properly constructed or maintained, allowing discharge into and around the windows of certain units of the Condominium, and must be reconfigured and replaced; the Associates failed to properly construct and maintain the building's exterior walls, including water proofing, leading to significant deterioration of these walls, which now need be completely replaced; and the deterioration of the external walls has forced plaintiffs themselves to perform necessary repairs at their own expense.

Plaintiffs further claim that the Associates and Zweibon wrongfully conveyed development rights to the roof to the purchasers of two of the units on the top floor, 10B and 10D. They allege that the development rights to the roof belong to the Condominium and all the unit owners, but that Zweibon and other representatives of the Associates retained the benefits of the conveyance for themselves. They further assert that these rights were conveyed without first determining their fair market value.

Plaintiffs filed the complaint in this Court, on April 15, 2008, asserting 18 separate causes of action. For each, they allege damages of $750,000 or $1,000,000, and for certain claims they seek punitive damages of $5,000,000.

On September 22, 2008, the Associates and Zweibon moved for dismissal of the claims

against them.[FN2] Movants contend that they are entitled to dismissal because: documentary evidence supports their defenses; plaintiffs failed to adequately state causes of action; plaintiffs failed to plead their fraud and negligent misrepresentation claims with the requisite particularity; certain claims are time barred; and plaintiffs lack capacity and or standing to assert the claims in the complaint.

Thereafter, on October 27, 2008, plaintiff David C. Friedman [FN3] sent an email informing [*3]the Board members that a special meeting of the Board was being called for October 31, 2008 at 8:30 am in the lobby of the Condominium. Picciocchi Aff, Exh B. At that time, those members of the Board who were present ratified the prior filing of the complaint. Id., Exh C.

DiscussionIn reviewing a motion to dismiss, the complaint must be "liberally construed" and the non-moving party must be accorded the "benefit of every possible inference." Leon v Martinez, 84 NY2d 83, 87 (1994). The "court is to determine only if, assuming the truth of the facts alleged, the complaint states elements of a legally cognizable cause of action." Guggenheimer v Ginzburg, 43 NY2d 268, 275 (1977).

Standing

As a threshold matter, the Court must address defendants' challenge to plaintiffs' standing to bring this action.

The Board

Defendants argue that the Board lacks authorization to bring this action. They contend that the Condominium by-laws set forth the method for obtaining proper authorization, and that the Board's actions were not in accordance with the required process. They contend that the Board, therefore, lacks the capacity to sue on the Condominium's behalf.

A condominium board generally has standing to bring claims on behalf of individual condominium unit owners. Residential Bd. of Mgrs. of Zeckendorf Towers v Union Square-14th St. Assoc., 190 AD2d 636, 636 (1st Dep't 1993). In the instant action, the by-laws

of the Condominium explicitly provide that the affairs of the Condominium shall be governed by the Board. Haskel Aff, Exh B, By-Laws, Art II, § 1 at unconsecutively numbered 245.

Specifically, the by-laws at issue provide that special meetings of the Board must be called by the President with three days notice to each member. Such notice must be sent by mail, telegraph, telefax or telephone. The notice must also state the time, place and purpose of the meeting. Id., § 8 at unconsecutively numbered 250. Despite this delineated process, Board members may also waive notice, but must do so in writing. Id., § 9 at unconsecutively numbered 250.

Plaintiffs clearly did not convene a formal meeting prior to filing the complaint to commence this action. Three of the Board members, who were appointed by the Associates, were not included in the discussions regarding, and decision to file, the complaint.[FN4] Plaintiffs contend that these Board members were "interested," by virtue of their appointment by the Associates, and therefore properly excluded. Certainly self-interest "in a challenged transaction" may be found where an individual "will receive a direct financial benefit from the transaction." Matter of Comverse Tech., Inc., 56 AD3d 49, 54 (1st Dep't 2008). Such members may not be [*4]entitled to vote on the subject matter in which they have an interest. Park River Owners Corp. v Bangser Klein Rocca & Blum, LLP, 269 AD2d 313, 313 (1st Dep't 2000). In support of their position, plaintiffs cite case law holding that it is "prudent practice in observing the general policy that when individual members of a board of directors prove to have personal interests which may conflict with the interests of the corporation, such interested directors must be excluded while the remaining members of the board proceed to consideration and action." Auerbach v Bennett, 47 NY2d 619, 632 (1979).

However, plaintiffs fail to indicate that the same language continues on to immediately note that "interested directors may nonetheless be included in the quorum count." Id. They have cited to no authority which permits excluding interested directors from required notice delineated in by-laws, or prevents such directors from addressing the question of whether their alleged conflict does, in fact, bar them from voting on the matter in question. Ultimately, "failure to notify directors of a special meeting renders actions taken at the meeting invalid." Rapoport v Schneider, 29 NY2d 396, 401 (1972). Thus, when the Board brought claims against the defendants in the complaint, it lacked authorization to do so.

With regard to the ratification process, all members of the Board appear to have received notice of the special meeting called. Picciocchi Aff, Exh B. Plaintiffs argue that ratification of a prior board action is merely a "perfunctory and accepted method of procedure." Opp Br at 6, citing Whitley v Pacific Indus., Inc., 28 AD2d 147, 148 (1st Dep't 1967), aff'd 22 NY2d 726 (1968). The Court need not make a determination regarding whether ratification is perfunctory or substantive. The notice of the special meeting was not sent by the Board president, Richardson, but rather by Friedman. The notice was also sent by email, one of the few forms of communication not delineated as an acceptable form of notice. Indeed, any action taken at a meeting noticed by e-mail, where notification is not permitted by e-mail, is "invalid." Futia v Westchester County Bd. of Elections, 307 AD2d 1055, 1055 (2d Dep't 2003).[FN5] As such, the attempted ratification of the Board's action in filing the complaint, through a vote at the special meeting, was rendered invalid by having the notice sent from an individual not authorized to do so and by an unauthorized delivery method.

The Board's claims are, therefore, dismissed.

Individual Plaintiffs

Defendants also argue that the individually named plaintiffs lack standing to assert claims pertaining to common elements. They contend that, although individual condominium owners may bring derivative claims on behalf of all condominium members, the claims in this action were not brought derivatively but, rather, only to protect their individual interests in the common elements. As such, defendants argue that the claims brought by the individual plaintiffs should be dismissed for lack of standing.

Although the individual unit owners have standing to sue derivatively, they simply have no standing to sue individually for injury to the common elements [*5]

or finances of the Condominium. Caprer v Nussbaum, 36 AD3d 176, 190 (2d Dep't 2006).[FN6]

Indeed, plaintiffs' themselves note that if "the individual Plaintiffs lack standing because of the exclusion of derivative language in the Complaint, such can be easily addressed with an amendment to the Complaint." Opp Br at 8. However, although plaintiffs advocate simply setting aside the issue of standing, the Court disagrees. Plaintiffs opted to file their claims individually, and to focus on the common damage allegedly suffered as a result of defendants' actions. See Haskel Aff, Exh A, Ver Compl, 5-8. Additionally, plaintiffs' suggestion is particularly unpersuasive given the coterminous failure of the Board to follow deliberate and proper procedure with regard to the filing and ratification of its own claims.

As such, the claims of the individually named plaintiffs are dismissed.

Finally, defendant Schwartz did not join in the motion to dismiss, which explicitly seeks dismissal of "the Complaint herein as against" movants. Notice of Motion at 1. However, the basis for dismissing the claims against movants derive from the multiple and varied problems in plaintiffs' procedural actions and pleadings, addressed above. These deficiencies are no less problematic as they relate to Schwartz. Thus, the Court is dismissing the complaint as to its claims against Schwartz at this time as well.

Accordingly, it is

ORDERED that the complaint is dismissed; and it is further

ORDERED that the Clerk of the Court is directed to enter judgment accordingly.

This memorandum opinion constitutes the decision and order of the Court.

Dated: March 13, 2009

ENTER:

________________________________

WALTER B. TOLUB J.S.C. Footnotes

Footnote 1: Each of the units owned by the individual plaintiffs provides its owner with between two and three percent ownership of the Condominium's common interests.

Footnote 2: The Court notes that defendant Schwartz is not a movant, and submitted no papers in support or opposition to the instant motion.

Footnote 3: Plaintiff Friedman's name appears with this spelling in the body of the papers currently before the Court. See Haskel Aff, Exh A, Ver Compl at ¶ 3; Def Br at 1. The Court notes that this is different from the spelling in the caption, and uses it as such throughout this decision simply for consistency.

Footnote 4: The three Board members appointed by the Associates are defendant Zweibon, Richard Kapolwitz and Aaron Schmulewitz.

Footnote 5: Certainly, where email is one of the specified methods of notice, notification by email is proper. Wornow v Register.com, Inc., 8 AD3d 59, 60 (1st Dep't 2004).

Footnote 6: With regard to Caprer, the Second Department, noted that limited liability companies were "the one exception thus far to judicial recognition of the authority to bring a derivative action." Id. at 189. As such, it reached its conclusion based, in part, on the "practical logic to permitting unit owners to sue derivatively on behalf of the condominium" since they "operate in essentially the same manner as cooperatives, despite the differences in legal structure" that make the right to sue derivatively far clearer for unit owners in cooperatives which are organized as corporations under the Business Corporation Law. Id. at 187, 190. However, since the decision in Caprer, the Court of Appeals has clarified that, in fact, members of a limited liability company may bring derivative suits on the company's behalf, despite the lack of provisions governing such suits in the statutory law governing limited liability companies. Tzolis v Wolff, 10 NY3d 100, 102 (2008).