Court Opinion

ID: 9958764
Source: CourtListenerOpinion
Date Created: 2024-04-09 20:11:18.223588+00
Date Added: 2024-06-11T08:15:50.049716
License: Public Domain

Thomas v Esplanade Gardens, Inc.
               2024 NY Slip Op 31045(U)
                     March 28, 2024
           Supreme Court, New York County
        Docket Number: Index No. 158186/2023
               Judge: Shahabuddeen Abid Ally
Cases posted with a "30000" identifier, i.e., 2013 NY Slip
 Op 30001(U), are republished from various New York
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                       publication.
                                                                                                                   INDEX NO. 158186/2023
NYSCEF DOC. NO. 59                                                                                           RECEIVED NYSCEF: 03/28/2024

                                 SUPREME COURT OF THE STATE OF NEW YORK
                                           NEW YORK COUNTY
          PRESENT:             HON. SHAHABUDDEEN ABID ALLY                                     PART                          16TR
                                                                                   Justice
          ---------------------------------------------------------------------------------X   INDEX NO.          158186/2023
           ADRIENNE THOMAS and JOSEPH LAWRENCE,
                                                                                               MOTION DATE         10/10/2024
                                                       Petitioners,
                                                                                               MOTION SEQ. NO.         002
                                               -v-
           ESPLANADE GARDENS, INC. and ROSS JACKSON and
           MARY SWEETING,                                                                          DECISION + ORDER

                                                       Respondents.

          ---------------------------------------------------------------------------------X

          The following e-filed documents, listed by NYSCEF document number (Motion 001) 39-45, 48-58
          were read on this motion to/for                                                        DISMISS

                    In this Article 78 proceeding, respondents move pursuant to CPLR § 7804(f) and CPLR §

         321 l(a) for an order dismissing the Petition in its entirety on the grounds that the Petition fails to

         state claim upon which relief can be granted. Petitioners oppose. Upon hearing the parties and

         consideration of the above cited papers and for the reasons set forth below, the motion is granted.

                                                                      Background

                    The relevant facts as alleged in the Petition are as follows: Respondent Esplanade

         Gardens ("Esplanade") is a Mitchell-Lama building cooperative which is governed by its Board

         of Directors ("Board"), whose membership is comprised of elected or appointed shareholders.

         Petitioner Lmvrence was elected to the Board on January 24, 2021 to a term set to expire in

         October 2023. Petitioner Thomas was appointed by the Board to fill a vacancy and complete a

         term set to expire in October 2024. Both petitioners are co-owners of cooperative shares

         corresponding to their respective apartments in the building.

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           AL
           Motion No. 002

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NYSCEF DOC. NO. 59                                                                        RECEIVED NYSCEF: 03/28/2024

                   Cause for removal by the Board is set forth in Article III, Section 2(8 )(2) of the

         Esplanade By-Laws and includes, inter alia, instances in which "the director has posted or has

         been found to have disseminated confidential shareholder information" (Petition, exhibit F).

         Article III, Section 2(8)( I) sets forth the procedure for removing directors from the Board for

         cause. The relevant portion provides that any director may be removed for cause at a meeting

         called for such purpose or at any regularly scheduled meeting upon an affirmative vote of at least

         six of the remaining directors. Directors whose removal is to be discussed are required to receive

         fourteen days' notice of the meeting; such notice must also include the alleged cause for removal

         and provide for the director an opportunity to be heard prior to any vote for removal and at the

       , meeting.

                   In early 2022, allegations arose that another Board member, not a party to this

         proceeding, did not have her primary residence at the building. which if true would constitute a

         violation of Esplanade's By-Laws and the relevant Mitchell-Lama Rules and Regulations. The

         then-President of the Board initiated a background check with the cooperative·s security service

          in order to confirm or dispel the allegations. The security service provided a report to the Board

          which included the Board member's personal infonnation, including identifying numbers,

         addressed, and social media information. The building's management company, Metro

          Management ("Metro") forwarded the security service report to the New York City Department

         of Housing Preservation and Development ("HPD"). After its own investigation, HPD instructed

          Metro to refer the matter to counsel to commence a non-primary proceeding against the Board

          member.

                   On or about December 13, 2022, petitioners commenced an action against Esplanade and

         several Board members in the Supreme Court ("Prior Action"), alleging that Esplanade breached

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           AL
           Motion No. 002

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         its By-Laws and that Lewis was ineligible to sit on the Board. In support of the action,

         petitioners filed with the court a redacted copy of the security service report and HP D's response

         regarding to its own report. In defense of the action, the respondents in the Prior Action filed

         additional documents relating to the Board member's residency and other personal information.

         None of the filings were under seal.

                  On April I 9, 2023, petitioners were served with notices advising them that the Board

         would hold a meeting on May 4, 2023 to consider removal of petitioners for cause. The notices

         further indicated that the basis for such removal was the belief by a majority of the Board

         members that petitioners disseminated personal and confidential shareholder information relating

         to Lewis at the Town Hall meetings that took place on December 29, 2022, February 7, 2023,

         and March 16. 2023. The notice additionally informed petitioners that they would have an

         opportunity to be heard at the meeting.

                  The Board met on May 4, 2023 to consider petitioners' removal from the Board. The

         meeting was held in an executive session, which excluded other shareholders from observing the

         proceedings. The Board's position was that any information about the Board member, even that

         available through the public docket of the Prior Action or on the internet, was ··confidential

         information'' for which removal was authorized by the By-Laws. At the meeting, petitioners had

         the opportunity to be heard and to present witnesses. By a vote of 6-5, the Board voted to remove

         petitioners for cause. Respondents Jackson and Sweeting were appointed to replace petitioners

         on the Board.

                  Petitioners commenced this special proceeding by order to show cause, seeking a

         judgment annulling the Board's determination which removed petitioners from the Board.

         Included in the proposed order to show cause \Vas a request for temporary restraining order

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          AL
          Motion No. 002

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NYSCEF DOC. NO. 59                                                                       RECEIVED NYSCEF: 03/28/2024

         (TRO) prohibiting respondents "from restricting in any way Petitioner Lawrence's right to

         campaign, be nominated, run and be elected to the Board in the Upcoming October 2023

         election ... This Court declined to immediately issue the TRO and scheduled a hearing for the

         TRO issue only. After hearing the parties, the Court denied the TRO in an Interim Order dated

         August 29, 2023. Respondents subsequently filed the instant motion to dismiss.

                                                       Discussion

                  CPLR   s3211 (a) provides that a party may move to dismiss one or more causes of action
         for, inter alia, failure to state a cause of action (CPLR § 3211 [a][7]). In consideration of such

         motion, the complaint must be liberally construed. and the facts alleged deemed true, with the

         nonmoving party given the benefit of all favorable inferences (see Leon ,, Martinez, 84 NY2d 83,

          87-88 [1994]). The court's inquiry is to determine whether the facts alleged fit into any

         cognizable theory (id.). Additionally, a party may move for dismissal under CPLR § 3211 (a)(l)

         if documentary evidence "conclusively establishes·· a defense to the claims asserted.

                  A Court's review of a cooperative board's decision is generally governed by the business

         judgment rule (Matter ofLevandusky v One F(fth Ave. Apt. Corp., 75 NY2d 530 [1990]). "So

         long as the board acts for the purpose of the cooperative. within the scope of its authority and in

         good faith, courts will not substitute their judgment for the board's'· (id. at 538; see Wirth v

         Chambers-Greenwich Tenants Corp., 87 AD3d 470, 472 [1st Dept 2011 ]). Where the

         cooperative has acted the scope of its authority, its decision must be upheld absent any

         "indication of any bad faith, arbitrariness, favoritism, discrimination or malice on the

         cooperative's part" ( 40 West 67 th Street v Pullman. 100 NY2d 147, 157 [2003]).

                  Respondents argue that, accepting the allegations in the Petition as true, petitioners

         nonetheless fail to state a cause of action. Respondents aver that the Board properly followed the

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           AL
           Motion No. 002

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         clear removal procedures set forth in the By-Laws and as such the Board's vote to remove

         petitioners should not be disturbed under the business judgment rule. Respondents further

         contend that petitioners' claim that their removal was motivated by political differences and as

         such was in bad faith is conclusory and unsupported by sufficient factual allegations.

                 Petitioners contend that the Board's action here is not entitled to the deference granted by

         the business judgment rule because it was "the epitome of arbitrary and capricious," "an exercise

         in retaliation and bad faith,,. and "unauthorized under the governing documents (Petition at 6).

         Specifically, petitioners claim that their removal from the Board resulted from improper

         procedures and that the Board· s determination itself misstated or disregarded the relevant facts.

         Petitioners further argue that the Board's conclusion that "confidential information" comprised

         infomiation that was publicly available in the Prior Action docket or through other internet

         sources was contrary to the intended meaning of the relevant By-Laws provisions.

                 Upon review of the papers submitted. the Court tinds that the Petition fails to state a

         claim. Based on the allegations in the Petition, the Board followed the removal procedures set

         forth in the By-Laws. Petitioners received notifications of the meeting to discuss their removal

         with the appropriate advance notice and the notices adequately set out the allegations giving rise

         to the removal proceedings, to wit the claim that petitioners disseminated information relating to

         the Board member whose residency was being investigated.

                 As to petitioners' argument that the meeting \Vas improperly closed to non-Board

         shareholders and residents, as respondents point out, Private Housing Finance Law§ 17(4)(A)

         has provision for closed executive sessions where topics may include confidential personnel

         issues. Further, that the Board interpreted "confidential information" to mean information about

         a Board member relating to an ongoing investigation, notwithstanding the availability of such

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          AL
          Motion No. 002

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         information on a court's public docket, is not sufficient to remove the Board's determination

         from the protection of the business judgment rule, especially when such information was only

         placed into the public sphere by petitioner's own filings. Finally, the Court finds that the

         allegations in the Petition relating to prior notices ofremoval sent to petitioners or attempts by

         other Board members to reinstate other individuals to the Board do not sufficiently establish "bad

         faith, arbitrariness, favoritism. discrimination or malice'" (40 West 67th Street v Pullman, 100

         NY2d 147, 157 [2003]).

                   Based on the foregoing, the Board's removal vote and the applications of the By-Laws

         upon which the vote was based are entitled to deference pursuant to the business judgment rule.

         This Court thus may not substitute its own evaluation of the facts adduced at the May 4 meeting

         for those of the Board's, nor may the Court insert its own interpretation of the cooperative's By-

          Laws or their application to those facts (see Maner of levandusky v One F(fth Ave. Apt. Corp.,

         75 NY2d 530 [1990]). Respondent" s motion is therefore granted.

                   Accordingly, it is hereby:

                   ORDERED that respondents' motion to dismiss is granted and this Petition is dismissed;

         and it is further

                   ORDERED that respondents shall serve a copy of this order upon petitioners and upon

         the Clerk of the General Clerk's Otlice with notice of entry within twenty days thereof; and it is

         further

                   ORDERED that such service upon the Clerk shall be made in accordance with the

         procedures set forth in the Protocol on Courthouse and county Clerk Procedures for

         Electronically Filed Cases (accessible at the "E-Filing" page on the court's website at the address

         www.nycourts.gov/supctmanh); and it is further

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          AL
          Motion No. 002

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                 ORDERED that any requested relief not expressly addressed herein has been considered

         and is denied.

                 This constitutes the decision and order of the Court.

                 03/28/2024
                   DATE                                                  SH

                                  ~                                ~
          CHECK ONE:                  CASE DISPOSED                    NON-FINAL DISPOSITION

                                                      □ DENIED
                                                                                                □
                                      GRANTED                          GRANTED IN PART              OTHER

          APPLICATION:                SETTLE ORDER                     SUBMIT ORDER

                                                                                                □
          CHECK IF APPROPRIATE:       INCLUDES TRANSFER/REASSIGN       FIDUCIARY APPOINTMENT        REFERENCE

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          AL
          Motion No. 002

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