Berkowitz v. 29 Woodmere Blvd. Owners', Inc.

50 Misc.3d 843

23 N.Y.S.3d 830

Murray BERKOWITZ, as Administrator for the Estate of Martin Berkowitz and Administrator for the Estate of Sylvia Berkowitz, now deceased, Plaintiff,

v.29 WOODMERE BLVD. OWNERS', INC., Alexander Wolf & Company, Inc., Steven Mirsky, Eric J. Kinney, Jeanne Kinney, Lon Samuelson, Lisa Arian, Francine Rosen, and Angela Dalmazio, Defendants.

Supreme Court, Nassau County, New York.

Dec. 2, 2015.

Mildred J. Michalczyk, Esq., for plaintiff.

Ryan Mitola, Esq. of Schneider Mitola LLP, for defendant.

LEONARD D. STEINMAN, J.

This is an action alleging that the rejection of potential purchasers of a cooperative apartment in Woodmere, New York by the co-op's board of directors (the "Board") was wrongful. The action is based on a simple premise: the Board unlawfully discriminated against a single male purchaser because of his marital status.¹ Plaintiff asserts that the Board then rejected a female purchaser to cover for their unlawful rejection of the first purchaser.

The evidence supporting the claim is also straightforward: the sale of the apartment to the single male buyer for $200,000 was rejected purportedly because the price was too low. The Board failed to indicate an acceptable price notwithstanding that the buyer was willing to increase his offer. And the Board ultimately approved the sale of the apartment to a third purchaser, the Lynchs (presumably a married couple), for $160,000; i.e., $40,000 less than the supposed insufficient offer. There is no evidence that the Board actually met and conferred with respect to the rejected sale.

Defendants now seek summary judgment dismissing the complaint. In the alternative, defendants seek an order vacating the note of issue, removing the case from the trial calendar and striking plaintiff's pleadings as a result of plaintiff's failure to fully respond to defendants' September 30, 2014 interrogatories. Defendants further seek an order striking plaintiff's demand for a jury trial. Plaintiff opposes the application in its entirety.²

BACKGROUND

In 2000, Sylvia Berkowitz (now deceased) and her husband Martin (now deceased), "purchased" Unit 4J of defendant 29 Woodmere Blvd. Owners, Inc., a cooperative corporation. They received 485 shares in the cooperative corporation and a proprietary lease for apartment 4J. Ten years later the Berkowitzs sought to sell the unit.

Plaintiff alleges that they found two prospective buyers but that the buyers were not approved by the co-op's Board. The first, Jeffrey Lax, a single male, offered $200,000, in April, 2010. The June 7, 2010 Board meeting minutes reflect the following with regard to the prospective sale: "(t)he packet regarding the sale of 4J needs to be reviewed by all board members. A decision on whether or not to interview the prospective buyer must be made very soon." The July 6, 2010 Board meeting minutes reflect that "the prospective buyer feels he was discriminated against." These are the only Board meeting minutes concerning the sale.

It is undisputed that Lax's application was not approved by the Board and his request for reconsideration was denied. In deposition testimony, only Board member defendant Lon Samuelson testified that he voted in favor of approving the Lax application. By letter dated July 17, 2010, Mr. Lax was informed by the co-op's managing agent that "the Board of Directors has reviewed your application to purchase the above referenced apartment [Apartment 4J] and has hereby denied the sale." By letter dated August 18, 2010, the board's attorney, David Boyar, advised Lax that the decision not to approve his application and to do so without conducting an interview "was based solely on the negotiated price."

Lax then commenced an action in federal court ("the Lax Action") against the Berkowitzs and their son Murray, the cooperative corporation, the managing agent and Steven Mirsky, an officer of the managing agent. Lax alleged that his application to buy Apartment 4J was rejected because he was a single male, and that such rejection constituted illegal discrimination on the basis of his marital status. The Lax Action was voluntarily discontinued after his claims were settled by the co-op for an undisclosed sum.

A second prospective buyer—Lisa Manginelli—offered a purchase price of $202,500 in August, 2011. On August 25, 2011, the Board declined to approve the sale. The Board minutes reflect as follows: "[T]he board reviewed the paperwork for the prospective buyer of 4J. After review it was decided to deny the prospective buyer." The Board asserts that Manginelli's finances were not strong enough. A request for reconsideration of the Manginelli application was later denied.

Apartment 4J was finally sold in September, 2013, after the Board approved the third prospective buyers, who offered a purchase price of only $160,000.

In this action plaintiff alleges claims for breaches of fiduciary duty and breaches of contract in connection with the failure of the co-op to approve the Lax and Manginelli contracts. Plaintiff also alleges a cause of action for counsel fees and expenses incurred as a result of the rejection of the Lax and Manginelli contracts.

Sylvia was 97 years old when this application was made but has since passed away. It is undisputed that throughout the action she was in frail health, and for this reason the court directed that she should respond to defendants' questions via interrogatories rather than appear for a deposition (Order dated July 30, 2014). Before she died, Sylvia admitted that she had no involvement in the negotiations or procedure concerning the sale of her apartment and had no contact regarding same with the Board, the brokers or the prospective purchasers. Rather, she relied upon her son Murray Berkowitz, the current plaintiff as administrator of her estate, to act as her agent. (Affidavit by Sylvia Berkowitz, dated March 5, 2013.)

The defendants deny the allegations of the complaint. Defendants alleged a counterclaim for counsel fees in its answer, but that counterclaim was dismissed by order of the Honorable Denise Sher, dated August 8, 2013.

LEGAL ANALYSIS

On a motion for summary judgment, the proponent must tender sufficient evidence to demonstrate the absence of any material issues of fact to make out a prima facie showing that it is entitled to judgment as a matter of law. Giuffrida v. Citibank Corp., 100 N.Y.2d 72, 81, 760 N.Y.S.2d 397, 790 N.E.2d 772 (2003). Upon such a showing, the burden then shifts to the party opposing the motion to produce evidence, in admissible form, to demonstrate the existence of an issue of material fact which requires a trial of the action. Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324, 508 N.Y.S.2d 923, 501 N.E.2d 572 (1986). Where the movant fails to meet its initial burden the motion for summary judgment should be denied. U.S. Bank N.A. v. Weinman, 123 A.D.3d 1108, 2 N.Y.S.3d 128 (2d Dept.2014). As a general rule, a party does not carry its burden in moving for summary judgment by pointing to gaps in its opponent's proof, but must affirmatively demonstrate the merit of its claim or defense. See Mennerich v. Esposito, 4 A.D.3d 399, 400, 772 N.Y.S.2d 91 (2d Dept.2004).

I. Breach of Fiduciary Duty (First and Fourth Causes of Action)

Plaintiff asserts two separate causes of action against all defendants for breach of fiduciary duty in failing to approve the Lax and Manginelli contracts, respectively. In support of their application for summary judgment, defendants assert that each Board member considered both applications and decided, based solely upon the applications, to reject the contracts without the need for an interview. Defendants assert that the rejections were based upon the low sale price offered by Lax and Manginelli's poor financial circumstances.

To the extent that plaintiff's First and Fourth Causes of Action allege that the corporation is liable for breaches of fiduciary duty such claims are dismissed. A corporation does not owe a fiduciary duty to its individual unit owners and shareholders. Stalker v. Stewart Tenants Corp., 93 A.D.3d 550, 940 N.Y.S.2d 600 (1st Dept.2012) ; Tucciarone v. Hamlet on Olde Oyster Bay Homeowners Ass'n, 41 Misc.3d 1236(A), 2013 WL 6333458 (Sup.Ct. Nassau Co.2013).

Defendants' argument that the claims for breaches of fiduciary duty are duplicative of the breach of contract claims is not persuasive since the contract claims are only asserted against the corporation. The fiduciary duty claims have now been dismissed as against the corporation and, therefore, the claims are not duplicative.

As a general rule, the managing agent of a cooperative corporation owes a fiduciary duty to the cooperative corporation but not to the individual shareholders. Caprer v. Nussbaum, 36 A.D.3d 176, 191, 825 N.Y.S.2d 55 (2d Dept.2006). An exception may arise where a managing agent has aided and abetted a breach of fiduciary duty. Id. There being no allegations with any specificity of such activities the First and Fourth Causes of Action as against defendants Alexander Wolf and Company and Steven Mirsky (an officer of Alexander Wolfe & Company) must also be dismissed.

In their role as members of a board, the directors owe a fiduciary duty to the corporation's shareholders "to act solely in the best interest of all shareholders." Bryan v. West 81st Street Owners Corp., 186 A.D.2d 514, 589 N.Y.S.2d 323 (1st Dept.1992), see also Murphy v. State, 14 A.D.3d 127, 787 N.Y.S.2d 120 (2d Dept.2004) ; Board of Mgrs. of the Fairways at North Hills Condominium v. Fairway at North Hills, 193 A.D.2d 322, 603 N.Y.S.2d 867 (2d Dept.1993). Individual members of a co-op's board of directors may be held personally liable for breach of fiduciary duty if their decision making is tainted by discriminatory considerations. See, e.g., Cohen v. Kings Point Tenant Corp., 126 A.D.3d 843, 6 N.Y.S.3d 93 (2d Dept.2015) ; Fletcher v. The Dakota, Inc., 99 A.D.3d 43, 948 N.Y.S.2d 263 (1st Dept.2012). As our courts have recognized, discrimination rarely...