Scott E. Mollen
Scott E. Mollen ()

Landlord-Tenant—Court Stays Illegal Use Holdover Proceeding Pending Completion of Criminal Action— RPL §231—RPAPL §§711 and 715

A landlord commenced an illegal holdover proceeding pursuant to Real Property Law §231 and Real Property Actions and Proceedings Law §§711 and 715, seeking to recover possession of the subject apartment. The apartment had been occupied by the tenant of record (tenant) and her son. The apartment is located in a “project-based Section 8 building governed by the rules and regulations of the U.S. Department of Housing and Urban Development (HUD).”

The NYC Police Department had executed a search warrant at the apartment and had arrested the tenant and her son. The son had been the only target of the search warrant. The son pled guilty to criminal charges involving the possession and sale of a “controlled substance.” The son is currently undergoing residential drug treatment at a facility for 12-18 months and, upon completion of such program, he will not be returning to the subject premises. The tenant had declined to accept a plea bargain, intends to go to trial and assert her Fifth Amendment privilege against self-incrimination. The tenant had moved to stay the subject holdover proceeding pending the criminal court action.

The court explained that “it has the discretion to stay a civil action pending the completion of a criminal action. See C.P.L.R. §2201.” The court further noted that the son is no longer residing at the premises and will not be returning there. The landlord had not alleged “any other incident of any kind occurring during the tenant’s 20-year tenancy nor any ongoing activity that would harm the community if a stay pending the criminal action was granted.”

The court held that under the circumstances, the tenant should not be compelled to “defend herself against the possible loss of her home while defending herself in the criminal action.” Accordingly, the court exercised its discretion to stay the civil proceeding on condition that the tenant continue “to pay ongoing use and occupancy.”

Comment: Generally, because the standard for proving guilt in a criminal case is higher than the standard of proof in a civil case, a tenant may be evicted for illegal conduct even where a tenant has been acquitted of criminal charges.

Criminal cases may be dismissed for a variety of procedural and substantive reasons, e.g., the prosecutor missed a deadline, a prosecution witness failed to appear, police misconduct, a plea deal reduced a criminal charge to a mere violation or a dismissal pursuant to an ACD (adjournment in contemplation of a dismissal), etc. Such a dismissal does not prove that the wrongful conduct did not occur.

Moreover, because of concern for the well-being of neighbors, courts generally will not stay an eviction proceeding based on alleged illegal conduct while a matter is “winding its way” through the criminal trial and appellate process. Here, since there was only one incident of such illegal conduct alleged during the tenant’s 20-year tenancy, there was no allegation of ongoing illegal activity and there was apparently no danger that the son would be returning to the apartment and therefore, the court exercised its discretion to grant the stay.

As this case illustrates, judges attempt to balance the rights of the accused to remain in their home and the rights of the neighbors to live in a safe environment.

Fulton Street South Redevelopment v. James, 91478/2013, NYLJ 1202653474398, at *1 (Civ., KI, Decided April 10, 2014), Lai, J.

Landlord-Tenant- Appellate Term Held That Illegal Subtenant is Not Responsible for Landlord’s Legal Fees

A trial court had awarded legal fees in a holdover summary proceeding against a prime tenant and a subtenant. The Appellate Term modified the award by striking the attorney fees award against the subtenant and otherwise, affirmed the judgment.

The landlord had commenced a holdover summary proceeding, alleging that the tenant had violated his lease by subletting the subject rent stabilized apartment or by assigning the lease to a subtenant, i.e., her son-in-law. Following a nonjury trial, a final judgment of possession was entered in the landlord’s favor. The prime tenant had been residing in Florida and the subtenant had no succession rights. No appeal had been taken from the final judgment.

The court explained that “[g]enerally, attorney’s fees can be recovered by a prevailing party only if such recovery is authorized by an agreement between the parties or by statute or court rule….”

The landlord had sought to recover attorney fees pursuant to a lease provision which granted the landlord the right to recover legal fees if it was “compelled to incur any expense, including reasonable attorney’s fees, in instituting, prosecuting, and/or defending any action or proceeding instituted by reason of any default of the tenant in performing a covenant of the lease, such expense shall be due from tenant to landlord as additional rent.”

Since the tenant never appealed the final judgment, she could not contest the trial court’s determination and was obligated to pay the attorney fees. However, the court held that the landlord may not recover attorney fees against the subtenant since “he was not a signatory to the lease—and had no other contractual or statutory obligation to pay attorney’s fees to landlord….”

67-15 102nd Street v. Whitman-Gross, 2012-365 Q C, NYLJ 1202653911911, at *1 (App. Tm., 2nd, Decided April 14, 2014) Before: Aliotta, J.P., Pesce and Weston, JJ. All concur.

Land Use—Court Denies Plaintiffs’ Request For a Preliminary Injunction Which Would Have Stopped a Nonprofit From Closing On a Proposed Sale of Air Rights to a Developer—Business Judgment Rule

The plaintiffs, 249 members of a not-for-profit organization, commenced a derivative action and sought a preliminary injunction seeking to prevent the organization and its board, from closing on the proposed sale of certain air and development rights by the organization to the defendant developer.

The organization owned a well-located building in midtown Manhattan. In 2005, the developer had purchased air rights from the organization as part of a planned 88-story building on an adjacent lot. In 2013, the developer sought to acquire an additional 6,000 sq. ft. of development rights and the right to cantilever over a portion of the organization’s building.

The organization’s board of directors had retained the services of an appraiser. The appraiser valued the cantilever and air rights at $30.8 million. The developer had made an initial offer of $25.8 million. The developer and the organization thereafter agreed to a price of $31.8 million. The board then scheduled a members’ vote pursuant to its by-laws and had distributed to the organization’s voting members “ballots, voting instructions and materials” relating to the transaction.

Some organization members opposed the transaction and circulated their own materials. The board had also retained a second appraiser to review its prior appraisal. The second appraiser concluded that the prior appraisal was “appropriate and credible.”

The developer had made it clear that it would not further negotiate the price and if its transaction could not be timely completed, it would proceed without the additional air and cantilever rights.

After some dialogue between the opponents and the board, the organization proceeded with a vote of its membership. Out of a total 1,569 members who voted, “1,342 were in favor, and 227 were opposed.” The opponents thereafter commenced the subject action.

The plaintiffs argued, inter alia, that the organization’s approval vote was defective because it was based on an “erroneous interpretation” of the organization’s by-Law and amendments and the board had “made materially misleading misrepresentations and omissions when it presented the …Transaction to its members.” Although the court agreed that the by-laws were “less than clear,” it found that the board’s interpretation of the by-laws was reasonable and the “business judgment rule” applies when a board interprets “‘unclear matters’ in the by-laws.”

The court held that the board had neither “acted outside the scope of its authority” nor “in bad faith in interpreting” its by-laws. The court also found that the materials distributed by the board were neither fraudulent nor misleading. The court viewed the materials as “a legitimate message to the …voting members regarding the consequences of a failure to have their vote registered.” The court opined that the board had engaged in an “effort to mobilize …members to vote on an extremely important opportunity for the [organization], not to mislead them.”

The plaintiffs had also argued that the board could have renegotiated with the developer, obtained a better deal and submitted it for the members’ approval. However, the court found that the board had exercised its business judgment in a “reasonable” manner, especially in light of the fact that the developer had stated that further delay would be unacceptable and the board had relied on the legal advice of its counsel with respect to the “approval process cycle.” The court stated that “[t]he Board had sufficient cause to believe that the…opportunity had an expiration date to it.” The court further noted that if the board had lost “this unique $31 million opportunity, their business judgment may very well have been called into question.”

The court also noted that the organization’s voting members apparently agreed with the board even though the plaintiffs had raised many of these issues during the many meetings that the organization held on the matter. After hearing the conflicting views, the organization voting members had overwhelmingly voted in favor of the transaction. Thus, the board found that it had “acted within the scope of its authority and in good faith.”

The court also rejected the plaintiffs’ argument that the board’s appraisal had been “grossly erroneous” since “it used a comparison structure that [was] substantially different than the alternative structure” proposed by the developer and the voting members had never been told that their appraiser had worked with the developer five years before the subject proposal was being considered.

The court held that the board had acted in the “reasonable exercise of its business judgment when relying on the Appraisal and the Appraisal Review.” Additionally, the court stated that the “Business Judgment Rule” also protected the board’s decision not to publish the fact that the appraiser had done work for the developer five years earlier. The board had viewed the appraisal review which it had obtained has having eliminated “any doubts” one might have had concerning its original appraiser’s “competence and impartiality.” The court then explained that:

The board was entitled to rely on these expert opinions. N.Y. B.C.L. §717 (a) (2) (“In performing his duties, a director shall be entitled to rely on information, opinions, reports or statements…prepared or presented by…counsel, public accountants or other persons as to matters which the director believes to be within such person’s professional or expert competence[.]“)

Accordingly, the court held that the board had “acted ‘in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes.’” The court rejected the plaintiffs’ voting “irregularity” arguments and found that the plaintiffs had failed to demonstrate a likelihood of success on the merits. The court therefore did not need to address the irreparable injury and the balance of equities arguments. Accordingly, the court denied the plaintiffs’ motion for a preliminary injunction.

Caraballo v. The Art Students League of N.Y., 650522/14, NYLJ 1202651313121, at *1 (Sup. NY, Decided April 14, 2014), Schweitzer, J.

Scott E. Mollen is a partner at Herrick, Feinstein and an adjunct professor at St. John’s University School of Law.