Case Notes in


First published: Dec 2022
The Well-Documented Process Wins

The famous Pullman case, decided by New York’s Court of Appeals in 2003, confirmed a co-op’s right, as contained in most proprietary leases, to terminate a shareholder for objectionable conduct. Termination sometimes requires a vote by shareholders but other times only the vote of the board, as occurred here. Provided that all necessary steps in the process are followed, that there are facts showing objectionable conduct, and that there are no other indications of chicanery (a board motivated by personal gain, or acting in a legally discriminatory manner such as racial bias), the business judgment rule will insulate from judicial review the termination of a shareholder’s lease. Here, the plaintiff tried to get the court to stop the process from moving forward, which was denied. The hallmark of co-operative living is that all members of the community have agreed, by binding contract, to follow the rules or suffer the consequences, one of which is removal from the community. Whether the co-op’s termination of the lease is upheld remains to be seen, but things are not looking good for this shareholder.

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First published: Mar 2022
Objectionable Conduct: A ‘Pullman” Slip -Up

The so-called Pullman provision in a proprietary lease is a very useful tool when it comes to shareholders who exhibit objectionable conduct. However, in order to properly use this weapon, the co-op must strictly comply with the terms of the provision, as the courts are very aware that terminating a proprietary lease is an extreme remedy. Prior to utilizing this provision, the co-op must review every step required with management and counsel, as any defect in the procedure will result in a dismissal of the co-op’s action.

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