40 West 67th Street Corp. v. Pullman

Brief Fact Summary. Defendant was a shareholder-tenant in the plaintiff cooperative building.  The defendant made and published accusations against his upstairs neighbors that turned out to be false.  The cooperative sought to evict Mr. Pullman for “objectionable” conduct under their Lease Agreement.

Synopsis of Rule of Law. This case extends the reach of the business judgment rule of the 1990 decision of Levandusky v. One Fifth Avenue Apartment Corp. to give deference to board members decisions. 

Facts. Defendant was a shareholder-tenant in the plaintiff cooperative building.  The defendant accused his upstairs neighbors (a retired professor and his wife) of noise violations (playing the television and radio too loud late at night and operating a noisy illegal bookbinding business that required storing toxic chemicals), to which the Board showed that the upstairs neighbors had no such bookbinding business and did not own a television set.  Pullman also had a physical altercation with the retired professor that lived upstairs and handed out flyers referring to him as a “psychopath in our midst”.

Mr. Pullman brought four lawsuits against the co-op because the co-op decided to evict Mr. Pullman for “objectionable conduct”.  The co-op had a special meeting of shareholders and obtained the requisite super majority to terminate his lease.  The Board sent Mr. Pullman a notice of termination and he refused to leave the premises.  The co-op brought suit for ejectment and declaratory judgment.

Issue.  Whether the Business Judgment Rule can allow deference to be given to Board Members decisions or if evidence must be presented to the court on the matter.

Held. The Supreme Court, a divided Appellate Division applied the business judgment rule and held that Levandusky prohibited judicial scrutiny of actions of cooperative boards “taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance or corporate purposes.” 

Discussion. The court found that the board members determination of objectionable conduct is a sufficient finding that is not in need evidence to be provided to support their determination. Under Levandusky the business judgment rule was the standard for judicial review of actions taken by cooperatives and condominiums boards and if discrimination was suspected a court could review the actions of the board.