Laker v. Ass'n of Prop. Owners of Sleepy Hollow Lake, Inc.

• Decision Date: 16 May 2019
• Docket Number: 526421
• Citation: Laker v. Ass'n of Prop. Owners of Sleepy Hollow Lake, Inc., 172 A.D.3d 1660, 100 N.Y.S.3d 750 (N.Y. App. Div. 2019)
• Parties: Robert LAKER et al., Respondents, v. ASSOCIATION OF PROPERTY OWNERS OF SLEEPY HOLLOW LAKE, INC., et al., Appellants.
• Court: New York Supreme Court — Appellate Division

172 A.D.3d 1660

100 N.Y.S.3d 750

Robert LAKER et al., Respondents,

v.ASSOCIATION OF PROPERTY OWNERS OF SLEEPY HOLLOW LAKE, INC., et al., Appellants.

526421

Supreme Court, Appellate Division, Third Department, New York.

Calendar Date: March 27, 2019

Decided and Entered: May 16, 2019

McNamee Lochner PC, Albany (John J. Privitera of counsel), for appellants.

Tabner, Ryan & Keniry, LLP, Albany (Brian M. Quinn of counsel), for respondents.

Before: Egan Jr., J.P., Devine, Aarons and Rumsey, JJ.

MEMORANDUM AND ORDER

Devine, J.Plaintiffs own real property in the Sleepy Hollow Lake subdivision and took title subject to a declaration of protective covenants (hereinafter the declaration). Defendant Association of Property Owners of Sleepy Hollow Lake, Inc. (hereinafter the Association) is a corporation created to "establish, promulgate and enforce codes and rules" for property owners and common areas within the subdivision, and its bylaws provide that it is governed by defendant Board of Directors of the Association (hereinafter the Board). In 2013, the Board adopted a written policy requiring property owners who rented their homes to obtain a conditional use permit from the Association and pay an annual fee, as well as setting a fine for noncompliance. The Board amended the rental policy on November 15, 2016 to, among other things, bar rentals lasting less than 30 days, require a new permit and higher fee for every rental, and increase the fines imposed for unsanctioned rentals. Existing short-term rental agreements were grandfathered in through the end of 2017, and the deadline for entering into new short-term rental agreements, as later extended, was March 31, 2017.

Shortly before that deadline, plaintiffs commenced the present action seeking a declaration that the amended rental policy was invalid and damages under several legal theories. Plaintiffs simultaneously moved for a preliminary injunction barring the new rental restrictions from taking effect. Defendants, in lieu of serving an answer, cross-moved to dismiss the complaint as untimely and failing to state a cause of action. Supreme Court granted plaintiffs' motion and denied defendants' cross motion, and defendants appeal.

We affirm. Plaintiffs' attacks upon the adoption of the amended rental policy by the Board, although styled as requests for a declaratory judgment, are challenges to the administrative act of a "body or officer" that could have been asserted in a CPLR article 78 proceeding and are therefore subject to a four-month statute of limitations ( CPLR 7802[a] ; see CPLR 217[1] ; Matter of American Univ. of Antigua v. CGFNS Intl., 126 A.D.3d 1146, 1148–1149, 4 N.Y.S.3d 736 [2015] ; Bango v. Gouverneur Volunteer Rescue Squad, Inc., 101 A.D.3d 1556, 1557, 957 N.Y.S.2d 769 [2012] ).¹ The Board adopted the amended rental policy on November 15, 2016 – more than four months before the commencement of this action – but then signaled that it was open to compromise and encouraged aggrieved property owners to forgo litigation and help develop an alternate rental policy. The Board delayed implementation of the amended policy until March 31, 2017 to allow that "reconsideration" to occur, and did not make clear that it was moving forward with the amended rental policy, as well as higher fines than those contemplated in November 2016, until approximately March 16, 2017. It was incumbent upon defendants "to demonstrate the existence of a final and binding determination" beyond the four-month statute of limitations and, inasmuch as their actions left it unclear whether the amended rental policy was final and binding until two weeks before the commencement of this action, we agree with Supreme Court that the action is timely ( Matter of Turner v. Bethlehem Cent. School Dist., 265 A.D.2d 640, 641, 696 N.Y.S.2d 266 [1999] ; see Mundy v. Nassau County Civ. Serv. Commn., 44 N.Y.2d 352, 358, 405 N.Y.S.2d 660, 376 N.E.2d 1305 [1978] ; Matter of Catskill Regional Off–Track Betting Corp v. New York State Racing & Wagering Bd., 56 A.D.3d 1027, 1029–1030, 869 N.Y.S.2d 241 [2008] ).

As for defendants' efforts to dismiss the action as failing to state a claim, "[w]e accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" ( Leon v. Martinez, 84 N.Y.2d 83, 87–88, 614 N.Y.S.2d 972, 638 N.E.2d 511 [1994] ; see Connaughton v. Chipotle Mexican Grill, Inc., 29 N.Y.3d 137, 141, 53 N.Y.S.3d 598, 75 N.E.3d 1159 [2017] ). Defendants suggest that plaintiffs' claims must fall because of the business judgment rule, which "bars judicial inquiry into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes" ( Auerbach v. Bennett, 47 N.Y.2d 619, 629, 419 N.Y.S.2d 920, 393 N.E.2d 994 [1979] ; see M & M Country Store, Inc. v. Kelly, 159 A.D.3d 1102, 1103, 71 N.Y.S.3d 707 [2018] ). Plaintiffs respond that the business judgment rule does not bar their claims, as the Board's adoption of the amended rental policy was not legitimate and "exceed[ed][its] authority under the relevant corporate bylaws" ( Matter of People v. Lutheran Care Network, Inc., 167 A.D.3d 1281, 1286, 92 N.Y.S.3d 154 [2018] ; see 40 W. 67th St. v. Pullman, 100 N.Y.2d 147, 155, 760 N.Y.S.2d 745, 790 N.E.2d 1174 [2003] ; Matter of Olszewski v. Cannon Point Assn., Inc., 148 A.D.3d 1306, 1311, 49 N.Y.S.3d 571 [2017] ; Yusin v. Saddle Lakes Home Owners Assn., Inc., 73 A.D.3d 1168, 1171, 902 N.Y.S.2d 139 [2010] ).

The Association is empowered by its bylaws to establish and enforce rules "for the harmonious efficient operation and management of [the subdivision,] including but not limited to providing mutual and beneficial restrictions on the use and development of each [l]ot in the [s]ubdivision and the use of the [c]ommon [a]reas." The bylaws and declaration also stress, however, that they must be read together. The bylaws and declaration contain no indication that rentals by owners are prohibited; to the contrary, the declaration subjects leases to its restrictions, the declaration and bylaws define lessees as lot owners under certain circumstances, and the bylaws grant associate membership in the Association to "tenants or regular occupants of" a subdivision residence. The declaration does restrict the use of subdivision lots to single-family dwellings, but the amended rental policy is not limited to ensuring that...