Levandusky v. One Fifth Ave. Apartment Corp.

• Decision Date: 05 April 1990
• Citation: 75 N.Y.2d 530,554 N.Y.S.2d 807,553 N.E.2d 1317
• Parties: , 553 N.E.2d 1317, 58 USLW 2613 In the Matter of Ronald LEVANDUSKY, Respondent, v. ONE FIFTH AVENUE APARTMENT CORP., Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 807

554 N.Y.S.2d 807

75 N.Y.2d 530, 553 N.E.2d 1317, 58 USLW 2613

In the Matter of Ronald LEVANDUSKY, Respondent, v. ONE FIFTH AVENUE APARTMENT CORP., Appellant.

Court of Appeals of New York.

April 5, 1990.

Joel David Sharrow and Arthur F. Abelman, New York City, for appellant.

Irwin Brownstein, for respondent.

OPINION OF THE COURT

KAYE, Judge.

This appeal by a residential cooperative corporation concerning apartment renovations by one of its proprietary lessees, factually centers on a two-inch steam riser and three air conditioners, but fundamentally presents the legal question of what standard of review should apply when a board of directors of a cooperative corporation seeks to enforce a matter of building policy against a tenant-shareholder. We conclude that the business judgment rule furnishes the correct standard of review.

In the main, the parties agree that the operative events transpired as follows. In 1987, respondent (Ronald Levandusky) decided to enlarge the kitchen area of his apartment at One Fifth Avenue in New York City. According to Levandusky, some time after reaching that decision, and while he was president of the cooperative's board of directors, he told Elliot Glass, the architect retained by the corporation, that he intended to realign or "jog" a steam riser in the kitchen area, and Glass orally approved the alteration. According to Glass, however, the conversation was a general one; Levandusky never specifically told him that he intended to move any particular pipe, and Glass never gave him approval to do so. In any event, Levandusky's proprietary lease provided that no "alteration of or addition to the water, gas or steam risers or pipes" could be made without appellant's prior written consent.

Levandusky had his architect prepare plans for the renovation, which were approved by Glass and submitted for approval to the board of directors. Although the plans show details of a number of other proposed structural modifications, including changes in plumbing risers, no change in the steam riser is shown or discussed anywhere in the plans.

The board approved Levandusky's plans at a meeting held March 14, 1988, and the next day he executed an "Alteration Agreement" with appellant, which incorporated "Renovation Guidelines" that had originally been drafted, in large part, by Levandusky himself. These guidelines, like the proprietary lease, specified that advance written approval was required for any renovation affecting the building's heating system. Board consideration of the plans--appropriately detailed to indicate all structural changes--was to follow their submission to the corporation's architect, and the board reserved the power to disapprove any plans, even those that had received the architect's approval.

In late spring 1988, the building's managing agent learned from Levandusky that he intended to move the steam riser in his apartment, and so informed the board. Both Levandusky and the board contacted John Flynn, an engineer who had served as consulting agent for the board. In a letter and in a subsequent presentation at a June 13 board meeting, Flynn opined that relocating steam risers was technically feasible and, if carefully done, would not necessarily cause any problem. However, he also advised that any change in an established old piping system risked causing difficulties ("gremlins"). In Flynn's view, such alterations were to be avoided whenever possible.

At the June 13 meeting, which Levandusky attended, the board enacted a resolution to "reaffirm the policy--no relocation of risers." At a June 23 meeting, the board voted to deny Levandusky a variance to move his riser, and to modify its previous approval of his renovation plans, conditioning approval upon an acceptable redesign of the kitchen area.

Levandusky nonetheless hired a contractor, who severed and jogged the kitchen steam riser. In August 1988, when the board learned of this, it issued a "stop work" order, pursuant to the "Renovation Guidelines." Levandusky then commenced this article 78 proceeding, seeking to have the stop work order set aside. The corporation cross-petitioned for an order compelling Levandusky to return the riser to its original position. The board also sought an order compelling him to remove certain air-conditioning units he had installed, which allegedly were not in conformity with the requirements of the Landmarks Preservation Commission.

Supreme Court initially granted Levandusky's petition, and annulled the stop work order, on the ground that there was no evidence that the jogged pipe had caused any damage, but on the contrary, the building engineer had inspected it and believed it would likely not have any adverse effect. Therefore, balancing the hardship to Levandusky in redoing the already completed renovations against the harm to the building, the court determined that the board's decision to stop the renovations was arbitrary and capricious, and should be annulled. Both counterclaims were dismissed, the court ruling that the corporation had no standing to complain of violations of the Landmarks Preservation Law, particularly as the building had not been cited for any violation.

On reargument, however, Supreme Court withdrew its decision, dismissed Levandusky's petition, and ordered him to restore the riser to its original position and submit redrawn plans to the board, on the ground that the court was precluded by the business judgment rule from reviewing the board's determination. The court adhered to its original ruling with respect to the branch of the cross motion concerning the air conditioners, notwithstanding that the Landmarks Preservation Commission had in the interim cited them as violations.

On Levandusky's appeal, the Appellate Division, 150 A.D.2d 167, 540 N.Y.S.2d 440 modified the judgment. The court was unanimous in affirming the Supreme Court's disposition of the air conditioner claim, but divided concerning the stop work order. A majority of the court agreed with Supreme Court's original decision, while two Justices dissented on the ground that the board's action was within the scope of its business judgment and hence not subject to judicial review. Concluding that the business judgment rule applies to the decisions of cooperative governing associations enforcing building policy, and that the action taken by the board in this case falls within the purview of the rule, we now modify the order of the Appellate Division.

At the outset, we agree with the Appellate Division that the corporation's cross claim concerning Levandusky's three air conditioning units was properly dismissed, as the appropriate forum for resolution of the complaint at this stage is an administrative review proceeding. That brings us to the issue that divided the Appellate Division: the standard to be applied in judicial review of this challenge to a decision of the board of directors of a residential cooperative corporation.

As cooperative and condominium home ownership has grown increasingly popular, courts confronting disputes between tenant-owners and governing boards have fashioned a variety of rules for adjudicating such claims (see generally, Goldberg, Community Association Use Restrictions: Applying the Business Judgment Doctrine, 64 Chi-Kent L.Rev. 653 [1988] [hereinafter Goldberg, Community Association Use Restrictions ]; Note, Judicial Review of Condominium Rulemaking, 94 Harv.L.Rev. 647 [1981]. In the process, several salient characteristics of the governing board homeowner relationship have been identified as relevant to the judicial inquiry.

As courts and commentators have noted, the cooperative or condominium association is a quasi-government--"a little democratic sub society of necessity" (Hidden Harbour Estates v. Norman, 309 So.2d 180, 182 [Fla.Dist.Ct.App.]. The proprietary lessees or condominium owners consent to be governed, in certain respects, by the decisions of a board. Like a municipal government, such governing boards are responsible for running the day-to-day affairs of the cooperative and to that end, often have broad powers in areas that range from financial decisionmaking to promulgating regulations regarding pets and parking spaces (see generally, Note, Promulgation and Enforcement of House Rules, 48 St John's L.Rev. 1132 [1974]. Authority to approve or disapprove structural alterations, as in this case, is commonly given to the governing board. (See, Siegler, Apartment Alterations, N.Y.L.J., May 4, 1988, at 1, col. 1.)

Through the exercise of this authority, to which would-be apartment owners must generally acquiesce, a governing board may significantly restrict the bundle of rights a property owner normally enjoys. Moreover, as with any authority to govern, the broad powers of a cooperative board hold potential for abuse through arbitrary and malicious decisionmaking, favoritism, discrimination and the like.

On the other hand, agreement to submit to the decisionmaking authority of a cooperative board is voluntary in a sense that submission to government authority is not; there is always the freedom not to purchase the apartment. The stability offered by community control, through a board, has its own economic and social benefits, and purchase of a cooperative apartment represents a voluntary choice to cede certain of the privileges of single ownership to a governing body, often made up of fellow tenants who volunteer their time, without compensation. The board, in return, takes on the burden of managing the property for the benefit of the proprietary lessees. As one court observed: "Every man may justly consider his home his castle and himself as the king thereof; nonetheless his sovereign fiat to use his property as he pleases must yield, at least in degree, where ownership is in common or cooperation with others. The benefits of condominium living and ownership demand no less." (Sterling Vil. Condominium v. Breitenbach, ...