WHAT HAPPENED The Bakers owned a penthouse apartment at 16 Sutton Place, which included the exclusive use of a terrace that adjoined their apartment. In May 2019, the Board proposed a proprietary lease amendment that reallocated responsibility for maintenance, repair and replacement of the private terraces, and at the annual meeting on May 30, two-thirds of the shareholders consented to this change. In July 2019 the Board notified the shareholders of the new amendments. Local Law 11 façade work was scheduled to begin in April 2020, and in a March 9 letter the co-op notified the Bakers that their share of the cost of the work would be $23,991.53, to be invoiced in three equal installments.

IN THE COURT  The Bakers sought an injunction and a declaratory judgment that the amendment was invalid, but the court rejected this request. The court held that a shareholder seeking to challenge a cooperative’s action must commence an Article 78 proceeding, and this must be commenced within four months (or 120 days) after the action of the cooperative becomes “final and binding” upon the shareholder. The Bakers had received the notice of the lease amendment on July 1, 2019, but did not file the action until May 26, 2020, and so the court ruled that the action was time barred. The Bakers attempted to convert the action into a different type of action, and asserted that the “catch-all” six-year statute of limitations would apply. But the court held that in order to determine which limitation period applies to a particular declaratory judgment action, the court “must examine the substance of that action” and whether the dispute could be resolved through a form of action for which there was a specific limitation period, because the six-year statute applies only when there is no specific time limitation in the statute. The court determined that an Article 78 proceeding was appropriate in this case for the remedy sought, and therefore the four-month statute of limitations must apply. 

COUNSEL for Plaintiff Bakers GALLET DREYER & BERKEY / For Defendant 16 Sutton Place Apartment Corp. SMITH GAMBRELL & RUSSELL

YOU SHOULD KNOW  An Article 78 proceeding can be used to challenge an action of the Board that one believes is beyond the scope of its authority, was made in violation of the proper procedure applicable, or is otherwise improper. The goal is to have the court review the action to determine whether it was proper. However, in order to successfully use this tool, the challenge must be brought within four months, or 120 days, after the decision being challenged. For the Bakers, this would have meant that they would have had to file their Article 78 challenge by Nov. 1, 2019.

TAKEAWAY  If you are dissatisfied with the action of the cooperative or the board, and you believe that the court should review it under Article 78, bring an action immediately, as the statute of limitation is quite short.

Case Summary and Takeaway by Andrew P. Brucker, Partner, Armstrong Teasdale

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May 24, 2022 — The Habitat Group