What Really is “Objectionable Conduct” in New York Co-ops? Navigating a Board Deferential Standard of Review Post-Pullman

Authors

Jenna Tammaro

Abstract

Home is where the heart is, and in the United States, home ownership is an integral part of the American dream. A place to call home offers emotional safety as well as financial security. Property ownership can even mark the start of generational wealth. Since a home is something that can mean so much to so many, the loss of one’s home is an unimaginable fear. The risk becomes even greater when the odds are stacked against homeowners, particularly for cooperative corporation (co-op) shareholders in New York. Co-op proprietary leases exploit the risk of loss for these owners. Most proprietary leases in New York provide co-ops the option to terminate a shareholder’s lease if he or she displays objectionable conduct. While home safety is of the utmost importance, the typically vague objectionable conduct clause enables a co-op’s board of directors to evict shareholders for behavior that may not truly be “objectionable.” A board’s decision to evict a shareholder is then judicially shielded by the business judgment rule, which defers to the board’s decision as long as the board did not act in bad faith, in a way that failed to further the co-op’s corporate purpose, or in a way that exceeded the board’s authority. Notably, in Levandusky v. One Fifth Avenue Apartment Corporation, the New York Court of Appeals held that the judicial standard of review for corporate board decisions, the business judgment rule, also extends to co-op board decisions. Following this decision, in 40 West 67th Street v. Pullman, the New York Court of Appeals additionally held that this judicial review applies to a board’s decision regarding objectionable conduct evictions. In conjunction with these judicial decisions, many co-op proprietary leases lack a definition for objectionable conduct, giving boards ample discretion to define “objectionable” as whatever the board wants it to be. Shareholders are therefore vulnerable to power hungry boards who can evict shareholders for any reason the board deems “objectionable.” In response to this inequitable shareholder vulnerability, this Note proposes two solutions: (1) for shareholders to amend their proprietary leases to define objectionable conduct as conduct that constitutes a nuisance; or (2) for the New York Court of Appeals to overturn the decision in Pullman because it erroneously applies a corporate rule, the business judgment rule, to a housing issue, eviction.

Recommended Citation

Jenna Tammaro, What Really is “Objectionable Conduct” in New York Co-ops? Navigating a Board Deferential Standard of Review Post-Pullman, 90 Brook. L. Rev. 653 (2025).
Available at: https://brooklynworks.brooklaw.edu/blr/vol90/iss2/8