Catafago Fini LLP Successfully Defends Manhattan Cooperative Building in Appeal

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The Supreme Court of New York, First Judicial Department, upholds the dismissal of a purported class action against the board of directors of the Turin Housing Development Fund Company

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“The First Department’s decision here correctly recognizes that boards of directors of cooperative apartment buildings need the flexibility to exercise business judgment when making decisions regarding their operations."

On January 12, 2021, Catafago Fini LLP scored a major victory in the Appellate Division of the New York Supreme Court, First Judicial Department, which upheld the dismissal of a purported class action against the board of directors of a cooperative apartment building. The First Department upheld dismissal because the plaintiff’s claims were derivative in nature, and the plaintiff improperly asserted the claims as direct claims, while also failing to properly make a demand on the board. Scher v. Turin Hous. Dev. Fund Co., Inc., Case No. 2019-5346, 2021 WL 96093 (App. Div., 1st Dept. Jan. 12, 2021).

Turin Housing Development Fund Company is an affordable housing cooperative. According to court documents, the plaintiff cooperative owner in this action challenged the Turin Board’s decision to negotiate a new regulatory agreement with the New York City Department of Housing Preservation and Development. The plaintiff claimed that a new regulatory agreement would diminish the value of all the cooperative shares, and thus reduce the values of all the cooperative apartment units.

The First Department upheld the lower court’s grant of summary judgment, finding that “[t]he motion court properly determined that the claims in the amended complaint were derivative rather than direct, and plaintiff had failed to make a prelitigation demand or allege futility, warranting dismissal.” Scher, 2021 WL 96093, at *1.

“The First Department’s decision here correctly recognizes that boards of directors of cooperative apartment buildings need the flexibility to exercise business judgment when making decisions regarding their operations,” said Tom M. Fini, a partner at Catafago Fini LLP.

“Without the ability to do so, these cooperatives would be stymied in their efforts to provide affordable housing to local residents with little means,” added Jacques Catafago, a partner at Catafago Fini LLP.

The First Department further affirmed the lower court’s denial of leave to replead on the ground that “leave to replead would not have cured the deficiencies in the amended complaint.” Id. The First Department found that, although the plaintiff asserted that the board was self-interested by placing themselves on waiting lists for apartments, "plaintiff failed to state particularized allegations to show how placement on such wait lists, which contained both board members and non-board members, favored defendants or influenced their decision to present the new regulatory agreement to the shareholders for a vote.” Id. Accordingly, the First Department affirmed Catafago Fini LLP’s victory, and the case has been dismissed with prejudice.

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Wayne Pollock
Copo Strategies
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