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Alphonse Fletcher, Jr., et al v. the Dakota

July 3, 2012


The opinion of the court was delivered by: Acosta, J.

Fletcher v Dakota, Inc.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on July 3, 2012


Angela M. Mazzarelli,J.P. David B. Saxe James M. Catterson Rolando T. Acosta Nelson S. Roman, JJ. Index 101289/11

Defendants The Dakota, Inc., Bruce Barnes and Peter Nitze appeal from an order of the Supreme Court, New York County (Eileen A. Rakower, J.), entered July 27, 2011, which, insofar as appealed from, denied their motion to dismiss the first, second and fifth through eleventh causes of action as against The Dakota, the first and sixth through eleventh causes of action as against Barnes in his individual capacity, and the first and fifth causes of action as against Nitze in his individual capacity.


Plaintiff Alphonse Fletcher, Jr., an African-American resident of defendant co-op The Dakota, alleges that The Dakota and, as relevant to this appeal, two of its directors (defendants Barnes and Nitze) discriminated against him, inter alia, on the basis of race in refusing to approve his purchase of an apartment adjacent to one he owns for the purpose of combining the two. According to Fletcher, the case is about retaliation against him for sticking up for the rights of others, including minority and Jewish shareholders and applicants at The Dakota, and then to further defame him when he brought the discriminatory conduct to light.

Prior to discussing the relevant causes of action, we address individual board member liability in the context of discriminatory acts, and clear up an element of possible confusion in this area of law that may arise out of this Court's decision in Pelton v 77 Park Ave. Condominium (38 AD3d 1 [2006]). In short, although participation in a breach of contract will typically not give rise to individual director liability, the participation of an individual director in a corporation's tort is sufficient to give rise to individual liability.

Turning to the contentions on appeal, defendants argue that all claims should be dismissed as against Nitze and Barnes because the complaint fails to allege that they engaged in any acts separate and distinct from actions they took as board members. The claims that remain as against Nitze that we must address are breach of fiduciary duty (first cause of action) insofar as it is based on allegations of defamation, and defamation (fifth cause of action). As to Barnes, the remaining causes of action are the first insofar as it is based on defamation, the sixth and eighth, which allege discrimination under the New York State and City human rights laws, the seventh and ninth, which allege retaliation in violation of the State and City human rights laws, respectively, the tenth, which alleges a violation of the Civil Rights Law, and the eleventh, which alleges tortious interference with contract. Since defendants are not challenging the motion court's ruling that the discrimination-based claims (the sixth, eighth and tenth) otherwise fail to state a cause of action, but only that they fail to allege independent conduct on Barnes's part, we begin with those claims.

The provisions of the State Human Rights Law (State HRL) that proscribe discrimination in housing apply not only to the "owner" of the housing, but also to a "lessee, sub-lessee, assignee, or managing agent of, or other person having the right to sell, rent or lease a housing accommodation . . . or any agent or employee thereof" (Executive Law § 296[5][a]). The City Human Rights Law (City HRL) similarly provides for individual liability (Administrative Code of the City of NY § 8-107[5]). Although both statutes contain exceptions to their housing coverage (compare Exective Law § 296[5][a]) with Administrative Code of the City of NY §§ 8-107[5][a][4], [g]-[m],[o]), there are no exemptions in either statute for directors or officers of a coop or any other corporation. The anti-retaliation sections of both statutes also provide for individual liability with no exemption for corporate directors or officers (see Executive Law § 296[7]; Administrative Code of the City of NY § 8-107[7])[*fn1]. Individual director and officer liability is also consistent with the limitations on the "business judgment" rule as enunciated by the Court of Appeals.

In Matter of Levandusky v One Fifth Ave. Apt. Corp. (75 NY2d 530[1990]), the Court of Appeals held that the "business judgment" rule was the correct standard of judicial review of the actions of the directors of a cooperative corporation. That rule prohibits judicial inquiry into the actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes" (id. at 537-538 [internal quotation marks omitted]). The Court, however, cautioned that "the broad powers of a cooperative board hold potential for abuse through arbitrary and malicious decision making, favoritism, discrimination and the like" (id. at 536). In 40 W. 67th St. v Pullman (100 NY2d 147, 157 [2003]), the Court of Appeals "reaffirm[ed] [Levandusky's] admonition and stress[ed] that those types of abuses are incompatible with good faith and the exercise of honest judgment. While deferential, the Levandusky standard should not serve as a rubber stamp for cooperative board actions" (emphasis added). Thus, arbitrary or malicious decision making or decision making tainted by discriminatory considerations is not protected by the business judgment rule.

Nothing in the holding or reasoning of either Levandusky or Pullman suggests that there is a safe harbor from judicial inquiry for directors who are alleged to have engaged in conduct not protected by the business judgment rule. Moreover, there is no principle of corporate law that director liability arises only where the director commits a tort independent of the tort committed by the corporation itself. On the contrary, it has long been held by this Court that "a corporate officer who participates in the commission of a tort may be held individually liable, . . . regardless of whether the corporate veil is pierced" (Peguero v 601 Realty Corp., 58 AD3d 556 [2009] [internal quotation marks omitted], quoting Espinosa v Rand, 24 AD3d 102, 102 [2005], quoting American Exp. Travel Related Services Co., Inc. v North Atlantic Resources, Inc., 261 AD 2d 310, 311 [1999]; Savannah T & T Co., Inc. v Force One Express Inc., 58 AD3d 409 [2009]; cf. Polonetsky v Better Homes Depot, 97 NY2d 46, 55 [2001] ["In actions for fraud, corporate officers and directors may be held individually liable if they participated in or had knowledge of the fraud, even if they did not stand to gain personally"]; Marine Midland Bank v Russo Produce Co., 50 NY2d 31, 44 [1980], citing Lippman Packing Corp. v Rose, 203 Misc 1041, 1044 ...

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