In 40 West 67th Street v. Pullman, decided in 2003, the New York Court of Appeals held that a residential cooperative’s decision to terminate a shareholder’s proprietary lease for objectionable conduct is reviewed under the business judgment rule, meaning courts will defer to a properly conducted shareholder vote unless the tenant can show the board acted outside its authority, without a legitimate corporate purpose, or in bad faith.1nycourts.gov. 40 W. 67th St. v. Pullman The ruling is the leading New York authority on co-op evictions of disruptive shareholders.
The Conduct Behind the Eviction
David Pullman bought his shares in 1998. Over the years that followed, he filed repeated lawsuits against neighbors, circulated flyers with disparaging remarks about other residents, and accused the board of mismanagement and personal vendettas. One running dispute involved a professor living above him, whom Pullman accused of excessive noise and illegal alterations. Neighbors reported feeling harassed by his communication style and legal threats, and attempts to resolve matters through mediation and direct communication failed.1nycourts.gov. 40 W. 67th St. v. Pullman The board concluded his behavior was detrimental to other residents’ peaceful enjoyment of the building.
What the Proprietary Lease Required
Article III (First)(f) of the proprietary lease allowed the cooperative to terminate a tenancy for objectionable conduct, but only after a formal shareholder meeting at which holders of at least two-thirds of the shares voted in favor of termination. The shareholder had to receive notice of the meeting and an opportunity to be heard beforehand. The cooperative notified Pullman of the meeting and the complaints against him, and a supermajority of shareholders then voted to end his lease. That vote became the foundation for the co-op’s possession action in court.1nycourts.gov. 40 W. 67th St. v. Pullman
How the Business Judgment Rule Applies to Co-Ops
New York courts had already extended the business judgment rule to residential cooperatives in Levandusky v. One Fifth Ave. Apt. Corp. Under that doctrine, board members are presumed to act in good faith and in the corporation’s best interests, and courts do not substitute their own judgment for the board’s on questions of building management and operation.1nycourts.gov. 40 W. 67th St. v. Pullman
Pullman confirmed that the same deference applies when the outcome is eviction, while adding that judges must exercise heightened vigilance to guard against abuse of power. Shareholders and the board are treated as best positioned to judge acceptable behavior in their own community, but a flawed decision-making process will still draw judicial intervention.1nycourts.gov. 40 W. 67th St. v. Pullman
When a Shareholder Can Overturn the Vote
The shareholder-tenant carries the burden of proof. To move a court past the deferential business judgment standard and into closer review, the resident must show the board acted in one of three ways:1nycourts.gov. 40 W. 67th St. v. Pullman
- Outside the scope of its legal authority.
- In a way that did not legitimately further the cooperative’s purpose.
- In bad faith, including arbitrary decisions, personal vendettas, or discrimination.
Absent that showing, the board’s determination stands. The practical effect of Pullman is that a cooperative that follows its own procedures, gives the shareholder notice and a hearing, and secures the required supermajority vote holds a strong position in any subsequent eviction proceeding.