Appellate Division Affirms Annulment of License Agreement to Affix Private Dock to Property Owner’s Association Community Docks
June 01, 2020
The Lattingtown Harbor Property Owners’ Association, Inc., (“POA”) entered into a license agreement, dated November 29, 2017, with another member, Peter Tully, granting an exclusive right to affix private docks to the POA’s community dock in exchange for a license fee and services provided to the POA by Tully’s construction company. Another member of the POA, Peter Beckerman, brought an Article 78 Proceeding against the POA to annul the license agreement, alleging that the POA acted outside of the scope of its authority.
The Supreme Court, Nassau County, in Beckerman v. Lattingtown Harbor Property Owner’s Association Inc. et al. decided by Roy S. Mahon, J., Index No. 586-2018, dated November 7, 2018., granted the Article 78 Petition annulling the license agreement which granted Tully exclusive rights to use the POA’s community dock. Petitioner argued that the community dock constitutes community property and any agreement by the POA granting exclusive use of common area property exceeded the power and authority of the POA Board in violation of the By-laws and Declaration governing same. Respondent Tully intervened in the proceeding and alleged that he had private dock rights consisting of a floating dock attached to the community dock for approximately 16 years and in exchange for his dock rights his construction company provided services to the POA by maintaining the land, structures and waterways of the POA for that time period.
Respondents sought dismissal of the proceeding, in part, by alleging that the POA’s actions were protected by the business judgment rule. Both reviewing courts set forth the business judgment rule standard of review stating,
“In reviewing the actions of a homeowners’ association, a court should apply the business judgment rule and should limit its inquiry to whether the action was authorized and whether it was taken in good faith and in furtherance of the legitimate interests of the association” (19 Pond, Inc. v Goldens Bridge Community Assn., Inc., 142 AD3d 969, 970). In the case of a homeowners’ association, a court should defer to the homeowners’ association’s board’s actions “‘so long as the board acts for the purposes of the [homeowners’ association], within the scope of its authority and in good faith’” (Matter of Cohan v Board of Directors of 700 Shore Rd. Waters Edge, Inc., 108 AD3d 697, 699, quoting 40 W. 67th St. v Pullman, 100 NY2d 147, 153). However, “[t]he business judgment rule does not apply when a cooperative board acts outside the scope of its authority or violates its own governing documents” (Matter of Cohan v Board of Directors of 700 Shore Rd. Waters Edge, Inc., 108 AD3d at 699). See Matter of Beckerman v. Lattingtown Harbor Property Owner’s Association, Inc. et al. Appellate Division, Second Department, 2019-00279, dated May 20, 2020, page 2.
After reviewing the governing documents of the POA including the By-laws and Declaration, the Supreme Court found that the POA’s members had the “unfettered right to use the entire community dock as community property.” Therefore, the Court found that the Board’s agreements to allow Tully an exclusive use of a portion of the community dock was not only unauthorized, but in fact “specifically barred by the governing documents.” The Court held that community property could not be excluded from the members’ use. Additionally, the Court stated, “furthermore, two of the five members on the Board when Tully’s license agreement was entered were the Tullys themselves, calling the Board’s good faith into serious question.” Moreover, the Court found that Tully’s contributions in exchange for his dock privileges failed to negate the inconsistency with the governing documents of the POA. Thus, the Supreme Court annulled the license agreement. Tully appealed.
The Appellate Division Second Department in Matter of Peter Beckerman v. Lattingtown Harbor Property Owners Association Inc. et al., 2019-00279, dated May 20, 2020, affirmed the Supreme Court’s determination annulling the license agreement. Citing the business judgment rule as the standard of review (set forth above), the Court held that entering into a license agreement was outside of the POA Board’s authority because the POA’s Declaration states that each member of the POA “is privileged to use the POA’s community recreational facilities in common with other members, and that the modification or cancellation of that privilege is not permitted.” The Court further stated, “[b]y granting Tully the exclusive right to affix his private docks to the POA’s community dock, the Board prevented other members from docking their boats at the portion of the POA’s community dock to which Tully’s private docks are affixed.” Accordingly, the Court affirmed the Supreme Court’s determination annulling the license agreement.