Challenge
An elderly Manhattan couple, both cooperative shareholders, needed to sell their East River Housing Corporation (“East River”) unit so the husband could relocate for critical medical treatment. The prospective purchaser offered what the buyer and seller considered fair market value, but the East River co-op board denied the application based on an unwritten minimum sale-price “floor.” This denial effectively required a higher purchase price before granting consent.
The couple sued East River, alleging breach of the proprietary lease and breach of fiduciary duty. East River moved to dismiss the claims and, alternatively, sought summary judgment and a declaration that it could rely solely on the purchase price when exercising its consent rights.
The sellers soon became plaintiffs in Stromberg v. East River Housing Corp. and turned to Adam Leitman Bailey, P.C., one of the most successful real estate firms in New York.
“Our goal was to ensure the clients would receive justice in the form of a fair value for their unit so they could move forward with their lives and take proper care of their health,” said firm founder Adam Leitman Bailey, who has been recognized in Best Lawyers® since 2015 for Real Estate Law in New York.
Bailey and his lawyers framed the dispute as a contract and governance case rather than a pure business judgment rule issue.
“We argued that the board’s unwritten price floor was an improper restraint and outside the scope of the proprietary lease,” he said. “At its core, it was anti-competitive and a move to artificially inflate prices.”
The firm opposed dismissal and summary judgment by highlighting factual disputes regarding whether the “sum” demanded by the board reflected legitimate market-value considerations. Bailey argued the board’s demand was an arbitrary price condition unrelated to any identified risk associated with the buyer.
The firm also opposed the request for declaratory relief, arguing that while price can be a factor in evaluating a proposed purchaser, it cannot serve as the sole criterion under the guise of board discretion or the business judgment rule.
“We knew we were headed for the appellate courts, but we’re one of the most successful New York appellate firms,” Bailey noted. “We were confident in our abilities to strategize.”
The Appellate Division, First Department, declined to issue the declaratory judgment requested by East River and allowed the breach of contract claim to proceed past the board’s threshold motions. In doing so, the court confirmed that a cooperative board may not rely on an apartment’s purchase price as the sole ground for withholding consent to a sale.
“This was an incredible decision for the underdogs—the clients and our firm—because it symbolized the core concept of right versus wrong,” said Bailey, who worked alongside Partner Jeffrey R. Metz, who also serves as chief the firm’s Appellate Bureau. “And we had a local community supporting us—some of whom had been similarly impacted and others who simply cared about our clients. The defendant immediately changed their ways and went even further than expected, by requiring that the letter of the law be followed and pricing would no longer be an issue. That others would not suffer the same ignominy is a true testament to our success.”
Broader Legal Impact
The Appellate Division’s decision in Stromberg v. East River Housing Corp. carries significance beyond the immediate parties because it clarifies how cooperative boards may use the sale price when exercising consent rights.
It also limits how far boards can go in seeking declaratory relief to validate their practices.
“The court recognized that a board may consider the proposed sales price as one factor in evaluating a purchaser,” Bailey noted. “More importantly, they rejected the notion that price may serve as the sole approval criterion, especially where the record suggests an unwritten minimum price floor that functions as a restraint on alienation.”
For practitioners, particularly in New York County and the broader First Department, the decision offers an updated authority limiting the reach of the business judgment rule when boards adopt de facto pricing policies untethered to the proprietary lease or bylaws. Stromberg also tightens the availability of CPLR 3001 declaratory judgments; the First Department dismissed the board’s counterclaim for a broad declaration that it could consider sales price, as the plaintiffs had already conceded that narrow point.
“We weren’t just helping one client. We empowered a community of middle-class residents who were in fear of being priced out,” Bailey said. “Now it’s affected every co-op in New York State and cited by judges and our peers. We’re honored to have secured such a historic decision.”
