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Court limits RICO suits by co-op shareholders.

In a decision that sharply restricts cooperative shareholders from suing sponsors under the Rackerecting Influenced and Corrupt Organizations Act (RICO), the United States District Court for the Southern District of New York has found that individual shareholders lack standing to bring suit against sponsors for actions that affect the cooperative as a whole.

Thus reports Robert Zastrow, the Stroock & Stroock & Lavan partner representing the defendants.

The case, Ceribelli rs. Elghanayan involves a residential cooperative at 15 East 11th Street. The plaintiffs allege that the defendants failed to disclose defects in the building's condition.

In his decision, District Judge Kenneth Conboy ruled that only the cooperative has the right to sue when an injury is suffered by the 'building. Shareholders of the cooperative lack standing to seek damages under RICO because there is no independent injury suffered by them.

According to Zastrow: "A previous case decided by the Court of Appeals for the Second Circuit involving the conversion of the Parkchester apartments to condominiums, Beauford vs. Helmsley, opened the door to these suits. It held that when the sponsor misstated something in an offering plan and mailed the plan to enough people, the pattern and continuity requirements of RICO were met. Our case partly closes that door, because in a cooperative, now only the coop may sue. This decision will make these disputes easier to resolve, because sponsors will no longer have to deal with shareholder factions who decide to sue on their own."
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Title Annotation:District Court in New York restricts use of Racketeering Influenced and Corrupt Organizations Act in cooperative housing lawsuits
Publication:Real Estate Weekly
Article Type:Brief Article
Date:Sep 2, 1992
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