The facts of this matter are fully set forth in the prior decisions of this Court (Zollo v Adirondack Lodges Homeowners Assn., 68 Misc 3d 1205[a], 202 NY Slip Op 50866[U] [Sup Ct, Warren County 2020]; Zollo v Adirondack Lodges Homeowners Assn., 71 Misc 3d 1222[A], 2021 NY Slip Op 50462[U] [Sup Ct, Warren County 2021]; Zollo v Adirondack Lodges Homeowners Assn.,2022 NYLJ LEXIS 2491) and the Appellate Division, Third Department's Memorandum and Order entered March 7, 2024. (Zollo v Adirondack Lodges Homeowners Assn., Inc., 225 AD3d 973 [3d Dept 2024]).

Briefly, defendant Adirondack Lodges Homeowners Association, Inc. (hereinafter the HOA) is a residential community of 54 townhouse units and 24 single-family units located on Schroon Lake. The HOA is governed by a restated declaration, as well as a set of bylaws, and managed by defendant Adirondack Lodges Homeowners Association Board of Directors (hereinafter the Board). The HOA property includes, inter alia, three boat docking facilities and [*2]each unit has deeded rights to a slip. Two of the facilities are located directly on the lake and the third facility, the subject of this dispute, is a human-made harbor containing 52 boat slips connected to the lake by a tributary.

Plaintiff John B. Zollo and his wife, plaintiff Kathryn Zollo (hereinafter collectively referred to as the Zollos), own a single-family unit in the HOA with deeded rights to a slip not on the harbor docks.

It is undisputed the harbor docks fell into disrepair and in 2019 the Board adopted a resolution to include an assessment in the amount of $3,500 per unit in the 2020 budget to partially fund a reserve for the replacement of the harbor dock. On May 1, 2020, the Board sent an invoice to all members of the HOA for the $3,500.00 assessment.

The Zollos commenced this action asserting six causes of action seeking a judgment declaring the assessment invalid, imposing related injunctive relief (second and third causes of action), and breach of fiduciary duty (fourth and fifth causes of action). The crux of the issue was whether the assessment was a routine "maintenance assessment" not requiring a membership vote, or a "capital improvement" which, under the declaration, would require an affirmative vote of 60% of the HOA membership.

Simultaneous with the filing of the complaint the Zollos moved by Order to Show Cause for a preliminary injunction prohibiting defendants from imposing the assessment or late fees on HOA members pending the conclusion of the action. The Zollos also sought a Temporary Restraining Order (TRO) pending the return date on the Order to Show Cause. The TRO was granted by decision dated July 28, 2020 and prohibited defendants from taking any enforcement action against the Zollos or any other HOA member and directed the $266,000.00 collected in assessments to be held in defense counsel's escrow account pending resolution of the matter.

After oral argument, the preliminary injunction was granted on May 19, 2021 contingent upon the Zollos posting a $20,000.00 undertaking. In determining the amount of the undertaking, the Court disagreed with defendants' position that $61,800.00 in engineering costs incurred by the HOA and $269,000.00 in assessments held in escrow should be included in the amount of undertaking for a total of $331,300.00. In its decision, the Court stated, it was "not persuaded that this amount is rationally related to the damages defendants will sustain if the injunction is ultimately deemed unwarranted". (Zollo v. Adirondack Lodges Homeowners Association, Inc. 71 Misc 3d 1222[A], 2021 NY Slip Op 50462[U] [Sup Ct, Warren County 2021])

The Court further reasoned that if the injunction was deemed unwarranted, the restoration project would proceed, the engineering services would be utilized, and the assessment money held in escrow would be released. This Court held, "[a]t this time the only quantifiable damages for which plaintiffs may be liable appear to be attorney's fees under §11.08 of the Declaration, and the Court finds $20,000.00 to be more than sufficient in this regard". (id.)

In that decision the Court also addressed defendants' contention that the Zollos lacked standing under N-PCL 623(a) because they did not represent 5% of the HOA and suggested such a defect could easily be cured by seeking leave to amend the complaint to include HOA [*3]members who submitted documents in support of the Zollos motion.^[FN1] On June 25, 2021, the Zollos sought leave to amend the complaint to include additional plaintiffs which the Court granted on March 11, 2022. The amended complaint was filed on March 18, 2022 and in addition to the six HOA members identified in footnote 1, Marie Bombardier, Jack Kavanaugh, Don Noerr, Michael Snyder, and Jeffrey and Evelyn Van Fleet were added as plaintiffs and represent 5% of the HOA membership (these 12 new plaintiffs are hereinafter collectively referred to as Additional Plaintiffs).

Defendants filed an amended answer with counterclaims and asserted an additional claim for damages against all plaintiffs for approximately $61,800.00 in engineering costs along with interest and attorneys' fees. All other claims were only alleged against the Zollos.

On August 12, 2021 the Zollos moved for summary judgment with respect to their first, second and third causes of action and an award of counsel fees, costs and disbursements thereby severing their fourth, fifth and sixth causes of action. Defendants cross-moved for summary judgment with respect to their first counterclaim against the Zollos seeking to enforce the $3,500.00 assessment plus interest at 18% per year, their second counterclaim seeking to impose a lien upon the Zollos' property for the unpaid assessment, and their third counterclaim seeking counsel fees from the Zollos.^[FN2]

After oral argument on November 2, 2022, by Order of this Court dated December 1, 2022 plaintiffs' motion was denied in its entirety and defendants' motion was granted in its entirety. The preliminary injunction granted on May 19, 2021 was vacated, the assessments paid by the HOA members held in escrow were released, the undertaking posted by the Zollos remained in place until a hearing on the damages sustained by defendants was held, and defendants were awarded counsel fees, together with costs and disbursements.^[FN3]

Plaintiffs filed a notice of appeal on December 16, 2022. While the Court directed defendants to provide the Court with a general description of its intentions with respect to the damages it would be seeking, the Zollos moved for a stay of the damages trial pending the determination of their appeal which the Court granted on June 5, 2023.

On March 7, 2024 the Appellate Division, Third Department issued a Memorandum and Order affirming this Court's ultimate decision granting defendants' motion for summary judgment but determined this Court's analysis of the business judgment rule was inapplicable. (Zollo v Adirondack Lodges Homeowners Assn., Inc., 225 AD3d 973 [3d Dept 2024]). The stay was lifted and the parties submitted memorandum of law addressing their theory as to the measure of damages.

Preliminarily, defendants seeks to hold all plaintiffs jointly and severally liable for any damages they incurred. Notably, the Additional Plaintiffs named in the amended complaint were not joined as parties to the action until March 22, 2022, well after the July 28, 2020 TRO and May 19, 2021 preliminary injunction were granted. Defendants claim because five of the Additional Plaintiffs submitted affidavits on their own behalf and on behalf of their spouse in support of the preliminary injunction, "[w]hile not specifically named in the caption as [p]laintiffs", these owners were clearly active participants in the litigation" and as such should be held liable (NYSCEF Doc. No. 184 at pgs. 1-2). Defendants also argue monetary contributions to the undertaking create a basis for liability against the Additional Plaintiffs. Defendants do not cite to any legal authority to support these specific contentions and the Court is not persuaded these actions give rise to liability for Additional Plaintiffs.

Additionally, defendants claim the Court's May 19, 2021 Decision and Order granting the preliminary injunction "effectively required the Zollo Plaintiffs to supplement the [s]ummons and amend the [c]omplaint to cure the [N-PCL §623(a)] procedural deficiency as a condition to continuing any injunctive relief . . . " (NYCEF Doc. No. 184 at pg. 5). As noted above, the Court's decision indicated such "defect may easily be cured by a motion for leave to amend the complaint under CPLR 3025(b)" and "encouraged [plaintiffs] to promptly file a motion for leave to amend the complaint". It is an inaccurate recitation and characterization of the Court's decision to say such a motion was a condition of the injunctive relief and suggest such language now renders the Additional Plaintiffs liable for all damages.^[FN4]

Plaintiffs contend, and the Court agrees, defendants sought and were granted summary judgment with respect to their first, second and third counterclaims only. Each of those counterclaims sought damages only against the Zollos. Indeed, the Court found defendants had the authority to assess $3,500.00 against the Zollos, enforce a lien on the Zollos' property to recover that assessment fee, as well as recover attorneys' fees from the Zollos.^[FN5] Consequently, the Additional Plaintiffs are not liable for those damages.

Turning next to damages which may have been incurred by defendants as a result of the unwarranted TRO and preliminary injunction. "There is no common-law cause of action for damages sustained by an improperly procured preliminary injunction, nor does CPLR §6315 [*4]create a statutory cause of action. The basis for damages is the undertaking itself, which is a contract between the parties that the plaintiff, if it is finally determined that [they were] not entitled to an injunction, will pay to the defendant all damages and costs that may be sustained by reason of the injunction". (CPLR §6312(b); Honeywell, Inc. v. Technical Bldg. Services, Inc., 103 AD2d 433 [3d Dept 1984]) Absent proof of malice, the sole remedy for damages suffered due to an improperly issued preliminary injunction is to proceed against the undertaking. (De Carlo v Sanese, 65 AD2d 945 [4th Dept 1978])

Defendants contend they are not limited to the undertaking because the plaintiffs' actions constitute malicious prosecution and as such they are entitled to recover damages for lost interest on the assessments held in escrow, loss of opportunity to finance the project, increased cost of construction, increased cost of Directors and Officers Liability Insurance coverage, as well as interest on all damages awarded by the Court at a rate of 9%, and attorneys' fees and costs.

As a result of the "strong public policy of open access to the courts for all parties without fear of reprisal in the form of a retaliatory lawsuit", the Court of Appeals has imposed "stringent requirements" for malicious prosecution actions. (Curiano v. Suozzi, 63 NY2d 113, 119 (1984). "A malicious prosecution is one that is begun in malice, without probable cause to believe it can succeed, and which finally ends in failure. An action for malicious prosecution is usually based upon an arrest in criminal proceedings, although it may be founded upon a civil action, when commenced simply to harass and oppress the defendant. As public policy requires that all persons should freely resort to the courts for redress of wrongs, the law protects them when they act in good faith and upon reasonable grounds in commencing either a civil or criminal prosecution."(Burt v. Smith, 181 NY 1, 5 [1905]).

Defendants assert the separate basis for liability stems from the continued bad faith and malicious prosecution of this action by plaintiffs. The Court is not convinced. It is clear from the record plaintiffs believed the HOA acted outside the bounds of its authority and without following proper procedures when it imposed a financial burden on them. In denying plaintiffs' motion for summary judgment, this Court found plaintiffs had not submitted sufficient documentation to demonstrate the business judgment rule was inapplicable as a matter of law, and necessary to grant such relief. (Zollo v Adirondack Lodges Homeowners Assn., 2022 NYLJ LEXIS 2491). While affirming this Court's ultimate relief, the Appellate Division determined that the business judgment rule did not apply to the case and determined that whether a governing board acted within the scope of its authority as provided for by the governing documents is a threshold question subject to judicial scrutiny. The Appellate Division ultimately decided that the HOA acted within its authority to impose the assessment on the HOA members without a vote. (Zollo v Adirondack Lodges Homeowners Assn., Inc., 225 AD3d 973 [3d Dept 2024]). The Zollos assert, "had this Court not dismissed the complaint based upon its interpretation and application of the [b]usiness [j]udgment [r]ule", they would not have taken the appeal.

The record is devoid of any proof that the plaintiffs sought the temporary restraining order or continued this action in bad faith for malicious reasons and therefore the damages are limited to the amount of the undertaking. (RS Paralegal & Recovery Servs., Inc. v Poughkeepsie Sav. Bank F.S.B., 190 AD2d 660 [2d Dept 1993]; Doran & Assocs., Inc. v. Envirogas, Inc., 112 AD2d 766, 768 [4th Dep't 1985]).

Additionally, the Court previously considered and rejected defendants argument that the undertaking should include engineering fees and the amount of collected assessments, at the time [*5]the TRO was granted and undertaking ordered. In its decision, as noted above, the Court stated, "[a]t this time the only quantifiable damages for which plaintiffs may be liable appear to be attorney's fees under § 11.08 of the Declaration, and the Court finds $20,000.00 to be more than sufficient in this regard."

Defendants now seek damages for the lost interest on the restrained assessments, loss of opportunity to finance the project, increased cost of construction, and the increased cost of Directors and Officers Liability Insurance coverage. Yet the Courts July 28, 2020 decision states in part:

"The temporary restraining order is granted to the extent that defendants are prohibited from taking any enforcement action against plaintiffs or any other HOA members who refused to pay the $3,500.00 assessment pending the outcome of this motion. . . . The $3,500.00 portion of the assessments already paid to the HOA shall be held in defense counsel's escrow account pending the outcome of the motion with the temporary restraining being otherwise denied."

Nearly identical, the Court's May 19, 2021 decision prohibited the defendants from imposing an assessment or late fees on HOA members to repair and reconstruct the boat harbor wall until this action was concluded; ordered plaintiffs to post an undertaking in the amount of $20,000.00; and ordered counsel for defendants to continue to hold the $3,500.00 assessments in escrow until further Order of the Court. At no point did the Court prohibit the defendants from pursuing alternate sources of funding for the project.

If at any point during the pendency of the preliminary injunction defendants believed the undertaking was insufficient to cover damages in addition to attorney's fees, including increased cost of construction, increased insurance costs, etc., an application to increase the undertaking could have been made. A party seeking modification in the amount of the undertaking may move in the trial court for an increase or decrease and the amount set is reviewable on appeal for insufficiency or excessiveness. (Bonded Concrete, Inc. v Town of Saugerties, 42 AD3d 852, 853 [3d Dept 2007]) Defendants did not avail themselves to this relief.

CPLR §6315 requires the court to ascertain the defendants' damages - it can't just award damages in the face amount of the bond, and as determined here, the amount of the bond constitutes the outer limit on any permissible award. (Doran & Assoc., Inc. v Envirogas, Inc., 112 AD2d 766 [4th Dept 1985]). Damages that may be recovered on the bond include expenses, such as attorneys' fees but ordinarily only for proceedings to vacate the preliminary injunction and for proceedings to assess defendants' damages. (Bausch & Lomb Inc. v. Hydon Pacific Ltd., 82 Misc 2d 576, 371 [Sup. Ct., Monroe County, 1975]. Lost interest on uncollected assessments and those held in escrow may also be recovered. (Sweets v Behrens, 118 Misc 2d 1062 [Sup Ct, Schenectady County 1983]).

Thus having considered NYSCEF Doc. Nos. 182 through 191, 193, and 219 through 225,^[FN6] and oral argument having been heard on October 2, 2024 with John B. Zollo, Esq. [*6]appearing on behalf of the Zollos, Patrick Fitzgerald, Esq. appearing on behalf of Additional Plaintiffs and Christopher Priore, Esq. appearing on behalf of defendants, it is hereby

ORDERED, that damages incurred by defendants as a result of the unwarranted TRO and preliminary injunction include attorney's fees, costs and disbursements; lost interest on the assessments held in escrow; and lost interest on any assessments which were not paid and for which interest would have accumulated had defendants not been enjoined from pursuing an enforcement action to collect the assessments along with any late fees on those assessments; and it is further

ORDERED, that defendants are directed to submit supporting documentation setting forth the amount of damages for each category identified in the preceding paragraph, with an affirmation of attorneys' fees submitted to the Court for an in-camera review with a redacted copy provided to the plaintiffs as well as damages related to defendants' first, second and third counterclaims on or before January 15, 2025, plaintiffs' shall file responsive papers on or before February 5, 2025, a reply, if any, shall be filed on or before February 25, 2025, a decision will be issued on the written submissions unless, in the discretion of the Court, oral arguments are scheduled; it is further

ORDERED, that any relief not specifically addressed herein has nonetheless been considered and is expressly denied.

The above constitutes the Decision and Order of this Court.

The original of this Decision and Order has been e-filed by the Court. Counsel for plaintiffs Zollo is directed to obtain a filed copy of the Decision and Order for service with notice of entry upon counsel for Additional Plaintiffs and counsel for defendants in accordance with CPLR 5513.