Q&A: An Unresponsive Board

Q&A: An Unresponsive Board
Q “What recourse do unit owners have when a board is negligent of their duties? For example, a violation of the bylaws occurs when the board does not inspect common areas for safety and aesthetics when it specifically states in the bylaws that it is one of their responsibilities. And what about when a board member himself is in violation of a rule and regulation of the association? When does negligence cross the border into illegality?”

—A Concerned Unit Owner

A “Boards owe a fiduciary duty to the shareholders of a co-op or unit owners of a condominium or homeowners association,” says attorney Marc H. Schneider of the Garden City, New York-based law firm Schneider and Mitola LLP. “This essentially means they are responsible for complying with the association's governing documents (i.e. - bylaws and declaration in a condominium or homeowners association or bylaws and proprietary lease in a co-op). However, board actions are governed by a doctrine typically referred to as the “Business Judgment Rule.” The key case which enumerated this standard is Levandusky v. One Fifth Avenue Apartment Corp. 75 NY2d 530 (1990) where the Court of Appeals (New York's highest court) held that review of board decisions is analogous to the business judgment rule applied by courts to determine challenges to decisions made by corporate directors. In that regard, the Court in Levandusky held:

“Developed in the context of commercial enterprises, the business judgment rule prohibits judicial inquiry into actions of corporate directors “taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes.”... So long as the corporation's directors have not breached their fiduciary obligation to the corporation, “the exercise of (their powers) for the common and general interests of the corporation may not be questioned, although the results show that what they did was unwise or inexpedient. [citations omitted]”

This case has been applied to many different types of board decisions. In fact, the Appellate Division (second highest Court in New York State) applied the same standard in the case of Greene v. Levine, 57 A.D.3d 627, 871 N.Y.S.2d 187 (2nd Dept., 2008) which related to a board decision concerning a budget. That Court held:

“In reviewing the reasonableness of the Association's exercise of its authority, “absent claims of fraud, self-dealing, unconscionability, or other misconduct, the court should apply the business judgment rule and should limit its inquiry to whether it was taken in good faith and in furtherance of the legitimate interests of the corporation.” [citations omitted]

Likewise, the business judgment rule has been applied with respect to a board's determination to repair common areas. Schoninger v. Yardarm Beach HOA, 134 A.D.2d 1, 523 N.Y.S.2d 523 (2nd Dept. 1987) .

Basically, when a unit owner purchases in a co-op, condominium or homeowners association, said unit owner gives up certain rights which would otherwise exist and agrees to be governed by a board in accordance with the community's governing documents. In that regard, a concern over “aesthetics” is one which is likely to be more of a discretionary action by the board. On the other hand, an issue of safety would require a further analysis as to what the governing documents require.

For instance, if a condominium's governing documents require the Board of Managers to purchase a fire insurance policy and the Board of Managers fails to obtain any fire insurance in accordance with its bylaws, then that board would be held liable for a breach of their fiduciary duty. The key element here would be the safety issue, (as well as a specific requirement under the governing documents of the community). However, the Court in Acevedo v. Town 'n Country Condo Sec. I, 51 A.D.3d 603, 857 N.Y.S.2d 691 (2nd Dept. 2008) held that a condominium's Board of Managers did not breach its fiduciary duty by obtaining allegedly insufficient insurance in accordance with its governing documents when it hired a broker to obtain a full policy.

Two key cases decided in the Second Department within the last month illustrate the point that a board must follow its governing documents in order to be protected by the business judgment rule.

Indeed, in Yusin v. Saddle Lakes HOA, Inc., ____ N.Y.S.2d ____ , 2010 WL 2106234 (2d Dept. 2010), the Court held that the business judgment rule did not apply with respect to a decision to amend a house rule regarding pets where the bylaws were not followed, while in Skaras v. Victoria Hill Condominium, 2010 N.Y.Slip Op. 04175 (2nd Dept., 2010) the Court held that the business judgment rule applied regarding a challenged parking fine because the board followed the bylaws in amending same.

Thus, as long as the board is following its governing documents in good faith and relying on its professionals to advise regarding business decisions, a board determination will be protected by the business judgment rule (even if the results illustrate that the determination was wrong or unwise). Levandusky supra at 538; Acevedo supra; Gordon v. Nationwide Mutual Ins. Co., 30 N.Y.2d 427, 285 N.E.2d 849, 334 N.Y.S.2d 601 (1972) cert. denied, 410 U.S. 931, 93 S.Ct. 1374 (1973); Spivale v. 10 W. 66th St. Corp., 291 AD2d 234, 736 N.Y.S.2d 879 (1st Dept., 2002).

Be aware, however, if there are clear safety risks that are obvious and the board does not address them but either was or should have been aware of same, the board can be held liable for any injuries or damages that occur due to their failure to make the repairs. It is important to note, if any of the items involved require compliance with a law and same are ignored, the board members may be held personally liable for same. I refer you to the case of People v. Premier House, Inc. 662 NYS2d 1006 (1997) where a board failed to install window guards and unfortunately someone died. The Court held the board members could be held personally liable for same.

There is, however, a remedy for unit owners when they believe a board is not performing their responsibilities. The unit owners get to elect the board members. This is typically done at an annual meeting each year. If matters are serious enough, unit owners might also be able to petition to require the board to call for a special meeting of unit owners to remove the board member(s) who are not complying with the governing documents or are failing to exercise their fiduciary duties. You need to review your community's bylaws carefully regarding your rights and the procedures for accomplishing this. In most condominiums and homeowners associations, you must have “cause” to remove a board member.”

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  • I have a problem with a new board director. We have a pool in our coop complex. I and othershave been bringing our own umbrellas for the last 30 years with no issues. I read the pool rules. There's nothing about umbrellas being prohibited at all. This board member very aggressively thinks otherwise and is now trying to ban us from the pool, harassing us and calling security to expel us. What are our rights in this respect?
  • russell archambault on Monday, October 10, 2011 5:28 PM
    i emailed the entire directors, some chose to tell me not to email them again.do they have that right.i did view my concerns to all. one told me that they would seek a restraining order against me.if i emaild again
  • Concerned condo unit owner on Tuesday, December 3, 2013 1:58 PM
    Hello, My condo board has violated several bilaws. Who do I contact to report this? Getting quorum to call a special meeting or to impeach the board will be impossible as we have never had quorum at the meetings. The bilaws that the board has violated include, refusing to fill an empty seat on the board, relocating our live in super to a location within 10 minutes of the building (please note that our building has 140 units in it), over spending on building improvements by over a quarter million dollars in a 6 month period without the vote of the unit owners (please note that the building has a 250k cap per year on improvements and anything above that has to be voted on by all unit owners). Should I contact the attorney general? Can the board be personally liable for their actions? Thank you in advance for your guidance.
  • My HOA recently did a job on my individual AC unit without my consent and sent me a bill for it. My understanding is that owners' individual AC units are not common elements that the HOA is supposed to maintain.Should I pay this bill? Thanks!
  • I live in New York........I share a ally with my neighbor and we share equal parts. I built an exstention in this ally of my porch which was approved by my coop in Aug 2013 and before building the coop employee from the engineering dept came and staked it out. After building I received a letter informing me I had to cut back my porch.....I asked for a review and was promised a thorough review from the Director and was never given one. I also asked for an exsplanation why I was over the line. To this day after numerous letters I have never received explanation. I received threats of fines that would totaled $5000.00. Not one person on this board Reached out to help me. I feel they were all intimidated by this Director who is also a Lawyer. In September 9 2014 I was promised a thorough investergation by the director in writing when I returned to N.Y. I was unable to stay and handle because my Moms had taken a bad fall and passed September 14.2014. I them received a letter April 2015 from the General Manager that was sent to my N.Y. Even though that was not the address on file at the Coop? I received a letter telling me to cut back the porch by May 2015 or I would be fined. I still didn't received a thorough investergation or letter of exspation of why my coop approved porch was over the line. I called the Coop Laywer and he told me I pulled the Mother card and that I already had a fine of $500.00 dollars levied against me and that the fines would keep coming. I still reached out to the board and the director never responded. I was intimidated and decided to cut back the porch. I was told that my contractor would meet an employee of the engineer Dept on my front porch and I the stockholder could attend put if I said anything the employee of the Coop would walk away and the fines would be levied against me. It cost me $450.00 to cut back 8 inches of my coop approved porch and I still had to attend a hearing to get fines dismissed.....I can not find a lawyer who would help me. I went to a friend who use to serve on the board and is friends with the director and he wasn't able to help and has not responded to my text.......I need some advise and direction because I will not let this go. They are not following the by-laws of the Coop. I guess the only recourse is to take them to small claims court and force them to exsplaine why I was forced, intimidated and recover my cost......Im reaching out for any advise you can give me.
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