Q I am a board member and shareholder in a Westchester County cooperative where there has recently been a lot of conflicts among board members. There is a board member who owns her own realty company and is now privy to all confidential matters concerning the co-op. I would like to know if this is a conflict of interest and a violation of fiduciary duties. I want to know why the lawyer for the cooperative would not advise them correctly and would not answer this question when it was asked at the annual meeting? This is a nice cooperative that is losing control because certain people are using their powers to pick and choose who they want to reside here.
A “Whether a conflict of interest exists would depend on the specific circumstances involved,” says Thomas E. Kass, a partner at the New York law firm of Kantor, Davidoff, Wolfe, Mandelker, Twomey & Gallanty, P.C. “For example, if a co-op board member owned a commercial property which was competing for the same commercial tenants as the co-op, a conflict could exist. In such a context, the board member should remove himself from the decision to lease and should not be involved in negotiations with prospective tenants. However, consider a situation in which vendors offer good terms to the co-op in hopes of getting more business from the board member who own other property. In such a case, the board member's ownership of property would be a benefit to the co-op.
“Each situation must be examined separately to see if a board member's fiduciary duties to the shareholders could be compromised by his self-interest.
“A co-op always has the right to reject prospective shareholders, provided they are not violating anyone's civil rights. If you are unhappy with the board's selection process, you are free to run for election to the board, by yourself or with a slate of candidates. Before running for office, you should consult the co-op bylaws as to voting and election procedures.”
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