In 2005, the board president at the 7 East 35th Street Owners Corp., housing cooperative sought approval from the Board to remove a bulkhead structure on the roof, and create a master bedroom suite and bath by enclosing most of his rooftop terrace in his apartment. At a special board meeting held in June 2006, where the board president did not vote, the board approved this alteration. The board also determined at this meeting that “[n]o additional monthly charges such as maintenance and/or assessments would be charged to the apartment”.
Six years later, on June 8, 2012 with several new persons sitting on the board, and where the former the former board president no longer presided, an executive committee of the board passed a resolution allocating 400 additional shares to the former board president’s unit which effectively increased the maintenance payable on the unit on the basis that the alterations in 2006 justified this increase. The board contended they had been misled during the approval process in 2006 and that the board proceeded with that vote with the mistaken belief that the opinion of the board president’s attorney, regarding the alterations, also represented the position of the managing agent and the cooperative’s attorney. The former board president brought an action seeking to reverse the cooperative’s resolution.
The Court found that the cooperative’s resolution, to allocate more shares to the unit, was an improper attempt to rescind the earlier resolution and was not protected by the business judgment rule, which protects a board from actions taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes. The Court found that while the evidence before them demonstrated that the former board president had clearly acted in his own interest with respect to the alterations, the board was unable to prove that the former board president was acting as a fiduciary in connection with the alteration. Thus, the former board president had no duty to disclose the opinions of the board’s attorney and managing agent and his request for approval of the alterations was not misleading.
Peter Moulinos of Moulinos & Associates LLC stated that this decision was significant in that it negated the board president’s obligation to act in the best interests of the cooperative, and disclose the position of the cooperative’s attorney and managing agent to the board, while he was acting in his own self interest.
This post was written by Daniel Bateman. The case is cited as Goldman v. 7 East 35th Street Owners, (Sup.Ct. New York County 2013) Index No.: 104187/12