Many real estate attorneys and lawyers still discuss the decision of Levandusky v. One Fifth Avenue Apartment Corp. In that action, the New York Court of Appeals decided over 25 years ago that co-op and condominium boards (“Boards”) are generally entitled to judicial deference when decisions are made in the proper exercise of their business judgment. The Court found in Levandusky that Boards enjoy such judicial deference unless an apartment owner can show that the Board acted: 1) in bad faith; 2) outside the scope of its authority; and/or 3) not in furtherance of the condominium or co-op. Boards are protected from judicial inquiry under the “business judgment rule,” which was originally developed in the context of commercial enterprises.
Essentially, a Board that benefits the entity it serves and does so within the scope of its authority can avoid potentially expensive litigation with the protections of an almost certain dismissal of claims against it. Even if in retrospect, the business decision appears to have been “unwise or inexpedient,” Levandusky holds that the decision cannot be questioned. New York courts have since augmented Levandusky protection to embrace Board decisions respecting alterations and repairs, rights of first refusal, sales of common area space and sublet restrictions.
However, the Courts will very likely not employ the business judgment rule for claims involving discrimination, breaches of contract or where the condominium or co-op’s operating documents require the Board to act unreasonably. New York attorney Peter Moulinos represents several Boards and adds that the considerably generous judicial deference afforded Boards has proven to be a useful tool throughout his experience with these types of claims. Mr. Moulinos encourages any Board facing litigation to contact him for a consultation.
This article was written by Nicholas Moneta and is not offered as legal advice.
The relevant case is cited as: Levandusky v. One Fifth Avenue Apartment Corp., 553 N.E.2d 1317 (N.Y. 1990).