First published: Oct 2023
A Board Decision That Holds
TAKEAWAY Boards retain broad discretion to enforce the rules and regulations of the building in different ways, as long as they do not single out a shareholder for “harmful or selective enforcement” and otherwise act in what they believe to be the best interests of the cooperative. Special arrangements with shareholders should be memorialized in writing in the interests of both parties in order to avoid questions from future boards who may not have been parties to the initial agreement. The purchasers might also have investigated with the prior owner or the co-op before purchasing to see whether the board had approved the installation of the jacuzzi.
AVRAHAMI V. 235 WEST 108TH STREET OWNERS CORPORATION
WHAT HAPPENED Ram Avrahami and Andrea Gural purchased shares at the 35-unit Harlem co-op at 235 West 108th St. in 2007. The apartment contained a jacuzzi tub, and the couple used it for a decade without any complaints. In 2017, however, the building superintendent (who lived below them) noticed that the tub was sinking and a little later she also notified them that their toilet was leaking into her apartment. The shareholders made arrangements to fix the two conditions, the tub and toilet were duly removed, and the repair work performed. The repair was completed on Wednesday, May 3 and the contractor was scheduled to return the original Jacuzzi to its place on May 5. But on the evening of May 3 the board held its regularly scheduled monthly meeting and the jacuzzi tub was discussed. It became concerned that the building’s aging plumbing system could not be burdened with tubs of this type, and notified the shareholders the next day that they would not be allowed to reinstall the jacuzzi, but instead authorized the installation of an ordinary tub. Subsequently the managing agent sent a letter to the couple stating that there was no record that the apartment’s prior owner had ever received permission for its initial installation.
Avrahami and Gura filed suit against the co-op seeking to reinstall their jacuzzi tub. They claimed breach of contract, breach of fiduciary duty, negligent misrepresentation and unjust enrichment. The co-op moved to dismiss the complaint, asserting that its decision was protected by the business judgment rule. This rule bars the court from scrutinizing decisions made in good faith in the interests of the cooperative. In response, the plaintiffs claimed that the board’s action was arbitrary and capricious and unfairly singled them out, hence not protected by the business judgment rule.
IN COURT The co-op’s proprietary lease allowed the board to require a shareholder to cease use of any equipment or appliance that may be creating an objectionable condition, and its decision was supported by this language. Moreover, the plaintiffs could not show any written consent to the original installation of the whirlpool, so they did not acquire any “vested” right to continue to use it. The court said the board had made a “good faith” decision to deny reinstallation of the tub because whirlpools were prohibited under the proprietary lease, the tub was in fact sinking, and the board’s decision was based on the general policy prohibiting such installations out of concern for the structure of the building and its plumbing and electrical operations.
The plaintiffs also asserted that they had been deliberately singled out because there was another jacuzzi in the building. However, the court stated that the existence of another tub did not, by itself, show that the board had unfairly singled them out for harmful treatment or selective enforcement, especially when the board could show that it had consistently denied such installations for at least fifteen years previously. Accordingly, the board’s determination was protected under the business judgment rule in that it acted in good faith in the interests of the cooperative as a whole and did not unfairly discriminate against the defendants.
COUNSEL For Gural MEYER SILBER The Silber Law Firm / For Avrahami RAM AVRAHAMI / For the co-op JENNIFER LEVINE Boyd Richards Parker & Colonnelli / Judge Alexander Tisch
