First published: Feb 2022
Getting Off the Board
WHAT YOU NEED TO KNOW As is always the case, it is vital to follow the bylaws, which the Esplanade Board did in exercising its right to remove directors for cause.
TOLLIVER V. ESPLANADE GARDENS INC.
WHAT HAPPENED Esplanade Gardens is a large Mitchell-Lama cooperative corporation with over 1,800 units in Upper Manhattan. The board believed two of its members had revealed personal and confidential information about other board members to the co-op’s security company to “frustrate and counterman/contradict” the decision to terminate this vendor. The two board members also questioned the legitimacy of another board member by writing to HPD (the supervising authority for this Mitchell Lama) on apartment corporation letterhead without the authority of the entire board.
The board voted to remove the two members, and they, in turn, sued for reinstatement. Significantly, Esplanade’s bylaws permit the board to remove members for cause, including disseminating confidential information. (In many other co-ops, only the shareholders can remove board members.)
The court denied the two board member claims that their removal was arbitrary and capricious. It refused to upset the board’s decision because under Esplanade’s bylaws it had the authority to remove members for cause.
Specifically, the court applied the Business Judgment Rule and found that the board’s determination was made in good faith, for a corporate purpose, and within the scope of its authority. As such, the board’s decision was not subject to reversal by the court. COUNSEL: For Petitioner Law Offices of Jan V. Farensbach / For Respondant Braverman Greenspun
