First published: Oct 2024
Good Faith
TAKEWAY Once again, boards should take comfort in the fact that as long as they act in good faith within the scope of authority, lawsuits against them will fail. The business judgment rule provides broad protection and it is a high hurdle for plaintiffs to get past in order to try to impose liability. Managing agents and attorneys should also take comfort in the fact that the court recognized that their fiduciary responsibility is to the whole entity and not any individual unit owner (or shareholder). Attempts to expand liability in lawsuits beyond the basic breach of contract claim against the co-op or condo entity are often expensive and unsuccessful.
SARASOTA DEVELOPMENT VS. BOARD OF MANAGERS OF 58-60 READE STREET
WHAT HAPPENED The corporate owner of the penthouse, a three-floor condo apartment at 58-60 Reade Street in Tribeca, has been complaining to the board for years about various leaks in his apartment. His apartment is nearly 4,500 square feet, and has three bedrooms, three and a half bathrooms and a 1,200-plus square foot outdoor space, which contains two private roof terraces. In 2018 the board undertook a major ventilation project where many of the plants had to be moved, and then in 2019 had additional repair work done on the roof. But the leaks continued, and finally the condo owner hired a structural engineer who suggested installing additional underpinnings before replacing the roof, a repair project the board intended to do. The cost of the underpinnings was projected at $243,000, and the board told the penthouse owner that unless he paid for the underpinnings himself, it would go ahead with the roof replacement without these. Upon learning this, the condo owner filed claims against everyone for breach of fiduciary duty, including the board, individual board members, the board’s attorney and the condo’s managing agent to court.
IN COURT The defendants moved to dismiss the complaints and the court granted all the motions. The claims against the condo’s attorney, asserting that he aided and abetted the other defendants in breaching their fiduciary duty to the penthouse owner, were dismissed. There was also no evidence that he acted outside his role as the attorney to support any independent tort claim. The alleged failure to adequately repair the roof did not constitute willful misconduct or gross negligence. The fact that the board of managers met without the penthouse owner (who was also a member of the board) did not constitute willful misconduct or bad faith. The breach of fiduciary duty claim was dismissed because there was no allegation of conduct by board members which would not be protected by the business judgment rule. The claim against the managing agent for breach of fiduciary duty was dismissed because the managing agent, like the attorney, is a fiduciary to the condominium and not the individual unit owner. The only claim that survived was plaintiff’s claim for breach of contract against the Condominium board.
