Graber vs. Sheridan

The Business Judgment Rule remains the controlling precedent for judicial review of unit-owner challenges to a condominium board action. Under the rule, judicial deference is given to board determinations so long as the board acts within the scope of its authority, in good faith, and in the lawful and legitimate furtherance of the condominium’s purpose. This is another in a long line of cases that makes the challenge of a board’s action very difficult.

What is the extent of the obligation of a condominium board of managers to cooperate with unit-owners seeking to audit the books and records of the condominium? That was the issue in Graber vs. Sheridan where the court held that the board was protected by the Business Judgment Rule.

In this case, the condominium-owner petitioners sent a letter to the board of managers of Imperial Towers Condominium on Staten Island in February 2006 requesting that an independent audit of the Imperial Towers Condominium be conducted. After months of discussion over the exact breadth and scope of documents to be provided, the audit was held on June 21, 2006. As a result of the board’s alleged failure to provide all requested documentation, the audit was unable to be completed. In March 2007, the petitioners began an action against the board members seeking an order to require full disclosure of all requested documents in order to complete the independent audit. The board members contended that they had provided petitioners with all reasonable and available documents as required by law.

Under New York Real Property Law Section 339-w, the condominium’s board of managers is obligated to “keep detailed, accurate records, in chronological order, of the receipts and expenditures arising from the operation of the property” and to ensure that the records are available to unit-owners on weekdays at a convenient time. In analyzing the case, the court said that where an individual owner challenges the actions of a condominium’s board of managers, the Business Judgment Rule applies. In its application, the court said that the rule demands that, unless there were “claims of fraud, self-dealing, unconscionability or other misconduct, the court ... should limit its inquiry to whether the action was authorized and whether it was taken in good faith and in furtherance of the legitimate interests of the condominium.”

Applying the rule to the case at bar, the court concluded that the board’s determination that all reasonable and available documents were provided to petitioners was not made in bad faith and well within its authority. Furthermore, petitioners failed to allege or prove any claims of fraud, self-dealing, unconscionability, or other misconduct on the part of the respondents. Therefore, the court would not substitute its judgment for that of the board. Thus, the petitioners’ request for further disclosure was denied and the petition was dismissed.