The Four-Year Leak

The plaintiff, a corporation, sued the board of managers of 580 Carroll Street for breach of fiduciary duty, negligence, and breach of bylaws, and the court found that the board was liable for breach of contract for failing to "promptly" repair the fa├žade.

580 LLORRAC ST. CORP V. THE BD OF MANAGERS OF 580 CARROLL CONDO

 

WHAT HAPPENED Situated in Park Slope, 580 Carroll Street is a five-story, 17-unit condominium built in 2009. The plaintiff, a corporation, bought unit 4C in June 2013, and in 2015 rented out the apartment for $6,000 per month. In 2018 the plaintiff’s tenant complained of a leak, and the plaintiff notified the board. The board told the unit owner to hire a contractor to determine the source of the leak, maintaining that the unit owner had to demonstrate it was a “building issue, not a unit issue.”  The unit owner complied, and the engineer it hired determined that the leaks were due to problems in the building’s facade. The engineer’s report was given to the board, which did nothing. A year later, the board hired its own architect who confirmed that the building façade was the source of the problem and recommended that repairs be performed immediately. The board sought bids to repair and waterproof the entire building, and this work was completed by November 2022. 

The unit owner, who had endured four years of leaks, sued, alleging breach of fiduciary duty by the board, negligence, and breach of bylaws that specifically require common elements to be kept in “first-class condition” and “promptly” repaired. 

 

IN COURT The claim for breach of fiduciary duty was dismissed because the court found that the board was insulated by the business judgment rule. The unit owner did not allege any self-dealing, fraud, misconduct, or unconscionability by any board member, and the evidence showed the board acted in good faith. The negligence claim was also dismissed, as the court held that the business judgment rule protects a board from a negligence claim, too. 

But the claim for breach of the bylaws was not dismissed, because the business judgment rule does not provide a defense to breach of contract. Moreover, the unit owner established on the record an entitlement to summary judgment for breach of contract:  the existence of a contract (the bylaws), a breach of the contract by the board in failing to “promptly” repair the façade, and damages to the unit in the form of water infiltration. The board argued that it took them only seven months from when the condo’s engineer confirmed the source of the water problem to approval of repairs, a reasonable time. The court found that this argument did not consider how the board was put on notice at least one year earlier, in August 2019, by the unit owner’s engineer’s report, yet took no action. Also, the defendants failed to explain why temporary repairs or measures could not have been undertaken to the façade portion where water was infiltrating the plaintiff’s unit, which could have been installed while the board undertook to bid out and approve the waterproofing project for the whole building. 

The court set the matter for an inquest to determine the amount of damages suffered by the unit owner. 

COUNSEL for the condominium and board of managers  RANDY FAUST, FAIZAN HABEEB Tyson & Mendes; for the unit-owner KENNETH SUSSMANE McCue Sussmane Zapfel & Cohen; Justice Richard J. Montelione

 

TAKEAWAY  It is worth noting that other courts have found the business judgment rule does not insulate a board from claims for breach of fiduciary duty when the board has violated its own rules, as appears to have been the case here. However, the unit owner ultimately got satisfaction because the court granted summary judgment on the contract claim for breach of the bylaws. The court construed and applied the bylaws as written, and concluded that the necessary repairs were not made “promptly,” which seems like a fair interpretation of the facts.  The lesson here is that boards should pay attention to the specific terms in their bylaws or consequences may follow.