First published: Feb 2025
The Price of Control: A Parc Vendome Tale
TAKEAWAY Board members do not expect to incur personal liability for their service. This case is an extreme example showing that it can happen where a board has been found to have deliberately failed to follow the governing documents and contractual requirements with improper motives. The court’s ruling would seem to preclude the board members from receiving indemnification from the condominium under the bylaws, and might be excluded from coverage under the applicable directors and officers insurance policy. In the underlying suit, the commercial unit owner is seeking more than $11.5 million of damages. If upheld on appeal, the individual board members will be on the hook for the eventual award of damages and for the fees and costs of that litigation if not covered by insurance.
GILBERT V. WINSTON
WHAT HAPPENED For more than a decade, the Board of Managers of The Parc Vendome Condominium, a 587-unit complex located on 56th and 57th Streets in Manhattan, prevented the owner of the commercial unit, Parc 56 LLC, from realizing the value of its investment. The board refused to waive, or exercise, the board’s right of first refusal with respect to a proposed commercial tenant. It refused to honor its alteration agreement with the commercial unit owner that became effective after the board did not timely object as required by the bylaws. It also refused to sign forms for filing with the Department of Buildings to amend the certificate of occupancy unless the commercial unit owner agreed to take on unknown costs associated with bringing common elements up to code that had no connection to the commercial unit.
The commercial unit owner eventually sued the board. In that action, the trial court and Appellate Division ruled that the board’s answer should be stricken and summary judgment awarded to the commercial unit owner because the board had breached its fiduciary duties, acted in bad faith, taken frivolous positions, and attempted to perpetuate a fraud on the court. Among other things, the board evasively denied the existence of the $10,000 alteration fee paid by the commercial unit owner’s predecessor, and insisted that that the obligations the board sought to impose on the commercial unit owner were taken from the governing documents when, in fact, the board took that language directly from a provision in an unadopted eighth amendment to the declaration. Proceedings to compute the commercial unit owner’s damages are ongoing.
In this case, residential unit owners at the condominium sought to have the board members personally pay for the costs and damages caused by their bad-faith breaches of fiduciary duty and to prevent them from imposing those costs and damages on the unit owners through assessments or otherwise.
IN COURT Both sides moved for summary judgment, and the court ruled in favor of the plaintiff unit owners. Applying the doctrine called collateral estoppel, the court said that the defendants are barred from once again litigating whether they acted in good faith or otherwise breached their fiduciary duties in the manner in which they conducted themselves in the underlying lawsuit and with respect to the commercial unit owner. The court also said that individual board members may be held liable where they have participated in the corporation’s tort or otherwise acted in bad faith in the discharge of their duties. Here, the court said that the record included many examples where the individual defendant board members participated in or otherwise ratified multiple bad faith breaches of fiduciary.
In conclusion, the court ruled that both the costs incurred in defending the underlying lawsuit and the damages assessed are properly borne by the defendant board members, that summary judgment was appropriate, and no trial was warranted.
COUNSEL for Gilbert et al RICHARD WEISS, WILLIAM DUNNEGAN, LAURA SCILEPPI Dunnegan & Scileppii; for Winston et al MEREDITH ROSEN, ARI SILVERMAN, NOAL BUNZI Paduano & Weintraub and STEVEN SLADKUS Schwartz Sladkus Reich Greenberg Atlas; Justice Andrew Borrok
