Cooperatives & Condominiums

Co-op Enjoined from Implementing Bylaw

Feld v. 710 Park Avenue Corp.

NYLJ 1/15/03, p. 19, col. 1

Supreme Ct., N.Y. Cty

(Kapnick, J.)

In an action by co-op shareholder to enjoin the board from implementing amendments to the co-op bylaws and from holding an election for directors before conclusion of plaintiff-shareholder's action, shareholder sought a preliminary injunction. The court granted the preliminary injunction, holding that shareholder had demonstrated a likelihood of success on its claim that the board's imposition of new qualifications for board membership were implemented solely to prevent plaintiff-shareholder from obtaining a board position.

The subject building is home to about 80 shareholders and their families. Plaintiff shareholder was a member of the co-op's board from 1993 through June 2000, and served as the co-op's president for about 5 years until March 2000, when he was removed by the other members of the board. On May 15, 2002, plaintiff-shareholder wrote a letter to shareholders accusing the incumbent board of incompetence and self-dealing, and announcing plaintiff-shareholder's intention to run for the board. On May 22, less than 2 weeks before the annual shareholder meeting, the board promulgated amendments to its bylaws requiring that board members be shareholders for at least 1 year, that board members hold a baccalaureate degree or its equivalent, and that no person who has commenced an action against the co-op or one or more of its officers or directors, and who has not prevailed in or settled that action, may serve as an officer or director of the co-op. Plaintiff-shareholder had brought an action against two directors of the co-op, an action he abandoned after his motion for discovery was denied by the court.

In response to plaintiff-shareholder's action to enjoin enforcement of the amendments, the co-op board contended that shareholder could not establish a likelihood of success on the merits, because the business judgment rule shields decisions of a co-op board from judicial scrutiny. The co-op board also contended that the amendments were reasonable.

The court, however, rejected the co-op board's contentions, noting that the business judgment rule is inapplicable where there is evidence that the board has engaged in self-dealing or has breached its fiduciary duty to the co-operative corporation. Here, the court concluded that the board's action constituted an invidious unequal treatment of shareholders, overcoming the protection afforded by the business judgment rule. The court concluded that plaintiff-shareholder had demonstrated the likelihood that the new amendments were designed specifically to target his announced candidacy for the board. This, in the court's view would constitute breach of fiduciary duty sufficient to overcome the business judgment rule even in the absence of any self-interested action on the part of the board. In granting a preliminary injunction, the court also concluded that disqualification of plaintiff-shareholder constituted irreparable injury, and that the balance of equities tipped in plaintiff-shareholder's favor. Accordingly, the court enjoined the board from enforcing the amendments during the pendency of the action.

Co-op Enjoined from Implementing Bylaw

Feld v. 710 Park Avenue Corp.

NYLJ 1/15/03, p. 19, col. 1

Supreme Ct., N.Y. Cty

(Kapnick, J.)

In an action by co-op shareholder to enjoin the board from implementing amendments to the co-op bylaws and from holding an election for directors before conclusion of plaintiff-shareholder's action, shareholder sought a preliminary injunction. The court granted the preliminary injunction, holding that shareholder had demonstrated a likelihood of success on its claim that the board's imposition of new qualifications for board membership were implemented solely to prevent plaintiff-shareholder from obtaining a board position.

The subject building is home to about 80 shareholders and their families. Plaintiff shareholder was a member of the co-op's board from 1993 through June 2000, and served as the co-op's president for about 5 years until March 2000, when he was removed by the other members of the board. On May 15, 2002, plaintiff-shareholder wrote a letter to shareholders accusing the incumbent board of incompetence and self-dealing, and announcing plaintiff-shareholder's intention to run for the board. On May 22, less than 2 weeks before the annual shareholder meeting, the board promulgated amendments to its bylaws requiring that board members be shareholders for at least 1 year, that board members hold a baccalaureate degree or its equivalent, and that no person who has commenced an action against the co-op or one or more of its officers or directors, and who has not prevailed in or settled that action, may serve as an officer or director of the co-op. Plaintiff-shareholder had brought an action against two directors of the co-op, an action he abandoned after his motion for discovery was denied by the court.

In response to plaintiff-shareholder's action to enjoin enforcement of the amendments, the co-op board contended that shareholder could not establish a likelihood of success on the merits, because the business judgment rule shields decisions of a co-op board from judicial scrutiny. The co-op board also contended that the amendments were reasonable.

The court, however, rejected the co-op board's contentions, noting that the business judgment rule is inapplicable where there is evidence that the board has engaged in self-dealing or has breached its fiduciary duty to the co-operative corporation. Here, the court concluded that the board's action constituted an invidious unequal treatment of shareholders, overcoming the protection afforded by the business judgment rule. The court concluded that plaintiff-shareholder had demonstrated the likelihood that the new amendments were designed specifically to target his announced candidacy for the board. This, in the court's view would constitute breach of fiduciary duty sufficient to overcome the business judgment rule even in the absence of any self-interested action on the part of the board. In granting a preliminary injunction, the court also concluded that disqualification of plaintiff-shareholder constituted irreparable injury, and that the balance of equities tipped in plaintiff-shareholder's favor. Accordingly, the court enjoined the board from enforcing the amendments during the pendency of the action.