Cooperatives & Condominiums

Sign Prohibition Constitutes Breach of Condo Board's Fiduciary Duty

Perlbinder v. Board of Managers Of the 411 East 53rd Street Condominium

NYLJ 10/1/09, p. 36, col. 2

AppDiv, First Dept.

(memorandum opinion)

In an action by condominium sponsor's designee against the condominium board for declaratory and injunctive relief, and for damages arising out of the board's refusal to permit erection of a sign on the premises, sponsor's designee appealed from Supreme Court's denial of its summary judgment motion and grant of the board's cross-motion for summary judgment. The Appellate Division reversed, holding that the declaration and bylaws permitted erection of the sign, and that the board's decision to prohibit the sign constituted a breach of fiduciary duty.

When the subject building was converted to condominium ownership in 1986, partners in the sponsor acquired 16 unsold units. Pursuant to the condominium bylaws, sponsor designated a representative on the board, and that designee remains a member of the board. Six unsold units remain. In 2007, sponsor's designee advised the board of its intention to install a 24-inch by 30-inch sign on the building advertising the availability of one of the six remaining units for sale. The board asked for additional information, but rather than providing the information, designee installed the sign next to an existing sign placed on the building by the management company. The board ' without consulting designee, who was a board member ' directed removal of the sign. Designee complied, and then brought this action. Designee relied on a provision in the bylaws giving “The Sponsor or its designee” the right to erect signs on the exterior wall of the building. The board argued that this provision was inconsistent with the condominium declaration, which gave only the sponsor and its successors an easement for erection of signs. Supreme Court agreed, and awarded summary judgment to the board, relying on a bylaw providing that in the event of inconsistency between a bylaw and the declaration, the declaration should control. Sponsor's designee appealed.

In reversing, the Appellate Division concluded that the declaration and the bylaws were part of the same transaction and should be read together. The court harmonized the provisions by concluding that the declaration authorized the sponsor to post signs without precluding others, while the bylaw supplemented that provision by allowing the sponsor's designee to post signs. The court then turned to the damage claim advanced by the designee against the board for breach of fiduciary duty. The court rejected the board's reliance on the business judgment rule, noting that the rule does not protect a board whose actions have no legitimate relationship to the condominium's welfare, or a board that singles out individuals for harmful treatment. Here, the court emphasized that the board's refusal to permit the sign, while authorizing a similar sign by the management company, served no legitimate corporate purpose and singled out designee for unfavorable treatment. As a result, designee was entitled to summary judgment on liability and a hearing on damages.

Sign Prohibition Constitutes Breach of Condo Board's Fiduciary Duty

Perlbinder v. Board of Managers Of the 411 East 53rd Street Condominium

NYLJ 10/1/09, p. 36, col. 2

AppDiv, First Dept.

(memorandum opinion)

In an action by condominium sponsor's designee against the condominium board for declaratory and injunctive relief, and for damages arising out of the board's refusal to permit erection of a sign on the premises, sponsor's designee appealed from Supreme Court's denial of its summary judgment motion and grant of the board's cross-motion for summary judgment. The Appellate Division reversed, holding that the declaration and bylaws permitted erection of the sign, and that the board's decision to prohibit the sign constituted a breach of fiduciary duty.

When the subject building was converted to condominium ownership in 1986, partners in the sponsor acquired 16 unsold units. Pursuant to the condominium bylaws, sponsor designated a representative on the board, and that designee remains a member of the board. Six unsold units remain. In 2007, sponsor's designee advised the board of its intention to install a 24-inch by 30-inch sign on the building advertising the availability of one of the six remaining units for sale. The board asked for additional information, but rather than providing the information, designee installed the sign next to an existing sign placed on the building by the management company. The board ' without consulting designee, who was a board member ' directed removal of the sign. Designee complied, and then brought this action. Designee relied on a provision in the bylaws giving “The Sponsor or its designee” the right to erect signs on the exterior wall of the building. The board argued that this provision was inconsistent with the condominium declaration, which gave only the sponsor and its successors an easement for erection of signs. Supreme Court agreed, and awarded summary judgment to the board, relying on a bylaw providing that in the event of inconsistency between a bylaw and the declaration, the declaration should control. Sponsor's designee appealed.

In reversing, the Appellate Division concluded that the declaration and the bylaws were part of the same transaction and should be read together. The court harmonized the provisions by concluding that the declaration authorized the sponsor to post signs without precluding others, while the bylaw supplemented that provision by allowing the sponsor's designee to post signs. The court then turned to the damage claim advanced by the designee against the board for breach of fiduciary duty. The court rejected the board's reliance on the business judgment rule, noting that the rule does not protect a board whose actions have no legitimate relationship to the condominium's welfare, or a board that singles out individuals for harmful treatment. Here, the court emphasized that the board's refusal to permit the sign, while authorizing a similar sign by the management company, served no legitimate corporate purpose and singled out designee for unfavorable treatment. As a result, designee was entitled to summary judgment on liability and a hearing on damages.