Cooperatives & Condominiums

Business Judgment Rule Does Not Protect Co-Op in Breach of Contract Action

Goldstone v. Gracie Terrace Apartment Corp.

NYLJ 9/21/11

Supreme Ct., N.Y. Cty.

(James, J.)

In co-op shareholder's action against the co-op corporation for breach of the warranty of habitability and breach of contract, shareholder moved for summary judgment on the issue of liability, and the co-op corporation cross-moved for a judgment declaring that it had the right to unilaterally repair the premises without shareholder's consent. The court granted shareholder's summary judgment motion on the issue of liability, holding that the corporation was bound to make the required repairs and had offered no grounds for its failure to make them.

The subject unit was flooded in 2003, and has not yet been repaired. The proprietary lease required the co-op corporation to repair or replace the apartment in cases of fire and other peril, and the co-op corporation has admitted that it owes shareholder that duty. Nevertheless, the co-op's president testified that the corporation did not go forward with the work because shareholder kept objecting to the plans the board's consultant had developed, and the board did not want to go forward when there was a risk of litigation regarding the work it performed. The board also contends that the business judgment rule insulates it from liability for its decision not to go forward in light of the risk of litigation.

In awarding summary judgment to shareholder on the issue of liability, the court emphasized that the failure to make repairs was a breach of the co-op corporation's obligations under the proprietary lease. Because the business judgment rule does not insulate a co-op corporation from liability for breach of contract, the corporation could not rely on the rule as a defense to shareholder's claim.

Business Judgment Rule Does Not Protect Co-Op in Breach of Contract Action

Goldstone v. Gracie Terrace Apartment Corp.

NYLJ 9/21/11

Supreme Ct., N.Y. Cty.

(James, J.)

In co-op shareholder's action against the co-op corporation for breach of the warranty of habitability and breach of contract, shareholder moved for summary judgment on the issue of liability, and the co-op corporation cross-moved for a judgment declaring that it had the right to unilaterally repair the premises without shareholder's consent. The court granted shareholder's summary judgment motion on the issue of liability, holding that the corporation was bound to make the required repairs and had offered no grounds for its failure to make them.

The subject unit was flooded in 2003, and has not yet been repaired. The proprietary lease required the co-op corporation to repair or replace the apartment in cases of fire and other peril, and the co-op corporation has admitted that it owes shareholder that duty. Nevertheless, the co-op's president testified that the corporation did not go forward with the work because shareholder kept objecting to the plans the board's consultant had developed, and the board did not want to go forward when there was a risk of litigation regarding the work it performed. The board also contends that the business judgment rule insulates it from liability for its decision not to go forward in light of the risk of litigation.

In awarding summary judgment to shareholder on the issue of liability, the court emphasized that the failure to make repairs was a breach of the co-op corporation's obligations under the proprietary lease. Because the business judgment rule does not insulate a co-op corporation from liability for breach of contract, the corporation could not rely on the rule as a defense to shareholder's claim.