Co-ops and Condominiums

In affirming, the Appellate Division held that the redactions and alterations on the ballots submitted by the board did not, on their face, support the board's claim that the requisite number of proxies were submitted before the meeting to support a quorum, or to support election of the candidates. Because of unresolved questions of fact about these proxies, Supreme Court properly denied the board's motion to dismiss. The court also held, however, that the business judgment rule required dismissal of unit owners' claim that the board had set parking fees impermissibly low out of self-interest. The court noted that the bylaws gave the board the power to set parking rates, and concluded that the fact that an individual board member has access to a parking space is not a financial interest that would support a claim of self-dealing sufficient to overcome the business judgment rule.

Comment

The Frankel court's conclusion that the business judgment rule protected the board's determination to set parking fees at a low rate is in tension with other cases in which courts have held that the rule does not apply when a co-op or condo has owners with conflicting interests, and the board takes an action beneficial to the group that dominates the board, and adverse to the other group. In Croton River Club, Inc. v. Halfmoon Bay Homeowners Ass'n, Inc., 52 F.3d 41, where a homeowner association board was dominated by residential-unit owners and allocated expenses in a fashion harmful to marina owners, the Second Circuit, applying New York law, held that the business judgment rule did not apply. The court noted that the marina owners had to pay several expenses that did not benefit them, and that the board's 53% budget-allocation to the marina owners was facially unreasonable considering the different wear and tear on property between year-long residential use and seasonal riverbank use. Id. at 45. Similarly, in Y & O Holdings (NY) v. Board of Mgrs. of Exec. Plaza Condominium, 278 A.D.2d 173, where a condo board was dominated by a group of unit owners and adopted a ban on transient occupancy immediately after plaintiff had acquired over 40 units for renting to short-term tenants, the court held that business judgment rule did not apply. The court emphasized that the named board members were beholden to a nonparty managing agent unhappy with plaintiff unit owner's decision to engage a different managing agent.

Courts have rejected self dealing claims and applied the business judgment rule when a plaintiff only made a conclusory assertion without supporting evidence. In 345 East 50th Street LLC v. Board of Managers of M at Beekman Condominium, 166 A.D.3d 546, the court applied the rule and dismissed the unit owner's claim because unit owner had failed to provide evidence that board members were motivated by self-interest or obtained any individual benefit from the challenged decision (see also, Hochman v. 35 Park West Corp., 293 A.D.2d 650, dismissing for the absence of evidence to support a self-dealing assertion).What actions by a co-op or condominium board member are sufficiently self-interested to overcome the business judgment rule, and which are not?