Cascading Conflicts Finally Brought Her Down

James Woods, Woods Lonergan

Conflicts between boards and the building’s shareholders or unit-owners are nothing new in New York City. But once in a long while, these disputes wind up going to trial. You’re familiar with a recent case. What was the nature of the beef? 

The essence of the complaint was that the sponsor controlled the board. In 1986 the building submitted an offering plan to become a condominium, and the sponsor had control of the building for five years or so. She wound up putting family members on the board and giving out contracts to family members to be the management company. It was self-dealing.

What did the unit-owners do?

They filed a lawsuit, a derivative action, on behalf of the condominium. They wanted to hold the sponsor and the board to task for what was going on. The case has an interesting procedural history. Initially, the New York Supreme Court wound up dismissing the complaint. The amended complaint then went up to the Appellate Division, which said: “The lower court erred. We’re going to send this back. We’re not going to allow the business judgment rule to bar the court from examining whether or not these self-dealings were breaches of fiduciary duty, or if they were breaches of contract.”