CO-OP COUP, P.2

"There are usually provisions in a proprietary lease which permit shareholders owning a certain percentage of all outstanding shares to petition the board to call a special meeting for the purpose set forth in the petition," explains attorney Robert Braverman, a partner in Braverman & Associates who represented the building in the dispute. "Upon receipt of such a petition, the board is mandated to call the meeting. That is what happened at 16 East. The meeting was validly called, but the election itself was legally flawed because the board [had] acceded to the condition that the scope of the renovation be scaled back."

Moreover, according to Braverman, even if the board had refused to rescind its decision to proceed with the original scope of the renovation, the "removal process" employed by the dissident group was improper.

That, however, did not stop the dissidents from claiming they were in control.

Last Board Standing

After the disputed election, Greenspan insisted that his board was now duly elected and in charge of the building, while Neubohn and his board members claimed that the election was invalid and continued to push forward with the renovation. Notices went out to shareholders that the first part of the construction – moving the storage units – would begin on February 24.

But it was not to be. At 8:30 a.m. on the morning of February 24, when construction workers came to remove the storage units, they were met with a handful of shareholders who linked their arms and formed a human chain across their units.

For nearly two hours, the protesters stood their ground, while the workers moved around them, sawing off the doors to other storage units and removing the belongings. "Nut jobs," says Neubohn, dismissively; Greenspan was "the craziest of them all." Greenspan declines to discuss the events further.

After the managing agent called a halt to proceedings, the renovation project effectively stopped. While Neubohn's board struggled with whether to go to court to confirm their legitimacy as the building's official board, Greenspan's slate declared victory in the absence of construction work.

According to Neubohn, the fight ultimately wore out his fellow members – they were unwilling to take on the expense of a court case – and they decided to "punt," waiting for the annual election in May to determine who was in charge of the building.

May came and the old board members were voted out as a new slate, including Greenspan, was voted in. Did the dissidents win? "Absolutely," says Neubohn. "This rump board got what they wanted." In the fight between the old and the new, "the new guard had run out of gas."

According to Bravernan, Neubohn's board tried repeatedly to negotiate with the opposition, "but the opposition didn't want to," he says, calling the coup at the co-op in early 2009 the result of "a perfect storm" of factors: a board with a razor-thin mandate to lead; a small building that holds elections for every seat every year; and a group of determined shareholders who were willing to dig in to make their point.

Each side "challenged the other's legitimacy, but neither was inclined to have the legitimacy determined by a court," says Braverman. "What you ultimately had was this standoff where nothing got done."

Any efforts by Neubohn's board to negotiate with Greenspan's faction were met with resistance, adds the attorney. The rump faction won by doing nothing – "if they were able to throw enough of a monkey wrench into the works, the managing agent [would be] reluctant to advance money to the contractors," says Braverman. "Then their mission was accomplished."

While the management company, Akam Associates, declined to comment on the events of 2008-2009, the president, Michael Berenson, acknowledges that his company resigned in June of 2009.

So, what can one learn from all this? Management professionals who are unaffiliated with the building say that trouble might have been avoided if the board had moved more softly rather than acting with a big stick. It is important for boards to exercise their power with discretion. Under the Business Judgment Rule, a board can operate a building as it sees fit, so long as there is no self-dealing or discrimination. That means it can re-do the lobby as often and in whatever manner it chooses. But just because it can doesn't mean it should. Moving cautiously is the best approach.

Any time a building takes on a big project like a lobby renovation a board has to expect opposition, warns Lynn Whiting, vice president at Argo Management: either over the expense, or just the fact of change, or both.

In this case, claims Greenspan, the situation was simple. "We ended up stopping things no one wanted to [have] done, and in the end spent less money than what was contemplated."

For Neubohn, however, it's even simpler than that: "It's the classic story of the old versus the new."

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