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Boards Beware: Don't Believe Everything Longtime Presidents Tell You

Bill Morris in Board Operations on January 30, 2014

The Antoinette, 7 E. 35th Street, Midtown South

Don't Always Believe Longtime Presidents
Jan. 30, 2014

Then Goldman and his wife, Judith, had an idea. Wouldn't it be nice, they thought, to enclose our private rooftop terrace and create a master bedroom suite and an additional bathroom? The proposed alteration was unanimously approved at a special board meeting on June 16, 2006 — a gathering Harvey Goldman did not attend and at which he did not cast a vote.

Tellingly, the board also agreed that "no additional monthly charges such as maintenance and/or assessments would be charged to the apartment." The final alteration agreement, signed the following May, further stipulated that the board would not allocate additional shares to the Goldmans' apartment.

It wasn't until late 2010, when the Goldmans decided to sell their expanded apartment, that two new board members began to question the alteration agreement. On June 8, 2012, an executive committee decided to allocate 400 additional shares to the Goldmans' apartment.

That's when the Goldmans filed suit against the corporation and four board members, contending the original alteration agreement was valid and the board was wrong to rescind it and assess the additional shares. They sought compensatory and punitive damages of at least $100,000.

Self-Dealing?

The defendants countered that the lawsuit should be dismissed based on Goldman's "undue influence and breach of fiduciary duties/self-dealing by which he procured a vote by a co-op board to not allocate additional shares." 

A cache of e-mails

showed Goldman was

'aggressive and manipulative'

The case hinged on the board's contention that it was unaware that its managing agent and lawyer had both concluded that it was proper to allocate additional shares. Instead, for reasons that remain unclear, they heard only from Goldman's personal attorney, who advised them that the original alteration agreement was proper. At trial, a cache of e-mails came to light that showed Goldman was "aggressive and manipulative" in advocating his position to the board's attorney and managing agent, as well as a fellow board member. The board claimed they had been duped into believing that the opinion of Goldman's attorney was shared by their own attorney and managing agent.

In a recent 20-page decision, the Supreme Court of the State of New York ruled in the Goldmans' favor. Judge Peter H. Moulton declared that the board "cannot demonstrate fraud because they cannot show that Goldman had a duty to disclose to the board the opinion of their own agents." The court, however, denied the Goldmans' request for monetary damages.

So, in a sense, both sides lost. But it was more embarrassing for the board: What the court was saying was that, in layman's terms, the board members weren't "duped" by a clever con man. They were asleep at the wheel.

 

Photo courtesy Forbes-Ergas Design Associates; click to enlarge

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