On this particular board, recalls one member, the behavior of one director was "so disruptive and egregious" that the board was unable to function, and had to take action to remove him. "The kinds of people who cause these sorts of problems are not shrinking violets," says the board-member, who requested anonymity. "Once someone like this is empowered, they are not going to go away unless you aggressively act to remove them."

To an extent, the board was lucky, because the person was already known in the building to be problematic. Consequently, shareholders were less likely to sympathize with him. In fact, the police had been called in on occasion because of excessive noise and questionable renovations being made inside his unit without board approval and proper documentation.

"The board member was in violation of some of the provisions of his proprietary lease and the house rules," notes David L. Berkey, managing partner at Gallet Dreyer & Berkey and the co-op's attorney in connection with the removal process. "When the board tried to get him to cure his defaults, it led to a lot of hostile reactions" — such as screaming, cursing and yelling during meetings, bringing them to a standstill.

On the advice of its lawyer, the board finally excluded him from meetings so it could operate. The board also started a process to terminate his lease and bring an eviction action.

Charging Ahead

In cases like these, the board must prepare a special "charges and specifications" document for shareholders, outlining all the reasons why a board-member's ouster is necessary. You then must call a special shareholders meeting where both sides present their cases and the shareholders vote. You need a simple majority to remove the disruptive member.

At this co-op, the troublemaker responded by countersuing — filing lawsuits against the building, the individual board members and the managing agent. "He sought damages from the board for 'wasting corporate assets'; for terminating his lease; and for bringing an eviction action against him, [and also sought] an order permitting him to attend board meetings," Berkey notes.

The troublemaker additionally sought a temporary restraining order and preliminary injunction to prevent the co-op from summarily evicting him. When the judge refused to grant him such temporary relief, the board member sought an order to prevent the co-op from even holding the special shareholders meeting.

That didn't work, and the troublemaker was removed with 94 percent of the vote. Berkey says the troublemaker then sought to amend his complaint to add a claim for libel, based upon the "charges and specifications" language presented to the shareholders. The court denied this, but the original lawsuits were still pending in June.

"I don't think a board engages someone on this level unless they feel they have no choice," says the beleaguered fellow board member. "The person has to create a large amount of havoc before you take action. It's a battle, and you can't enter it unless you are resolved to win, and you can't give up if the going gets tough" — which, he warns, it will.

What'll It Cost?

Board members facing lawsuits are protected from damages under the directors and officers' liability policy. But you're not covered for attorney's fees, and those can cost shareholders a bundle.

Are there ways to avoid taking such a drastic step? "It's the way you approach these things that determines the outcome to a large extent," observes Arthur Davis, a corporate-planning consultant and a former co-op board president himself. "Have you taken the right steps? Do you have consensus amongst the other board members? Have you clearly defined the issues?"
Davis notes that the board needs to agree on its threshold of tolerance for inappropriate behavior. "Seek the advice of the managing agent, co-op attorney, and proceed judiciously," he says. "But you must proceed."

Berkey adds a reminder that all board members are fiduciaries responsible to the shareholders, and their behavior should set an example. Some buildings even create a code of conduct for board members, a move recommended by professionals.

"If someone is disruptive and causes trouble, they should be warned that if it does not stop they run the risk of being removed from the board," says Berkey. He cautions, however, this cannot be done "willy-nilly." All legalities must be observed and the troublemaker given a chance to respond.

Unfortunately, observes Davis, contentious behavior on a board happens "all the time," and getting a group to work well together often takes a tremendous amount of effort. But the alternative is a dead end.

Illustration by Danny Hellman

Adapted from Habitat July / August 2008. For the complete article and more, join our Archive >>