New York's Cooperative and Condominium Community

Habitat Magazine Business of Management 2021

HABITAT

ARCHIVE ARTICLE

The Case of the Disruptive Director

We’ll call him Jack Allen because he won’t let us print his real name. He’s on a co-op board on the Upper East Side of Manhattan that has suffered so mightily at the hands of one toxic shareholder that Jack Allen doesn’t even want people to know where the co-op is located.

Yes, it’s that bad. This is really unpleasant: a shareholder who yelled obscenities at fellow residents, got violently abusive at board meetings, and even spat at someone. That’s right, spat – as in, “How gross.”

To combat this lout, the co-op employed a tool that could prove valuable to other co-op and condo boards that find themselves doing battle with a disruptive shareholder. The tool consists of three innocent-sounding words: “Charges and Specifications.” In this case, it’s a 12-page litany of objectionable behavior that became the rationale for the board’s decision to remove the offending party from the board. (The board had already initiated an eviction proceeding against the shareholder, which is now working its way through the courts.)

Before we explore the colorful litany of the charges and specifications, a quick bit of history is in order.

 

A Gentle Place

This co-op was built in the late 19th century, four separate tenements, with wood-joist construction, that were combined in the 1950s into a single property with a brick façade. The building was converted into a five-story co-op in the 1980s. Of the 69 units, 62 are now owned by shareholders. Residents use words like “hospitable” and “friendly” to describe the building’s vibe, which is home to a pleasingly eclectic mix of librarians, firefighters, business executives, actors and retired cops. There’s a free lending library in the basement laundry room, featuring books by the likes of Jane Austen and Joyce Carol Oates. Four times a year, the co-op throws a come-one, come-all party.

Enter our disruptive shareholder, whom we’ll call Wesley Herz in order to protect the guilty. From the day he moved into the building in the late 1990s, there was friction. Herz kept bringing frivolous complaints to the board’s attention, and the board frequently agreed to some modest settlement to make the complaint go away without getting its attorney involved. The reasoning, according to one board member, was that it was easier to appease Herz than to fight him.

Then, in 2005, Herz got elected to the board. During the following year, he proposed several projects that other board members found “self-serving” and “frivolous,” including the installation of a rooftop penthouse above his top-floor apartment, and roof decks that would be available only to residents of the fifth floor (including Herz). In such an old building the projects were either physically impractical or in violation of zoning laws. The board voted them down after minimal debate.

Herz was voted off the board after one year, but he was re-elected in 2007. One reason he was able to win is that this co-op has “cumulative” voting, which means that any shareholder can designate his entire vote bloc (calculated from the number of shares held) to a single candidate. The system is designed to prevent boards from becoming entrenched, but it has the disadvantage of making it relatively easy for a shareholder to win election to the board even if he has the support of only a few other shareholders.

In the course of Herz’s second term, the board discovered, during a routine building-wide plumbing inspection, that he had an illegal washing machine in his apartment. Because of the building’s wood-joist construction and aged plumbing, such major new appliances require board approval. The board ordered Herz to remove the machine within 30 days. He refused.

“That,” says Jack Allen, “is when all hell broke loose. That’s when he started getting really disruptive, acting in an insulting and abusive manner to other board members.”

The discovery of that illegal washing machine can be seen as the tipping point, the moment when this co-op stopped being a friendly building and started to become a battlefield. At a board meeting in early 2008 in the co-op’s conference room, the managing agent had a hard time believing what he was seeing and hearing. “Herz came to that meeting and started cursing the board president,” says Art Lever, who has managed the building for the past six years. (Because of ongoing litigation, the property manager, like others mentioned here, asked that his real name not be used.) “We had to adjourn the meeting and move it to a board member’s apartment.”

Herz then sued the board, claiming that it had libeled him, that it was preventing him from attending meetings, and that it was wasting co-op money on the eviction proceeding.

The board then asked its corporate attorney to sit in on all meetings, a costly but necessary precaution. “At this point,” says Allen, “we felt we needed to defend ourselves because he was being not only intimidating, but disruptive.”

At its attorney’s suggestion, the board and managing agent began to compile the history of Herz’s behavior that would become the “Charges and Specifications.” They fed the information to the attorney, who prepared a document that ran to 12 pages.

“To get him off the board,” explains Lever, “you have to have a paper trail and background. We started compiling a list of the times he was abusive, his illegal sublets, the washing machine, combining two apartments without board approval, and his harassment of board members, other shareholders, and myself.”

Herz’s verbal abuse was nothing if not colorful. At various times, according to the charges and specifications, he called his neighbors “moron,” “putz,” “faggot,” and “asshole.” He spat at one woman and threatened to kill her. Numerous complaints were filed with the police. “This is unusual and outrageous behavior,” says the board’s attorney, David Berkey of Gallet Dreyer & Berkey, the co-op’s attorney. “A board is supposed to set an example and comply with the rules themselves.”

Finally, in April 2008, the directors called a meeting of all shareholders to vote on whether Herz should be removed from the board. “It was amazing, tremendous attendance,” says Allen. “I would say about 50 of the 62 shareholders were on hand. People felt they needed to get involved, which is a wonderful thing. As a board member, things happen that you know about but can’t talk about, either legally or because it makes you uncomfortable. We on the board felt very isolated – until the charges and specifications were presented. Now, we had a formal platform to explain the difficulties we were experiencing. We no longer felt we were alone.”

Herz did not attend that meeting. Almost unanimously – by a 94 percent margin – shareholders voted to remove him from the board. At the next annual meeting, another member resigned for unrelated reasons and two new members were voted in. In November 2008, the state supreme court dismissed Herz’s lawsuit against the board.

 

Do You Feel (Un)lucky?

Looking back, the people involved in this tortured tale see themselves as the victims of incredible bad luck who couldn’t have responded much differently. “It’s extraordinary that one person takes up so much time and effort,” says Lever, the property manager. “I’ve had people who were quirky and nasty, but you can deal with them and get them to your playing level. I’ve never experienced legal action before. This was the first time, and hopefully the last. It takes your time away from actually running the building.”

If he had to do it again, would he do anything differently? “No,” he says flatly, “there’s nothing we could have done to stop somebody from having a mean and nasty personality.”

Jack Allen agrees. “It was a nightmare, but I don’t think we could have done anything much different,” he says. “We were really backed into a corner. It was not something we could be proactive about. It was never our choice to start a legal process against him; it was his choice to abuse his position on the board to the point where we had no choice but to start the legal process to remove him. We were fortunate to get David Berkey, an attorney who had experience in this complex issue. In the end, we did what we were forced to do.”

And in the end, Jack Allen offers a terse assessment of Walter Herz and a pleasing irony: “This guy is a bad guy. It took some heroism on the part of the board, plus some substantial personal risk, to defend the building against this type of individual. Yet, this adversity has actually brought the building closer together.” —B.M.

 

 

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