Most residents of co-ops and condos in the city yearn for a strong leader on the board of directors. A catalyst. A spark plug. Someone who gets things done and is willing to do the thankless, often tedious, work required to keep a building fiscally and physically fit.
Well, having is not the same as wanting.
By all accounts, the Antoinette, a 58-unit co-op just around the corner from the Empire State Building, had a strong president. For a decade, Harvey Goldman led a board that could boast of many impressive achievements. It negotiated with labor unions, resulting in annual savings of $120,000 in staff wages. It held the line on maintenance for six straight years. It persuaded the super to move from a two-bedroom, two-bath apartment into a one-bedroom, one-bath, then sold the former, adding nicely to the co-op’s bottom line. Residents agreed that Goldman was a forceful leader. Nonetheless, the assessments of his personality were a bit more uneven, ranging from “very strong” to “bully.”
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.
The times were changing.
A New Day
Sharon Roush moved into the building in 2007 but didn’t get involved in board matters until Goldman approached her to sign a petition calling for a special meeting to rescind the new shares on his apartment. She was startled. “His own agenda,” she says, “was to throw out the directors.”
Roush, who used to work in private equity, started to ask questions. She was told the minutes of board meetings were not available, and the managing agent refused to discuss his conversations with Goldman. Her unease deepened.
A few people felt that some board members were complacent, says Roush. Goldman, she adds, “disclosure was scant – that was the culture. We thought it was time for a change. New blood and new ideas invigorate a building.” So, last November, in what they now call a “coup,” Roush and five like-minded shareholders won election, ousting all but one former members (who had replaced Goldman, who resigned in May 2012).
Shari Laskowitz, a real estate lawyer, was elected vice president. “We saw that something wasn’t right,” she says. “I don’t think the former board members knew what was going on, or what their rights were. Everybody had questions about who knew what and when they knew it, and how the board allowed this to happen. As a lawyer, I’ve had experience with entrenched boards, and they’re very difficult to [remove]. It takes a community effort. In our building, we had to enlist proxies and votes. People were waking up, and they were thinking maybe they needed to give their support to somebody new.”
The freshly minted board members got busy. They cleaned house with their professionals, hiring a new managing agent, attorney, and accountant. They refinanced the mortgage, signing a 10-year loan agreement at 3.4 percent and securing a $500,000 line of credit. They are undertaking a conversion from an oil- to a gas-fired boiler, and are planning to install storage lockers in the basement to boost revenues. Every contract, from cable TV to the laundry room, is under review. But perhaps the most important change is the arrival of that elusive thing called transparency.
“Timely and transparent communication [are] very important to this board,” says Roush, now the president. “The lack of those things is what got the old board in trouble.”
The new directors also demand candor from their professionals. “We’re using high-integrity professionals who have some backbone,” Roush says. “I want my legal counsel to tell me not to do something. I want my managing agent not to do something if it’s shady.”
To enhance transparency, the board uses BuildingLink – a web-based property management platform – to communicate news, track maintenance payments, and monitor package shipments.
While all this change was underway, the co-op was busy on another front. In a lawsuit against the corporation and four board members, the Goldmans contended that 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.
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.”
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.
Lessons from the Front
It was a wake-up call, a reminder that a board can’t just go on the word of one person. That’s the reason, experts assert, why a board has seven people: everyone should weigh in. All the directors need to pull their own weight – and keep some people in check. As Theresa Racht, the attorney who now represents the Antoinette’s board, notes: “This case shows what can happen if you don’t pay attention – you can lose a major lawsuit and a major source of revenue.”
Gary Ehrlich, one of the co-op’s lawyers in the lawsuit, adds: “I understand how board members fall into the trap. If one person is willing to do the dirty work, it’s natural to allow it. Sometimes they make good decisions and do a lot of good things nobody else wants to do. But you have a responsibility and you have to check up on what they’re doing. You can’t turn the other cheek.”
Goldman, meanwhile, says the legal “victory” is one in which he takes no pride. “I feel very, very upset,” he says. “This never should have happened. If the board didn’t get the opinions of their counsel, I don’t know why they didn’t. This was a terrible matter to live through. It divided friends and it divided the building. And it was totally unnecessary.”
The big question is, why did the board, made up of responsible people, go along with Goldman? An answer comes from Lola Gellman, the only current board member who was serving when Goldman secured the alteration agreement in 2006. She had won election shortly before that – and immediately sensed that Goldman wielded immense power.
“Whatever he said, they believed,” says Gellman, a retired art historian. “We never saw the letters or e-mails from our attorney, and the managing agent never said a word. He seemed to agree with Goldman.”
Such scenarios are not unheard of. “I don’t want to say it’s common for someone to overstep the boundaries of their position, but it can happen,” says Arthur Davis, a management consultant for corporations, including co-ops. “If someone’s in power long enough and they are respected, there’s an assumption that they are doing what’s best for the building. If other board members turn their heads, in effect they are endorsing that person’s behavior.”
Gellman agrees with the Supreme Court’s decision that the board failed to do its job. “It’s true that the board should have investigated,” she says. “But we didn’t because we believed what Goldman said. Since the managing agent didn’t contradict him, we assumed it was the truth.” She adds: “Everyone on the board thought he was great – and in many ways he was. Board members respected him and assumed he wouldn’t put something over on us. But he did.”