Has the Board Actually Acted?
This happens more often than you might think. And it is a cautionary tale to all boards. So dot that “i,” cross that “t,” and make sure that when the board takes an action, it does so in accordance with its governing documents and law.
The plaintiff is the board of managers of Clermont Greene Condominium. The condo was formed by the sponsor, defendant Vanderbilt Mansions. The board is made up of seven members, three of whom are affiliated with the sponsor.
The board began this action because of claimed construction defects, building code violations, and hazardous conditions. The board retained Howard L. Zimmerman Architects (HLZA) to investigate the building conditions, and HLZA issued a report identifying several defects related to inadequate or poor workmanship or designs that failed to meet industry standards. Some of the conditions noted by HLZA were life/safety issues: it found problems with fire barriers and fire-stopping as well as problems with windows and doors. There were also courtyard leaks, roof leaks, sound transmission problems, noncompliance with disability law requirements, cracks in floors, railings that did not comply with applicable law, electrical outlets that did not meet code, exposure of concrete, defective refuse disposal, and problems with electrical, heating, ventilation, plumbing, and fire protection systems.
A Motion to Dismiss
The board began an action as the representative of the unit-owners, asserting claims for breach of contract, warranty, and fiduciary duty. There was also a demand for an accounting. The defendants moved to dismiss asserting, among other things, that the board lacked standing and the “legal capacity to sue.” In other words, the sponsor’s claim was that the board never authorized the start of the lawsuit at a properly noticed meeting of the board.
The sponsor conceded, as it must, that the Condominium Act allows a board to sue on behalf of a condo’s unit-owners. But the bylaws of this particular condo stated that notice of board meetings had to be given at least three business days before the meeting. The bylaws also stated that a majority vote is required for the board to make decision; alternatively, the board could unanimously consent in writing to an action.
Defendant Aaron Klein was a sponsor-appointed board member. He submitted an affidavit stating that there was no meeting to authorize beginning a lawsuit and that he never received three business days’ notice of any such meeting. There was no question that the board members never unanimously consented in writing to the start of the action.
For its part, the board argued that no resolution or notice of meeting was required. It relied on the language of the Condominium Act, which states that “actions may be brought or proceedings instituted by the board of managers in its discretion, on behalf of two or more of the unit-owners, as their respective interests may appear, with respect to any cause of action relating to the common elements or more than one unit.” There is no question that this provision allows a board to bring an action on behalf of the unit-owners. And, the board argued, the statute does not require that the board pass a resolution to do so.
The court did not agree. It explained that the statute is predicated on the board acting as a body within the constraints of the bylaws. Consistent with the statute, the bylaws allow the board to bring an action. But, in this case, there was not even a suggestion that the action was authorized by a vote of the board. In fact, the board’s president, Joshua Brown, submitted an affidavit merely stating that the board retained counsel and agreed to begin the suit.
The court found that no notice was given and no formal action was taken by the board to authorize the suit. Even though the statute and the bylaws did not specifically require a board vote, the court found that “some form of vote is clearly required for the board” to start a lawsuit.
The court also looked to the Business Corporation Law (or BCL, which is applicable to co-ops, but not condos) for guidance, and explained this reliance on the fact that the condo’s bylaws track the BCL language, so that, the court concluded, there was an intent to apply the procedures in the BCL.
The court ultimately determined that there was no question that the board had the right to bring an action – had it followed the procedures required by the condo’s governing documents. But because there was no board vote to authorize the suit, the action was dismissed. In sum,
“[t]here is no evidence or representation ... that any meeting or vote of any kind affected a decision by the Board to commence this action.”
A condominium acts through its board of managers. But the board must act as a body. A group of board members cannot make a decision like the one made here. Boards have rules and procedures and must follow them.
Although this case involved a condo, the principle is equally applicable in a cooperative. In an unrelated case, co-op board members were sued for making certain decisions, but their actions were taken at properly called board meetings and minutes reflected what took place at the meetings. It was irrelevant that the vote may have been divided along sponsor/non-sponsor lines. The board called meetings, acted, and, even though one “faction” may have been outvoted, the acts were acts of the “board” and were upheld.
What we don’t know here is whether the board’s failure to act properly created other problems. It certainly created delay, but one wonders whether the delay was such that any applicable statute of limitations expired. In the end, when the board takes an action, it must be the board – and not just some of its members – that acts. n
D’Agostino, Levine, Landesman & Lederman
Stahl & Zelmanovitz