Miller & Miller, Partner
Joel E. Miller
The client’s tale. There was a co-op that was for many years controlled and looted by an unscrupulous predator. He was able to do that because the resident shareholders were from other countries and had little awareness of our laws and customs. Also, they believed that the law would protect them. They never received financial statements, but were not aware that they were supposed to. The co-op did not file income-tax returns, but the people did not know that either. Accordingly, the people saw no reason to be concerned. Also, the predator was keeping the maintenance low (by causing the co-op not to pay bills), and he had persuaded the people that he was protecting them from, as portrayed by the predator, the evil sponsor. At one point, the predator caused the co-op to borrow millions of dollars, which it used to buy a large number of sponsor apartments that the predator had transferred to a newly created cooperation that he controlled. It was only after the predator's actions had brought about a foreclosure proceeding that the people made inquiries and learned about what had been going on. After years of court actions in the Federal Bankruptcy Court and in the New York State courts, the residents shareholders took control of the co-op. One of the first things that they did was to raise the maintenance to the level that was necessary to operate the building and to pay off the literally millions of dollars of expenses incurred during the court proceedings. Most of the shareholders paid the increase, but some of the predator's allies (he had a few whom he had richly rewarded over the years) spitefully refused to pay. The co-op eventually took the delinquents to landlord-tenant court, but proceedings there stalled because the new board had never adopted a formal resolution increasing the maintenance. All the new directors had done, at a meeting of which no proper minutes were kept, was to agree upon the increase and direct the managing agent to put it into effect. How the amount was decided upon was not recorded.
The lawyer’s take. In the case described above, the co-op will probably -- but, by no means, certainly -- eventually prevail, but only after several inconvenienced witnesses (some with, unfortunately, hazy memories) and well-compensated attorneys have spent literally days in court, and the co-op will have laid out thousands of dollars in unbudgeted legal fees and expenses, the bulk of which could have been avoided if the co-op had been able to produce minutes containing a formal resolution adopting the increase, which resolution might well have been accompanied by a schedule showing how the amount was arrived at. Such a document would have been admissible under the business records exception to the hearsay rule, thus expeditiously providing the evidence for what the co-op needed to demonstrate in order to refute the baseless claims that were being made against the board and enable the co-op to collect the amounts owed. The kind of situation described above is not the only one in which proper minutes can be enormously helpful. Among other things, they may be relevant to a litigation. Even in a small, tightly-knit co-op, disputes can arise, and we have all witnessed close friends metamorphosing into bitter enemies. All in all, keeping good minutes in a proper minute book -- including having each set of minutes reviewed for errors and then ratified at a subsequent meeting -- is a good idea. As in the case of the purchase of a fire extinguisher, the expenditure might turn out to have been unnecessary (and one hopes for that result), but not making it might turn out to be very costly indeed.
Case closed. It may take some effort to adopt formal resolutions and keep proper minutes, but a responsible board will do that.