New York's Cooperative and Condominium Community
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The high cost – financial and emotional – of a protracted legal war.
It is said that the expression “bad blood” was first used in 1664. It is defined as a feeling of ill will, anger or hostility between people. There is perhaps nowhere on Earth where bad blood is more evident than in a cooperative or condominium when board members are at war with one another.
An example of this can be found in the war that pitted Elaine Platt against her fellow co-op board members at Windsor Towers and its management company, Tudor Realty. The hostilities between these parties have been going on for close to a decade, but the most important decision was when the New York Supreme Court decided the case of Elaine Platt v. Windsor Owners Corp. back in 2015.
To fully understand the problem, the facts must be reviewed. In 2011, a shareholder named Frank Mazzocchi and his live-in female partner began threatening residents and staff in the common areas and the areas adjacent to the building. Based on the woman’s behavior, the co-op board commenced an action to remove her and Mazzocchi from the building. While this action was pending, Mazzocchi brought a federal action against the co-op board, which dropped its ejection action in March 2014.
It was time for Windsor Towers’s annual meeting and election. Elaine Platt’s term on the board was expiring, and she was running for re-election. (She won.) She had been strongly opposed to pursuing the action against Mazzocchi, and she blamed the then-president for leading the board down the path to ejection. They ended up in a heated campaign and exchanged many emails in regard to the governance of the co-op. In one of those emails, Platt stated: “We withdrew this lawsuit because we were advised by two different law firms that it was fatally flawed.” She then sent this email to approximately 800 shareholders in the co-op.
Then, in May 2014, Mazzocchi brought a state court action against the cooperative, claiming violations of the New York City Human Rights Law. In the complaint, he paraphrased the Platt email, providing the court with the advice of counsel previously given to the board.
Based on Platt’s dissemination of her email and her support of Mazzocchi, the board took steps to limit Platt’s access to board deliberations concerning Mazzocchi’s lawsuits. The board created an Executive Committee for Legal Matters to determine the strategy for dealing with Mazzocchi’s lawsuits. As might be expected, Platt was excluded from the committee.
Platt then sued the other board members, the managing agent and the co-op’s attorney, seeking a declaration from the court that she had a right to describe the attorneys’ advice in her email. She also asked the court to disband the Executive Committee for Legal Matters, and to prevent the directors from voting on positions that the corporation might take in connection with all of the pending litigation. The court dismissed this action on technical grounds, but allowed her to continue all of these claims in the action that was then brought against her by the board. To wit: The board sued Platt and asked the court to bar her from disclosing any communications between the board and its attorney, to allow the Executive Committee to act for the purposes it was established, and to allow the board to exclude Platt from board meetings. The board also requested that the court temporarily prevent Platt from disclosing communications covered by the cooperative’s attorney-client privilege while the case was going heard, and this was granted in August 2014. Soon afterward, the board claimed Platt violated the court order, and the board asked that she be held in contempt. The court refused. Platt, who represented herself, immediately made yet another motion, which the court deemed “utterly meritless,” and she was sanctioned. Both sides made numerous motions as the battle heated up.
In fact, the war continued for years, including battles over appeals, contempt orders, sanctions and defamation claims. As a final salvo, Platt sought $500,000 in legal fees from the co-op, based on the fact that the bylaws include a provision that the corporation will indemnify directors for legal fees they may incur. The court dismissed the lawsuit, ruling that the indemnification clause should not apply when a board member was found to have divulged privileged information. Further, the court found that she disclosed the information to help her re-election, and that such an act was for personal gain and not in the interest of the cooperative.
All in all, the bad blood between the board members cost the parties many tens of thousands of dollars and caused a decade of anguish in the cooperative.
The war between Elaine Platt and the Windsor Towers co-op board is a long, complicated and expensive tale. Yet there are lessons here. Perhaps the first is that before commencing any legal action, especially one in which personalities are involved, a careful review is required. Can it blow up? Can it entangle the parties for years? Is it worth a decade of legal fees?
The second lesson involves the use of committees by the board. The New York Business Corporation Law states that a board can establish a committee of board members, which can be given all of the powers of the board. Many co-op bylaws contain a similar provision. Committees can be useful in numerous ways. If there is a legal action involving one or more board members, for example, a committee might be formed to make all decisions in regard to the matter. If the cooperative is undertaking a large capital improvement, perhaps a committee of engineers and people with financial backgrounds might be given the power to negotiate, execute and oversee the project.
The third lesson is really the important one. Platt disclosed communications from the attorneys hired by the board. She was privy to the information only in her capacity as a board member. Information received that has been sent as an attorney-client communication, which is considered privileged under the law, should be kept confidential, unless the board decides to disseminate the communications to the shareholders. Further, the fact that Platt used this information for her own purposes and for her own benefit – hoping to be re-elected to the board – was certainly not for the benefit of the cooperative. This was doubly improper.
Many cooperative corporations and condominium associations have adopted not only a policy for keeping information confidential but also a confidentiality form to be signed by each board member, acknowledging that he or she is aware such policies exist. As a general rule, information that a board member has learned in the role as a board member should not be repeated or forwarded to non-board members. Clearly, there are exceptions – if, for example, a board member learns that the board is doing something illegal or potentially dangerous. Even then, it is probably best to contact the board’s manager or attorney first. The fact that a board member does not agree with the judgment of the rest of the board is not reason enough to breach the responsibility of a board member to abide by the policies established by the board. Failure to heed this lesson is sure to generate bad blood.
For Elaine Platt: pro se (representing herself)
For Windsor Owners & Tudor Realty: Morrell Berkowitz at Gallet Dreyer & Berkey
Andrew P. Brucker is a partner at the law firm Armstrong Teasdale. The statements and views in this article are his own and not necessarily those of the firm.
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