The battle for access to co-ops’ and condos’ books rages on. In the latest victory for co-op boards, Justice Nancy M. Bannon of Manhattan Supreme Court has ruled that a disgruntled shareholder’s request for access to corporate books and records was “overly broad” and was supported “only by speculation” of mismanagement by the Park Avenue co-op’s board of directors.
In the lawsuit, Cayne v. 501 Park Ave. Corp., shareholder James Cayne, the former chief executive at Bear Stearns, claimed that the co-op board’s president had “personal animus” that led to the rejection of several prospective purchasers of Cayne’s five-bedroom, six-bathroom apartment between 2016 and 2019, and the denial of the ability to sublet the apartment while it was on the market.
Under Section 624 of the Business Corporation Law (BCL), co-op shareholders have the right to inspect board meeting minutes, a roster of shareholders and financial statements. In July 2019, as a way of investigating “potential wrongdoing” by the board members, Cayne demanded to inspect eight categories of documents, only two of which (the shareholder roster and meeting minutes) fell within the scope of inspection authorized by the BCL.
In her opinion, Justice Bannon wrote: “The fact that a cooperative board has denied a shareholder permission to sell their shares does not alone justify a shareholder’s attempt to litigate around the sound exercise of the board’s judgment. Consistent with the foregoing, the (co-op’s) governing documents, by which all shareholders are bound, expressly reserve the board’s ‘right to grant or withhold consent, for any or no reason, absent unlawful discrimination’ any purchase application…. As such, the petitioner has not established a proper purpose to support his petition to access the respondent’s books and records.”
Justice Bannon’s decision continued: “Even under the liberal discovery standard, a shareholder may not engage in ‘an intrusive probe into the confidential financial records’ of other shareholders, let alone attempt to delve into a prospective purchaser’s finances well beyond the contemplated scope of the BCL.”