Marianne Schaefer in Legal/Financial on May 18, 2017
May 18, 2017 — New state Supreme Court decision favors shareholder in dispute with board.
In the latest decision on co-op shareholders’ ever-expanding rights, the state Supreme Court has affirmed that shareholders are entitled to broad access to a co-op’s books and records, including the right to copy both print and electronic versions. The ruling buttresses earlier decisions granting requests to inspect and copy documents in both co-ops and condominiums, as long as the requests are made “in good faith and for a valid purpose” – and the person inspecting the documents agrees to sign a confidentiality agreement. In this latest case, the shareholder was deemed to be operating in good faith even though he was already involved in litigation against the board.
This legal battle started in 2013, when Armand Musey bought his dream apartment with a stunning wraparound terrace on 425 East 86th Street from the estate of celebrity restaurateur Elaine Kaufman. After Musey moved into the 96-unit building, a dispute arose when the co-op board told him he was not allowed to step on his terrace – unless he paid to put a surface on top of the recently replaced roof. Musey claims the renovation of the terrace was the responsibility of the co-op board since the terrace is part of the roof.
“I wanted to find out why they didn’t fix the terrace properly so I could use it,” Musey says. “I got suspicious when I found out that a large part of the co-op’s 2012 [funds] were paid out to Standard Waterproofing, a company owned by the former board president’s brother-in-law. That was not disclosed to the shareholders in the financials. Then I thought, ‘What else is going on?’ And I asked to see the financial documents.”
“He was concerned about self-dealing, even though the board president had recused himself from the decision to hire that company” says the co-op board’s attorney, Tracy Peterson, a partner at Braverman Greenspun.
In January 2015, Musey filed suit for the right to inspect the co-op’s books. The case was dismissed on the grounds that Musey had not specified which documents he wanted to see. Musey then sent a list of desired documents to the board.
When Musey went to review co-op documents in the offices of the co-op’s property management firm, Douglas Elliman, he says he had to do so in the presence of an armed guard. “This was not your $10-an-hour security guard from a supermarket,” Musey says. “This was a retired police officer with a gun. It was very intimidating.”
Musey was provided with the expense side of the general ledger but not the income side. He felt that this made it impossible to reconcile the expenses listed. “The act of allowing me to look at only part of the documents – and under armed guard – without the ability to examine electronic versions and duplicate documents for further review was exceedingly ineffective to the point of obstruction,” Musey says.
The board felt that the income side of the ledger was not relevant to his concerns, but the court felt differently.
“The co-op was disinclined to give him the income side of the ledger,” says Peterson. “That’s the shareholders’ information, that’s maintenance, and he would be able to see which shareholders were delinquent or behind, or if there had been fines. He had not proven to be a particularly good neighbor. Looking at the concerns he had raised, it didn’t seem imperative for him to have that information.”
Board president David Munves argued in a sworn affidavit that Musey might not honor the confidentiality agreement since he is maintaining a website where he publishes details of his litigation with the co-op. Munves also argued that since the terrace issue is still in court that “each and every request made by petitioner is not in good faith” and that he “bullies and coerces the co-op.”
Neither Munves nor Karel de Boer, a vice president at Douglas Elliman Property Management, responded to requests to comment for this article.
Peterson, the co-op’s attorney, tried to put this new Supreme Court ruling in perspective: “In the recent past there have been court decisions that have interpreted inspection rights of [condo] unit-owners and [co-op] shareholders more broadly than they used to in the past – even when a board believes that the request is brought in bad faith. And the existence of pending litigation between the shareholder or unit-owner and the building is not sufficient proof of bad faith.”
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