New York's Cooperative and Condominium Community

Habitat Magazine Business of Management 2021

HABITAT

LEGAL/FINANCIAL

HOW LEGAL/FINANCIAL PROBLEMS ARE SOLVED BY NYC CO-OPS AND CONDOS

What Happens in the Boardroom Should Stay in the Boardroom

Andrew P. Brucker in Legal/Financial on January 29, 2021

New York City

Confidentiality agreement, co-op and condo boards, breach, lawsuit.
Jan. 29, 2021

Breaching confidentiality is a serious offense for any co-op or condo board member – one that can have dire consequences. This is illustrated by the costly legal war that pitted Elaine Platt against her fellow co-op board members at Windsor Towers and its management company, Tudor Realty. The most important decision was when the New York Supreme Court decided the case of Elaine Platt v. Windsor Owners Corp. back in 2015.

Some quick background: 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. Platt’s term on the board was expiring, and she was running for re-election. (She wound up winning.) 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 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, which 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 being heard, and this was granted in August 2014.

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. 

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 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. 

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. 

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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