New York's Cooperative and Condominium Community
Eric Goidel, Borah Goldstein Altschuler Nahins & Goidel
The reopening of amenities has touched on numerous areas of the law, but they all boil down to a simple conflict: the use of the Business Judgment Rule in the face of serious pushback from residents. Can you walk us through the thorny legal issues boards are now dealing with as amenities are being reopened?
I never thought that this would be one of the most difficult legal issues to address, but when there are these known and unknown health issues and shareholders and unit owners are pressuring boards to give them back some quality of life, the boards really cannot succumb, particularly in light of the unavailability of insurance in this pandemic time. It really was the first time in my 38-year career where I realized that insurance was literally unavailable for a claim associated with a specific health issue, in this case COVID-19.
The general liability policies basically had pandemic-type exclusions where there will be no coverage whatsoever. And typically, where there was no coverage under a commercial general liability policy, you always had directors and officers liability insurance, or D&O, to fall back upon. Even if there wasn't ultimate coverage in terms of a dollar payout down the road, the insurance company would provide a legal defense. However, under a D&O policy, there's an exclusion for a legal defense where a case involves personal injury or death. So therefore, you had no coverage at all under a general liability policy. And now the D&O policy carrier is saying if there's a claim, it's going to be a personal injury or death claim, and they don't even have to provide you with an attorney.
And there’s the matter of contract law. Supposing you have a vendor, maybe someone who maintains your swimming pool, and now with the pandemic the pool had to be shut down for a certain amount of time. What is the legal ramification there? Is it time to renegotiate the contract, time to try to get concessions, or time to void the contract?
It depends on the building. When the government allowed for the reopening of pools and fitness centers, some boards did not want to do that. With respect to certain issues, you might have had a force majeure clause in a contract, which could have given you an out. But now with the government coming back in and saying you can reopen, a lot of it is more of a negotiation with the third parties. Those that we had long relationships with at our buildings were willing to live to see another year, while others were looking to get some money. But other issues existed, such as their being able to staff the job. Maybe they weren't able to get lifeguards for a pool. What were they going to do to ensure social distancing? Did they have to add more staff that they didn't even contemplate? We tried to find a way to make it not even in their interests to want to be there this past summer.
Let's talk about health rules issued by both the city and the state. There's a legal area there where I'm guessing that if boards don't comply with these rules, they're leaving themselves open to some sort of liability. Tell us about that.
They are leaving themselves up to some kind of almost absolute liability for what is known as negligence. If the government passes a law which prohibits some use of a facility or sets some sort of standards that must be followed in order to reopen it, and the boards do not adhere to those rules or standards and it could be demonstrated that this was done, then you might just get to the issue of damages. Maybe a unit-owner or shareholder doesn't even have to prove negligence because the inability or failure to follow the rules creates the negligence.
I'm looking out the window at some guys working on the street down there, and there are five or six guys standing right next to each other and not one of them is wearing a mask. Whether it's a construction job or a pool or a gym, boards need to be on top of enforcing these rules, I'm guessing, or they're opening themselves again to that sort of legal liability.
But then other issues arise. For example, now that fitness centers can reopen, they can only do so if there is an inspection by the Department of Health. And there's certain retrofitting in terms of filtration systems and perhaps in terms of expanded ventilation that boards might have to consider undertaking in order to be able to reopen. In that regard, then not only does it bring in environmental issues potentially, but also construction issues, because I do have buildings now that are entering into construction contracts to retrofit their facilities. The other concern is how do you maintain the cleanliness of the facility? How often do you have to shut it down? At a couple of buildings, we also had some labor law issues with employees of the building who understood that while they need to keep the elevator clean and take care of the lobby, why do they need to risk their health by cleaning a fitness center so that the resident of apartment 609 can use a treadmill? We did get a little pushback in some buildings from building staff who did not want to go that extra yard, and perhaps understandably.
How did you work that out? Were they forced to do the job?
They weren't forced to do the job because that would have just resulted in some type of a grievance filed. Also, there were amendments to the local 32BJ union agreement, which a lot of buildings weren't even aware of, that occurred shortly after the start of the pandemic, where building staff just for asking could take a couple of weeks off and still be paid. The risk was that we might have had some kind of an en masse walkout, for lack of a better word, in the building. There weren’t many buildings that were presented with this problem, but in those that were, boards had to be receptive to the health concerns of their staff.
What legal lessons can boards learn from your experience? We're all worried about a second wave of the coronavirus and maybe some other calamity of this scale down the road.
I would say that while the legal considerations are clearly paramount, oftentimes what also is paramount is the common sense on the part of a board of directors or a board of managers. This is kind of uncharted territory for boards, for managing agents, for attorneys, for everyone. COVID-19 presented a novel situation with novel issues for which there weren't many answers in the beginning. And even now, people, including experts, are still trying to find their way. I think what boards should do besides consulting with experts is exercise common sense. Common sense often equals business judgment. And if they would not use a facility or would not be comfortable cleaning a facility or having their family go there, then chances are they've already answered the question of whether they should reopen. The other thing they need to do is not succumb to the few residents of a building who want to use an amenity. They really have to think about the silent majority in the building, who is usually squarely in their court. And if they think about that, they will also be protecting the building from legal liability.
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