Podcast Companion: What About When Condo, Not Co-op, Owners Want Audit?
Aug. 9, 2012 — In Graber vs. Sheridan, the apartment-owner petitioners sent a letter to the board of managers of Imperial Towers Condominium on Staten Island in February 2006, requesting an independent audit of the condominium. After months of discussion over the exact breadth and scope of documents to be provided, the audit was held on June 21, 2006. As a result of the board's alleged failure to provide all requested documentation, the audit was unable to be completed.
In March 2007, the petitioners began an action against the board members seeking an order to require full disclosure of all requested documents. The board members contended they had provided the apartment owners with all reasonable and available documents as required by law.
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Under New York Real Property Law Article 9-B Section 339-W, a condominium's board of managers is obligated to "keep detailed, accurate records, in chronological order, of the receipts and expenditures arising from the operation of the property" and to ensure that the records are available to unit-owners on weekdays at a convenient time.
In analyzing the case, the court said that where an individual owner challenges the actions of a condominium's board of managers, the Business Judgment Rule applies. In its application, the court said that the rule demands that unless there were "claims of fraud, self-dealing, unconscionability or other misconduct, the court ... should limit its inquiry to whether the action was authorized and whether it was taken in good faith and in furtherance of the legitimate interests of the condominium."
Reasonable and Available
Applying the rule to this case, the court concluded that the board's determination that all reasonable and available documents were provided to petitioners was not made in bad faith and was well within its authority.
Furthermore, the apartment-owners failed to allege or prove any claims of fraud, self-dealing, unconscionability or other misconduct on the part of the condo board. Therefore, the court would not substitute its judgment for that of the board. Thus, the petitioners' request for further disclosure was denied and the petition was dismissed.
Comment: The Business Judgment Rule remains the controlling precedent for judicial review of unit-owner challenges to a condominium board action. Under the rule, judicial deference is given to board determinations so long as the board acts within the scope of its authority, in good faith and in the lawful and legitimate furtherance of the condominium's purpose. This is another in a long line of cases that makes the challenge of a board's action very difficult.
Richard Siegler is a partner in the law firm of Stroock & Stroock & Lavan. He is also an adjunct professor at New York Law School , where he teaches a course on cooperative and condominium law.
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