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Thursday, 16 September 2010 16:00 |
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Cooperative and condominium directors owe a fiduciary duty to the membership to exercise their authority in the best interests of the corporation or association and all of its shareholders and owners. The concept of cooperative living is both utilitarian and libertarian. It embodies community and freedom.
The standard by which decisions of a board of directors of a cooperative or condominium are to be reviewed by the courts is known as the “business judgment rule.” In its simplest terms, the business judgment rule provides that a board action is protected from challenge if there is a good business justification for the decision and it isn’t fraudulent or an abuse of discretion. When the business judgment rule is applied, the burden of proof to establish the impropriety of the decision is on those challenging it.
In lawsuits claiming directors violated their duty in finding a tenant conduct “objectionable”, the courts have routinely applied deference to the cooperative directors determination. However, is the reasonableness of the directors determination better standard?
As is discussed below, it is clear that New York courts generally defer to cooperative and condominium board decisions. Nevertheless, if board action is taken for a purpose other that that of the entity, is beyond the scope of the board’s authority or is in bad faith, the courts are authorized to strictly scrutinize such action.
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Last Updated on Tuesday, 02 November 2010 14:45 |
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