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by Aaron Shmulewitz
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UPDATESEPTEMBER 2012 | VOLUME 20
Belkin Burden Wenig & Goldman, LLP
NO NEW REASON FOR CONCERN BY BOARD MEMBERS
By Aaron Shmulewitz
The July 3 Appellate Division decision in
Fletcher v. The Dakota, Inc. has engendered
much media coverage indicating that co-op
and condo Board members now face increased
chances of being sued. A close reading of the case, however,
indicates that the good news is that Board members do not face
significantly greater risk of being sued successfully; the bad news
is that that risk was always there, and continues unabated.
In Fletcher, an African-American shareholder sued The Dakota
and two of its Board members, alleging that they discriminated
against him based on race and other factors in declining consent
to his proposed purchase of an apartment adjacent to his. The
Dakota and the two directors moved to dismiss most of his
claims, based on prior Court precedents.
While the Court did dismiss many of the targeted claims, the
Court declined to dismiss several of the claims against the
individual Board members, holding that participation by a
Board member in a co-op’s tortious conduct could give rise to
individual liability by the Board member. The Court emphasized
the remedial intent of anti-discrimination laws, and noted
that such laws do not contain any exemption for individual
Board members. The Court cited a long line of cases in which
corporate directors were held personally liable for participation
in a corporation’s tort, and noted that discrimination and other
unlawful acts were never protected under the “business judgment
rule” that was applied to co-ops in the seminal Levandusky case.
The Court’s most noteworthy holding—departing from a prior
decision’s ruling that, to face personal liability, a director must
have committed his/her own tortious conduct independent of
the co-op’s tort—merely clarified pre-existing law within the
context of the business judgment rule. The Court held that,
while a Board member could not be held personally liable in
connection with a breach of contract by the co-op, he/she could
potentially face personal liability for participating in tortious acts
such as discrimination. (Query to what extent a corporation can
discriminate in the absence of discriminatory intent by its Board
members?)
In short, co-op and condo Board members do not face any
significantly greater potential liability now than they did before
the Fletcher decision. Board members can (and always could)
potentially be held liable if they discriminate, or commit any
other act that is unlawful or beyond the scope of their authority.
Aaron Shmulewitz heads the Firm’s co-op/condo practice. If you
would like to discuss any of the cases in this article or other related
matter, you can reach Aaron at 212-867-4466 or
