Derivative Lawsuits Co-ops Can Have Them Dismissed

A cooperative is generally organized as a so-called business corporation, just like, for example, IBM

or AT&T. Accordingly, shareholders of a cooperative have the same rights as shareholders in other New York business corporations to initiate shareholder derivative lawsuits.

In a derivative suit, the shareholder typically asserts that the members of the board have improperly authorized or engaged in conduct that is detrimental to the corporation and that the corporation is entitled to sue the individual board members for breach of their fiduciary duties, and surcharge them for the corporation's loss. Since the board members would not authorize a lawsuit against themselves, the reasoning goes, the shareholder should be permitted to assert such a lawsuit in the name of the corporation, as a representative of the corporation.

There may be other ways for a shareholder to challenge a decision by a co-op board, but in a derivative action if the shareholder is found to have benefitted the cooperative in some way by asserting the claim, then he or she may be able to recover legal fees from the corporation.

From the cooperative's viewpoint, derivative suits are a particularly acrimonious alternative and likely to discourage persons from serving on the board. They are also likely to be expensive; Directors and Officers insurance policies do not cover all the expenses that one might think they should.

Read More...

Related Articles

The Condo as Legal Entity

Foundations & Fundamentals

Keeping Legal Costs Down

Some Tips on How to Save on Legal Expenses

Commercial Tenants in Residential Buildings: the Neighbor Downstairs