Q&A: Fiduciary Responsibilities and the Board

By Thomas E. Kass

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<Q I am a board member and shareholder in a Westchester County cooperative where  there has recently been a lot of conflicts among board members. There is a  board member who owns her own realty company and is now privy to all  confidential matters concerning the co-op. I would like to know if this is a  conflict of interest and a violation of fiduciary duties. I want to know why  the lawyer for the cooperative would not advise them correctly and would not  answer this question when it was asked at the annual meeting? This is a nice  cooperative that is losing control because certain people are using their  powers to pick and choose who they want to reside here.  


 —Alarmed Shareholder  



A “Whether a conflict of interest exists would depend on the specific circumstances  involved,” says Thomas E. Kass, a partner at the New York law firm of Kantor, Davidoff,  Wolfe, Mandelker, Twomey & Gallanty, P.C. “For example, if a co-op board member owned a commercial property which was  competing for the same commercial tenants as the co-op, a conflict could exist.  In such a context, the board member should remove himself from the decision to  lease and should not be involved in negotiations with prospective tenants.  However, consider a situation in which vendors offer good terms to the co-op in  hopes of getting more business from the board member who own other property. In  such a case, the board member's ownership of property would be a benefit to the  co-op.  

 “Each situation must be examined separately to see if a board member's fiduciary  duties to the shareholders could be compromised by his self-interest.  

 “A co-op always has the right to reject prospective shareholders, provided they  are not violating anyone's civil rights. If you are unhappy with the board's selection process, you are free to run for  election to the board, by yourself or with a slate of candidates. Before  running for office, you should consult the co-op bylaws as to voting and  election procedures.”  


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