Q&A: Inquiring Minds Want to Know

Q I have a few questions that I would like to post: 1) Is it true that the board can deny my refinancing application and not provide a reason? What are my rights? How can I fight this? 2) Can the board sue me for writing an open letter to all shareholders and slipping it under their doors? 3) Can a shareholder request a meeting with a board? Does the board have to accept? If not what can I do to get heard? 4) Is it true that any board member including the president can be removed of duty if a majority of shareholders sign a petition? What is the procedure for starting this petition? And, can a board sue me for starting such a petition? 5) Is there any government agency that oversees a co-op board's behavior toward shareholders?

—Fighting for My Rights

A “Numerous issues are raised in the letter writer's questions,” says attorney Stewart Wurtzel of the New York firm Tane Waterman & Wurtzel, P.C. “As is often the case, many of the answers depend in whole or in part on the cooperative's documents, including its proprietary lease and bylaws.

“Most proprietary leases do not prohibit the unit owner from refinancing their apartment nor do they expressly require consent of the board. Generally, the cooperative is not involved in refinancing unless the lender is requesting the execution of a recognition agreement. Execution of the recognition agreement may well be considered a ministerial act which the cooperative cannot legitimately refuse to do. To the extent board consent may be required under the shareholder’s lease, the board is granted broad discretion in reviewing the application and its decisions are generally protected by the business judgment rule. This means that its decisions can't be reviewed by a court unless the board's actions were self-dealing, taken in bad faith or without proper legal authority. If the proprietary lease specifies however that the board cannot unreasonably withhold its consent to a proposed refinancing, then the board's actions are governed by a standard of reasonableness. If the unit owner is able to prove (and not just offer conjecture) that the president is acting in a retaliatory manner for not receiving a tip (just about all co-op bylaws require board members to serve without compensation), such action would not be protected by the business judgment rule and the board could be held liable for breaching its fiduciary duty. The shareholder would have the right to sue the cooperative and the offending director for any damages suffered as a result of the conduct and may also obtain an order directing the cooperative to approve the refinancing.

“The board certainly cannot stop a shareholder from writing a letter to all other shareholders and distributing it to the shareholders in a reasonable manner. They can prohibit it from being posted in common areas or using building staff to distribute anything. A rule which prohibits distribution by sliding under a neighbor’s door is questionable. However, falsely accusing someone of requiring a tip before doing a required legal obligation could result in a libel suit if the unit owner is not able to prove a good faith belief and reasonable basis for the allegation. The shareholder should be certain of his allegations before committing them to papers and distributing them throughout the building.

“While the shareholder can always request a meeting with the board, there is no obligation on the part of the board to meet with shareholder simply because it is requested. The board can require all complaints or concerns be submitted in writing without a meeting. And, of course, the shareholder is always free to write to the board to express his concerns.

“One must look to your building’s bylaws and certificate of incorporation for specific procedures on removal of directors. Generally, shareholders can vote to remove a director for cause under New York's Business Corporation Law. The bylaws may even provide for removal by a vote of the shareholders without cause. Officers (such as the president) are generally removed from office by the directors and not directly by the shareholders. The bylaws will provide under what circumstances the shareholders can petition for a special meeting of shareholders to remove a director. Many cooperative bylaws require presentation of a petition signed by shareholders owning 25% of the outstanding shares in order to call for a special meeting.

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