Q&A: Payment of Legal Fees

 Q I am a shareholder in a newly formed co-op in Harlem. About six or eight months  ago, the super was fired and a new one was hired. The fired super still lives  in his apartment (provided by the co-op) and has filed a discrimination lawsuit  against the shareholders based on age, race, and illness (not sure what it is).  A letter from the management revealed that they have offered him several  severance packages, which he has denied, and in the process has cost us $28,000  in legal fees and $12,000 in rental fees for the new super. I would have  thought that the board would consult a lawyer before making decisions. What  concerns me the most is that the letter hints to an increase in maintenance due  to these expenses. Am I obligated to pay this increase? I feel like someone  dropped the ball here, and the shareholders should not be held responsible.  What happens is they increase the maintenance and I refuse to pay it?  

 —Super Trouble  

A “Addressing the issue of the fired superintendent first, if the superintendent’s employment was “at-will,” and not subject to the terms of an employment or union contract, he should have  been instructed to vacate and surrender possession of his apartment at or about  the time of his termination,” says Andrew J. Wagner, Esq., an associate at the Manhattan-based law firm of  Rosen Livingston & Cholst LLP. “A holdover proceeding should have then been commenced to recover legal  possession of the apartment in Housing Court. It appears that this may have  actually been done, and that the ex-superintendent is defending the holdover  proceeding, which might explain the substantial amount of legal fees incurred  by the co-op thus far.  

 “Regarding the obligation to pay maintenance increases, the shareholders are  responsible for paying all maintenance increases and assessments, provided that  said increases are implemented in accordance with the policies and procedures  set forth in the co-op’s bylaws, and that proper notice is provided to the co-op’s shareholders. This is true whether or not the shareholders agree with the  board’s decision, and even if the board has made poor choices that resulted in the  need to implement maintenance increases. Boards of directors are protected by  the “Business Judgment Rule,” which allows them to make decisions (including raising the maintenance),  provided they are made in good faith. The fact that the decisions are poor,  misguided, or even harmful to the co-op does not provide a legal basis to  withhold maintenance.  

 “A refusal to pay the maintenance increases could expose the shareholder to a  potential lawsuit for the payment of said charges. Incompetence would not be  considered a legally recognizable defense in any such lawsuit. Only the failure  to comply with procedures necessary to implement the increases would be a  viable substantive defense.  

 “Having said that, the shareholders are not without a remedy. They can simply  replace the board in a subsequent election, or even recall the existing board  by calling a special election, provided the bylaws allow it, and a sufficient  number of votes are obtained. A new board could then repeal the prior board’s resolution, and take appropriate action to address the substantive issues  involved.”  

 

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