Surviving the Rough Patches Resolving Shareholder Conflict

Even among the closest friends, conflict is inevitable. It's no surprise then that the relationship between shareholders and boards can sometimes be contentious. Problems can range from small-scale squabbles to multi-million dollar lawsuits that seem to drag on forever. When conflict does occur, however, there is usually a solution to solve just about any problem.

The issues that arise between residents and board members often start out small. Perhaps an upstairs neighbor is gutting his or her kitchen and the noise of the contractor's workers has not only grown too loud, it's also starting at 6:30 on a quiet Saturday morning. Or maybe a neighbor has sublet their apartment and the parties are lasting all night long - right up until the other neighbor's contractor arrives! Problems can stem from any number of initial frustrations.

Perhaps the most divisive issue, though, has to do with our four-legged friends and neighbors. "People get very angry about pet rules," says Elliott Meisel of the Manhattan-based law firm of Brill & Meisel. He cites the case of a building that passed an unpopular resolution on dogs. The residents were suddenly up in arms over it. "There was such an uproar, the board had to retract the rule."

Raised Tensions

Tempers in co-ops are also running a bit hotter this year after a recent judgment relating to shareholder-board relations. This past June, the 40 W. 67th Street vs. Pullman decision reinforced the notion that co-op or condo boards possess wide discretion when it comes to managing the affairs of their building, so long as those decisions are not self-dealing or arbitrary. "There's been an enormous degree of attention paid to the Pullman decision," Meisel says, "but it's merely an extension of the Business Judgment Rule."

The Business Judgment Rule came into play with the 1990 court decision in Levandusky vs. One Fifth Avenue. In this case, the New York Court of Appeals held that there can be no judicial scrutiny of the actions of a co-op board as long as board members act in "good faith" and exercise "honest judgment" in the lawful and legitimate furtherance of the corporate purposes of the cooperative.

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