Page 1

Belkin Burden Wenig & Goldman, LLP

UPDATE SEPTEMBER 2012 | V O L U M E 2 0

NO NEW REASON FOR CONCERN BY BOARD MEMBERS By Aaron Shmulewitz

The Court’s most noteworthy holding—departing from a prior decision’s ruling that, to face personal liability, a director must

The July 3 Appellate Division decision in

have committed his/her own tortious conduct independent of

Fletcher v. The Dakota, Inc. has engendered

the co-op’s tort—merely clarified pre-existing law within the

much media coverage indicating that co-op

context of the business judgment rule. The Court held that,

and condo Board members now face increased

while a Board member could not be held personally liable in

chances of being sued. A close reading of the case, however,

connection with a breach of contract by the co-op, he/she could

indicates that the good news is that Board members do not face

potentially face personal liability for participating in tortious acts

significantly greater risk of being sued successfully; the bad news

such as discrimination. (Query to what extent a corporation can

is that that risk was always there, and continues unabated.

discriminate in the absence of discriminatory intent by its Board members?)

In Fletcher, an African-American shareholder sued The Dakota and two of its Board members, alleging that they discriminated

In short, co-op and condo Board members do not face any

against him based on race and other factors in declining consent

significantly greater potential liability now than they did before

to his proposed purchase of an apartment adjacent to his. The

the Fletcher decision. Board members can (and always could)

Dakota and the two directors moved to dismiss most of his

potentially be held liable if they discriminate, or commit any

claims, based on prior Court precedents.

other act that is unlawful or beyond the scope of their authority.

While the Court did dismiss many of the targeted claims, the

Aaron Shmulewitz heads the Firm’s co-op/condo practice. If you

Court declined to dismiss several of the claims against the

would like to discuss any of the cases in this article or other related

individual Board members, holding that participation by a

matter, you can reach Aaron at 212-867-4466 or

Board member in a co-op’s tortious conduct could give rise to

ashmulewitz@bbwg.com.

individual liability by the Board member. The Court emphasized the remedial intent of anti-discrimination laws, and noted that such laws do not contain any exemption for individual Board members. The Court cited a long line of cases in which corporate directors were held personally liable for participation in a corporation’s tort, and noted that discrimination and other unlawful acts were never protected under the “business judgment rule” that was applied to co-ops in the seminal Levandusky case.

No New Reason for Concern by Board Members  

by Aaron Shmulewitz

Read more
Read more
Similar to
Popular now
Just for you