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COOPERATIVE BOARD’S DETERMINATION TO WAIVE THE CONSENT REQUIREMENT FOR THE CONSTRUCTION OF A SECOND-FLOOR TERRACE WAS NOT JUSTIFIED BY THE BUSINESS JUDGMENT RULE, THE BOARD’S RULING IS A PROPER SUBJECT OF AN ARTICLE 78 ACTION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the cooperative board should not have given the owner of a second-floor cooperative apartment (Haffey) permission to construct a second floor terrace without the consent of the investor-owner of the first-floor cooperative apartment. The cooperative’s guidelines, which can be waived, required the first-floor owner’s consent to the construction of a second-floor terrace. The board’s decision singled out investor-owners for different treatment and cannot be justified under the business judgment rule. The court noted the board’s determination is properly the subject of an Article 78 proceeding:

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… [In] “the context of cooperative dwellings, the business judgment rule provides that a court should defer to a cooperative board’s determination so long as the board acts for the purposes of the cooperative, within the scope of its authority and in good faith'” … . “To trigger further judicial scrutiny, an aggrieved shareholder-tenant must make a showing that the board acted (1) outside the scope of its authority, (2) in a way that did not legitimately further the corporate purpose or (3) in bad faith”… . “[T]he broad powers of cooperative governance carry the potential for abuse when a board singles out a person for harmful treatment or engages in unlawful discrimination, vendetta, arbitrary decision making and favoritism” … .

… [T]he board’s determination to dispense with the consent requirement and allow Haffey to erect the subject terrace without the petitioner’s consent was not protected by the business judgment rule. By dispensing with the petitioner’s consent, and, more generally, the consent of first-floor shareholders-tenants who do not reside in the building, the board deliberately singled out the petitioner, as well as tenant-shareholders who do not reside on the premises, for harmful treatment and engaged in favoritism toward tenants-shareholders who resided on the premises. As such, the petitioner established that the board’s determination to dispense with his consent did not legitimately further the corporate purpose and was made in bad faith … . Matter of Dicker v Glen Oaks Vil. Owners, Inc., 2017 NY Slip Op 06645, Second Dept 9-27-17

 

COOPERATIVES (COOPERATIVE BOARD’S DETERMINATION TO WAIVE THE CONSENT REQUIREMENT FOR THE CONSTRUCTION OF A SECOND-FLOOR TERRACE WAS NOT JUSTIFIED BY THE BUSINESS JUDGMENT RULE, THE BOARD’S RULING IS A PROPER SUBJECT OF AN ARTICLE 78 ACTION (SECOND DEPT))/CIVIL PROCEDURE (ARTICLE 78, COOPERATIVE BOARD’S DETERMINATION TO WAIVE THE CONSENT REQUIREMENT FOR THE CONSTRUCTION OF A SECOND-FLOOR TERRACE WAS NOT JUSTIFIED BY THE BUSINESS JUDGMENT RULE, THE BOARD’S RULING IS A PROPER SUBJECT OF AN ARTICLE 78 ACTION (SECOND DEPT))/BUSINESS JUDGMENT RULE (COOPERATIVE BOARD’S DETERMINATION TO WAIVE THE CONSENT REQUIREMENT FOR THE CONSTRUCTION OF A SECOND-FLOOR TERRACE WAS NOT JUSTIFIED BY THE BUSINESS JUDGMENT RULE, THE BOARD’S RULING IS A PROPER SUBJECT OF AN ARTICLE 78 ACTION (SECOND DEPT))

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