The First Department determined the cooperative board’s rescission of plaintiff’s purchase contract was wholly arbitrary and was not shielded by the business judgment rule:
Plaintiffs’ application to purchase a unit in defendants’ cooperative residential complex was approved by defendant Board of Directors, and then rescinded two weeks later, based upon a Board member’s erroneous report that plaintiff Richard Kallop told her he did not intend to reside in the complex, as required by the purchase contract. Plaintiffs filed a complaint seeking, inter alia, to compel defendants to permit the sale to go forward. After defendants filed their answer, plaintiffs, by order to show cause, sought an order permitting the sale to close. An evidentiary hearing was held, at which the reporting Board member’s testimony revealed that Richard Kallop had not, as she claimed, informed her he intended to reside outside the cooperative complex. For his part, Richard testified that it had always been his plan to reside in the cooperative unit with his elderly mother, co-plaintiff Joan Kallop.
Under these facts, we conclude that defendants’ decision to rescind its approval of plaintiffs’ purchase application, being without any basis in reason and without regard to the facts, was wholly arbitrary, and thus not entitled to the protections generally provided to cooperative boards by the business judgment rule … . Kallop v Board of Directors for Edgewater Park Owners’ Coop. Inc., 2017 NY Slip Op 08174, First Dept 11-21-17
COOPERATIVES (WHOLLY ARBITRARY DECISION BY COOPERATIVE BOARD TO RESCIND PLAINTIFF’S PURCHASE CONTRACT NOT SHIELDED BY THE BUSINESS JUDGMENT RULE (FIRST DEPT))/BUSINESS JUDGMENT RULE (COOPERATIVES, WHOLLY ARBITRARY DECISION BY COOPERATIVE BOARD TO RESCIND PLAINTIFF’S PURCHASE CONTRACT NOT SHIELDED BY THE BUSINESS JUDGMENT RULE (FIRST DEPT))