Victor M. Metsch is a Senior Litigation/ADR partner at Hartman & Craven LLP.
This article was originally published by Thomson Reuters.
Almost every legal dispute arising from decisions by the boards of directors of cooperatives or the boards of managers of condominiums centers around ritualistic and talismanic references by both sides of the issue to their conflicting reliance on the “business judgment rule.” The governing bodies and their members claim they acted in good faith, to address a matter of corporate concern, within the scope of their authority. In marked contrast, the unit owners claim that the board acted in bad faith, on a matter outside their realm, for a collateral purpose. The disputes are often extreme and vitriolic because, for the most part, the issues pit neighbor against neighbor or one board faction against another.
It appears that the rule, as initially fashioned by the Court of Appeals in 1993, and explicated in 2003, was designed to limit the amount of litigation arising out of decisions by the governing boards. To the contrary, however, the subsequently developed caveats and exceptions to the “business judgment rule” have resulted in an explosion in litigation challenging and defending decisions by residential building governing boards. Continue reading