This was originally posted on the SGR Blog.
Local Law 11 Project Divides Condo
Coop and condo boards and unit owners often split into competing factions where one group questions and challenges the decisions of the other. And, as a recent case shows, the charges, accusations and acrimony can lead to very combative litigation.
Petitioners Mike Tong, Cathy Tong, Ann Chen, Te Chen, Nicole Crooks, Kamila Khavasova, Naturi Naughton and Gloria Lee sought a declaratory judgment and a temporary/permanent restraining order to stop the Board of Managers of the Bridgeview Tower Condominium from continuing with repairs and renovations relating to New York City Local Law 11.
Petitioners, the owners of condominium units at 189 Bridge Street in Brooklyn, sued the Board to enjoin the $1million project — and challenged the decision to proceed with the work at inflated costs/expenses during an unreasonable time of the COVID-19 economic crisis.
Mike Tong, a former president of the Board, asserted that, after the work was announced in April 2020 and after Zoom meetings about the proposed work, several unit owners suggested that other bids for the repairs be obtained and that the work be postponed in light of the Covid-19 pandemic. Tong also claimed that, although Board, through its management company, CRM Management Services, LLC, provided the unit owners with meeting minutes and documentation relating to the project, they did not include minutes from the actual vote; minutes discussing the need to seek financing and approving a $500,000 loan; and meeting minutes related to steps involved in the process “from beginning to end”. Tong also maintained that some of the proposed work was unnecessary and that, while he was president, he was able to have the same work performed at a substantially lower price. Tong asserted that the Board breached its fiduciary duty to the condominium and its owners.
Crystal Lia, a property manager employed with CRM, asserted that the proceeding was the latest in a series of attempts by Mike Tong and his wife, Cathy Tong, to harass the Board in retaliation for the fact that they were no longer in control of the condominium. The Tongs were the principals of Bridge View Tower LLC, the former developer/sponsor of the condominium, and Lia asserted that the Tongs controlled and mismanaged the condominium from 2008 until 2012.
Lia further asserted that, contrary to petitioners’ contention, the Tongs were not owners of a unit in the condominium and that there were additional discrepancies concerning some of the named petitioners and their alleged interests in the condominium.
According to Lia, the facade of the building was visibly deteriorated, resulting in water leaks in the units, and the repair work was mandated by Local Law 11 and authorized by the by-laws. And asserted that the unit owners were apprised of all of the aspects of the renovations during the 2018 and 2019 annual meetings, as well as during subsequent Zoom meetings, and that the Board acted in good faith, with transparency, and in an exercise of its honest judgment in the lawful and legitimate furtherance of the condominium’s best interest.
The Board claimed that the relief should be denied and the petition dismissed because petitioners failed to establish any entitlement to injunctive relief since the actions were shielded from judicial review by the business judgment rule — and, thus, petitioners were unable to establish a likelihood of success on the merits. Additionally, the Board argued that petitioners failed to establish irreparable harm or that the equities weighed in their favor.
A temporary restraining order may be granted, pending a hearing for a preliminary injunction, where it appears that immediate and irreparable injury, loss or damage will result unless the defendant is restrained before the hearing can be held. To establish the right to an injunction, a movant must show a likelihood of success on the merits, the possibility of irreparable harm in the absence of a preliminary injunction, and that the balance of the equities favors the movant.
The business judgment rule applies to the board of managers of a condominium. Under that rule, a court’s inquiry is limited to whether the board acted within the scope of its authority under the by-laws (a necessary threshold inquiry) and whether the action was taken in good faith to further a legitimate interest. Absent a showing of discrimination, self-dealing or misconduct, board members are presumed to be acting in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes.
The Court denied the temporary restraining order because the Board’s decision to proceed with the repairs in compliance with Local Law 11 was protected by the business judgment rule, which protects a condominium board from being held liable for decisions, such as those concerning the manner and extent of repairs, that were within the scope of their authority. Although Tong made conclusory allegations regarding the inflated cost of the repairs and the Board’s lack of transparency, they were belied by the proof in opposition — and petitioners failed to show that the Board acted wrongfully or outside the scope of its authority so as to warrant judicial scrutiny. Thus, petitioners failed to show a likelihood of success on the merits for injunctive relief. The petition was denied and dismissed.