Sue Me, Sue You

The Absorbing Man was always a cool bad guy in the Marvel Comics roster. His real name was “Crusher” Creel, and he was a boxer and jailbird before the villainous Loki, Norse god of mischief, laced his drink with a magic potion. After drinking that, he found he could absorb the properties of anything he touched. Creel thus became a powerful foe, battling such stalwart figures as The Hulk, Thor, and The Avengers. The stronger the hero got, the stronger Creel got. When you fought him, you were, in effect, fighting yourself. Comic books go Freudian!

I fear that the Absorbing Man would have been right at home in some co-ops. Or so it seemed to me after a conversation I had with attorney Robert Tierman, a partner at Litwin & Tierman, about the strange phenomenon of shareholders or unit-owners suing their boards. Since the corporation must spend the shareholders’/unit-owners’ money in defending itself against the litigation, the shareholder is, in essence, battling himself. It’s the Absorbing Man Syndrome without the superheroes.

So, what do you do if you find yourself being taken to court by your neighbors? It’s not pleasant and is usually over a decision the board made affecting the residents. Tierman says there are three ways a board can react. “They can say, ‘Screw it. Let the D&O [directors’ and officers’ liability insurance] handle it. Let’s fight them in court,’” he notes. “Or, they can say, ‘If we take it to court and are defended by our D&O lawyers, our insurance rates will go up. Let’s try to settle.’ Or, they can be flexible: ‘The last time, we did stood firm. So, this time let’s try to compromise.’ ”

But Tierman has no explanation for why shareholders sue rather than settle, except to say, “We are a litigious society.”

Or a nutty one. I heard of one cooperative where things are apparently humming along. “Oh, yes, we’ve got our budget worked out, we’ve done capital work, and there are no major problems,” the board president said to me suavely. Then I asked her how things were with the board. “It must be harmonious if things are running so smoothly.” Long pause. “Ah, well, we have a problem,” she said, not quite as suavely. Seems there was a board member who always came to the board meetings a half-hour late – and brought her little dog with her too. “She said it barked when she left it alone,” said the president. And the woman always left early. “The dog got anxious if it was in one place too long.”

If doggie duties were the only concern, the board might have tolerated the situation. But the woman was also pursuing a very personal agenda: pushing her apartment’s interests to the forefront before the co-op’s interests. For instance, she lived on a top-floor apartment – so roof concerns had to be paramount. Never mind that there were building-wide issues that needed addressing,

The board’s big problem, discussed when this dutiful director wasn’t present, was how to ease her off the board – without causing a major rift. As with the Absorbing Man, when fighting her, they were actually fighting themselves. After all, a co-op is about cooperation and living with your neighbors not battling them. The co-op appointed a diplomatic delegation of two to gently ask her to step down (but to make her feel wanted, they let her stay on a committee). Crisis narrowly averted.

Still, that said, you should also know when a lawsuit may be in the property’s best interests. To wit: I recently received a phone call from a shareholder in a co-op who wanted advice. The board had just laid down a whoppingly large assessment, offering little by way of explanation, and exhibited a “Don’t mess with us” attitude. The directors subsequently refused to hold an annual meeting and ignored a plea from a group of 14 shareholders (out of 50 or so) to partake in a special meeting – even though the group had gathered enough proxies to initiate one. It was a clear violation of the rules. I told her to hire a lawyer. Sometimes, I guess, it isn’t so crazy to battle yourself.