Uncivil War

Two boards vie for control on Manhattan’s East 96th Street.

From the outside, the co-op at 16 East 96th Street boasts the kind of aesthetic that celebrates the last century, rather than this one. There is no garage or health club, and no snappy modern art in the lobby. If you want to exercise, there’s Central Park down the block. If you want to impress, let your guests linger in the lobby, where the vault-like ceiling is expected to evoke reminiscences of a more gracious New York lifestyle.

In short, the co-op, a six-story, limestone-and-red-brick building, seems like nothing so much as one of the city’s thousands of prewar buildings that vaguely remind you of that stock Hollywood type – the maiden aunt: tidy, prim, and without a hair undone.

You wouldn’t know that there had just been a very uncivil war going on in the co-op. And that two competing boards claimed to be in charge.

Bill Greenspan doesn’t like to talk about the events of January 2009, when he and a handful of fellow cooperators brought the board to its knees, but he acknowledges that, yes, at one time, there was “a civil war” in the building. Greenspan and a handful of like-minded shareholders formed a blockade almost a year ago that not only stopped a million-dollar renovation in its tracks, but ultimately led to the overturning of the board.

Things got pretty hot, especially between board treasurer Lars Neubohn and Greenspan, who calls his attempt to usurp the sitting board “an impeachment process” and adds: “Lars was one of the people leading the charge and I was on the other side. The building was split down the middle.”

For Neubohn, who left the building in 2009 after nine years, the whole episode could be summed up as a “culture clash” between a relatively new guard that wanted to see services in the building commensurate with the price paid for apartments and an old guard that wanted things to stay exactly the same. “It was crazy,” says Neubohn. “It [was] just a mess.”

Both sides agree on the outline of what happened – in 2006, the board took out a line of credit to begin a renovation project. There were certain measures that absolutely had to be completed. The elevators needed to be rehabilitated, the back of the building shored up, part of the first floor had to be replaced to stop an infestation of rodents, and the lobby was due a fresh look.

A Step Too Far

But it was that last point – the degree of lobby freshness – that was the sticking point. For nearly two years, successive boards hemmed and hawed as shareholders argued about whether the lobby needed a full renovation or just a paint job. Neubohn says he was encouraged to run for the board in 2008 by a group of shareholders who were tired of the delays and wanted to see some renovations that reflected their financial investment in the building.

He ran and was elected in May of that year with six other board members, who began the arduous task of getting a majority in the building behind a renovation plan. It was no small job.

“The board spent about six months planning, holding meetings, open houses for the shareholders, drawing up plans, beginning the permit process, and interviewing different general contractors,” recalls the former board treasurer. There were countless meetings among the board members and dozens of meetings with the shareholders to let them know what was happening.

Throughout the second half of
2008, says Neubohn, “there were discussions at the board level and discussions in meetings with shareholders – multiple meetings over multiple months – to inform shareholders and get feedback from them.

“There was one faction in the building,” maybe 25 percent of the owners of the building’s 42 units, “that just didn’t want to do anything and that we referred to as the ‘just paint’ crowd,” says the former treasurer.

Nonetheless, he insists, the board members were completely within their rights to start the renovation – “there was a clear majority of the board of directors who wanted to undertake the project and the majority of board members voted to approve it, so it went forward.”

In October 2008, the board voted to approve the hiring of a general contractor, signed a contract, and put down a deposit. For Greenspan, it was a step too far. Upset in particular over a plan to level the lobby floor for improved wheelchair access, he and a group of shareholders petitioned the board for a special meeting of shareholders specifically to rescind the motion previously passed concerning the infrastructure and pass a new motion to repair only the elevators and do general necessary repairs. In addition, the board would promise to get approval from the shareholders for future renovation. If the measures were not approved, the shareholders would vote on removing the board.

On January 6, 2009, the board and the dissidents met. For several hours, the differing factions debated the wisdom, scope, and nature of the project – there was “a lot of contention on all sides,” recalls Neubohn. The board agreed to the condition set by the dissident group to scale back the project to do just the elevator rehabilitation and proceed with the remodelling of the rear of the building. The directors also tabled – with the proviso that they would discuss it in the future – the renovation of the lobby. Then, believing there was nothing more to discuss, the board adjourned the meeting.

But for a group of hard-core shareholders, all of that still wasn’t enough. After the meeting adjourned, Greenspan and his fellow shareholders staged an “impeachment” of the sitting board, ousted them, and elected a new slate of board members, including Greenspan – even though the entire shareholder body did not get a chance to participate either in print or by proxy.

For Neubohn and his fellow board members, the midnight election was a dangerous farce that not only violated the rules of elections as laid out in the proprietary lease but also drove a wedge further between those who supported the renovation and those who opposed it.

“There are usually provisions in a proprietary lease which permit shareholders owning a certain percentage of all outstanding shares to petition the board to call a special meeting for the purpose set forth in the petition,” explains attorney Robert Braverman, a partner in Braverman & Associates who represented the building in the dispute. “Upon receipt of such a petition, the board is mandated to call the meeting. That is what happened at 16 East. The meeting was validly called, but the election itself was legally flawed because the board acceded to the condition that the scope of the renovation be scaled back.” Moreover, according to Braverman, even if the board had refused to rescind their decision to proceed with the original scope of the renovation, the “removal process” employed by the dissident group was improper. That, however, did not stop the dissidents from claiming they were in control.

Last Board Standing

After the disputed election, Greenspan insisted that his board was now duly elected and in charge of the building, while Neubohn and his board members claimed that the election was invalid and continued to push forward with the renovation. Notices went out to shareholders that the first part of the construction – moving the storage units – would begin on February 24.

But it was not to be. At 8:30 A.M. on the morning of February 24, when the construction workers came to remove the storage units, they were met with a handful of shareholders. Like good 1960s radicals, they linked their arms and formed a human chain across their units.

For nearly two hours, the protesters stood their ground, while the workers moved around them, sawing off the doors to other storage units and removing the belongings. “Nut jobs,” says Neubohn, dismissively; Greenspan was “the craziest of them all.” Greenspan declines to discuss the events further.

After the managing agent called a halt to proceedings, the renovation project effectively stopped. While Neubohn’s board struggled with whether to go to court to confirm their legitimacy as the building’s official board, Greenspan’s slate declared victory in the absence of construction work.

According to Neubohn, the fight ultimately wore out his fellow members – they were unwilling to take on the expense of a court case – and they decided to “punt,” waiting for the annual election in May to determine who was in charge of the building.

May came and the old board members were voted out as a new slate, including Greenspan, was voted in. Did the dissidents win? “Absolutely,” says Neubohn. “This rump board got what they wanted.” In the fight between the old and the new, “the new guard had run out of gas.”

According to Bravernan, Neubohn’s board tried repeatedly to negotiate with the opposition, “but the opposition didn’t want to,” he says, calling the coup at the co-op in early 2009 the result of “a perfect storm” of factors: a board with a razor-thin mandate to lead; a small building that holds elections for every seat every year; and a group of determined shareholders who were willing to dig in to make their point.

Each side “challenged the other’s legitimacy, but neither was inclined to have the legitimacy determined by a court,” says Braverman. “What you ultimately had was this standoff where nothing got done.”

Any efforts by Neubohn’s board to negotiate with Greenspan’s faction were met with resistance, adds the attorney. The rump faction won by doing nothing – “if they were able to throw enough of a monkey wrench into the works, the managing agent [would be] reluctant to advance money to the contractors,” says Braverman. “Then their mission was accomplished.”

While the management company, Akam Associates, declined to comment on the events of 2008-2009, the president, Michael Berenson, acknowledges that his company resigned in June of 2009.

So, what can one learn from all this? Management professionals who are unaffiliated with the building say that trouble might have been avoided if the board had moved more softly rather than acting with a big stick. It is important for boards to exercise their power with discretion. For instance, under the Business Judgment Rule, a board can operate a building as it sees fit, so long as there is no self-dealing or discrimination. That means it can re-do the lobby, for instance, as often and in whatever manner it chooses. But just because it can doesn’t mean that it should.

“If there is a large group of people who are against something, these are the kinds of things [that] you have the right to do, [but] you don’t necessarily do [them] if there is a large faction of people who don’t agree,” says Jeffrey Friedman, president of Vintage Real Estate. Moving cautiously is the best approach.

Any time a building takes on a big project like a lobby renovation a board has to expect opposition, warns Lynn Whiting, vice president at Argo Management: either over the expense, or just the fact of change, or both.

“In a condominium [association] that we managed, the board in good faith tried to do a five-year capital plan [and] tried to procure financing. [They] held a special meeting to get the votes, but they weren’t able to get the super majority to approve it.”

Instead, a group of unit-owners became so excised over the mere idea of an assessment that not only did they successfully block the five-year plan, but they overthrew the entire board at the next election.

According to Greenspan, the situation was simple. “We ended up stopping things no one wanted to be done, and in the end spent less money than what was contemplated.”

For Neubohn, however, it’s even simpler than that: “It’s the classic story of the old versus the new.”