Safe Territory

Everyone loves a good horror story, and here’s one that’s enshrined in the Co-op Hall of Fame. In 1995, a co-op board on the East Side of Manhattan turned down a financially qualified sublet candidate after two interviews. The snubbed applicant, who was black, sued the co-op and each member of the board for racial discrimination. And he won. Big time.

Although Nick Biondi, the president of the board at the time, insisted he was not a racist, he was found to be personally liable – along with the co-op and another director – for the $230,000 compensatory award and for $125,000 of the $410,000 in punitive damages.

It was all the proof any co-op board would ever need that interviewing potential shareholders and subletters can be a treacherous minefield, one with the potential to bankrupt a co-op and its directors.

Today, thanks to better awareness of discrimination laws and better communication with their lawyers, most boards navigate the minefield without loss of life or limb.

But discrimination lawsuits keep coming, and board members need to remember that there are things they can do – and things they should not do – to avoid becoming the next Nick Biondi, who, by the way, had to sell his apartment to cover $250,000 in fines and legal fees. He now lives in a house on Long Island. Asked if the experience left him bitter, Biondi says: “Of course I’m bitter.”

A Discriminating Man

The first thing boards need to know is that there are a great many mines in the discrimination minefield. Co-op boards must comply with not one, not two, but three sets of rules designed to shield “protected classes” from discrimination. With apologies for any repetitious redundancies, here are the three sets of rules:

• The New York State Human Rights Law prohibits discrimination because of race, age, creed, national origin, or sex.

• The New York City Human Rights Law prohibits discrimination because of race, creed, color, national origin, gender, age, disability, sexual orientation, marital status, citizenship, presence of children, type of job, and something known as “alienage,” which is one way of saying “immigration status.”

• The Federal Fair Housing Act prohibits discrimination because of race, color, religion, national origin, handicap, or family status.

That’s a lot of protection for a lot of classes, and board members can be forgiven for wondering just exactly what they can ask for in an application and interview.

“Boards can ask about finances, employment history, references, membership in clubs, charitable donations, hobbies, whether the applicant has ever been evicted or convicted of a crime,” says Theresa Racht, a partner in the law firm Racht & Taffae.

A common financial benchmark used by many co-ops is that the applicant’s maintenance and debt service should total no more than one-third of his or her income. But many boards also consider other factors in assessing an applicant’s financial worthiness, including assets, debt load, credit score, bankruptcy and litigation history, and child support or alimony payments.

“The real question is, ‘Is this person financially responsible?’ – however you define the term,” says James Samson, a partner in the law firm of Samson Fink & Dubow. “It’s subjective. Instead of relying on some rigid formula, look at the overall picture. Anyone can get fired and lose their income. Ask yourself: if they get to the point where they can’t pay their maintenance, will they act responsibly?”

If you believe the answer is no, you have the right to reject the application. Of course, that doesn’t mean you won’t get hit with a discrimination claim.

Going to Court

Mark Hankin, a partner in the law firm Hankin & Mazel, says he is called on to defend boards against discrimination claims a couple of times a year. “Right now, I’m defending four cases,” he says. “I haven’t lost a case yet in 25 years, but it’s a lot of work.”

When a rebuffed applicant files a discrimination complaint, Hankin says, the lawyer’s prime objective is to avoid going to a hearing, which can lead to a conviction, which will land the co-op on the “hot list” of properties that have a history of discrimination.

This, Hankin says, is one of those areas where prevention is the best medicine. He tries to meet with boards before they conduct an interview to coach them on what they shouldn’t ask and what they can’t ask. The boards that have undergone these tutorials are litigation-free, he says.

“I make it clear that there are certain matters that keep coming up,” Hankin says. “When you review an application, you should always have an income guideline in writing – you spell out that a person has to make a certain amount of money to get into this co-op. The board has that absolute right. It’s been legally tested. And I also say to be very careful during the interview. You should not ask about the familial relationship between two women, for example. I give them other examples because I want them to know how easy it is to get trapped and give people the opportunity to file claims. I tell them stories, and they get nervous. That’s the way I want them to be because, unfortunately, people say things without thinking.”

Which may be the greatest danger of the entire process – the tendency to treat the interview as a normal “let’s get acquainted” conversation, rather than as a proceeding fraught with potential legal perils.

“You’ve got to remember that people on boards are regular people,” Hankin says. “If someone says they haven’t worked in 30 years, aren’t you going to ask why? I had an applicant who looked like he was about 70 years old, and he was still working. During the interview, someone on the board asked, ‘How old are you?’ He was 72 years old, and the board turned him down on grounds of income. He worked at a Waldbaum’s bagging groceries. He filed a complaint with the New York State Human Rights Division, but they found no probable cause and didn’t proceed to a hearing.”

The board had stepped on a land mine that didn’t blow up. Live and learn.

Admit One?

As Nick Biondi can attest, the interview is the part of the admission and sublet process that’s most liberally salted with land mines. Some lawyers advise boards not to interview an applicant they’re prepared to reject on the basis of the application information. Others advise that the interview should be a formality.

“In general terms, one of the things I try to instruct boards is that the interview should be a rubber stamp, not a chance to get new information about financials or anything else,” says Racht, the lawyer. “Remember, the application is blind, so to speak, so the interview is your opportunity to eyeball the applicant. It can be an opportunity to make sure they understand the rules or find out their alteration plans. Maybe they’ll talk about how they love to throw late-night parties. There’s a subtlety here. You can turn someone down just because you don’t like them – but you can’t overtly discriminate. Once you’ve seen someone, it opens the door for discrimination issues to give rise to complaints – about race, for example, or a handicap.”

Racht advises boards to conduct all post-interview communication orally, never by e-mail – because e-mails can get sent to the wrong people, and they’re discoverable in a legal proceeding.

Once you’ve tiptoed through the minefield, it’s worth remembering that the interview is a conversation between people who might soon be neighbors. “You want to treat people the way you would want to be treated,” Racht says. “The interview should not be a grilling. It should be a welcome to the building.”

Within limits, of course.