Unorthodox Route: Settle and Buy Them Out

Holland & Knight
Stuart Saft, Partner

A co-op board was being sued by a shareholder over possible mold in the shareholder’s apartment. Unfortunately, the shareholder had a daughter, suffering from a terrible disease, who was forced to use a wheelchair. The board members asked my advice; I suggested that they inspect the apartment for mold. They found mold, but not the dangerous kind. The shareholder’s mold consultant disagreed, and the shareholder pressed the litigation vigorously. I was concerned that, if the shareholder wheeled his ill daughter into the courtroom, the jury would think the illness was related to the mold or, just out of sympathy, would give the shareholder a big award. The litigation was also very expensive. I suggested that the board settle the lawsuit by purchasing the apartment, modernizing it, and then reselling it. After a protracted discussion and negotiations, the board did just that. The lawsuit was settled, the board spent about $40,000 painting the apartment, scraping the floors, and installing new appliances. It sold the apartment and made a $150,000 profit. It was a true win-win.

Legal Lesson

Sometimes you need to have unorthodox but creative solutions to solve difficult problems. Although the board members wanted to litigate to prove that they were right and had done nothing wrong, the likelihood was that the cost of the litigation would be excessively high and the end result unpleasant. Even if the board had been successful in the litigation, it would not have recouped the costs and would still have to deal with an unhappy shareholder. The approach we took eliminated the risks and the costs and resulted in a profit. The only way this could have been averted was for the board to remedy a condition that it was not obligated to remedy.