History Has Its Eyes on You

Two events precipitated James Ramadei’s 2011 decision to run for the board at the Rutherford, a 174-unit co-op at 230 East 15th Street. The sitting board president, who had been in office since the co-op’s conversion in 1981, decided not to run again. And the entrenched board suddenly fired the building’s well-liked superintendent without providing shareholders with any explanation.

“People were just really tired of the board; they were getting involved in people’s personal lives,” says Ramadei, a financial services consultant who has lived at the Rutherford since 1987. “Meanwhile, the things they should have been doing were getting neglected. I wanted to change the government of the building.”

And he did just that. After being elected to the board and chosen for the presidency, Ramadei set in motion a remarkable undertaking that spanned almost three years: a comprehensive review and overhaul of the co-op’s governing documents that culminated in shareholder approval of more than 20 revisions to the bylaws and proprietary lease. Before being asked to cast their ballots, shareholders received a four-color, 50-page bound booklet laying out clear explanations for each of the proposed amendments.

That booklet – which cost about $2,000 to produce – was crucial in helping shareholders digest so many changes, says Donald J. Tobias, a commercial litigator and shareholder who wrote most of the explanations. But even more important to the process’s success, he adds, was Ramadei’s decision to appoint a panel of non-board shareholders to review the bylaws and proprietary lease.

“It wasn’t the board ramming this down people’s throats,” says Tobias, who chaired the panel. “Jim allowed another group to have the first shot at this.” As with most New York co-ops, the Rutherford’s governing documents hadn’t been updated since its formation. Lawyers involved in setting up the wave of conversions in the 1980s often used the same boilerplate language for governing documents. At the Rutherford, some of that outdated language had begun to interfere with the smooth running of the building, Ramadei says.

One of the biggest issues, he felt, was the provision in the bylaws allowing for cumulative voting in the election of directors. Cumulative voting was frequently put into bylaws at the time of conversion in order to allow the sponsors to maintain representation on the board even after a majority of units had been sold. The process allows a shareholder to vote all shares for one candidate. So in an election with five contested seats, for example, a shareholder with 200 shares might vote all 1,000 shares for one candidate. At the Rutherford, that was allowing a small minority to keep the same board in place for years. “It had to go,” Ramadei says.

A Beautiful Booklet

As soon as Ramadei was elected, he fired the previous board’s attorney and hired the firm Anderson Kill with the understanding that revision of the governing documents would be a priority. Then, working with his board (three out of five were newly elected), Ramadei appointed the shareholders panel.

“The panel was eleven people, and we all knew each other,” Tobias says. “We weren’t all bosom buddies, but we all wanted to get this done. We were motivated.” The panel met many times over 18 months before making concrete suggestions to the board. Among their recommendations was a proposal favored by Tobias to limit the terms of board members to four consecutive one-year terms. (Before being presented to shareholders, this was amended to a limit of six consecutive one-year terms within an eight-year period.)

Next, the board began its own meetings to discuss the panel’s recommendations, along with recommendations from its attorneys. “The board came to me with a list of things that they wanted to do with the lease,” says Andrew Freedland, one of the attorneys at Anderson Kill. “I went through them and discussed them, and advised what else they might do at the same time.”
Eventually, and after careful consideration of every comma, the board, panel, and attorneys whittled down some 70 potential changes to the 23 they decided were most essential. The booklet that went out to shareholders laid out for each revision the existing language at issue, the proposed amendment, and a simple explanation of its impact. Also noted was whether the revision was supported by the board, the shareholders panel, or both. (All but four proposals had the support of both.)

“The beauty of the booklet,” Ramadei says, “is it made each item accessible and made everybody feel that they were participating.” Next the board held two question-and-answer sessions for shareholders that lasted for hours. “It was an open forum – everybody who showed up was able to ask questions and make comments,” Freedland says. “That’s a good thing.”

The board also had to meet with the attorney for the building’s original sponsor, who still owns 21 apartments, in order to go through all the proposed changes. Ramadei’s fear was that the sponsor would reject the elimination of cumulative voting, since it had worked to his benefit.

A Pleasant Surprise

But much to Ramadei’s relief, the sponsor ultimately backed the change. “They understood [cumulative voting] wasn’t good for the building,” Ramadei says. That amendment and nearly all the other revisions passed when the process finally came to an end in December 2015. Revisions that fell by the wayside included the term limits Tobias wanted, and Ramadei’s right-of-first-refusal clause that would have allowed the corporation to buy apartments being sold below market value.

Among the key changes that did pass, however, was a revised “use” clause that allows shareholders living elsewhere to sublease their apartment to immediate family members, subject to annual approval from the board. “That saved six people in the building from being thrown out,” Ramadei says. “That was what the old board liked to do, and it caused huge ill will.” The revisions also modernized governing procedures, allowing for emailed board meeting notifications to directors, and allowing shareholders to opt for emailed notifications about annual meetings. Additionally, shareholders will be able to vote on future amendment proposals via written consent (after receiving proper notice) rather than by attending a meeting.

Now that the process is over, Ramadei has concrete advice for other boards considering such an undertaking. First, he says, assess how your governing documents are working for or against the building. Seek advice from counsel on whether parts of the bylaws are no longer relevant or legal.

Then encourage an open discussion about what changes need to be made for the good of the building. “For us, it was the sublet policy,” Ramadei says. “The lawyer put in the ease-of-doing-business stuff, and the shareholder panel put in things they found to be grievances.”

A well-thought-out revision can make a dramatic difference in a building’s operation. It certainly has at the Rutherford. “The political and emotional temperature is so much better,” Ramadei says. “Everybody says hello. It’s a much nicer environment.”