Discrimination and Damages

You’re a member of your co-op board. A young couple, both attorneys, seek to sublet an apartment in your building. Their sublet package is organized and complete, with excellent references, and their combined annual income is more than the threshold limit your board likes to see. Everything appears to be going smoothly – until the board interview. The couple walks in, and they happen to be interracial. Some of your board members seem surprised, but they don’t say anything. Their demeanor is somewhat cool and distant. The young couple, perhaps sensing covert racism or perhaps being run-of-the-mill arrogant and aggressive attorneys, start to get defensive.

The interview does not go well. Afterward, the board deliberates and votes to reject. During the deliberations, you raise some concerns that if the board is rejecting based on the race of the husband, the board is likely to be sued. But ultimately you go along with your fellow board members. You’re rejecting because this couple was rude and seemed litigious. Later on, you find out that one board member made some notes during the interview and specifically noted that the husband was African-American.

After the rejection, the couple sues, and they win. This scenario, based on an actual 1997 case involving the board of Beekman Hill House, of which Nicholas Biondi was the board president, was a disaster for the board. The jury found against the co-op and against the individual directors. The couple was awarded $640,000 – more than half of it from the punitive damages against the cooperative and the individual directors. The shareholder who was seeking to sublet her apartment was awarded $164,000 in compensatory and punitive damages. She claimed the board retaliated against her after she objected to the rejection of her sublet application. The case was a huge wake-up call for board members. So what did boards learn from it besides the obvious – don’t be racist? Boards had to learn about protected classes and how not to make references to them. A good rule to follow is: if you cannot ask the question during a job interview, you cannot ask it during a co-op board interview. And there is a lot you cannot ask in a co-op board interview.

First, what are the protected classes? These classes exist in federal, state, and local discrimination laws. If your board rejects an applicant because he or she is a member of any of these classes, it will be found to be discriminatory. The classes are: age, gender, race, color, religion, national origin, citizenship, sexual orientation, marital status, military status, disability, and a special one just for New York City, occupation. If one of your fellow board members asks a question regarding any of these classes during the interview, the applicant can and probably should refuse to answer.

Why would anyone ask anything directly related to any of these classes? The reality is, it’s rarely a direct question. It usually arises in what appears to be casual conversation. But there can be no casual conversation when it comes to the co-op board interview. Here are some examples:

•    To the individual applicant: “What do you do for a living?”

•    To the applicant of a different national origin: “Where do you originally come from?”

•    To the newlyweds: “Do you plan to have children?”

•    To the couple who already has a child: “Oh, so you have a 3-year-old. Do you plan to have more children?”

•    To the single young female: “Do you plan on having frequent overnight guests?”

•    To the person with a disability: “Will you require special assistance from our building staff?” Or even something as simple as: “I see you walk with a limp. Are you okay?”

How do you avoid such potentially damaging casual conversation? Most boards already know the drill on how to minimize risk, but it never hurts to be reminded. First, you review the application thoroughly before scheduling an interview. If the application fails on its face, reject it. No board member should have any direct personal dealings with the applicant during the review process. If you reject before you learn anything specific about the individual or individuals, you can avoid a claim that a decision based on finances was discriminatory. You rejected based solely on what was submitted on paper, period.

Second, be consistent. The initial review is primarily a financial one that determines if this applicant can afford the apartment and its carrying charges. You want your rejection to be able to withstand the scrutiny of the facts. If someone was to compare a rejected application to a purchaser who was approved and the person who was rejected actually looks better on paper, then it’s more likely than not the board’s decision for that rejection will appear to be discriminatory. Finally, when in doubt, please consult with your attorney before you issue the rejection. You and your attorney should review the reasons and the record supporting that decision. No board member should ever discuss any aspect of the rejection with anybody outside of the board, in person or in email. Generally speaking, people use email way too often and way too casually. You need to assume that every email you send could appear as an exhibit in court papers.

As board members, you are fiduciaries of your corporation. You are charged with protecting the physical plant of the building and its financial health. Granting consent to financially qualified applicants who embrace the spirit of cooperative living within your building is an important role. But there must be zero tolerance for discrimination in that process.

Lisa Smith is a partner at Smith Gambrell & Russell.