Was There Mudslinging at 165 West End Avenue?

Leah Savitt, a member of the co-op board at 165 West End Ave. in Manhattan, wanted to run for re-election. But she had concerns, and she sent emails to shareholders alleging that the building’s finances were mismanaged because the board failed to make timely dues payments to the Lincoln Towers Community Association, to which the building belonged. Other members of the board explained that the co-op’s management company had not been properly billed, but that once it was billed, all dues were paid, without interest or penalty.

Thereafter, the board voted to amend the bylaws and adopt a Code of Conduct and Ethics. The code stated, among other things, that a real estate salesperson or broker could not serve on the board unless they agreed not to participate in apartment sales in the building; an attorney serving on the board could not represent shareholders in matters involving the cooperative; a board member could not receive an economic benefit as a result of dealings with the cooperative; board members could not be in contract to sell their apartments; and, on the date of the election, no candidate could be in default under the proprietary lease.

After these rules were adopted, the board added another provision: if a shareholder had been in arrears for 4 months of any 12-month period in the prior 10 years, he or she would be ineligible to run for the board – unless the amounts payable were reasonably and in good faith challenged by the shareholder. The time period was measured from the date of the most recent arrears.

Savitt complained that this last bylaw amendment was passed specifically to exclude her from running for the board because she had been in arrears within the past 10 years but had paid in full by the date the new bylaws were adopted. She pressed on with her re-election bid. The board circulated biographies of six candidates – excluding Savitt. At a meet-the-candidates night, the board president, Mark Cantor, explained the code to shareholders. He told them it had been developed by the Council of New York Cooperatives & Condominiums (CNYC) and had been approved by various bar associations. As to the provision concerning prior arrears, Cantor explained that CNYC’s rule had a loophole that allowed a shareholder to be financially delinquent before joining the board and once on the board. The provision added by this board closed that gap. “The board made this change,” Cantor said, “because we want a clean building, with a clean board, with clean elections.”

Though her name was not mentioned, Savitt claimed that the implication of Cantor’s statement was that she was “unclean” and did not follow the highest ethical standards personally and, by implication, professionally (she was a financial advisor and accountant). The board also sent two emails to shareholders discussing the bylaw amendments and the importance of the fiscal responsibility of board members. Savitt identified various statements she asserted were defamatory, including that she was “spreading falsehoods,” that she used “abusive, invective-filled language, personal intimidation and bullying tactics” and that the board, “with the exception of one person, believes it is important to present you with the truth.”

In a case known as Savitt v. Cantor, Savitt and her husband, Ephraim, sued the board derivatively – that is, on behalf of all shareholders – alleging various breaches of fiduciary duty, and Leah Savitt sued the individual board members, claiming defamation. The alleged breaches of fiduciary duty included a costly and unnecessary renovation of the lobby, delay of elevator repairs, improper handling of dues to the community association and promulgating the “improper” new bylaw amendment.

The court dismissed these claims, saying the board considered, but decided not to, renovate the lobby; the elevators had been deemed in acceptable condition by the building’s elevator engineers; and there was no damage incurred as a result of the late payments to the association. As to the bylaw amendment, the court stated that any challenge would have had to be made within four months of its adoption. Because this action was commenced four months and 10 days after the amendment, the Savitts’ claims were filed too late.

The court then reviewed Leah Savitt’s individual claims of defamation. The court determined that Cantor’s speech on meet-the-candidates night, “in its full context,” did not expose Savitt to “public contempt, ridicule, aversion or disgrace or induce an evil opinion.”

The court went further and stated that, under Savitt’s interpretation, a co-op board could never adopt a bylaw and then explain its reasons without running the risk of defaming someone affected by the amendment. As to the emails the board sent to the shareholders, the court found that some of the board’s statements went too far, including that Savitt engaged in “spreading falsehoods,” that she used “abusive, invective-filled language” and that she made “threats of frivolous legal action.” There is also an implication in one of the emails that Savitt is dishonest.

In evaluating these statements, however, the court had to determine if they were libel per se, meaning that if they were directed to Savitt’s profession, then she would not need to plead pecuniary loss. If the statements were not libel per se, however, then Savitt would need to show such financial damage. Since Savitt did not show financial damage, the court dismissed the defamation claims, although Savitt has the right to refile them.

The Lesson

Because the Savitts brought an action to challenge the bylaw amendment too late, the court did not have to determine whether the amendment prohibiting board service by those in arrears during the past 10 years was viable on its face. So we don’t know what the court would have decided. Nor did the court address one of the defenses often raised when a member of a cooperative alleges defamation – that there is a common-interest privilege or exception that protects statements made to people who have a common interest in the communication at issue.

This privilege does not permit unfettered communications in the context of a cooperative or condominium. However, the person claiming to be the subject of a defamatory statement has the burden of showing that the person uttering the words was motivated by actual malice – that is, that the words were not only untrue but they were also spoken with reckless disregard for the truth.

Attorneys

Attorney for Savitt: Ephraim Savitt.

Attorneys for co-op board: Braverman Greenspun.

Dale J. Degenshein is a partner at the law firm Armstrong Teasdale. The statements and views in this article are her own and not necessarily those of the firm.