Board Business: Pay Attention to Grievances

The trees were the last straw. Not only had there been no completed board elections since 2018, but when the entrenched seven-member board at the Parkway Village co-op in Kew Gardens Hills, Queens, announced that it planned to cut down some dying trees and add coveted parking spaces at the 109-building, 675-unit garden complex, disgruntled shareholders decided the time had come to push back.

“All of a sudden we hear that they’re getting signatures for committees to advocate for keeping the trees and not having the parking,” says Sara Martinez, who was president when the board decided to replace trees with parking spaces. “That’s how it all started — with the trees and the parking.”

It was an uprising by shareholders who had a long list of grievances — and finally used a little-known legal tool to try to oust the board. This is the anatomy of a co-op coup in Queens.

Sharp Differences

“They were cutting some trees down, and I was invited to a meeting where people were concerned about that,” says Terry Saunders, a former assistant district attorney and judge who had served a term as board president from 1992-1993. “But I saw it as a bigger problem, and I felt our only answer was really to get rid of this board that’s been in power for so long.”

Saunders and like-minded shareholders had a list of grievances. They believed the board was being secretive and had misrepresented the status of ongoing roof work. They were also concerned about the underlying debt increasing from $38 million to more than $80 million, and that shareholder fines were not being levied fairly.

As in most disputes, each side has a point of view. Martinez, the president who presided over the tree decision, recalls that the board distributed more than 18 newsletters about capital projects and other co-op affairs, as well as flyers and PowerPoint presentations. Spreadsheets listing descriptions and costs of work, sources and amounts of funding, and purported percentages of work completed for each project, were distributed to shareholders. The underlying mortgage was refinanced, she said, at a low 3.25% interest to pay for capital repairs, and the board levied fines of up to $1,500 for serious breaches of rules and bylaws, such as unauthorized alterations without permits. 

But the dissidents were not placated. They kept returning to the fact that the seven-member board, which includes one seat held by the sponsor, had not achieved a quorum since Oct. 11, 2018. While the Parkway Village board in 2019 and 2020 could have scheduled another meeting soon after, or extended the election time and urged shareholders to turn in late votes and proxies in order to reach a quorum, it did not. Instead, it told shareholders in a letter that the board would remain in place. At the next board meeting, three members resigned and three new, unelected members were appointed.

The coup now kicked into a new gear.

The Nuclear Option

When Saunders discussed his fellow dissidents’ grievances with lawyer friends, they pointed him toward Section 603 of the state’s Business Corporation Law (BCL). It states if a corporation has not held a meeting for 13 months, then “the board shall call a special meeting for the election of directors.” Not may call — shall call. There was no quorum on Nov. 4, 2019, which legally means that no meeting took place. So by Dec. 11, 2019 — 14 months after the 2018 quorum — the board should have called for another meeting. 

Steve Wagner, a partner at Wagner, Berkow & Brandt who was later hired by the dissidents, simply states, “As a matter of law, there’s no meeting without a quorum.”

Other attorneys back him up. “When a building fails to reach a quorum, the annual meeting has not occurred,” says Michael T. Reilly, a member at Norris McLaughlin. “The event is just an informational session.” Ken Jacobs, a partner at Smith Buss & Jacobs, adds somewhat puckishly, “If the meeting takes place in a forest and no one else hears it, then it hasn’t happened. Seriously, if there’s no quorum, then there’s no official meeting.”

The board went another year without an election. It finally scheduled an annual meeting on Dec. 29, 2020, in the middle of a holiday week. Why that date? “The board wanted a meeting before the end of the year,” says the board’s attorney at the time, Abbey Goldstein, a partner at Goldstein & Greenlaw. “And it was virtual, in which nominations and voting could take place prior to the meeting.”

No quorum was achieved. And so, again, no meeting is considered to have taken place. That meant more than two years had passed since the last election, and the entrenched board remained in power. In May 2021, with no election on the horizon, the dissidents formed the Paved Paradise Committee and turned to the nuclear option of Section 603 of the BCL: It takes just 10% of a corporation’s shareholders to petition for a mandated meeting to elect board members.

Using outdoor tables and signup sheets, the dissidents gathered 91 signatures, representing more than 14% of eligible shares. On June 22, they submitted to the board their petition for a special meeting on Sept. 9. At this point, the dissidents hired Wagner.

If a board declines to call an annual meeting after one is demanded by at least 10% of the shareholders, then the shareholders who signed the petition can hold a special meeting and elect a new board on their own. Crucially, all it takes for this to be considered a meeting is for one person who signed the petition to show up; a quorum is not required. No board wants that to happen. 

The nuclear option, predictably, led to a cold war. The board and the dissident shareholders traded accusations of dirty tactics, and attorney negotiations ultimately broke down. On Aug. 4, the board sued Saunders and the dissidents’ Paved Paradise Committee. Following nearly a month of court hearings, a fed-up judge ordered the squabbling parties to hold a virtual election on Oct. 6. Pre-election dates were set for nominations and a candidates’ night. A ballot/proxy box was placed in the management office, its contents collected by an election company.

When the big night arrived on Oct. 6, the dissident candidates went into the election with a substantial number of proxies and wound up winning all six open seats. The new board promptly replaced Goldstein with Wagner as its attorney, then fired the site manager. The aftermath of a coup, it turns out, is not pretty.

As for the new board, it has a daunting to-do list. “We need to stabilize our financial situation, rein in spending and attack our underlying debt,” says Saunders, who was elected president of the new board. “We also want to replace the climate of fear and anger that has been festering here for years. We intend to usher in a new era of transparency.