Consequences of a Heavy Hand

When a newly elected board president is determined to shake things up, the consequences can be costly. In ABM Management Corp. v. Linden Towers Cooperative #2 and Lisa Wu, each step that the board president took caused more members of her board to resign and legal representation to turn over.

What Happened 

The Linden Towers Cooperative is a five-building complex in Flushing, Queens. In 1988, it hired the ABM Management Corp. and extended its management agreement over the years. The last renewal extended the agreement from 2019 through 2024, and, like the previous extensions, it included an on-site manager plus general back-office support. 

In the spring of 2019, the co-op elected a new board, the majority of whom were of Asian descent, including its new president, Lisa Wu. The complaint alleges that Wu improperly held board meetings without requisite notice, disbanded the board’s executive committee, held pre-board meetings exclusively with board members of Asian descent and excluded ABM’s representative from the meetings. The five non-Asian board members resigned.

In early 2020, Wu asked ABM to terminate the present site manager and replace her with a Mandarin speaker. When ABM refused, Wu began to cycle through attorneys (two of them withdrew) to terminate the management agreement. In late summer 2020, the board approved a motion to terminate the management agreement. Following this motion, two board members resigned. The third law firm that Wu contacted drafted a letter terminating ABM effective Sept. 30, 2020, and the board hired First Management. However, this new firm told the board it wouldn’t start until there was “an accepted termination agreement,” and shortly thereafter First Management was replaced by One Vesta Property Management. 

Starting in October, both One Vesta and ABM sent maintenance invoices to shareholders, and several dozen shareholders sent their maintenance payments to ABM. In November, the board informed those shareholders that their payments would not be recognized and that Linden Towers would pursue legal remedies against them for nonpayment.

In Court 

ABM sued the co-op and its president, alleging that its management agreement was terminated without a proper basis and that the co-op had engaged in discriminatory practices. ABM sought a determination that its contract remained in full force and that it was entitled to damages resulting from its claim of improper termination of the agreement. In addition, the individual managing agent who had managed the property independently filed claims of employment discrimination against the co-op and her employer (ABM) before the New York State Division of Human Rights. The co-op made a motion to dismiss the claims.

The co-op tried to disqualify ABM’s counsel on the grounds that the firm had interviewed with the building for a general counsel position but was not selected. The court found that the co-op failed to demonstrate actual prejudice or the risk of prejudice if the law firm was allowed to continue to represent the plaintiff.

The court noted that even though the individual agent was an employee of ABM, the agent’s claim before the Human Rights Commission did not bar the management company’s discrimination claim against the co-op. The co-op could potentially be held liable to both the agent and to the management company if the claims are ultimately decided against them.

The court also allowed a claim for tortious interference with contract to stand against the board president even though she was acting as an officer of the co-op. The court noted that for pleading purposes, it is possible that a cause of action may exist against a corporate officer for inducing the corporation to breach a contract, and the court refused to dismiss the claim at this stage of the proceeding.

The Linden Towers Cooperative was sued for nine stated causes of action.

The Lesson for Boards 

Discrimination of any type against any group can be a costly claim. Here, the co-op is facing claims from the management company and the individual agent, both of whom alleged discriminatory treatment. The individual director is also facing a separate claim for terminating the management contract, and the cooperative may be subject to almost four years’ worth of contract damages ($201,780) if the contract is found to be wrongfully terminated. Boards must be ever vigilant to ensure that their decisions are not biased against any protected class and that they’re made in compliance with the terms of the contracts to which they are parties. The fact that a board changes composition does not give it carte blanche to ignore the terms of agreements signed by an earlier board. n

ATTORNEYS:

For ABM Management: Borah Goldstein Altschuler Nahins Goidel

For Linden Towers and Lisa Wu: Furman Kornfeld & Brennan

Stewart Wurtzel is a principal at the law firm Tane Waterman & Wurtzel