Best Defense

Board decisions can be challenged by those in the community who disagree with them, but if the decision is made in good faith and within the scope of a board’s authority, it will be protected under the business judgment rule. And if your board has made its decision  by taking advice from its professionals, that will be an extra layer of defense if the challengers take you to court. 

This comes into play as boards grapple with Local Law 97, which requires buildings over 25,000 square feet to cut their carbon emissions or face fines. Everyone is concerned about how the business judgment rule might apply if a board chooses to pay fines rather than pay for expensive energy projects. Of course, there have been no court decisions yet on whether that is a reasonable decision. But if a board has taken a careful look at costs and done a risk-reward analysis with an energy professional, accountant and lawyer and then chooses to pay a $5,000 fine over the next few years instead of investing $1 million in energy savings now, it may just turn out to be a legitimate decision that would be protected by the business judgment rule.

If a board is sued, its directors and officers liability insurance will provide a defense. The problem is that if the board has done something in bad faith or illegal, the insurance company may say it will not cover any damages, which of course is the real cost of losing a litigation. So you’ve got to be careful.