One Co-op's Disastrous, Thrown-Out Election: How a Board Did Everything Wrong

That happened with the meeting notice, according to the court record of White v. Kings Village Corp. , case number 2004-05538 of the Supreme Court of the State of New York Appellate Division: Second Judicial Department. It gave the wrong number of directors to be elected. Just as elementary, the annual shareholder meeting wasn't held on the date that the by-laws specified.

There may not have been quorum at the meeting: The by-laws stated that 25 percent of all shares would constitute a quorum, but New York law says a quorum can't be less than one-third of the shares.

Other errors were more complicated, but just as avoidable. The court couldn't understand how a holder of unsold shares, who held less than three percent of the 775-apartment complex's total shares, could still have the right to designate one of the seven board members.

Quorum Conundrum

And while the board had wanted at the meeting to pass a resolution increasing the quorum percentage requirement to 51 percent, it seemed to confuse "one share" with "one percent' — having apparently intended to institute the typical "one share more than 50 percent" standard, and instead instituting a standard, 51 percent, which, based on the raw number of share, represented a supermajority quorum requirement, according to the court. Such a requirement would have to been given in the Certificate of Incorporation, which it was not.

Compounding matters? The board argued that its later approval of the meeting minutes made it all OK!

Kings Village, comprised of nearly 800 apartments, consists of five buildings on E. 51st, 53rd and 54th Streets in the Old Mill Basin neighborhood of Brooklyn. It went co-op in 1985. The suit, which listed Lynette White as the plaintiff, was filed in 2004.

"I was involved in the group that initiated it," says co-op board president David Spira, who notes that White was simply the name of one shareholder that was used to file the suit. He described the events that led to it as a "very deep, deep story, what happened here. It's a mystery what happened here," and then declined to speak further by deadline.

No board attorney handled the election lawsuit, according to board member Gloria Pinsker, who says it was defended by "an insurance attorney."

A 2005 suit titled Lynette White v. Kings Village Corp. involved a woman injured when she fell avoiding a tenant's dog that lunged at her; White lost that suit.

Under New Management

American Heritage Management, the co-op's management company since 2005 — a year after the election suit was filed — has a phone number listed as belonging to King's [sic] Village Corporation, 1755 Utica Ave., Brooklyn, N.Y. It was closed on Friday afternoon at 2:43 p.m., except for a woman who identified herself as the office manager but would not give her name. Juan Sinnreich, the president of the company, was unavailable.

"The board decided to have them stay open late on Wednesday night, and so we give them three hours off on Friday," says Pinsker, explaining why the management office was closed on a Friday afternoon.

A 2007 newsletter written by Sinnreich, however, described a co-op that had previously been in disarray: It was in "almost insolvency," and as for the complex's physical plant, "changes have been dramatic … and executed by a staff of professional architects, engineers, mechanics and painters," he wrote.

What lessons can other boards learn from the missteps of the old Kings Village? Read your Certificate of Incorporation carefully, and don't assume that something in the by-laws was put there validly. Have your board attorney vet such major matters as what's required for a quorum, and procedures for sending shareholders their meeting notice and proxies. Check for simple things like the correct date and time, and — seriously — the number of seats on the board.

And if someone with fewer than three percent of the shares holds 14 percent of the board seats, recognize that you might have bigger problems than knowing how to count.