Why Board Members Need to Be Diligent — About Other Board Members

A reform-minded board took over and rescinded the less-conscientious board's vote, and so the now-former co-op board president sued — and won when the court found the old board hadn't been diligent. As Theresa Racht, the attorney who now represents The Antoinette's board, notes: "This case shows what can happen if you don't pay attention — you can lose a major lawsuit and a major source of revenue."

Gary Ehrlich, one of the co-op's lawyers in the lawsuit, adds: "I understand how board members fall into the trap. If one person is willing to do the dirty work, it's natural to allow it. Sometimes they make good decisions and do a lot of good things nobody else wants to do. But you have a responsibility and you have to check up on what they're doing. You can't turn the other cheek."

"Aggressive and Manipulative" Board President 

The lawsuit had been filed by then-former board president Harvey Goldman after the board voted to allocate 400 new co-op shares after Goldman and his wife enclosed a terrace to create a new master bedroom and bath — rescinding a previous board's vote not to allocate shares. The court found that while Goldman was so "aggressive and manipulative" in advocating his position not to allocate shares that board members claimed they had been duped there was no fraud since, essentially, the board members had let themselves be duped.

If other board members

turn their heads, they are

endorsing that person's behavior.

Goldman himself says his legal "victory" is one in which he takes no pride. "I feel very, very upset," he says. "This never should have happened. If the board didn't get the opinions of their counsel, I don't know why they didn't. This was a terrible matter to live through. It divided friends and it divided the building. And it was totally unnecessary." 

The big question is, why did the board, made up of responsible people, go along with Goldman? An answer comes from Lola Gellman, the only current board member who was serving when Goldman secured the alteration agreement in 2006. She had won election shortly before that — and immediately sensed that Goldman wielded immense power.

"Whatever he said, they believed," says Gellman, a retired art historian. "We never saw the letters or e-mails from our attorney, and the managing agent never said a word. He seemed to agree with Goldman."

"The Board Should Have Investigated"

Such scenarios are not unheard of. "I don't want to say it's common for someone to overstep the boundaries of their position, but it can happen," says Arthur Davis of  ITAC: Industrial + Technology Assistance Corporation,a management consultant for corporations, including co-ops. "If someone's in power long enough and they are respected, there's an assumption that they are doing what's best for the building. If other board members turn their heads, in effect they are endorsing that person's behavior."

Gellman agrees with the Supreme Court's decision that the board failed to do its job. "It's true that the board should have investigated," she says. "But we didn't because we believed what Goldman said. Since the managing agent didn't contradict him, we assumed it was the truth." 

She adds: "Everyone on the board thought he was great — and in many ways he was. Board members respected him and assumed he wouldn't put something over on us. But he did." 

For more, see our Site Map or join our Archive >>