Hearing Harsh Opinion of Homeowners Is OK...If It Doesn't Affect Your Judgment

On March 1, 2007, Deborah Cogut signed the co-op's standard alteration agreement, which specifies alterations must be completed within 120 days from the start of the project, and she submitted all the necessary form and permits plus a security deposit check for $100,000, one-tenth of the estimated renovation cost. Construction began four days later — and was still ongoing in mid-September.

Where Does the Time Go?

With the work now having taken twice as long as agreed to, the board and the manager sent a letter advising the couple they had gone beyond the permitted 120 days and that charges would be assessed against them, as per the alteration agreement. And according to the lawsuit Cogut v 1220 Park Ave. Corp., the Coguts responded by saying the scope of their alterations exceeded their original plans and 120 days wasn't enough and, hey, it's a high-end renovation — whaddya gonna do?

What the co-op board did was insist the couple live up the signed agreement, which said $250 per day was due from the security funds for the first five working days following what should have been the work-completion date; $500 a day for the next five days, etc.

Speculative allegations are

insufficient to deprive 

boards of the protection of

the Business Judgment Rule.

While all this was going on, the board had embarked on its own project to install new electrical meters so that the co-op shareholders could upgrade their apartments' electricity from 100-amp service to 200-amp service. But the Coguts wanted to increase their electrical service to 300-amp. The co-op board's engineering consultant, the IP Group, determined that 200-amp was sufficient and that the building didn't have room anyway to place the additional electrical banks that would have been required. Architect Toraby agreed about the lack of space, but said there were workarounds. The Coguts' electrician, Bill Sanferdino, took it up with the Bureau of Electrical Control — resulting in a violation issued against the Coguts because "the letter," as the court dryly put it, "contained some errors." So did the Coguts' claim —  which the court refuted — that they had correspondence showing the board had agreed to the increase to 300 amps and was now rescinding in bad faith.

No, Tell Us What You Really Think

One might see a pattern of behavior here, and Janice Negrin, a senior vice-president of Brown Harris Stevens, told the court that she "probably" conveyed to the co-op board that she found architect Toraby "unreasonable and arrogant."

Ah, hah! That means bad faith by the board, since the plaintiffs and/or their professionals were unlikable!

Well, no. As Judge Joan M. Kenney wrote in her Aug. 6 decision,

"… the only evidence proffered by plaintiffs that the board acted in bad faith is a portion of Negrin's testimony that she did not like Toraby and that she might have given that impression to the board. However, Negrin went on to say that she did not believe that the board's decision was, in any way, based on her opinion of Toraby. As stated by the Court in Pelton v. 77 Park Avenue Condominium, '[c]onclusory or speculative allegations of discrimination are insufficient to deprive corporate directors of the protection of the rule precluding judicial scrutiny of board decisions.' Moreover, the decision of the board was based on the expert opinion of an architect and electrician with regard to the necessary electrical requirements for plaintiffs' apartment, as well as the expense involved and the physical limitations of the building, which was even admitted by Toraby himself."

She granted the co-op and the building management their request for summary judgment, concluding that the Coguts' "argument that the alteration agreement is unenforceable because of misrepresentation, a violation of the covenant of good faith and fair dealing and breach of a fiduciary duty, is without merit."

So, yes, boards and their professionals have the right to speak freely and render personal opinions and not get hung out to dry —  as long as the board doesn't rely on those personal opinions and, instead, documents that it's basing its decisions on professionals' expert opinions.

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