Non-Disclosure Agreements Open to Legal Challenge

Co-op and condo documents are becoming more open to scrutiny by shareholders and unit-owners, thanks to a series of recent court rulings. Some welcome the change as a sign of greater democracy, while others fear that the security of cooperatives and condominiums is being put at risk. 

Despite the recent rulings, there are still restrictions on the viewing of documents by shareholders and unit-owners. In addition to what’s already in the law, such as the co-ops’ five-day written notice requirement, the most notable changes come down to two things: document scope, and a non-disclosure agreement. 

The first is straightforward. “Some documents are outside the scope of what the law requires,” says attorney Jesse Schwartz of Kagan Lubic Lepper Finkelstein & Gold. “One thing boards can do is make sure any inspections are consistent with just the documents listed in the bylaws, the Condominium Act, and case law.” 

The second – non-disclosure agreements (NDA) – is a more complicated issue and seems destined for additional litigation. Requiring an NDA seems simple enough. “The concern on the board side,” explains attorney Robert Braverman, a partner at Braverman Greenspun, “is, ‘What if this person were to make mischief with the documents? We don’t want our financials posted on Facebook. Or if there are people in arrears, we don’t want that information disclosed.’ So now if a document is requested to be reviewed, it is marked confidential and the unit-owner or shareholder signs a confidentiality agreement. They are bound by the agreement not to disclose the contents of that information.” 

Yet in letting boards require NDAs, the court left open a critical question: how much can an NDA demand? While most boards will probably use standard NDAs like those corporations have used for years, some boards will demand more specific protections. 

When Armand Musey, a shareholder in the co-op at 425 East 86th Street, began seeking access to pertinent co-op documents, he went to court. Eventually the board allowed him to inspect some documents at the management company’s office, which he did on May 25, 2016. What he saw prompted more questions, and he wrote to the board president, asking for a specific list of additional documents. On May 2, 2017, the court ordered the board to comply with Musey’s request within 30 days. On June 1, the co-op’s managing agent sent Musey an electronic copy of the court-ordered materials, along with a non-disclosure agreement. 

Musey was not pleased. “They’re trying to get me to sign a non-disclosure agreement that is basically not signable, where anytime there’s a concern that records have been leaked, they could hire a lawyer and investigate and I have to pay for it even if I’m shown not to be responsible – so they can run up my bill,” Musey says. “It also prevents me from using the documents’ information in court or relating it to other shareholders. I did sign a standard court non-disclosure agreement – the New York City Bar Association has a business-litigation non-disclosure agreement. But I guess the board wants their own.”

Braverman, who represents the board in Musey’s co-op, counters, “Musey refused to sign, or to advise what changes to the agreement he desired.” 

So the question remains: can a board require a unit-owner or shareholder to sign an NDA so onerous that, in practical terms, no one would? “Generally speaking,” says Braverman, “if someone comes back to us with reasonable comments on a confidentiality agreement, we will take a look and consider same.” But the attorney worries that if a confidentiality agreement is breached, the person who breaches it may suffer no consequences. “Penalties very often are not enforceable as a matter of law.” 

“I think most shareholders or unit-owners understand the ramifications if they were to disseminate information,” says Robert Ferrara, president of Ferrara Management Group. “If boards follow their legal counsel’s advice, have an NDA in place, and take appropriate minutes, then they should feel comfortable providing their owners the documented information requested. It’s still very new, so it’s going to be interesting to see how it goes.” 

Which is another way of saying that life now has a third iron-clad certainty, in addition to death and taxes: more litigation over non-disclosure agreements, to determine just how wide co-op and condo boards must open their documents vault.