The Business Judgment Rule Rides to a Condo Board’s Rescue

The board of managers at a Brooklyn condominium has learned, first-hand, about the thickness of the armor provided by the Business Judgment Rule. State Supreme Court Justice Kathryn E. Freed has dismissed a lawsuit against the board at the Bridgeview Tower Condominium, at 189 Bridge St., saying the suit was “procedurally defective” and the board was shielded from judicial second-guessing because it acted within the scope of its authority, in good faith, and for the betterment of the condo association – the prime tenets of the Business Judgment Rule.

Among those filing the lawsuit were principals of Bridgeview Tower LLC, the sponsor of the condominium. The suit sought to stop the board from making $1 million in facade repairs required by the city’s Facade Inspection and Safety Program, and assessing unit-owners to cover the cost. The lawsuit claimed the repairs carried “inflated costs/expenses during an unreasonable time of the COVID-19 economic crisis.” According to court papers, Mike Tong, a former board president and one of the petitioners, claimed some of the facade work was unnecessary, and he would have been able to get the work done at a substantially lower price.

Justice Freed wasn’t having it. She turned to evidence submitted by the board’s attorneys, Debra Schoenberg and Steven Sladkus, partners at Schwartz Sladkus Reich Greenberg Atlas. That evidence sought to demonstrate that the board acted in good faith in accordance with the condominium’s governing documents because the building’s facade was visibly in need of repair, units were experiencing water leaks, and the facade repairs were mandated by the city. 

“We are pleased that the court agreed with our arguments in this case,” Schoenberg said after Justice Freed made her ruling. “This decision demonstrates that condominium boards’ decisions on how to operate their buildings continue to be protected by the Business Judgement Rule, so long as they do not self-deal or act in bad faith or in some discriminatory manner. Baseless and unsubstantiated allegations by unit-owners will not trump good-faith business decisions.”