After a Co-Op Board Settles a Lawsuit, Shareholders Can Ask for More Info

It's a delicate dance when a co-op shareholder or condo-unit owner requests to see board documents. The board has an obligation to be transparent, yet it doesn't want delicate information leaving the building and getting into the wrong hands.

This dance played out recently at a Brooklyn co-op after the board fired the long-time super, who promptly filed a lawsuit against the board. The case was settled out of court, and when the shareholders asked for more information, the board told them only that the final cost was $15,000 and the other details were confidential. Is a board required to reveal the details of such a legal settlement?

Co-op boards have the right to enter into a confidential settlement with an employee, replies the Ask Real Estate column in The New York Times. But that doesn’t mean shareholders can’t find out more.

“While there’s no explicit requirement for the board to detail every expense, they are obligated to provide a general accounting of how funds are used,” says Joseph Colbert, managing attorney at Colbert Law.

Settlements with confidentiality provisions are common, and the terms of this settlement, including the amount paid to the aggrieved super, can remain secret — depending on what the lawyers negotiated. But even if shareholders don’t have the right to know about all of the settlement’s terms and conditions, the co-op board is still accountable to them, and it cannot hide the financial impact of the entire lawsuit.

Shareholders can review the co-op’s audited financial statements, says Leni Morrison Cummins, chair of the condominium and cooperative practice at the law firm Cozen O’Connor. These statements will reflect the cost of the legal action. There should be a footnote explaining this, but it might be vague. The auditor reviews the books and records, and also requires a legal confirmation letter from the board’s attorney describing all pending or threatened litigation, claims and assessments, during the audit period, Cummins adds.

If the audited statements are not available yet, co-op shareholders have a right under the Business Corporation Law to request to review the co-op’s books and records, as long as the request is made in good faith and for a proper purpose.

This right is buttressed by recent case law. In two closely watched 2017 lawsuits covered by Habitat, the courts ruled that residents have broad rights to examine board documents — and make electronic copies — while boards are allowed to demand nondisclosure agreements to keep the records from circulating outside the builidng. Such NDAs are designed to protect against bad-faith "fishing" expeditions by disgruntled shareholders or unit-owners who are looking for information that can be used against the board.

 “The rights of an owner to review books and records must be balanced with maintaining the integrity of confidential information,” Rob Braverman, a principal at the law firm Braverman Greenspun, told Habitat after the 2017 lawsuits.