The Rutherford Rewrites Its Governing Documents

When the entrenched board at the Rutherford fired the popular super without giving an explanation, James Ramadei decided to run for the board of the 174-unit co-op at 230 East 15th Street in Manhattan. As soon as Ramadei was elected, he fired the previous board’s attorney and hired the firm Anderson Kill with the understanding that revision of the governing documents would be a priority. Among many outdated features, Ramadei wanted to get rid of cumulative voting, a system that had allowed a small minority to keep the same board in place for years. “It had to go,” Ramadei says.

Working with his board (three out of five were newly elected), Ramadei appointed 11 non-board shareholders to review the bylaws and proprietary lease. “We all knew each other,” says Donald J. Tobias, a shareholder and commercial litigator who chaired the panel. “We weren’t all bosom buddies, but we all wanted to get this done. We were motivated.”

In an effort to short-circuit potential problems that outdated documents can create, the panel met many times over 18 months before making concrete suggestions to the board. Among their recommendations was a proposal favored by Tobias to limit the terms of board members. Making proposals is the easy part; getting them approved is another thing.

Next, the board began its own meetings to discuss the panel’s recommendations, along with recommendations from its attorneys. “The board came to me with a list of things that they wanted to do with the lease,” says Andrew Freedland, one of the attorneys at Anderson Kill. “I went through them and discussed them, and advised what else they might do at the same time.”

Eventually, and after careful consideration of every comma, the board, panel, and attorneys whittled down some 70 potential changes to the 23 they decided were most essential. They produced a 50-page booklet that went out to shareholders, laying out for each revision the existing language at issue, the proposed amendment, and a simple explanation of its impact. Also noted was whether the revision was supported by the board, the shareholders panel, or both. (All but four proposals had the support of both.)

“The beauty of the booklet,” Ramadei says, “is it made each item accessible and made everybody feel that they were participating.”

Next the board held two question-and-answer sessions for shareholders that lasted for hours. “It was an open forum – everybody who showed up was able to ask questions and make comments,” Freedland says. “That’s a good thing.”

The board also had to meet with the attorney for the building’s original sponsor, who still owns 21 apartments, in order to go through all the proposed changes. Ramadei’s fear was that the sponsor would reject the elimination of cumulative voting, since it had worked to his benefit. But the sponsor backed the change. “They understood [cumulative voting] wasn’t good for the building,” Ramadei says. That amendment and nearly all the other revisions passed when the process finally came to an end in December 2015.

Among the key changes was a clause that allows shareholders living elsewhere to sublease their apartment to immediate family members, subject to annual approval from the board. “That saved six people in the building from being thrown out,” Ramadei says. “That was what the old board liked to do, and it caused huge ill will.”

The revisions also modernized governing procedures, allowing for emailed board meeting notifications to directors, and allowing shareholders to opt for emailed notifications about annual meetings. Additionally, shareholders will be able to vote on future amendment proposals via written consent (after receiving proper notice) rather than by attending a meeting. Term limits were rejected.

The revised governing documents have made a dramatic difference at the Rutherford. “The political and emotional temperature is so much better,” Ramadei says. “Everybody says hello. It’s a much nicer environment.”