What Happens When You've Filed a Lawsuit Without Following the Bylaws?
Aug. 28, 2014 — It happens more often than you might think, and it's a cautionary tale to all boards: Did we actually file the lawsuit we intended to? We think we did.
The two-building, 73-unit Clermont Greene condominium in Fort Greene, Brooklyn, has a seven-member board, with three of those members affiliated with the sponsor, Vanderbilt Mansions. The board, claiming construction defects, building code violations and hazardous conditions, hired Howard L. Zimmerman Architects to investigate. HLZA reported several defects related to inadequate or poor workmanship or designs that failed to meet industry standards.
The board began an action, asserting claims for breach of contract, warranty, and fiduciary duty. There was also a demand for an accounting. The sponsor's claim in response? That the board never authorized the start of the lawsuit at a properly noticed meeting of the board.
The sponsor conceded that New York State's Condominium Act allows a board to sue on behalf of a condo's unit-owners. But the bylaws of this particular condo stated that notice of board meetings had to be given at least three business days before the meeting. The bylaws also stated that a majority vote is required for the board to make decisions; alternatively, the board could unanimously consent in writing to an action.
Meeting? What Meeting?
Defendant Aaron Klein was a sponsor-appointed board member who submitted an affidavit stating that there was no meeting to authorize beginning a lawsuit. There was no question that the board members never unanimously consented in writing to the start of the action. The board argued that no resolution or notice of meeting was required.
The court did not agree. It explained that the statute is predicated on the board acting as a body within the constraints of the bylaws. Consistent with the statute, the bylaws allow the board to bring an action. But, in this case, there was not even a suggestion that the action was authorized by a vote of the board. In fact, the board's president, Joshua Brown, submitted an affidavit merely stating that the board retained counsel and agreed to begin the suit.
The court found that no notice was given and no formal action was taken by the board to authorize the suit. Even though the statute and the bylaws did not specifically require a board vote, the court found that "some form of vote is clearly required for the board" to start a lawsuit.
Close, but No Cigar
The court determined there was no question that the board had the right to bring an action — had it followed the procedures required by the condo's governing documents. But because there was no board vote to authorize the suit, the action was dismissed.
A condominium acts through its board of managers. But the board must act as a body. A group of board members cannot make a decision like the one made here. Boards have rules and procedures and must follow them.
Richard Siegler is a partner in the New York City law firm of Stroock & Stroock & Lavan. Dale J. Degenshein is a special counsel for that firm.
Illustration by Liza Donnelly. Click to enlarge
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