Board Can Remove Members Who Circulated Confidential Information

Esplanade Gardens is a cooperative corporation under the Mitchell-Lama program, consisting of more than 1,800 units in Upper Manhattan, overseen by the Department of Housing Preservation and Development (HPD). Recently, two new members of the board, without the authorization of the entire board, challenged the legitimacy of another board member by writing to HPD on the Apartment Corporation's letterhead. As a result, the remaining board members voted to remove them from the board, and the two members subsequently sued for reinstatement. Esplanade's bylaws permit the board to remove members for cause, such as the dissemination of confidential information, and not the shareholders. The court rejected the petitioners' claims that their removal was irrational and, in line with Esplanade's bylaws, upheld the board's decision to remove them. The court applied the Business Judgment Rule, finding that the board's decision was made in good faith, for a corporate purpose, and within its authority, and, as a result, the board's decision was not subject to reversal. In addition, the board held a meeting to discuss and vote on the matter, providing notice to the petitioners, who were present.

TOLLIVER V. ESPLANADE GARDENS INC. 2021 NY SLIP OP 32310(U) (N.Y. SUP. CT. N.Y. CNTY. NOV. 16, 2021)