Shareholder Gets Damages for Co-op Board's Bad Faith Failure to Approve Sale

Shareholder tenant sued cooperative building's board of directors for refusing to approve proposed buyers of her apartment, and claimed that they acted in bad faith.

The trial court ruled for tenant. Tenant testified that the board wanted her to hold off marketing her apartment while it considered buying that apartment and turning it into a gym for the building. The court found that a board member, who gave contradictory testimony, wasn't truthful given co-op board meeting minutes. The board in fact offered tenant $400,000 for her apartment while, a month later tenant received an all cash offer for $495,000. The board claimed the offer was too low and refused to approve any offer less than $535,000. Tenant restructured the purchase deal, but the transaction stalled when the board never scheduled an interview with the buyers. The board then wanted the price to be raised to $610,000 to approve the sale. This requirement seemed related to a recent price for another apartment in the same line, on a higher floor and in better condition. The board "irrationally" set a price higher for tenant's apartment than what it was actually worth. Tenant's deal eventually collapsed. When she signed a contract with another buyer for $530,000, the board rejected that purchaser as well.

The board breached its fiduciary duty and was liable for breach of contract. The court awarded damages to tenant to cover lost rental income and out-of-pocket carrying costs totalling $101,000. The parties were directed to attempt settlement of how much attorneys' fees were due to tenant. But the court wouldn't award punitive damages since the board's actions didn't rise to the level of moral turpitude or criminal indifference needed for this finding.

Graham v. 420 E. 72nd Tenants Corp.: Index No. 154712/2015, 2020 NY Slip Op 30880(U)(Sup. Ct. NY; 3/29/20; Crane, J)