Board Decisions Are Protected Under the Provisions of the Business Judgment Rule (or are they?)

We are all aware of the extensive responsibilities shouldered by Boards as they run the day-to-day affairs of the co-op/condo, and that they therefore must also have broad powers in decision making. Generally, when they make decisions that are in the best interest of the cooperative lessees they represent, Boards of Directors are protected under the guidelines set by the Business Judgment Rule.  But, that may not always be the case.

It has been the opinion of Courts for decades that so long as the board acts for the purposes of the cooperative, within the scope of its legal authority and in good faith, their judgment is usually final and unless a resident challenging the board’s action is able to demonstrate a breach of this duty the judgment cannot be challenged in the courts. It is important to recognize exactly how “breach of duty” may be established, and the Courts have determined that a reasonableness review can require the board to demonstrate that its decision was sound, fair and sensible. And, although deference is most times accorded to board decisions, reasonableness review also (and importantly!) permits courts to evaluate the merits or wisdom of a board’s decision.

Such was the case recently when a board of directors was shown to have failed to act in good faith. 

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