Back in 2015, a condo board president’s toilet repeatedly leaked into the apartment below. It was determined that the condominium’s pipes to the toilet were improperly pitched. That was eventually fixed in 2015. But, it also was determined that the seal around the base of the board president’s toilet at the floor was damaged. It took two years till 2017 for the seal to be replaced and thereafter the leaks stopped.
The unit owner below sued the board president and the other owner of the apartment above as well as the condo board. There was no dispute that damage occurred, but the battle became what was a common element that the condo was responsible for and what was not a common element and thus, the unit owner’s individual responsibility.
Rather than recusing himself as a board member about the issue, the board president injected himself. The argument in the lawsuit that ensued became that the board president obstructed the investigation and breached his fiduciary duty. The charge was against the board president as an individual, exposing his personal assets in the lawsuit.
The Appellate Division, First Department, just issued a decision on March 26, 2020, reviving the claims against the board president as an individual. In The Lisa Goldberg Qualified Personal Residence Trust v. Board of Managers of the Madison Square Condominium. This Court governs cases in Manhattan and the Bronx and thus condominium, cooperative and HOA board members there should be very careful to recuse themselves when conflicts of interest arise. If they are not willing to do so voluntarily, a board usually has the power to form a committee of board members, excluding the conflicted board member, and leave that board member out of decisions on the conflicted topic.
The Madison Square Condominium board didn’t form a committee excluding the clearly conflicted board president and the board president did not recuse himself which would have kept him out of trouble.
The First Department unanimously held that claims that the board president is personally responsible for the damage incurred, can move forward to discovery. According to the court there was evidence that the board president refused access to his unit while the board was investigating the leaks and that this conduct was in the board member’s individual capacity.
The Court explained that “[g]iven [the board president’s] admitted refusal to recuse himself from decisions that would affect the investigation, the record presents issues of fact whether [the board president] placed his own personal interest in keeping the investigation out of his apartment over plaintiff’s interest in a timely investigation and repair of the leaks and whether the Board took appropriate steps to insulate the investigation from [the board president’s] self-interested involvement and delays.”
In sum, if a board member has a conflict of interest, that person should recuse themselves from decision making on the issue and if they are not willing to do so, then the board should take action to either convince the board member to do so or perhaps form a committee (if allowed under the governing documents) to exclude the board member. In the end (which is not even close for the Madison Square Condominium because discovery in the lawsuit is still ahead of it five years after the dispute started), board members should be careful with conflicts of interest.
Read the case here.
