Monday, April 17, 2017

GENERAL RULES ON ACTIONS AGAINST CO-OP BOARD



Sims v. Firstservice Corp., 2017 NY Slip Op 30104 - NY: Supreme Court 2017:

"Before shareholders may commence a derivative action, they must make a demand upon the corporation to commence the action, unless such demand would be futile (Marx v. Akers, 88 N.Y.2d 189 [1996]). Under the rule that the plaintiff may commence a derivative action only after demanding that the board of directors initiate a suit, a demand will be considered futile if the complaint alleges with particularity: 1) that the majority of the directors are interested in the transaction; 2) that the directors failed to inform themselves to a degree reasonably necessary about the transaction; or 3) that the directors failed to exercise their business judgment in approving the transaction (id.).

"Under the business judgment rule, which applies to the directors of residential cooperative corporations, absent a showing of discrimination, self-dealing or misconduct by board members, corporate directors are presumed to be acting in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes" (Jones v. Surrey Coop. Apts., 263 A.D.2d 33, 36 [1st Dept., 1999] (internal citation and quotation marks omitted)). "Thus, without a showing of a breach of fiduciary duty to the corporation, judicial inquiry into the actions of corporate directors is prohibited, even though `the results show that what [the directors] did was unwise or inexpedient'" (id.).

A cooperative board owes a fiduciary duty to further the collective interests of the cooperative (40 W. 67th St. v. Pullman, 100 N.Y.2d 147, 150 [2003]). The business judgment rule prohibits judicial inquiry into the actions of the board of directors of a cooperative undertaken in good faith and in furtherance of the cooperative's business (id.)."

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