When the court dismissed the garage lawsuit last summer, the judge ordered that the plaintiffs pay reasonable fees and costs incurred by the co-op in defending the suit.  Over the next few months the parties submitted arguments to a referee regarding how much the plaintiffs should have to pay.

On December 22, the referee recommended that the court award the co-op $161,088.72 in fees and costs.  We assume the court will adopt this recommendation.

It is not yet clear to us, however, how the amount already paid by one of the five plaintiffs (who settled with the co-op a few months ago for his share of the fees that were accrued at that time) will factor into this, or whether the co-op will receive any discount from our lawyers for the portion of the fees and expenses billed that the referee decided were not “reasonable” (although the lawyers are certain to disagree with that decision).

Regardless, it is highly likely that each of the remaining four plaintiffs is likely to have an extra $40k (give or take) line item on their maintenance bill in the near future, which should serve as a cautionary tale to any other shareholder who is considering suing the co-op without a really solid case.

Hon. Arthur F. Engoron of the New York State Supreme Court yesterday issued a Decision and Order in favor of the co-op on all points.

The Court dismissed the plaintiffs’ lawsuit and denied their motion for sanctions, and said that the co-op is entitled to recover its attorneys’ fees from the plaintiffs (although the amount to be recovered still has to be decided separately).

You can read the full Decision and Order, which knocks down pretty much every argument the plaintiffs tried to throw at the proverbial wall.

But perhaps most instructive for certain members of our co-op community, who seem to feel that every significant decision should be put to a shareholder vote, is the following:

As a matter of public policy, the Board was under no contractual, legal, or equitable duty to involve more than 1,700 cooperators in its decision-making process.  Rather, the Board was elected specifically to conduct the day-to-day affairs of the co-op and to take entire charge of the property, interests, business, and transactions of the co-op.  It would be nearly impossible for co-op boards to function if every time they had to act, they had to entertain potentially endless debate involving numerous varying positions.

Executive summary:  A few shareholders are threatening to sue our  co-op to try to invalidate the Icon parking contract.  We think they have a very low likelihood of success, but even if they fail it will cost every shareholder something to defend the lawsuit.  And in the unlikely worst case scenario where they succeed and get the contract invalidated, there is a decent likelihood that Icon would sue for breach of contract, which could cost – our  co-op (and by extension, every shareholder) serious money.

Two websites reported last week that attorney Ezra Glaser has been hired by a small group of shareholders led by Don West to sue the co-op over the garage conversion.  It is unclear exactly what legal claims Mr. Glaser intends to bring, but he spoke quite a bit at one open meeting about Article 78 proceedings, and at the most recent meeting he said his ultimate goal is to invalidate the co-op’s contract with Icon.

Will Mr. Glaser succeed?  What exactly happens if he does?  And who pays for the consequences?

The Spark does not (and in our opinion should not) have access to the Icon contract.  Without it, and without having seen any actual legal complaint from Mr. Glaser, we are somewhat limited in our ability to provide analysis.  But based on what the Board has publicly communicated, and what Mr. Glaser has said in Don West’s open meetings, we can make some educated guesses.  Please note that although the author of this post is an attorney, this post is for general interest informational purposes only; it does not constitute legal advice and should not be relied upon by any party.

What is the likelihood of success?

In short: extremely low.  As a general rule, courts give wide deference to the board of a corporation (do a Google search of “business judgment rule” for more background).  Article 78 of the New York Civil Practice Law and Rules allows a court to review the Board’s decision and potentially invalidate it if it was “arbitrary and capricious” or if they failed to follow their own rules and procedures.  But it very hard for us to see how a decision that has clear benefits for the co-op as a whole (reducing the waiting list, making more money, getting more shareholders access to the parking garage that they own) and very limited adverse effects (existing garage tenants lose park-and-lock convenience, but keep access to the garage for the same price as before) could possibly be viewed by an objective outsider as “arbitrary and capricious.”  And by all accounts, the Board performed due diligence and held a series of meetings where they discussed and voted multiple times to proceed with the garage conversion.  Separate votes to hire a parking consultant, issue an RFP to operators, and select Icon were all unanimous (except for those absent from the applicable meetings).  The vote to enter into the final contract was 6-5 in favor.

What are the consequences if the lawsuit succeeds?

In the unlikely event that a court declares the Icon contract invalid, it would be up to the Board to determine what to do next in terms of how the garage would be operated going forward.  There is no guarantee that everything would go back to how it was the day before the contract went into effect.  And there is also a strong likelihood that Icon would sue the co-op for breach of their 10 year contract.  Such a lawsuit could be extremely costly to the co-op.

Who pays for everything?

Mr. Glaser’s attorney fees are between him and his clients.  But assuming he brings a suit, the co-op will at minimum have to pay attorneys to defend it, even if the case is thrown out like some of Mr. West’s previous lawsuits against the co-op.  That cost will fall on all ~1700 households in our co-op.

In the worst case scenario, where a court actually invalidates the Icon contract, Icon sues, and Icon is awarded millions of dollars in damages, every shareholder will be hit with the consequences.  The irony here, of course, is that Don West and any other shareholder who signs on as a plaintiff in this lawsuit is likely to be harmed more if the lawsuit succeeds than if it fails.