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In the context of cooperative dwellings, the business judgment rule provides that a court should defer to a cooperative board's determination so long as the board acts for the purposes of the cooperative, within the scope of its authority and in good faith. A cooperative board's broad powers could lead to abuse through arbitrary or malicious decision making, unlawful discrimination or the like.
The heart of the instant dispute was the parties' disagreement over the proper standard of review to be applied when a cooperative exercised its agreed-upon right to terminate a tenancy based on a shareholder-tenant's objectionable conduct. Defendant tenant contended that the business judgment rule had no application, but that N.Y. Real Prop Acts Law § 711(1) The New York Supreme Court denied summary judgment to plainrequired a court to make its own evaluation of the cooperative corporation board's (board) conduct based on a judicial standard of reasonableness. The New York Supreme Court denied summary judgment to plaintiff cooperative, and dismissed its ejectment cause of action, rejecting a shareholder's vote to terminate defendant shareholder-tenant (tenant). The Appellate Division reversed that judgment and remanded the case for a hearing on use and occupancy, legal fees and costs. The tenant appealed that decision but the order of the appellate division was affirmed.
Is there evidence of plaintiff's breach of duty to further the collective interests of the cooperative?
The instant court held that business judgment rule was applicable consistently with the statute, and the cooperative's determination as to the tenant's objectionable behavior was competent evidence necessary to sustain his ejectment. The cooperative followed the lease procedures and acted within the scope of its authority. Further, the tenant failed to show that the board's purpose was anything other than furthering the overall welfare of a cooperative, and that it could no longer abide the tenant's behavior. Finally, the tenant did not show the slightest indication of any bad faith, arbitrariness, favoritism, discrimination or malice on the cooperative's part.