New York Court Addresses to Whom Cooperative Board Owes its Fiduciary Duty

New York Court Addresses to Whom Cooperative Board Owes its Fiduciary Duty

      In a recent decision from the New York intermediate appellate Court, it was held that the directors of the board of a cooperative owe their fiduciary duties to the entity, and not to the individual shareholders. Further, the corporation does not itself owe a fiduciary duty to the members. Hersh v. One Fifth Avenue Apartment Corp., Index 157593/14, 2018 WL 3578714 (N.Y. App. Div. 1^st Div. July 26, 2018).

      When her apartment sustained extensive water damage consequent to a greenhouse located on an upper roof terrace, the plaintiff sued the owners of the greenhouse, the cooperative corporation itself and the individual board members. In this decision, only the claim for breach of fiduciary duty against the individual board members was at issue.

      In rejecting this claim, the Court began by reciting the rule that there is no individual claim for breach of fiduciary duty against an individual board member absent individual wrongdoing:

It is well-settled that a breach of fiduciary duty claim does not lie against individual cooperative board members where there is no allegation of “individual wrongdoing by the members … separate and apart from their collective actions taken on behalf of the cooperative.” Here, the complaint does not allege that any of the individual board members committed an independent wrong that was distinct from the actions taken as a board collectively. Thus, the breach of fiduciary duty claim is not viable. Because the proposed amended complaint fails to cure this deficiency, plaintiff’s motion seeking to amend the plates was properly denied. 2018 WL 3578714, *1 (citations omitted).

      The court went on to cite the rule that the corporation itself owes no fiduciary duty to its shareholders.