CAI Law Review: Owner Must Pay Assessments If Board Acts within Scope of Business Judgment Rule

The Board of Managers of Lido Beach Towers Condominium v. Gartenlaub, No. 015217/09, N.Y. Supr. Ct., April 8, 2010

Assessments/Covenants Enforcement: In an unpublished opinion, a New York court granted summary judgment to a condominium board of managers in an action to collect past due assessments, finding that the board acted within the scope of the business judgment rule.
Bernard Gartenlaub owns a unit in Lido Beach Towers Condominium, located in Nassau County, N.Y. The Board of Managers of Lido Beach Towers Condominium sued Gartenlaub to collect past due assessments, moving for summary judgment.

The board provided proof of—and Gartenlaub did not dispute—the correctness of the amounts owed. His defenses were based on allegations that repair work on the condominium building was grossly mishandled, the board failed to obtain proper approval of the construction budget for the repairs, and his unit had numerous uncorrected problems arising from the repair work. He also alleged in a counterclaim that the board frustrated his attempt to sell his unit.
The court noted that someone who purchases a condominium unit enters into a binding relationship with every other unit owner, both by contract and by statute. One element of that relationship is the obligation to pay common assessments, irrespective of any dispute an owner might have with another unit owner, a board of managers, or third parties acting on behalf of the association. Under a condominium regime, all unit owners comply with the bylaws, rules, regulations, resolutions and decisions adopted pursuant thereto. Lido Beach Condominium's bylaws provide that all owners are obligated to pay common charges assessed by the board, as well as special assessments, and interest, attorneys' fees and legal expenses incurred for collection in events of default. The obligation to pay common and special assessments cannot be avoided.

When a unit owner challenges an action by a condominium's board of managers, the court will apply the business judgment rule, which limits the court's inquiry to whether the board acted within the scope of its authority and whether the action was taken in good faith to further a legitimate interest of the condominium. Unless the unit owner is able to demonstrate a breach of the board's duty to act in good faith within the scope of its authority, judicial review of the board's actions is not available.

In accordance with the law, a unit owner cannot withhold payment of common assessments based on defective conditions in his unit or the common areas, or because of any disagreement with actions lawfully taken by the board. In view of this, the court determined that the board had made a prima facie case for summary judgment, based on the evidence it submitted to the court. The board was able to demonstrate that Gartenlaub's affirmative defenses lacked merit.
Gartenlaub was unable to show that issues of fact existed that would merit a trial. He offered no allegations or proof that would permit the court's inquiry beyond that permitted by the business judgment rule. He alleged that the board made significant increases to the budget to fix problems with the building, and owners were billed for large assessments to cover the cost. However, he admitted that the owners voted to authorize a proposed budget. He failed to present evidence indicating that the assessments themselves were not authorized under the bylaws and admitted there were two votes by the owners in favor of large expenditures for the construction work. The court concluded these votes by the members constituted implicit acknowledgment of the board's general authority to act.

The court considered the only issue raised by Gartenlaub that might overcome the business judgment rule, his assertion that a construction budget was to be put before the owners for a vote, but never was. However, he presented no facts to show that the board was obligated under the bylaws to do so. Because he presented no proof that the assessments themselves were unauthorized, and a legitimate purpose was evident—to complete the construction work—the legal sufficiency of the court's response to this motion rested on his allegations of bad faith.
Gartenlaub claimed that the board overspent and mismanaged the construction project, it failed to keep owners apprised of the construction progress, and failed to address the problems in his own unit. The court observed that, even if Gartenlaub's allegations were true, they did not rise to factual allegations of fraud or self-dealing sufficient to permit the court to bypass the business judgment rule. Given Gartenlaub's inability to demonstrate the board's lack of authority to impose the assessments at issue, his disagreements with the board's actions were not enough to avoid payment of the assessments he owed.

The court refused Gartenlaub's request for discovery, because he made no showing that such discovery might lead to facts that would serve as a basis to defeat the board's motion. The court dismissed his counterclaim, because he expressed no legal theory in its support.
The court granted the board's motion for summary judgment, with attorney's fees in accordance with the condominium's bylaws.