The By-Laws of a Cooperative provide that the Board of Directors shall convene a special meeting of shareholders on request of 25% of the shareholders.  A group of shareholders submitted a petition for a special meeting to vote on a shareholder proposal and to discuss recent maintenance increases.  The petition was purportedly signed by several hundred shareholders.  The Board questioned the validity of many of the signatures and hired an independent verification company to review them.  In the review by the verification company, “326 signatures were found not to be signed by legitimate shareholders or were duplicates, and therefore invalid, which plaintiffs did not challenge.”  Based on that review, the Board declined to call the special meeting.

Some of the shareholders who had sought the special meeting sued the Board of Directors for acting in “bad faith” in refusing to call the special meeting.  A lower court sustained the pleading of this claim, but on appeal, the appellate court reversed, relying on the Business Judgment Rule, which “bars judicial inquiry into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes.”  The court found no evidence that the directors had not acted in good faith.  In particular, “[e]ven though the use of an independent verification company [to review the shareholder signatures] was not authorized by the bylaws, it also is not prohibited by the bylaws.”  Gonzalez v. Been, 2016 N.Y. App. Div. LEXIS 7950, 2016 N.Y. Slip Op. 8106 (1st Dep’t Dec. 1, 2016).