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Appeals Court Rejects Tenant-Shareholder’s Breach of Fiduciary Duty Claim Against Cooperative Board Members

Tenant-shareholders who file lawsuits against their Cooperative and the members of the Board of Directors often include claims for breach of fiduciary duty. But such claims may not be filed against a Cooperative, and also may not be filed against the Board members where the only allegations arise from the Board’s collective actions, according to the decision in Hersh v. One Fifth Avenue Apt. Corp., 2018 N.Y. App. Div. LEXIS 5475, 2018 N.Y. Slip Op. 5522 (1st Dep’t July 26, 2018).

The plaintiff tenant-shareholder asserted that her apartment suffered water damage as a result of the condition of the unit above hers.  She sued not only the upstairs unit owner but also the Cooperative and the members of its Board of Directors.  Plaintiff’s complaint asserted several claims, including a claim for breach of fiduciary duty against the Board members, which was the only claim at issue on this appeal.

The appellate court affirmed the dismissal of this claim, because “[i]t 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.”  Applying this standard, the court found that “[h]ere, 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.”

As a general rule, the court reaffirmed that “although participation in a breach of contract will typically not give rise to individual director liability, the participation of an individual director in a corporation’s tort is sufficient to give rise to individual liability.”  However, in this case “there is no viable corporate tort alleging breach of fiduciary duty, because a corporation owes no fiduciary duty to its shareholders.  Thus, in the absence of a corporate tort in which the individual board members could have participated, the breach of fiduciary duty claim against them was properly dismissed.”