Boards Face New Reporting Requirements For Contracts In Which Board Members Have A Financial Interest
Legislation recently passed by the New York State Legislature and signed by Governor Cuomo establishes a new reporting requirement for cooperative boards. Each year, the board will be required to circulate a report to shareholders on the subject of contracts entered into by the board in which a board member has a conflict of interest. The law takes effect on January 1, 2018.
The Business Corporation Law currently contains a provision governing board approval of transactions in which a corporate director holds a “substantial financial interest,” either directly or through an entity. The statute provides that such transactions are valid provided that the material facts regarding the conflict of interest are disclosed in good faith or are known, and the transaction is approved either by the board without counting the vote of the interested director, or by the shareholders. Otherwise, the board may void the transaction unless the other party can establish that its terms were fair and reasonable.
The new legislation does not change the substantive requirements for approving contracts in which a board member has a substantial financial interest, but requires ·that the board keep the shareholders advised as to the existence and terms of any such contracts. At least once per year, the board must submit a report to the shareholders, signed by each director, containing information on all contracts entered into or approved by the Board where there was at least one interested director. The report must include ·a list of all such contracts, and for each contract, must identify the identity of the other contracting party and the amount, purpose, and term of the contract. The report must also record the dates of all board meetings at which the board voted on such contracts, including who was present and how each director voted. If the board approved no contracts during the year in which a director had a financial interest, this must be stated.
As enacted, the new law covers only entities organized as corporations. This includes cooperatives, as well as condominiums that are incorporated (which represent only a small percentage of condominiums), but not unincorporated condominiums. However, it has been reported that the omission of most condominiums is a drafting error and that the Legislature is expected to pass another bill applying the same requirements to all condominiums. We will report on any such legislation in a future Client Advisory.
NEW YORK STATE ADOPTS PAID FAMILY LEAVE LAW
Effective January 1, 2018, private employers in New York State are required to provide paid family leave (“PFL”) and job protection to employees who request time off to (1) bond with a new child, (2) care for a family member with a serious health condition, or (3) address certain family matters arising from military service. The new law applies regardless of the size of the employer or the number of employees.
The PFL requirement applies to any employee with a regular employment schedule of 20 or more hours per week after 26 consecutive weeks of employment. It also applies to employees who work fewer than 20 hours per week after they have worked 175 actual work days (including sick or vacation days, but excluding weekends and holidays not worked).
PFL is available during the first twelve months following the birth, adoption, or fostering of a child. (Under some circumstances it may also be taken to assist in finalizing an adoption or placement.)
PFL is also available to employees caring for a spouse or domestic partner, parent, child, parent-in-law, grandparent, grandchild, or child of a domestic partner suffering from a “serious health condition.” Finally, PFL may be taken to address family or transition issues arising when an employee’s spouse, domestic partner, child, or parent is on active military duty abroad or has been notified of an impending call to duty.
PFL benefits will be administered through each employer’s statutory disability insurance program, typically as a rider to the employer’s existing disability coverage (unless the employer establishes a self-insurance program). Employers may institute payroll deductions to cover the cost of the program, or choose to pay for it themselves. The amount of benefits payable will increase over a four-year period. For 2018, qualified employees taking PFL will receive 50 percent of their average weekly wage, but capped at 50% of the average weekly wage for employees in New York State, for up to eight weeks of coverage. Employers must reinstate employees taking PFL to their former positions when they return to work, and may not discriminate against employees for exercising their PFL rights. The PFL Law and its implementing regulations are complex, and employers with questions should consult with counsel well in advance of the January 1, 2018 effective date.
NOTICE OF PENDENCY STRICKEN FOR FAILING TO PROPERLY SPECIFY THE PROPERTY AT ISSUE
A notice of pendency, or lis pendens, allows the plaintiff in a litigation involving the title to, or use or enjoyment of, real property to file notice in the property records, alerting the public regarding the lawsuit. Because a notice of pendency encumbers the property and may impair the ability to transfer it, there are strict requirements before a notice of pendency may be filed. One of these is that the where the dispute involves only part of a parcel of property, the notice needs to specifically describe the property in which plaintiff claims an interest. A failure to appropriately limit the notice of pendency may warrant its cancellation.
In a recent decision, the Supreme Court, Queens County granted a defendant’s motion to cancel a notice of dependency on this ground. Abruzzi v. Bond Realty, Inc., Index No. 702780/2017 (Sup. Ct. Queens Co. Sept. 15, 2017). The defendant property owner in this case asserted that it was the bonafide purchaser of a parcel of property. The plaintiff claimed an interest in a portion of the property, but filed a notice of pendency against the entire parcel, including portions in which it did not claim an interest. The defendant moved to cancel the notice of pendency on the ground that it was overbroad, because it encumbered the entire property, not just the portion in which plaintiff claimed an interest. In opposition to defendant’s motion, plaintiff argued that he had no choice but to file the notice of pendency against the entire property because the county clerk’s office requires that “A Notice of Pendency must have block and lot number, a description of the property and it must direct the county clerk to index the notice.”
The court granted the motion to cancel the notice of pendency. It was argued that nothing in the county clerk’s directions prevented a filer of a notice of pendency from providing additional information to accurately describe the property in dispute, by expressly indicating that the notice of pendency applies to a certain portion of the property and setting forth a metes-and-bounds description of that portion. Indeed, the instructions require the filer to provide a “description of the property” covered by the notice of pendency.
This case is a reminder that the requirements for a notice of pendency will be strictly construed. (Indeed, filing an unauthorized notice of pendency can result in sanctions, as discussed in the August 2017 issue of this Client Advisory.) The notice must precisely identify the specific property without seeking to overreach – even if preparing the property description is challenging and requires more than just supplying the block and lot numbers. Ganfer Shore Leeds & Zauderer, LLP represented the successful property owner in this case.