Anyone who practices in the area of cooperative apartments is likely familiar with the “business judgment rule.” In the seminal case of Levandusky v. One Fifth Ave. Apt. Corp.1 the Court of Appeals held that the “business judgment rule” applicable to business corporations also applies to cooperative boards, and as applied prohibits judicial scrutiny of actions of cooperative boards taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes. The business judgment rule provides that a court should defer to a cooperative board’s determination “[s]o long as the board acts for the purposes of the cooperative, within the scope of its authority and in good faith.”2
A recent decision that made for a very interesting read from Justice Arthur F. Engoron of Supreme Court, New York County in Kaplan v. Park South Tenants Corp.,3 held, in granting a preliminary injunction in favor of the shareholder, that the business judgment rule did not shelter the cooperative from the court’s review as to whether the cooperative acted reasonably in refusing to consent to the shareholder’s proposed alterations.
