“The first question in your inquiry suggests that your co-op board president is involved in a business venture with the owner of the co-op’s management company. However, the balance of the paragraph describes this relationship differently. It appears that the only involvement that the board president has is in the nature of having purchased bank stock where the management company’s owner is a principal in the bank. That relationship, without more, does not appear to create a conflict or mandate disclosure. I note, however, that you have failed to indicate the amount of stock the board president has purchased and whether he or she is a minority or majority shareholder. The fact that the co-op’s president has stock in a bank that the management company owner is also a principal owner appears too remote to create a conflict.
“Undoubtedly, board trustees have a fiduciary duty to the co-op shareholders. Siller v. Hartz Mountain Assoc., 93 N.J. 370, 374 (1983), cert. den. 464 U.S. 761 (1983). As such, the trustees must insure that the interests of the shareholders are served. Billig v. Buckingham Towers Condo, 287 N.J. Super. 551, 563 (App. Div. 1996). Thus, the co-op’s president has an obligation to act within the association’s governing documents, which likely includes addressing performance problems of the management company. The bare allegation that the board president is not doing so, in order to “be on the good side of the very wealthy and connected owner” of the management company, without more is just that - an allegation. Such speculative statements are irrelevant without a factual foundation or documentation to support same.
“Another issue is the co-op’s loan refinance at the bank where the management company’s owner is also a principal owner. If, in fact, the bank offered the most attractive terms, the refinance may have been prudent. However, if the co-op board overlooked substantial problems with the management company in order to obtain favorable refinance loan terms, a potential conflict could have existed. If that was not the case, the refinancing, in and of itself, would not be prohibited.
“Is it possible that you can attend a board meeting, or even write to the board, and question the board directly as to why the problems with the management company have not been addressed? You might also want to review a copy of the association’s bylaws, particularly the sections regarding the management company, as well as the sections regarding what each board member is required to disclose in terms of potential conflicts-of-interest.”