How To Deal With Board Members Who Disclose Confidential Information

Legal Talk for Co-ops and Condos

Dean Roberts, Member, Norris McLaughlin, is interviewed by Habitat magazine’s Carol Ott.
Lessons for Co-op & Condo Board Directors

• Duty to maintain confidentiality. If a board member is disclosing confidential information about a shareholder and that causes some harm or damage, in theory, the board has exposure because it failed to do its duty to maintain confidentiality. Or say two directors go home after a board meeting where shareholder litigation was discussed. The directors are riding the elevator, talking about the litigation but, unfortunately, the subject of the litigation is also in the elevator.
• Three step process for violators. A board can deal with violation of confidentiality in a three step process: censure, suspension and removal. Censure is a statement saying director X did this wrong thing. It can be internal to the board, with a memo of what they did, or it can be made public to the shareholders. Suspension means that a super majority of the board votes to suspend the violator for some period of time. Removal of a director is a very big step, because you’re overturning the shareholders’ election of a director. But if you have a director who is consistently breaching protocol removal is an option.
• Board rules. Oftentimes the disclosure is inadvertent, which is why boards have to be conscientious about the duty to maintain confidentiality. They need to know that if they improperly disclose or misuse private information there are clear consequences.

The business of running a building is demanding work that requires making endless decisions — some that can quickly lead your board into a quagmire of legal difficulties. Legal Talk interviews New York's leading co-op/condo attorneys to find solutions, and get some guidance, on these challenges. For more co-op and condo insights, sign up to receive Habitat's free newsletters or become a Habitat subscriber today!