Board decisions in New York get a level of judicial deference that most directors do not know they have — and that many boards forfeit by not understanding what earns it.
Boards routinely ask us whether a decision will "hold up." The instinct behind the question is that a court will weigh whether the board chose well. For the most part it will not. The question a New York court asks is narrower, and knowing which question is being asked changes how a board should operate.
Levandusky: what the standard actually is
The governing case is Levandusky v. One Fifth Avenue Apartment Corp., 75 N.Y.2d 530, decided by the New York Court of Appeals on 5 April 1990 in an opinion by Judge Kaye. It remains the single most consequential decision for New York residential boards.
The dispute itself was mundane. A shareholder — who had himself been president of the co-op's board — wanted to realign a steam riser as part of a kitchen renovation. The board denied a variance, he proceeded anyway, the board issued a stop-work order, and he went to court.
The question the Court took up was what standard should apply when a board enforces a matter of building policy against a shareholder. The answer was the business judgment rule.
In practice that means a court will not review whether the board's decision was reasonable. It will not substitute its own view for the board's. So long as the board acted in good faith, in the exercise of honest judgment, and in the lawful furtherance of the corporation's purposes, the decision stands — even where a judge would have decided differently.
That is a strong protection, and it exists for a coherent reason: residential governance involves continuous judgment calls about a shared building, and a regime in which every one of them could be re-litigated on the merits would make boards ungovernable.
Where the protection ends
The Court was careful that this is not a blank check. Levandusky itself makes clear that the rule is not a rubber stamp, and that arbitrary, malicious, or discriminatory acts fall outside it.
Three grounds forfeit the protection:
Acting beyond the board's authority. The most common failure, and the least dramatic. The rule defers to the board's exercise of powers it actually has. Those powers come from the by-laws, the proprietary lease or declaration, and the governing statutes. A board that does something its documents do not empower it to do is not exercising business judgment — it is acting without authority, and the deference does not attach.
Bad faith. Decisions taken for reasons other than the building's interests. Self-dealing, retaliation against a shareholder who has been difficult, decisions taken to benefit a particular director.
Discrimination. Board decisions touching admissions, sublets, alterations, and accommodations sit alongside federal, state, and city fair housing law, which the business judgment rule does not displace. A board applying its criteria inconsistently across similar applicants is generating the record for exactly this challenge. Our fair housing guide for NYC owners covers the substantive obligations; what matters here is that the rule offers no shelter from them.
Fletcher v. Dakota: directors are not automatically insulated
Boards frequently assume that even where the corporation is exposed, individual directors are not. That assumption took a significant hit in Fletcher v. The Dakota, Inc., 99 A.D.3d 43 (1st Dep't 2012).
The case arose from a co-op's refusal to approve a resident's purchase of an adjacent apartment to combine with his own; he alleged the refusal was racially discriminatory and sued the corporation and two directors individually.
The First Department held that there is no principle of corporate law making a director liable only where they committed a tort independent of the corporation's own tort, and reaffirmed the long-standing position that a corporate officer who participates in a tort may be held individually liable. The business judgment rule does not protect a director who engages in discriminatory conduct.
The practical consequence for a sitting director is direct: participating in a board decision can carry personal exposure, and volunteer status does not change that. This is precisely why the indemnification provisions in a building's by-laws and the corporation's directors and officers coverage deserve a board's attention before a claim arrives rather than after — a subject we take up separately in D&O insurance for NYC boards.
Fletcher is a First Department decision from 2012 and Levandusky is thirty-six years old. Both have been applied, distinguished, and discussed extensively since. Confirm the current state of the law with the board's attorney before relying on either in a live matter.
What this means for how a board runs
The rule protects a process, so the process is what a board should invest in.
Know the source of your authority. Before a contested decision, confirm that the governing documents actually grant the power being exercised. This single habit prevents the most common way boards lose the protection.
Record deliberation, not just outcome. Minutes reading "the board denied the application" preserve nothing. Minutes recording the criteria applied, the information reviewed, and the fact that the decision was within the board's stated authority make good faith demonstrable a year later, when memories have gone.
Apply criteria consistently. Consistency is both good governance and the strongest available evidence against a discrimination claim. Inconsistency is the opposite of both. This is a large part of why a defensible board package process matters as much as the decisions it produces.
Recuse where a director is interested. And record the recusal.
Say less about reasons than directors want to. Boards should decide carefully and communicate carefully. Improvised explanations offered in a lobby conversation have a way of becoming the plaintiff's best exhibit.
Where a managing agent carries this
Most of what makes the business judgment rule work in a building's favor is administrative: minutes that record deliberation, governing documents that get read before a decision rather than after, criteria applied the same way each time, and a board that knows when a question belongs with its attorney.
That discipline is central to how we approach co-op board management and condo association management, and it sits alongside the legal and regulatory compliance calendar the building runs on.
If your board is facing a contested decision and is not confident the process behind it would hold up, schedule a consultation or call 718-568-9278.
This article is general information, not legal advice. Case law in this area is fact-specific and continues to develop. Consult a qualified New York attorney about any specific board decision or claim.