UNSETTLING LESSON IN "STRICT LIABILITY" FROM WINDOW GUARD CASE

Achild died from a fall from a Brooklyn cooperative in 1994. The Department of Health inspected the building and found that windows guards in nine of the apartments were improperly installed or that screws holding them in place were loose. Violations were issued and the building immediately corrected all the deficiencies.

Almost two years after the tragedy, the City brought criminal charges against three corporate officers for "failure to properly install and/or maintain window guards."

Stunned at being accused of criminal action, the board petitioned the court to have the criminal charges dismissed. Their attorney argued that as volunteers running the building to the best of their ability, they should not be held criminally liable for building violations where no willful wrong act was committed. But, following the "strict liability" provisions of the law, Judge Kathryn Smith declined to dismiss the criminal charges and sent the case to trial. In a subsequent negotiation, the building's manager pled guilty to a criminal misdemeanor and all charges were dropped against the board members. As is customary in such cases, a fine was imposed and paid by the cooperative.

Many sections of the Health Code, the Fire Code and the Building Code are strict liability statutes, giving the City the option of pursuing owners for criminal as well as civil penalties. When violations are brought against a corporation that owns property, charges are also filed against the individual or individuals listed as responsible for that building on its multiple dwelling registration, which is filed with the City. In this particular case, because the multiple dwelling registration had not been updated to name the current manager, the City pursued the corporate officers.

Judge Smith rejected the board's defense that as volunteers they simply hired the manager to run the building for them. "The decision to prosecute and the determination of what charges are to be brought are solely matters within the discretion of the People," she opined, further stating that, "it is well settled that a corporation acts only through the individuals who act on its behalf, including its officers, and that a corporate officer cannot escape individual criminal liability for violations of the law."

BOARDS MUST BE CONSCIENTIOUS
This widely-reported incident has been a harsh wake-up call for directors and officers of New York cooperatives and condominiums. CNYC joins the chorus of those advising that, while there is no need to panic, board responsibilities are not to be taken lightly.

Boards must pay careful attention to all aspects of operating their buildings. With the help of management and other appropriate professionals,you should develop a calendar of requisite filings, inspections and notices.Document through the corporate minutes when you instruct management to perform each of these tasks, and verify that the work has been done. When problems arise, attend to them quickly.

PROTECT YOUR BOARD WITH FULL INSURANCE
You will also want to review your directors and officers liability coverage,ensuring that the corporation indemnifies directors so that there is no personal exposure and that the D&O policy would cover the cost of a defense in a criminal proceeding such as this one. Several insurers have advised cooperatives that they will not cover costs associated with defending criminal liability cases. Others do provide coverage; none will reimburse criminal fines or penalties.

CNYC SEEKS LEGISLATIVE REMEDY
CNYC is committed to changing the laws that give rise to this unfortunate decision. As this legislation is developed, we will need the grass-roots support of our members to ensure its passage.