Grill, Korman, Schieber and Gise Win Case Impacting Condo Development Liability

A new Appellate Division, First Department ruling has major implications for condominium boards seeking to sue individual members of a sponsor entity for construction defects.

Previously, alter ego claims against individual members of the sponsor entity were justified based on the allegation that the developer, which is often a single-purpose entity, did not maintain separate office space, telephone numbers, staff or email addresses distinct from its members. Individual members of sponsor entities were singled out in scores of breach-of-contract actions over recent years based on these facts.

The Appellate Division has now established real precedent and a framework for dismissing cases based on this argument. In its decision, the Appellate Division unanimously held that “the fact that Sponsor [and its principals] did not maintain separate office space, and that they shared telephone numbers, some staff and email do not in itself support a claim for alter ego liability.”

Principals of a developer entity now have comfort that their personal assets are protected when they use the corporate form to develop a Condominium.

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