In a recent case out of New York (Board of Mgrs. Of 325 Fifth Ave. Condominium v. Continental Residential Holdings LLC, 139 A.D.3rd 472 (2017)) a condominium board signed a broadly worded document, releasing the developer and multiple other developer-related entities and their “heirs, executors, administrators, successor and assigns” from claims associated with the construction and design of balconies and their related structures. The Board then sued some of the developer-related entities and individual members of the entities under “alter ego” and “pierce the veil” theories.
The Association argued that the developer-related entities were liable as they were “alter egos” of the developer (entities that were set up to provide a legal “safeguard” for the developer), however, the appellate court sided with the developer-related entities, ruling that the release protected the entities even though they were not specifically named in the release. Further, the court found that the Association’s veil-piercing argument was insufficient, stating that the “law permits the incorporation of a business for the very purpose of escaping personal liability.”
Make sure your association, and their attorney, investigates all potential legal theories and determines all potential defendants before signing a release. Otherwise, your association may find that it released potentially liable parties, even though that was the association’s intent.
