Jim Graham, a current D.C. Council member and former Metro board member. (Jahi Chikwendiu/The Washington Post)

Metro’s board of directors voted Thursday to reject a request from former member Jim Graham to cover legal defense costs stemming from his involvement in a disputed real estate deal during his tenure on the board.

The decision was a setback for Graham, a D.C. Council member who served on the Metro board for 12 years and is a defendant in a lawsuit by a real estate development company, Banneker Ventures.

Banneker alleges in the suit that Graham (D-Ward 1) illegally interfered in the company’s effort to build a residential and retail development on Metro-owned land in the Shaw neighborhood. A competing developer and Metro are also defendants in the lawsuit, which seeks $100 million in compensatory damages.

A board-ordered investigation of Graham’s actions concluded that he violated Metro’s ethics rules by improperly mixing his roles as a council member and as a Metro board member when he attempted to influence plans to develop Metro-owned land on Florida Avenue NW.

In seeking to have Metro assume his liability, Graham said his actions were within the scope of his duties as a board member and were subject to coverage by the agency’s insurance for “directors and officers.”

But the Metro board voted 6 to 2 in a special session to deny Graham’s request. Before the vote, the board’s governance committee reviewed the matter behind closed doors in an executive session.

Jim Dyke, who heads the governance committee, said in a statement that the panel concluded that Graham “acted outside the scope of his duties” in the real estate matter and “as a result, the board is not authorized to provide indemnification.”

Graham and his attorney, Caroline Mehta, said they disagreed with the board’s decision and would consider what steps to take next. “I’m disappointed in the outcome,” Graham said.

The two board members who sided with Graham were Michael Barnes, a Maryland representative, and Tom Bulger, a D.C. representative.

“If a board member were engaged in embezzling funds this wouldn’t be a close call,” Barnes said. “This is a case of a board member who was acting in a way that we have deemed as a board was not appropriate. But he was acting as a member of this board when he engaged in the activities in which he engaged.”

Bulger said he worried that the decision would set a precedent and might make people less willing to serve on the board. (Bulger is a nonvoting director, but he can vote when the District’s voting director, council member Muriel Bowser (D-Ward 4), is absent, as she was Thursday.)

The controversial real estate deal involved a development, dubbed “The Jazz,” that was proposed for Florida Avenue NW and was to include 103 residential units and about 12,000 square feet of retail space.

According to investigations of the matter, Graham told Banneker representatives in 2008 that he would support their bid to run the D.C. Lottery if the company dropped out of the competition for the Florida Avenue property.

Graham, who left the Metro board in 2010, favored another developer, LaKritz Adler of the District, the company named as a defendant in the lawsuit. In 2011, Metro sold the Florida Avenue property to JBG Cos. for $10.2 million.