Co-op Board Faction Stages Walkout to Prevent Quorum. Or So It Thought....

By Dean M. Roberts

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Oct. 30, 2012 — After the annual meeting and the introduction of new members to the co-op board of directors, there was a change in the majority group on the board — and, as is often the case, disputes arose about policies and decisions. A faction of the board chose not to attend meetings so that the two-thirds requirement for quorum would not be met and the board would be unable to make decisions or pass any resolutions.

After being unable to mediate the dispute, both sides of the board sought our guidance on the legal requirements for quorum and what legal options were available to ensure the board met its duty to address the ongoing business of the cooperative. The question was made more interesting because the co-op in question was a Mitchell-Lama cooperative subject to governmental regulation.

Faction Fractions

In reviewing the cooperative's governing documents, we determined that the bylaws were amended nearly 30 years ago to provide for a two-thirds requirement for a quorum. But the articles of incorporation and its amendments were silent on the quorum requirement.

The court noted that though

the language was present

in the bylaws, the articles of

incorporation superseded it.

It was our legal opinion that only a simple majority of board was required to meet the quorum and that the bylaws were not binding without proper language in the articles of incorporation. This information was presented to the board.

The dissenting board members filed a New York State Supreme Court action as well as an order to show cause seeking an order directing that only a two-thirds majority would be effective. After oral argument of the motion, the court recently issued a decision upholding the opinion that only a simple majority was required under the existing language in the articles of incorporation. The court specifically noted that even though the language was present in the bylaws, the articles superseded that provision.

And so, the board has continued to conduct business and address the cooperative's affairs under the standard of a simple majority.

Legal Lesson

It is important for boards of directors, management companies, and any other entity that uses bylaws to realize that documents other than the bylaws not only affect the governance of the entity, but in many cases supersede the bylaws themselves.

Further, in our representation of clients, especially cooperatives and condominiums, we recommend and conduct reviews of all of the entities' governing documents, preferably before issues arise. In addition, we recommend an ongoing review and amending of the governing documents to reflect changes in law and social customs.

Dean M. Roberts is a partner at Norris McLaughlin & Marcus.

Photo by Carol Ott

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