Does a condominium bylaw restricting the right of a sponsor to elect directors limit the sponsor's right to vote its shares among disinterested candidates for the board? The answer was negative in Ruth Mishkin v. The 155 Condominium, decided last February.
In this case, petitioner sought an order annulling the election for the board of managers held during the 2002 annual meeting of respondent 155 Condominium, and directing a new election. Petitioner was a condominium unit-owner. The condominium is located at 155 East 38th Street, in Manhattan. Petitioner also sought an order directing the condominium to furnish her with the names and addresses of all other unit owners. Respondents cross-moved to dismiss for failure to state a claim. Respondent Gary Dong was the president of the board of managers.
The facts were not in dispute. By notice dated October 2, 2003, the court informed the parties of its intention to treat the motion and cross-motion as a motion and cross-motion for summary judgment. As stated in the notice, the matter depended solely upon the court's interpretation of the condominium's bylaws. By letters dated October 14, 2003, counsel consented.
Section 2.7 of the condominium's bylaws provide for a nine-member board of managers "to be elected by the Unit Owners pursuant to the terms of Section 4.9 hereof." Section 4.9(A) provides, in pertinent part: "When voting for members of the Condominium Board, each Unit Owner (including Sponsor or its designee, for so long as Sponsor or such designee shall own Unsold Units) shall be entitled to cast one vote for each .0001% of Common Interest attributable to his or her Unit(s) per member to be elected."
Section 4.9(C) provides that "[s]ubject to the terms of paragraph (D) of this Section 4.9, all elections of members of the Condominium Board shall be determined by plurality vote."
Section 4.9(D), in turn, provides as follows, in pertinent part: "Not more than ... three members of the Condominium Board shall serve by reason of the votes cast by Sponsor or its designee at any election held after the expiration of the Initial Control Period. However, Sponsor or its designee shall have the right to elect the following minimum number of members of the Condominium Board: * * * (b) two members, for so long as the Common Interests attributable to any Units owned by Sponsor or its designee equals, in the aggregate, less than 35% but more than 15% of the Common Interests of all Units...."
There was no dispute that the condominium's sponsor, non-party Cheltenham Associates, held approximately 17 percent of the Condominium's Common Interests and, thus, came within the foregoing clause. allowing it "the right to elect," i.e., designate, a minimum number of two board members of its choosing. The dispute concerned the extent to which the sponsor could participate in the election of additional board members.
Petitioner argued that a proper reading of Section 4.9(D) permitted the sponsor to designate two board members, as stated, and to vote for only one additional member, in accord with the prefatory clause in that section providing that "not more than three members of the Condominium Board shall serve by reason of the votes cast by Sponsor. . . ."
Respondents employed a drastically different construct. They did not read the prefatory clause as a broad limitation to the sponsor's ability to vote in the board election. They argued that the clause narrowly limited the sponsor's ability to constitute the winning vote for any or all of the various candidates, restricting that ability to "not more than three" candidates (bylaws Section 4.9[D]). In other words, respondents argued that a proper reading of the bylaws permitted the sponsor to designate two (as petitioner conceded) and to vote for any or all of the remaining seven candidates, with the caveat that of those remaining seven, the sponsor's votes cannot be the vote which put more than three of them "over the top."
Respondents urged this construct based on the distinct language: "not more than three members ... shall serve by reason of the votes cast by Sponsor . . ." That is to say, the sponsor may vote for all seven; but of those seven, only as to three can the sponsor's vote be the decisive, plurality-achieving vote.
In adherence to that construct, the December 2002 annual meeting, overseen by respondents, produced the following slate of nine designated and elected board members:
1. Harriet Rosenbluth (sponsor's designee), 2. Nancy Reese (sponsor's designee), 3. John Ansbro (elected, with sponsor's unnecessary participation), 4. Gary Dong (elected, with sponsor's unnecessary participation), 5. Arnold Gitomer (elected, with sponsor's unnecessary participation), 6. John Scelfo (elected, with sponsor's unnecessary participation), 7. Adele Rifkin (elected, with sponsor's necessary participation), 8. Claire Carcich (elected, with sponsor's unnecessary participation), and 9. Jeffrey Haas (elected, with sponsor's necessary participation)
Respondents insisted that the election was proper because, other than the sponsor's two designees, Rosenbluth and Reese, only two managers, Rifkin and Haas, were elected "by reason of the votes cast by the Sponsor...." (bylaws, Section 4.9[D]
The court noted that summary judgment was proper where there was no genuine issue as to any material fact, and a moving party was entitled to judgment, as a matter of law. Interpretation of an unambiguous contract was an issue of law for the court.
A condominium's bylaws constitute a contract with the unit-owners, and were, as all contracts, to be construed in a manner giving effect to all of their terms.
Section 4.9 (A) of the bylaws unequivocally entitled each unit-owner, "including Sponsor," to vote its shares for any candidate. Section 4.9(C) provides that, subject to the terms of Section 4.9(D), all Board elections "shall be determined by plurality vote." This was precisely what occurred at the December 16, 2002 election.
The sponsor voted its 17 percent common interest for each of seven candidates. Up to two of those candidates were permitted by Section 4.9(D) to be elected "by reason of the votes cast by Sponsor...."
In Rego Park Garden Assocs. v. Rego Park Gardens, Inc., an appellate court addressed a sponsor voting restriction similar to the one at bar. Under the offering plan and the proprietary lease, the sponsor was entitled to designate two board members to a five-member board. The offering plan also contained a provision that forbade the sponsor from exercising voting control over the board. The co-op sought a declaration that the sponsor could not participate in the election other than to name its two designees, asserting that, otherwise, the sponsor would be exercising unlawful voting control. The appellate court held that the sponsor was entitled to vote its shares in the election stating that "[t]he mere fact that new directors may be elected with the votes of the sponsor cannot, without more, be equated with exercising voting control as a matter of law."
The court in Rego Park cited another case where the court found that a similar offering plan restriction did not bar a sponsor from voting its shares, absent a showing that the directors for which the sponsor voted "were on the sponsor's payroll or received other remuneration from the sponsor."
Similarly, in Madison v. Striggles, another appellate court held that a provision in a cooperative corporation's offering plan providing that " 'Sponsor will vote its shares so that its votes ... will not elect a majority of the Board of Directors,' does not prohibit the sponsor from combining its votes with those of the other resident shareholders ... to elect three or more members of the five-member Board of Directors," because, "to hold otherwise would deprive the sponsor of its right to vote all its shares."
In the present case, petitioner's construction would dilute the sponsor's right, under Section 4.9(A), to vote its shares; subject, of course, to the limitation in Section 4.9(D) that no more than two such candidates may be elected "by reason of the Sponsor's plurality-achieving vote." Petitioner's construction, severely restricting the sponsor's participation in the election, was incorrect. The case law cited herein protected the right of all shareholders, including the sponsor, to cast their votes in combination with one another.
The court was unpersuaded by the suggestion of respondents' counsel that the fair governance policies enunciated by the courts in Rego Park and Madison v. Striggles were inapplicable, merely because they were decided within the co-op context rather than in the context of condominium elections. Lying at the core of those decisions was the uniformly applicable concern against the dilution of residential voting rights, whether such rights are represented by co-op share ownership, or condominium common interest attributable to unit ownership (By Laws § 4.9[A]).
While it is true that under the Condominium Act, "[t]he operation of the property shall be governed by by-laws" (RPL 339 u), nothing in the Condominium Act serves to inhibit the court's interpretation of condominium bylaws in a manner which preserves those policies while, at the same time, embraces the most reasonable construct, giving effect to all their pertinent provisions.
The court said that the petitioner's reference to the regulations governing condominiums was misplaced. The regulation merely directed that where, as here, the five-year initial control period had expired, the "Sponsor shall disclose that a meeting will be held to elect new board members unrelated to the sponsor. . . ." Petitioner did not allege that any of the board members for whom the sponsor voted were in any way related to the sponsor, let alone "on the sponsor's payroll or receiv[ing] other remuneration from the sponsor."
As respondent Gary Dong attested, during the 12 years that he served on the board, the condominium had been conducting its board elections in the same manner. The sponsor has designated two board members as of right; casting votes, afterward, for the seven remaining, elective, slots, based on its percentage of common interest attributable to its unit ownership (id.). Without advance notice of a change in that practice, and given the propriety of their construction of the bylaws, respondents were correct to continue their practice.
Petitioner's contention that the election should be annulled because she was allegedly denied access to a list of the names and addresses of all the unit owners, is without merit. There is no provision in the Condominium Act requiring access to a list of unit-owners. that, in any event, is available through examination of public deed filings. Therefore, no basis exists to annul the election on the asserted ground of lack of access to owner information.
Finally, petitioner alleged that one unit-owner, Perry Rothenberg, was wrongly precluded from running for the board of managers, on account of his delinquency in paying common charges. While petitioner did not dispute Rothenberg's delinquency, she pointed to Section 2.7 of the bylaws, which disqualified a delinquent unit-owner only "if the Condominium Board has perfected a lien against such Unit Owner's Unit and the amount necessary to release such lien has not yet been paid at the time of such election."
As respondents demonstrated, the ballots contained seven blank nominee spaces, enabling all unit-owners to vote for Rothenberg, or whomever else they might have selected. Indeed, John Ansbro, who was one of those nominees, was not only elected to the board, but presently served as the condominium's president. In the court's view, petitioner, had not presented any basis for annulment of the December 16, 2002 election.
Comment: The decision in this case is being appealed and caution is advisable in relying on its holding because there is recent appellate authority which holds to the contrary and would limit the sponsor's right to use its votes to elect a majority of the board after conversion. These appellate cases hold that where a sponsor has restricted its right to the deciding vote in the election of more than a minority of the board, that restriction will be enforced by the courts.