The procedures used can mean the difference between
a smooth-running operation and litigation.
Like Scrooge’s visit to Christmas past, few things can be as expensive in terms of money and time as fights over past board elections. A badly run annual meeting or election could live with you and weigh down your building’s budget for years after the meeting; in fact, election litigations have been known to continue long after the disputed board retires. Avoid this nightmare by following a few simple rules for selecting candidates and running meetings that can make even the most contentious election litigation-proof.
Every year, board elections should be held at the annual meeting of every cooperative and condominium. Most cooperatives are formed under the Business Corporation Law (BCL), which has certain requirements for elections and, because the Condominium Act (Real Property Law Article 9-B) does not have similar provisions, the courts usually apply the BCL to condominiums as well. The BCL requires annual meetings. In addition, the bylaws also provide that if 20 to 25 percent of the owners sign a petition to recall the board, the secretary would be required to call a special meeting for that purpose.
Unless the certificate of incorporation, the declaration of condominium, or the bylaws contain specific requirements for the election of managers or directors, the board has the right to establish procedures that must be uniformly applied to all candidates, whether they are incumbents running for re-election or dissidents attempting to have the board members removed. Generally, unless the corporation or condominium has a formal nominating procedure, all of the candidates at the meeting are nominated and each must be seconded from the floor. Alternatively, a procedure can be established in which no nominations will be accepted during the gathering and the candidates are nominated either by themselves or other shareholders beforehand. Many condominiums and corporations even have candidates’ nights so that only the election occurs at the meeting.
At times, a group of candidates may decide to run for the board as a slate. In that case, they would gather proxies and vote them for the members running. At other times, the ballot permits a vote for slates rather than individuals. It is a better practice to list the candidates separately because it allows the voters to select the best candidates rather than be forced to select one slate or the other. However, the argument for the slate is that it enables the winners to work together without the rancor that sometimes accompanies elections.
In contested elections, it is not unusual to have voters sign several proxies and then also submit a ballot. The multiple proxies arise from the shareholders or unit-owners not wanting to antagonize either side, so they placate the person asking for the proxy by signing it. This complicates the tabulation, but should not be a problem because the most recent proxy is the one that counts and, if a ballot is voted at the meeting, the ballot automatically negates the proxy or proxies.
The other complexity is cumulative voting. Under this system, each shareholder multiplies his or her shares by the number of available directorships and can cast the aggregate votes however he or she deems appropriate. Accordingly, if there are five directorships and the shareholder has 100 shares, the shareholder receives 500 votes and can vote them for one person or spread them around the candidates. In straight voting, the shareholder can only vote the 100 shares, but he or she can vote them for up to five people, with each candidate voted for receiving only 100 votes. Shareholders only have the right to vote cumulatively if the certificate of incorporation provides for it. The difficulty of cumulative voting is that it involves a great deal of mathematics: multiplying each shareholder’s shares by the number of available seats on the board and then dividing the results by the candidates for the board for whom the shareholder wants to vote. This can be simplified by allowing the shareholders to allocate the total by using fractions or percentages, but it is still complicated.
Regardless of who is chosen to tabulate the votes, it is a fiduciary duty that must be done carefully and accurately without regard to the outcome. If the tallying is done by the managing agent or the attorney for the corporation or condominium, their attitude must be that it is better to have a fairly run and counted election and lose the client, than have the result overturned by a court because of irregularities. In order to be certain that the tally is accurate, it is imperative that certain rules be followed. Instead of attempting to count the votes the night of the meeting while everyone is in the same room and tired, the ballots and proxies should be sealed in a large envelope and counted the next morning at the managing agent’s office under the watchful eye of the property’s professionals.
Once the tallying is completed, the results should be certified by the inspector of elections and posted. The ballots and proxies are resealed in the envelope and protected until there is a challenge to the results. Hopefully, if you have prepared properly, such a step will not occur – or, if it does, will be unsuccessful.
Stuat M. Saft is a partner in Wolf Haldenstein Adler Freeman & Herz.