This year, we faced a number of issues relating to annual meeting elections and specifically the use and delivery of proxies.
In one case, a board of managers of a large downtown condominium building faced a hotly contested election between two factions. Both factions sought and obtained numerous proxies from the unit-owners in an effort to have their slate elected. The problem, however, was that when one faction realized that its slate seemed like it would lose the election, it opted to withhold the proxies and not deliver them to the meeting so that there would not be a quorum. Without a quorum, there could be no vote and that particular faction would remain on the board.
In a second case, a cooperative corporation with a seven-member board of directors was also facing a hotly contested election. For many years, the same four board members consistently had outvoted the other three. After the election was held and the majority faction was re-elected, a board member in the board’s minority faction challenged the results. The challenging board member claimed that one of the board members in the majority faction failed to deliver a proxy to the election. The challenging board member further claimed that, had the board member who received the proxy actually delivered it, a new board member would have been elected and the minority faction, along with the new board member, would have controlled the board.
In both cases, we first needed to determine the duty, if any, of a board member proxy-holder to deliver a proxy to a meeting. We concluded that where a board member solicits a proxy or merely receives a proxy, that board member is legally bound to deliver any and all proxies he or she is holding to the election. Board members of both cooperatives and condominiums owe a fiduciary duty to the shareholders/unit-owners, and to the cooperatives and condominiums themselves. Moreover, when a proxy is given to a board member, the person giving the proxy has a clear expectation that the proxy-holding board member will, in fact, deliver it as he or she was entrusted to do. It is now part of our standard practice to remind and advise our board member clients of their obligation to deliver proxies received by them, and that failure to do so may create unwanted liability.