PROXY FIGHTS: STORIES FROM THE TRENCHES, P.2

 

ATTORNEYS

Geoffrey Mazel
Partner, Hankin, Handwerker & Mazel

A recent challenge I had with election proxies occurred when a board member solicited proxies from many of the shareholders in the building. He had another year left on his term and was not running in this particular election. He was at odds with the board members running for reelection and found two other shareholders willing to run for their seats. He was trying to take control of the board. Most of the shareholders were happy with the current board, however, and believed that, by giving this board member their proxy, they were voting for the incumbents, including the sitting president of many years. It was not until after the election that the shareholders realized that this dissident board member had voted his own slate for his own purposes.

The shareholders were outraged that the incumbents had been voted out of office and felt they had been misled. Fortunately, the two new board members resigned and the ousted incumbents were appointed to their positions.

What did the board learn? When preparing the notice of meeting and proxy package, it would be useful to have a proxy statement and/or a detailed letter of explanation to the shareholders explaining the power the proxy gives the proxy-holder. Another approach would be to include the ballot on the proxy, so the shareholder can direct the proxy-holder for which candidates to vote.

 

Steve Anderson
Partner, Anderson & Ochs

Proxy fights against entrenched boards are hard. A number of years ago, a dozen or so individuals living in a cooperative with 5,000 residents came to me to run a proxy campaign. They said that proxies had not even been allowed in the past at this property, and that they were not sure what type of proxies would be permitted in the upcoming election scheduled for May of that year. After extensive stonewalling by management and corporate counsel, we brought a lawsuit to obtain the right to submit proxies as was, of course, permitted under state statute.
After the board of directors changed the election date from May to October (seeking, we thought, to delay the inevitable), we did, ultimately, obtain a court order permitting shareholders to submit proxies, although the judge acceded to the board's request (for reasons unknown in law) that proxies be notarized. This requirement would mandate anyone soliciting proxies to either be a notary or bring a notary with them, as it were.

Notwithstanding this obstacle, and rather than appeal, leading to more delay, my slate obtained many notarized proxies and we appeared at the annual meeting scheduled to take place in an auditorium one evening in October. Then, a fire alarm literally went off (surprise, surprise) so that all shareholders, many well advanced in age, were forced to stand out in the street in the freezing cold until, lo and behold, it was determined there was no fire. The votes were submitted that night, counted the next day, and even though our slate had won, the board "disqualified" many of our proxies on the grounds that the notarized proxies that were submitted were notarized by a member of the board (whose seat was not up for election that year) aligned with the insurgents, and thus allegedly "interested" in the election. (Who wasn't?) We then brought a second lawsuit in which a court ordered our proxies counted, as well as the seating of our slate of four individuals, thus giving us effective control of the new board.

This exercise played out over a period exceeding six months and required many hundreds of hours of time on behalf of unit-owners and counsel, making clear the power of incumbents to control the process. Fortunately, they failed to prevent a fair election.

 

Lewis Montana
Partner, Levine & Montana

In my experience, the issues that have arisen the most are determining the validity of proxies, and the arguments that ensue when purported proxy-holders deliver them at the meeting of unit-owners. For example, some proxies do not have the name of the proxy-holder filled in or are not filled in completely. Sometimes the same unit-owner will sign more than one proxy form and name different proxy-holders, and the forms are even dated on the same date. It then has to be determined which, if either, of the competing forms will be recognized as effective.

Consequently, boards are encouraged to ask unit-owners to submit proxies in advance of the meeting so that suitable review of the submitted form may be made, and thus not cause delays at the meeting. In addition, the selection of impartial inspectors of election, and educating them as to their duties, has been helpful. The statutes define the inspectors' duties and the formalities that should be followed. Once the inspectors determine the validity of a proxy in particular, and certify the results of an election of directors in general, it is less likely the election results will be subject to challenge.