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Vote of Shareholders

Oct 05, 2018

Steve Wagner, Managing Partner, Wagner Berkow

Every year, I get one or two challenges to co-op and condo board elections, and there actually is a little bit of a dispute among attorneys about how to handle them.


First of all, you have to determine who's entitled to vote. Fiduciaries – such as a guardian, a conservator, or a receiver – do not have to have the shares listed in their name in order to vote. They are unlike trustees, who actually has to have the shares transferred into their names (personal or corporate), in order to vote. So these are some basics.


Vote of Shareholders 

Directors shall, except as otherwise required by this chapter or by the bylaws or certificate of incorporation, be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. (Business Corporation Law, Sec. 614)


Let’s look at the annual meeting. The problem I have been seeing is lawsuits circling around the validity of proxies. The validity of proxies is decided by the inspector of election, who is supposed to be appointed by the board. That person must determine how many shares there are, how many shares are present at the meeting, and who is entitled to vote. And they also check and confirm the validity of any proxies. That's where the big brouhaha seems to arise because there is can bed an issue about fraudulent proxies.


You may also have people with sign-in sheets and if they don't know what they're doing, they'll just take the proxies and hand out ballots and won't sign in those proxies. They have the people who are there in person sign in. You should check to make sure that the voting company has everybody signed in, even by proxy. That way, if you have double proxies, you can determine which proxies and ballots are there, and also the individuals who are there, You don’t want to just give out ballots to everyone. It’s very important to make sure that the sign-in procedure works.


But once those proxies come in and they're voted, there are a few rules that have to be paid closely followed. Number one, if the number of challenged proxies would not make a difference in the outcome of the election, put them aside and leave them. If they would make a difference in the outcome, have the inspectors look at them and make a decision whether they’re valid or not. But if they make no difference, they never have to be reviewed.


When you wind up with double proxies, the proxy controls with the most recent date is the valid one. The thing that's happening these days is that everybody's entering he date of the election, regardless of when they're actually signed the proxy. Sometimes you have more than one proxy with the same date on it.


The issue that I have been facing most recently is finding two or three proxies allegedly submitted by the same unit. Those proxies also have signatures that don't look anything like each other. You can tell from looking at them that one of them or maybe more than one is not right.


The rule in the Business Corporation Law is that the inspectors of election have the right and the power to determine which of them is valid. But their power is limited; they cannot call up the people who allegedly signed them and ask who you they gave proxies to. They are limited to looking at the documents that are within the corporate records. So if it's a co-op, they can look at the proprietary lease; if it's a condo, there might be other documents that may help them.


Looking at records with the assistance of the inspectors of election is authorized by the Business Corporation Law. Some attorneys believe that those challenging an election have to start a lawsuit. I disagree because there's language in the statute that allows the inspectors to do it. And I will ask the people who are challenging an election to give me a letter within a few days. I show it to the inspectors, I review it with them, and they will see what they need to do in order to resolve it – or whether it really is a problem. But there's a procedure that allows the inspectors of election to do that.


There's also a procedure to go to court. There are attorneys who think that you must go to court to allow the people challenging an election to look at the proxies, the ballots, and the records of the corporation to confirm that the people who signed these proxies are, in fact, the people whose names appear on other documents for the corporation or condo. They believe that cannot be done outside of a court proceeding. I think that's a waste of time and money. If there is a challenge to an election, I would encourage the people to come in and look at the records before the results of the elections are certified. And you know what? Sometimes those people are right, and it may change the decision of the inspectors to be shown that the proxies don't match the signatures on record.


If there is fraud or false proxies throughout the election, the inspectors can refuse to certify. That's a good reason for a board to call for a new election. If there is a challenge, it's entirely possible that the old board could remain in control until the dispute is resolved, even if some of them aren't running for re-election. That’s another reason you should have this done at the inspector level rather than going to court. Because the court cases take months, and during that period of time there's a question of who's in control of the co-op.


It’s very important that you have people sign in. I like to see my clients have the proxies checked before the election. One sign of fraud is when somebody comes in with a pile of proxies on election night, even though they've been asked to submit them in advance – and many of the proxies are from the same people who have given proxies to other people. These are things that you should watch out for.


In the end, voting should be about enfranchising the residents – that is, is allowing people to vote – rather than disenfranchising them. You should take the time to do that.

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