The Co-op/Condo Annual Meeting and Cumulative-Vote Confusion

The story begins with a gang of four at a Brooklyn co-op (who will remain anonymous for soon-to-be obvious reasons) who felt the board was a shelf short on honesty pills. They wanted to remove four of the seven board members and consulted with a lawyer on how to do it.

That lawyer was Mark Hankin, a partner at Hankin & Mazel and a longtime co-op attorney. ”They came to me and wanted to know how they could remove the board members,” recalls the attorney. “I told them they needed to call a special election."

To do that, the group had to gather signatures from at least 25 percent of the shareholders – which they did. Hankin then presented the petition for a special meeting to the attorney for the co-op — and was rebuffed. “He said, ‘We’re not going to call a meeting,’” says Hankin. “I said, ‘You have to.’ He said, ‘No, I don’t.’ And we went to court."

After a skirmish before a judge, the dissidents won, and the special meeting was called. At the meeting, “We had 54 percent to remove, opposed to 42 percent to stay,” the leader of the group wrote in an e-mail to Habitat. “At the last moment, when their attorney saw that they were losing, he immediately turned to the BCL [Business Corporation Law], stating that cumulative voting may be used. Our bylaws state that [a] plurality may be used, [and] he bypassed our bylaws and went to the BCL ..."

Cumulative Clouds

Sounds startling, right? A switcheroo worthy of someone employed by a villain more corrupt than Stalin and Rasputin put together. The only hitch is that it’s not true and points out the problem of a layman misunderstanding the law and then getting bent out of shape about what he or she thinks happened.

“The building had always used cumulative voting,” observes Hankin. “There was no last-minute switch. You just can’t do that."

In cumulative voting, the shareholder multiplies his or her shares by the number of board seats being elected (if the board has five directors and a shareholder has 200 shares, then that shareholder has 1,000 votes) and either gives one candidate all the votes or spreads them around. The cumulative method is meant to help a minority of voters to elect a candidate to the board. In regular voting, whichever side has a majority of shares can elect the entire board.

Therefore, although the dissenting shareholders had a majority vote, under cumulative voting, they did not have enough votes to remove all four of the directors they had targeted. They removed one (and she was reappointed to her seat two weeks later by the rest of the board). Although they remain bitter about the upshot, Hankin is sanguine.

Not a Con, Just a Contradiction

“If they had told me that they used cumulative voting, I would have told them they needed more votes,” says the lawyer, who points to an anomaly in their building’s proprietary lease: in one section, it says that cumulative voting will be used — and then in another it says that it will not be used. “I did what I said I would,” he notes. “I told them, ‘I’ll get you the meeting but you’ve got to get the votes.’ They lost because they only got 44,000 out of 70,000 votes. If they had gotten 60,000 out of 70,000, they would have won. They just didn’t get enough votes.” In short, they needed more than a simple majority to win.

The lesson boards should take away from this sad little saga of Stalin-Rasputin maybes-or-maybe-nots? Make sure your proprietary lease and bylaws are consistent, up-to-date, and clear. Otherwise, you could be wasting your time, your energy – and everyone’s money.

 

Adapted from Habitat April 2010. For the complete article and more, join our Archive >>